LatAm

Earlier this month, we released our quarterly Gaming Industry Report (Q2 2023) - our analysis of the gaming market in Q2 2023 covers industry-specific trends in venture capital funding, public market data, and qualitative themes our team is currently monitoring. Included in the report is a breakdown of the gaming venture capital activity by region - North America, Asia, Europe, Australia, South America, and Africa.

While not independently segmented in our report, Latin America is a region that we would like to highlight this week. For the purpose of this report, “Latin America” will include South America, Central America, Mexico and the islands of the Caribbean. 

Latin America and gaming

Key stats of the Latin American gaming market:

• Market size: The Latin America gaming market is approximately $2.7b and is estimated to grow 10% YoY through 2028 (to $4.3b)
• # of gamers: In 2022, there were ~316m gamers in Latin America (growing 5% YoY). 
• # of payers: These gamers are monetizing - a report by Visa and Newzoo revealed that 82% of Latin American and Caribbean individuals play games and 80% (vs the global average of 69%) spend money on video games ‍
• Play time: Latin American gamers, on average, spend 1 hour and 12 minutes playing games a day. This is comparable to North America (1 hour and 14 minutes) and APAC (1 hour and 17 minutes). According to Pesquisa Games Brasil (PGB), almost half (51%) of Brazilian gamers spend more than 20 hours per week playing. ‍
• Platform: Latin American gamers primarily play on mobile devices. According to a survey by PagBrasil, the mobile gaming market in Brazil generated revenue of 1.65b in the previous year (Mordor Intelligence)‍
• Unique discovery methodology: Game content discovery in Latin America has a distinct, influencer-led culture. Roughly one in three internet users follows an influencer (Future) and these influencers distinctly influence how games are discovered. 39% of gamers say that they discover games through online video channels, 38% via social media networks, 35% via influencers, and 33% through word-of-mouth (Visa Report). It should be noted that all of these discovery methods can have some connection to  influencers (though not exclusively)..

Venture Capital ecosystem

Despite the strong gaming population in Latin America, when looking at the gaming venture capital ecosystem, funding for Latin American companies has been lagging. Between 2019 and Q2 2023, there have only been 21 reported companies that have received venture capital funding ($260m), with 23 announced deals done. For context, Australia has had 33 deals done (~$400m). Note the lack of companies that have received multiple rounds of funding (2).

‍There have been more studios funded than technology & platforms companies: 13 of the 21 funded companies since 2019 have been studios.

Factors of growth in Latin America

There are 3 primary tailwinds that we would like to call out for this region:

• Growing smartphone user adoption: Over 70% of the population in Latin America owns a smartphone, at a baseline increasing access to mobile gaming. Smartphone penetration is expected to increase to 83% by 2025 (Mordor intelligence)‍
• Network effects of an influencer-led culture: As we have seen from platforms like Twitch and YouTube, social is an important component for gamers when choosing what games to play. Joining an existing community of gamers is a compelling reason for a new player to try a game.
  
  Latin America is interesting in that it has a similar influencer density (proportion of influencers to the total population) to the United States - about 3%. For context, Europe is just 1.6% (Influencity). One out of every 3 internet users in the region follows an influencer (Future). Specifically, gaming has uplifted several gaming influencers from the region to have comparable followings to some of the top North American gaming influencers. JuegoGerman and Fernanfloo both have 48.2m and 46.2m YouTube subscribers respectively. While this is less than top channels like Mr Beast (169m) and PewdiePie (111m) - which both have expanded outside of gaming-specific content - these followings are greater than other top gaming influencers like Ninja (24m) and Markiplier (35m).

• ‍Strong and growing youth population: The Organisation for Economic Co-operation and Development (OECD) data defines youth as individuals younger than 15. Note that this includes both Gen Z and Gen Alpha. OECD estimated that 20.6% of Brazil’s population and 25.4% of Mexico’s population are defined as youth in 2021. These two countries are the largest countries in LatAm by spend and by gamers. This proportion of youth is higher than in the United States, Canada, and the United Kingdom (18.2%, 15.7%, and 17.7% as of 2021 respectively). As we highlighted in our newsletter on Gen Z, younger generations are playing video games at higher rates and have the potential to be stronger spenders than older generations.

However, this region is also marred by unique challenges:

• Low economic growth: Projections by the Economic Commission for Latin America and the Caribbean (ECLAC) indicate that all the subregions of LatAm will experience lower economic growth (GDP) this year compared with 2022, expected to be 1.2% (ECLAC). 
• Talent outsourcing: There are many talented developers located in Latin America, however, this talent is often outsourced to studios or publishers outside of the region. Brazil for example, is known for games conferences such as BIG and Brazil Game show, as well as the studio, Wildlife. However, given the instability of the currency over the past 3 years, many studios and independent developers have shifted their focus on work for hire, or working for studios outside of Latin America.
  
  We believe that as policies shift, inflation is reduced, and currencies are stabilized, talent will be better retained in the region and growth of the gaming market will recover.‍
• Payment infrastructure instability: Similar to problems with payments infrastructure in Africa, there is high friction in payment processing in Latin America. According to Visa and Newzoo’s report, half of gamers in Latin America and the Caribbean cancel a purchase when they run into issues. These gamers prioritize speed, ease of use, and security; roadblocks from declined payments, limited payment options, or unexpected fees have a significant impact on payer conversion.

‍Takeaway: Latin America has a strong gaming population, however, its potential has not yet been realized. While a majority of internet users are gamers and 80% of these gamers are payers, they are converting at low spend, resulting in a smaller market. This region has the potential to catch smartphone adoption tailwinds, as well as a growing young gamer population.