Venture funding vanishing as consumers opt for used, free games
While the previous week may have ended on a high note thanks to a report showing a 22 percent rise in online gaming activity and Louisiana Gov. Bobby Jindal's signing of a new law aimed at giving tax breaks to game makers, findings from a study released Monday show VC funding in the sector is evaporating at an alarming rate.
The good news began Thursday of last week as Louisiana Gov. Bobby Jindal signed six tax incentives into law.
Among the measures aimed at kick-starting the economy in the state by lowering taxes, SB 277 by Sen. Ann Duplessis will expand the current Digital Interactive Media Tax Credit by 5 percent, giving companies a single rate of 25 percent against expenditures and an additional 10 percent for payroll expenditures on residents.
The law, which was quickly heralded by ESA head Mike Gallagher as "helping lead the way in creating the next generation of entertainment innovation in Louisiana" by "expanding the state's computer and video game development and production base," also expands the current definition of digital media to include technology companies.
Industry-tracking company comScore Inc. followed up this good news with a report, which showed a 22 percent increase in online gaming in the United States.
The report concluded that while the total of Internet users remained relatively flat, showing only 2 percent growth, more and more users are flocking to free gaming sites such as Yahoo! Games and EA Online.
For the month of May, these two Web sites attracted more than 37 million unique visitors with the former attracting more than 19.4 million users and the latter making up the remaining share.
However, more impressive and a much truer demonstration of how much growth has occurred in this segment, were companies like GSN Network, which expanded by an astounding 563 percent from the previous period.
ComScore stated that these numbers reflect "the reality of economic challenges" currently affecting the country as households look for ways to tighten their belts.
This also echoes the finding of another recent study, which found that more gamers are opting to purchase a used game over a new one.
Unfortunately the industry was struck with a grim reminder of just how far the current economic crunch has reached on Monday, as Engage Digital found that across six companies for the second quarter of this year, only $16.1 million in venture funding had been raised.
This was a marked decline from the same period last year when 16 companies were able to raise $161 million in investment capital.
These figures coincide with a report from Dow Jones, which found in a year-over-year comparison that venture funding has plummeted from $13.6 billion across 115 funds in 2008 to $5.1 brought in by 52 funds during the first half of 2009.
Sadly this trend is likely to continue as cash-strapped investors continue to pull back on spending.
