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This Week on The Metacast 

A Deep Dive into Web3 Game Publishing, Growth & UA — On this week’s Crypto Corner, we take a deep dive into Web3 Publishing and Growth. Quinn Campbell, VP of Growth at Sky Mavis, and Jon Hook, CMO at PlayEmber, join Nico Vereecke for a conversation about:

  • Differences between Web2 and Web3 Game Publishing

  • How Web3 will change the Publishing Model

  • Growth for Blockchain Games

  • Lessons learned from getting millions of players into the Axie Ecosystem

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: Take-Two Reports Earnings

This quarter is the first time Take-Two reported earnings following the close of its $12.7B acquisition of Zynga earlier this year. Now that the dust has settled a bit, let’s explore what kind of impact the deal is having on the business.

On the number side, the addition of Zynga has increased metrics on all fronts, as expected:

  • Net revenue increased 36% YoY to $1.1B. With a breakdown is 55% from console, 34% from mobile, and 11% PC and other

  • Recurring revenue increased 44%, in large part thanks to Zynga, accounted for 75% of net revenue

  • New bookings in Q1 also had a strong showing, growing 41% to approximately $1B

  • The company, now including Zynga, already projects to deliver $5.9B in net bookings over FY23 (projected to be up ~57% from FY22 numbers), with 85% of that coming from digital channels

TakeTwo Zynga

Source: Take-Two Earnings

While operating expenses did increase ~125% due to the addition of Zynga, management expects that they can realize $100M in cost synergies in two years and deliver over $500M in additional net booking opportunities over time. The costs will be offset partially by Zynga’s revenue, but it’s worth noting the relative size in comparison to Take-Two’s business.

Qualitatively, the narrative for Take-Two’s earnings spans across a spectrum of the company’s AAA mainstays and expansion via Zynga. On the AAA side, Rockstar — which publishes GTA and Red Dead — expects to drive less than $1B in net bookings this year. The lower than expected results are in part due to macroeconomic factors like unfavorable currency exchanges, but also simply because these titles are reaching the end of their lifecycles. Sales have stalled and are expected to decline in the near future. This includes conservative estimates on Read Dead Online and GTA Online. Management also didn’t give shed additional context on when new titles like GTA VI would be released. Until then, these cornerstone franchises will continue to dwindle.

Zynga GTA Graph

Source: Derek from TweakTown; The first spike is GTA V’s release.

It’s this uncertainty that has made the addition of Zynga’s diverse revenue mix a welcome addition to the Take-Two portfolio. The broader company itself will continue to have a generous pipeline of content to look forward to, but l I believe this fiscal year will be fairly focused on development for Rockstar and driving operational efficiencies (integration of content and infrastructure) with Zynga more than anything else. Management says:

“There are several meaningful drivers in mobile that we believe our teams can begin to activate this fiscal year, including implementing new bold beats, driven by new content and other live-service enhancements; user acquisition optimization; creating a centralized library for development technologies and tools; enhancing the monetization of in-game advertising; and continuing to invest in our ad tech platform with Chartboost. Over the intermediate and long-term, our vision is to introduce mobile games for some of our most popular and proven intellectual properties that have the potential to be greatly additive to our financial profile. We have observed positive signs that some mobile players are looking for more sophisticated and immersive content, and we look forward to participating in this trend that should continue for the foreseeable future”.

We’ve previously examined how mobile titles might bring more recurrent revenue streams to Take-Two. Indeed, this playbook seems to be playing out with an expected net booking breakdown in FY23 to be 45% Zynga (which includes the Take-Two mobile titles), 37% 2K, 17% Rockstar Games, and 1% Private. To be fair, this is a year when no pillar titles (and all mobile is consolidated under “Zynga” now) are being released across Take-Two’s portfolio. The mobile remastered version of GTA has also been delayed yet again. And further, we anticipate that Rollic’s hypercasual mobile portfolio will see meaningful headwinds in the near future. What does this mean for the future of the combined entity?

Despite delays, integration efforts, and macro impacts, the business will keep chugging along. The company has over $1B in cash, more than enough runway for its the next big releases. Zynga’s mobile pipeline and evergreen titles should only be beneficial and the focus will be on cost synergies. As they continue to consolidate earnings and encounter increased advertising headwinds, I’ll be curious to see if Take-Two can stay above water. (Written by Fawzi Itani)

#2: PlayStation’s biz model: Did They Just Choose a Pill? — GameDiscoverCo

We already devoted a newsletter to Sony’s multiplatform future — and its prioritization of first-party GaaS (Games as a Service) revenue — a few weeks back. But with Sony’s latest financials coming out late last week, we can take a broader look at their biz.

Derek Strickland over at TweakTown has done his customary good job on multi-year graphs for wider context. But a YoY 2% revenue drop and 37% profit drop isn’t a good look for PlayStation as a division. There’s good detail shown here on ecosystem.

Sure, you can argue that ‘full game software’ is an outdated metric to use in today’s IAP or F2P-centric market? But either way, it’s a poor performance vs. Q1 fiscal 2021, when Sony at least had Returnal and Ratchet & Clank: Rift Apart launching.

So, if I was in PlayStation management, and the stock market was seeing this view of my company, I’d probably… be encouraging my third-party partners to launch more full-priced games for my 30% cut (while prepping HQ first party titles myself)?

But that’s running into an issue that NPD’s Mat Piscatella vocalized a few weeks back. AAA PC/console releases are either a) being delayed or b) being commissioned less:

Of course, underlying all of this stress is the COVID pandemic. There’s a ‘lockdown hangover’ from all that game playing in 2020 and 2021 — you can see it in Microsoft’s results too, where Xbox was the poorest YoY performer of any Microsoft division. (Sony’s CFO Hiroshi Totoki agreed post-COVID issues were an issue for PlayStation).

And there’s the PS5 hardware supply issues. As DomsPlaying noted on Twitter last week: “PlayStation 5 lifetime shipments are now at 21.7M, after selling 2.4M in the quarter ending June 2022. Compare that to PS4, which was 25.4M after 7 quarters on market, and it's clear how much supply is impacting current gen.”

The ‘only on PS5 can we provide these unique experiences’ pitch was a little outdated, even when Sony started pitching it. But the continuing pandemic hardware supply issues have put another nail in that coffin. Why? Sony needs PS4 players to keep playing the hardware for years longer than they originally intended.

Take-Two PlayStation Plus

PlayStation Plus Game Catalog: it’s for old(er) games, silly…

So, to the ‘either/or’ discussion: as you can see above, PlayStation Plus users are fairly stagnant -- at around 47 million. And the current financial reporting doesn’t split out the PS+ tiers. Thus — even if there are upgrades to PS+ Extra/Premium in subsequent quarters, it won’t show clearly.

So, to boost numbers? PlayStation could go ‘full-on Xbox’, devoting an entire, more prominent blade of their OS to PlayStation Plus. They could sign small, medium, and even large third party titles for ‘Day 1 PlayStation Plus Extra/Premium’ deals.

But, following Sony’s dev conferences held in the U.S. and the U.K. recently, that’s not what GameDiscoverCo is hearing. We wondered if Stray’s PS+ Extra & Premium appearance was part of a greater trend. But Sony seems to be saying it was a one-off, and its PS+ ‘Game Catalog’ is looking for 12-18 month old games, first and foremost.

Backing this up, August 2022 has a range of Yakuza games hitting ‘Game Catalog’ — the latest of which launched in 2020. That title is also in the base PS+ layer for August, alongside the Tony Hawk’s Pro Skater 1 & 2 remake, which launched in September 2020 on PS4/PS5. Perhaps you’re seeing a pattern here? (It is called ‘Catalog’, after all).

So, we’re not saying there won’t be a ‘Day 1 on PS+ Premium’ indie game cadre at some point in the future. Sony’s still taking pitches for that. Personally, we think they’re missing a trick by not doing it. Titles like Lawnmower Sim (!) or Tunic were perfect Day 1 Xbox Game Pass games & wouldn’t sell oodles standalone.

But perhaps Sony is stuck in the quandary — ‘if we put great new third-party games in PS+, people will buy even less new third-party games’? To which I’d say… if there are fewer third-party AAA titles coming out in the future, where are all the catalog AAA titles to put in your Catalog(ue) coming from? There is no clear answer here, by the way. (Written by Simon Carless, this article originally appeared here on his newsletter)

Content Worth Consuming

Merge Games: To Do Or Not To Do? (App Magic): “Since the release of Merge Dragons!, and as more hit titles of the same genre kept coming along, the gamedev industry has been buzzing with excitement over Merge games: a truly spectacular trend that is definitely worth a keen look. What’s up with this enthusiasm anyway? Maybe, many developers are constantly on the lookout for the next big thing, hoping to be among the first to jump on board and secure a tasty slice of the market. Or maybe, games of this genre are simply deemed relatively inexpensive to produce and hence appeal to a wide range of game developers. So then: has the Merge genre lived up to the industry’s expectations? And does it still seem to have the same potential as it did 3 to 5 years ago?” Link

What Should You Charge For Your Indie Game (Gi.biz): “In a market where the rising price of games is often scrutinised, it’s easy to undervalue yourself as an independent developer, especially if you don’t have the resources of a bigger, respected publisher. At Develop:Brighton 2022, Game If You Are founder Lewis Denby hosted a talk for developers that are unsure about how to price their games, and how to figure it out, as well as advice on researching competitors and estimating how much revenue a game will make.” Link

Mastering uncertainty: A predictive processing account of enjoying uncertain success in video game play (Frontiers): “Why do we seek out and enjoy uncertain success in playing games? Game designers and researchers suggest that games whose challenges match player skills afford engaging experiences of achievement, competence, or effectance—of doing well. Yet, current models struggle to explain why such balanced challenges best afford these experiences and do not straightforwardly account for the appeal of high- and low-challenge game genres like Idle and Soulslike games. In this article, we show that Predictive Processing (PP) provides a coherent formal cognitive framework which can explain the fun in tackling game challenges with uncertain success as the dynamic process of reducing uncertainty surprisingly efficiently. In gameplay as elsewhere, people enjoy doing better than expected, which can track learning progress. In different forms, balanced, Idle, and Soulslike games alike afford regular accelerations of uncertainty reduction. We argue that this model also aligns with a popular practitioner model, Raph Koster’s Theory of Fun for Game Design, and can unify currently differentially modelled gameplay motives around competence and curiosity.” Link

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