Hi everyone. We have some fun people-related announcements on the Naavik front this week:
First, we’re excited to announce that Naavik is forming a new partnership with Owen Soh’s EastLab Consulting. Owen has been an outstanding contributor to Master the Meta, and we’ll work together to help western mobile game developers understand and enter China, as well as help Chinese game developers make sense of and spread through the rest of the world. EastLab has already helped companies like Small Giant Games, DECA Games, and Bebopbee, and we’re eager to help more studios together in the future.
Second, we’re thrilled to welcome Matej Lancaric to the Naavik team, which marks the launch of our User Acquisition Consulting vertical. Matej has been in the games industry for 8 years, has developed multi-channel UA strategies and scaled UA teams at Pixel Federation, Boombit, and Traplight, globally launched 25+ games while spending ~$22M profitably, and has advised 20+ teams at various points of the product lifecycle through his independent practice for the last 5 years. Simply put, he's a UA powerhouse and is now helping take Naavik to the next level.
Third, we’re delighted to induct Philipp Zupke into the Naavik design consulting team. Having worked across mobile, console and PC in companies like Wooga, Yager and ThoughtFish, Philipp is now entering his 9th year in the games industry and wants to help many more game teams level up their game designs. He also captures his thoughts in words here, which makes it quite easy to notice the strong and unique design mind he has. It’s nothing less than a pleasure to have him aboard.
Lastly, Jimmy Stone and Matt Dion will be joining Naavik part-time to work on an exciting project with BITKRAFT Ventures. Jimmy and Matt — with diverse backgrounds in finance and games, respectively — will also begin contributing to Master the Meta in the near future.
We’re pumped about all of the above and are still just getting started. If you want to inquire about any of our services, feel free to email us and we’ll get back to you shortly!
Now, here’s your weekly roundup and analysis of what’s happening in the video game industry…
#1: Roblox’s First Investor Day Presentation
On Friday, Roblox hosted its first Investor Day presentation ahead of going public via direct listing in a couple weeks. Leadership talked about the company’s mission, shared some updated numbers, and hinted at a few new developments to come. If you missed it, I (Aaron, here) recommend reading my quick take on the company from November, which quickly lays out what Roblox stands for, what its growth opportunities are, and notes a few key risks. Little has changed on that front; Roblox is still an incredible business with massive aspirations that’s moving very quickly.
The engagement and financial numbers management presented continue to be best in class. Some 2020 highlights:
32.6 million DAUs (+85% over 2019)
30.6 billion hours of engagement (+120% over 2019)
There are now 20+ million experiences and 35+ million “items” in the Roblox store.
And, of course, bookings follow these excellent engagement stats (and any profits are largely reinvested). It’s also worth spending a moment on creator stats. Out of the 8 million developers on Roblox, 1.25 million (15%) earned income, 1,250 (.01%) earned more than $10,000, a little more than 300 (.003%) earned $100,000+, and only a handful earned $1+ million. Yes, it’s great that there are development teams making a living on Roblox, but there’s room for improvement here. Roblox is naturally limited in what percent it can share with developers, especially since App Stores take their 30% cut, but better incentives would do a lot of good (on top of increasing engagement-based Premium Payouts).
It’s an important point, but let’s not miss the forest for the trees. Despite a relatively low revenue share, the Roblox ecosystem is killing it, and there are more developments in the works:
Voice chat is coming. There will certainly be restrictions to keep it safe for kids, but it’s a nice addition nonetheless.
The team is working on more advanced avatars, likely a play at engaging and retaining older audiences. Note: 42% of users are 13 and over.
These advanced avatars could come with more advanced features such as layered clothing and facial animations (thanks to the recent Loom.ai acquisition).
In 2021 Roblox will continue to experiment with new collaborations and even branded worlds. That’s a cool idea. There will be uninspiring branded worlds, I’m sure, but there are abundant opportunities for really interesting partnerships and awesome experiences.
It goes without saying that Roblox is crushing it. Sure, there’s room for improvement, and growth rates will inevitably decelerate, but it’s an amazing accomplishment. Roblox’s last funding round (a month ago) valued the company at $29.5 billion, essentially the identical market cap as Unity right now. When Roblox goes public in March, it will certainly trade for a lofty premium. Expectations are extremely high, so execution risk is real. However, if Roblox can motivate more creators, retain larger and older audiences, benefit from any App Store changes, and continue to raise the bar on what’s possible then it just might continue to surpass what everyone anticipates. Winners tend to keep on winning, and Roblox is as winning as they get right now.
#2: Understanding Bilibili’s Ascent
Bilibili, an emerging content platform in China with a strong games background, just announced its Q4 2020 financial results, and the company’s progress remains impressive:
Full year net revenue was $1.8 billion (+91% year-over-year)
MAUs topped 200 million (+55%)
DAUs hit 54 million (+42%)
Monthly paying users hit 17.9 million (+102%)
Obviously something interesting is going on at this company, but let’s take a step back for the uninitiated. What exactly is Bilibili?
Bilibili is the defacto long-form user-generated content (UGC) video platform in China with no significant second place in sight. In other words, it’s on its way to become something akin to the YouTube of China. Tencent Video and iQiyi dominate premium content (think Netflix), and Bytedance is the king of short-form UGC videos with TikTok. Bilibili’s differentiator since inception in 2009 was its focus on the ACG (Anime, Comics & Games) community and its user experience (no ads). Bilibili only started seriously monetizing in 2014 when it began publishing mobile games catering to its ACG community. The company’s big break, however, came in 2016 when they licensed FGO (Fate/Grand Order) from Type-Moon. In 2017, they published Azur Lane from Yostar, and both games combined contributed 70% of Bilibili’s total revenue that year.
Fast forward to today, and Bilibili has built an extremely sticky and engaged young user base. The grand strategy since 2018 was to expand out of its core ACG niche into the mass market (like if Crunchy Roll expanded into Youtube). Notably, 86% of their 202 million users are below the age of 35.
Over the past year investors have taken increasing notice of the company’s success, causing Bilibili’s market cap to leap 5-6x from last February — now $43.5 billion. The company’s Q4 revenue of RMB3.84 billion (~$640 million) can be split into 4 categories: Games (29% of revenue), Value Added Services (33% —premium membership, live broadcasting, etc.), Advertising (19%), and E-Commerce/Other (19%). Bilibili’s revenue used to rely heavily on gaming (80% of 2017 revenue came from games), so this impressive diversification highlights the massive growth of its video content business.
Bilibili’s user base gives the company a respectable advantage in China’s gaming ecosystem, and they are the only non-Tencent company in China (and probably in the world) that has successfully married gaming, video, and social in a meaningful way. This advantage was why Bilibili was a core element of Genshin Impact’s go-to-market strategy in China, part of why Bilibili signed the rights for Fall Guys Mobile over Tencent and Netease, and the company even has paid up for exclusive esports broadcast rights. Bilibili now has the ability to target popular IPs, directly distribute games to its 200+ million active users, and grow in many new ways. The company’s progress in recent years is truly impressive, and they still have plenty of room to expand further. It’s a fun company to watch. (written by Owen Soh, China Market Entry Consultant)
Sponsored By Heroic Labs
Heroic Labs builds server technologies that specializes in massively realtime, social, and competitive gameplay across all platforms for studios such as Gram Games, Zynga, Paradox Interactive, and many more.
Heroic Labs’ flagship product is Nakama - the open-source, social and realtime game server.
Read more on what Kalle Kaivola, CEO at Lightheart Entertainment had to say about us:
“We chose Nakama as it has a proven track record of success and scalability. The Heroic Labs engineers helped us on-board onto the technology and enabled us to release Mr. Autofire with deep social features to boost engagement and retention. Nakama allows us to build games without limitation for millions of players.”
#3: Valheim’s Blockbuster Success
For PC gamers, one game has really blown up on Steam the past few weeks and is taking the survival game world by storm. This is the new early access title called “Valheim”. In a Norse Viking setting, the player’s goal is to heed Odin’s task of surviving in the perilous world of Valheim, plus ridding it of five terrible beasts that even the gods dare not challenge. Sounds like just another viking-themed survival game? Not entirely.
More inspired from single player games like Zelda and Skyrim versus conventional survival games, Valheim cleanly blends design elements of exploration, RPG, and massively open world games with the survival context. It’s draped with a pretty unique low-poly world elements meets high quality world lighting and environments art style. It can be played either solo or as a 2-10 player co-op adventure, but the player-vs-environment (PvE) focus really incentivizes cooperative play in order to get the most out of the world’s experience, which is never the same twice due to the game’s procedurally generated world content. Check this video out to see what I (Manyu, here) mean.
The game was developed by a tiny 5 person team from Swedish-based Iron Gate Studios and published by Coffee Stain - one of Embracer’s eight operative groups. Valheim hit early access on February 2nd, is priced at $20, and has already sold more than 4 million copies in an unheard of 21+ days! It continues to sit at the top of Steam’s “Top Sellers” chart and boasts greater than 100k Steam reviews with an overall rating of “overwhelmingly positive”, which is quite rare. Additionally, according to SteamDB, Valheim crossed 500,000 concurrents on February 21st, giving it the 5th highest all-time concurrents peak in Steam history. That’s impressive!
Needless to say, Valheim is already a massively successful and profitable project for both Iron Gate and Coffee Stain. From Embracer’s perspective, the commercial impact of Valheim follows Coffee Stain’s typical partnership structure with external developers, and that includes a minority ownership in Iron Gate. In other words, this is just one example of Embracer putting its largely acquired portfolio of studios and 193 actively running projects to work. It’s also the kind of organic growth that we have been talking about as another means for companies like Embracer and Stillfront to grow business value apart from acquisitions. That said, breakout-driven organic growth like Valehim cannot be perfectly engineered, and there is definitely a great amount of luck (aka - unexpected word-of-mouth marketing) involved, which means M&A is still the key growth route for these businesses. Lastly, let’s not forget that this is just the early access of Valheim, and as Iron Gate’s team scales on the back of this unprecedented success, we’re definitely excited to see how the game evolves further on its road to full launch.
#4: PSVR 2.0
This week, PlayStation announced its plan to return to VR in 2022. However, before digging into specifics, let’s look at the past. The original PSVR released in 2016 at a price of $399 and ended up selling 5 million units — that’s a 4% attach rate based on the nearly 120 million PS4s that have been sold. That’s not an awesome attach rate, and engagement likely wasn’t very high, so why is Sony coming back for round two? Well, presumably the company must think that having a foothold in the future of VR/AR is important, gamers are its trojan horse, and they must believe they can top their previous performance.
In my (Aaron, again) opinion, if Sony wants the PSVR 2 to better succeed, it needs to level up in three general ways:
Steady tech improvements that make the PS VR more comparable to other leading headsets.
The ability to untether VR from the PS5, therefore widening the potential audience.
A commitment to an ongoing cadence of high quality exclusives, just like they do for console.
As for the technology, there’s plenty of reason to believe PlayStation will deliver good hardware. We don’t have specifics, but I would expect a wider field of view, higher fidelity graphics (far less pixelated), in-headset tracking (vs the external cameras that watch your movements), and an overhaul of the controllers. Previous controller options were either the DualShock controller, which makes no sense for VR, or the PlayStation Move wands from the PS3 era. Sony will need to closer match what a platform like the Oculus Quest 2 offers if it hopes to win over those interested in adopting VR.
It looks like the PSVR 2 will fail at the second bullet, though. Instead of being an untethered experience, the PSVR 2 will likely connect to the PS5 via a single cable. That’s better than it could be, but it still reduced mobility and it means its prospective market is limited to those who own PS5s. To Sony’s credit, the PlayStation audience is massive, and if gaming is the path to VR’s early adoption then it’s a great audience to sell to. An untethered experience would still be better — for example, I bet their were many PS Vita owners who didn’t own PS consoles — but it might take another generation for Sony to get that feature to a price point that makes sense for them.
Lastly, PlayStation of all teams should know that one of the best ways to sell gaming hardware is by promising an ongoing stream of excellent exclusive games. The same strategy inevitably applies to VR (at least in the early days)… but will PlayStation commit to that? There remains a chicken-and-egg scenario at play. High quality VR games don’t make money when sold to small player bases, but larger player bases are the result of spending money to make quality VR games. This is an industry where the leaders likely need to burn money to build their audiences, which lays the foundation for the entire ecosystem to be more successful in the future. Sony must compete with deep-pocketed companies, especially Facebook, so it will be fascinating to see what announcements pop up. We’ll follow up when we learn more in the coming months.
🎮 In Other News…
HP is buying gaming accessory brand HyperX for $425 million. Link
NetEase had a successful fourth quarter with $3 billion in net revenue. Link
Playtika reports Q4 revenue of $573.5 million in first public quarterly report. Link
Gaming, data centers boost Nvidia’s Q4 revenues to $5 billion. Link
IronSource acquires video and playable ad platform Luna Labs. Link
Chinese esports company Versus Programming Network (VSPN) is pondering an IPO in the US. Link
EA cancels its Anthem revamp and its new IP Gaia. Link
Fandom acquires digital games marketplace Fanatical. Link
Thunderful acquires Bridge Constructor publisher Headup for $13.3 million. Link
Genies is getting into NFTs (starting with Shawn Mendes). Link
Tencent acquires minority stake in Bohemia Interactive. Link
Payload Studios, announces minority stake investment from Tencent. Link
Miniclip makes strategic investment in Green Horse Games. Link
Bandai Namco take minority stake in Might & Magic dev Limbic Entertainment. Link
Beamable raises $5 million for Unity-based live game services platform. Link
Soccer Manager gets £3m investment. Link
BebopBee lands $2m in funding. Link
Devsisters has unveiled details about two new games (a 3D city builder + a hardcore shooter). Link
🖥 Content Worth Consuming
Unity’s 2021 Gaming Report. “We’ve put together this report to help you learn more about how gamer behavior shifted in a year full of upheaval. In 2020 we were staggered by the amount the community who use our platforms were able to achieve, despite the challenging circumstances. Every month, there are 5B downloads of apps built in Unity. There are now 2.8B monthly active end-users who are engaging with content created or operated by Unity solutions in 2020. This data has formed the bedrock of this paper, giving you insight into how those who engage with content operated by and made in Unity interacted with their games during a year that changed human behavior across the world.“ Link
How Google's Grand Plan to Make Its Own Games Fell Apart. “The tech giant hired 150 game developers for Stadia Games and Entertainment, only to lay them all off. Sources say it never gave the studios a chance.“ Link
Reliance Jio sets its sights on India mobile gaming. “Reliance Jio has the potential to support the development of India’s gaming market. Although the company is not currently very active in the Indian gaming industry, Jio has plans to expand into 5G infrastructure, smartphone manufacturing, and creating a more comprehensive digital ecosystem for the Indian populace, which could act as a catalyst to more growth for the country’s mobile gaming market. Furthermore, mobile gaming and esports can also provide Jio’s digital empire with a steady and growing revenue source, which is why we in Niko Partners believes that the Jio will increase its stake in the gaming ecosystem.“ Link
How Teens Are Becoming Millionaires with Video Game Servers. “In the 14th episode of Creator Economics, Reed, Blake, and Preston "PrestonPlayz" Arsement discuss Creators monetizing their audience with Minecraft servers, Roblox games, and Fortnite Support A Creator codes.“ Link
How Chess.com built a streaming empire. “Twitch users watched 18.3 million hours of chess content in January, nearly as much as they consumed throughout 2019. Last week, chess even surpassed League of Legends, Fortnite and Valorant as the most-watched gaming category.“ Link
Behind the making of gaming's virtual influencers. “The rising popularity of gaming's virtual influencers—such as Riot Games' K/DA and Seraphine—is impossible to ignore. Speaking to Riot Games, Grace Bruxner, and a communications professional, here's a look at how indie studios can tap on this trend even without triple-A studios' budgets.“ Link
Thanks for reading, and see you next week! As always, if you have feedback let us know here.