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

Hi everyone,

A couple fun updates this week. First of all and in response to reader feedback, check out our new design! We’re shamelessly copying best practices from those who do email 100x better than us, but we do believe in standing on the shoulders of giants. If you like it, hate it, or have issues please let us know.

Second, we’re thrilled to welcome two new guest contributors:

  • Alex Macmillan is a product management expert, is based out of Barcelona, and runs a pretty unique blog that focuses on the intersection of data analytics and product management.

  • Miikka Ahonen worked several years at Rovio, is now the co-founder of Lightheart Entertainment and is based out of Helsinki. His company’s first game, Mr. Autofire, is absolutely killing it!

Both Alex and Miikka have been long-time strong sources of truth for us, and Manyu and I are grateful to be writing alongside such brilliant people. We’re excited to see what insights they share in the future, and you should be excited too!

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

#1: Roblox’s Big Results and Even Bigger Aspirations

Roblox

Last week, Roblox released its S-1, the filing that shares info about the business ahead of the company’s IPO. There were lots of interesting details. For one, the company clearly laid out the characteristics it stands for: identity, friends, immersive, low friction, variety of content, anywhere, economy, and safety. Second, Roblox’s 2020 performance is insanely great; over the past nine months:

  • Daily active users grew 82% to 31.1 million

  • Hours engaged grew 122% to 22.2 billion (2.6 hours per DAU)

  • Bookings grew 171% to $1.24 billion

  • FCF multiplied to $292.6 million (23.6% of bookings)

  • Creator earnings grew 189.8% to $209.2 million (960,000 earned anything; nearly 250 earned >$1 million)

This is a special business that’s clearly putting its best foot forward, and despite insanely great growth, management’s goal is exponentially larger: “Our mission is to build a human co-experience platform that enables shared experiences among billions of users.” Billions! How will they get there? Roblox calls out four key growth opportunities:

  • Platform Extension: Adding more realistic experiences and new features should unlock new types of experiences, which attract new users and more hours from existing users. There’s technical debt to work through, and Roblox must be careful to not lose its identity, but it’s certainly doable.

  • Age Demographic Expansion: Roblox is mostly a kid-oriented platform today, but it must find ways to win over adults if it wishes to reach its ultimate goal. Plus, it would make more money from adults, too.

  • International reach. 68% and 19% of bookings come from the US/Canada and Europe, respectively, but 67% of DAUs are from non-US/Canada markets. There’s much more opportunity to capture around the globe, and the company also has a joint venture (Luobu) in China.

  • Monetization: Through subscription services, helping developers use best monetization practices, and working with brands, Roblox sees greater upside here. A 30% take-rate is already high, but I agree there’s more opportunity to capture.

The risks are mostly the converse of these opportunities. Failing to extend the platform or win over older audiences or succeed in new markets or monetize better is what would hold the company back. I’d also add that evolving App Store rules could always catch the company off guard, and even though Roblox has a massive head start, competitors like Manticore or Epic Games could chip away at market share in certain places over time. Whatever the case, Roblox has executed incredibly well, and it has abundant opportunity left. This fact paired with ongoing “metaverse” hype means the company could start trading at a $30-35+ billion valuation out of the gate.

#2: Did PlayStation Already Win the Console War?

Console War

PlayStation 5 and the new Xbox are out. It wouldn’t be a new generation of gaming hardware without speculation about console wars. Just as a reminder, PS4 was the uncrowned king of the previous generation with over 113 million units sold, followed by Nintendo Switch at 68 million and Xbox One at ~51 million units sold.

Microsoft released the awkwardly-named Xbox Series X/S on November 10; Sony followed suit with PlayStation 5 on November 12 in some of the key markets and November 19 globally. Details on actual sales data are still scarce, as neither Sony nor Microsoft report unit sales and there are no respectable third parties reporting data yet.

However, there are signals out there, and most of them indicate a victory for PlayStation.

Neither of the new console releases went off without a hitch though. Supply for both the PlayStation 5 and the new Xbox is still limited. If you didn't get yours already, it may be hard to get your hands on the new hardware for the holiday season - unless you're willing to shell out big bucks and get one from scalpers. Or perhaps you are like me and you’d rather wait for the initial problems that are typical to new hardware to get solved before buying yours.

All in all, PlayStation is set to win the newest generation’s console war, at least in the early days. Content is king, and PlayStation is a clear step ahead of Xbox when it comes to exclusives that attract console purchases. Interestingly, despite mega-deals like acquiring Bethesda, console exclusives are decreasingly the game Xbox is playing — it’s looking to serve more gamers through cross-platform services like Game Pass and xCloud — but time will tell whether shifting tactics will help Xbox recapture the throne PlayStation now controls. (written by Miikka Ahonen)

#3: Will Fortnite’s Subscription Work?

Fortnite Crew

This week Epic Games announced the launch of Fortnite Crew, a $11.99 monthly subscription where players get the latest Battle Pass, 1000 V-Bucks, and in-game items. But let’s back up for a moment first. There has been a lot of talk about subscriptions in mobile games ever since Apple launched that feature on its platform. A few notable games have tried to build various features to take advantage of that. So far, Subscriptions is not a monetization model that has successfully picked up in mobile games. The limited success of Apple Arcade would also seem to suggest that subscriptions are not the way of the future to successfully monetize your game.

While the value for a mobile developer to get steady cash flows is obvious, it feels like most available subscriptions have fallen short when it comes to providing value to the end user. That’s also due in large part to the very foundation on which mobile free-to-play games are built. Free-to-play is built on the promise of free entertainment for consumers. It’s already hard enough to provide a value proposition for a user to pay once – it’s even harder to provide a value proposition that would make users want to commit to repeat spending on a regular basis (emphasis here on commit even more than repeat spending).

There are some apps that are subscription-based that periodically make it to the top grossing ranks. However, these apps are not games. They are products that become part of the user’s daily lives in a way most games don’t achieve. That’s also why Fortnite seems to be a good candidate to make a subscription work. Fortnite is obviously a game first and foremost. But it’s also important to note that it’s a platform to socialize, a product to stream and watch, and a brand to engage with outside of the game. It feels like for its fans, Fortnite is much more than just a game. The value proposition for the subscription seems there, and it builds on top of the other proven monetization tactics that already exist. Plus, the stickiness of the product means it also makes sense for engaged players to see value worth committing extra money to.

Until Epic shares numbers on Fortnite’s monetization performance, we’re left with just speculation. Intuitively it would feel like a large portion of paying users only make one significant purchase per season – the Battle Pass. For players buying the monthly subscription, that means 6x spend during a given season. And with more in-game currency to spend, one can assume Epic is banking on more players engaging with the cosmetic economy. If the subscription model picks up in Fortnite, we should expect various iterations on the content of the subscription, and on the game’s economy as well. More currency in game means more opportunities to try to build new skins as well – some cosmetic, maybe some more functional. Out of all the attempts to crack the subscription nut in a free-to-play product, this seems like the most promising one so far. (written by Alex Macmillan)

#4: Bytedance’s Publishing and Platform Ambitions

ByteDance

It seems like we can’t get through a month without talking about Bytedance’s growing gaming operations. As reported by South China Morning Post, Bytedance launched a mobile-only game store, Danjuan Games, back in October, and this month it announced Pixmain, an indie game publisher that does global publishing on all platforms.

Danjuan, which means “egg roll” in Chinese, is a mobile-based game app store that’s focused on casual titles (for now). In China’s Android ecosystem, 3rd-party app stores such as Tencent’s Myapp are standard fare alongside the phone manufacturer’s own app stores. Oppo, Huawei, Vivo, and Xiaomi all have their own app stores with millions of users, and they also have a lock on app distribution, taking up to 50% of gross revenue in some cases. Danjuan enters the mix here and probably will most resemble Taptap, another upstart. Taptap made a name for itself amid a crowded marketplace a few years ago by focusing on player community building within the app store. Expect Danjuan to follow this formula.

As for the Pixmain announcement, it sounds like Bytedance just added the standard indie arrow to its quiver of publishing offerings. That said, Pixmain is actually an anomaly for Bytedance. As of today, Bytedance has accumulated assets in hypercasual publishing (Ohayoo), midcore game development/publishing (multiple studios in China), instant games (Unity Partnership), and now a game app store (Danjuan) plus indie publishing (Pixmain). All of the moves so far have been mobile-centric (leveraging Bytedance’s existing audiences) — except for Pixmain, which is actively looking for cross-platform games.

This is where we get speculative. Adding a mobile app store plus cross-platform capabilities may suggest that Bytedance is actually thinking bigger. Perhaps Bytedance is not only aiming to be the next Tencent or Netease in terms of making and publishing high quality games. Maybe Bytedance is building a cross-platform cloud gaming platform that’s also racing against Apple, Epic, Sony, Microsoft, Amazon, Google, Facebook, Nvidia for a more important place in the ever-evolving metaverse. And why not? Bytedance has an enormous active user base under 25, and they have a history of building wildly successful platforms (Toutiao, Tiktok). Plus, if you consider the fact that China has the talent for improving networks (5G) and gaming, it might not seem too far fetch an idea after all. Time will tell. (written by Owen Soh)

🎮 In Other News…

  • Discord is close to closing a round that would value the company at $7 billion. Link

  • Ahead of its acquisition by Take-Two, Codemasters reported results of roughly doubling sales and profits thanks to a strong release slate. Link

  • Free Fire has now racked up over 100 billion views on YouTube. Link

  • Nintendo published new usage guidelines for Animal Crossing that say you can’t use the game for commercial purposes. Link

  • Kongregate takes over three aging mobile games from Disney. Link

  • AppsFlyer raises funding from Salesforce Ventures at a $2 billion valuation. Link

  • Square Enix will allow employees to work from home permanently starting December 1st. Curious to see if others follow suit. Link

  • Supercell backs new studio 2UP Games with $2.8 million investment. Link

  • Piranha Games acquired by Enad Global 7. Link

  • Bandai Namco backs Genies with $3 million investment. Link

  • ‘Ready Player Two’ author is going on a virtual book tour in Roblox. Link

  • TinyBuild invests $3 million in Secret Neighbor developer Hologrypth. Link

  • Keywords Studios acquires marketing agency G-Net Media. Link

🖥 Content Worth Consuming

Building Data-Driven Teams in Mobile Games Part 4: Optimize the ROI of Your Analytics Efforts. “Maybe (hopefully?) particle physicists are very attentive to the most subtle variations. In mobile game it’s hard to do that – and it can be counter-productive if you are trying to track things down at that level of precision. Very few games can be attributing such small changes to actual changes in product performance. Depending on the metric you’re focusing on, the population you need to consider to reliable measure a change (from a statistical point of view) can be very high. And even if the delta reflect a real change in product performance, it’s probably not worth it to spend 3 months AB testing your log in bonus to have a high degree of confidence in the 0.5% increase in D7 retention of your game. You can probably find better things to test…“ Link

Emmett Shear - The New Language of the Internet. “My guest today is Emmett Shear, founder and CEO of Twitch. Twitch is the world's leading live streaming platform for gamers, which was acquired by Amazon in 2014. We talk about how Twitch empowers streamers to monetize their audience, the necessity of picking a customer early in a business, and the lessons Emmett learned scaling Twitch from an online reality TV show to a global brand inside Amazon. We also discuss how Twitch has helped create a new language in the internet age with emotes, a topic I am fascinated by.“ Link

There’s One Inspiring Success Story Among Us: Reverse-Engineering the Tale of the Mobile Game That Amazed the World. “Four-people team, two years under the radar, and no marketing strategy. What InnerSloth did with Among Us, the cross-platform mobile game that took over the world, is a remarkable tale of growth. Our Director of Marketing analyzes.” Link

Microsoft’s Phil Spencer on Launching the New Xbox and the Future of Games. “On this week’s episode of Decoder with Nilay Patel, I interviewed Phil Spencer, the executive vice president of gaming at Microsoft — or, more simply, the guy in charge of Xbox. We had a lot to talk about: how much the pandemic has accelerated trends in gaming, why he chose to launch two next-gen consoles at the same time, the issues with preorders and supply he’s seeing, and how he sees Xbox growing over time. And we talked about game streaming, where it is now, where it might go, and how it’s going with Apple and Google to get his streaming service in their app stores. We also talked about the community and culture of gaming, which Phil is very passionate about. He told me he thinks game developers need to be actively engaged in creating safe and inclusive environments all the time.“ Link

Thanks for reading, and see you next week! As always, if you have feedback let us know here.

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