Welcome to Master the Meta, the #1 newsletter about the business of video games.

Hi everyone,

In this weekly meta you’ll probably notice one important missing topic: Unity. The game engine business recently filed its much anticipated S-1, and many people want to learn all about it. Instead of writing a couple paragraphs today, we’re writing a standalone essay that will dig into the business, its strategy, and its opportunities/risks in more depth. Expect to receive that in your inbox on Wednesday.

Now, here’s your weekly roundup and analysis of what’s happening in the video game industry…

📰 News

Corsair Gaming files its S-1. This isn’t my favorite type of business — a low margin hardware seller in a competitive, slowly growing market segment — but Corsair is certainly larger than I expected, and COVID has provided a positive demand tailwind. The company now generates north of $1 billion in annualized revenue and has done a good job expanding its market share. Corsair has currently captured 18.3% of the US gaming peripherals market and 41.9% of the US PC components market. The company competes across lots of different pieces of hardware — acquisitions have helped the company branch out, too — and management must feel pretty good about the market position they’ve accomplished (sorry if this table is a little blurry):

Of course, these stats are all based on US market position where they’re strongest. Corsair continues to invest in US/European expansion and views the Asia Pacific region as a long-term growth opportunity. Also, the company isn’t highly profitable historically but recently has shown improvement. The company currently has $111 million in cash and $504 million in long-term debt. It’ll obviously raise additional cash during its IPO, and that debt is bearable. Apart from demand swings and normal competition, cloud gaming remains a long-term risk for certain hardware parts. Again, this type of business isn’t my favorite, but it will be worth paying attention to, because if they can mimic Razer in any way — using the Corsair audience to launch add-on services — then Corsair might wind up surpassing most people’s expectations. Link

Speaking of Razer, check out its first half of 2020 results. First, I want to give props to Will Hershey of Roundhill Investments for a recent tweet that motivated me to take another look at Razer. Like many people, I assumed that Razer is little more than your typical gaming peripherals seller. While, yes, Razer’s main business is still hardware, the company has done a good job leveraging its audience to sell additional software, services, and even fintech offerings. 15% of Razer’s business is now non-hardware, which is ultimately higher margin and growing significantly faster. Here’s a brief breakdown of Razer’s first half:

• Hardware revenue rose 26% YoY to $383 million. This is mainly peripherals — like mice, keyboards, headsets, cameras, mics — which accelerated while everyone stayed at home, and Razer’s new Blade laptop series sold relatively well.

• Razer’s total user accounts surged 42% to ~100 million.

• Services revenue jumped 79% to $64 million (~15% of sales), and this segment represented ~30% of gross profits. This segment includes Razer Gold, their virtual credit platform that saw total payment volume (TPV) spike 126%, and Razer Fintech. The latter segment is an emerging offline-to-online (O2O) payments network in SE Asia that’s comprised of Razer Merchant Services (B2B) and Razer Pay (B2C). Razer Fintech’s TPV rose 114% YoY as both new merchants and consumers joined, and the company applied for a Full Digital Bank License in Singapore. That shows us that the company has much bigger aspirations for the types of financial services it will be able to offer.

• The company maintains a rock solid balance sheet: nearly one third of the company’s market cap is in net-cash. And even though profit margins aren’t high, the company’s command of its cash conversion cycle leaves me impressed.

• Razer is also targeting growth initiatives related to mobile (Razer Cortex Mobile, a game recommendation app) and cloud gaming (via selling mobile gaming peripherals). These avenues are negligible today, but it’s good to see the company is thinking about it.

I never would’ve guessed that Razer would turn its peripherals business into a much larger ecosystem with a vision that spans other industries, but here we are. There are still big risks that come from being reliant on hardware sales cycles, but I’m impressed. Current momentum means that the hardware business has room to expand and attain higher margins, which is critical. And the ongoing leap in non-hardware business should help maintain revenue growth and margin expansion for longer than many people seem to recognize. The services segment is still relatively nascent in the big scheme of things, so there’s still much to prove and build, but I walk away from this exercise far more intrigued by Razer than when I started. At minimum, it’ll be a fun story to follow and dig deeper into. Link.

Take-Two acquires Playdots. I should’ve covered this last week, but it slipped through the cracks. Take-Two is spending $192 million — $90 million in cash, $102 million in stock — to acquire Playdots, a relatively successful casual mobile gaming studio. Two Dots is the studio’s most successful game, having been dowloaded approximately 80 million times.

At a high level, I don’t understand this acquisition. It’s a great outcome for the Playdots team, but I’m not sure how Take-Two is thinking about it. Yes, we know that Take-Two wants to increase its mobile exposure, because its Social Point + mobile sports apps still represent less than 10% of revenue, but what’s the strategic play here? I don’t see any “synergies,” any plan to strengthen a cohesive mobile division, or any team that can help bring Take-Two’s other IP to mobile. If the reason is as simple as “good studio at a good price” that’s cool, I guess, since this deal only eats up ~4% of the company’s cash, but I’d hope for more.

I could very well be wrong, but I’m personally not sold that Take-Two got a great price, because 1) it’s hard to tell what longevity Two Dots will have and 2) it doesn’t appear that Playdots has a new major hit in the pipeline. But either way, there’s limited risk for Take-Two if the company overpaid. It’s a rounding error. That said, now that the company has acquired two independent mobile studios — Social Point and Playdots — I want to learn how Take-Two envisions organizing its internal mobile efforts. There’s power in providing autonomy and separation, but there’s also upside in ensuring the business is structured in a way that won’t stifle any important mobile efforts. At what point should Take-Two appoint a Head of Mobile like EA recently did, for example? It’s probably not critical yet, but if Take-Two is serious about expanding its mobile footprint and strikes even more deals (or even reinvests more heavily into internal mobile efforts), structure and leadership become more important pieces to solve for. Link.

Activision unveils Call of Duty Black Ops: Cold War Pricing. Here’s the simple run down:

• If you want the current-gen physical or digital copy, you pay $60 (“Standard Edition”).

• If you paid for the “Standard Edition” and want to upgrade to the next-gen version, you pay an additional $10.

• If you just want to buy the next-gen disk or the digital “Cross-Gen Bundle,” you pay $70.

• If you want to play cross-gen + receive extra add-ons, you pay $90 (“Ultimate Edition”).

All the options are sort of confusing since we’re in the midst of a console transition, but here’s the bottom line: Call of Duty will cost $10 more going forward, and wherever CoD goes the industry follows. Take-Two made the first move with NBA 2K21, but now most next-gen games will end up costing $70. In some ways, this price hike is long overdue and fans will shrug it off, but at the same time it makes free-to-play games and bundles like Xbox Game Pass all the more compelling. Link.

• Side note: Reactions to the new Black Ops: Cold War reveal trailer are quite positive.

Halo Hires Bungie veteran to keep the new game on track. News of Halo: Infinite’s delay was an unfortunate update, because it was easily Xbox’s most important launch title. Halo’s delay means that many buyers will push back buying a next-gen Xbox or perhaps even opt for a PS5 out of the gate. It’s not the end of the world — Xbox is far more than Halo — but it hurts. Now, news that 343 Industries hired Joseph Staten to push Halo Infinite’s single-player campaign over the finish line is confirmation that not only was the team behind schedule, but development was rocky. This is partially a turnaround. Of course, multiplayer is the most important piece here — because that’s what will or won’t sustain high engagement for years — but it’s critical that Halo comes out of the gate with a strong start. The FPS market is more competitive than ever, and the stakes have never been higher. Link.

Sony refocuses on PC. In the company’s latest corporate report, Sony stated that it plans to bring more of its first party games to PC. This makes a ton of sense. For one, most first party games — like Death Stranding and The Last of Us: Part II — are extremely expensive to make, and they’re obviously more profitable when studios are able to sell them to more gamers in more places. Of course, it’s only strategically worth it if it strengthens PlayStation’s ecosystem, so these games will likely never release at the same time or sell on other consoles anytime soon. If these first party titles get a solid exclusive window on PlayStation and then become available on PC later, then Sony should be able to capture more upside. Gamers who really want to play these games at launch or on console in general will be able to, and die-hard PC gamers who want nothing to do with consoles will also be able to contribute revenue. PlayStation is still behind Xbox when it comes to selling something like Game Pass, which spans PC and console, so perhaps this recognition is a small step in that direction. We shall see. Link.

Apple terminated Epic’s developer account. The battle between Apple and Epic Games continues to rage on. There’s no need to rehash every point again (yes, Apple is acting anticompetitively; and yes, Epic is pulling a stunt that hopefully leads to policy changes), but it’s interesting to see how the companies’ tactics are playing out.

After Epic decided to defy Apple’s mandate and push their “Nineteen Eight Fortnite” campaign, Apple retaliated by threatening to pull Unreal Engine’s access to iOS and terminate Epic’s developer account. Fortunately, the court decided to block Apple’s retaliation against Unreal; after all, tons of non-Epic developers who don’t break App Store rules rely on Unreal and Apple for their livelihoods. However, since Epic decided to openly defy Apple, it is in Apple’s capacity to terminate Epic’s developer account altogether. And now they have. As of Friday, none of Epic’s apps are available for update or download anywhere in the world on iOS. It’s also funny to see the passive aggressive tactics like Apple promoting PUBG Mobile (another popular battle royale) at the top of its App Store and Tim Sweeney “celebrating” about how it runs on Epic’s Unreal Engine.

It’s now time for court. The first hearing between these two companies should take place toward the end of September. These legal battles can take months to play out, and independent investigations and rulings from other bodies like the EU can add commotion as well. Again, it’s hard to know how exactly this case will pan out — app store policies are complex and assessing modern day antitrust issues necessitates a new lens — but in the long-run it’s hard to see how Apple maintains this level of control. Regulation is coming. As I mentioned last week, it’s just a matter of when. Link.

Quick hits:

• King’s co-founder, ex-CEO, and chairmen Riccardo Zacconi has stepped away from King. Link.

• BITKRAFT Ventures closes $165 million venture fund that will invest in the games industry. Link.

• MAG Interactive acquires Primetime developer Sventertainment for up to $9.2 million. Link.

• New studio Colossi Games raises $650,000 for a mobile survival game. Link.

🖥 Content Worth Consuming

YouTube Gaming’s Ryan Wyatt Previews Call Of Duty League’s Championship Weekend. “For Ryan Wyatt, it’s the culmination of a career in gaming that has seen him playing, broadcasting and now bringing Call of Duty to the masses through YouTube, which partnered with Call of Duty League in its first season and will stream the Finals this weekend. Much has changed in the COD world since he first became involved, first as a player and then a caster and now with his work as head of YouTube Gaming. The eSport has come a long way since he was commentating matches via Skype in his bedroom while in college, and he has big things in store for the league and YouTube Gaming.“ Link

The Roblox Boom. “Roblox, a Silicon Valley-based gaming platform, may be one of the biggest entertainment success stories of the pandemic. The platform, on which playing is free of charge, had already racked up 115m active users in February, before much of the world went into lockdown. Today, according to RTrack, an analytics tracking site, it boasts more than 164m. Many are children: Roblox says three-quarters of American 9- to 12-year-olds play its games. This helps explain its wild popularity. In July alone users logged 3bn hours on the site, up by 100% from only a few months ago.“ Link

Strativerse. “In order to bring this world to life, we have analysed the capabilities of current technologies and their likely trajectory, and the context they might exist within in 2030. This enhanced reality world sees the convergence of analogue and virtual environments to create a Strativerse of blended realities. These new worlds provide significant opportunities for new commerce and creative expression.” Link

“Whenever I start any new MMO” (funny tweet, I relate): Link.

Thanks for reading. See you next week!