Goodbye 2025, Hello 2026

As we look forward to 2026, my partners and I are genuinely optimistic about what lies ahead for the digital entertainment industry. While 2025 was a key inflection point that demanded patience and discipline from everyone in the ecosystem, the post-pandemic contraction appears to be largely behind us. Growth has returned and the building blocks for the next phase of industry expansion are becoming clearer. Many of these—AI-native development, new distribution models, the rising strategic value of community—have been central to our investment thesis at Transcend for years. Following the industry's first contraction in decades, 2025 represented a necessary recalibration but it also marked the beginning of something new.

Growth Returns

The data tells an interesting story. Total interactive entertainment revenues reached approximately $250 billion, growing in the range of 3% to 5% year-over-year—a welcome return to growth after a 7% cumulative decline across 2023 and 2024. Mobile gaming, the largest segment at an estimated $116 billion, returned to growth at roughly 5.5% after periods of uncertainty, driven substantially by IAP spend and the continued strength of Asian publishers. PC showed particular vigor, with Steam on track for a record year exceeding $16 billion in revenue. Console, meanwhile, presented a mixed picture: software remained robust while hardware sales declined sharply—projected down 31%—as the market anticipated new devices. The standout moment here was the June launch of Nintendo Switch 2, which drove Nintendo's revenue up 2.5x year-over-year in Q3, demonstrating once again how new hardware cycles can reshape competitive dynamics almost overnight.

AI Inflection Point

The defining characteristic of 2025, however, may prove to be the increasing integration of AI across game development and publishing. What began as experimental tooling has rapidly become integral to how studios conceptualize, produce, and operate their products. While not without controversy, the implications extend well beyond efficiency gains. AI is reshaping the economics of how games are made, enabling smaller teams to achieve production values previously reserved for the largest publishers while simultaneously raising the bar for what audiences expect. While it makes games cheaper to build, AI may also make cheap games impossible to sell. This kind of technological shift is precisely what creates generational investment opportunities for those positioned to recognize them. By some estimates, companies that successfully integrate generative AI into strong intellectual property may command valuation multiples 2-3x higher than peers.

Macro Headwinds

The macroeconomic environment continued to exert pressure across the ecosystem. Workforce correction persisted at historic levels as companies moved decisively away from the "growth at any cost" strategies that characterized the earlier part of the decade. Looming US tariffs threatened to increase console hardware costs by as much as 40%, introducing fresh uncertainty into traditional console cycle planning. Consumer price sensitivity remained elevated, with surveys indicating that more than 75% of players weigh price heavily in purchase decisions and many waiting for discounts before buying.

Capital Concentration

The investment landscape shifted accordingly. Transaction activity was dominated by mega-deals, most notably the $55 billion public takeover of Electronic Arts in late 2025—the largest all-cash sponsor-led leveraged buyout in history. Early-stage investments, meanwhile, reached their lowest quarterly deal volume in five years as venture capital attention pivoted from pure content studios toward infrastructure and AI. For early-stage investors, 2025 reinforced a fundamental reality: domain expertise matters enormously in power law businesses. As capital became more selective and Series A Crunch dynamics persisted, the gap between generalist and specialist investors widened. Companies with credible paths to category leadership continued to attract capital and attention. Those without found the market unforgiving.

Distribution As Strategic Imperative

In this maturing environment, distribution has become a critical strategic imperative. While core gamers might disagree, how games reach players is now as important as the content itself. The good news is that the levers for renewed growth are coming into focus. Mastery of contemporary discovery surfaces—TikTok, Discord, UGC, digital storefronts, communities, performance marketing—will define the leaders of the next generation of digital entertainment. Teams that harness these vectors stand to capture category-defining value. Below you can see several examples across the Transcend portfolio that are already doing precisely that. Watch this space.

Built For This Moment

At Transcend, we purpose-built our firm to thrive in precisely this environment. The team’s deep operator experience across every major platform and business model transition of the last three decades allows us to identify exceptional teams and help them navigate the zero-to-one phase with pattern recognition earned through decades of building businesses and shipping games. We continue to be deeply optimistic about the long-term trajectory of the industry even as we acknowledge the genuine difficulty of the current moment. The secular trends underpinning the expansion of digital entertainment remain intact: global demographics continue to favor interactive entertainment, the possible surface areas continue to expand, and AI innovation adds considerable new fuel. This remains a massive, vibrant industry undergoing necessary adjustment rather than structural decline. 

Moments like this—when markets recalibrate and conventional wisdom gets tested—are precisely when the next generation of industry leaders emerges. It is a privilege to partner with founders who see opportunity where others see obstacles. We're excited about what 2026 will bring.

Key Portfolio Updates

Here are just a few of the notable achievements we celebrated across the Transcend portfolio in 2025:

🧠 Brain Jar Games | Discovery & Distribution Dead as Disco debuted with remarkable trajectory garnering over 700K Steam wishlists, 180M+ TikTok views, 1M+ demo players, and a 98% overwhelmingly positive review score. The demo achieved exceptional engagement metrics, including average playtime approaching two hours per player. While still in development, the studio is hitting discovery and engagement levels that rival many successful launched products.

💀 Stress Level Zero | Top Ranked For 7 Years Running Both Boneworks and Bonelab achieved Steam Best of 2025 Gold, marking the seventh consecutive year the studio has been ranked on this prestigious list—an extraordinary streak of sustained excellence. In addition, Bonelab ranked #6 on the Meta Quest store for 2025 and secured the #10 position among best sellers of all time on the platform.

🎮 KGeN | $13.5M Funding Round Raised a $13.5M strategic round, bringing total funding to approximately $43.5M and supporting its infrastructure and verification protocol for gaming across more than 60 countries, 38.9M users, 200+ partners, and over $48.3M in annualized revenue.

​✨ thatgamecompany | Sky Cinema and The Two Embers Sky: Children of the Light introduced Sky Cinema, a new in-game venue featuring The Two Embers—a two-part, dialogue-free animated feature telling the intertwined story of two children whose choices shape a crumbling kingdom. Built on real-time streaming technology that allows thousands of players to watch together, it represents yet another boundary-pushing innovation from this iconic team.

☀️ Midsummer Studios | Game Changers Award 2026 Midsummer was selected by an all-star panel of judges as one of the 25 most innovative startups reshaping the gaming and interactive media industry. Featured by NASDAQ in Times Square, the studio is building a revolutionary narrative sandbox where player stories are grown and shared. 

🧠 Brain Jar Games | Game Changers Award 2026 Brain Jar was also recognized as a Game Changers winner and featured by NASDAQ in Times Square, a fitting spotlight for a team building one of the most anticipated new titles in gaming.

💀 Stress Level Zero | Major Retail Expansion Bonelab gift cards launched at major retailers including Target, Walmart, and GameStop, marking the company's first significant physical retail presence for VR content distribution. 

🏝️ Treehouse Games | Voyagers of Nera Early Access Launch Launched Voyagers of Nera into Steam Early Access, earning a Very Positive score (83% positive) with over 1,500 reviews in three months and climbing. Wishlist numbers continue to grow, now exceeding 400,000.

♣️ PokerSkill | Live on iOS & Android Successfully launched PokerSkill on both iOS and Android platforms, bringing their video-first poker learning experience to mobile users.

🎰 Big Run Studios | Sweeps Night Launch Launched Sweeps Night, the ultimate sweepstakes casino, built by adapting the proven mobile gaming mechanics behind hits like Blackout Bingo into a sweepstakes-style social casino experience.

🔫 Ruckus Games | Flagship Title Announced Ruckus formally announced The Holdouts, a co-op third-person suburban invasion shooter now available to wishlist on Steam. Players will fight back, scavenge, craft, and build a home in a warped new reality—the studio's next step following their successful Series A in 2024.

🤝 CXO Connect at GDC 2025 The Transcend CXO Connect event at GDC 2025 was once again extremely well received, gathering key decision makers and industry pioneers from across the games industry. Special thanks to our sponsors J.P. Morgan, Bain & Company, Wilson Sonsini Goodrich & Rosati, Sequoia, and Microsoft for making this possible.

2026 Conference Schedule

If you would like to connect with the Transcend team in the coming months, our preliminary conference schedule includes:

🇨🇭 World Economic Forum | January | Davos, Switzerland

🇬🇧 Pocket Gamer | January | London, UK

🇸🇦 LEAP Conference | February | Riyadh, Saudi Arabia

🇺🇸 D.I.C.E. Summit | February | Las Vegas, USA

🇵🇹 Devcom Leadership Summit | February | Lisbon, Portugal

🇺🇸 Game Developer Conference | March | San Francisco, USA

🇺🇸 Milken Global Conference | May | Los Angeles, USA

🇨🇳 ChinaJoy | July | Shanghai, China

🇩🇪 Gamescom | August | Cologne, Germany

🇯🇵 Tokyo Games Show | September | Tokyo, Japan

🇵🇹 Web Summit | November | Lisbon, Portugal

🇰🇷 G-STAR | November | Busan, South Korea

🇫🇮 SLUSH | November | Helsinki, Finland

🇬🇧 Wiggin Games Summit | December | London, UK

Please feel free to reach out via our website or on LinkedIn. We look forward to connecting with you in 2026!

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About Transcend

Transcend is a top performing early stage venture capital firm investing globally in digital entertainment.

Founded in 2020 by gaming veterans, Transcend continues to gain momentum as the preferred partner of the industry's most ambitious and accomplished entrepreneurs working to transcend the boundaries of games and digital media.

If you would like to learn more about the Transcend market view, strategy, or portfolio please follow us on LinkedIn.

About Shanti Bergel

Shanti is the founding partner of Transcend and a 34 year game industry veteran.

His global operating experience spans every major platform and business model transition of the last several decades and is animated by a career-long fascination with how changes in technology and distribution affect products, services, and communities.

Shanti is a recognized member of the Techcrunch List, speaks fluent Japanese, and is a frequent speaker on early stage investment, M&A, and strategic partnerships in digital entertainment.