Hi everyone — welcome to another issue of Naavik Digest. If you missed our last one, be sure to check out our analysis on how Marvel Snap developer Second Dinner is addressing card acquisition.
In this issue, we’re taking a look at Capcom’s most recent earnings announcement and discussing the company’s remarkable turnaround over the last decade.
Influencer Marketing 101
Influencer houses, influencer agencies, and influencer campaigns — these are some of the most important forces in gaming distribution. Nadia Bubennikova, Head of Agency at Famesters, walks us through two campaigns on a Rust Expansion Pack in Dying Light and an Eastern European user acquisition play in Mobile Legends: Bang Bang.
We learn how a campaign comes together, what types of games qualify for influencer representation, the difference between platforms like Twitch and YouTube (and when you might choose one over the other), and KPI performance metrics both influencers and campaigns are measured against. Influencer marketing, in Nadia’s words, is something that is always changing — playbooks are refreshed by the minute. We dive into the fascinating and complicated world of influencers, hear the top three mistakes game studios typically make when they pursue an influencer strategy, and laugh a good bit about the behind-the-influencers’ scenes.
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.
Dissecting Capcom’s Remarkable Decade
By Nick Statt, Naavik Managing Editor
If you need more evidence that gaming’s old guard can adapt to the times and in fact thrive in the current market, look no further than Capcom. The Japanese publisher and developer behind Resident Evil and Street Fighter released its Q1 FY2023 earnings last week, revealing it’s on track to achieve its eleventh consecutive year of operating profit growth. That makes Capcom one of the most financially consistent growth stories in the entire gaming industry; this year, Capcom stock has risen 40% and has seen an impressive nearly 240% climb over the last five years and 1,200% surge over the last decade.
What is Capcom doing differently, and how did the nearly 50-year-old game maker crack the code to so many different facets of modern game publishing and development to turn itself into one of the market’s biggest outperformers? To answer these questions, let’s dive into the company’s most recent earnings report and also take a high-level view of how Capcom is firing on all cylinders.
Another Stellar Quarter
The numbers themselves tell a remarkable story. For the three months ending June 30th, Capcom said its sales were up 73.8% year over year, while operating income was up 99.4%, ordinary income up 102%, and net income up 101.6%.
- The company said it sold 13.5 million software units in the quarter, up from 11.7 million this time a year ago. The star of the show there is Street Fighter VI, which has sold more than 2 million units since its launch on June 2nd.
- The Resident Evil franchise also continues to perform well, with the Resident Evil 4 Remake surpassing 5 million in sales since its launch last March, the company announced last month.
- One undersung strength of Capcom’s business is how adeptly it has managed the transition to digital. The company said digital made up 77% of its Q1 gaming revenues and 86% of its 13.5 million quarterly unit sales.
- The company also announced it acquired support studio Swordcanes and revealed it has a new game releasing before the end of the fiscal year that it expects to sell “millions,” driving speculation that it might be the next mainline Monster Hunter entry.
Leveraging the Back Catalog
Far and away Capcom’s biggest differentiator is how adept the company has become at leveraging its back-catalog, both for well-performing remakes and to drive long-term sales of new releases well beyond the initial launch window.
- Take for instance Capcom’s full-year earnings for FY2022, in which it sold a staggering 41.7 million software units for record-high net sales and record-high profits thanks to major Monster Hunter Rise expansion Sunbreak, RE4, and strong back catalog sales in both franchises.
- The Resident Evil remake initiative has proved incredibly successful for Capcom. Even before Capcom began leveraging early entries in its survival horror franchise, it began to tap into the economic benefits of back catalog leveraging with the RE5: Gold Edition in 2010, the high-definition remaster of the original RE in 2014, and then by porting RE6 to PS4 and Xbox One in 2016 and Nintendo Switch in 2019.
- With the remake strategy kicking into high gear in 2019, Capcom proved that there was an unprecedented appetite for high-quality remakes of classics like RE2 and RE4. The franchise has now sold more than 142 million units worldwide as of May 2023.
- Outside its remake strategy, Capcom has been quite adept at taking once-niche franchises like Monster Hunter and turning them into global success stories.
- It’s done this by putting out rapid-fire releases on multiple platforms and staggering releases in different regions to gauge popularity in various markets. (Incidentally, it was the success of Monster Hunter 3 Ultimate on the Nintendo 3DS that helped illustrate the growth potential of Western consumers.)
- This strategy culminated with the 2018 release of Monster Hunter World, the first game in the series to get a simultaneous worldwide release. When including the master edition of the game, World has sold an eye-popping 22.5 million copies worldwide, and Capcom followed up that game’s success with the Nintendo Switch exclusive Monster Hunter Rise.
Masters of its Own Destiny
It’s easy to forget that just a decade ago, Capcom was struggling. In the spring of 2013, the company was suffering steep quarterly losses, halving its profit forecast, and canceling new projects. This was when Capcom decided to move game development in-house and begin work on the next generation of its proprietary engine, the RE Engine.
- The move has paid off tremendously. Following the successful launch of Resident Evil 7: Biohazard in 2017, Capcom began moving more of its franchises over to RE Engine, including Devil May Cry, Monster Hunter, and eventually Street Fighter.
- The engine has proved especially versatile, allowing Capcom to remake classics like RE2 and RE4 while also becoming the foundation of new projects like Exoprimal and Dragon’s Dogma II.
- The engine, being an in-house product at a time when larger swaths of the industry are transitioning to Unity and Unreal Engine 5, has proved to be one of Capcom’s secret weapons.
- "If certain components for the game don’t exist in our engine already, the RE Engine team can work to implement those features to allow those things to become possible,” Exoprimal technical director Kazuki Abe told Game Informer.
- By relying only on its in-house development teams and in-house tech, Capcom has not only reduced its reliance on third parties, but also maintained a vital level of control over its production pipeline, release strategy, and divisional synergy across its various business units.
Of course, not every company can do what Capcom has done. The publisher has an especially unique trove of iconic IP and a perfected business strategy for consistently turning out high-quality new installments, all while at the same time keeping its back catalog flywheel spinning and generating record revenues to continue investing in new projects. But if there are major takeaways here about Capcom’s success, it is in the company’s willingness to experiment with platforms and release strategies, its consolidation of tech and talent in-house, and its savvy capitalization on major industry trends like remake nostalgia.
Capcom seems far from done taking risks. Exporimal, its new live service shooter, launched day one on Xbox Game Pass in what will ultimately prove to be a fascinating test case in subscription gaming, while the augmented reality game Monster Hunter Now from Pokémon Go developer Niantic finally has a September release date. But regardless of what comes after from Capcom, we can say with confidence that the company’s strategy is one to be emulated across the industry.
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Content Worth Consuming
Gaming X AI Market Map: The Infinite Power Of Play(Moritz Baier-Lentz & Kishen Patel / Lightspeed Gaming):“Many of the past technological and cultural tailwinds felt like incremental building blocks … In contrast, the dawn of artificial intelligence and procedural intelligence appears more akin to a platform shift in line with the rise of the consumer internet around the start of the millennium, or the introduction of the mass-market mobile smartphone in 2007. Historically speaking, in platform shifts like these, generational companies won’t only incrementally improve upon existing workflows with faster, better, or cheaper tools; they will create completely novel, previously impossible user experiences—like intelligent non-player characters (NPCs) and generative agents that go far beyond pre-programmed decision trees and limited narrative choices.”
Let's not rush the death of physical video games(Christopher Dring / Gamesindustry.biz):“Tesco had the finances, store portfolio, and buying power to get the best deals from suppliers. Because it was a business built on selling food, and wasn't reliant on games to make a profit, it would often cut prices to extremely low levels. On more than one occasion, it was cheaper for rival retailers to buy their games from Tesco than it was from official distributors. Tesco would 'loss lead' (where they lost money on the games they sold) to win over customers. Indie shops didn't stand a chance. But Tesco had one competitor it couldn't beat: itself. As physical game sales started to fall, other departments in Tesco, such as clothing, technology, and toys, were asking: 'Why can't we have those shelves?' And, of course, they could. Tesco games aisles went the same way as its CD and DVD offerings… The space on shelves was cut, the smaller stores removed them entirely, and now they're about to disappear from all 2,800 stores.”
He Created the Katamari Games, but They’re Rolling On Without Him(Zachary Small / The New York Times):“Surreal characters, simple controls and a catchy soundtrack turned the 2004 PlayStation 2 title into a masterpiece. Last month its sequel, We Love Katamari, which arguably perfected those qualities, was rereleased with improved graphics and new levels. But Takahashi ended his involvement with the franchise and its publisher, Bandai Namco, long ago. He continues to live in the shadow of the katamari, experiencing the strange conditions of an industry where artistic creations become valuable intellectual property for companies. He says he does not receive any royalties from the sales of Katamari games.”
Elan Lee Wants to Explode More Than Kittens (Janko Roettgers / The Information): “Back in 2014, when he was chief design officer for the company’s Xbox Entertainment Studios division, Lee was visiting his younger brother for a small family reunion, only to find his niece and nephew zoned out in front of the TV. ‘They were both staring at the screen, playing on the Xbox, and did not even acknowledge that I was there,’ Lee recalled during a Zoom call from his home in Toronto. ‘They weren’t interacting with each other. They weren’t appreciating the family that was in the room with them.’ And to add insult to injury, they were playing Halo, a game Lee himself had worked on. Lee decided then and there that he was in the wrong business. ‘I was part of the problem instead of part of the solution,’ he said. ‘I kept putting screens in front of kids. That just felt like the wrong direction.’ Within two weeks, he had resigned from his very well-paying job at Microsoft and decided to instead “put a silly card game on Kickstarter.”
- Immutable: Business Development Manager (Remote)
- LILA Games: Backend Developer (Bangalore, India)
- Nexus: Head of Sales (Remote)
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