CONSTANT DISRUPTION appears to be the new norm in our era. The 2020s have seen us live through and witness numerous crises. While the game industry and its developers are not entirely immune to this ongoing global turmoil, games provide a unique refuge. In times of upheaval, they offer a sanctuary of calm and relaxation.
The interviews and research highlight the following four main trends to pay attention to:
1. Disruption - Super-fast changes and opportunities in technology, platforms, players, monetisation, etc.
2. Uncertainty - Difficulty in forecasting the future at many levels
3. Money - High costs for user acquisition, inflation, low valuations, hesitance from investors and publishers
4. War - Excluding Russian and Belarusian players has decreased revenues for some Finnish developers, although the consequences at the industry level have not been very dramatic.
For years, the European game industry awaited the next major waves of disruption, and the 2020s delivered.
For Finnish game developers, disruption is an opportunity. The last significant game market disruption occurred between 2008-2012 when new mobile digital distribution channels, app stores, and the in-app purchase model enabled the Finnish Game Industry to enter its first golden period, driven by companies like Rovio and Supercell. Thus, it is not surprising that, according to our interviews, Finnish game developers are generally optimistic about the future, even though it seems uncertain now. Uncertainty is the new normal, but it is nothing new for industry veterans. There will be demand for entertainment, and the game industry has proven to be resilient. While there are many similar games on the market, there is always room for niches that are not attractive to big giants but can offer profitable business opportunities for smaller indie studios.
The closure of major game development studios in Finland by global industry giants has mostly had positive consequences for the ecosystem. Due to the acquisitions, original founders have had the capital to reinvest in the local game industry by funding other studios or founding new ones. As there has been a significant talent shortage in the Finnish Game Industry, most employees from closed studios have been recruited by other companies.
Post-pandemic, we have seen a third wave of start-ups emerge. During the past few years, several brave new Finnish start-ups with seasoned founders have emerged, and some older studios have made radical pivots. New technologies, platforms, and business models are now on their radar. Game developers need to be brave and take risks to achieve significant success, especially when the market is saturated. Small, new, and agile start-ups are better equipped to take advantage of emerging opportunities and adapt quickly to changes compared to industry giants.
Market access remains extremely challenging, especially for first-round start-ups. Investors and publishers are more cautious and hesitant. Closing deals takes a long time, and company valuations are decreasing. Low valuations can ruin a company's cap table at the outset, causing increasing troubles for future investments and exits. The burst of NFT and crypto hype did not make investors more confident when it comes to new technology, platforms, business models, AI, etc. The ongoing recession and inflation make investors hesitate even more. At the same time,publishers are looking for bigger development projects, and many won't even start discussions if the development budget is below €5 million, which is a daring budget for many smaller studios in Finland. As rising investments, negotiating publisher deals,and recruitment all take longer, they also drain resources away from actual product development.
New business opportunities do not immediately lead to new employment opportunities. Partly due to the lack of investment, smaller Finnish game developers are hesitant to hire new people. For many, there is just too much uncertainty to make long-term commitments. One of the trends seems to be that some companies outsource their activities instead of hiring new people. However, the ongoing disruption is probably partly due to new generations of players entering the market. Fortunately, established Finnish companies can hire more juniors because they have better resources to support them.
In response to Russia's invasion of Ukraine, Finnish developers decided to withdraw from Russian markets. This caused economic challenges for some Finnish game developers. However, it did not have an impact on the total turnover of the local game industry. The Finnish Game Industry stands united in supporting our Ukrainian friends and colleagues. The current world situation and sanctions have forced developers not only to reconsider their target markets but also to choose their partners more carefully. All in all, wars, digital trade wars, and protectionism are making global game markets increasingly unpredictable for game developers.