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

Hi everyone,

It was a light news week, so this edition is a bit shorter than usual. That said, as more companies report in the weeks ahead — plus as we showcase new deep dives! — there will certainly be more to dig into.

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

📰 News

Electronic Arts

Electronic Arts reported solid results. EA reported its best first quarter ever, producing record bookings and cash flows. As is the norm for most gaming companies these days, this growth also represented an acceleration: TTM net bookings rose 17% and cash flows rose even faster. Part of this growth stemmed from a couple new game releases — Burnout Paradise Remastered and Command & Conquer Remastered — but the majority of revenue actually came from live services, which succeeded thanks to strong engagement across EA’s most important brands:

  • Season 5 of Apex Legends had the strongest engagement since Season 1.

  • The Sims 4 broke multiple player records with more than 30 million players across platforms.

  • FIFA and Madden helped fill the sports void, and Ultimate Team revenue leaped 70% over the prior year.

  • Even Star Wars: Galaxy of Heroes (mobile) boasted the strongest quarterly performance since 2018.

Ongoing content updates are more important than ever, and EA is doing a great job keeping players engaged across its large and growing product suite. There’s still room to improve — Fortnite, for example, is still uncontested when it comes to masterful in-game events — but EA appears to be on a good trajectory. It’s also worth noting that the company launched 30 titles on Steam this quarter, which certainly helped with growth, and the EA All Access subscription service will come to Steam later this Fall.

At the end of the day, this was just one quarter and it’s important to remember just how strong of a company EA is. Its portfolio of brands is huge, robust live services translate to more consistent revenues, its franchises enable endless opportunities for new games, EA generates nearly $2 billion in free cash flow, and it holds $5 billion in net cash. Even though many gamers love to hate on EA, the company is thriving.

Of course, even though EA’s move to live services is strategically sound, there are still avenues for improvement.

Mobile, which represented 13% of Q1 net bookings, is EA’s largest weak spot. Internal mobile development has waned, no meaningful M&A has occurred in years, and even co-development partnerships have been minimal. There’s really only upside here. One promising change this quarter is the announcement that Jeff Karp was hired to head up EA’s mobile division. This is interesting because EA Mobile is no longer one of three studios under Samantha Ryan and is therefore less structurally stifled. If that small change in organizational autonomy is the first domino of additional changes, it could be a promising signal. We’ll have to wait and see how it plays out.

The other avenue of improvement I’ll double emphasize for now is M&A. EA has $5 billion in net cash, and that number is only going to grow. The company doesn’t pay a dividend, share repurchases are more mechanical than timely, so striking valuable deals — attaining great brands & talent, especially for mobile — is probably the best use of excess cash. There’s no doubt that EA is in most major M&A discussions, but being able to win deals and close at favorable terms doesn’t appear to be happening. That said, it’s probably a matter of “when” not “if” an acquisition takes place. Again, we’ll just have to wait and see. However, EA as a whole remains robust and very well positioned.

If you thought EA was impressive, check out Roblox. Roblox unveiled some updated numbers that showcase how incredible its recent progress has been:

  • The platform now has 150 million MAUs.

  • Roblox developers are on pace to earn $250 million in revenue this year, which represents a 127% leap over last year.

  • There are 345,000 creators making money on Roblox.

  • The most popular Roblox game, Adopt Me, hit 1.62 million concurrent players, and the studio behind it expects to have a staff of 100 employees by year end.

Matthew Ball also shared this great chart of Roblox’s monthly hours of playtime on Twitter:

Roblox Monthly Hours of Playtime

Roblox was big pre-COVID, but recent events — especially kids stuck at home for many months — have propelled the company’s platform to another level. What an incredible story. This is a testament to Roblox’s skilled execution, not to mention the broader potential of user-generated content (UGC) platforms. Roblox is now mainstream with a young demographic, and it’s an encouraging sign that UGC has a bright future among other demographics as well. Of course, Roblox has an enormous head start, but expect this rising UGC wave to be a defining trend of the next 5+ years. Link

Private Division signed three new publishing agreements. I’ve always liked the idea of Private Division, Take-Two’s third and newest publishing label, which helps the company expand its portfolio by partnering with promising indie studios. Private Division’s current portfolio consists of The Outer WorldsKerbal Space Program, Ancestors: The Humankind Odyssey, and Disintegration, so signing 3 new agreements represents pretty meaningful progress. The three publishing agreements are with Moon Studios (behind the Ori franchise), League of Geeks (behind Armello), and Roll7 (behind Laser League, OllieOllie, and NOT A HERO). It’s too early to say if these projects — which likely center around new IPs — will lead to another Outer Worlds-sized hit, but Moon Studios in particular has a strong track record so it’s certainly possible. All in all, good news for Take-Two. Link

The CEOs of Alphabet, Apple, Amazon, and Facebook testify in front of the US House Antitrust Subcommittee. As can be expected, congressional hearings are mostly political grandstanding, and many politicians unfortunately had a hard time sticking to the topic of antitrust. In general, I thought the hearing was scattered and the CEOs got by easily. It’s clear, however, that outsized tech power and the noise that comes with it will continue to lead to eventual regulation.

Narrowing in on what’s relevant to gaming, Apple’s App Store was frequently questioned, and even Twitch was mentioned in passing. Again, I think Apple CEO Tim Cook got by easily, but there are very real antitrust considerations related to the App Store that deserve more scrutiny and conversation: the scope of Apple’s 30% take rate, the fairness of striking special terms with larger companies, how approvals/banning are decided on, monopolistic payment options, not allowing companies to link to external sites for payments, etc. Apple’s grip is tight and won’t easily loosen, but it’s hard to see it tighten much further from here. Regulations often entrench the titans of industry, but in this case new regulations would probably enable competition and give developers more flexibility. Changes may take years to play out — across multiple global regions — but it’s hard to see Apple’s App Store power go unchecked indefinitely. Link

Even more gaming IPs are being adapted to movies and shows. The 2020s will be the decade where gaming makes its mark on traditional Hollywood. Three more announcements from the past week:

  • Crossfire esports drama tops 100 million views. Link

  • Splinter Cell is getting a Netflix anime. Link

  • Beyond Good and Evil is getting a Netflix movie. Link

For those keeping count, this is on top of a Mario movie, The Last of Us show, Dragon’s Dogma anime, Uncharted film, Castlevania anime, Halo show, and many other shows and movies rumored to be in the works. Passionate gaming audiences make these movies/shows more likely to succeed, and the adaptations should drive new audiences back to the games. It’s still surprising to me how hesitant large media companies are to grow their gaming exposure — the opportunity for more interwoven IP ecosystems is compelling — but either way gaming’s mark on broader entertainment and culture is only rising.

Private market deals.

  • Polyarc raises $9 million to expand from VR to AR games. Link

  • Huuuge Games acquires Double Star. Link

🖥 Content Worth Consuming

Nintendo, Disney, and Cultural Determinism. “However, the “Nintendo is Disney” thesis is deeply flawed. It feels more like a desire to apply a pattern than to find a real analogue. Elements of Nintendo certainly represent Disney, but they represent Disney insofar as both companies are best in class creators of four-quadrant, multi-generational content. Otherwise the businesses are fundamentally different, their management styles fundamentally different, and their approaches to content itself are fundamentally different, too. The best way to unpack this is to walk through Nintendo’s culture in (1) Hardware; (2) Content, as is shown through the company’s efforts in mobile; and (3) Ambition. After that, I’ll discuss the company’s future (sections four and five).” Link

Niantic COO Megan Quinn thinks consumer AR glasses are just around the corner. “Protocol caught up with Quinn just days after Niantic hosted the first-ever distributed event for its runaway AR gaming hit Pokemon Go. During our conversation, she shared her thoughts on the changing nature of work during the pandemic, plans to open up the platform that powers Pokemon Go to other developers, and the next big paradigm shift for AR consumer adoption.” Link

The Economy of the Metaverse | Tim Sweeney CEO of Epic Games! “If the Metaverse is the next frontier, how should the economy be designed to help support a healthy and vibrant ecosystem for all players? Today we are joined by Tim Sweeney CEO of Epic Games. The focus of the discussion is how do we build an efficient and fair economy for this new platform.” Link

Lessons learned guiding Riot Games through a cultural crisis. “At a time of cultural crisis for many companies, CEO Nicolo Laurent shares his experiences from the ongoing evolution of Riot Games.” Link

Should streamers be worried about DMCA strikes on Twitch? “While there's no simple solution to resolving the legalities surrounding fair use and copyrighted music in Twitch streams, game publishers, music companies and platform holders are all working on solutions to help make navigating this complicated area a little easier for Twitch streamers.” Link

See you next week!

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