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

Hi everyone,

After taking a much needed week off, we’re back at the grind. We also have a new website, so go check it out! Substack served Master the Meta well in its inaugural year, but it’s time to move on. Shifting over to Squarespace gives us more flexibility over site design, lets us bypass Substack’s 10% take-rate if we ever go premium, and we aim to evolve into more than a newsletter. You’ll get a glimpse of what I mean in the next couple weeks. In the meantime, if you spot any bugs or flaws we’d appreciate your constructive feedback.

It also means that we’re using a new email platform, so please let me know if you face any issues. Also, if the email pops up in Spam or Promotions, you’d do us a huge favor by dragging it over to your primary inbox. Thanks in advance!

And, of course, we still have a ton of deep dives in the pipeline. It’s taking us longer than expected to roll them out, but oh man are they coming. If you’re interested in contributing (or partnering, sponsoring, etc.) please fill out the form on our Contact Us page.

Okay, enough intro. Here’s your weekly roundup and analysis of what’s happening in the video game industry…

🎤 In The Media

Wildcard: Chinese Gaming [Industry Focus podcast]— “This week, Motley Fool Advisor Aaron Bush, of Master the Meta fame, joins Host Emily Flippen to break down how the gaming landscape in China has evolved in the wake of new geopolitical tension. What does the future hold for the largest gaming company in the world? What would a merger of equals mean for the streaming landscape in the Middle Kingdom? Tune in to find out!“ Link

🔍 Mini-Deep Dive into Skillz

Two weeks back, mobile game developer Big Run Studios (BRS) raised a second seed funding round of $5.25M through investment firms Transcend Fund and Galaxy Interactive. This comes a few months after BRS’ first seed round of $1.4M, and is most likely due to the recent success of their flagship title “Blackout Blitz” - a mobile Bingo game. Though what makes this particular funding round very interesting is that it’s a bet on the unique monetization engine behind BRS’ complete app portfolio - Skillz!

📰 News

Epic Game’s App Store Crusade. Epic’s feud with Apple (and to a slightly lesser extent Google) is old news at this point, but it’s no less important. If you’re catching up, I recommend reading Game Changers’ legal breakdown (part 1, part 2). Also, make sure to watch Epic’s spoof of Apple’s classic 1984 commercial (oh how times change):

Let’s cut to the chase. Is Apple doing anything illegal? No. But are some of its policies anticompetitive? Undoubtedly yes. There’s a long list of evidence: blocking competing payment options, blocking links that send users to web sign-up pages, rejecting cloud gaming apps for business model reasons, killing the IDFA while retaining enhanced targeting capabilities itself, promoting first-party services/apps over others, etc. The issue is less whether or not a 30% take-rate is egregious and more whether the app store model in its entirety is designed anticompetitively, especially when there are ~1 billion mobile iOS users. Scrutiny is scale dependent, and times have changed.

Will Epic Games win its case? I don’t know, but three things are clearer than ever. One, the cracks in Apple’s model are piling up; legitimate complaints from notable companies are coming left and right. Two, Apple actively cares more about control than revenue, because control is ultimately what enables long-term, sustained platform revenue. And three, the more Apple escalates how it cracks down to maintain control — especially in highly public cases like with Epic — the more obvious its anticompetitive grip is to more people. As I see it, Epic’s strategy is just as much about drumming up noise and support as it is about winning this specific case, because actual foundational change is more likely when other big companies, personalities, and governments pile on. Epic’s stance is certainly selfish in some ways, but it’s hard to argue that app stores wouldn’t be healthier for business as a whole if Apple were to loosen its policies.

What’s going to happen? Although this battle will certainly carry forward for a while (Apple retaliating by threatening Unreal’s access to iOS developers is one clear sign), it’s a matter of when not if app store policies change. The main uncertainty is what does “change” look like, because it will impact literally dozens of industries. Even though existing antitrust laws are horribly outdated, the antitrust case here (beyond just Epic) is fairly obvious. If I had to guess, the EU will probably lead the charge and other governments will follow suit. Of course, any change would be riddled with complexity, which takes time to work out. The Apple storm will probably get worse before it gets better, but my hunch is that in the long-run this headwind will ultimately reverse into a tailwind. Even if Apple doesn’t immediately drop its 30% take-rate, loosening policies that add more app store flexibility should give companies a better means of bypassing it. Time will tell.

Earnings season quick hits:

• Tencent’s online games revenue jumped 40% year-over-year. That growth was driven entirely by mobile games, which grew 62%. Peacekeeper Elite was a major contributor, the China release of Brawl Stars (by Supercell) made a healthy dent, and the launch of Chess Rush was successful. PC games were a headwind this quarter — revenue down 7% or so; DnF and Crossfire results were soft — but there remain catalysts. Valorant, Riot Game’s new FPS, recently dominated Twitch and launched at a time when people were stuck at home, so international MAUs trended up nicely. The backlog of domestic/China content remains healthy, distribution advantages (like via WeGame) remain strong, Tencent is still a key partner to foreign companies who wish to scale their games in China, cloud opportunities are abundant, and Tencent is keeping a firm eye on international expansion. The last point is the highest risk, especially as geopolitical tensions rise (keep in mind, Trump is banning WeChat and there’s been more chatter in India about banning additional games). Nothing is set in stone and there isn’t yet pressure to spin-off foreign holdings like Riot (although it’s a non-zero possibility), but Tencent could have a harder time striking full acquisitions in the West. So far there’s little evidence it’s a problem, and Tencent’s business as a whole is exceptionally positioned, but geopolitics is a risk that management will have to delicately work around. Link.

• NetEase’s gaming business is steadily excelling. Gaming revenue rose 21% YoY. Mobile remains the vast majority of that revenue (72%), but both mobile and PC gaming revenue both grew ~21%, too. It’s pretty simple to dissect. The flagship Fantasy Westward Journey franchise is performing well, other legacy franchises (like Justice, Invincible, and Onmyoji) are also doing well thanks to content updates, Knives Out continues to crush it in Japan, and expanding into new genres is expanding NetEase’s addressable audience (like with Identity V). Also, NetEase is doing a great job as a co-development partner, making games for brands like Lord of the Rings, Harry Potter, Pokemon, and Diablo. Results will be lumpy depending on when certain releases occur and when content updates hit, but as a whole NetEase’s strategy is working just fine. They’re also in the early innings of expanding internationally themselves, which poses similar geopolitical risks as Tencent, but NetEase is far less exposed to those risks than Tencent is. Link.

• Sea Limited is on fire. It’s hard to find companies that are performing better than Sea Limited right now. Shopee, the company’s e-commerce platform, gets outsized attention — and rightfully so; it’s easily the larger opportunity — but the company’s gaming segment (Garena) is doing great, too. As a refresher, Garena distributes games like League of Legends and Call of Duty: Mobile across Southeast Asia, and its own games — Free Fire most notably — are making waves. The company recently reported that its Digital Entertainment segment now has 500 million quarterly active users (+61% YoY) and 50 million of those QAUs are paying users (+91% YoY). As a result, gaming revenue is unsurprisingly shattering records and that segment is quite profitable. Free Fire hit a record high of 100 million DAUs, which is crazy, and it was once again the highest grossing title in Southeast Asia and in Latin America. The team is doing a great job engaging users through content updates (like collaborations with Netflix for a Money Heist crossover) and esports. What the team is doing with Free Fire is extremely impressive, and I see little reason why the game can’t excel for many years. Sea Limited will naturally try to diversify through acquisitions and new game launches, but the story will still very much revolve around Free Fire. And, of course, profits from the gaming business are the fuel that is helping Shopee acquire users and eventually dominate Southeast Asia’s e-commerce market too. Link.

• Stillfront’s quiet ascent. Stillfront’s growth strategy is different from most other gaming businesses — they centralize capital allocation decisions, acquire studios with long lifecycle games, and then let them run mostly independently — but its results are no less impressive. Net revenues rose 148% YoY as a result of both organic growth but mostly acquisitions. Tucking in Kixeye, Storm8, and Candywriter significantly moved the needle, and the company remains highly profitable and ready to strike even more deals. The risk is that the company overpays on a studio that dramatically underperforms, but the focus on high margin recurring revenues helps mitigate that risk. The company sort of reminds me of a younger gaming version of Constellation Software, so I’m excited to watch what the company does from here. (Sneak peak: we’re partnering with Joakim at Elite Game Developers to interview CEO Jörgen Larsson and publish a deep dive into Stillfront. Lots to learn from this one.) Link.

• Square Enix is on the upswing. Recent results are quite solid — net sales up 63%, operating income up 241% — partially as a result of macro gaming tailwinds but primarily thanks to the mega-release of Final Fantasy VII Remake. Trials of Mana has so far surpassed expectations, as well. Also, not only are FF7 Remake sales impressive, but gamers opted for the digital version at higher rates, which helped push up margins. Results like this are lumpy so very little can be extrapolated, but the success of FF7 Remake sets the sequels up for greater success, too. Also, Square Enix will launch Marvel’s Avengers in September. Expectations are high, and if the game meets or exceeds those expectations (definitely a risk) then the company should experience notable launch revenues and recurring revenues since the game has a heavy focus on additional post-launch content. Execution risk is the largest risk, but if Square Enix can exceed gamers’ expectations where it matters most, then the company will increasingly be set up for long-term growth. So far so good, but there’s more to prove. Link.

Amazon and Smilegate enter into a publishing agreement. Smilegate, which is best known for Crossfire (670 million registered users), is partnering with Amazon to bring a new game to market. It’s unclear whether this game is based on an existing franchise or not, but Smilegate will likely develop the game and Amazon publish it. Smilegate pretty clearly hopes to expand into new regions, so partnering with a Western publisher is a natural step. Partnering with Amazon, though, is the interesting piece. Despite Crucible’s flop, Amazon remains dedicated to the gaming market. Amazon Gaming (used to be Twitch Prime) is its primary foothold, but this is yet another hint that the company wants to get deeper into the business of developing and publishing games too. I think Amazon is increasing its odds by partnering — and maybe should do so more often — so it will be interesting to watch how Amazon’s strategy continues to evolve. Link

Team Liquid launches the Liquid+ platform. On the heels of the organization’s 20th anniversary, Team Liquid (a prominent esports org) is launching Liquid+, a platform designed to reward its fans for ongoing support. It begins via browser (and later a mobile app), but the rewards platform tracks fan engagement around social media sites (like Twitter and Discord) and gives loyalty points that can eventually be redeemed in swag, event tickets, and other rewards. There’s incentive for fans to engage, and it gives Team Liquid itself a closer relationship with fans. Esports teams as a whole still struggle to monetize their fan bases, so better collecting aggregate data and creating a central platform for fan connections seems like an innovative step in the right direction. If it sticks there’s plenty more the company can test — exclusive content, exclusive apparel drops, etc. — and I expect other orgs to eventually follow suit. Link

🖥 Content Worth Consuming

Tencent: The Ultimate Outsider (Part 1). “Tencent is the Chinese conglomerate behind the recently-banned WeChat, and one of the world’s most successful investment funds. There’s so much to say about this company that I’m breaking it up into two parts:

• Part I (today): Tencent’s history, its business, and its portfolio, including a bonus goody for the investing nerds out there: a link to a spreadsheet I made with the current value of 102 of Tencent’s investments.

• Part II (Thursday): Where Tencent is headed - it’s building new cities in China, and it’s going to be at the center of building a whole new world.“ Link

How Nexon is expanding its PC online games to mobile. “Nexon is a lucky online-only video game company with five major franchises that have generated billions of dollars in revenues over the years. That’s the payback from being the first company to launch a free-to-play online game — the Kingdom of the Wilds, released on the PC in 1996. And by the end of this year, all five of those major franchises will be available on mobile devices, Nexon CEO Owen Mahoney said in an interview with GamesBeat.“ Link

• Note: We’re putting the finishing touches on a deep dive that builds a framework for how companies can transition from console to mobile. It should be a good one.

How Wargaming enlisted 160 million World of Tanks players over a decade. “During the pandemic, World of Tanks has seen a surge, and Wargaming has done its best to make us fall in love with massive online tank battles from the World War II era all over again, staging in-game events that have lasted for weeks. And August 12 was the big day. I interviewed Wargaming CEO Victor Kislyi about the anniversary and how the company labored for years before coming upon the right free-to-play game. It’s racked up more than 160 million registered players in the past 10 years.“ Link

Gigi Levy Weiss on Venture Stories [Elite Game Developers podcast]. “Gigi Levy Weiss in an interesting investor. He used to be the CEO of an online gaming company in Israel, then turned investor. His portfolio includes companies like Playtika, Moon Active, Plarium, and Space Ape Games. Today, Gigi is a managing partner at NFX, which is an accelerator and venture funding firm based in Silicon Valley.“ Link

Why Microsoft's new Flight Simulator should make Google and Amazon nervous. “Stunning visuals and world-building show Microsoft is far ahead of its rivals in bringing different teams and different technologies together.“ Link

Genre and Great Games Report. “[Game Refinery] partnered with Facebook Gaming and Facebook IQ to give you everything you need to know about genre and mobile gaming in one comprehensive report!“ Link.

This startup network wants to be the MTV for gaming culture. “VENN, which stands for Video Game Entertainment and News Network, is a 24/7 network targeting Gen Z and millennials that aims to do for gaming what MTV did for music and pop culture in its heyday… Kusin and his co-CEO Ariel Horn think they’re hitting the market with the right approach and at the right time—and yes, that means during a pandemic.“ Link

High Score | Netflix. “This docuseries traces the history of classic video games, featuring insights from the innovators who brought these worlds and characters to life.“ Link

Fall Guys vs TimTheTatman. Hundreds of thousands of people watched TimTheTatman struggle to get his first win on Fall Guys. It was hilarious, and the Fall Guys team masterfully leveraged it on social media. Tim eventually pulled it off and immediately started trending on Twitter as a result. Link.

Thanks for reading. See you next week!