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

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

📰 News

Activision Blizzard’s earnings. Results beat expectations, but business was lighter than a year ago (typical lumpiness). Call of Duty drives the bulk of Q4 revenues, and Modern Warfare had a great launch. I always like how management frames up current results in the context of their long-term plans:

In many ways, Activision continues to be a great business: top franchises are holding steady, the team is ramping up content plans, and the company generates tons of cash flow. On the other hand, it’s not 100% positive: Warcraft 3: Reforged was a low quality release, Hearthstone is declining, King is relying more on ads to tread water, there are business model uncertainties around esports, and CoD: Mobile is weakly monetizing. Management’s priorities appear sound, and none of these weaknesses are devastating, but there’s a lot to keep an eye on. Bringing top franchises to mobile should be a growth catalyst over the coming years, but for it to dramatically move the needle, execution needs to go up a level. Link

Take-Two Interactive’s earnings. Results beat expectations, but the stock took a hit as investors have grown accustomed to even greater outperformance. Results were also down from last year — Red Dead Redemption 2 is a tough act to follow — but the business continues to reinvest in building its pipeline. The negatives of this quarter were that WWE 2K20 flopped and NBA 2K20 underperformed due to in-game monetization changes. Both of these issues are fixable for future iterations. On the positive side, it’s remarkable that GTA V has now sold 120+ million units, GTA Online and Red Dead Online (especially the former) are great recurring revenue streams, and all four publishing labels (Rockstar, 2K, Social Point, and Private Division) are working to drive growth by expanding their pipelines. Don’t overreact to the stock price hit; this business is steadily and methodically creating value. Link

Ubisoft’s earnings. Ubisoft’s previous quarter was abysmal — underperforming games + major delays — so expectations going into this quarter were minimized. There was nothing special about the results. Some of the back catalog is holding up well (Rainbow Six Siege, Assassin’s Creed Odyssey, etc.) but the live ops games — The Division 2 + Ghost Recon: Breakpoint — continue to struggle. There are five AAA games in the works, and Ubisoft continues to acquire mobile talent (most recently Kolibri Games of Idle Miner Tycoon). Also, Uplay was up 70% YoY (mostly thanks to platform partnerships), and although Uplay still isn’t a huge driver it’s obviously growing more meaningful. In my opinion, this is absolutely a company that can turn things around. I think they’ll get smarter, but I’d like to better understand their mobile strategy, and I’d like some evidence that they can improve their live ops games the same way they turned around a franchise like Assassin’s Creed. Link

Zynga’s earnings. I’ve been a fan of Zynga’s strategy and execution for a while, and I believe the company still has plenty of room to run. For the full year, Zynga generated $1.32 billion in revenue (+46%), bookings of $1.56 billion (+61%), and $263 million of operating cash flow (+56%). That’s a result of both organic and acquisitive efforts. It took several years, but 2019 was officially Zynga’s best bookings / revenue year (and operating cash flow was the highest since 2011). I expect the company to continue breaking records. The company’s 5 forever franchises are holding steady, and the pipeline (which includes Farmville 3, Puzzle Combat, and a Harry Potter game) will likely add more to the list. Importantly, the company also holds significant capital to acquire other studios / titles. Acquisitions are getting harder to find, but it’s just a matter of time before another deal is announced. Between adding more games, ramping up revenue per game, and maintaining operating efficiency, this business can pretty clearly grow much larger over time. Link

Remedy Entertainment’s earnings. I didn’t realize Remedy was public until one of Master the Meta’s readers recently called it out. I probably won’t cover it regularly since it’s still only a $180 million business and primarily trades on the Helsinki stock exchange, but it’s worth checking out. It’s the developer behind games like Max Payne, Alan Wake, and Crossfire… and more recently developed (and owns) Control, which captured significant attention and won several awards last year. As a result, Remedy experienced tremendous growth — 57% annual revenue growth + 21% operating margins in 2019 — and it’s currently building out its team and technologies (it owns its own game engine, Northlight) to tackle even more projects in the future. If the company can follow up on Control (it still has two DLCs to release) and add more franchise pillars (whether self-owned or through partnerships), then it could lead to major organic growth that leads the company to new highs. Not being a publisher is somewhat limiting, but it’s worth watching whether Remedy can continue to pursue its long-term growth plans. I’m intrigued. Link

Adam Sussman is now President of Epic Games. Sussman’s latest stint was Chief Digital Officer of Nike, but he also has significant gaming experience with executive functions at EA, Take-Two, and Zynga. As Epic expands its DTC storefront efforts, works with more brands, and scales its platform ambitions, Sussman will likely turn into a strong hire. Link

Activision pulls games out of GeForce Now. “GeForce Now had also removed games from publishers such as Rockstar Games, Square Enix and Capcom before the service went to premium pricing. The Verge noted Friday night that GeForce Now’s boss said publishers “are taking a while to make up their minds” about participating according to Nvidia’s no-commercial-agreements model, which doesn’t give them any extra money.” This also doesn’t have anything to do with Activision’s recent esports/cloud deal with Google. In my mind, Activision is always particularly greedy about getting the best possible terms, but it obviously isn’t just them. New paradigms with new business models will take some time for everyone to get used to. I don’t necessarily think a company like Activision should get paid in this scenario, but IP owners are usually the ones with the most bargaining power. Link

🖥 Content Worth Consuming

2020 Predictions #9: Newcomers Will Reimagine Card Battlers. “The throughline of these predictions is this: Newcomers will have to reimagine the card battler genre to succeed. Several new card battlers are coming to mobile in 2020 - Runeterra, Gwent, Magic, and probably more. All of them are taking many cues from Hearthstone in terms of features, but none will find Hearthstone’s feature list sufficient to succeed. Neither is Hearthstone finding success with their current approach.”

I enjoy card battlers but have thought for a while that this entire genre is completely stale. There’s a major opportunity for someone to reinvent card games — new mechanics and new special effects (still waiting for holographs like old school Yu-Gi-Oh) — but it doesn’t look like it’s coming from a major publisher anytime soon. On the other hand, CD Projekt Red with Thronebreaker: The Witcher Tales merged card battling and narrative-driven RPG mechanics in a cool way. Link

Tim Sweeney’s Full DICE 2020 Talk. “Watch the full video of Epic Games founder Tim Sweeney' DICE Summit talk. Topics range from loot boxes to cross-platform play and games involving politics.” There’s a lot of noise out there about what Sweeney said, so you might as well listen to the primary source. Link

The Making of Outer Wilds - Documentary. “We talk to the developers at Mobius Digital Games about the design of their breakthrough hit - Outer Wilds.” Link

Dreams. I know it’s a buzzword, but user-generated content (UGC) is an area where many more boundaries can be pushed. Dreams is “a place for unlimited creation” on Playstation, and it looks like something special. I thought IGN reviewed it quite well. Link

See you next week!