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.
✍️ From the Archive
Epic Games and the Quest to Push Boundaries — “This is my attempt to explain how the most innovative company in gaming got to where it is today, what’s next, and why it’s been able to do what others can’t.” Link
The longest quarter ever. For the sake of everyone’s health around the world, I can’t wait to stop talking about COVID-19. March, in particular, feels like it’s dragging on forever. In retrospect, it’s disappointing how ill-equipped most governments were, and it highlights frustrating fragilities in our healthcare and political systems. That’s the nice way of putting it. Of course, the video game industry remains a silver lining amidst the chaos, providing quarantined citizens a means of constant entertainment. There’s plenty more to highlight:
Engagement records. Steam hit 23 million concurrent online users. Verizon noted gaming usage in peak hours is up 75% in the past month. Twitch and YouTube Gaming have seen inflections in viewership, too.
Racing esports. Formula 1 and NASCAR filled the competitive void with virtual races, and fans were surprisingly engaged. NASCAR’s virtual race brought in over 900k viewers on TV, and Formula 1’s Virtual Grand Prix, which included the actual drivers, was also immensely popular. These simulations decently reflect reality, so I’m curious how well these audiences stick once the physical races steal the limelight again. A video for those interested:
How the biggest gaming leagues are adapting to an online world. “No matter the team or league, everyone is dealing with uncertain times and a situation that is constantly changing. As Greeley notes, “there is no pandemic playbook.” And with millions stuck at home looking for entertainment, esports are one of the only live options. The ESL Pro League says that its second day of online play was “the single most-watched broadcast day of an ESL Pro League season ever,” while the LCS maintained a fairly consistent level of viewership and its Chinese counterpart, the League of Legends Pro League, saw a 30 percent viewership jump year over year when it returned to online play.” Link
Time to step up your ad game. COVID-19 is also dramatically changing the dynamics of the advertising market. As certain industries (like travel, restaurants, etc.) put the brakes on their ad spend, ad rates around the world have fallen. That gives creative and innovative companies in other industries — including video games — a chance to step up. This naturally has the largest effect on F2P mobile games, where cost per installs have significantly fallen; these companies can spend more to accelerate user acquisition at superior unit economics (or simply pocket the difference). However, ads are less competitive beyond mobile, as well, so most companies have a chance to capture more attention with less competition.
Gaming during a crisis. Tim Maloney of Roundhill put together a bunch of data points and charts that visualize the industry’s antifragility during this time. Link
Of course, it’s a matter of time before life mostly returns to normal. Engagement will inevitably drop, but surely remnants of this time will live on. Many new gamers will stick with the hobby, many newly formed gaming groups will keep on playing, and esports will wind up more widely accepted than ever.
Last year, I wrote about Gaming’s Attention Gap. I noted that there’s a major mismatch between how much revenue the gaming industry pulls in and the level of mainstream attention the industry receives … and that it would take unique catalysts for that relative attention gap to inevitably close:
“The attention gap closes as games become accessible to more people. The gap closes when blockbuster games take the world by storm. The gap closes when people realize gamers can now earn millions of dollars. And, yes, the gap closes when gaming’s top personality wears an ice cream costume and sings on TV.”
It also turns out that the attention gap closes when a pandemic rages across the world. It’s not the way we’d want the attention gap to close, but here we are.
Epic Games launches publishing deal with Remedy, Playdead, GenDesign. The terms appear simple: Epic Games Publishing will be multi-platform, likely cover 100% of costs, offer partners 50/50 profit share, let the studios retain IP rights, and let developers have full creative control. These games will also likely be exclusive to the Epic Games Store on PC. Two main reactions:
This is a great deal for the three studios (behind games like Control, Inside, and The Last Guardian); Epic Games continues to compete by improving the economics for developers, hoping that producing enough great games will lure over other players from paying 30% fees on Steam. Many consumers aren’t fans of exclusivity deals — not understanding or caring about underlying revenue sharing terms — but anyone criticizing these terms is missing the point. I don’t know how successful Epic will be in fighting against Steam’s entrenched position, but you can’t say their efforts aren’t good for the industry.
This news highlights a new direction for Epic Games. Becoming a publisher — especially when offering generous terms — costs money, but it’s yet another way to win over developers and compete as a storefront. At the surface this doesn’t appear to have any connection to Epic’s broader metaverse ambitions, but bringing more players and studios into its orbit should help it compete at scale with new ideas later. I expect Epic to make more deals like this over time, and it also puts pressure on Fortnite, in particular, to keep on printing cash. Link
Lots of fundraising. Venture deal flow is almost certainly moving slower than usual, but there are still plenty of deals to be made. For example:
Scopely raised another $200 million at a $1.7 billion valuation to continue its acquisition spree. Is that valuation justified? I’m not convinced. Link
Robin Games raised $7 million in seed funding to tackle “lifestyle” games. Link
Mainframe Industries raised $8.3 million to develop cloud-native games. Link
The Sandbox raised $2 million more to build out its blockchain-based game world. Link
Genvid raised $6 million more to better support its interactive streaming engine. Link
End Game Interactive raised $3 million to build on its success with ZombsRoyale. Link
I have no strong opinion on any of these companies, but it’s great to see that the entrepreneurial spirit is alive and well. If you’re working on something cool, please reach out! Let’s chat.
Tencent’s 2019. The high level narrative — just talking about gaming, here — is simple: in 2018 Tencent suffered from a slowdown caused by a domestic freeze in game approvals, but in 2019 Tencent mostly moved back to business as usual. Games revenue was 30% of Tencent’s total revenue last year. PC game revenue slipped 6%, but mobile revenue jumped 20%, and nearly a quarter of game sales now occur outside of China. Furthermore, Tencent — with its army of internal studios, investments, and partnerships — remains dominant. That may change in time — competition from other studios and companies like Bytedance (maybe?) could pick up — but Tencent is better positioned than anyone to fight back. It also continues to build out its cloud gaming infrastructure. Plus, the recent quarantine drove even higher gaming engagement. Regulatory pressures will probably continue to be annoying, but this is a fairly high margin business with tailwinds that shouldn’t disappear anytime soon. Here’s the overview slide that matters most (Link):
GameStop is now essential retail. Long-time readers know I can’t help but roll my eyes every time I mention GameStop. This time around, GameStop made a fool of itself by claiming to be “essential retail,” which is just hilarious, reckless, and sad. Obviously, GameStop was just trying to stay afloat, but ultimately management caved to pressure and closing their doors. It’s paid off some debt and is closing stores, which helps lighten the financial burden, but the company isn’t doing a single thing to innovate, become more relevant, or save itself over the long-term. Every time the company talks about its plan to “return to long-term growth” I want to punch a wall. The common quip is that “sales are weak, but they’ll pick up later this year when the new consoles launch.” Maybe there’s some truth to that, but that’s nothing more than a short-term bump. Looking longer-term, the writing is on the wall, and times like this accelerate digital gaming’s market share gains. So much for “essential retail” 🙄 Link
Unity Technologies launches cloud-based game simulations for developer playtests. This is cool. Simulating game playthroughs in the cloud should save developers and playtesters countless hours of tedious testing to improve balance issues and squash bugs. I expect more cloud-driven functionality to get unlocked in time, for both Unity and most other game engines. Link
Valve, Microsoft, and HP are working on a ‘next generation’ SteamVR headset. The headset will be called the HP Reverb G2. I’m sure the tech is solid, but I was more curious why Valve would be working on other headsets that would compete with its Index. A partial answer: “Microsoft worked with Valve to make the first-generation WMR headsets work with SteamVR. While the company tried to make its Windows Store the place for VR apps, it seems to have now shifted to endorsing Steam, even putting its own apps on Valve’s store.” I’m surprised the Xbox/Windows teams would cave into Steam’s VR ecosystem so quickly. Link
Nevada regulators approve betting on ESL Pro League. “Esports betting has seen significant advancement in the last several weeks possibly in connection to the cancellation of most traditional sports amidst the global COVID-19 pandemic. The approval at hand will give the US gambling market another taste of esports betting with one of CS:GO’s premier events, and with that, hopefully inching them closer to permitting wagers on esports on a full-time basis.” My take: betting on esports is inevitably going to grow, and traditional players will slowly come around. Wild times like this — where there are no live sports — should speed up acceptance. Also, just like traditional sports, online betting will one day take off. It’s a matter of ‘when,’ not ‘if.’ Link
🖥 Content Worth Consuming
Jeff Chau on the Promise of Mobile Esports. I’ve been a big fan of Jeff’s writing over the past several months, and I really enjoyed watching his most recent presentation. If you want to learn more about mobile esports, this will bring you up to speed. Link
Now that we know the specs, how much will Playstation 5 & Xbox Series X cost? For those of you who are really into the specs and are thinking about pricing strategies, this article sums everything up pretty well. Link
Are casual games maturing? Lessons from Playrix. “The first part of this analytical series focused on Rovio Entertainment and how they successfully evolved and matured their multi-million dollar Angry Birds franchise. In the second part of this article series, we put a spotlight on top 10 grossing casual games developer Playrix, who are trying hard to innovate and experiment with casual games, challenging the established norms of this genre, and finding profound success!” Link
Manticore Games teases Core. I’ve been eagerly awaiting updates from Manticore, which has raised a ton of VC money, and it seems like they’re going to release a “Fortnite meets Roblox” type of platform / game. (And here’s a deeper look for those who want more)
Magic: The Gathering and Keyforge creator Richard Garfield on 35 years of making the games he wants to play. “I am excited by the relationship between paper and digital. The digital world opens up a lot of cool design space - and the popularity of games is ensuring we have a sophisticated enough audience to enjoy it. I don't think paper games are threatened by this, however, because one of the reasons tabletop games are so popular is that face-to-face play has become even more special in this day when so much of our interaction is mediated by screens.” Link
Lastly, I’ll leave you all with the only piece of Master the Meta fan art I’ve ever had and probably will ever receive (thank you, azuchu!):
See you next week!