Hi everyone — welcome to another issue of Naavik Digest. If you missed our last one, be sure to check out the first of our two-part examination of the underlying live service strategy of Bungie’s Destiny franchise, with part two publishing this Thursday.  

In this issue, we’re dissecting the flood of Activision Blizzard news this past week, including the company's most recent earnings, some big changes to Overwatch esports, and a major reversal in its distribution strategy for PC games.

Google Play vs. App Store Blockchain Policies / New Game Development Models

In this week’s Roundtable, the squad discusses the latest news on how mobile platforms are enacting blockchain policies. In particular, we hit on Google Play’s new blockchain policy, how it differs from Apple’s App Store policy, how these rules affect mobile game design, and the overall current blockchain game development sentiment. Then we discuss how AI game development studios are gaining funding traction and dive into a spicy debate about new models of game development. Join us for all the latest games business news with Matt Dion, Felipe Mata, and host Maria Gillies.

As always, you can find the Naavik Gaming Podcast on YouTube, Spotify, Apple Podcasts, Google Podcasts, our website, or anywhere else you listen to podcasts. Also, remember to shoot us any questions here.

#1 Dissecting the Influx of Activision Blizzard News

By Miikka Ahonen, Co-founder of Lightheart Entertainment

Activision Blizzard has been keeping busy during the last two weeks. Among the flurry of news, four separate pieces of information stand out: 

• Activision Blizzard's quarterly financial results
• New regulatory developments on the pending Microsoft deal
• Overwatch esports and further layoffs in the esports department
• Releasing Overwatch 2 on the rival platform Steam

Let's break these down one by one.

Activision Blizzard Reports Surging Revenues & Declining Player Count

Last Wednesday, Activision Blizzard released a quarterly report in the shadow of the pending acquisition. Overall, it was an excellent quarter for Activision Blizzard:

• Net bookings ($2 207 million) were up 50% year-on-year
• Operating income ($583 million) grew 70% year-on-year

Although all three subsidiaries — Activision, Blizzard, and King — reported revenue growth, Blizzard's Diablo IV launch drove the performance.

While Activision Blizzard has every reason to be happy about the results, the fly in the ointment is player base growth. Despite the launch of the new Diablo title, Blizzard's monthly active users declined, although only a little. The new Diablo is likely masking player base decline in other Blizzard titles like Overwatch and World of Warcraft.

MSFT/ATVI Deal Likely to Go Through as Deadline Gets Extended

There are dozens of market regulators worldwide, but only three matter for this acquisition:

• European Commission (EC) in the European Union
• Federal Trade Commission (FTC) in the United States
• Competition and Markets Authority (CMA) in the United Kingdom

The EC already greenlit the deal earlier this year. Regarding the other two, FTC and CMA, a lot has happened in the past two weeks:

• On July 11th, a United States judge denied the American regulator FTC a preliminary injunction to block the deal, enabling Microsoft to close the acquisition in the U.S. despite the FTC’s ongoing appeal. 
• On July 14th, in the aftermath of the above, U.K. regulator CMA extended its decision deadline (from July 18th to August 29th).
• On July 17th, Microsoft and UK regulator CMA put their court case on hold for two months to negotiate.
• On July 19th, Microsoft and Activision announced an extension to the merger agreement until October 18th. That means three more months to clear with the CMA but with additional breakup fees on the line. If either company walks away from the deal, they’ll owe the other party $3.5 billion, up from $3 billion, before August 29th. The fee then jumps to $4.5 billion if the deal doesn’t go through by September 15th. 

Activision Blizzard stock surged to $92 shortly following the judge's ruling on July  11th. The stock is now priced just three dollars short of the acquisition price, hinting that the market is confident the deal will go through. We may see the regulatory saga conclude in the coming weeks as Microsoft continues to negotiate with the CMA. 

The unclear future of Activision Blizzard’s esports

Activision Blizzard's quarterly report describes changes in the terms between Blizzard and the team organizations in the Overwatch League (OWL). At the end of the current league season, the teams will vote to either cash out on a $6 million termination fee or accept the new agreement.

Given that franchise fees were between $7.5 million and $10 million on top of an additional $1 million or so in annual operating costs, this won’t totally erase OWL losses. 

But it is an enticing offer considering franchise owners have been pressuring the company for economic relief for some time now. Earlier this year, a majority of team owners hired a law firm to engage in a collective bargaining process with OWL, a move that seemingly resulted in Activision Blizzard waiving the remaining owed franchise fees for all league members last month. 

The result of the upcoming vote is anyone's guess, and Blizzard officially continues its commitment to Overwatch esports no matter the outcome. However, considering the news of further layoffs in the esports department, we should take that commitment with a grain of salt.

After all, Blizzard has a history of flip-flopping with its esports endeavors. The esports community still remembers Blizzard's abrupt cancellation of an esports endeavor for Heroes of the Storm in 2018. Teams and players have every reason to be cautious about the future of the Overwatch League.

Notably, esports has represented only a minuscule portion of Activision Blizzard’s overall operation, with OWL revenues accounting for less than 1% of the company's business.

Blizzard to release selected titles on Steam 

Finally, in a surprise announcement, Blizzard revealed the release of Overwatch 2, and yet unannounced other games, on Steam.

Until now, Blizzard has released its PC titles exclusively on its proprietary Battle.net launcher. Steam dominates the PC games market, commanding an impressive market share of over half of all downloads. Having your game on Steam means having access to the broadest possible audience — and their wallets. It also means significantly lower margins than running exclusively on your own launcher.

Overwatch is a team-based competitive game. Players are, in fact, the content and the marketing of any game in this genre, and this is especially true now that Overwatch is free-to-play. Thus, the size and stability of the player base is paramount. Going as broad as possible with their flagship PvP game makes sense considering this.

On the other hand, it's both a blow to Blizzard's pride and a reaction to a declining player base. If your game is hot enough, you will exclusively self-publish. It's hard to imagine Riot (League of Legends) or miHoYo (Genshin Impact) giving in and sharing their profits with Valve.

Finally, considering the upcoming acquisition by Microsoft and Blizzard's position, the newly-formed company will need to re-evaluate the entire role of Battle.net. Microsoft will likely want to push Xbox accounts instead of Battle.net if it intends to maximize the value of its entire content portfolio.

Blizzard President Mike Ybarra was careful to clarify that the company “will continue to invest in Battle.net going forward and are committed to this platform across Blizzard.” Still, it’s easy to imagine a future where Steam or, more likely, Game Pass becomes the developer’s dominant distribution channel if franchises like Diablo are allowed to leave Battle.net. 

#2 Xbox Drops Gold, Diablo IV’s Live Service Woes & Roblox Adds Subscriptions

By Nick Statt, Naavik Managing Editor

Microsoft makes a confusing change to subscription pricing. Right after its court victories over the FTC last week, Microsoft announced that it would discontinue its longstanding Games with Gold promotion and replace Xbox Live Gold with a new offering called Game Pass Core. 

• Games with Gold launched back in 2013 alongside the Xbox One, while the original Xbox Live brand premiered way back in 2002 with the original Xbox. Microsoft is retiring both in favor of an all-in approach to Game Pass marketing. 
• Game Pass Core, a slimmed-down version of the Game Pass library with 25 mostly first-party titles, will now replace the base subscription to Xbox Live that came with Games with Gold. The service will cost the same at $9.99, but there are a number of somewhat complicated caveats involved. 
• Historically, the primary purpose of Xbox Live Gold was to charge players for access to online multiplayer for popular shooters like Halo, Call of Duty, and Gears of War. 
• With the rise of free-to-play games like Fortnite, Apex Legends, and Warzone, however, Microsoft finally conceded in 2021 that it was unfair to charge free-to-play players a monthly or annual subscription just to access the game. (Sony had long dropped its requirement that PlayStation owners pay for PlayStation Plus to play Fortnite and similar titles.)
• Microsoft isn’t giving up that revenue so easily, though. The company said it will continue to charge for multiplayer access to non-free-to-play games, which these days effectively just refers to Call of Duty and some niche outliers. But while Game Pass Core will include access to multiplayer services, the full version of Game Pass (called Game Pass Console), which costs $10.99 a month, will not. 
• In other words, to access both online multiplayer and the Game Pass library on console, you have to upgrade to Game Pass Ultimate for $16.99. 
• If all of this sounds terribly confusing, that’s because it is. Hopefully, Microsoft finds a way to streamline all of this in the future, especially as it puts even more focus on Game Pass with the eventual introduction of Activision Blizzard titles down the line. 

Diablo IV’s rough season launch. Blizzard’s first full-fledged season for Diablo IV, which launched last Thursday, coincided with a new patch that had many players aghast at the severity of its changes. 

• The patch, version 1.1, is no doubt aimed at fixing some balancing issues, but it also raises serious questions about Blizzard’s ability to operate a live service game in the more competitive landscape it now finds itself in. 
• The patch outlined a long list of hard-hitting nerfs to some of the most popular Diablo IV classes and play styles and also put serious speed bumps into the game’s progression systems. It has not been well-received. 
• As streamer Asmongold put it, “Number one: Everything is worse. Number two: Everything is harder. Number three: Everything you were doing, now you have to work harder to do it again. Number four: Leveling — slower.”
• Blizzard quickly began to address player complaints by announcing some reversals and announcing that it would open more lines of communication with the player base about the rationale around the changes. 
• The Diablo team has a long history of managing controversies, from the Diablo III auction house to the announcement and launch of Diablo Immortal. Additionally, Blizzard also has years of operating Overwatch and its sequel under its belt to help prep it for the bumpiness of live service development. 
• Yet still, the studio has found itself making hasty decisions, not gathering enough player feedback, and botching arguably the most important moment of the game’s post-launch life cycle. 
• Diablo IV had a tremendously successful launch, and some of the issues Blizzard is facing right now are certainly not just specific to Diablo and are more indicative of its larger-scale player retention problems. But the studio should be more adept at navigating these types of issues, and it will hopefully course correct sooner rather than later. 

Roblox adds another monetization layer. Roblox last week announced yet another monetization tool for developers to stave off any encroaching competition from other UGC platforms.  

• The company said it was working on launching a subscriptions feature, so developers can offer recurring content to players on the platform and charge players monthly or annually. 
• Roblox sees subscriptions as a way for experienced creators on the platform to “establish a recurring economic relationship with their users and potentially increase the predictability of their earnings,” VP of Economy Enrico D’Angelo wrote in a blog post.
• In addition to subscriptions, Roblox developers can monetize their games through one-off purchases for exclusive access, in-game items, virtual avatar cosmetics, battle passes, and more. The company also has a new “Immersive Ads” program developers can tap into as well. 
• Roblox said developers earned $624 million from the platform in 2022, making it far and away the most successful UGC game platform available today. But rival Epic is working hard to make Fortnite a more lucrative place to create new experiences, and Roblox is clearly wary of ceding any ground to competitors on this front. 
• Right now, Roblox largely serves a different kind of audience that plays mostly on mobile, but UGC platforms may find themselves in more direct competition in due time.  

Featured Jobs

• Immutable: Business Development Manager (Remote)
• LILA Games: Backend Developer (Bangalore, India)
• Nexus: Head of Sales (Remote)

You can view our entire job board — all of the open roles, as well as the ability to post new roles — below. We've made the job board free for a limited period, so as to help the industry during this period of layoffs. Every job post garners ~50K impressions over the 45-day time period.