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This Week on The Metacast
Sophie Vo: Lessons in Conscious Leadership. In this episode, Sophie Vo – founder of Rise and Play, as well as a game / studio lead – joins Naavik co-founder Aaron Bush to discuss conscious leadership and why does it matter. The duo also explores how to best lead teams among change – remote work, studio restructuring, layoffs, and more – as well as how to make teams antifragile. Sophie also shares how she assesses conscious leadership as an early stage investor and the best books to build a conscious mindset. Website | YouTube | Spotify | Apple Podcast | Google Podcast.
StriderDAO : Community-Driven IP Creation. On this week’s Crypto Corner, StriderDAO cofounder and CEO Andrew Green joins your host Nico Vereecke for a deep dive into Strider - a web3 platform and toolset that helps harness the creative power of communities to build new game and entertainment IP. Website | YouTube | Spotify | Apple Podcast | Google Podcast.
#1: EA and Square Enix Report Earnings
EA’s revenue up, bookings flat
Last week, Electronic Arts reported its financial results for its first fiscal quarter of 2023 (i.e. April to June 2022; EA’s fiscal year starts in April):
Net bookings were $1.3 billion and showed a decline of 3% compared to fiscal year 2022.
Split by platform, Console comprised 49%, PC & other 27%, and Mobile 24% of the net bookings.
Console and PC segments saw declines of 8% and 6% respectively, while Mobile bookings grew by 15%
Net revenue was $1.8 billion and grew by 14%. EA’s operating income remained healthy at $441 million (25% of net revenue) for the quarter.
EA's good old cash cow, the FIFA franchise, has been killing it and helped keep net bookings flat amidst decline in other parts of the company’s business. Even so, a decline is a decline. Roughly 70% of EA's revenue is live service based, which makes bookings a solid top line indicator. While modern live services revenue can be a lagging signal, purchases such as virtual currency are recorded as deferred revenue.
Notably, EA completed several acquisitions during 2021 that bolster its recent numbers. Acquired companies include Glu (Design Home, Covet Fashion), Playdemic (Golf Clash), and Codemasters (F1, Grid). Glu and Codemasters deals were already announced earlier in 2021. Playdemic, for one, was consolidated after last year's Q1. As a result, mobile bookings grew by 15% year on year.
As consumer spending in games as a whole has declined 13% year on year, EA might actually be beating the market. EA remains steadfast in its focus in games. Expect more football (both varieties), more racing, and more shooters. Finally, EA maintains an ambitious $7.6 to $7.8 billion (9% to 12% year-on-year growth) revenue guidance for the full fiscal year 2023, relying on continued strong performance from its sports titles.
Square Enix revenues decline even as FFXIV grows
Square Enix also reported its results for the quarter ending in June:
Net sales were ¥74.8 billion ($555 million), declining 15%.
Operating income was ¥14.4 billion ($107 million), declining 17%. Operating income margin remained steady, declining slightly to 19.3% from last year's 19.5%.
Square Enix reports its game revenue in three sub-segments. HD Games comprises traditional, price-tagged premium games; Mobile&Browser is the home for Square Enix’s free-to-play games; and the MMO sub-segment records the financial performance of large-scale multiplayer titles such as Final Fantasy XIV.
The largest driver for Square Enix’s lousy quarter was a 52% decline in the HD Games segment. The company did release new games, but with meager success compared to last year’s titles that included Outriders and the Nier Replicant remake. Mobile&Browser also declined by 17%. However, the MMO segment grew by 22%, driven by FFXIV’s accomplishments.
Additionally, Square Enix recently sold off its Western studios (along with Tomb Raider) to Embracer. In a recent results call, the company reiterated its plans to further restructure existing studios to optimize for capital efficiency. All this has happened in tandem with the CEO Yōsuke Matsuda maintaining an active PR stance on getting into blockchain and cloud gaming. Only time will tell which of Square Enix’s plans actually materialize and how. (Written by Miikka Ahonen, Co-founder of Lightheart Entertainment)
#2: Zen Match: Hypercasual Made Casual
This is the introduction to a full game deconstruction of Zen Match, written by Harshal Karvande. Check out Naavik Pro to request a demo, read the full write-up, and access our entire research library.
Zen Match is a tile-matching F2P puzzle game developed and published by Good Job Games, a primarily hypercasual studio from Turkey established in 2017. Categorized under the ‘Other Match 3’ subgenre of puzzle games with its distinct mahjong-like tile-match-3 puzzles, Zen Match is an alternate puzzle game released in June of last year (2021). Based on the first half of 2022, the game has broken into the top 20 grossing puzzle games in the world — a remarkable feat for the hypercasual studio’s first casual title!
With Zen Match, Good Job Games becomes the third largest games company in Turkey based on revenue — after Dream Games (with Royal Match, which we deconstructed previously) and Peak Games (with Toy / Toon Blast), which was acquired by Zynga. All three companies compete in the popular matching puzzle games genre, and Turkey is clearly a hotbed of talent for this highly lucrative genre. (Not to mention, in the first half of 2022, Turkey led the way in Europe for gaming startup investments with $333M of capital pouring in.)
Based on downloads, Good Job Games is primarily a hypercasual studio; in the first half of the year, the company captured 223M downloads across its (mostly) hypercasual portfolio. However, based on revenue, Good Job Games can be considered a casual studio. After all, Zen Match only represented 9.7% of the studio’s overall downloads (21M), but it brought in $36M in revenue — or 96.3% of the studio’s entire revenue. (It should be noted that this revenue tracking only considers IAPs and excludes any revenue generated outside of the stores like advertising. This puts primarily ad revenue monetized hypercasual games with one-time “No-ads” IAPs at a disadvantage.)
Hypercasual games are based on a single mechanic with a straightforward repeatable structure, with notable examples like Flappy Bird in the past to the more recent Fill the Fridge (by Rollic Games/Zynga) and Pull the Pin (by Popcore). These games are characterized by their broad appeal, a high number of installs, and low ARPU, with advertising revenue driving the majority of the monetization. Good Job Games has several successful hypercasual titles like Paper Fold and Sponge Art.
In a post-IDFA landscape, the hypercasual genre has become more challenging (although far from impossible) to succeed in. Much of the market relied on targeted ads, but due to platform privacy changes, targeting has become harder causing revenue per ad to drop. With Zen Match, Good Job Games succeeded in creating a puzzle game that evolved from its hypercasual roots and leaned more into the casual genre. The game keeps the simple, single mechanic tile-matching gameplay as well as heavy ad monetization, but it expands on content, features, and live ops to overcome the weaknesses of unreliable ad revenue with repeatable, desirable IAP monetization.
Although there continue to be Zen Match-like games attempting to replicate its success, none have managed to scale to meet its record performance. At its core, Zen Match is a hypercasual puzzle-game-with-a-twist that by utilizing a bunch of adopted best practices now competes in the cutthroat but higher margin red ocean of the F2P puzzle genre. In this deconstruction, let's look into what made this transition possible and so successful:
How does Zen Match scale its hypercasual core to operate as a near casual puzzle game?
How does it adopt and implement best practices from the casual puzzle genre?
What elements of its hypercasual origins are holding it back?
What changes can make Zen Match (and others like it) scale to the top of the casual puzzle charts?
Let’s dig into all of that but first begin by better understanding the key metrics at play.
Content Worth Consuming
Don’t Panic: Google’s Hypercasual Ad Crackdown Isn’t As Bad As It Sounds (MB.biz): “Google’s new guidelines around intrusive ads are not the ATT-style disaster some have predicted, it seems. On Friday we reported that Google’s new ad guidelines, effective September 30, will outlaw several ad formats when used in unexpected and intrusive ways, potentially impacting hypercasual games and advertisers. Prominent analyst and investor Eric Seufert summed up a lot of the reaction to the news when he said on Twitter that the restrictions are “absolutely going to kill the hypercasual gaming category”. But other folks we’ve spoken to about Google’s policies are more optimistic about how this one’s going to play out.“ Link
Idle Tycoon Games: Market Overview (AppMagic): “Idle tycoons have been drawing mobile game dev community’s attention during the last several years due to the appealing balance between seeming simplicity of production and potential yield. Besides, many of those who have been busy in the hypercasual games market started seeking ideas of more complex games with higher LTV that would help fight back the constantly increasing CPI. By 2022, cumulative monthly net iAP revenue of idle tycoons spiked and exceeded $21M, and their cumulative revenue (including ad revenue) could have hit the $30M mark. Note: here and further on, we only consider casual tycoons, not hypercasual ones, which are a different story (a different genre, per se). The speed-up in growth may be mostly attributed to several relatively new hits that highlight a new spin-off of the genre.” Link
On Finding The Heart in Game Development (Gi.biz): “Despite being an accomplished programmer with credits at renowned studios like Insomniac Games and Media Molecule, Moo Yu feels like he’s still finding his feet. Yu is something of a veteran in the games industry, having started his game development career in Southern California, before relocating to the UK and working on a multitude of mobile and indie projects including the crowdfunded Knights and Bikes. But his current position — creative director at his own studio, Team Artichoke, working on an unannounced game — he took up with reluctance. Link
Sustainable Web3 Game Economies is a Cursed Problem (Metaversus): “Countless NFT games will try hard to ‘balance their economies’, maintain ‘asset’ values for their NFTs through cycles. They will get lambasted, dumped and ridiculed — why? Because game resources are seen as ‘assets’, and when asset prices plunge, buyers are unhappy!” Link
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