The Weekly Meta #15

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

Here’s your weekly roundup of the best content in the video game industry. As you can imagine, I’ve been extra occupied with my investing job lately — lots of communicating, researching, and opportunistic buying — so thank you for patiently waiting for new updates.

I hope you are all staying healthy out there!

✍️ From the Archives

6 Big Mobile Gaming Trends — A handful of forces are shaping up the future of mobile gaming: mobile esports, consolidation, rise of the East, and more. Link

📰 News

COVID-19 and video games. As the coronavirus pandemic has spread across the globe, I’ve seen some people wonder whether quarantining has a positive or negative effect on the video game industry. Frankly, it’s a mixed bag.

The bad:

  • Esports events are being canceled, postponed, or going online. EA is suspending all competitive live events (FIFA, Madden, Apex Legends). Activision is taking Overwatch and Call of Duty matches online (not great for Overwatch’s potentially make-or-break season and the CoD League’s debut season). Riot Games has also suspended esports activities, and we await updates on whether League of Legends games will be held online. Others are acting similarly.

  • Conferences are being postponed or canceled. GDC is postponed; E3, SXSW, and most other events are canceled. GDC should be fine, a canceled SXSW will hurt the Austin economy, and this is only negative for E3, who already increasingly struggles to retain publishers. Conferences still have advantages — it’s a great way to meet people — but from a showcase perspective, they’re less crucial than ever. Companies will increasingly host their own digital events.

  • Video game sales fell 29% in February. The coronavirus is partly to blame, and March probably won’t be much better. Of course, other factors like being at the end of a console cycle and a light release month (because of delays) didn’t help either. Link

  • Operational challenges. Companies are forced to deal with issues behind the scenes that consumers never see. Supply chains have been disrupted, and how/where people must work is changed. Today’s problem solving will make companies more robust in the future, but it certainly comes with a short-term cost.

The silver lining:

  • New player records. Steam hit a new concurrent player count record (19.7 million), and tons of games are seeing bumps in engagement: CS:GO, Fortnite, Honor of Kings, and many more. Fitness games have grown more popular, digital sales are stealing market share from physical sales, and many companies are pushing special promotions to capture attention. Link

  • Some companies are getting creative. For example, the Phoenix Suns are continuing their season via NBA 2K20. Obviously fans are disappointed, but it’s a nice way to plug in NBA 2K and still retain some attention from fans. Link

  • Social games rise during coronavirus. Humans are innately social and will find solutions — in this case through online games — no matter the circumstance. Link

  • Best practices. Super Evil Megacorp shares their “remote first processes, tools and guidelines for fellow corona-dodgers” Link

Back in February, I tweeted: “Chaos — and humanity’s sense of urgency to tame it — accelerates our path to the future. When the status quo breaks, we see which companies & ideas are truly antifragile. That evidence is far more interesting to me than “cheaper” prices.”

I stand by that take. The future will entail more digital work, play, and collaboration… and video games are one piece of that bigger puzzle. Obviously, a global pandemic isn’t the way we want our favorite companies to benefit, but the signs we see today are indicators of what will become normalized. The companies who lead right now are more likely than not going to have bright futures.

Lastly, it’s important to ask what leadership looks during times like this. It means prioritizing the wellbeing of your people over the wellbeing of your bottom line. It means reassessing whether your balance sheet can weather future storms. It means using this time to strengthen your organization — test new ways of working, find where you’re fragile and build new solutions, and stay open-minded and creative. After all, this won’t be the last bear market.

Call of Duty Warzone becomes the fastest growing non-mobile title. It only took 3 days for Warzone to hit 15 million players. For context, Apex Legends transformed how modern game launches work and hit 10 million in 3 days. And it took weeks for Fortnite’s Battle Royale mode to hit these numbers. Obviously, being free is table stakes, the ongoing quarantining helps, and the fact that Call of Duty Modern Warfare already sold several million units helps too. But even with those caveats it’s an impressive stat. Now we’ll see how long the hype lasts. Link

Can Valorant live up to high expectations? I know I’m late to this, but Riot Game’s Project A has officially been unveiled and named Valorant. My take? I think the FPS market is crowded, but there remains a huge opportunity to build a truly global esport for the shooter crowd (the current landscape is regionally fragmented), and I think Riot is exactly the type of company who should take that on.

Will Valorant take over? Not sure. If you look at the gameplay there are parallels to CS:GO and Overwatch, which makes sense. Some people have criticized the art work, but that noise will fade and won’t be a deal-breaker if the game plays well. We haven’t seen much gun gameplay yet, but we saw decent footage of special abilities, which could be cool or create balance issues. We should expect Valorant to be streamer friendly and smart with community — plus gamers respect Riot — so people will absolutely give this game a shot. Apart from my naive gunplay and balance questions, I’m also curious — and initially a bit cautious — about monetization. In-game monetization appears to focus be on weapons skins, which feels narrow to me. Riot is usually conservative about monetization and will likely want to retain a large player base before pushing purchases, but I’m not convinced narrowing in on weapons skins is the optimal decision. This concern is a larger issue if it leads to cannibalization with League of Legend’s current audience. I personally don’t think cannibalization is a major long-term issue because the games are so different, but monetization in general is something I want to keep an eye on. Of course, please take my comments with a grain of salt, because I could be wrong. The game isn’t even out yet, but I look forward to trying it out.

Nvidia GeForce Now continues to struggle with publisher relations. Epic Games is a vocal supporter, but now Activision Blizzard, Bethesda, and Take-Two Interactive have pulled their games out. In hindsight, Nvidia assumed publishers would be more altruistic than they are. I personally lean more on the Epic side of things — gamers should support competition, reduced walled gardens, and services that benefit developers — but it’s understandable why major publishers are pulling out. I suspect these companies will come to an agreement soon, but if they don’t then it represents a clear hole in Nvidia’s business model.

As I’ve previously stated, I still wonder if launching a cloud gaming service was Nvidia’s best strategic move. The company benefits from owning customer relationships, but it now must compete directly against some of the biggest GPU purchasers. We’ll see how it shakes out. Link

The Last of Us is coming to HBO. Naughty Dog’s video game was a masterpiece, and it’s exactly the type of story that should translate well to TV (perhaps similar to The Walking Dead). The traditional entertainment realm is slowly getting better at adapting video games to movies/TV, and I’m mostly optimistic about this one. Neil Druckmann, the director of both The Last of Us games, will be executive producer, and Craig Mazin, who created the Chernobyl mini-series, will also take part. I do wonder how close the TV series will stay to the game or if it plans on exploring other parts of the world Naughty Dog created. Video game sales should benefit once the show releases in 2021/2022, and I expect other franchises to follow suit. Link

Match 3 is growing more competitive. Puzzle games — and Match 3, in particular — have always been a competitive genre, and we’re starting to see Candy Crush’s dominance wane a bit. Playrix’s Gardenscapes and Homescapes have performed relatively well, Rovio’s Angry Birds Dream Blast did well, and new entrants like Lily’s Garden have found success. Plus, Zynga continues to focus on Match 3, now with a new Harry Potter-themed game, and even Supercell is looking to re-enter the category (with a HayDay spin-off). I’m most interested to see what Supercell does since they have significant resources to deploy and are more desperate to find a new, major hit.

Bytedance finds a mobile gaming win in Japan. “Martial arts-themed Combat of Hero has been the most downloaded free iOS game in Japan from March 7 to 10”. Although it’s still too early to know just how big of a mobile gaming force ByteDance will become, the company does hold unique advantages (distribution → cheaper customer acquisition) and successes like this will likely lead to greater reinvestment. Also, the narrative around ByteDance and gaming is too centered around competing with Tencent. Yes, while that is true, Tencent has abundant resources to compete with other large players and is probably the least vulnerable. The competition who’s most vulnerable is actually everyone else — particularly smaller studios — in China and around the world. There’s obviously room for multiple winners, but competitive pressures will continue to rise. Link

Monetizing mobile games in China just got harder. Apple is following Android’s lead in enforcing new rules that make it harder for game devs around the world to publish mobile games in China that rely on in-app purchases. Now, “in order for these iOS games to go through the approval process and get ISBN, they will have to sign over their copyright to a Chinese partner.” The same also goes for Bytedance’s in-app store. This regulation is protectionist, anti-competitive, and bad for the global industry. Requiring developers to launch games with Chinese partners will only limit the number of new, non-Chinese made games that get put on app stores. Other governments should propose similar laws in their own countries against China.  Link

Companies like Tencent are poised to benefit. The company is a leading partner for helping non-Chinese publishers/studios sell in China, but its subsidiary, Next Studios, will also create original games that could help fill a potential void. Others will benefit as well. Link

🖥 Content Worth Consuming

Hideo Kojima’s Strange, Unforgettable Video-Game Worlds. “He’s an auteur whose bizarre creations — the Metal Gear Solid series and, most recently, Death Stranding — have become huge blockbusters. Why do gamers find them so captivating?” Link

The Most Important Media Businesses of the (Past and) Future. “And just as Disney and Universal’s theme park moats enabled them to suck up third party IP like Nintendo, The Walking Dead, and The Simpsons, we’re seeing Fortnite, Minecraft, and Roblox do the same with an even more expansive set that includes DC, Marvel, Star Wars Universes, the NFL, John Wick, and Nike-Air Jordan. It’s likely that soon we’ll see D2C consumer product companies begin building their own bespoke experiences inside digital theme park platforms; the age of growth-hacking via referral codes, native podcast ads, SEO, and social is over. Imagine, for example, a Blade Runner-esque immersive world created by Harry’s. Similarly, we’re not far from albums premiering via “in-game” concerts attended by millions and which are set-up entirely by a label, rather than Roblox Corporation or Epic Games.” Link

Gamers are Entering a New Era of Monetization. (Video) “The combination of cloud, social, and mobile has turned gaming from a niche hobby into a massive industry. Now veteran gamer Kevin Chou is using blockchain technology to realign the economic relationships between game developers and their massive player base. Learn how cryptoeconomic models can lead to better monetization and deeper engagement in your business, as well as new forms of collaboration, community, and creativity.” Link

Game Maker’s Notebook: Tim Sweeney (Founder / CEO, Epic Games). (audio) “Fresh off his #DICE2020 keynote, Tim Sweeney joins Ted on the show to discuss the idea of an “open metaverse” for players, where we are in recreating digital humans across games and film, how Epic Games makes key decisions and their studio culture, and the importance of awareness regarding digital privacy.” Link

See you next week!

Aaron Bush (@aaronbush100)

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