Hi everyone — welcome to another issue of Naavik Digest. If you missed our last one, be sure to check out our analysis of Nintendo’s 2D Mario series and what the financial performance of those games might mean for Super Mario Bros. Wonder.
In today’s issue, we’re talking about the game streaming platform Kick, how it stacks up against Twitch, and why the market for gaming creators continues to see new challengers.
Microsoft Unblocked / FF16 Sales / Classic Game Archive Issues
In this week's Roundtable, we discuss the FTC losing its court case to block Microsoft's acquisition of Activision Blizzard and explore what Xbox Game Pass means for developers. We also touch on Meta's new social network Threads hitting 100 million users and Final Fantasy 16's supposedly “disappointing” 373,790 in physical Japan sales after two weeks as a $70 PS5 exclusive. With 87% of games before 2010 being inaccessible to the average gamer, we ask what can be done to improve game archiving. Lastly, we dive into a lawsuit over generative AI technology using book content without permission and how it could affect gaming. Join us for all the latest game business news with Aaron Bush, Sebastian Park, Dave Elton, and host Devin Becker.
As always, you can find the Naavik Gaming Podcast on YouTube, Spotify, Apple Podcasts, Google Podcasts, our website, or anywhere else you listen to podcasts. Also, remember to shoot us any questions here.
#1 How Kick Is Challenging the Future of Streaming
By Max Lowenthal, Naavik Business Lead
2019 was a different era for streaming. Fortnite was at peak popularity, COVID had yet to hit, and Ninja, largely seen as gaming’s biggest creator and personality at the time, had just signed a $50 million deal to stream exclusively on Microsoft’s Mixer platform. The deal kicked off a run of exclusivity agreements for streaming platforms that included grandiose announcements and high price tags. Eventually, however, it all came crashing down: Mixer shut down less than a year after signing Ninja, and despite a small string of investments from YouTube and Facebook, Twitch returned to being the dominant player in the space.
2019 is notable not only for its eye-popping contracts, but also for the conversation it started around streamer monetization. Mixer’s demise made it clear that only focusing on the top end of the streaming market wasn’t enough to gain substantive market share. The long tail of creators, and even the technology itself, clearly made a difference. It’s this groundwork that ultimately laid the bedrock for 2023’s latest entrant into the streaming space: Kick.
Founded less than a year ago by crypto and gambling mogul Ed Craven, Kick’s pitch to creators is a more scaled version of the improved monetization that Mixer offered the biggest names. The platform has taken an alternative approach to monetization practices like donations and subscriptions in an attempt to help earn the favor of the long tail of creators and brand itself as the best platform for streamers to make a living.
It's a noble vision on paper, and Kick has clearly taken steps to show it’s serious. The company has signed Twitch stalwarts like xQc and Amouranth to multimillion-dollar non-exclusive agreements. But the path to profitability isn’t always clean, and despite heavy investment Kick has already been marred by its fair share of controversy.
Questions around the source of the company’s funding and concerns around the types of content Kick promotes are just as much at the forefront of the platform’s story as its creator-centric vision. However despite the concerns, Kick continues to grow. The site recently surpassed a string of viewership and streamer benchmarks that, while small compared to Twitch, still represent a notable piece of the streaming world:
- Kick is averaging 110,000 viewers per day
- The platform saw a 44% MoM growth for hours watched in April
- As of earlier this year, there were over 60,000 active streamers on the platform
The metrics paint a rosy picture for Kick’s ascendancy to viable Twitch competitor — content creation and consumption is up and big names are signing on to the platform despite its controversies. But after the rise (and fall) of Mixer, it's worth asking: Can Kick do enough to make a dent in the streaming ecosystem? Let’s dig into what makes Kick different from Twitch and better understand how it may fare in the long term.
What Makes Kick Different
In a recent interview, Kick founder Ed Craven noted that the platform’s fundamental strategy is anchored around two pillars: product and content. Craven notes that a good product begets good content, a sort of “if you build it they will come” mentality, although the company’s investment into pulling big names onto its platform illustrates how that thinking isn’t entirely true. That being said, it's worth understanding what exactly Kick is doing differently with its product and creator relationships to try and make way in a crowded market.
From a product perspective, Kick’s biggest differentiator is, unsurprisingly, its creator monetization models. Everything on the platform is designed in a way to make onboarding, retaining, and earning money easy for creators. The terms to gain affiliate status, which is the role needed to start monetizing on the platform, are half of what are needed to reach the same status Twitch. Only a handful of followers and a few hours streamed are required, compared to Twitch’s more staunch qualifications.
Once a creator has passed that benchmark, Kick offers a 95% revenue split for each inbound subscription. It's an offer that trumps both Twitch (50%) and YouTube (70%) by a substantive margin. Kick has even made early promises of a creator program that offers regularly engaged streamers hourly rates for creating content on a consistent basis. The platform is making a bet that decreasing the complexity and maximizing the earnings potential for creators will be its wedge in customer acquisition.
But while it's a novel philosophy in execution, it also comes at the cost of feature parity for the platform’s nascent team. Kick continues to miss on several cornerstone features: co-streaming, channel management, clips, and VODs, to name a few. Notably absent are advertising options, too, which Twitch offers in the form of pre-roll and mid-roll offerings. While the Kick roadmap promises to sprint for coverage in the near future, trading off on features that make it easier to create, grow, and distribute your content for features that allow creators to make money is a tough line to walk and one the platform will need to tread carefully.
On the content side, Kick’s leading names are often ex-Twitch talent who have been paid to migrate from the platform or who were banned for violating Twitch policies. Headlined by names like xQc, Amouranth, Adin Ross, and Trainwrecks, the platform’s biggest names are often associated with controversy or content formats that, while still sizable, seemingly don't have a home on Twitch in 2023.
And it's not just the creators that paint a problematic picture; a majority of Kick’s viewership to date has come from gambling and hot-tub streams. With the former being banned on Twitch outright and the latter being the subject of controversy on the platform for months, Kick’s early content successes seem to be positioned around Twitch’s leftovers, rather than its own homegrown content.
Understanding Kick’s product and content differentiation is crucial to understanding its potential for long-term sustainability and growth. Put bluntly, Kick is generating traffic because it's going for the spaces Twitch is willfully ignoring — that is low-profit generating creator contracts and questionable content categories. Analyzing both of these strengths, and how they are juxtaposed against Twitch’s current position, can help us tell a clearer picture of where the platform might land in the future.
On the creator monetization front, Twitch is clearly emboldened by past successes compared to Mixer. While the Amazon-owned company has previously opted to explore long-term contracts like the ones Kick offered to xQc and Amouranth, it has clearly decided that the ROI for these high price-tag agreements simply isn't there. It’s an experience-based perspective that implies Twitch believes controlling the majority of creators, not only the upper echelon, is necessary in order to win out in the streaming space. Kick recognizes this, promising to deliver “much more than the $100M promised to xQc” to smaller creators in the coming months.
But when you look at the economics empowering Kick’s bid to win out both the top end and long tail of streamers, profitability seems to be a far-off prospect. As both Microsoft and YouTube can attest to, earning market share in streaming is expensive, and despite heavy initial investment already, Kick is only pulling in 0.3% of the average daily viewers of Twitch.
The Problems Kick Needs to Solve
Peeling back the curtain on economics reveals another problem: Kick’s relationship with gambling site Stake. The company’s CEO started Stake, and gambling is the platform’s second-largest content category by total watch hours. And despite the company’s continued insistence that the two platforms operate as independent entities, it's hard to believe the companies are not financially intertwined or will be in the future, particularly with the volume of multimillion-dollar contracts being doled out. As I’ve previously written, the potential pitfalls of combining video games and gambling are numerous because the industry has no clarity around digital assets, crypto, user protections or privacy, and a litany of other issues. Part of the reason is that Twitch banned gambling content outright.
Concerns about economic viability aren’t the only issue that gambling-driven income brings. It also serves as a moral boundary that could prove limiting when it comes to acquiring some of Twitch’s biggest names. Notable streamers like Pokimane and Hasan Piker have already publicly denounced Kick for funding its operations using money from Stake, which has a history of legal issues. If Kick itself recognizes that content and creators are 50% of what makes a good streaming platform, any barriers to acquiring those creators will undoubtedly create headwinds for long-term market dominance over Twitch.
It's the same moral boundary that several streamers find themselves questioning when exploring the types of content that are prevalent on Kick, like gambling, hot-tub streams, and often other less-than-legal alternatives. While there’s no doubt these niches are substantive enough to fuel engagement — these categories pulled in nearly 30 million viewers in April alone — they also paint Kick as a sort of safe haven for content that isn’t allowed on Twitch. Being the freewheeling “anything goes” cousin of Twitch does play nicely into Kick’s broader narrative of empowering creators to monetize and create however they want, but it comes at the cost of an associated brand risk for creators that tend to stay away from controversial content categories or have curated more “wholesome” and family-friendly brands.
If there’s a silver lining in it all, it's that Twitch feels vulnerable for unseating. The company recently rolled back a series of branded content guidelines that limited creators' ability to sponsor streams through third-party agreements. Meanwhile, the company continues to explore alternative sponsorship tools that are intended to further eat into creators' revenue splits. Things aren’t all bad, as the company announced a slew of new monetization tools at TwitchCon Paris that offer creators new ways to monetize Clips (the company’s short-form content offering) and Alerts on the platform. Despite new offerings, however, the company’s broader profit-maximizing strategy has seemingly left several creators questioning Twitch’s long-term priorities and how viable a career in full-time content creation actually is.
Ultimately, my outlook on Kick is mixed. Its numbers show that the streaming market is undoubtedly big enough to maintain several platforms, but I question the upside that building around niche (and often questionable) content categories can bring. If the company wants to truly bill itself as the “creator’s platform,” it will have to find some way to separate itself from its roots, or perhaps make creators a deal that is too good to ignore.
The company’s future hourly wage and advertising programs are one such channel that would no doubt help push the platform in the right direction. The company is also actively moderating its content and recently added a feature that allows viewers to block gaming and hot-tub content in favor of more traditional gaming streams. But these changes are optimistic at best and irrelevant at worst, and it’s an open question whether hiding content or offering better ad models will be enough to silence the company’s loudest naysayers.
Streaming is defined by its creators, and creators care about how they make a living. Kick seems to understand this, and that's why I’m not quite ready to write it off yet. But it remains to be seen if Kick has what it takes to become a dominant market incumbent or if it’s destined to remain a niche alternative.
#2 Microsoft’s Activision Win, Web3’s Bounce Back & Sony's $2 Billion R&D Play
Microsoft prevails over the FTC. The bitter legal battle between Microsoft and the U.S. Federal Trade Commission resulted in a major win for Xbox last Tuesday when Judge Jacqueline Scott Corley denied the agency’s request for a preliminary injunction. The ruling effectively paved the way for the Activision Blizzard deal to close by its July 18th deadline, but the fight isn’t quite over yet.
- Corley found that the FTC failed to make its case that Microsoft acquiring Activision Blizzard would harm competition in the relevant gaming console, cloud, and subscription markets.
- In particular, Corley said the FTC’s legal strategy was lacking in evidence and relied too heavily on testimony and arguments from Sony and PlayStation chief Jim Ryan, an approach the judge found “unpersuasive.”
- Corley also said the FTC failed to persuade her that Microsoft might renege on its promise to keep Call of Duty on PlayStation or that the Xbox cloud gaming deals the company signed with Nintendo, Nvidia, and others were somehow insufficient. And on Sunday, Microsoft announced it had finally secured a deal with PlayStation to continue publishing Call of Duty on Sony's platform.
- The agency on Wednesday announced its formal appeal of the decision before a July 14th deadline, putting the ball in the hands of the Ninth Circuit Court of Appeals to decide whether the deal can go ahead. The agency also asked Corley for an injunction to prevent the deal from moving forward until after the Ninth Circuit’s ruling., which she quickly denied. The Ninth Circuit also denied the FTC's request for injunctive relief, handing Microsoft another win and guaranteeing the deal could close in the U.S.
- Microsoft still has to contend with the U.K.’s Competition and Markets Authority, which blocked the deal earlier this year on the grounds that it would harm competition in the nascent cloud gaming market.
- Both parties said they were entering into negotiations following the FTC defeat, but the CMA has been careful to clarify that the deal could still face further investigation even if Microsoft agrees to modify it. Microsoft, on the other hand, may very well close the deal without the U.K.’s approval if it gets the final go-ahead in the U.S.
- But it appears the CMA wants to broker some type of agreement and on Friday extended the deadline for its final order on the deal to August 29th, likely to give both parties enough time to negotiate new terms, while the U.K. Competition Appeal Tribunal scheduled a conference on Monday to decide on formally ending the appeals process so a deal can be struck.
A glimmer of hope for web3. While the blockchain gaming industry, as well as the broader crypto market, have been suffering of late, two major headlines might signal a potential turnaround on the horizon.
- The first story is that Google has officially given the green light to blockchain-based apps, which opens the door to NFTs and other tokenized digital assets that underpin much of the web3 gaming market.
- The policy change now gives the Play Store a leg up against Apple’s App Store, which has restricted NFT functionality and other blockchain-based features on iOS for some time now. Apple has also tacked on fees for in-app NFT sales that all but guarantees most web3 developers will continue steering clear of the iPhone.
- Google is stressing that it won’t be open season on Android. Developers still won’t be able to “promote or glamorize any potential earnings from playing or trading activities,” or they’ll risk running afoul of the Play Store’s Real-Money Gambling, Game, and Contests policy.
- Apps and games featuring NFTs and other blockchain tech will likely begin showing up later this summer after a testing period with a select group of developers, Google said.
- The other bit of good news for the crypto market is a surprise win for Ripple Labs over the Securities and Exchange Commission, which has spent years fighting the crypto company over classifying its XRP token as a security.
- A U.S. judge handed the landmark victory to Ripple, establishing that sales of the company’s XRP token did not violate federal securities law. The SEC did nab one partial victory when the judge found that Ripple violated securities law by selling nearly $1 billion worth of XRP to sophisticated investors.
- While the win for Ripple is most relevant to the fate of XRP, which soared in response to the news, the outcome will likely embolden other crypto companies in current and future showdowns with the SEC. The ruling may also pave the way for other token providers to operate with less fear of a regulatory crackdown.
Sony preps a war chest for“extended reality.” The PlayStation maker is gearing up to invest $2 billion in R&D spend this fiscal year into what the company calls “extended reality,” according to a new report by Nikkei Asia on Thursday. The new R&D budget will also be put toward furthering Sony’s live service gaming ambitions.
- Sony has been steadily increasing its R&D spending on gaming year after year, spending just over $1 billion in fiscal 2020 and upping that investment to more than $1.9 billion last year.
- The 300 billion yen (or $2.13 billion) Sony plans to spend this fiscal year represents nearly 40% of Sony’s overall corporate R&D budget, Nikkei reported.
- The company has now identified “extended reality,” which Sony defines as technologies that combine the physical and digital worlds, as a promising new category that pairs nicely with its live service offerings. Sony expects live service gaming to take up more than half of all game development spending in the current fiscal year.
- The company also considers its acquisition of the nine separate game development studios and its substantial investments in Epic Games as part of its overall extended reality strategy, as it hopes to reap the benefits from Epic’s Unreal Engine and Fortnite while also putting some of its internal studios to work on new AR/VR projects.
