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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.

🎤 In The Media

Re-Mastering the Meta During Covid-19 — I had the pleasure of hopping on Industry Focus, one of The Motley Fool’s podcasts, to talk about how COVID-19 is impacting the video game industry. If you haven’t been closely reading this newsletter, then I bet you’ll learn a thing or two. Link

📰 News

Quarantining continues. In general, video game sales are holding strong:

Obviously, not every aspect is positive, but nearly all gaming consumption trends are benefiting from ongoing lock-downs. In previous weeks, I noted that 1) video game traffic has spiked, 2) digital downloads & purchases are prospering, 3) esports are rapidly legitimizing, and 4) viewership is breaking records. On that last point, we now have evidence that not only is viewership breaking records, but it’s translating to record-breaking revenue for all streaming platforms (including Caffeine and potentially YouTube Gaming, which aren’t shown below): Link

These trends exist all over the world. For example, Paytm’s (a leading payments / fintech company in India) gaming division is experiencing hyper-growth. In the month of March alone, gamers on its platform tripled, growing approximately 75,000 new users a day. The platform is starting from a relatively low base so it makes the % numbers appear high, but it’s yet another piece of evidence that now is a great time for smart companies to leverage their unique advantages and focus on customer acquisition. CACs and LTVs may jump around as economies find their footing; however, there’s an enormous opportunity for smart, prepared companies to play their cards right. Link

Even gaming investments are holding up relatively well. Apparently over $700 million was pumped into gaming startups in the first quarter (not to mention the many millions that were spent on acquisitions and strategic investments), which is down year-over-year but still a decent chunk of change. After all, in today’s chaotic landscape it’s easier to justify investing in an industry that’s thriving than investing in areas that are suffering. Some recent examples: Link

• FaZe Clan raised $40 million. FaZe Clan has always been a content-centric esports org that’s held outsized sway on gaming culture. This Series A is packed with celebrities, and it’s clear that as gaming goes increasingly mainstream FaZe wants to scale its cultural impact with it. Link

• Nifty raised $12 million to make mobile sports games. One way traditional sports leagues hope to engage younger demographics is through expanding their video game exposure. With two new NFL games coming out (one from Take-Two and another mobile-centric one from Nifty), EA’s Madden franchise will begin to feel the heat. Hopefully we’ll start to see some actual innovation in sports games again. Link

• Sony invested $400 million into Bilibili (a major streaming platform in China). I’ve been torn on Bilibili for a while. I admire the company’s progress, but as it invades the territory of Huya/Douyu (video game streaming) and other platforms invade Bilibili’s primary territory (ACG), I’ve wondered how strong of a long-term competitive advantage the company really has. I still have questions, but this fresh $400 million will help Bilibili better compete, especially when it comes to acquiring exclusive content rights. As for Sony, this deal helps bring the business closer to Gen Z in China, and it should open up collaborative opportunities (anime, mobile games, etc.). Link

Riot announced Valorant Esports plans. Riot won’t immediately create a franchised league for Valorant and instead will rely on the community to get the game’s esports scene off the ground.

I think this is clever, because 1) we’ve seen plenty of evidence that forcing leagues too early can be detrimental to the game’s organic traction, 2) relying on the community across all tiers helps ensure a healthy long-term environment (especially at the grassroots level), and 3) Riot will still be able to bring the “major” tier in-house once it’s sure the game and community are ready for it.

Valorant still has a lot to prove if Riot wishes to meet the community’s high expectations, succeed globally, and remain relevant for many, many years… but I’m impressed with what Riot’s shown and communicated so far. Well done. Link

CD Projekt Group’s earnings. 2019 was another great year for the business — 44% growth in sales and 60% growth in profits, year-over-year. It (unsurprisingly) turns out that creating extremely high quality games based on valuable IP, which get reinforced by other entertainment mediums, is a great way to sustainably profit. The company’s 2019 outperformance can mostly be explained by one chart:

Netflix’s popular Witcher show spurred a resurgence of interest in The Witcher 3… and, notably, higher margin interest than in the past (more digital, lower marketing costs). Gwent’s recent release on iOS helps too (the majority of Gwent revenue is already mobile-driven), but tremendous pressure sits on the shoulders of Cyberpunk 2077’s launch later this year. Encouragingly, the game hasn’t been delayed (unlike many other games this year), and pre-orders look promising, but CD Projekt Red is still very much a hits-driven business. GOG helps diversify things a bit, but since the platform’s margins are low, nearly all cash flow hopes fall to major game releases. It makes sense to expect CD Projekt Group to continue excelling — they’ve consistently outperformed expectations for many years, and “winners tend to win” — but they must continue to nail whatever blockbuster game is next. Link

Nevada sportsbooks permitted to accept bets on League of Legends, Overwatch. “The Nevada Gaming Control Board has approved wagers for the League of Legends European Championship (LEC), League of Legends Championship Series (LCS), and Overwatch League … Esports Insider says: Apparently bringing esports betting markets to the United States wasn’t such a cumbersome process after all; it just took the global extinction of traditional sports to make it happen. In all seriousness, Nevada is making it rain with esports offerings, and what we’re witnessing in terms of the speed and volume of esports betting exemptions is completely and entirely unprecedented. There’s truly no telling how this will play out in the long run, but it’s certainly got us excited.” Link

🖥 Content Worth Consuming

18 Months After Red Dead Redemption 2, Rockstar Has Made Big Cultural Changes. It’s encouraging to see work-life shift for the better. Improving cultures has no finish line, so I hope both Rockstar and others continue to improve. “Kolbe went on to outline some of their plans for 2020: flexible schedules for developers at Rockstar’s studios, from California to the United Kingdom; management and leadership training; anonymous surveys to collect feedback from employees; regular updates on the company’s future games and updates; and better communication all around. The tenor of the email was straightforward: after the controversies of 2018, Rockstar wanted to do better. They also wanted to cut back on crunch, the ubiquitous practice of working nights and weekends to finish video games.” Link

Esports and the Dangers of Serving at the Pleasure of a King. “And as video game makers continue to transform into proper media companies (leagues are live events businesses, most publishers are launching Hollywood studios, etc.), they may also come to see esports as a profit area, rather than just a marketing exposure. To this end, games are increasingly being designed to be fun to play, fun to watch, and fun for professionals. Overwatch was one attempt at this triple goal — though it hasn’t quite worked — but all of the publishers are trying (See Riot and Valorant), the strategy is still new, and there’s lots of iteration/learning left. One day, there might be a game with the popularity of Fortnite, the longevity of League of Legends, and incentives closer to the NBA. In addition, more opportunities will emerge for teams to leverage their brands and followings into new revenue streams (recently, 100Thieves released its esports apparel as virtual items in Animal Crossing, an incredibly un-esports game). None of this means that esports teams will become enormously profitable, let alone many of them. When you serve at the leisure of the king, you can only get so rich.” Link

Long-Term Retention - Why D180 is the New D30. “So, if your goal is to get to the green fast and your capabilities to develop and operate games are on the lower side, it makes sense to focus on arcade games and the first 30 days of the player journey. But if your goal is to create a stable and predictable gaming business then focusing on long-term retention from day one is key. Either way, make sure to use a platform that gives you maximum visibility and flexibility to tailor your monetization and user acquisition according to player behavior and to optimize against whatever retention goal you have” Link

3 Questions to Ask About Your Battle Pass. “The Battle Pass – probably made most popular by Fortnite – is on its way to become a default monetization feature in mobile gaming. A bit like the Piggy Bank a few years back, more and more games are adopting this system. Battle Passes are now appearing in midcore and casual title. That’s because what makes the Battle Pass so successful in a wide variety of contexts is not that it’s tied to cosmetic items. It’s because the Battle Pass is a way to tie-in monetization and engagement in a rewarding way.” Link

Silicon Valley is racing to build the next version of the Internet. Fortnite might get there first. “In recent years, there’s been serious talk about how to build the Metaverse, and who will build it first. One only needs to witness Facebook and Google’s Internet success today, given how both companies dominate digital business, to understand the eagerness with which companies hurry to populate this next frontier. In observing that pursuit, there’s the very real possibility that Fortnite, the video game that became a global phenomenon that turned celebrities into players and players into celebrities, has been building the foundations of the Internet’s future right before our glazed eyes.” Link

Noclip’s 5 video series about designing The Outer Worlds. Here’s the first video in the series: Link

Jacob Navok’s (CEO of Genvid Technologies) tweetstorm about VCs investing in games. The first tweet: “Games can become platforms. But they need to be successful games. When platform strategy is dependent upon content, the risk equation is different. It’s not like making an app and then pivoting. Design, art, music, technologies, marketing need to gel. And making games is hard.” Link

The Rise of Lifestyle Streamers. “Historically, livestreaming has been synonymous with gaming. Twitch and Mixer, for example, are known for turning professional gamers like Tyler “Ninja” Blevins into household names. More recently, however, a new streaming audience has emerged, one hungry for non-gaming content. Over the past two years, for example, a category on Twitch dubbed “Just Chatting”—in which streamers chat with their viewers in real time—has grown nearly four times as quickly as Twitch overall. And as platforms like Caffeine launch entertainment shows and pop culture streams, that trend is playing out across the industry. Through its unique ability to drive both rabid engagement and instant monetization, livestreaming is becoming the future of live video entertainment—and stretching beyond its gaming roots in the process.” Link

See you next week!