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

Hi everyone,

Two updates this week:

First, this will be Master the Meta’s (MTM) last issue for 2020, and we’ll restart on January 10th. I (Aaron, here) also want to take a brief moment to reflect on 2020. Over the past year MTM grew readership over 10x, I met Manyu, who became an incredible partner, we built a great writing team, designed a new website, and more. Thank you to everyone — readers, writers, friends — who roots us on and makes writing each week worth it! I’m confident 2021 will take things up another level.

Second, we’re kickstarting a referral program today! In short, if you refer two new subscribers, you’ll receive access to our new MTM Discord community. And if you refer five new subscribers, you’ll be able to participate in ongoing, exclusive Q&As with the team. We’re excited to roll this feature out and expect to continue adding new referral tiers and improvements over time. Your personal referral link is at the bottom of this email, and we’d love to chat with you in the community. Thank you to everyone who helps share the word!

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

#1: Deconstructing Genshin Impact

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Every once in a while, there comes a game that marks the start of an inflection point in mobile games. Major tectonic shifts were felt with the launches of Angry Birds, Candy Crush, Clash of Clans and Clash Royale, to name a few. More recently and in 2019, it was Archero, which marked the beginnings of the Hybridcasual movement. The game took the market by storm, found growth opportunities in the current market, and opened the industry’s eyes to a new world of possibilities. In 2020, there is one game that holds similar characteristics - Genshin Impact.

#2: We All Got Cyber-Punk’d

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CD Projekt’s launch of Cyberpunk 2077 may have been the strangest launch (in a bad way) I’ve ever seen. Early metrics were encouraging: the game hit 8 million pre-orders, over 1 million concurrent players on Steam, had significant Chinese interest, and, bugs aside, early reviews were mostly positive.

However, in a classic case of overpromising and underdelivering, the positivity didn’t last very long. For one, as more people played, it became clearer that bugs are a huge issue that would take several patches to make the game feel more polished across devices. Plus, the issue extends beyond bugs; features like driving AI and proper crowd reactions are simply absent or incomplete. Even worse, in some cases — especially on last-gen consoles — the game quality was incredibly low. The gap between expectations and reality was simply unacceptable. It was so bad that not only did PlayStation and Xbox start facilitating refunds, but both platforms pulled the game from their online stores. Crazy!

In a nutshell, this disastrous launch is the byproduct of project mismanagement, setting unrealistic expectations (both internally and externally), and then deciding it was OK to ship an unfinished product despite extremely high expectations. Much of the media is obsessed about crunch, which is a real issue, but the bigger issue here is mismanaging a critically important game over the span of years. To make matters worse, CD Projekt also gamed the review system in a misleading way. Early reviews were PC only, and the company didn’t initially let reviewers use their own footage. This led to much higher review scores than the game should’ve received if all information was shared.

Making a game like Cyberpunk 2077 is a massive undertaking, and there’s a lot we don’t know, so I don’t want to preach like I could’ve done it better. It’s unquestionably difficult, and there is still much worth praising. That said, yes, CD Projekt made a mistake, and it’s fair that the company (and its stock) are getting whacked as a result. The company’s financial results are heavily reliant on infrequent blockbusters like Cyberpunk 2077, so dropping the ball where it counts most can meaningfully cap upside. Over time, new patches will dramatically improve the playing experience, and we’ll all move on, but this drama does stain what was a fairly pristine CD Projekt reputation. Consumers won’t be fooled twice, so leadership needs to take steps to ensure something like this never happens again.

#3: EA Swoops in to Buy Codemasters

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Electronic Arts’ (EA) potential acquisition of Codemasters — a leader in racing games with IP like F1, Grid, Project Cars, and Dirt — for $1.2 billion may be the acquisition power play of the year. EA is offering to buy Codemasters for £6.04 per share ($7.98) in an all-cash deal, which is expected to close during the first quarter of 2021. The offer comes only a month after Take-Two announced its agreement to buy the company for a cash and stock offering worth $994 million. Once finalized, this will be EA’s first acquisition in over two years and also its largest acquisition ever (previously the largest was PopCap 10 years ago for $750 million).

So why Codemasters, why pay 20% more than Take-Two, and why now? Apart from the fact that Codemasters is a solid business (see their 2020 annual report here), the answer primarily lies in wanting to own a collection of dominant licensed sports franchises and to a lesser extent potential mobile + esports opportunities.

EA has always been synonymous with licensed sports games — NFL Madden, FIFA, NBA Live, UFC, and NHL. However, they have a glaring hole in the racing genre (only Need for Speed and Real Racing but no licensed racing). With the Codemaster acquisition, EA easily owns the best collection of racing IP. EA doesn’t dominate in every sport (MLB, PGA, NBA, WWE, etc.), but this acquisition adds an important piece. Plus, when it comes to something like EA Play, the company’s subscription service (which is also part of Xbox Game Pass), more racing games help strengthen the value proposition.

There’s also some reason to think that EA could create more value with Codemasters than Codemasters could do alone. For example, on the mobile front EA is slowly making progress. Although mobile currently only represents 9% of EA’s digital bookings — far below where it should be in time — the company is (hopefully) setting a better foundation for future mobile successes, especially when framed as extensions of various IP ecosystems. For example, EA has made strides with mobile versions of its sports franchises, and some of Codemasters’ racing games may be ripe for mobile expansions, too. We shall see.

Last but not least, esports. EA launched its Competitive Gaming division back in 2015, and the company now has global tournaments for Madden and FIFA. F1 is likely next. Codemasters partnered with F1 to launch the F1 Esports series competition in 2017, and the past couple years have seen impressive growth — F1 esports views grew 76% in 2019 to 5.8 million and hit a record-breaking 30 million views during the lockdown period this year. Esports is a negligible moneymaker for EA, but it provides strong advertising and partnering with the leagues themselves solidifies competitive advantages.

All in all, even though there’s some uncertainty about what EA could do with Codemasters, the licensed sports angle is a strong fit, Codemasters will immediately offer cash flow upside, and the acquisition still only uses up 20% of EA’s cash hoard. If EA manages the racing franchises well, then this acquisition could definitely be a winning play. (written by Owen Soh)

#4: Unity and Snap Join Forces

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It’s easy to understand at a high level why Unity and Snap would want to partner. Snap, for instance, has 249 million daily active users, many of whom now play minigames on Snapchat itself. Plus, the Snap Audience Network (SAN) widens Snaps addressable audience, and the Snap Kit allows developers and advertisers to leverage Snapchat’s tech beyond its eponymous app. Unity, of course, is largely an ad network, too, and the more places and ways it can deliver ads and provide new capabilities the better it can serve its customers. This partnership is beneficial to both sides.

The core of this partnership is letting mobile game developers have access to various parts of Snap Kit through the Unity Asset Store. For example, developers can give players the ability to log-in via Snapchat, share gameplay, modify the gameplay with Snap-branded filters/stickers, and a Bitmoji integration is coming next year. On the flip side, Unity ads now can access to the Snap Audience Network.

Given the sizes of these two platforms I expect the partnership to find success, even if it takes some time for developers to get warmed up to the idea of integrating with Snapchat. At a higher level, social media is evolving to better create or facilitate new types of shared experiences, and games fit perfectly in that ongoing direction. This means that social platforms themselves will probably better integrate games, and it means that they’ll want their social graphs to carry over into others’ games, too. And if it means that custom, personalized attributes (like Bitmojis) can carry over from game to game, that’s even better. It’s yet another way to strengthen a platform’s network effect.

Social media’s rise mostly led to walled gardens — mega-platforms that aimed to control everything — but side-stepping walled gardens and building interoperability through partnerships is an orthogonal approach that can also succeed. Some may say this is more inline with what the “metaverse” will become, and although we shouldn’t get ahead of ourselves, I do expect games, social platforms, and other adjacent technologies to increasingly intersect in the years to come. This partnership is just a small example.

🎮 In Other News…

  • Zynga announced that it intends to offer $750 million of convertible senior notes due 2026 in a private placement. Link

  • Roblox acquires Loom.ai for realistic avatars. Link

  • Keywords acquires High Voltage Software for $50 million. Link

  • Unity has acquired RestAR to enable AI-based 3D capture. Link

  • Tilting Point invests up to $40 million in UA funding for Gunship Battle: Total Warfare. Link

  • Parsec raises $25 million from a16z to power remote work and cloud gaming. Link

  • Stillfront acquires Super Free Games and Sandbox Interactive. Link

  • Mobile game giant Playtika files for an IPO. Link

  • Leyou shareholders approve Tencent takeover. Link

  • Skillz sees stock price jump 127% in first-day trading. Link

  • Fortnite’s new limited-timed mode, The Spy Within, is based on Among Us. Link

  • Snap launches Bitmoji Paint to let hundreds of people paint on a shared canvas. Link

  • Facebook Gaming creators have earned $50m in Stars in 2020. Link

  • A League of Legends MMO is on the way. Link

  • Mighty Kingdom completes $4 million pre-IPO. Link

  • Diablo: Immortal opens up for its technical alpha. Link

🖥 Content Worth Consuming

Games Industry M&A: Keys to Success with Chris Petrovic (Zynga, Kabam). “Chris Petrovic joined Zynga as SVP and Head of Corporate Strategy, M&A, and Business Development all the way back in March of 2016 when Zynga stock was $1.88. Since Chris joined, basically ALL of Zynga's growth has come through mergers & acquisitions and helped drive increased share value to today's price of ~$8.70. During his time at Zynga, Chris oversaw the acquisitions of: PuzzleSocial, Harpan, Gram Games, Small Giant, Peak Games, and most recently Rollic Games.” Link

Fashion’s new playground: Esports and gaming. “Gamers and esports fans are increasingly revealing themselves to be beauty and fashion consumers eager to spend on both in-game and real life products, catching brands’ attention. Female gamers are on the rise, and gamers’ overall spending capabilities have increased, creating opportunities for brands to see this cohort as a marketable audience of potential customers. While data on the amount of actual spending on luxury and beauty within esports and gaming is scarce, the success of recent fashion and beauty collaborations signals the audience is ready to spend on these new offerings.“ Link

Joining Mobile's Most Exclusive Members Club. “About a year after the term 'HybridCasual' was first coined, an ever-increasing number of professionals in the mobile games industry are acknowledging its existence. Even so much that it might seem to start sounding a wee bit empty, hollow. A buzzword at best. On one side this is logical since it's a rather elusive term with a specific history behind it, as has been aptly deliberated by Will Freeman last July. On the other side it's not entirely helpful, as the term will only become increasingly fluffy and meaningless this way. Since we are currently exploring this direction at Voodoo as well, and as a fervent rectifier of things ranging from grammar to whether Mountain Goats are actually goats (no they aren't and yes, I'm fun at parties) I'll try to shed some light on games that seem to fit the definition very well and why this is the case.” Link

Thanks for reading, and see you next week! As always, if you have feedback let us know here.

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