Hi everyone. We hope you all are having a great Spring. Also, heads up that we have a big, fun update for you all next week, but in the meantime here’s your weekly roundup and analysis of what’s happening in the video game industry…
#1: Javier Ferreira: Building the Definitive Free-to-Play Games Company
I (Aaron, here) had the pleasure of interviewing Javier Ferreira, co-CEO of Scopely. Scopely is a leading mobile games developer and publisher behind hits like Star Trek Fleet Command, MARVEL Strike Force, and Scrabble GO. We discuss Javier’s vision for Scopely, the key components to growth, how Scopely thinks about M&A and IP, Javier’s thoughts on leadership and culture, and much more. Javier’s answers are packed with great insights, so please enjoy our conversation.
#2: IronSource to Go Public Via SPAC
Last Sunday, Israeli ad tech company IronSource announced that it's going public. IronSource will merge with the special-purpose acquisition company Thoma Bravo Advantage (NYSE: TBA) at an $11 billion valuation. The Tel Aviv-based company will net $2.3B in cash from the transaction, of which a significant portion will go to the company’s current owners that are selling some of their stock.
IronSource's move is quite expected. The company had been reportedly preparing for a traditional IPO already for a while. Getting listed via a SPAC has been all the rage in recent months, with companies from Playstudios to eToro utilizing a merger with a shell company in order to avoid the hassle of an IPO. Before the Thoma Bravo deal, ironSource had raised $555M. This includes a $450M financing round led by CVC Partners in 2019 where IronSource was valued at $1.75B. Similar to the Thoma Bravo deal, the 2019 round also had substantial secondary sales of existing stock.
Last year, IronSource recorded $332M in revenues (up 83% from 2019) and $104M in EBITDA. Hence, the $11B valuation is definitely bullish on IronSource continuing on a growth track for the years to come. For context, key competitor AppLovin filed its prospectus just weeks ago, recording $1.45B revenue with a $125M net loss.
Both companies (IronSource and AppLovin) are vertically integrating — expanding their grip on the value chain as they have moved from delivering ads to providing full suites of tools for publishing and operating mobile games. AppLovin also has an aggressive content strategy with Lion Studios and various game studio investments; IronSource is doing something similar with its nostalgically-named Supersonic Studios.
The two companies, along with other ad networks, strive to compete against the ad duopoly of Google and Facebook. We've seen winner-takes-all economics in action as ad spend has continued to consolidate in the last few years. To survive, let alone thrive, merely delivering and mediating ads is no longer good enough. There is no competitive advantage in transactions. Privacy regulations, including the deprecation of easily-available device identifiers, will only amplify these dynamics. Cracking the duopoly won't be easy, but it will for sure be healthy for the industry as a whole. IronSource definitely makes the list for the most likely companies to succeed, and we’ll be keeping an eye on the company in the months and years ahead. (written by Miikka Ahonen)
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#3: Bytedance Acquires Moonton for $4 Billion
Bytedance made a big splash this week, outbidding Tencent to acquire Moonton Technology for roughly $4B, the company’s largest mobile game studio acquisition to date. More specifically, Moonton was acquired via Bytedance’s game unit, Nuverse.
So who is Moonton? And why did Bytedance pay a cool $4B for it?
Moonton Technology, based in Shanghai, is the maker of Mobile Legends: Bang Bang (MLBB) one of the most popular multiplayer online battle arena (MOBA) games in Southeast Asia. MLBB is a 5v5 MOBA to the likes of League of Legends and Arena of Valor. In fact, it’s so similar to League of Legends that Riot actually filed a lawsuit against Moonton in 2017. While that case was dismissed in the Central District Court of California, Tencent (Riot’s parent company) filed a separate suit against Moonton’s co-founder, Watxon Xu (previously a senior ex-Tencent employee) for violating a non-compete clause. Tencent won a settlement of $2.9M.
MLBB’s main market is in Southeast Asia (SEA) — a region with a combined population of 650M — and it’s a top five grossing game on average across all 10 SEA countries. SEA’s esports audience was just shy of 30 million at the end of 2019, up 22% from 2018, and MLBB currently is the second most popular esports game in the region (33% of viewers). The top spot goes to PUBG Mobile, which is watched by 40% of SEA’s esports audience.
It’s likely that this acquisition signals that Bytedance will put a concentrated effort into SEA’s esports market. Given that SEA esports is increasingly dominated by Tencent, MLBB provides a powerful (and maybe the only) opportunity to enter the market via its wide player base and existing SEA esports partnerships. In the recently announced 31st SEA Games event, only 2 of 8 games (Mobile Legends and FIFA Online 4) are not affiliated with Tencent. As mentioned in a previous newsletter issue, Tencent is the dominant force in Chinese esports since it has vertically integrated content, tournaments, and offline+online distribution.
Next up, the game plan for Bytedance Nuverse is probably to push more esports content into SEA, including their shooter games Strike Royale and Terminal Battleground. The company’s TikTok app will cover online viewership, but they’ll still need an equivalent of Tencent’s VSPN for offline tournament events expertise. Perhaps the hosts of 2021 Singapore Dota 2, Bucharest-based PGL, or esports media ONE Esports, could be the next buy. (written by Owen Soh, China Market Entry Consultant)
#4: Rec Room Raises $100 Million
The so-called metaverse got a bit bigger this week, as Rec Room announced a $100M raise at an impressive $1.25B valuation. The social gaming platform, founded in 2016 by veterans of the Microsoft HoloLens team, has many features we’ve come to expect from other metaverse plays: cross-platform support, a heavy focus on user-generated content, and a burgeoning creator economy. What’s noteworthy about Rec Room — unlike say Roblox, Fortnite, or Manticore — is that it’s a VR-first platform. This could mark a turning point in VR investment, as Rec Room may be the first VR developer to achieve unicorn status since Facebook acquired Oculus for $2.4B in 2014.
The bull case for Rec Room is clear. The company grew revenue by 566% in 2020. Combine that with investor FOMO following Roblox’s massively successful direct listing, and it’s relatively easy to see why VCs are eager to back the company. There’s also the possibility that Rec Room could become the ‘killer app’ for VR; in fact, CNET gave it that moniker in 2017, and CEO Nick Fajt has called his company “a top two or three app in VR.” With audiences growing and tech improving (Facebook, Apple, and Sony have all either confirmed or been rumored to be releasing new headsets), Rec Room’s status as a first-mover in the space is important ... but is it defensible?
The platform boasts a target demographic of 13-to-16 years old — a coveted age group for Roblox, which has made clear its intention to expand its audience. To defend its current position and secure its place as a trusted brand among parents, Rec Room will have to invest heavily in safety and privacy controls. Unfortunately, stories of harassment and trolling in Rec Room are common, and I (Matt, here) personally encountered hate speech within the first ten minutes of trying out the app. While these issues are not limited to Rec Room alone (and to be fair, its “Junior Mode” is COPPA certified), the company will surely be judged on its ability to keep its players safe, especially when Roblox has already made significant investments in this area.
As a non-VR user, I admittedly experienced this from a biased perspective, though that puts me in the 75% of Rec Room users playing on non-VR platforms. Rec Room expanded beyond VR in 2018, and it is here that the company will sink or swim. Can Rec Room gain a foothold in the crowded console and mobile gaming markets before Roblox or another competitor invades VR? Only time will tell, but if the company can maintain its current momentum the future is certainly bright. (written by Matt Dion)
🎮 In Other News…
It’s rumored that Microsoft is looking to acquire Discord for over $10 billion. Link
Tencent reported full-year 2020 results. Link
GameStop’s full-year sales were down 21%; the company is also adding new categories and overhauling its board of directors. Link
Razer reported full-year 2020 results, crossing $1B in revenue and turned profitable. Link
MTG acquires Bloons studio Ninja Kiwi. Link
Niantic to make Nintendo AR mobile games. Link
Digital Turbine acquires app monetisation firm Fyber. Link
Frost Giant Studios raises $5 million. Link
HiDef raises $9m for metaverse project. Link
Keywords Studios reports strong 2020 with €373.5m in revenue. Link
2K acquires HookBang games business. Link
PUBG Mobile's lifetime revenues pass $5bn. Link
Genshin Impact passes $1bn on mobile. Link
Amazon Games opens Montreal studio. Link
Sony reportedly closing PS3, PSP, Vita digital stores. Link
Ghost of Tsushima to receive film adaptation. Link
🖥 Content Worth Consuming
Royal Match - The New King from Turkey? (Deconstructor of Fun). “Dream Games (who are hiring…) is now responsible for setting a record for the single largest Series A round ever raised by a Turkish company. Thus a full breakdown of the newly released game is warranted. Especially since the game seeks to dominate the puzzle genre, which is the largest and arguably the most competitive genre in mobile games.“ Link
Rival Peak: The First MILE is the Hardest (Jacob Navok). “Genvid Technologies is now in conversations with world-leading IP owners to adapt their fictional worlds and characters to the MILE genre. We see RIVAL PEAK as our “Ingress,” the title that preceded the hugely successful, polished, major IP-led “Pokémon Go” for Niantic, and now we’re excited to put all our learnings towards making what comes next.“ Link
Reflections of Social Gaming (Peter Rojas). “Social gaming has exploded this year, which isn't surprising given how many people have been stuck at home due to the pandemic. I know for me it's been a great way to stay in touch with friends. But why do games work so well as social experiences? A few thoughts on this…“ Link
Don’t Hesitate, Take Action, and Ban Toxic Players (GamerSpeak). “It can be difficult to pull the trigger on banning a loyal or popular player, but it’s absolutely the right thing to do. I’ve witnessed countless times developers NOT banning a toxic player, causing many happy and healthy players to leave the game. Ultimately resulting in far more revenue and loyalty lost. We experienced a focus group of 20 VIP players where 4 of them were incredibly toxic, and since the developers didn’t ban them, 10 of the positive VIPs left the game. Which ended up costing the developer way more money.“ Link
Thanks for reading, and see you next week! As always, if you have feedback let us know here.