Market overviews
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May 30, 2024
Use Cases: Gen AI significantly reducing time and cost of game production
Cost-effective, time-efficient production: The game development process is time-intensive and costly, and often involves expensive stock assets from stores like Unity’s. Gen AI can create assets with just a prompt, cutting down on both time and resources required. Luma AI allows developers to create basic 3D characters to complete interactive 3D scenes by entering text prompts, even on their mobile phone. Scenario is helping game studios like LLC create thousands of assets monthly for 10% of the cost, compared to their earlier capacity of only a few assets per month. Gen AI can enable individual developers and smaller studios to be creative as well as cost- and time-efficient in production.
Better NPC conversations, responsive game environments: Gen AI can modify game environments on the fly to adapt to player choices and generate NPC barks (dialogues from non-player characters) based on gamer activity. Inworld’s AI Engine can respond to players' actions and decisions with dynamic game states, environments, and AI agents – transforming standard gameplay into a bespoke experience for each player, each time they play.
User-generated content (UGC) creation becoming more accessible through Gen AI: User-generated content (UGC) and modding (players modifying aspects of a game) have been integral to the gaming fandom, and led to popular games like Dota 2 (Warcraft III) and Counterstrike (Half-Life). Players are able to create in-game assets (like custom maps, items, skins) or entirely modified versions of the game that they can share, or sell to other players – making games larger and more personalized. Companies have often incentivised players to create UGC – Epic announced that they’d give 40% of Fortnite’s net revenue back to its UGC creators through engagement payouts.
Gen AI enables anyone who’s interested to create game content & assets without needing special design / coding skills, thus reducing the skill barrier. This will make UGC creation more accessible and abundant. Roblox, one of the largest platforms for UGC creators, has announced an AI Assistant which lets creators build virtual assets and write code with Gen AI.
Multiple game developer use-cases for Gen AI
Storyline & content: Ludo AI generates a variety of game concepts on the basis of keyword prompts, and further develops and refines the selected concept.
3D Asset Generation: Luma AI enables the creation of 3D assets and interactive scenes using an iPhone or through the web.
Sound Effects: ElevenLabs generates sound effects for video games from a text description.
Motion graphics: Move AI brings realistic human motion to animated characters by using 2D videos to capture motion data for 3D characters.
Game testing: Agentic deploys AI agents as live players of video games to identify issues in gameplay.
Alongside assisting developers, AI is also being used as a gamemaster in character-based games like AI Dungeon, The Fortuna, and Gandalf by Lakera, fully directing the game's progression and interactions.
Market Map: Active AI innovation around dev tools; asset creation and AI assistants are focal areas
AI innovation is largely centred around game developer use-cases, especially asset creation
AI innovation in gaming is heavily focused on developer tooling, especially around tools that automate the creation of game assets. Asset creation is traditionally tedious and labor-intensive, and purchasing assets from stores is expensive. Tools like Luma AI, Hypothetic can generate detailed 3D characters, objects, textures, and entire visual worlds from simple text prompts. AI asset creation tools solve for one of the biggest struggles in game dev – having to compromise between creativity and efficiency.
Like other Gen AI applications, the Copilot model is being explored in Gaming as well by large game dev platforms
The Copilot model, already popular in coding and copywriting, is gaining traction in gaming. Industry incumbents like Unity and Roblox are coming up with AI Assistants that support multiple stages of game development. AI copilots that are capable of creating complete games from text prompts are coming up — crafting everything from immersive worlds to characters and narratives. Some startups offering AI copilots for game development are Rosebud AI, Series AI, and Astrocade.
Funding Landscape: Active funding in 2022-24 despite slowdown, including strategic investments
Robust funding landscape with 30+ deals for emerging startups in 2022-24
Despite a 72% decline in overall gaming investment in 2023, AI gaming startups have attracted several deals, primarily Seed and Series A rounds. Both VCs & strategic investors are actively participating in the market:
BitkraftVC, founded by Jens Hilgers (former CEO of ESL) is heavily invested with 7 deals, including companies like Inworld AI, Latent Technology, Volley, and Series AI.
Prominent strategic investments include NVIDIA’s investment in Luma AI, Disney’s investment in Inworld AI, and NBCUniversal's investments in Inworld AI and Charisma AI.
Inworld AI is the highest funded startup in AI x Gaming
Inworld AI’s $50M deal in 2023 made it the highest funded startup in the space. This also put Inworld AI at "halficorn" status, with a post-money valuation of $500 million.
