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Global Games Investment Review 2014

Executive Summary


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3
Contents (of full Global Games Investment Review 2014)
Executive summary (free download)


Sector Reviews
(economics, dynamics, trends, M&A and investments 2010-2013, public company comparables and sector indices
*
)

Mobile/tablet
Social/casual
Massively Multiplayer Online (MMO)
Console/PC
Tech/gamification
Advertising

Growth and consolidation opportunities
+


About Digi-Capital

10





23
60
84
103
127
147

152


159
* As at 6th January 2014. No indices for tech/gamification or
games advertising
+ For illustrative purposes only

In full
Review
only
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4
1. Executive summary (pages 10-22)

a) Global games market economic overview
i. Major global games market economic trends
ii. Global revenue forecast by games sector (2011 - 2017F)
iii. Mobile/online games revenue forecast by region (2011 - 2017F)
b) Global games M&A and investment overview
i. Global games M&A transaction value and volume (2005 - 2013)
ii. Global games investments transaction value and volume (2005 - 2013)
iii. Global games IPOs by country (2005 - 2013)
iv. Global games M&A summary by sector 2013
v. Global games investments summary by sector 2013
vi. Global games public market sector indices* (2011 - 2013)
c) Games industry trends/highlights
i. Games subsectors overview
ii. Games market segmentation/competition overview
iii. Games Value vs Volume markets by sector and geography
iv. Mobile apps/games usage 2013
v. Mobile apps/games revenue (2010 - 2013), including revenue split
vi. Free-to-play/communal gameplay trends/economics
vii. Trade consolidator/acquirer overview
viii. Games sector consolidation curve

Table of contents
* As at 6th January 2014. No indices for tech/gamification or
games advertising
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2. Mobile/tablet sector review (pages 23-59)

a) Mobile games/apps economic analysis
i. Mobile games/apps revenue forecast (2011 - 2017F)
ii. Smartphone/tablet sales forecast by OS (2013 - 2017F)
iii. Mobile broadband subscription forecast by smartphone and tablet (2011 - 2019F)
b) iOS/Android usage by app type (mobile/tablet)
c) Mobile/tablet game usage by game genre
d) Mobile game sector segmentation and highlights
e) Global mobile app download forecast (2011 - 2017F), including free vs paid split
f) Mobile app revenue forecast (2011 - 2017F) including paid, in-app purchases and advertising revenue split
g) Mobile user Lifetime Value economic analysis
h) Mobile user acquisition approach and cost analysis
i) Apple case study
j) iOS vs Android analysis
i. Apple App Store vs Google Play apps, downloads and relative monetization analysis
ii. Global Android app store analysis including downloads, apps and average download per app (Amazon, Anzhi, AppChina, D.cn, gFan,
Google Play, HiAPK, Lenovo, Mobango, Opera Mobile, SlideME, SK T-Store, Tencent)
k) Over-the-Top messaging app market share analysis, including share of domestic top 100 iPhone games (Kakao Talk, LINE, Weixin)
l) Mobile games 2012/2013 IPO analysis (Ourpalm, IGG, Colopl, Forgame)
m) Public company comparables
*
including 2013A, 2014E, 2015E, 2016E enterprise value/sales, enterprise value/EBITDA and
price/earnings multiples (Ateam, Colopl, Com2Us, Crooz, Cyberagent, DeNA, Drecom, Forgame, G5 Entertainment, Gameloft, Gamevil,
Glu Mobile, Gree, GungHo, IGG, Klab, NHN Entertainment, Taomee, Voltage)
n) Global mobile games public company index 2011 - 2013
*
(Ateam, Colopl, Com2Us, Crooz, Cyberagent, DeNA, Drecom, Forgame, G5
Entertainment, Gameloft, Gamevil, Glu Mobile, Gree, IGG, Klab, NHN Entertainment, Taomee, Voltage)
x
o) Sector M&A transactions (2010 - 2013) including target, acquirer, transaction value and revenue/EBITDA multiples (where available)
p) Sector investment transactions (2010 - 2013) including target, acquirer and transaction value (where available)
q) Potential games sector investment/M&A opportunities
+
by investor/acquirer type (major online/mobile games, major console games,
independent games, major technology, media and telecoms, venture capital, private equity)
Table of contents (of full Global Games Investment Review 2014)
* As at 6th January 2014.
x GungHo not included in index chart for relative scale, but included in
overall indices in Executive Summary
+ For illustrative purposes only
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3. Social/casual sector review (pages 60-83)

a) Social games economic analysis
i. Global social games revenue forecast (2010 2014F)
ii. Casual players vs payers male:female ratio
iii. Social player age profile (UK)
b) Sector segmentation
i. Leading Facebook social games company (>1M DAU) market share
ii. Social network average developer revenue shares (Facebook, Tencent, RenRen, Sina Weibo, Mixi)
c) Social games paying players economic analysis (average spend, share of revenue, share of paying players)
d) Social games development approach overview
e) Zynga case study
i. Bookings, revenue and EBITDA (Q1 2011 - Q3 2013)
ii. Daily Active Users (DAU), Monthly Active Users (MAU) and Monthly Unique Users (MUU) (Q1 2011 - Q3 2013)
f) Facebook user analysis for leading social games companies >1M DAU (total games portfolio DAU vs average DAU per game)
g) Social/casual games value chain analysis and sector highlights
h) Public company comparables
*
including 2013A, 2014E, 2015E, 2016E enterprise value/sales, enterprise value/EBITDA and
price/earnings multiples (Boyaa, Electronic Arts, Real Networks, Zynga, Gamania, Neowiz, NHN Entertainment, Tencent, YY)
i) Global social/casual games public company index 2011 - 2013
*
(Boyaa, Electronic Arts, Real Networks, Zynga, Gamania, Neowiz,
NHN Entertainment, Tencent, YY)
j) Sector M&A transactions (2010 - 2013) including target, acquirer and transaction value (where available)
k) Sector investment transactions (2010 - 2013) including target, acquirer and transaction value (where available)
l) Potential games sector investment/M&A opportunities
+
by investor/acquirer type (major online/mobile games, major console
games, independent games, major technology, media and telecoms, venture capital, private equity)
* As at 6th January 2014.
+ For illustrative purposes only
Table of contents (of full Global Games Investment Review 2014)
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4. MMO sector review (pages 84-102)

a) MMO games market share analysis
i. By game
ii. By genre
b) Sector segmentation and highlights
c) MMO business models hierarchy
d) Nexon case study
i. Overview
ii. Revenue growth (2001 - 2013E)
iii. Revenue, EBITDA and EBITDA margin (2008 - 2013E)
iv. Major game franchise lifetime revenues
v. Regional revenues (China, Korea, Japan, other)
e) Tencent case study
i. Overview
ii. Revenue, EBT and EBT margin (2008 - 2012)
iii. Overall Chinese games sector market share by game type
x
f) Public company comparables
*
including 2013A, 2014E, 2015E, 2016E enterprise value/sales, enterprise value/EBITDA and
price/earnings multiples (Activision Blizzard, ActozSoft, Asiasoft, ChangYou, Electronic Arts, Giant Interactive, Joymax, Kingsoft,
Khongzhong, NCSoft, Netease, Nexon, NHN Entertainment, Perfect World, Shanda Games, Tencent, The9, Webzen, WeMade, YD)
g) Global MMO games public company index 2011 - 2013
*
(Activision Blizzard, ActozSoft, Asiasoft, ChangYou, Electronic Arts, Giant
Interactive, Joymax, Kingsoft, Khongzhong, NCSoft, Netease, Nexon, NHN Entertainment, Perfect World, Shanda Games, Tencent, The9,
Webzen, WeMade, YD)
h) Sector M&A transactions (2010 - 2013) including target, acquirer and transaction value (where available)
i) Sector investment transactions (2010
-
2013) including target, acquirer and transaction value (where available)
j) Potential games sector investment/M&A opportunities
+
by investor/acquirer type (major online/mobile games, major console games,
independent games, major technology, media and telecoms, venture capital, private equity)
x Overall market not Tencent specific
* As at 6th January 2014
+ For illustrative purposes only
Table of contents (of full Global Games Investment Review 2014)
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5. Console sector review (pages 103-126)

a) Console games sector overview
b) Global console games hardware and software revenue forecast (2011 - 2017F)
c) 8
th
console generation analysis (Sony PS4 vs Microsoft Xbox One)
d) Console games economics
i. Development costs vs sales analysis
ii. Major console games franchise sales summary
iii. Console publisher economic analysis
iv. Game development financing model overview
e) Console games sector value chain analysis
f) Sector segmentation and highlights
g) Public company comparables
*
including 2013A and 2014E, 2015E, 2016E enterprise value/sales, enterprise value/EBITDA and
price/earnings multiples (Activision Blizzard, Electronic Arts, Gamestop, Take Two Interactive, Capcom, Konami, Namco Bandai,
Nintendo, Sega Sammy, Square Enix, Gameloft, Ubisoft)
h) Global MMO games public company index 2011 - 2013
*
(Activision Blizzard, Electronic Arts, Gamestop, Take Two Interactive,
Capcom, Konami, Namco Bandai, Nintendo, Sega Sammy, Square Enix, Gameloft, Ubisoft)
i) Sector M&A transactions (2010 - 2013) including target, acquirer and transaction value (where available)
j) Sector investment transactions (2010 - 2013) including target, acquirer and transaction value (where available)
k) Potential games sector investment/M&A opportunities
+
by investor/acquirer type (major online/mobile games, major console
games, independent games, major technology, media and telecoms, venture capital, private equity)

* As at 6th January 2014
+ For illustrative purposes only
Table of contents (of full Global Games Investment Review 2014)
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6. Games tech/gamification sector review (pages 127-146)

a) Games technology value chain analysis
b) Gamification industry subsectors overview
c) Sector M&A transactions (2010 - 2013) including target, acquirer and transaction value (where available)
d) Sector investment transactions (2010 - 2013) including target, acquirer and transaction value (where available)
e) Potential games sector investment/M&A opportunities* by investor/acquirer type (major online/mobile games, major console games,
independent games, major technology, media and telecoms, venture capital, private equity)

7. Games advertising sector review (pages 147-151)

a) Games advertising sector overview
b) Games advertising revenue forecast (2011 - 2017F)
c) Sector M&A transactions (2010 - 2013
+
) including target, acquirer and deal value (where available)
d) Sector investment transactions (2010 - 2013) including target, acquirer and deal value (where available)
e) Potential games sector investment/M&A opportunities* by investor/acquirer type (major online/mobile games, major console games,
independent games, major technology, media and telecoms, venture capital, private equity)

8. Growth and consolidation opportunities* (pages 152-158)

a) By investor/acquirer type (major online/mobile games, major console games, independent games, major technology, media and
telecoms, venture capital, private equity)
b) By sector (mobile/tablet, social/casual, MMO, console/PC, enabling tech/gamification, advertising)

Note: no public company comparables or indices foe games tech/gamification or
games advertising
* For illustrative purposes only
+ Note: no games advertising M&A transactions in 2013
Table of contents (of full Global Games Investment Review 2014)
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Executive summary
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11
Mobile driving revenue to $100B by 2017 and $5.6B M&A in 2013
Mobile could drive total games software industry revenue to $100B by 2017
Mobile/online

games could grow to ~$60B revenue (23.6% CAGR 11-17F)
Mobile/online

games could take 60% games software market share by 2017
Total global games software revenue could grow to ~$100B revenue by 2017

Mobile and Asia drove games M&A to $5.6B in 2013 ($7.9B including Activision-Blizzard)
M&A value grew by 29% from 2012 to a record $5.6B (excluding $2.3B management led portion of Activision-Blizzard/Vivendi)
Average M&A deal size grew 23% from 2012 to $63.8M
Mobile dominated M&A by transaction value (67%) and volume (36%)

Asia the biggest growth driver of economic value in mobile/online games
Asia and Europe could take >80% combined revenue share for mobile and online games
9 of the top 10 games M&As of 2013 had Asian buyers, up from 8 out of 10 in 2012
Global and pan-regional M&A deals significant in 2013 pan-regional relationships remain critical for trade exits
13 out of 15 games IPOs in 2011-2013 were by Chinese, Japanese or South Korean companies

Investment recovers slightly, returning to 2010 levels
Investment value grew 16% from 2012 to $1B, but early stage investment gap remains
Average investment deal size grew 14.8% from 2012 to $6M
Mobile games and tech/gamification dominated investment in 2013

Games dominate mobile app usage and revenue Over-the-Top messaging apps (OTT) a new disruption
Games took 32% of 2013 mobile app usage (blended iOS/Android tablet/smartphone) - 67% of tablet usage
Games took 72% of 2013 mobile app revenue and ~40% of mobile app downloads
Asian OTT platforms beginning to disrupt mobile games in domestic markets Kakao Talk, WeChat and LINE taking significant share

8
th
generation console cycle beginning to address decline, but questions remain
8
th
console generation (PS4, Xbox One, Wii U) beginning to address long term decline
Questions about potential new installed bases, transition from 7
th
generation and mobile cannibalization
Sources: Sources and details by sector in full Global Games
Investment Review 2014
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0
10
20
30
40
50
60
2011 2012 2013 2014F 2015F 2016F 2017F
Asia Pacific EMEA North America Latin America
0
20
40
60
80
100
120
2011 2012 2013 2014F 2015F 2016F 2017F
Dedicated hardware Console software Online Mobile PC Advertising
12
Mobile to take games software to $100B Asia the growth engine
Sources: PWC, Gartner, AppAnnie, Digi-Capital, Companies

Note: Online includes MMO, casual and social games


* Note: Console excludes MMO
** Average Revenue per User
Mobile and online

games could
grow to ~$60B revenue (23.6%
CAGR 11-17F), take 60% games
software market share and
grow the games software
market to ~$100B revenue. The
console* sector is important
but ex-growth
Asia and Europe could take
>80% combined revenue
share for mobile and online
games. North America remains
an important mobile and
online market
Regional Mobile/Online Games Revenue ($B)
Global Video Games Sector Revenue ($B)
Chinese, Japanese and South
Korean domestic strength has
produced high volume, low
ARPU**, cost efficient games
businesses with up to 50%+
operating margins, enabling
significant investment in
foreign markets
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Record $5.6B M&A in 2013 driven by mobile and Asia
$5.6B M&A in 2013 ($7.9B including Activision-Blizzard)

M&A value grew by 29% from 2012 to record $5.6B (excluding $2.3B
management led portion of Activision-Blizzard/Vivendi deal)
M&A volume grew 5% from 2012 to 88 transactions
Average M&A deal size grew 23% from 2012 to $63.8M
Mobile dominated M&A by value (67%) and volume (36%)

Investment recovers slightly, returning to 2010 levels

Investment value grew 16% from 2012 to $1B
Investment volume grew 1% from 2012 to 167 transactions
Average investment deal size grew 14.8% from 2012 to $6M
Mobile games and tech/gamification dominated investment in 2013

Asian IPOs continued to deliver exits for investors

Games IPOs in the last decade have been a largely Chinese, Japanese and
South Korean phenomenon
13 out of 15 games IPOs in 2011-2013 were by Asian companies

Asia increased its domination of games M&A again in 2013

9 of the top 10 games M&As in 2013 had Asian acquirers
8 of the top 10 games M&As in 2012 had Chinese, Japanese or South
Korean acquirers
Global and pan-regional M&A deals significant in 2013 pan-regional
relationships remain critical for trade exits
Large domestic deals in China, Japan and South Korea a major factor

(See transactions list in full Global Games Investment Review 2014)


Global video games investment (ex-IPOs) ($M)
Games IPOs (number by country of origin)
0
1
2
3
4
5
6
7
2005 2006 2007 2008 2009 2010 2011 2012 2013
China Japan South Korea US UK
0
20
40
60
80
100
120
140
160
180
-
1,000
2,000
3,000
4,000
5,000
6,000
2005 2006 2007 2008 2009 2010 2011 2012 2013
Investment Value M&A Value Investment Volume M&A Volume
Sources: Sources and details by sector in full Global Games Investment Review 2014

Note: Funds raised/transaction value includes only disclosed or estimated amounts,
including announced earn outs where applicable. Activision-Blizzard/Vivendi deal
not included in charts on this page
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14
Mobile dominated M&A and investment in 2013
Games sector M&A 2013
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0 5 10 15 20 25 30 35
MMO
Mobile
Advertising
Console/PC
Tech/Gamification
Social/Casual
Transaction Volume
T
r
a
n
s
a
c
t
i
o
n

V
a
l
u
e

(
$
M
)

Games sector investments 2013
-
50
100
150
200
250
300
350
400
450
500
0 10 20 30 40 50 60 70 80
MMO
Mobile
Console/PC
Tech/Gamification
Social/Casual
Transaction Volume
T
r
a
n
s
a
c
t
i
o
n

V
a
l
u
e

(
$
M
)

Advertising
(
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t
r
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s
a
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l
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2
0
1
4
)

Sources: See sources by sector in full Global Games Investment Review 2014

Note: Funds raised/transaction value only includes disclosed or estimated
amounts, including announced earn outs where applicable. Activision-
Blizzard/Vivendi deal not included in charts on this page
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15
Public markets driven by mobile and recent Asian IPOs
Global games public market sector indices (base = 100)
Sources: Factset, Bloomberg, Lazard
50
100
150
200
250
31-Dec-10 30-Apr-11 31-Aug-11 31-Dec-11 30-Apr-12 31-Aug-12 31-Dec-12 30-Apr-13 31-Aug-13 31-Dec-13
Mobile Games Index Social/Casual Games index MMO Games Index Console Games Index All Games Index
(See public company comparables and indices list by sector in full Global Games Investment Review 2014)
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16
Disruption from industry transition across all market sectors
Casual online

Simple single player online/download games
Played on browser or downloaded to PC
Example company: Big Fish Games
Social online

Simple multiplayer online games
Played on social networks
Example company: King
Mobile/tablet

Single and multi-player player mobile games
Played on smartphones/tablets
Example company: Supercell
Free-to-play MMO

Millions of simultaneous player games
Played on PC/browser
Example company: Tencent
Over-the-Top (OTT) mobile-social

Multiplayer mobile-social games
Played on OTT mobile messaging platforms
Example company: Kakao Talk
Console/PC

Retail/digital download console/PC games
Played on PS3/4, Xbox360/One, Wii/U, 3DS, Vita, PC
Example company: EA
Subscription Massively Multiplayer Online (MMO)

Hundreds of thousands of simultaneous player games
Played on PC
Example company: Activision-Blizzard
Tech/gamification

Games technology/gamification platforms
Software as a Service B2B business model
Example company: Unity
(Individual game sector trend and economic analysis in full Global Games Investment Review 2014)
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17
As competition intensifies to capture growth
Note: selected companies
Console/PC
Mobile/Online
Casual Hardcore
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Value
(large long-term niche)
Volume
(mass market growth)
China
Japan
South Korea
India
Brazil
America
Europe
Mobile/
tablet
Mobile-social
Free-to-play MMO
Tech/gamification
Social/casual online
Console
Subscription MMO

Users: thousands to tens of millions
ARPU: $-$$$
Costs: $ millions to tens of millions
Operating profit: negative to 20%+
Growth rates: negative to <10%
Business model: unit sales, subscriptions, virtual goods
Users: thousands to hundreds of millions
ARPU: - $$
Costs: $ tens of thousands to millions
Operating profit: negative to 70%+
Growth rates: negative to 100%+
Business model: unit sales, free, virtual goods, ads
With the Big V having split games into Value and Volume markets
18
Over-the-Top
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Games dominate mobile app usage, downloads and revenue
iOS/Android (Mobile/Tablet) Usage
* Sources: Flurry, AppAnnie, Gartner 19
Global mobile apps/games revenue ($B)
Note: Games = 67% tablet usage
Top 5 mobile app countries (revenue)
0
5
10
15
20
25
2010 2011 2012 2013
Non-games mobile app revenue Mobile games revenue
Games monetise ~4x more effectively
than all other mobile app types
G
a
m
e
s


=

7
2
%

r
e
v
e
n
u
e

(Detailed mobile games sector analysis and forecasts in full Global Games Investment Review 2014)
Games
32%
Social Networking
24%
Browser
20%
Entertainment
8%
Utility
8%
News
2%
Productivity
2%
Other
6%
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0x
2x
4x
6x
8x
10x
12x
Paying users ARPPU ARPU
Single player PvE* only PvP* only PvP and PvE
20
Free-to-play and communal gameplay changing sector dynamics
Sources: Companies, Kongregate
* ARPPU = average revenue per paying user, ARPU = average
revenue per user, , LTV = lifetime value, PvE = Player vs
environment, PvP = Player vs player
+ Over-the-Top mobile messaging platform (e.g., LINE, Kakao Talk,
WeChat)
Tech/Gamification
Single Player
Communal Gameplay
(competitive/collaborative)
Free
To
Play
Paid
Subscription MMO
S
o
c
i
a
l


Mobile/tablet
Casual online
Free-to-play
MMO
Single player vs communal gameplay
monetization comparison
1.07x
>10x
13x
OTT
+
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With a changing pyramid of potential consolidators
21

9 of the top 10 M&As in 2013
had Asian buyers
Todays growth companies
could become tomorrows
consolidators
Note: Companies are for illustrative purposes only
(See M&A transactions detail in full Global Games Investment Review 2014)
Prepared exclusively for Christine Anne Bantayan (christine.bantayan@gaiax.com) Transaction: #0001859434


22
Online/mobile independents - exit now or invest for growth
* Note: outlier deals may occur
+ Over-the Top mobile messaging platform (e.g. LINE, Kakao Talk, WeChat)
x For illustrative purposes only
Consolidation Curve by Sector
Sector
Launch
Sector Growth
for Scale
Sector
Consolidation
Sector
Equilibrium
Sector
Consolidation
Low
High
Medium
Advertising
Mobile/tablet
Social/Casual Online
Console/PC
Expected
Deal
Activity*
- VC Investment
- Some small M&A
- Limited M&A/
investment
- Cost focus
- Alliances or spinoffs
- Growth equity investment
- High volume, mid-market
strategic M&A
- Leveraged buyouts
- Low volume, large scale
strategic M&A
Gamification
Mobile-Social
Subscription MMO
Tech
OTT
+
Free-to-play MMO
(
G
r
o
w
t
h
/
c
o
n
s
o
l
i
d
a
t
i
o
n

o
p
p
o
r
t
u
n
i
t
i
e
s
x

i
n

f
u
l
l

G
l
o
b
a
l

G
a
m
e
s

I
n
v
e
s
t
m
e
n
t

R
e
v
i
e
w

2
0
1
4
)

Prepared exclusively for Christine Anne Bantayan (christine.bantayan@gaiax.com) Transaction: #0001859434


23
About Digi-Capital
Prepared exclusively for Christine Anne Bantayan (christine.bantayan@gaiax.com) Transaction: #0001859434


24
About Digi-Capital
Digi-Capital is an investment bank for
games, apps, digital media/services and technology/telecoms
across America, Asia (China, Japan, South Korea) and Europe
Sell-side M&A Buy-side M&A Fundraising Investment
Board Advisory Strategic Consulting Industry Analysis
Selected Clients
Prepared exclusively for Christine Anne Bantayan (christine.bantayan@gaiax.com) Transaction: #0001859434



Global Games Investment Review 2014

Executive Summary


Contact: info@digi-capital.com
Digi-Capital 2014 www.digi-capital.com Authorised and regulated by the Financial Conduct Authority
Prepared exclusively for Christine Anne Bantayan (christine.bantayan@gaiax.com) Transaction: #0001859434