Private funding for games companies is down 60%

Games Investor Consulting's Nick Gibson has said that the games industry is not recession proof after all, and MMOs may be the way to go.

Gibson reports that private funding for games companies declined 60 percent in 2008 and into this year, and in 2007, investment was down 70 percent. Due to the current economic climate and banks not lending money to small and medium businesses, he predicts it will only get worse.

"The bullish industry insider may be thinking that the relative success of games would act as a beacon to attract investors and lenders, but this is not proving to be the case," he wrote. "There are a variety of complex reasons for this.

"Most investors will have less capital to invest than they did a year or two years ago, many will be spending a higher than expected proportion of their available capital on ensuring their existing investments stay afloat and they will also have become incredibly risk-averse, making new investments within their comfort zone only.

"Given that few investors really understand the games sector, and so many distrust it, this will have left few investors willing or able to take a punt on a privately-held games company."

Gibson points out that $4 billion has been invested in the smaller owned games companies and enabled innovation that big publishers would never even consider backing. Over 60 percent of that $4 billion has gone into network and online gaming.

He goes on to say that the MMO and virtual world markets can actually boast sustainable business models, so any venture capital fallout should be less harsh than normal.

More through the link.