Hi Everyone. We hope everyone is having a great time at Gamescom this week! If you missed last edition, we looked at gaming unemployment and layoff trends for the past few months. Check it out and, as always, let us know what you think.

This Week on The Metacast 

What's Next For Play-To-Earn Gaming Guilds? Animoca BrandsJesper Lundquest and MMA Gaming’s Casper join Nico Vereecke for a conversation about Play-to-Earn Gaming Guilds. There seems to be a high chance that Play-to-Earn won’t work over the next years. What does this mean for the guilds whose existence depends on that business model? How can they reinvent themselves?

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#1: Embracer Q1 Earnings & Its Six Acquisitions


Last week, Sweden-based video games holding company Embracer Group announced six acquisitions for a total amount of $765M, comprising of:

  • An upfront consideration of $560M, of which $392M is paid in cash at closing, $121M in cash is paid in 12 months, and $47M is paid with Embracer B shares (these deals just keep getting more complicated);

  • An earn-out consideration of maximum $205M paid over (up to) seven years, of which $140M will be paid in cash and $60M will be paid with Embracer B shares.

The combined entity expects to generate $168M in net sales and up to $70M in adj. EBIT for FY’23 (1 April 2022 until 31 March 2023); $224M in net sales and up to $89M in adj. EBIT for FY’24; $327M in net sales, and up to $140M in adj. EBIT for FY’25.

Acquisition Overview

Let’s run through brief overview of the acquired companies. Two of them were acquired by Saber Interactive, Embracer’s main PC & Console division: US-based Tripwire Interactive, known for several gaming series, including Killing Floor (35 million players), and Swedish Tuxedo Labs, known for its sandbox game with a fully destructible environment Teardown. Three more companies were acquired via the newly founded subsidiary called Freemode (which we address below): collector-focused distributor of physical games Limited Run, vocal processing effects technology creator Singtrix, and Middle-earth Enterprises.

The last one is particularly interesting. For more than 45 years, Middle-earth Enterprises has been producing and licensing a vast variety of video games, board games, stage productions, and merchandise based on The Lord of the Rings and The Hobbit IPs. The deal allows Embracer to expand further into the Middle-earth franchise — in Mar’22, Embracer closed a $3.1B acquisition of Asmodee, which is responsible for more than a dozen board games with 100’s of expansions, all based on the franchise. The deal goes in line with Embracer’s transmedia approach and might work especially well if the upcoming Amazon series based on The Lord of The Rings IP manages to increase the interest in the franchise. As for gaming, there might also be plenty of opportunities: we have not seen any successful PC & Сonsole game installments since the Middle-earth series developed by Monolith Productions (released in 2014 and 2017). Amazon canceled its MMO last year. Aside from these acquisitions, there’s an undisclosed sixth studio in the bundle.

However, there are still more deals to have a look at. With the M&A announcements, Embracer disclosed the opening of Freemode and three more acquisitions for an undisclosed sum. Freemode is now the company’s 11th Operative Group, which focuses on a wide range of gaming-related business areas, including retro and gaming, gear and collectibles, community, and innovative technology. The studio acquired the first ever Japan-based studio for Embracer, which is the arcade games developer Tatsujin, Swedish retro games studio Bitwave Games, which will port classic arcade and console titles on modern devices, and UK-based gaming accessory brand Gioteck, which we expect to collaborate with other Embracer’s subsidiaries (as well as the broader games industry).

Embracer in Q1 Financials

Let’s now have a quick review of Embracer financial performance based on the recently published Q1 FY’22 financial report (for the Apr’22 — Jun’22 period). It’s not surprise that M&As drive the growth of the business: Net Sales grew 107%, reaching $665M per quarter. The greatest Net Sales contributor was the newly acquired board games company Asmodee, which brought $249M (38% of total Net Sales). The second best segment in terms of performance was PC & Console, which reached $214M (32%) with a slight growth of 2%; Mobile segment, which showed 104% growth reaching $139m (21%) without any large mobile deals closed recently, is the third. Entertainment & Services segment also grew 44% to $63M (9%).

It is also worth taking a look at adj. EBIT by segments. Though Mobile and Board Games show the best growth in terms of Net Sales, the best adj. EBIT contributor is PC & Console segment, with $56.6M (45% of the total adj. EBIT). Board games brought $41.8M (35%), while Mobile generated only $26M (21%) because of the higher UA costs. Nevertheless, we should note that while the Mobile gaming segment showed some organic growth, PC & Console did not, and rstill elies heavily on the back-log catalog (63% of all sales).

Strategic Rationale: Niche Gamers, Trans-media and Strong IPs

First, by establishing a Freemode division, Embracer plans to scale its business by diversifying its portfolio with more niche gaming segments. Retro, porting and arcade gaming businesses form the core of Freemode strategy, which reflects the audience Embracer is aiming for — experienced gamers in love with the industry and its legacy. The same thinking goes for rare physical copies of the games, gaming peripherals, or vocal instruments.

Another tenet of Freemode’s strategy is that good IP worth investing in. Earlier this year, Embracer paid $300M for Crystal Dynamics, Eidos-Montréal, and Square Enix Montréal, which brought Tomb Raider, Deus Ex, Thief, and Legacy of Kain to the group’s portfolio. Through dozens of acquisitions, Embracer has accumulated more than enough expertise and tech capabilities, and now it seems like the company will being to pay more attention to the recognizable franchises — the hope is that it will leverage its disparate wide resources to bring more installments and reach the audiences already engaging in the IPs.

Currently, there are over 270 IPs owned by the company, which is quite a lot, isn’t it? We can clearly observe the roadmap, where Embracer is step-by-step adding more significant IPs to its portfolio, focusing on each of the gaming segments. The recently published NewZoo report shows that 9 of the top-10 downloaded non-hypercasual mobile games were based on the already existing IP. It is fair to assume that the PC & Сonsole market has similar statistics, and the same games hit the charts for many years in a row: CoD, FIFA, Battlefield, GTA — you get the gist.

Meanwhile, Embracer only had Metro in its AAA pipeline a few years ago; now, it has Borderlands, Deus Ex, Tomb Raider, Legacy of Kain, Duke Nukem, Brothers in Arms — all of them are iconic titles with a massive fan base. It is generally much harder to make a new IP than to use an already existing and known one — Biomutant is a good example of how an ambitious project can fail. Moreover, taking into consideration Embracer’s model of using IPs by making remasters/remakes, we can envision many new releases of those games on the modern generation of consoles, since most of them were published on the previous one.

The transmedia approach is still one of the key focuses of the group. All the IPs on hand provide many opportunities to go beyond video games into cinematography, board games, streaming, music, and merchandise production. This may bring along Disney-like synergy effects since each of the new installments — regardless of its medium — can increase the overall recognition of a particular franchise. Considering that Embracer’s subsidiaries cover a wide range of businesses, all these transmedia initiatives can be developed internally. For example, Embracer owns Dark Horse Media, focused on motion pictures, television and comics, and a merchandise producer Grimsoft (or Game Outlet Europe) for distribution of games and gaming accessories. Combine this with the companies acquired by Freemode and there is more than enough firepower to start the transmedia expansion.

Overall, Embracer continues to make everything possible to become a powerhouse of the gaming industry. In 2020, it was a strong step for Embracer to expand to the mobile platform with Deca Games acquisition. In 2022, we see the company covering the core gaming businesses and going into the more niche and experimental products, from Viking merchandise production to a vocal changing platform. Considering this, we might heavily expect more unusual M&As targeted for specific audiences along with the acquisitions of more time-proved IPs.

However, there are of course a few issues with this approach. First, it is increasingly hard to manage such a behemoth of IPs, studios, products, and staff. Case in point is the Star Wars KOTOR remake, which was initially under Aspyr’s development and is now rumored to be transferred to Saber Interactive, a more experienced studio with wider expertise and capabilities. There are also questions around management challenges, complicated business structures, and tougher internal communication. Second, considering the number of M&As Embracer does every year, there is a high chance that some of them will not perform as expected, which may potentially lead to layoffs or the selling/closing of some of the subsidiaries. This may have a negative influence on the share price, which in turn could put pressure on resources on hand for acquisitions. (Written by the InvestGame team)

#2: Deconstructing Sunflower Lands

Embracer Sunflower Land

Sunflower Land

Sunflower Land is a blockchain-based farming-themed idle game that runs on timers. It bears a striking similarity to the classic Zynga game FarmVille, in which the player plants crops that take a certain amount of time to “ripen” depending on their type, and it encourages the player to check back regularly to harvest them. The game relies on a pixel art aesthetic that somewhat evokes the classic Nintendo series Harvest Moon (and more recently, the independent Stardew Valley), but in terms of mechanics bears a much closer resemblance to the Zynga game, as the player’s agency and interactions are essentially limited to planting crops and harvesting resources.

Sunflower Land is the sequel to an earlier prototype called Sunflower Farmers, which made headlines when an item duplication bug set off a frenzy of bot activity that not only brought the game down temporarily, but also congested the entire Polygon chain. After that incident, the developers took the project down for a few months to relaunch it as Sunflower Land.

Sunflower Land now describes itself as a “Play-and-Own” game, a telling change in terminology. Its predecessor Sunflower Farmers described itself as “Play-to-Earn”, a phrase originally coined by Axie Infinity; most such crypto games (including Axie) have since rebranded as “Play-and-Earn” ever since their business models proved unsustainable, and it seems “Play-and-Own” is a further bit of rhetorical evolution meant to align marketing speak more closely with a promise the developers are actually able to deliver.

Briefly stated, Sunflower Land has resurrected a small but promising project from a major technical disaster, and now boasts being “The #1 NFT game on Polygon” according to DappRadar. Deeper questions remain, however. What does the Play-to-Earn Play-and-Earn Play-to-Own space look like in the wake of the fall of Axie Infinity, the collapse of virtual real estate, and the broader crypto crash? Has Sunflower Land learned from its previous iteration how to build through a bear market? Or has it thrown out the baby with the bathwater?

Content Worth Consuming

Fortnite And The Contemporary Pop Culture Slurry (GI.biz): "Once upon a time, a brand was a pretty much permanent thing, something to say who owned livestock, or where goods had been made. These days – and especially on this site – we use it to talk about intellectual property more than physical property, a popular franchise of games or the nebulous connotations consumers hold in their head about an actual product line. And in that sense, a brand is very much impermanent. Hard to kill certainly, as Atari's continued existence reminds us. But not burned in flesh or set in stone. Brands adapt to the times, they are routinely refreshed, reinvigorated, and re-sold to audiences in a variety of guises, some paying wonderful homage to their origins, and others less so. And while that's always been the case, I get the feeling these days that brands are increasingly malleable. This week we saw the arrival of Dragon Ball characters to Fortnite, which is yet another in an interminable march of tie-ins to the popular battle royale shooter that fit not because they work with the core experience and gameplay of Fortnite, but because they work with the almost arbitrary amalgamation of unrelated brands it has become.” Link

John Carmack: Doom, Quake, VR, AGI, Programming, Video Games, and Rockets (Lex Friedman Podcast): “John Carmack is a legendary programmer, co-founder of id Software, and lead programmer of many revolutionary video games including Wolfenstein 3D, Doom, Quake, and the Commander Keen series. He is also the founder of Armadillo Aerospace, and for many years the CTO of Oculus VR.” Link

The Metaverse Is Not a Place (O’Reily): “Seen through the lens of the real estate metaphor, the metaverse becomes a natural successor not just to Second Life but to the World Wide Web and to social media feeds, which can be thought of as a set of places (sites) to visit. Virtual Reality headsets will make these places more immersive, we imagine. But what if, instead of thinking of the metaverse as a set of interconnected virtual places, we think of it as a communications medium? Using this metaphor, we see the metaverse as a continuation of a line that passes through messaging and email to “rendezvous”-type social apps like Zoom, Google Meet, Microsoft Teams, and, for wide broadcast, Twitch + Discord. This is a progression from text to images to video, and from store-and-forward networks to real time (and, for broadcast, “stored time,” which is a useful way of thinking about recorded video), but in each case, the interactions are not place based but happening in the ether between two or more connected people. The occasion is more the point than the place.” Link

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