Investing in the Gaming Industry: A beginners guide (Part 2)

So last week I talked about the different types of investors and their motivations and goals. This week I’ll take a closer look at the four main investment strategies and break them down.?

But before we do that let’s take a look at the two main ways investors can inject capital: Studio vs Project Investments! While both provide studios with resources to bring their games to life, they target different aspects of the development process.

Studio Investments: Backing the Talent Behind the Games

Studio investments focus on the development studio itself, not a specific game. Investors become like long-term partners, attracted by the studio's past successes, the talent and vision of their development team, and their overall plan for the future. Essentially, they're placing a bet on the studio's ability to consistently create high-quality, profitable games.

For studios, this translates into access to significant capital. This funding can be used for game development, marketing efforts, or even studio expansion. Additionally, the long-term partnership with an investor can bring valuable guidance and support, propelling the studio towards sustained success.

Investors, on the other hand, benefit from the potential for long-term growth. By backing a talented studio, they gain a diversified portfolio of successful games over time. This investment could ultimately lead to a lucrative exit strategy, such as the studio being acquired by a larger company or a profitable IPO (Initial Public Offering). Imagine a venture capital firm recognizing the potential of a rising indie studio, renowned for their innovative and critically acclaimed games. By investing in the studio itself, they're not just betting on one project, but on the studio's ability to continue creating groundbreaking titles.

Project Investments: Fueling Specific Game Ideas

Project investments, on the other hand, target a specific game currently under development by a studio. Here, investors are laser-focused on the potential of the individual game itself. The game's genre, target audience, mechanics, and overall marketability are all scrutinized to assess its potential for success.

For studios, project investments provide the fuel to bring a specific game concept to life. This funding allows them to take on more ambitious ideas or expand the scope of an existing game, potentially leading to a more polished and successful final product.

Investors looking for high returns are often drawn to project investments, especially angel investors or publishers. Imagine a publisher investing in the sequel to a popular game franchise. With a built-in audience and a proven track record of success, this type of project investment offers the potential for significant profits if the game is well-received. The best type of investment for a studio depends on their specific needs and long-term goals. Early-stage studios with a promising game idea might benefit more from project investments to get their initial project off the ground. Established studios with a proven track record, however, could attract studio investments that fuel their long-term growth and solidify their position in the industry.

Now that we have an understanding of those two main ways of investment, let’s explore the four main investment strategies, the investor's desired outcomes and suggest the best fit for development studios.?

1. Content is King (or Queen): Content-Driven Investment

This strategy focuses on the game's story, characters, and overall world. Investors here are looking for studios with proven storytellers and a knack for capturing player imagination. Think narrative-heavy adventures or innovative indie darlings with high potential for building a trans media IP.

Investor's Desired Outcome: High critical acclaim, awards, and a passionate fan base that translates to strong sales and potential sequels or adaptations.

Best for Studios: With a unique and compelling narrative vision, a strong track record of storytelling, or a talented writing team.

Example: Telltale Games, known for their narrative-driven adventure games like The Walking Dead and Life is Strange, is a prime example of a content-driven studio. Their games have garnered critical acclaim and a devoted fanbase, even though the gameplay mechanics themselves might be simpler.

2. Building Blockbusters: Product-Driven Investment

This approach emphasizes the game itself - its mechanics, gameplay loop, and overall polish. Investors back studios with a history of creating high-quality, fun-to-play experiences, often in popular genres like shooters or open-world games.

Investor's Desired Outcome: Strong commercial success, high sales figures, and potential for long-term franchises with sequels and microtransactions.

Best for Studios: With a proven ability to create commercially successful games, a strong understanding of player psychology, and a focus on tight gameplay mechanics.

Example: Naughty Dog, the developers behind the Uncharted and The Last of Us series, exemplifies the product-driven approach. Their games are known for their high production value, engaging stories, and finely tuned gameplay, leading to massive critical and commercial success.

3. Distribution Domination: Distribution Model-Driven Investment

Here, the focus is on how the game gets to players. Investors are interested in studios that can leverage innovative distribution models, like subscription services or mobile platforms, to reach a massive audience.

Investor's Desired Outcome: Rapid user acquisition, high engagement metrics, and potential for ongoing revenue streams through subscriptions or in-app purchases.

Best for Studios: With expertise in mobile development, experience with free-to-play models, or a strong understanding of emerging distribution platforms.

Example: Supercell, the mobile game developer behind Clash of Clans and Clash Royale, is a leader in the distribution model-driven approach. Their games are free-to-play with in-app purchases, allowing them to reach a vast audience and generate significant revenue through strategic distribution on mobile platforms.

4. Backing the Champions: Company-Driven Investment

This strategy bets on the overall talent and leadership of the development studio itself. Investors here are looking for studios with a history of innovation, a strong team, and a clear vision for the future.

Investor's Desired Outcome: Long-term growth, a diversified portfolio of successful games across genres, and potential for the studio to be acquired by a larger company.

Best for Studios: With a proven track record of creating successful games across genres, a strong development team with a variety of skills, and a clear vision for the future.

Example: Valve Software, the creators of Half-Life, Portal, and the Steam digital distribution platform, represents the company-driven approach. They consistently deliver innovative and critically acclaimed games while also revolutionizing game distribution through Steam. Their diverse portfolio and strong leadership make them an attractive investment.

Choosing Your Path: Which Strategy is Right for You?

So, which strategy should your development studio consider? It depends on your unique strengths, timings and goals.

• For studios with a killer concept and a passion for narrative, content-driven investment can be a good fit. However, be prepared for a longer development cycle and potentially higher risks.
• If you excel at a specific genre and can consistently deliver polished experiences, product-driven investment might be the way to go. This approach offers more predictable outcomes.
• Studios with innovative distribution ideas or a strong focus on community building might find success with distribution model-driven investment. However, convincing investors of your model's scalability can be challenging.
• For established studios with a proven track record and a talented team, company-driven investment can provide the resources to pursue ambitious projects. However, this strategy requires a strong vision and the ability to navigate a competitive market.

Remember, these strategies aren't mutually exclusive. Many studios combine elements of each approach. The key is to identify your core strengths and align them with the investment strategy that best supports your vision for the future.

By understanding the different investment landscapes, you can position your studio for success and attract the right partner to help you level up your game.