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Investors abandoning social games

Investors abandoning social games

October 8, 2012 | By Eric Caoili

October 8, 2012 | By Eric Caoili
More: Console/PC, Business/Marketing

Players aren't the only ones abandoning social games -- investors are cooling off after last year's boom in the market, and are making fewer deals and putting less money into the sector in 2012.

In the first nine months of 2012, investments in game companies have generated $591 million, according to a new report published by digital investment bank Digi-Capital. That's on track to reach the same level as 2010's numbers but far behind 2011's record of $2 billion for the entire year.

There have been 130 transactions this year so far, which isn't bad compared to last year's 152 transactions, but the average value of those deals in 2012 is $4.5 million, almost a third of 2011's $13 million average.

Digi-Capital says that decline comes entirely from the Social/Casual space. That sector accounted or 57 percent of last year's total investment value and 32 percent of its transaction volume, but Social/Casual has only made up 8 percent of 2012's value and 11 percent of its volume so far.

Cowen and Company analyst Doug Cruetz recently noted that social game audiences have been shrinking this year, as many of them are jumping to mobile games. A number of social game developers like Zynga have noticed this trend, and have made efforts to adjust their output accordingly.

Digi-Capital points out that Zynga's IPO last December was the apex of investments in the social games market, and now VCs are "moving sharply away from that sector." It believes the social games space is a consolidating sector, and that the wave of investments in that market appears to be over.

The group identified a few other trends with investments, mainly that Kickstarter crowdfunding is now complementing traditional venture capital funding, and that free-to-play MMOs continue to attract backers (they made up nearly a quarter of the year's total transaction value, though only a tenth of the volume).

Meanwhile, mergers and acquisitions in 2012 are in the opposite position of investments this year -- companies have spent a record amount buying up studios, $3.6 billion, already more than 2011's $3.4 billion even though there's still three months left in the year.

The number of mergers and acquisitions transactions has reached 71 this year so far -- fewer than the 113 reported in the entire previous year, but its average transactional value is $51 million versus 2011's $30 million average.

Most of the recent and largest transactions have come from Chinese, Japanese, and South Korean firms. Similar to Western companies, those Asian firms have been primarily looking to make grabs in the mobile social, free-to-play MMO, and middleware spaces.

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