Hi Everyone. Welcome back to another edition of Naavik Digest. If you missed last edition, we wrote about Supercell’s investment strategy and specifically their majority stake in Trailmix. Be sure to check it out and share with anybody else who might be interested in reading.

Roundtable: Matchmaking Retention Through Emotional Variability

In this Metacast episode, Anil Das-Gupta and Matt Dion, join your host Maria Gillies to discuss:

• Sony’s Transmedia Announcements

• When Does Consolidation Mania End?

• Why Some Players Don’t Want Fair Matchmaking

You can find us on YouTube, Spotify, Apple Podcasts, Google Podcasts, YouTube, our website, or anywhere else you listen to podcasts. Also, remember to shoot us any questions here.

#1: State of Play: Sony’s Cross-Platform Strategy

On June 2nd Sony presented its State of Play broadcast, where it revealed insight into its future product pipeline. Together with the recently announced FY’21 (ended Mar’22) financial results, the presentation sheds some light on the company’s future strategy, driven by the stable growth of Sony’s Game and Network Services segments. They have three pillars for long-term growth: commercial expansion (subscription, PSVR), audience expansion (cross-platform, mobile), and portfolio (M&A, IP, transmedia, GaaS). We’ll touch on each below.

State of Play: Sony bets on a cross-platform approach

One of the key points of the recent reports is that the company continues to expand its presence on all platforms, gradually moving away from its pure console model to a cross-platform franchise ecosystem, expanding into PC, mobile and VR. So far, it seems this strategy actually works — the company revealed sales of its ex-console exclusives on PC: Horizon Zero Dawn was the best selling game, with 2.4 million copies sold, while God of War and Days Gone sold 971k and 852k copies, respectively. This demand from the PC audience inspired Sony to announce the release of Marvel's Spider-Man Remastered on PC — the original game sold 33 million copies on PlayStation, and will definitely find news audiences on PC.

A few weeks ago, Sony also started allowing cross-platform commerce for Fortnite — players can now buy and sell their V-bucks (Fornite’s hard currency) across any platform, be it mobile, PC, or console. Previously, Sony permitted players only to spend V-bucks bought through PSN — that is, gamers couldn't buy in-game currency on mobile or PC, and then spend it inside the PlayStation version of the game, resulting in Epic Games losing its revenue share as a platform-holder. This unprecedented move seems to originate not only from Sony’s relationship with Epic Games, which has received multiple investments from Sony, but also from their cross-platform bet: the company is now aiming to appeal to wider audiences and leans less on exclusivity.

However, exclusivity still remains a huge advantage for the company, so we are unlikely to see both fresh released and upcoming exclusives ported to PC in the foreseeable future. So far, Sony has ported only aged exclusives from PS4, which have already been played by the core audience for quite some time: Horizon Zero Dawn, Days Gone, God of War, Death Stranding, Detroit: Become Human, and others. Not only does this increase the LTV of those IPs by reaching new players, but the strategy also promotes Sony’s upcoming exclusives, which in turn might motivate gamers to buy PS5 consoles and to play sequels of Horizon, Marvel’s Spider-Man, or God of War, etc.

To accentuate this point further, Sony expects to release a new PSVR 2 by the end of the year. The new VR set will work exclusively with the PlayStation 5 console. To support the launch with more content, Sony announced the Horizon Call of the Mountain VR game, which is currently being developed by Guerilla and Firesprite. Other games which will be available on the platform include Resident Evil 4, Resident Evil Village, The Walking Dead: Saints & Sinners — Chapter 2: Retribution, and No Man’s Sky.

To read more on the Sony’s mobile ambitions, please read the recent analysis from Naavik Pro here.

Financial Results: Gaming is still one of the core drivers of the value

Does the recent announcements mean that Sony plans to shift away from a console focus? While we believe it might happen one day, there is still a long way to go.

In FY’21 (ended Mar’31), Sony reported $76B Revenue (+10% YoY growth). This time the Revenue growth was primarily driven by the movie and music segments. However, the Game and Network Services (G&NS) segments still show a strong performance, generating ~$21B or 27.6% of the total Revenue.

Profitability-wise, the company reported a $9.21B Operating Income with 26% YoY growth. PS5 showed a strong 55% purchase interest in the second year after the release, which is higher than that of PS4 (28%). US retailers sold 80k units in 82 minutes, while PS4 needed 9 days to reach the same figures. As a result, PS5 has had over 20 million units sold, and the number could definitely be higher had it not been for the semiconductors shortage and supply chain issues. As a result, PS5 still showed poorer results than PS4 in the first two years since the release.

As for user engagement, PS5 beats records with 50 monthly gameplay hours vs. 44 hours on PS4 during the second year after the release. At the same time, PS5 game spending is 15% higher than that of PS4, with the share of add-on content having increased by 247% and subscription services by 21% compared to PS4. Despite the impressive statistics of the PS5 user base, PS4 is still the most widespread Sony console, generating the majority of PlayStation Revenue.

Future Strategy

Sony managed to capture 45% of the total console market with PS4, and it’s clear the company wants more with PS5. However, Sony is no longer constraining itself in the console market, expanding its presence on other platforms and making a stronger focus on the IPs.

The company clearly understands its weak points and constantly innovates to keep its leadership position. After Microsoft started to attract more player base due to Xbox GamePass, PlayStation introduced an improved, multi-level Playstation Plus subscription. As a result, some of the subscribers can get access to a vast library of old titles via backward compatibility — something which was previously available only for GamePass subscribers.

The same goes for the GaaS monetization. Being one of the biggest platforms in the industry, Sony wins a lot from GaaS published on PlayStation — but it does lack its own live-service games. To help tackle the problem, the company recently announced a $3.6B acquisition of Bungie, the developer behind Destiny, which has proven successful in creating and operating live games. Having this expertise on hand, Sony can further expand into live game services and diversify its Revenue streams. Together, the company plans to launch more than 10 live service games by Mar’26.

All the things covered above will allow Sony to accelerate the growth of its gaming division, reach a wider audience, and get more stable cash flows through subscription and GaaS monetization. Nevertheless, Sony is still best known for its platform exclusives, and we finally are in for some of the long-awaited games coming this year, which will positively influence the company’s revenue position — God of War: Ragnarok, Marvel's Spider-Man 2, and the already released Horizon Forbidden West are the biggest of them.

And while it’s not without obstacles (IP dilution; can they really build mobile games?; the value of the subscription service), the company is setting itself up fro success. Sony is accelerating its strengths while also addressing its weaknesses through new forms of monetization and distribution — to us, this seems to be the right approach amid steeper competition. (Written by InvestGame)

#2: Weekly News Highlights

Diablo Immortal Launches: The hotly anticipated Diablo Immortal launched earlier this week to much controversy around monetization. The game leverages loot boxes, slot machine-esque monetization mechanics, to generate revenue; but given how much these monetization mechanics resemble gambling, countries (especially in the EU) are imposing increasingly stricter regulations. The Netherlands and Belgium both banned the game. Despite these issues, the game had a moderately successful launch, generating ~$1M in its first 24 hours. If you’re looking to play, beware of the massive download size of its DLC. Link

Playtika Layoffs: Playtika, which acquired Reworks for ~$600M last year, announced it is laying off 250 employees and closing three of its studios. We last covered Playtika when the company leaked it was looking for a potential acquirer. Amid current market conditions, companies are looking to minimize burn profiles — this certainly won’t be the last round of layoffs in the games industry.

Summer Game Fest Lineup: Summer game announcements are back and with a bang. As every company opts into their own D2C digital showcases (and the disappearance of E3 from the slate), it’s interesting that Summer Game Fest’s holistic announcement strategy across a variety of large studios (including Chinese studios and indie ones, too!) continues to be successful even after the pandemic. Turns out there’s always an audience for well-made teasers and Geoff Keighley. We’ll be tuning in June 9th.

In Other News…

Funding & Acquisitions:

• Earnings: The Pokemon Company

• The studio behind Match Masters, Candivore, raised $10M. Link

• Sanlo announced a $10M raise. Link

Business:

• Playtika is laying off 250 employees and shutting down three studios. Link

• What makes digital real estate valuable? Link

• Qualcomm’s latest AR design. Link ($)

• PS5 has sold over 20M units. Link

Culture & Games:

• Sky Mavis unveiled its first user-generated games. Link

• Diablo Immortal launched on mobile. Link

• Everything announced during State of Play. Link

Miscellaneous Musings:

• Trailmix’s guide to diverse design. Link

• Twig #184: Why EA is not for sale / TikTok’s push into gaming / Snap’s lower guidance. Link

• Web3 gaming is an evolution, not a revolution. Link

• Nintendo Switch Sports finally let me enjoy sports as a Trans Woman. Link

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