Rewriting the Industry Playbook

Welcome to Master the Meta, a newsletter focused on the business of video games.

If last week’s headlines were thrilling in a bad way, this week’s headlines are surely thrilling in a good way. Two leading publishers — Epic Games and Riot Games — once again disrupted the traditional playbook and displayed a striking amount of ambition.

Let’s take it one at a time and then tie things together.

Fortnite Chapter 2

Much has already been said about Fortnite, so let me quickly catch us up:

  • Fortnite was feeling pretty stale by Season X. Collaborations made the game feel like a giant ad, and the addition of mechs enraged much of the community. As a result, viewership (and probably player engagement) meaningfully fell.

  • Rumors — egged on by Epic — started flying that the next update would be the biggest yet. The community was hyped for the next season’s event.

  • Somewhere between 6-8 million people (across streaming platforms) watched the live event, and who knows how many watched in-game. For reference, the Fortnite World Cup drew a little over 2 million concurrent viewers, and Game 7 of the 2019 Stanley Cup was watched by 8.2 million viewers.

  • The event ended with everyone staring at a blackhole (see image above), which remained for nearly two days. All this did was add to the hype, and it gave Epic plenty of time to update its servers for whatever was next.

  • When the servers went live on October 15th, Epic unveiled Fortnite Chapter 2, which includes a brand new map, adjusted weapons, boats, and new features (like fishing and carrying knocked players). Now the game is back to being #1 on Twitch.

To state the obvious, this was a brilliant publicity stunt and Fortnite is clearly here to stay. In some ways it’s back to the basics, and Epic will be able to build on top of this fresh start. It really is the beginning of a new chapter.

Beyond the obvious, we’re seeing “interactive entertainment” evolve. Games are now more than games; they’re full blown productions with long-term “narratives” and critical moments that drive both reengagement and customer acquisition. This server reset could’ve taken place over off-peak hours, but the team decided to make it part of the overarching Fortnite saga. It was masterfully executed and became a trending conversation. All players — active, unengaged, and new — are welcome to join this new beginning, and any lost revenue from the servers being down will more than be made up for in the first few days of Chapter 2.

Fortnite continues to rewrite the playbook for how these updates are done, and I expect other publishers to shamelessly copy Epic’s strategy (with varying degrees of success). I also expect there to be more Fortnite-specific events over time — some like the launch of Chapter 2 but others more like the Marshmello concert. Fortnite will likely become more than just a Battle Royale hit; it’ll morph into an entertainment destination with increasing possibilities. It may also leverage its community and IP to establish more interconnected games… much like Riot is planning to do.

Riot Games’ Massive Unveiling

In Video Games: The Path to Platform, I built and explained a framework for how publishers can widen their influence and sustainably grow their brands in new ways. At the time I used League of Legends as a prime example of an emerging “Proprietary Ecosystem”:

What separates Tier 2 (Proprietary Ecosystems) from Tier 3 (Games as a Service), in my opinion, is both how these franchises can spark entirely new games and ignite much larger entertainment ecosystems.

For example, League of Legends was in Tier 3 until it recently launched Teamfight Tactics in the same client. Launching a second (wildly different) game in the same client is brilliant if you can make it work; it better retains existing users, onboards new types of users, and expands long-term monetization possibilities.

It turns out that Teamfight Tactics was the tip of the iceberg. As part of League of Legends’ 10 year celebration, Riot unveiled a slew of announcements:

  • League of Legends: Wild Rift — a new game, similar to the classic that’s designed for console and mobile.

  • Teamfight Tactics is heading to mobile.

  • Legends of Runeterra — a card-based game

  • Project A — a first person shooter (FPS)

  • Project L — a fighting game 

  • Project F — probably a role-playing game (RPG)

  • Arcane — a new anime series

These games are in different stages of development and likely all pull from the same universe of lore. It’s a textbook example of optionality in video games; finding new avenues — new genres, new platforms, new types of entertainment — that expand a brand’s reach. As gaming goes more mainstream, brand-based optionality will play a defining role in determining which publishers become the biggest winners.

This isn’t a new tactic for entertainment companies. Disney, for example, earns billions by taking IP like Marvel and Star Wars and finding new ways to make money out of them (movies, shows, games, theme parks, toys, etc.). That same tactic is more apparent than ever in the video games industry; companies are essentially reverse engineering Disney — start with a successful game to capture a large audience … then methodically branch outward.

To be fair, what Riot is pursuing is ambitious and risky. The general strategy is spot on, but there’s meaningful execution risk — different market sizes and maturities, different types of development, different ways to market, different esports infrastructure, and more. Anime and mobile are layups, but Riot’s late to the card game party, and FPS games are both highly competitive and just so different to make. It’s not impossible to succeed — Riot has a massive player base and Blizzard basically did the same thing years ago — but it’s fair to be skeptical. It’s likely that not every game listed will succeed.

There are certain avenues where Riot can successfully copy; for example, it was a fast follower with Teamfight Tactics. What I don’t want to see is Riot copying for everything. Perhaps counterintuitively, first movers usually don’t win, but it’s crucial to stay innovative if you want to stand out. We’ll see how Riot stacks up — and how its games shake-up the industry — over the next couple years. Let’s not come to conclusions just yet.

How These Forces Shape the Industry

Whether you’re an industry executive or an investor, these forces — which relate directly to Epic and Riot — are more important than ever:

  • The best games become more than games; “interactive entertainment” is evolving to mean publishers need long-term narratives, constant content updates, and special moments of reengagement. There’s plenty left to explore.

  • As expectations rise, execution risk grows. Cross-functional teams become more mission-critical, because there are more moments where different roles — game devs, infrastructure ops, marketing, community, social — must work in sync. Leaders who can handle growing creative and operating demands will command a premium, and there’s abundant opportunity for entrepreneurs to build platforms and tools that improve different domains (across infrastructure and esports to project management and community).

  • Optionality is a huge (and still largely underestimated) source of growth going forward, and it begins with dominant IP that commands a massive player base. While we’ve seen previous successes, plenty of publishers are still slow moving. I expect that to change, especially regarding mobile.

  • The industry is increasingly global — a double-edged sword. It means new markets to sell into, but it also means heightened competition from foreign companies, especially from China (even for the two publisher mentioned in this post, Tencent owns 100% of Riot and 40% of Epic). If people are upset about China’s emerging influence now, just wait a decade. It’ll likely be an even greater force then.

I’ll continue to explore more industry forces, companies, and games going forward. In the meantime, I’d love to try a Q&A post soon. If you have any questions about anything video game related (no stock picks, though, sorry), either leave them in the comments or shoot me a message on Twitter. If there are enough questions, I’ll compile my answers in a future update.

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