Hi Everyone. Welcome to another issue of Naavik Digest! If you missed our last issue, be sure to check out our analysis of Marvel Snap’s monetization approach nearly six months since launch. 

If your GDC event schedule isn’t full yet, our awesome partners at data.ai are hosting a Happy Hour on Tuesday, March 23rd, 3:00pm - 5:00pm. Click the link below to RSVP. 

Believer’s $55M Series A / Exits in Gaming / Gen AI Playtesting Workflow

Games Podcast

How does raising venture capital affect studio operations and exit strategies? How has generative AI delivered playtesting workflow efficiencies? We dive into the latest games business news with Aaron Bush, Sebastian Park, and your host Maria Gillies.

You can find us on YouTube, Spotify, Apple Podcasts, Google Podcasts, YouTube, our website, or anywhere else you listen to podcasts. Also, remember to shoot us any questions here.

#1: Japan’s Top-Selling Console Games

Games Cards
Source: FrontlineJP

In a recent press conference, President of Microsoft Brad Smith made the claim that Sony dominated 96% of the console market in Japan when compared to Xbox. This is quite the metric, but does it tell the whole story? Since we so rarely look at data coming from Japan, we thought it’d be a good opportunity to look into console sales data in context of the broader console market, and luckily for us, Famitsu regularly publishes an annual list of top 100 best-selling console games in Japan. From the list, it’s clear that Nintendo is the dominant console player. It’s a perfect starting point to review the Japanese market — what is working with Japanese companies and what can the sales data about potential strategies?

Games Selling Games
In parenthesis the total sales if the game has been released before 2022

A quick look clearly shows how much Nintendo dominates the market — with the sole exception of Elden Ring, nine out of the top ten games are Switch games. Almost nothing changes by expanding the list to the first 30 games, since the top 26 are still Nintendo games. The other two games are unsurprisingly on PlayStation, with Elden Ring at 10th (PS4), and 27th (PS5) positions, and GT7 in 18th (PS5) and 29th (PS4). Even more interestingly, of the first nine Nintendo games, four games were released before 2022 but still cracked the top ten. Additionally, if we exclude the evergreen Minecraft, the majority of games sold for Switch has been developed and launched by Nintendo studios. It’s not until the 14th position that we see a third-party Switch game ranked (Monster Hunter Rise and Sunbreak).

With this in mind and the sales data we presented above, Brad Smith’s statement of 96/4 is quite skewed because Nintendo dominated nine out of the top sales spots (could it be more like 90/9.5/.5 for 2022 market share for Nintendo, Sony, and Xbox market share? Not to say console has ever been the most popular in Japan!). In all fairness, other console makers aside from Nintendo have trended slightly upward in Japan. Xbox Series S is on a solid growth trajectory (and, granted, Xbox is becoming less reliant on hardware sales with Xbox Game Pass and cloud gaming). 

Games Graph
Source: Game Data Library

Further, supply chain shortages likely hamstrung Sony’s market share with PS5 in Japan in 2022 — my assumption is that gamers resorted to Switch first-party games as they waited for PS5s to become available. And indeed, the tides seems to be turning. This past month, Famitsu reported that the PS5 outsold the Switch by 100k+ units with sales up over 450%+. Hogwarts Legacy, Gran Turismo 7 and Octopath Traveler II, for example, all had solid February sales months while Nintendo still led the market.

Games Retail Games
Source: Game Data Library

As we see with Hogwarts Legacy and Octopath Traveler II, many companies have launched games tailored to Western audiences in Japan but with less than ideal results. This hints at a crossroads moment in Japan: on one hand, Nintendo has been incredibly successful with games from all its major IPs selling millions of copies in Japan alone; on the other hand, Japanese publishers and developers have also started to focus Western audience instead because they are not hitting sales numbers in Japan. Nintendo’s strategy is surely working. One example is Pokémon Scarlet / Violet, which launched on Nov 18th 2022, selling more than 4.3M copies — more than lifetime sales of the previous main Pokémon iteration — in less than two months.

But has this worked for other companies? Lately, there have been only a few success stories. Perhaps most notable is Elden Ring, developed and published by Japanese companies (From Software and Bandai Namco, respectively). From Software has been able to reshape a new genre with an incredibly passionate audience, helping boost the game to the Japanese top ten of 2022 but only managing to sell less than 500,000 copies in the region.

However, a counter-example is Forspoken, which was developed and launched by Square Enix on Jan 24th 2023. In a recent briefing held on Feb 3rd, CEO Yosuke Matsuda has defined its sales as “lackluster” and reviews as “challenging”. The game had done a big marketing campaign, including the involvement of Ella Balinska, the actress who gave Forspoken’s protagonist Frey both her voice and her appearance. The game only managed to sell 29,000 copies in Japan during the launch week, and less than 2,000 in its second week. It’s interesting to note that Octopath Traveler II, which has been relatively under-marketed, has performed significantly better than its Square Enix counterpart.  

Another relevant counter-example to dig into is Wild Hearts. The game was developed by Tecmo Koei and published by EA, and launched on Feb 17th 2023. The game presented itself as a new competitor to Monster Hunter and received positive reviews overall. The game did not launch on Nintendo Switch, but only on PS5. During its first week, the game sold 25,000 copies, which is incredibly low when compared to what the last Monster Hunter managed to do on Nintendo Switch (1.3M during the first week). Even taking into comparison the install base of the two consoles Monster Hunter had a console penetration rate of almost 7% for the Switch vs. 0.65% for Wild Hearts on PlayStation.

Today, Nintendo clearly dominates the Japanese market and for good reason: not only has the company driven a steady stream of first-party games over the course of 2022, but it has also delivered a solid platform for third party games. While the PS5 has certainly made headway in recent months in Japan, developers and publishers should consider launching cross-platform on Switch to maximize reach and audience. Could this strategy have delivered, for instance, better results for Wild Hearts and Forspoken? (Written by Michele Catano)

GameIQ Solves The Industry's Toughest Challenges

Games Data

Game IQ is a market and competitive intelligence tool for mobile gaming that allows publishers to identify hidden growth opportunities, tie features to performance KPIs, and help you make difficult roadmap decisions. With hundreds of thousands of gaming apps in the app stores and thousands of new mobile games released each month, data.ai (formerly App Annie) is looking at a huge number of games to be classified. On top of this, the high granularity of our taxonomy structure makes it quite time-consuming to manually figure out into which category each game should fit.

How can we cover the vast majority of gaming apps in global markets accurately, efficiently, and in a scalable manner?

Game publishers and strategists today are facing various key challenges:

•        Determining what features will provide lift

•        Making roadmap decisions based on accurately modeled expected outcomes

•        Discovering how competitors lifted performance through feature releases

•        Benchmarking performance against competitors

•        Confidently focusing on the highest potential genre for a new game release

With the enhancements we’ve made to data.ai Game IQ including Feature Tagging, Genre Summary, and Tag Trends, you can now effectively solve these challenges.

#2: Raises, Spin-offs, Layoffs, and More

Games Believer
Source: Believer

Believer raises a massive $55 million. This is one of the largest Series A raises the games industry has seen — Lightspeed led the round with participation from BITKRAFT, a16z, Riot Games, and others. To know why the raise was so large, just look at the founding team. CEO Michael Chow was Executive Producer of League of Legends and previously founded Newtoy (behind Words With Friends); CPO Steven Snow was a founding member of Riot Games; and COO Tim Hsu led marketing at Zynga and Twitter. It’s a stacked leadership team that demands a premium. Believer’s goal is to build an original IP, support a transmedia presence, and launch an innovative open world game all in three to five years. Given the enormous raise (and subsequent valuation), the pressure is certainly on to live up to hype. Given the talent and pedigree of this team, perhaps we should give them the benefit of the doubt.

Redemption Games spins out of Applovin. For the past year, we’ve known that Applovin — which has a mobile apps (games) arm and an adtech/software arm — was looking to change its strategy. Originally, the two arms were designed to compliment each other, but given the rise of ATT Applovin has since announced its intention to focus more on the software side and less on the apps side. This hasn’t yet led to a major company split, but we’re starting to see cracks. One example is Redemption Games, originally behind the hit Sweet Escapes, which just announced a spin-off. The team is not only becoming independent, but it also raised $7 million to explore new technologies like AI and web3, which are a step removed from Applovin’s core competencies. The big question now is whether this is simply a one-off or the first of many (or larger) changes for Applovin as it continues narrowing its focus. We’ll have to wait and see.

Take-Two Interactive begins layoffs. As you may recall, even though Take-Two’s earning results largely missed estimates a month ago, the stock still rose in response to the company’s new cost cutting initiatives. Given the news of layoffs this week (in the Private Division label and elsewhere), it seems the company is wasting no time putting that initiative into place. It was also reported that the company has begun legal processes outside of the US that will likely lead to further layoffs. Looking big picture, though, this is neither a new trend nor will it end soon. Unfortunately, it’s likely that more big companies slim down their ranks in response to a slowing climate, and many startups may continue to do the same as they lower burn rates in response to a tighter funding environment.

Starfield was delayed… again. These repeated delays are largely uncharacteristic for Bethesda, but ensuring this complex, massive, and hugely anticipated game is ready for prime time before launch makes sense. After all, no one wants another Cyberpunk 2077 type of disaster. The reason this is important, though, is because of Xbox Game Pass. As we’ve noted several times, the number one driver of Game Pass subscriptions is “can’t miss” AAA content, but Xbox has faced a dearth of such games and has regularly delayed its most promising titles. While delays are sometimes inevitable (and wise), this is yet another example of Xbox’s ongoing woes, which not only deflate software sales but also hardware sales, too, as consumer have less and less reason to choose Xbox over PlayStation. These lags give Sony even more of an opportunity to swoop in and gain market share. Of course, everything may change if the Activision Blizzard deal goes through, but in the meantime we can expect PlayStation to keep running laps around Xbox.

Call of Duty’s mobile strategy takes shape. When Activision announced that it was internally developing its own mobile version of Warzone, it didn’t quite make sense. After all, even though Activision gains higher margins on games in which it doesn’t have a development partner like Tencent’s TiMi, the idea of two coexisting Call of Duty mobile apps with similar battle royale anchors sounded counterintuitive. However, the strategy is now starting to click into place. As part of responding to the U.K.’s CMA regulatory body, Microsoft unveiled that Warzone Mobile would gradually take the place of Call of Duty: Mobile around the world (except in China). Given Call of Duty: Mobile’s ongoing success, prioritizing a completely different app is a gutsy move. From a business perspective, it likely means short-term pain in exchange for longer-term upside considering Warzone Mobile is believed to support cross-progression with the console and PC versions of the BR. Of course, it also remains an open question whether Activision can create a competitive mobile shooter in-house and sustainably scale UA in today’s environment compared to when Call of Duty: Mobile first launched back in 2019. We’ll learn more in the coming quarters, but it’s good to have this mystery solved.

In Other News

💸 Funding & Acquisitions:

  • Lightspeed led a $55M round into Believer, an ex-Riot team building a multiplayer open world concept. Link
  • Redemption Games, which spun out of AppLovin, raised $7M in a round led by Play Ventures. Link

📊 Business:

  • Sony claims Activision deal "will irreparably harm competition and innovation.” Link
  • Australia ruled that FIFA loot boxes violated gambling laws. Link
  • PS5 sales were up 300%+ in February YoY. Link
  • Meta to roll out a subscription service for Quest. Link
  • Google’s Cloud Gaming division lives on after Stadia and will be used for live service games. Link

🕹 Culture & Games:

  • Epic Games Store launched self-publishing tools for developers. Link
  • Counter-Strike 2 is on its way. Link
  • Call of Duty Mobile to be phased out when Warzone Mobile releases. Link

👾 Miscellaneous Musings:

  • Blueprint for building a press kit. Link
  • Do digital board games outsell their physical counterparts? Link
  • One year into Steam Deck. Link
  • Epic Games Store’s 2022 year in review. Link

This Week In Naavik Pro

Games Metamask

Looking for more great games industry analysis? Check out Naavik Pro! 

This past week the Naavik Pro team published:

  • An analysis of Unity’s big jump into web3 with verified solution providers for blockchain game development. 
  • Earnings coverage of Playtika’s Q4. 
  • A breakdown of the rise and fall of the modern esports industry. 
  • A look at increasing competition in the consumer VR market.
  • Coverage of Liftoff’s 2023 mobile ad report.
  • A new game radar with breakdowns of Angry Birds Kingdom and N-Innocence. 
  • Our monthly genre report on the mobile RPG genre. 

This upcoming week, we’re publishing our monthly web3 gaming market report, analysis of Garena parent company Sea Limited’s most recent earnings, a deconstruction of blockchain-based MMO strategy game League of Kingdoms, and a deconstruction of survival hit Frozen City. We’ll also have much more to come after that!

If you’re interested in learning more or signing up, request a demo below.

You can view our entire job board — all of the open roles, as well as the ability to post new roles — below. We've made the job board free for a limited period, so as to help the industry during a harsh period of layoffs. Every job post garners ~50K impressions over the 45-day newsletter featuring period and results in 1 - 10 applications depending on the company and role.

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