Hi Everyone. Thanks for tuning in for another week of Naavik Digest. If you missed last week’s edition, we wrote about Homa Games’ massive $100M raise. Check it out and let us know what you think.
This Week on The Metacast
Why Did Magic Eden Make Creator Royalties Optional? — In this Metacast episode, Anthony Pecorella, Tim Mannveille and Tom Kinniburgh join Maria Gillies to discuss why Magic Eden, Solana’s leading NFT marketplace, decided to make creator royalites optional. The group also discusses why Riot is acquiring Wargaming Sydney, if Xbox Game Pass’s addition to the Meta Quest is a major step for VR, and what role AI could play in the future of the video game voice acting business.
#1: Riot Games Acquires Wargaming Sydney
Riot Games acquisitions are so fun to analyze because there are deeper underpinnings around player experiences that always come into consideration. This week, Riot announced it had acquired the development team from Wargaming Sydney for an undisclosed amount. From Riot:
“The studio will be renamed Riot Sydney and is a global development powerhouse with experience creating next-generation game development tools and servers, world-leading games, and some R&D projects — as well as prototypes for new game features, add-ons, and console ports… Riot is expanding its approach to global development, and over time, Riot is looking forward to growing the game industry in Australia and will also continue to explore similar opportunities to add expert talent from veteran studios.”
Sydney’s Wargaming subdivision is a particularly interesting acquisition in that is has a sprawling history. In 2012, Wargaming acquired BigWorld for $45M to create its Sydney office — this was a tool suite for developing MMOs which was then used by Wargaming for World of Tanks (famously, the MMO with the highest concurrent player count ever). While the tech will remain with Wargaming, the press releases everywhere talk about how the newly acquired development team has deep technical expertise in this area and has collaborated with Riot prior. It’s clear this decision is as much as about bringing in expert talent at Riot as it is expanding deeper into SEA. Particularly as the company continues to launch new titles and grow the ecosystem around existing ones.
At Naavik, we’ve written a lot about the industry consolidation that’s taken place over the past 10 months — from major acquisitions to smaller ones; however, by and large these headlines have mainly been IP / studio acquisitions. Riot’s acquisition points at a different burgeoning trend, one that directly supports a thesis of IP expansion rather than necessarily IP acquisition. The current macroeconomic conditions are timely for this thesis, as Riot's acquistion comes in the midst of a market filled with:
- Compressed valuations across the board
- A need for leaner teams amid tougher funding environments
- The normalization of remote & hybrid work, and a desire to bring team’s in-house vs. out-source)
It’s also easy to forget how much is happening inside Riot: tabletops, and MMO games that are in development, Arcane Season 2, continued development of titles like League of Legends and Valorant, among so many other projects in and around Riot's publishing arm, Riot Forge. This acquisition will clearly bolster development of live, competitive, multiplayer games of League of Legends, VALORANT, and Riot tech teams particularly for the company’s upcoming MMO.
Riot is a clear leader in the respective genres of League of Legends, Valorant, and TFT, with some more recent momentum in Wild Rift having crossed $750M in lifetime revenue. With strength across the board, it follows that the company will continue to invest in building foundations outside the United States to bolster the launch of future titles and grow monetization efforts for existing games. Fortunately, the newly-minted Riot Sydney team has a lot to bring to the table. (Written by Fawzi Itani)
#2: Weekly News Roundup
Netflix Announcements: Netflix now has a generous array of games (with 14 being built in-house), an upcoming ad-supported tier that will include games, five game studios, and ambitions for cloud gaming. Regarding cloud gaming, head of Games Mike Verdu says, “It's a value add. We're not asking you to subscribe as a console replacement. It's a completely different business model. The hope is over time that it just becomes this very natural way to play games wherever you are.” Netflix's competitive advantage in recent years has been their willingness to focus on streaming over more traditional channels, coupled with the scale advantages that come with being a first mover in the space. It’s been impressive to see them build a games team and hit the ground running relative to content investments, and it feels like they have the requisite skin in the game and industry expertise to build this diversified content stream.
From last week's shareholder letter: “With 55 more games in development, including more games based on Netflix IP, we’re focused in the next few years on creating hit games that will take our game initiative to the next level. More generally, we see a big opportunity around content that crosses between TV or film and games.” While there are 35 games available to subscribers at the moment, only an estimated 1.7M (or 1% of Netflix) subscribers have downloaded a game — Netflix is still searching for its hit.
Microsoft and Activision Encounters More Friction: Regulators have been ever-so scrutinizing tech acquisitions — Meta’s VR ambitions, the recent UK block on the social media giant's deal with GIPHY, and of course, Microsoft / Activision. Axios reports three main concerns from CMA: Impact on (1) console market, (2) multi-game subscription market and (3) cloud gaming (Microsoft already leads in 2 of them). Importantly, much the same as VR, regulators are critical of business models that are new, unproven, and don’t yet “exist” in any meaningful way — and in many other ways, these are business models that need an anchor to push them along. This is best exemplified by Microsoft’s statement: “Multi-game subscriptions are a means of payment — not a market.”
At any rate, there’s been a lot of interesting non-redacted data surface in these investigations, particularly in Microsoft’s response. A few here:
- “PlayStation’s installed base of consoles (151.4 million in 2021) is more than double the size of Xbox’s (63.7 million in 2021).” Note that this is specifically for consoles.
- Sony’s 286 exclusive titles generated 17% of consumer spend revenue from 2019-2021. Sony has nearly 5x the number of exclusive titles as Xbox.
- “Indeed, even if all of PlayStation’s MAUs that play Call of Duty were, hypothetically, to leave PlayStation it would still have significantly more MAUs than Xbox has today.”
- Microsoft might seek to build out their own mobile games store.
Stardust Raises $30M: This is quite the large raise at time when crypto and gaming investments are normalizing. Stardust helps developers build Web3 games by providing an API to integrate blockchain technologies with only a few lines of code. It’ll be good to track how this tech plays out for larger publishers with which it might be harder to close enterprise partnerships. At any rate, this company has a variety of non-games specific VCs funding this round (which may have bumped up the valuation), and has already announced plans to expand to new blockchains and add more feeatures to empower developers.
Sponsored By Heroic Labs data.ai & Jam City
With hundreds of thousands of gaming apps in the app stores and thousands of new mobile games released each month, finding and retaining players is as hard as ever.
Join data.ai's Chris Uglietta as he sits down with Michael Raeford, Director of Player Experience at Jam City this Thursday (Oct 27) at 11AM PST to discuss the company's culture and processes for delighting and retaining players. The duo will discuss
- How to stay informed on competitor performance
- How to identify the features, live operations components, and promotions that are driving game and non-game app engagement and monetization
- How to get a better understanding of player's game preferences and behaviors across different titles and genres
Michael will also explore how his team uses data.ai tools like GameIQ, Cross-App Affinity scores, and Advanced Reviews to help take his team's decision making to the next level.
#3: Legal & Regulatory Considerations in Web3 Gaming (Part 2)
This is the second part of an article written by Amy Madison, an investor, lawyer, and strategic advisor. You can find the first part of the article here. This piece, which focuses on Fundraising, Securities Laws, and Web3 Gaming originally appeared here and should not be taken as legal or investment advice.
With high reward comes high risk. As the global gaming industry balloons to $336B in 2021, and web3 gaming exploding over 2,000% as the fastest-growing category, it’s easy for developers and investors who wish to enter this lucrative market to forget that timeless adage. Web3 gaming in particular comes with its own landmines, especially in the legal and regulatory department. I’ve developed this multi-chapter primer as your key to decoding the regulatory bodies that could dash your dreams of becoming (or funding) the next Sky Mavis or Web3 Epic Games. The name of the web3 development game: maximizing reward while minimizing risk.
The largest pain point for blockchain gaming is regulatory uncertainty. Not only do existing issues such as IP, consumer protection, and gambling applicable to traditional games remain in effect, but web3 games have additional challenges around convertible virtual currencies: NFTs, money transmission, and securities laws. Moreover, all of this is taking place against the background of still-nebulous regulations surrounding cryptocurrency in general. With the consequences of getting it wrong for developers ranging from fines to criminal charges, it is more important than ever to understand the legal landscape.
Amidst this changing landscape, comes innovation in the way games are financed. Gaming companies have traditionally raised money from publishers, crowdfunding platforms (e.g., Kickstarter, Indiegogo, or Gamefound), or by selling equity in the company to venture capitalists (VCs) and angel investors. With crypto, there are two additional ways to raise money now: by selling game tokens and/or NFTs. In this new paradigm, web3 gaming companies have been able to raise millions of dollars from both traditional investors, such as VCs, and a non-traditional class of participants - the public, via public token sales and NFT mints. However, while web3 games can open new avenues of fundraising, they may also put restrictions on others (e.g., crowdfunding platforms do not currently allow the sale of NFTs or crypto assets). They may also trigger securities law issues not traditionally considered by gaming companies when selling in-game currencies or virtual goods, leading some traditional institutional investors to shy away from making token investments due to the regulatory uncertainty.
In this piece, we’ll explore how the gaming industry is approaching the complex world of new fundraising methods and securities laws. It starts with understanding how securities are defined, and how United States entities like the SEC evaluate them, but continues on to explore some of Web3's newest operating models, like DAOs, and Gaming Guilds.
Games increasingly permeate all aspects of society, beyond entertainment, facilitating social engagements and financial transactions. As the industry continues its rapid evolution, I hope these chapters will inspire more conversations and critical analysis by bringing to light some of the challenges that investors and builders in this space should think about.
🎮In Other News…
💸Funding & Acquisitions:
- Riot Games acquired Wargaming Sydney. Link
- Stardust raised $30M in a round led by Framework Ventures. Link
- Odyssey Interactive announced a $19M Series A led by Makers Fund. Link
- Magic Games raised a $5M seed led by Makers Fund. Link
- Bytebrew raised $4M in a round led by Konvoy. Link
- Discord had a big week in product releases: in-app activities, bots and subscription updates, and a YouTube integration. Link
- Gamers spent $1.54B / week, according to a report by data.ai. Link
- Netflix is exploring a cloud gaming service. Link
- Xbox is reportedly building a mobile game store. Link
🕹Culture & Games:
- Modded content for the Sims via Overwolf. Link
- Silent Hill and Genvid are teaming up on a MILE (five total Silent Hill announcements this week). Link
- JPM estimated 70M subscribers for Apple Arcade. Link
- September 2022 consumer spend in video games. Link
- “How Gamers Beat NFTs”. Link
- How Dome Keeper achieved a $1M launch. Link
- Steam Deck 2022 survey. Link
This Week In Naavik Pro
Looking for more great games industry analysis? Check out Naavik Pro!
This past week the Naavik Pro team published:
- A deconstruction of Survivor.io, including whether it can succeed where Archero failed
- A deconstruction of Upland, a web3 virtual property strategy game
- An updated game radar with takes on Relic Strike and Torchlight: Infinite
- Analysis on Huuuge’s latest earnings results, the SEC’s investigation into Yuga Labs, and Shrapnel’s new economy paper
Next week we’re publishing a deconstruction on June’s Journey, research on Xsolla’s / X.LA’s web3 strategy (including an exclusive interview with founder Shurick Agapitov), plus coverage on why Take-Two is closing Two Dots, Playstudios’ acquisition of Brainium, and the notable fundraises of Delysium and Stardust. After that, we’re writing deconstructions on several hyped web3 games, a deconstruction on Marvel Contest of Champions, another monthly financial market update, a post-mortem on EA’s acquisition of Glu, and much more.
If interested in learning more or signing up, request a demo below.
- Legendary Play: Senior System & Economy Designer (Remote)
- Bungie: Director of Product Management (Remote — US)
- Guerrilla Games: Technical Animation Manager (Amsterdam, Netherlands)
- Manticore: Head of HR and Recruiting (Remote)
- Naavik: Content Contributor (Remote)
- Naavik: Games Industry Consultant (Remote)