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

Hi everyone,

Master the Meta’s been in go-slow-to-go-fast mode for the past month, and I’ve taken time to really think about what this brand is aiming to achieve and how to get there. At its core, Master the Meta remains focused on analyzing the business strategy of video game companies. That analysis covers a lot of ground: understanding industry trends, digging into individual businesses, and even taking time to dissect individual games. Several perspectives matter.

I also heard your feedback loud and clear. The Weekly Metas add value — timely, quick-hitting analysis matters — but many of you crave more deep dives. Here’s what you can expect going forward:

• Ongoing Weekly Metas

• An accelerating cadence of deep dives

• Occasional interviews

I’m just one random dude doing this on my weekends, so how is this possible? Two things.

First, I’m happy to announce that Abhimanyu Kumar is joining the Master the Meta team! I got to know Manyu several months back and am continually impressed by his industry knowledge and outstanding writing. Manyu has worked on mobile games at Disney, Flaregames, and Zynga, currently runs his own mobile gaming consultancy, and has published multiple essays that thousands of industry insiders have learned from. He’ll focus on deep dives and instantly provide a valuable and differentiated perspective. Our first joint essay should get published in the next couple weeks, and he’s already planning for what’s next. Get excited!

Second, we aim to expand Master the Meta’s network of contributors, so here’s an open invitation. If you want to share your insights to a larger audience — whether once or dozens of times — and work with us to sharpen your analysis & writing, shoot me a message at [email protected] or DM me on Twitter. Importantly, we’re going to build a behind-the-scenes community exclusive to contributors, so here’s your chance to get in on the ground floor. Even if you’re not sure, don’t be shy to reach out.

Now, let’s dive in and catch up on what we missed...

📰 News

Black Lives Matter. It should go without saying, but systemic racism is still a major problem to overcome together — on a personal, local, political, and corporate level. The video game industry is no exception. It’s encouraging to see companies support the movement, but there’s significant room to invest in diversity efforts, financially back black founders, improve how minorities are portrayed in games, and more companies need to stand up for what’s right faster. I don’t have all the answers, but we’re digging deeper. Manyu is spearheading an essay that, by showcasing diverse voices, should provide some guidance on how gaming companies can take action to improve.

In the meantime, I encourage you to check out Itch.io’s Bundle for Racial Justice and Equality. With a minimum donation of $5, you get access to 1,600+ indie games, and all proceeds go to the NAACP Legal Defense and Educational Fund and Community Bail Fund (split 50/50). There’s one day left, so hurry up and check it out! As Ryan Rigney, the Communications Lead for League of Legends (and Master the Meta reader!), said on Twitter: “IMHO it's now to the point that you'd have to be either nuts or extremely committed to racism to miss this one.”

PS5 reveal. The long wait for info is finally over:

I’m sure you’ve seen what the PS5 looks like (it’s big and very memeable):

And here are my top takeaways:

• It was a well-polished presentation that frames the PS5 strategy up as a continuation of the PS4. It was all about content, much of which is exclusive to PlayStation and sequels to previous blockbusters. Games like Spider Man: Miles Morales, Ratchet & Clank: Rift Apart, and Horizon 2: Forbidden West collectively make the PS5 an enticing system. The PS5 will support backwards compatibility for most PS4 games, but many new exclusives will probably only launch on PS5 (Xbox is taking the opposite approach).

• The PS4 sold 110+ million units (compared to 50+ million for the Xbox One), so between having a larger existing audience and more notable exclusives, the PS5 should handily outsell the Xbox Series X at launch. Xbox appears better positioned as a multi-pronged ecosystem (hardware, growing exclusives, Game Pass, cloud, etc.), but that takes longer to build up.

• There are two versions — one with a disc drive, one without — which is a sign that this is likely the last disc-based console generation.

• PlayStation Plus (the online service subscription) was only mentioned in the context of GTA V (which as a mega-hit with an important Online mode is obviously going next-gen). PS Now (the cloud gaming subscription) and PSVR weren’t mentioned at all. It’s a telling sign of what the team is focused most on, but hopefully we hear more about these topics sooner than later. If anything, PlayStation needs to better compete with Game Pass.

• We still don’t know the price.

• Bugsnax 😬🙈

Zynga acquires Peak Games for $1.8 billion (half cash, half stock). I’m a fan of this deal from both sides. Peak’s Toon Blast and Toy Blast collectively have ~12 million DAUs and generate essentially all of the company’s $600 million in revenue.

From Peak’s perspective:

• That’s a lot of money and a great accomplishment, so congrats to the team!

• Maintaining those games + growing the pipeline takes additional resources, and Peak only has ~100 employees (impressive!). Not only does coming up with other hits take more resources, but it’s not a sure thing.

• Peak sold its casual card game studio to Zynga in 2017, so it had a good understanding of what it was walking into.

From Zynga’s perspective:

• It’s a great deal. Zynga bought Peak for 3x revenue and publicly trades at 6x revenue, so there’s financially engineered value created just from that. Obviously, companies are valued based on more than revenue, but given how lean Peak was running the margin profile is assuredly solid, as well. Zynga got a good price based on Peak’s current operations; if Peak’s team creates another hit under Zynga, that’s pure upside.

• Toon Blast and Toy Blast diversify Zynga’s “forever franchises” and geographic reach (Peak Games is Turkish), plus give Zynga much stronger footing in the puzzle genre.

• Zynga had a significant cash pile to use, and this is a great, not super risky way to use it. In general, it’s more capital efficient to spend money on proven ideas than burn money trying to come up with something new.

• The deal will be immediately accretive to the bottom line. Zynga will probably take time to digest Peak before pursuing any other deals, but Peak will bolster Zynga’s widening cash flows, which will likely get redirected to even more deals in the future.

• Other notable publishers were almost definitely in the mix, so Zynga must’ve done a great job persuading Peak to pick them. Zynga is showing everyone that it has an effective, repeatable system for acquiring and integrating other mobile games and teams, and given how half the deal was stock it must also convinced Peak that there’s much more opportunity to be captured in the future. Being a company that others want to join is sometimes half the battle.

I’m impressed. It looks like a win-win in the same way acquiring Small Giant Games and Gram Games were successes back in 2018. In a few years, I suspect we’ll look back at Zynga and not only admire its impressive turnaround but also its roll-up success. Link

Snapchat doubles down on games. Apparently over 100 million users have now played games on Snapchat (who knows how many actively play, though). The company has enlisted the help of several companies like Zynga and Voodoo to create games for its social platform. The terms of these deals aren’t publicly available, but the motivations are probably simple. As we’ve seen with other social / messaging platforms — like Facebook and WeChat — games are a great way to deepen engagement with existing audiences. Oftentimes, these companies want to bring that function in-house, but Snap is still burning $200+ million a year, so it makes sense to minimize fixed costs by keeping development mostly external. For the game developers, there’s almost definitely guaranteed payments so the risk of taking on these projects is low. Link

AT&T considers selling WB Games. This is a pretty big deal, if true. There’s a lot of non-gaming context that isn’t worth delving into here (activist pressures, executive turnover, etc.), but at a high level AT&T is considering divesting non-core assets in order to reduce its $200 billion debt-load. And the gaming business — which includes multiple hit franchises like Batman, Hitman, Mortal Kombat, Golf Clash, and Game of Thrones Conquest — is on the chopping block. WB Games is rumored to have a selling price around $4 billion.

Is selling WB Games the right call? From a financial perspective, maybe… at least in the short-term. A $4 billion sale would only cover 2% of AT&T’s debt, so it’s not a huge deal one way or another. That said, if AT&T’s debt burden means the company can’t reinvest any more into gaming (like acquiring or launching other studios), then, yeah, the upside here is limited. AT&T still generates $25+ billion in free cash flow, though, and interest rates are ridiculously low, so I’m not entirely convinced this path is the only / best option. If anything, this deal might be on the table simply because the C-suite doesn’t think much about the gaming segment, at least relative to the larger business units.

From a long-term strategic perspective, abandoning a faster growing, more immersive segment of entertainment — or at least reverting to pure licensing — feels like moving backwards, especially when Warner Bros’ brands are so strong. Without knowing all the inner-details it strikes me as a long-term strategic blunder, but the assets will be valuable to whoever scoops WB Games up. The one catch will be whatever licensing terms AT&T demands. Activision Blizzard and Electronic Arts are probably the top contenders, but Tencent, Take-Two, and maybe another dark horse are very likely in the mix as well.

In general, I’m pretty unimpressed by how the largest media companies are approaching video games, but I’ll follow up if a deal goes through. Link

Private market deals. As always, this section is less about analysis (most of these companies won’t work out) and more about keeping an eye out for what may rise up.

• Wave raised a $30 million Series B to scale virtual concerts and other interactive experiences. Link

• Luckbox raised $3.8 million to grow its esports betting platform, and it plans to list on the TSX Venture exchange later this year. Link

• Playable Worlds raised a $10 million Series A to continue building its cloud-native MMO. Link

• Boom.tv raised a $10 million Series A to reinvest in its Code Red ProAm series and expand its entertainment platform. Link

Glu Mobile’s new secondary. Glu is fairly small, less consistent compared to a business like Zynga, and it hasn’t had the strongest pipeline, in my opinion. However, the company has benefited from the “COVID effect” like most other gaming companies and is using the opportunity to raise nearly $140 million. That’s probably a wise move and will likely go toward an acquisition. Link

May NPD data. “May 2020 tracked spending across Video Game Hardware, Software, Accessories and Game Cards totaled $977 million, 52 percent higher when compared to a year ago.  This is the highest tracked spend for a May month since the $1.2 billion achieved in May 2008.”  Link

The top 20 best selling games (keep in mind this ignores mobile and in-game revenue from F2P games):

🖥 Content Worth Consuming

COVID-19’s impact on the gaming industry: 19 takeaways. This is a great report from Unity with lots of data about how gaming habits and user acquisition metrics have changed (mostly for the better). Link

Adjust’s Hypercasual Gaming Report 2020. Here are the key findings but there’s much more in the link.

China’s console market. “China’s console and TV games market generated $997 million in revenue in 2019 and is set to reach $2.15 billion in 2024. This includes grey market revenue of hardware and software, alongside legal sales.” Link

Chess has taken over Twitch. “If you look at the most popular games on Twitch right now, you’re sure to find the staples: League of Legends, CS:GO, Fortnite ⁠— esports’ juggernaut titles. But recently a new game has climbed  to the top of Twitch. The only game on the platform to go 1,000 years without slowing down — chess.”

Twitch’s DMCA Problem Explained. “Streamers recently are deleting VODs and Clips from Twitch in an attempt to prevent DMCA takedowns from RIAA, Universal, and Warner Brothers. Broadcasters on Twitch recently got mass DMCA struck, and certain channels were more effected than others. JakenBake, Fuslie, AdmiralBahroo and other broadcasters were issued multiple DMCA warnings. The danger of DMCA warnings on Twitch is the "3 strikes and you're out" rule. In this video I try to explain the DMCA situation, which is very complicated.”

See you next week!