Welcome to Master the Meta, the #1 newsletter about the business of video games.
I hope you’re all having a great summer. We’re hard at work scaling up our content production. Currently there are 11 of us working on just as many essays that cover a wide range of topics: company breakdowns, game deconstructions, esports, blockchain implications, neuroscience, and more. It takes a lot of effort to produce deeply analytical content, so thank you to everyone who stepped up, and, to our readers, there’s a lot to look forward to.
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Now, on to your weekly roundup and analysis of what’s happening in the video game industry...
Mobile gaming broke records in Q2. Mobile is the largest and fastest growing segment of the gaming industry, so breaking high-level records is actually to be expected. Not breaking records would signal an unexpected problem. That said, this quarter was especially strong (thanks COVID). Average weekly game downloads rose 20% year-over-year — roughly 1 billion game downloads a week — and monthly time spent in all apps rose 40% over the prior year. Of course, games aren’t everything. Non-gaming apps represented the majority of downloads, but gaming apps by far represented the majority of spending; 65% and 85% of spending on the Apple Store and Google Play, respectively, was gaming-related. The chart above also showcases how top games have trended over the past quarter. It’s always interesting to note what’s popping off in terms of downloads, but on the spending and engagement side, not too much is surprising. A few observations:
Coin Master’s ascent and ability to monetize is impressive, and it’s notable how Pokemon GO was able to adapt to a COVID-filled world.
Ludo King, based on a popular Indian board game, skyrocketed in Q2 (primarily in India). It’s an impressive achievement, but don’t expect it to stick around in the top 10 forever.
FPS/Battle royale games, CoD: Mobile and Free Fire, have enormous player bases but haven’t converted players to payers in the way other games have (even compared to PUBG Mobile). Free Fire’s audience doesn’t reside in high paying countries, and CoD: Mobile has some design limitations. Both games still have room to grow and improve, however.
Unsurprisingly, the usual suspects — Candy Crush, Roblox, etc. — continue to dominate the charts.
What to expect going forward? In the long-run, the numbers will continue breaking records because the mobile gaming market is still far from saturation. Even a game like Roblox, which now consistently sits in the top ~5 revenue slots, has significant room to run. Now what will happen over the next quarter or next year? For many people, newly developed gaming habits will stick, but as life normalizes growth will normalize too. Don’t extrapolate this spike in engagement going forward, but also don’t think growth is close to being over. There’s tremendous value left to create and capture over the years ahead. Link
Sony invests $250 million in Epic Games. This deal gives Sony a 1.4% stake in Epic at a valuation of $17.86 billion and is separate from the $750 million Epic raised last month. Understanding Sony’s full reasoning is speculation, but here are some observations:
Nearly half of Sony’s business is entertainment related (gaming, music, movies, TV), and Epic, primarily through the Unreal Engine, wishes to empower the creation of content more broadly. There’s a chance that this deal means Sony will more frequently adopt the Unreal Engine.
Sony/PlayStation caved into enabling cross-play when Fortnite blew up, and not only is cross-play increasingly inevitable as the default but Epic is building the technology — Epic Online Services — that makes it easier for developers to connect their communities more seamlessly. This deal links Sony to an innovative business that is clearly driving the future.
PlayStation will continue leaning into exclusives, but just as Horizon Zero Dawn (a 2017 release) is now coming to PC, other Sony exclusives may follow suit. Maybe there’s an opportunity for Sony and the Epic Games Store to partner.
As for Epic, being financially interconnected with the largest gaming companies in the world (Tencent, Sony) should only bring upside.
Again, the full reasoning is speculation and it could be as simple as “hey, we think you’re a cool company with meaningful upside” and “hey, there’s no downside in having Sony as a small investor.” It will be interesting to see if the two companies partner together on anything beyond the usual because of this. Link
Tencent eyes Leyou. It’s not a done deal, but there’s a 3-month exclusive negotiating window, so closing a deal is likely. Leyou has 5 studio subsidiaries mostly focused on console/PC games and is most known for Warframe, which now has 60+ million registered users. This deal could make some strategic sense. After all, Tencent is looking to scale up its console/PC presence to improve its international exposure, and Leyou could use help taking its franchises to mobile. Link
Microsoft considers buying WB Games. Who knows if Microsoft would be the actual acquirer (other top publishers are also in discussions), and there’s a chance that WB won’t be sold at all. However, if this deal occurred I’d be fascinated to know 1) how strict Warner Bros would be about licensing, 2) whether Microsoft would make any franchises exclusive to Xbox, and 3) how they’d bolster Game Pass using the WB Games library/pipeline. Link
Mobile esports tournaments continue to ramp up. Mobile esports still don’t receive tremendous attention in the West. However, not only are multiplayer mobile games a major industry growth driver, but their rise shows up clearly in esports stats:
In June, 2 of the top 5 esports tournaments (including the largest) were for mobile games: Mobile Legends and Arena of Valor. In time it will be the majority. It’s also a matter of time before mobile esports are more openly accepted across all regions. There just needs to be additional catalysts that onboard more hardcore mobile gamers. Call of Duty: Mobile helps, and upcoming games like Riot’s League of Legends: Wild Rift and TiMi’s Pokemon Unite may help move the needle. Link
Speaking of esports, Riot is considering a bubble system for League of Legends Worlds. Assuming all qualified teams will be allowed to travel to China in the Fall, this is a smart plan. Players would come to China early, quarantine together weeks before the tournament, and then compete in a centralized location. Coming together is the only viable way for multiple regions to compete together, and this structure is dramatically better for content purposes than being remote. The NBA is kicking off its own bubble system this month, and leagues around the world will be paying close attention to see how it goes and apply learnings to their own sports. Link
Chushou TV has shut down. China’s live streaming market has been consolidating for a few years, and the gaming segment continues to do so. Chushou TV, which raised $120 million two years ago, is the latest casualty, and this comes after Panda TV, another prominent player, shut down in 2019. Chushou’s streamers are encouraged to shift over to Kuaishou, but they’ll probably disperse among various other platforms, primarily Huya, Douyu, and Bilibili. What do all those platforms have in common? They’re backed by Tencent, who wins no matter what and can influence how these companies continue to consolidate. The potential merger of Huya and Douyu remains a rumor, but whether or not that specific deal goes through it makes sense that we’ll experience further consolidation. After all, it would undeniably be good for business (more powerful network effects, superior negotiating power, etc.). This is, of course, different from the US market where the three biggest streaming platforms — Twitch, YouTube Gaming, and Facebook Gaming — are all fully owned by separate tech titans. Link
Amazon’s MMO, New World, is delayed. Tech companies are learning the hard way that creating great games is challenging, regardless of how much cash you throw at the problem. This delay, which isn’t uncommon for ambitious games, comes after Amazon already blew $300 million on Crucible. This delay doesn’t mean New World is doomed — who’s to say at this point? — but it’s clear that Amazon Game Studios has room to improve. To be fair, Amazon doesn’t need to make games to grow its gaming ecosystem; focusing on next-gen tech is where the company’s strengths lie. Plus, acquiring other studios with established processes and track records would be a lower risk approach to gaining a content foothold. It’s hard to say how Amazon’s content ambitions will evolve over time. For what it’s worth, I think Amazon can figure it out — they’ve figured out much harder problems elsewhere in the business — but whether or not it’s worth the cost is another question. I hope journalists dig up some behind-the-scenes coverage so we can learn more about what’s going on. Link
Capcom’s games sales are 80% digital and rising. 53% of sales were digital last year, ~80% are digital currently, and the company projects 90% digital sales in the future. That quick digital rise exists for a couple reasons: COVID-19 propelled consumers to change habits and the Monster Hunter World: Iceborne DLC was a major seller. In a few years, most all companies will see 90%+ digital sales, so this isn’t unique to Capcom, but it will take time for consumer preferences, especially regarding the most popular games, to shift. Even for Capcom, it may not be a straight ascent depending on what types of games and expansions are in the pipeline. Link
Ninja’s massive YouTube stream. Ninja apparently hasn’t signed a new exclusivity deal with any platform yet, but his debut YouTube stream peaked at 167k concurrent viewers. That’s insane. Link
Private market deals.
Traplight launched Battle Legion and raised $9 million to support further development. Link
Athlane raised $3.3 million to support its terminal that provides analytics for streamers and brands. That data can be used to help match and manage those streamer/sponsor relationships. Link
Manticore unveils its pilot payment program. The company’s Core platform allows anyone to develop games without extensive coding for “free.” Its premise is similar to Roblox but targets a different demographic and allows for different development capabilities. I’m personally fascinated by how low-code platforms could unlock untapped creativity for “casual creators,” but I’m far less convinced that professional studios would choose to build games on a platform like this. Why? Because it adds another middleman who takes a cut of revenue, ultimately caps a studio’s financial upside, and gets in the way of owning the relationship with players. Right now the company is only targeting PC, which means they’re the only middleman. However, if they target mobile and/or console in the future — and these creator platforms are most powerful when supporting all platforms — App Stores would take another 30% cut, which leaves the developer with less than half the revenue their work generated. That financial reality holds back how disruptive this platform could be, but as we see with Roblox it can still lead to a large, engaged community and a massive company.
Manticore’s pilot payment program pays developers $3 per average daily player within each calendar month (and that’s definitely not permanent). Sure, there’s incentive for game creators to attract as many players as possible, but revenue per player is still ultimately capped. Again, I think low-code platforms can unlock creativity from casual creators without extensive coding abilities, but it’s not going to disrupt the industry (at least in this form). It’s also important to keep in mind that Epic Games will probably unveil its own low-code creator platform at some point, and, knowing Epic, it would let creators earn above average take-rates. Link
Ubisoft continues to clear house as allegations pile up. Now the company’s Chief Creative Officer, Ubisoft Canada’s managing director, and the head of HR are all leaving. Many people (including employees) doubted leadership would be willing to make drastic changes, but CEO Yves Guillemot has made it clear that Ubisoft will do whatever it takes to improve its culture. Hopefully Ubisoft’s willingness to change encourages other companies with similar problems to follow suit. Link
🖥 Content Worth Consuming
Elite Game Developers Podcast. “Today I'm talking with Richard Kim and Sam Englebardt, who are partners at Galaxy Interactive, a $325m fund shaping the future of interactive entertainment. Richard and Sam have been investing into gaming for a while now and in this episode, we discuss how they see financing in gaming evolving, what it takes to get into competitive rounds and how they see as key in the gaming space in the next 2-5 years.” Link
Thoughts on Sea Limited. Julie Young wrote a great overview about “The $50+ billion Internet company mobilizing gaming, e-commerce, and payments across Southeast Asia.” Link
How Minecraft and Mojang taught Xbox how to buy studios. “A lot of times you see big companies buy smaller companies, and it's easy to lose the magic of what you've purchased. It was really important that this acquisition was about retaining all of that great talent within the studio, and ensuring that you're continuing to foster that creative spirit. It's not all about business results; it is about building a foundation of trust. As you can imagine, there was quite a gap in the culture between an indie studio and a large corporate company like Microsoft. It was about making sure they trusted that the leaders were not going to do harmful things to Minecraft… And how Matt integrated Mojang really helped set the stage for how Xbox acquired and integrated all of the additional studios. Before, Microsoft acquired companies in a specific way. And this not only set the foundation for additional game studios, but when you look at LinkedIn and GitHub, they also have this minimally integrated approach. That really was something that Mojang set the foundation for." Link
With Sports on Hold, Restless Gamblers Turn to Videogames. “In less than a month, the volume of dollars Groes has seen bet on esports has gone up by a factor of 10. EveryMatrix offers software facilitating esports betting on everything from Fortnite and FIFA to dozens of online betting sites, from Germany’s Mybet to Russia’s 1xBet. Before Covid-19 hit, esports bets constituted just 1 percent of bets he saw. Now, it’s 35 percent. The typical bet, he says, remains $25 between sports and esports betters… For dedicated esports betting site Loot.bet, daily bet volume has grown by 20 percent. ‘In 2019, live bets accounted for 75 percent of volume, but in March 2020 that had grown to 83 percent,’ says a Loot.bet representative.” Link
Mediatonic stealthily evolves to take bigger risks. "We've got a lot of battle scars from our first ten years, where we've been through things like publisher restructures, studio closures, all these kinds of things. Those are things that I feel really get in the way of creativity and make it more difficult to try something new. That's why building this multi-studio structure, where the bigger ones can support the smaller ones and we can share resources across what we're doing. It makes things much easier for us, and ultimately helps us grow overall." Link
See you next week!