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Here’s your weekly roundup and analysis of what’s happening in the video game industry.

✍️ From the Archive

Master the Meta’s 2019 Annual Review — Are you new to Master the Meta? Here’s a good place to start. Link

📰 News

Deals, deals, deals. We’ve witnessed a flurry of acquisitions since the start of the year. These deals are mainly tuck-ins, but it’s further evidence that it’s typically more capital efficient for companies to acquire what they know works than spend money developing things that could fail. That’s nothing new, but as mobile grows more dominant and big tech + media companies prioritize gaming, M&A should become an even more critical driver in shaping the future of the industry. My next deep dive will explore how M&A should grow in importance, but for now let’s examine this week’s deals:

  • Foxnet sold by Disney to Scopely. Disney’s gaming strategy is to increasingly license its IP, and this sale is another step away from managing internal studios (note: Disney acquired Foxnet through its 21st Century Fox acquisition). Counter to the evidence, I actually believe Disney’s approach will shift back in a major way one day. As for Scopely, MARVEL Strike Force will be a welcome addition, and the soft-launched Avatar: Pandora Rising RTS game could turn into a solid performer. Scopely has raised significant capital, and expectations are high; this is probably a good use of capital as long as Foxnet can churn out (and sustain) another major hit. Link

  • Stillfront acquires Storm8. Stillfront is another serial acquirer with a seemingly endless appetite. The company now operates a dozen studios and even more franchises, and it recently took on debt to pursue even more deals. Storm8 has had its ups (working with Hasbro) and downs (major layoffs in 2017), and I (perhaps naively) question the $400 million price tag of this deal. There’s likely something I don’t know, but it seems ambitious given the current state of Storm8 and the fact Stillfront is using debt to make it work. Link

  • Tencent offers to acquire the rest of Funcom. Only 3 months ago did Tencent acquired a 29% share in Funcom (perhaps best known for Conan Exiles), and it’s now planning on acquiring the rest for $148 million — likely driven by high hopes for Funcom’s upcoming Dune games. Tencent has a fairly impressive track record of gaming investments/acquisitions, but I’m still not entirely sure what its end goal is. I recently saw someone refer to Tencent as the Berkshire Hathaway of video games, and although Tencent does have a decent track record, that comparison feels generous. Tencent appears constantly “trigger-happy” while Berkshire has historically waited for “fat pitches.” Link

YouTube Signs Exclusive Deal for Activision’s Esports. Last week I wrote: “Just like the West followed the East’s lead in paying for streamers’ exclusive broadcast rights, I expect the bidding over exclusive esports rights to emerge next.” That didn’t take long! It’s important to note that this multi-year exclusivity deal covers both streaming rights (for games like Call of Duty, Overwatch, and Hearthstone) and cloud services. It makes sense. If the terms for media rights were compelling enough — which, given the uncertainty of these leagues, Activision probably wanted to lock down ASAP — the Google Cloud component was an easy concession to make. It’s a nice tuck-in win for Google that doesn’t make a huge difference for Activision. Terms weren’t disclosed, and I’m curious to know how ambitious YouTube was in its spending. This is another blow to Twitch in terms of audience, but it likely saved Twitch from overpaying a second time (the original rights were $90 million for two years). I wouldn’t be surprised if YouTube is also overpaying — especially since these leagues hold real risk — but this deal is just as much about ensuring viewers spend less time on other platforms and more time on YouTube. Link

Speaking of esports, this was a major weekend for two games:

  • Call of Duty. The Call of Duty League officially kicked off on Friday. Like the Overwatch League, this is another attempt to make a city-based approach work — something I’m skeptical of (for now), especially when teams are global. Due to exorbitant buy-ins, there’s a very high hurdle for this league to make economic sense, and I’m still not convinced it will be rewarding for franchisees anytime soon. The opening night faced technical difficulties, many of the in-game camera angles felt amateurish, and viewership was probably lower than Activision wanted. I’m sure it’ll improve over time; the question is just how much can improvements grow the audience?

  • League of Legends. The spring split of League of Legends kicked off once again. There are two major changes. One is a schedule change that adds “Monday Night League” as another game day. Similar to Monday Night Football, this time slot will showcase a couple games with the hope of boosting viewership. Perhaps the change is good for viewers, but an inconsistent schedule will be odd for players. Second, the spring split no longer matters in terms of qualifying for Worlds. Changing to double elimination at the end of the summer split makes sense, but, in my opinion, the spring split should still count for something (MSI isn’t enough).

Fortnite Gets Official High School and College Esports League. PlayVS is partnering with Epic Games to make Fortnite an official esport for both high schools and colleges. I’m a huge fan of what PlayVS is doing; building infrastructure for amateur esports not only makes competition viable (and scalable) across different levels like traditional sports, but it helps build a pipeline of homegrown talent that will one day make domestic pro leagues even better. PlayVS also supports League of LegendsRocket League, and Smite, and I bet it will support many more games in the future. Link

TiMi Looks to Accelerate International Expansion. TiMi, an impressive studio behind hits like QQ SpeedHonor of Kings, and Call of Duty: Mobile, is aiming to triple its headcount in the US this year. I suspect the reasoning is fairly simple: 1) Tencent wants to further expand its presence outside of China, 2) AAA mobile games have significant runway in the West, and 3) TiMi’s best-in-class track record likely means it can create other major hits. Link

AppsFlyer secures $210 million in latest funding round. AppsFlyer is an emerging software business that sells access to its tech stack for marketers to get a data-centric understanding of how customers flow through their complex and scattered marketing funnels. Gaming is just one pillar of AppsFlyer’s business, but it appears the company is hitting an inflection point. These high margin, recurring revenue software businesses are among my favorite types of companies, and if anyone has direct experience using AppsFlyer, I’d be curious to hear your perspective. Link

🖥 Content Worth Consuming

More 2020 Predictions. Deconstructor of Fun is back with more 2020 mobile gaming predictions — this time covering the Shooter and Strategy genres. Strong depth and quality, as always.

Playrix: Creating levels and elements for match-3 games. “How do you make new elements in a match-3 game? And how do you create levels and work with analytics? Aleksandr Shilyaev, lead game designer at Playrix, explains how the studio addressed these challenges while working on its hit title Gardenscapes.” Link

We Built the BEST Gaming Facility in the World! 100 Thieves opened its new HQ / compound, and you can practically see the VC money flowing. FWIW, bringing all employees and players under one roof has its pros, but most esports orgs shouldn’t waste money on a real estate project like this. It’s only justifiable for 100 Thieves if the compound helps their brand sustain pricing power for all of the apparel they’re planning on selling. So far so good. Link

Entity Gaming is bringing Indian esports to the forefront. I don’t know much about esports in India, but this is a good entrepreneurial tale about a business that’s chasing success in a market that is obviously mobile-heavy, growing quickly, and will one day be enormous.  Link

Russian game market doubled in [four] years to $2 billion. “The revenue hit $2 billion in 2019, adding more than 15% growth in comparison with 2018. The top-earning segment was free-to-play PC games at 47%, or $940 million, up 4% from a year earlier. The mobile segment was the fastest growing in 2019 at $700 million, or 34% of the total market and growing 29% from 2018. Consoles also saw significant growth of 19% to $240 million, which indicates a shift in customers’ preferences.” Link

Russian Gaming Market Growth

See you next week!

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