AI Fuels Gaming 'Inflation' Amid Fierce Competition for Player Attention

The gaming industry is experiencing a "crazy inflation" of new titles, making it harder than ever to capture player attention, according to Anat Horwitz, Director at Google Israel. Speaking at a gaming conference hosted by Calcalist, Google, and Playtika, Horwitz and Eitan Reissell, Managing Partner at investment fund vgames, discussed how artificial intelligence is transforming game development.

AI has accelerated and reduced the cost of game creation, leading to a surge in new releases. Horwitz noted an 11% drop in game downloads over the past year, yet revenues have risen for the third consecutive year, by 1.5%. "The industry is no longer chasing the next customer and trying to grow the pie, but is engaged in an aggressive battle for market share and existing customers," she stated.

Reissell added that while games can be released much faster, significant capital is still required. He highlighted opportunities, with small teams creating games that generate hundreds of millions of dollars annually. Horwitz projected 136,000 new games in 2026, a substantial increase. She emphasized that only 6% of playtime is dedicated to newly released games, with the majority going to older titles. The current struggle is for attention, requiring AI, creativity, and deep data analysis.

Reissell explained that his investment strategy has shifted. With a $5 million seed investment, he now expects a company to release 12 games, allowing for multiple attempts and reducing risk. However, this rapid production necessitates constant new content and substantial marketing investment. Horwitz observed a decrease in patience for game launches; studios now release multiple games and expect quick validation of their economic viability.

AI has significantly impacted game development, making visual content creation, including 3D elements, much faster. Reissell noted that automated media buying systems now favor those who can generate innovative ideas and creative content. Horwitz pointed to a massive increase in creative output, driven by AI and the competition for user attention, stressing the need for real-time analysis to identify successful strategies.

Vgames has introduced a novel financing model, raising $500 million with backing from The Phoenix and in partnership with General Catalyst. This model funds user acquisition expenses, allowing companies to grow without diluting founder equity. Instead of equity, vgames receives repayment from future revenues generated by the users acquired through their funding. Horwitz also mentioned a trend of mergers and acquisitions, with companies acquiring existing games rather than developing all titles in-house.

Both experts see a bright future for the Israeli gaming industry, driven by AI and Israel's inherent strengths in monetization, data analysis, and early AI adoption. Reissell is enthusiastic about the market, investing heavily, while Horwitz believes the industry's transformation aligns well with the Israeli DNA of global thinking and rapid adaptation.