The Read · Issue 01 · We See Farther

As the industry gathers in San Francisco for GDC 2026, we're sharing our current read on where the games investment opportunity actually lives, and where conventional wisdom is getting it wrong. Every year, our team works to connect the rooms where our industry's investment decisions get made. From Davos to Shanghai, London, Tokyo, Istanbul, Saigon, Helsinki, Bangalore, to Seoul and San Francisco, we speak regularly with LPs, founders, and strategics building across every segment of the market. The data available to anyone looking at this industry right now tells two different stories simultaneously. We think understanding both, and why they point in the same direction, is the whole argument. We've seen this pattern before. The data that looked like termination in 1983 was transition. The Atari crash didn't end gaming - it cleared the field for the companies that would define it. The question then, as now, is how you read and respond to a market reset.

The Industry Is Restructuring

The gaming market is growing toward $353 billion by 2030, PC is the fastest-growing major platform globally at +10.4% YoY, and Steam premium game revenue has risen 50% since 2022. At the same time, roughly 44,000 jobs were cut across the industry between 2022 and 2025, and private studio funding fell by more than 55% last year by both dollars and deal count. Both sets of facts are true. Most observers treat them as contradictory. We think they're the same story told from two vantage points.

The layoffs and the funding contraction are not evidence that the gaming market is shrinking - BCG, Sensor Tower, Bain, and PwC all show it isn't. They're evidence that the incumbent cost structure that built the last decade's games is being dismantled. Ubisoft, Sony, and Microsoft didn't cancel pipelines and shutter studios because players stopped playing. They did it because $200 million development budgets against a market that rewards novelty on PC and habitual franchise repurchases on console stopped making economic sense at scale. The gaming winter was supply-side, not demand-side. The players didn't leave. The bloated overhead did.

For a fund investing at pre-seed and seed, this distinction is everything. The funding collapse means less competition for early deals and entry valuations at pre-boom levels. The talent release (44,000 people who shipped the last decade's defining games, now available to join or found independent studios) is the best recruiting environment for early-stage companies in the industry's history. The incumbent retreat is the competitive white space. These are the conditions under which the best vintage years get made.

We've watched this play out before. In 1983, the market read the Atari crash as the end of gaming. Retailers were burned out, publishers were decimated, and the consensus view was that video games were a fad whose time had passed. That same year, in May 1983, Electronic Arts launched with a campaign called "We See Farther," positioning itself not against the wreckage but inside it. Two months later, Nintendo shipped the Famicom in Japan. The companies that would define the next four decades of the industry didn't wait for the recovery. They moved into the correction. That distinction is the whole argument.

Incumbents are retreating at exactly the moment the underlying market is growing. The gap they're leaving is where new companies get built. We've been building into that gap since 2020, and the current environment is the clearest validation of that timing we've seen.

Capital Is Reshuffling, Not Disappearing

The most important structural observation from this year's D.I.C.E. Summit, confirmed across every investor conversation we've had since, is that capital hasn't left gaming. It has migrated. The "tourism capital" that flooded in during 2021-22, generalist funds chasing pandemic-era engagement metrics, has largely exited. What's emerged in its place is a meaningful wave of project financing, revenue-based structures, and publisher deals with equity kickers. The capital stack for gaming studios looks fundamentally different today than it did three years ago. This structural shift creates both a challenge for companies accustomed to traditional VC paths and an opportunity for investors with flexible capital and operating expertise.

The market is rebalancing from valuations earned in a prior era to those with durability in a new one.

For founders, the path to growth funding is narrower but more clearly defined than it's been in years. For F2P studios approaching Series A, the threshold is strong D90+ cohort data with revenue traction that goes beyond engagement metrics. For premium studios, it's a playable demo that can anchor publisher co-investment conversations. The ambiguity of the 2021 market, where enthusiasm and narrative could substitute for fundamentals, has been replaced by specificity.

We've also seen Asia re-emerge as a meaningfully more optimistic co-investor pool than the US and Europe. Shift Up's blockbuster IPO and Black Myth: Wukong's 1.4 million concurrent player launch are data points that resonate with Asian capital in ways that don't fully translate in Western LP conversations. We're leaning into our network there for downstream round support across the portfolio.

PC Gaming Structural Openness Is Real & Underexploited

The divergence between PC and console as investment contexts is one of the clearest signals in current market data, and it's one most investors haven't fully priced in. The 2025 charts make the contrast stark. On Steam, indie and new IP titles accounted for over 25% of revenue, and the top-grossing releases skew heavily toward original franchises - Monster Hunter Wilds is one of the only sequels near the top, while the rest of the chart is dominated by new IP and AA breakouts. On console, the picture inverts: on PlayStation, the top three games by sales were all sports titles, EA Sports FC 25, NBA 2K25, and UFC 5, and Sensor Tower notes that Monster Hunter Wilds is "the only non-sports AAA game to crack the top ranks." PC gamers actively seek novelty. Console gamers, as measured by where they actually spend, reward familiarity.

This isn't a taste preference. It's a structural feature of how each platform's discovery and distribution mechanics work. Steam's wishlist system, Early Access model, and community-driven review algorithms systematically favor smaller studios that can't outspend incumbents on paid acquisition. Several of 2025's biggest PC breakouts were low-budget, chaotic co-op games that spread entirely through creator amplification and friend-group virality, with no meaningful paid marketing. They outsold games with budgets a hundred times larger.

THE AA ECONOMICS

At a $25M development budget with $5M in marketing, breakeven is roughly $40M in net revenue, or approximately 1.3 million units at $30 net. That's achievable for a well-positioned title with strong community support. A $200M AAA game requires something closer to 9–11 million units to reach the same threshold. The margin for error has collapsed at the top; the economics at the AA tier have never been more favorable relative to the risk.

We’ve been building toward this thesis since Transcend’s founding. Our PC and cross-platform portfolio reflects the conviction, not just the argument.

Brain Jar Games

Dead as Disco: 700K+ Steam wishlists (top 50 most wishlisted globally), 1M+ demo players at 98% positive reviews, top 5 most played demo at Steam Next Fest June 2025, 275M+ TikTok views, 60K+ Discord community. Zero paid marketing.

Ruckus Games

The Holdouts: 107K+ organic social followers, 95% playtest enjoyment rate, 89% willingness to pay — from a team that shipped Borderlands 3, Elder Scrolls Online, and Ultima Online.

Gardens

Chris Bell (lead designer, What Remains of Edith Finch, BAFTA Best Game 2017; Journey, Game of the Year at DICE, GDC, and BAFTA), Stephen Bell (co-creator, Blaseball), and Lexie Dostal (creator, Dustforce) building a PvPvE fantasy ARPG. Lightspeed and Krafton co-led the Series A.

Each of these companies exemplifies the principles our many conversations with strategics reinforced: the bar for unproven teams is the highest it's been in years. Publishers want experienced operators. Institutional capital is increasingly unavailable to first-time founders at the earliest stages. The "proven team premium" is spiking. This dynamic directly compresses the opportunity set for investors without gaming-native diligence capabilities, and it's precisely where Transcend has structural advantage.

AI: The Gap Between Proven Capability & Lagging Adoption

Investor attention has fully rotated into AI and the enthusiasm has been unmistakable. The critical difference from prior hype cycles is that the underlying technology actually works. AI development tools are producing measurable efficiency gains in the studios that have committed to adopting them. One of our portfolio companies reduced build-to-build QA cycle time by 40% after implementing AI-assisted testing. Another cut localization turnaround from weeks to days.

But adoption across the industry remains shallow. BCG's research shows approximately 50% of studios are now using AI in some capacity, but the overwhelming majority are applying it only to internal tooling such as asset generation, code assistance, documentation rather than anything that changes the player experience or the economics of how games find their audience. On Steam, the share of new releases disclosing AI use grew from 6% in Q1 2024 to 21% by Q3 2025. That's real growth, but the gap between disclosure and deep integration is significant. Most studios are using AI to do the same things slightly faster, not to do fundamentally different things.

The opportunity is precisely in that gap. The studios we back don't face the friction of retrofitting AI into processes built for hundred-person teams. They're designing workflows around the tools from day one, which means they achieve gains that established studios are structurally prevented from realizing, even when using the same technology.

Our framework here is deliberate: we invest in "Games × AI" rather than "AI × Games." The difference isn't semantic. An AI-first studio asks what the technology can build. A games-first studio asks what the player needs, then uses AI to test more hypotheses about that answer faster than was previously possible. The economic argument isn't primarily about cost reduction; studios that treat AI as a way to make the same game for less money are capturing a fraction of the value. The real shift is in iteration velocity: teams with deep F2P operational knowledge can now test creative and monetization hypotheses at a volume and cadence that simply wasn't viable before, compressing the distance between idea and market signal. That operational foundation is what directs the generation toward outcomes that retain and monetize players. Without it, moving faster just means arriving at the wrong destination sooner. This distinction is central to every new investment evaluation we're running.

There's a related shift in how production itself is structured that reinforces the lean-team argument. Between 2022 and 2025, approximately 65% of net new content development investment across the industry went to outsourced work rather than in-house headcount, up from 33% in the prior four-year period. And 74% of that outsourced spend is on upstream creative work: art, animation, engineering, design, not just QA and localization as the conventional assumption holds. The world's best-resourced publishers are outsourcing the core of their creative production. What this means for seed-stage studios is that the objection "a small founding team can't build a high-quality game" is increasingly hard to sustain. The external capability is available, industrial-grade, and already in use by studios with $200 million budgets. A lean AI-augmented team operating with the same external creative infrastructure is not at a disadvantage; it's achieving equivalent inputs at a fraction of the overhead.

Geographic Arbitrage Has Become Consensus

Europe outperforming the US as a development market was raised independently in multiple contexts at DICE - from macro trend discussions to specific deal conversations. Turkey, Vietnam, Eastern Europe, and Latin America all surfaced as cost-advantaged markets. The US was described plainly as "really tough" for new teams trying to launch. PitchBook's data on emerging market gaming VC validates the underlying thesis: MENA is growing at 7.5% annually to a projected $13.3 billion by 2030; India has 600 million projected gamers by 2030 with a current $4.6 billion market that will reach $11.5 billion; Southeast Asia and Latin America show similar trajectories.

The geographic arbitrage view is no longer contrarian; it's consensus. That matters for how we source, and it shapes a specific concern: when a thesis moves from contrarian to consensus, pricing compresses. We're tracking carefully how quickly valuations in cost-advantaged markets will normalize as more capital follows this narrative. The window for genuine arbitrage is not permanent.

Niko Partners' data adds regional texture worth noting: the Asia and MENA market reached $89 billion in 2025 and is on a path to $100 billion by 2029 with 1.7 billion to 2 billion players. Women now represent 37–40% of gamers in MENA and India - markets that were 80%+ male just a few years ago. These aren't marginal shifts. They represent meaningful audience expansion in geographies that are also growing by revenue.

The Impending Content Gap Is Structural

One forward-looking signal that deserves more attention than it's currently getting: the pipeline cancellations of 2024–2025 have created a structural content gap that will become visible in 2027–2028. Games cancelled in 2024 won't ship in 2027. The supply vacuum is structural, not cyclical. Global publishers facing earnings pressure in that window will have a choice: miss targets or acquire proven IP to fill release schedules.

Niko Partners' M&A analysis supports this framing. After the EA LBO, the largest leveraged buyout in history at $55 billion, they predict the 2026 M&A environment will actually downshift to small and mid-sized targets: specialist developers, UGC studios, and development support shops. This is not a contradiction. It reflects a market where large-cap deals have been done and the next acquisition wave will be about filling specific capability gaps and schedule gaps in publisher roadmaps. Games cancelled in 2024 won't ship in 2027. Publishers facing that gap will have a choice: miss earnings or acquire proven AA IP. We're positioning our portfolio to be attractive solutions to that scarcity.

We've been building toward this for five years. The portfolio companies reaching development milestones in 2026 and 2027 are arriving at exactly the moment acquirer appetite should be highest for precisely what they represent: proven teams, original IP, and titles built with the production efficiency that AI tooling enables. That the independent analysts tracking where gaming revenue will concentrate in 2026 - geographic expansion into non-core markets, advertising-supported monetization, direct-to-consumer payment channels, and platform-native content ecosystems - map closely to positions we've already taken is corroboration, not coincidence.

The non-core market point deserves emphasis. Accessing growth in Southeast Asia, MENA, and Latin America requires designing for low-end devices, operating for lower ARPU, and treating foreign cultural contexts as primary rather than adapted-to. These are not natural postures for Western incumbents, which is precisely why the opportunity persists. Across 30+ years of global game publishing, our team has navigated exactly these choices. The non-core market opportunity is real and it accrues to investors who can truly assess it.

The Window Of Opportunity

One recent product-side observation deserves direct statement: the sample-then-revert pattern is not an anomaly in live service gaming; it is the base case for any title entering a category with entrenched incumbents. Ampere Analysis data shows that even Battlefield 6's massive launch saw players return to Fortnite, CoD, and Destiny within weeks. The extraction genre is now approaching a congestion point with several major titles entering simultaneously, and when a genre becomes genuinely crowded the winner-take-most logic of live service compounds quickly against new entrants. We have clear visibility into our portfolio and pipeline exposure here.

We're also watching the mobile market's structural maturation closely. Sensor Tower data puts global mobile game downloads at 50 billion in 2025, down 7%, while IAP revenue held at $82 billion. The era of mobile as an acquisition funnel is ending; the era of mobile as a monetization depth challenge has already begun. At $1.62 in IAP revenue per download, and that figure continues to compress, every install must generate more lifetime value. For our portfolio companies touching mobile, this reframes the operational question from "how do we acquire users" to "how do we deepen monetization at every step of the journey."

Finally, the question we get asked most often: is this the right time to be deploying into gaming? The bearish read of the current environment — 44,000 layoffs, a 55% private funding collapse, incumbent retrenchment — is not wrong on the facts. It's wrong on the interpretation. The funding collapse is the entry point. The layoffs are the talent pool. The outsourcing shift is the cost structure advantage. The incumbent retreat is the competitive white space. These are the conditions that define a vintage year, and they're present right now alongside a market growing toward $353 billion, PC as the fastest-growing platform open to new IP, AI tooling compressing production costs before the market has repriced for it, and a structural content gap building in publisher pipelines. The market is rebalancing from valuations earned in a prior era to those with durability in a new one. The digital wave supercharged by AI is driving a transition akin to what gaming went through in 1983. The studios being built right now, by founders with the discipline to prioritize quality over hype, are the ones that will look obvious in retrospect. The window of undervalued entry is real. It will not last.

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About Transcend

Transcend backs AI-native entrepreneurs building the next generation of interactive entertainment. In a $250B global industry, AI is rewriting the economics and Transcend partners with the founders leading that shift. Founded in 2020 by veterans with 70+ years of operator experience and $10B+ in lifetime revenue, we invest from pre-seed through Series A.