IP Licensing: Weathering the Storm

TL;DR: The gaming landscape is in a new normal; mobile games are spending more on advertising despite fewer titles, while PC and console markets are increasingly saturated yet top-heavy. Across all 3 platforms, discoverability is harder than ever, and marketing spend is becoming a non-negotiable part of success. Third-party IP is proving to be a powerful lever, not only driving down user acquisition costs but also boosting engagement and lifetime value, especially among top spenders. As content creation becomes cheaper and more accessible, IP familiarity offers a critical edge in breaking through the noise. For IP holders, licensing rather than in-house development is emerging as the smarter play - mitigating risk while maintaining exposure to and monetization of gamers.

IP Licensing: Weathering the Storm

The way games are discovered and monetized has been undergoing a fundamental shift since IDFA deprecation in 2021. Mobile gaming has become increasingly expensive to win in, even as the number of new titles declines. PC and console platforms also struggle with discovery, and player attention remains concentrated on a select few (there is a finite amount of time for consumers, and they are focusing primarily on the biggest titles).

In this newsletter, we explore what’s driving these changes in platform dynamics, why discoverability is getting harder across the board, and how developers are responding. We also unpack the rising strategic value of third-party IP as a tool for lowering paid user acquisition costs, increasing lifetime value, and building sustainable games.

The New Normal

Mobile - less games, more advertising spend: Despite smartphone penetration doubling globally, the number of unique games in the iOS app store has declined from its peak of ~600k globally in 2016 to less than 200k in 2024 (Epyllion, page 31). Developers must spend more every year to acquire users regardless of declining competition in the app stores.

The proportion of global gaming revenues toward advertising has increased from 7% in 2020 to 12% in 2024, and nearly all of this growth is attributed to mobile games spending to promote within other mobile games. The number 1 game of 2024, Monopoly Go!, spent ~36% of its net revenue on advertising within its first 11 months. Spending on advertising is a requirement to be successful today in mobile.

PC and Console - more games, higher concentration at the top: Steam has seen an increasing number of games released on its platform each year. Despite the breadth of games available, playtime is highly concentrated. Only 6.5% of time playing PC or PlayStation/Xbox in 2023 was spent playing games released in 2023; only 3.6% of all playtime was spent playing 2023 releases outside of the top 4 (Epyllion, page 105). It is harder to be discovered on PC due to this oversaturation of content, forcing developers to spend more on marketing.

Unpacking IP Familiarity

Psychologically, by tapping into pre-existing positive associations with existing IP, new games hypothetically can be met with less skepticism and risk aversion when getting gamers to download for the first time. However, in an interview done by AppLovin in 2021, the studio behind Bingo Story (leveraged The Price is Right IP), improved organic app discovery is not guaranteed, especially in saturated genres like Casino. Instead, the main value of IP today is in lower-paid UA, better engagement of your existing fanbase, higher LTVs, and lower churn.

Third-party IP is an underutilized trust accelerant in the gaming industry. Historically, there are less than 100 IP-based mobile games launched per year that are not based on an existing game franchise (as a reminder 200-600k new games are launched every year in the iOS App Store).

Utilizing IP for lower paid user acquisition and increase LTV: In a study done by Newzoo, they found that association with an IP or universe was an outsized motivator for average and big spenders; 11% of average spenders and 13% of big spenders said that this association was a motivating factor in downloading a given game. Incorporating external IPs is a part of the “secret sauce” of financially successful mobile games. In 2023, 43% of the top 200 grossing mobile games in the U.S. leveraged external IPs. Mobile IP games grossed $16bn via in-app purchases in 2023 (21% of annual mobile IAP revenue).

Scopely’s rise is further evidence that this strategy works. While the game developer launched a few original games in the first two years after its founding (2012-2013), over the following decade, Scopely exclusively launched games with licensed IP such as Yahtzee With Buddies (2015), Star Trek Fleet Command (2018), and MONOPOLY GO! (2023). By the time Scopely was acquired for $4.9bn in 2023, it had surpassed $10bn in lifetime revenue across a diverse game library. Their acquisition of Niantic for $3.5bn earlier this year cements their status as best-in-class for licensed game development.

Cheap Development and Rapid Iteration

We anticipate that there will be a record level of new content released over the next five years. Creation is getting easier and easier with the emergence of “vibe coding” (low or no-code development) platforms and the plethora of AI asset development platforms. Content marketplaces will become saturated and it will be even harder for good content to “break out”.

As such, what is “tried and true” or at least familiar will become more valuable.

Flight or focus?: The carve out and sale of Niantic’s game business and the sale of Plarium last quarter are a part of a larger trend over the last couple of years for companies to prioritize focus and profitability of core areas of the business. Building out or maintaining in-house game development teams is high risk, especially if it is not a core competency of the business. Instead, companies such as Disney and LEGO have chosen in recent years to continue their exposure in gaming without this risk by licensing their IP to game developers that do have game development as a core competency. This is a trend that we believe will continue as gaming continues to be one of the strongest pillars in the consumer entertainment space.

Takeaway: The gaming landscape is in a new normal; mobile games are spending more on advertising despite fewer titles, while PC and console markets are increasingly saturated yet top-heavy. Across all 3 platforms, discoverability is harder than ever, and marketing spend is becoming a non-negotiable part of success. Third-party IP is proving to be a powerful lever, not only driving down user acquisition costs but also boosting engagement and lifetime value, especially among top spenders. As content creation becomes cheaper and more accessible, IP familiarity offers a critical edge in breaking through the noise. For IP holders, licensing rather than in-house development is emerging as the smarter play - mitigating risk while maintaining exposure to and monetization of gamers.

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