Hi Everyone. Thanks for tuning in for another week of Naavik Digest. If you missed last week’s edition, we wrote about Roblox’s Q3 Earnings. Check it out and let us know what you think.

Lessons from Stillfront + Choosing the Right Blockchain

Alexis Bonte: Stillfront’s Strategy, Synergies & Future. In this episode, Alexis Bonte – COO of Stillfront Group – joins Naavik co-founder Aaron Bush to discuss his journey as an entrepreneur and executive, and how he ended up at Stillfront. Alexis dives into how Stillfront operates, including how it provides autonomy to studios while still creating synergies across the entire organization. He also discusses Stillfront’s M&A strategy, including lessons learned after 18 acquisitions. The duo also cover the future of Stillfront (and whether the company is thinking about web3) Website | YouTube | Spotify | Apple Podcast | Google Podcast.

How to Choose a Blockchain + FTX!? Should you build your game on Solana or Polygon? L1, L2, or sidechain? What are the technical, financial, ideological, and game design frameworks a web3 developer should think about when making this decision? In this week’s episode, your host, Alex Takei, talks all things chain choice with Aron Beierschmitt, CEO of Laguna Games, the studio responsible for Crypto Unicorns, and Sridhar Muppidi, co-founder of YesGnome, a skill based mobile gaming company. PLUS hot takes on the FTX debacle and what implications it might have for Solana given SOL is Alameda’s second largest token ecosystem holding. Website | YouTube | Spotify | Apple Podcast | Google Podcast.

#1: Krafton Reports Q3 Earnings

South Korean games holding company Krafton reported third quarter results on November 10th, posting a net profit of 226.4B KRW (~$171M USD), up 27% YoY and 16.7% QoQ. While the increased profitability makes for a positive headline, it may be masking weaknesses in other areas of the business at what is a crucial time for the company, just over a year removed from its disappointing IPO.

Krafton has faced strong headwinds during its time on the public markets. Not only did the stock tumble in its debut, but it has been buffeted by the overall post-COVID decline in mobile and has seen its few new releases struggle to gain momentum. Since its debut, the stock has fallen roughly 54% (at time of writing).

Though net profits grew this quarter, overall revenue remained stagnant at $326.8B (up +2.4% QoQ, but down -16.9% YoY). The company also saw a major increase in PC revenues (+48%) offset a meaningful decline in mobile revenues (-11.7%). Much of Krafton’s success on PC can likely be attributed to the ongoing strength of its flagship title, PUBG Battlegrounds, which shifted to a free-to-play model at the beginning of 2022. Though PUBG is not performing at its previous lofty heights, it is still maintaining a healthy player base on Steam.

Meanwhile, Krafton has chalked up its mobile underperformance to “the end of the pandemic”, though it was almost surely impacted by the ban of PUBG Mobile clone Battlegrounds Mobile India (BGMI) in India at the end of July. Furthermore, the continued struggles of New State Mobile (fka PUBG: New State, Krafton’s non-Tencent adaptation of PUBG Mobile) has to be weighing on the company. The game has thus far been unable to make meaningful headway against its competition in the mobile shooter space.

It’s also worth noting that these earnings are likely impacted by a lull in recent releases, and should be re-examined next quarter following the much-anticipated launch of The Callisto Protocol (a forthcoming survival horror game from Striking Distance Studios — one that we’ll return to shortly).

Regardless, perhaps the most interesting development from the mixed earnings report was the news that Krafton is set to acquire Swedish studio Neon Giant, developers of The Ascent* (an isometric cyberpunk-themed twin-stick shooter for PC and Console). (*For an interesting look at the development process behind The Ascent and the team that built it, check out this AIAS interview with two of the studio’s founders, Arcade Berg and Tor Frick).

The company also announced that it would be opening a studio of its own in Canada, tasked with developing a game around The Bird That Drinks Tears — a popular series of Korean fantasy novels.Both of these moves represent important developments in the company’s push towards what it calls “Regional and IP Expansion”. Let’s unpack that strategy and examine why it’s critical that Krafton execute it well.

Regional expansion is fairly straightforward: open or acquire studios across the world in an effort to get closer to the players, development talent, publishers, and other stakeholders in those areas. With these recent additions, Krafton now spans Asia (Krafton; Bluehole; PUBG Studios), Europe (Striking Distance Studios; Neon Giant), and the Americas (Unknown Worlds; newly announced Canadian studio). We saw this most recently through Riot’s that they would be acquiring a Sydney-based studio and that they would be splitting ties with Garena.

Developing an international presence can have multiple benefits, especially when considering a genre like mobile shooters (Krafton’s primary source of revenue) which requires thorough culturalization and localized operations to compete with deep-pocketed rivals like Call of Duty: Mobile or Garena Free Fire (If you want to dive deeper into the mobile shooter space, be sure to check out the Naavik Pro deconstruction of Garena Free Fire). Historically, this level of geographic specialization has allowed Krafton (with a little help from Tencent) to establish competitive moats for PUBG Mobile in regions like MENA and SE Asia. Expect the company to seek to replicate this success with its own stable of in-house shooters (BGMI, New State Mobile, and other titles in development).

Beyond new studios, Krafton has also been actively investing in the fast-growing Indian gaming sector. According to TechCrunch, the company has already invested more than $100M in India-based startups, including Nodwin Gaming (esports), LILA Games (mobile shooter developer), and Loco (game streaming).

The other part of Krafton’s strategy – IP Expansion – is even more important to the company’s future prospects. Today, Krafton is primarily known as the company behind PUBG, with little else to show in the way of successful original IPs yet.

The company’s latest effort to develop a new IP, The Callisto Protocol, is set to release on December 2nd. The survival horror game is being developed by Striking Distance Studios, a wholly-owned subsidiary based in San Ramon, CA, that was initially founded to expand the PUBG Universe beyond battle royale (though the narrative connection to PUBG was later scrapped). While there is definitely hype around the game’s launch, it will find itself competing in an increasingly crowded space with revitalized franchises in Dead Space and Silent Hill each seeking to make a splash of their own. CEO Glen Schofield, himself a veteran of the Dead Space franchise, also made recent headlines for his studio’s culture of crunch. Nevertheless, this game will be extremely important to Krafton’s future prospects.

Beyond The Callisto Protocol, Krafton will be looking to the newest title from Unknown Worlds, Moonbreaker (formerly referred to as Project M), to garner some momentum. The game, which is set in the sci-fi world of acclaimed author Brandon Sanderson, was recently launched into Early Access on Steam. Unknown Worlds was able to find previous success with its hit Subnautica (a franchise that currently represents ~50% of Krafton’s console revenues), so the publisher will be hoping to replicate similar results with Moonbreaker.

As for other projects in the pipeline, there is the aforementioned The Bird That Drinks Tears project (still very light on details); Project Black Budget, a “PvPvE Looter Shooter”; Project Roam, a “multiplayer PvPvE shooter”; Project Windless, an “open-world RPG”, and another Subnautica title, among others.

Finally, the company has also made a number of investments in areas outside of its core expertise, displaying its ambitions to become more than just a gaming company. Krafton has invested in dating apps (India’s FRND; South Korea’s Between), a storytelling platform (Pratilipi, also part of the company’s push into India), and an AI chatbot company (South Korea’s Thingsflow). The company has even developed its own hyper-realistic virtual human, and, like many of its peers in the Korean games industry, has jumped on the web3 bandwagon, partnering with Solana Labs and Naver Z to develop new gaming and Metaverse projects.

Clearly, the company is searching for growth in a variety of different areas. Time will tell if Krafton is able to meaningfully expand beyond the success of PUBG. Even the original creator of PUBG, Brendan “PlayerUnknown” Greene, cannot escape the orbit of Krafton. His new venture, the aptly titled PlayerUnknown Studios, received a minority investment from his former employers at Krafton and is said to be working on a new open-world sandbox that may or may not be utilizing the blockchain.

There are certainly other firms that have managed to diversify beyond their singular breakthrough IPs, such as Riot Games (League of Legends) or Smilegate (CrossFire), that Krafton can look to for inspiration and competitive benchmarking. Both of those companies were able to create organic growth with new game launches (Riot with Valorant, Teamfight Tactics, and others; Smilegate with Lost Ark). Will Krafton be able to do the same? (Written by Matt Dion)

#2: MARVEL Contest of Champions: Gacha Assembled!

This is the introduction to a Game Deconstruction that was written by Harshal Karvande that originally appeared in Naavik Pro. Be sure to request a demo to read the full write-up, and access our entire research library.

In June 1982, Marvel Comics published its first limited series, Contest of Champions. The Grandmaster and a hooded figure called the “Unknown” used teams of superheroes from Earth as pawns to battle for the ultimate prize. Captain America, Wolverine, Iron Man, and Black Panther, amongst many others, came together for this epic crossover long before the concept of crossovers was established. This was Marvel’s first big Marvel-Universe-shaking event.

Fast forward to 2014, and we have the release of MARVEL Contest of Champions (MCOC), a F2P fighting game developed and published by Kabam. Based on its namesake comic, the game has teams of Marvel heroes and villains in 1v1 combat with Collectable Card Game (CCG) progression elements, PvP/PvE, and a robust story mode. The game was soft launched in Canada, Sweden, and Denmark on October 31st, 2014; it garnered 162K downloads and earned $138K in revenue before its global release 40 days later on December 10th, 2014.

The game surpassed $100M in revenue (and 40M downloads) in just 7 months, becoming the fastest growing Kabam game ever, surpassing its 4X game, The Hobbit, which took 13 months to hit $100M (link). MCOC was positioned perfectly at the intersection of Warner Brothers’ (WB) successful Injustice: Gods Among Us fighting game (gameplay video), which had DC characters duking it out with mobile-friendly fighting controls, and DeNA’s Marvel: War of Heroes, which features CCG progression. This was a mix of Marvel’s IP and a F2P game done right, with console HD graphics, attention to detail in characters and storytelling, tap-and-swipe-based, simplified fighting controls with gacha collection, and metagame progression elements of CCG games.

As of October 2022, MCOC has generated $1.33B in total revenue, representing 70% of Kabam’s lifetime revenue with 202M downloads (45% of Kabam’s lifetime downloads). Kabam started as a social F2P web game company in 2009 with titles like Kingdoms of Camelot, one of the first successful strategy games on Facebook. By April 2015, Kabam repositioned itself solely on developing mobile games, shutting down support or transferring its legacy portfolio of web games to other companies (link). This move was triggered by an investment of $120M by Alibaba, which fueled its entry into the Chinese gaming market.

Partnering with Longtu Games, Kabam launched MCOC in China under a different title — Marvel Fighting: Clash of Champions — redesigning the game to cater to VIPs and autoplay mechanics. The game was live for just 7 months (May 2016 to January 2017), generating only $1.67M and 2.24M downloads, after which Kabam decided to self-publish the title, shut down the China-only version, and transfer players to the global version (link). Both versions are iOS-only in China, and MCOC has not yet seen an Android launch in the region.

Out of MCOC’s 202M global downloads (unified across iOS and Android platforms), the US takes the majority share with 39.3M downloads (25%), Brazil comes second with 18.5M (12%), and India comes third with 14.4M (9.23%) — in-line with where Marvel’s IP is strongly recognized (link). China comes in fifth with 11.2M downloads (7%) through its iOS-only release, bringing in less than 2% of global revenue ($20.9M). The US leads the revenue charts with $789M (65%), UK comes in second with $68.6M (6%), and Germany third with $53.3M (4%).

Since its launch in December 2014, MCOC has maintained a strong position on the worldwide revenue top 10 charts for action games, ranking at #1 in 2015 ($116M) and a steady #3-4 position for years 2017-2021 with +$180M/year in revenue. The action games top charts have been dominated by Tencent’s Honor of Kings since its release (China-only), a MOBA that holds the position of highest grossing F2P game in the world (link). Supercell’s Brawl Stars and Moonton’s Mobile Legends: Bang Bang have since snagged the top positions from MCOC, making $384M and $202M respectively.

However, when looking at the US top charts for action games, MCOC has been the reigning champion for the past 7 years, bringing in over $100M in revenue each year for the past 6 years. WB’s Mortal Kombat X has been the second best performing action game, but its revenue pales in comparison to MCOC, hitting a high of $20M in 2021. WB’s Injustice and Injustice 2, which feature DC heroes and villains, made only $5M and $15M, respectively, in 2021. All three of WB’s action games combined generated less than 50% of MCOC’s revenue in 2021!

In March 2017, Kabam’s Vancouver studio, which operates MCOC with 180 employees, was acquired by Netmarble (link). Weeks after the acquisition, the team released Patch 12.0 which nerfed the most powerful characters and made defensive, skill-based play of using blocks and parries nearly ineffective. This led to a massive backlash from the top alliances in the game, dropping the game to its lowest position in the top grossing ranks (link). Also, MCOC’s game engine had the potential to support the development of MCOC-like hits, kicking off with Transformers: Forged to Fight, but this first attempt turned out to be a bust for Netmarble and will be shutting down in January 2023 (link).

In this essay, we’ll deconstruct all that makes MCOC the most successful action game in mobile F2P, examining:

• The action gameplay and the game’s evolution throughout its updates
• How it brings gacha mechanics to the West
• The character collection drivers
• Industry-leading live operations that mirror the Marvel Cinematic Universe (MCU)
• Improvement suggestions and a look at planned future updates

Is MCOC’s performance as unstoppable as the Marvel IP behemoth that's fueling it? Let's dive in and find out.

Content Worth Consuming

Inside The Elite, Underpaid, and Weird World of Crossword Writers (New Republic): "The conspiracy theory writes itself. Start looking, and you’ll notice how many New York Times crossword puzzles are co-constructed (the preferred term for what most people would refer to as co-written) by a professional crossword constructor and someone with a day job—it’s hard not to see all the artists, web developers, professors, and other titles that imply a degree of wealth and elite connections. As the pandemic handed the work-from-home class extra time for their hobbies, the number of first-timers published in the Times has skyrocketed. Obviously, rich people are paying others to get the glory of their name in ink. But the theory is almost diametrically wrong. It turns out the crossword industry really does consist of earnest wordplay lovers donating their time to unpaid mentorships, generally as part of an industry-wide effort to bring new and underrepresented people into crosswords.” Link

The Hidden Costs of Indie Game Development (Gi.biz): “For people about to embark on a game development cycle for the first time, it's very easy to have misconceptions about the types of expenses it might entail. But whether you're pivoting from another career or you're a graduate fresh out of uni, there's a lot of unforeseen challenges that you might not be aware of that will lead to additional costs.” Link

Q3 Game Streaming Report (Stream Hatchet): The latest insights on” growth rate trends of the top video game streaming platforms and what it means for the future of live streaming; The top 10 game streamers, female game streamers, VTubers, and esports orgs; Performance of the esports market segment; Special interest topics including YouTube VOD performance and the state of Gambling on Twitch.” Link

Marvel Snap’s Simultaneous Turns (GameDeveloper): “After assembling a deck, players go head-to-head in match-ups where they aren't trying to destroy each other's heroes, but rather controlling at least two out of three lanes (called "Locations" in Marvel Snap). Locations also contain game-twisting bonus powers that can either benefit both players or reward the player controlling the Location. That design gives the game a nice bit of narrative framework (the player isn't a superhero themselves, but rather a superhero team leader sending their favorite characters into battle), but there's a more subtle mechanic at play that brings the whole experience together: players take their turns simultaneously, rather than one at a time. “ Link

🔥Featured Jobs

• Legendary Play: Senior System & Economy Designer (Remote)
• Nexus: Account Manager (Remote)
• Capcom: Business Development Manager - Esports (Remote - USA)
• Activision: Associate Manager - Global Digital Commerce (Santa Monica, CA)
• Naavik: Content Contributor (Remote)
• Naavik: Games Industry Consultant (Remote)