Hi everyone. It was a big week in the gaming industry. Roblox officially went public and Microsoft’s acquisition of Bethesda finalized. We’ve covered these topics at length before (Roblox here and here; Xbox/Bethesda here - note: in hindsight, we underplayed the exclusives angle), so we won’t cover them today, but fortunately there’s plenty else going on.
We’re also publishing our first interview today - the first of many to come! Let us know in a comment what you think and which gaming industry leaders you want to learn more from.
Now, here’s your weekly roundup and analysis of what’s happening in the video game industry…
#1: In Conversation with Steve Arhancet, Co-CEO of Team Liquid
I (Aaron, here) had the pleasure of interviewing Steve Arhancet, co-CEO of Team Liquid, which is one of the world’s largest and most notable esports organizations. We discuss Steve’s journey, his approach to leadership and company culture, what it takes to build a multigenerational brand, the new Liquid+ platform, where esports needs innovation, and more. Steve shared lots of great insights, so please enjoy our wide-ranging conversation:
#2: Discord Triples Revenue and Doubles Monthly Users
Discord is on a roll. The US-based company that develops a platform for building communities saw a record year in both monthly active users (MAUs) and revenue. In 2020, Discord managed to double its MAUs to 140 million and triple its revenue to $130 million. Admittedly, compared to established social media giants such as Facebook or Twitter, Discord’s annual revenue per MAU ($0.93) is extremely meager. Even so, investors were still willing to shell out $100M last year at a $7 billion valuation.
Discord started out as an effortless voice chat for multiplayer games but has since grown to offer instant messaging, video calls, and video streaming. In fact, with some programming experience you can mold your Discord server to do pretty much anything. Think of it as IRC on steroids. Taking into account the combination of ease of use and free customization, it's easy to see that Discord's value is not limited to gaming. Instead, the platform now provides a digital home to any type of community from hiking clubs to study groups (and even Master the Meta’s own community).
On a personal note (Miikka, here), during the last year I've seen my hobbies, social life, and work all converge in Discord: what used to be a place solely for my gaming voice chat needs has gradually become a mix of servers for various purposes. There's a server for my university-era friends; there's the Finnish Unity developers' community; and there are even Discord servers by VCs for their portfolio companies.
There is no direct comparison out there for Discord's offering. The closest comparison is probably Slack, even though that company (especially under Salesforce now) extremely focused on businesses vs communities of all types. Reddit is another interesting comparison. The ubiquitous news aggregator similarly provides tools for community creation, albeit in a less personal and less immediate way. Zooming out, one might conclude that Discord also competes with messenger apps, such as Signal, as well as modern social media platforms from Facebook to TikTok. However, looking only at the feature sets of these services would be missing the main point. Reddit, Clubhouse, TikTok, Twitch, and Facebook all provide instant messaging, live streaming, and even video calls. The devil is in the details: users will go where the communities are, and communities will gather wherever is convenient – and with whoever is trustworthy. Discord is building its own unique social graph.
Discord has consistently forgone ad revenue and focused on subscriptions instead, a choice that has earned the company much goodwill from its users. Moreover, none of Discord's critical features are behind a paywall. Instead, a paid subscription to Discord Nitro nets users vanity emotes, higher quality video calls, and the ability to “boost” their favorite servers. This approach is an asset to Discord from the users' point of view, but a liability in terms of near-future revenue upside. (And let’s not forget Discord’s previous failed attempt at becoming a storefront for games.) While Discord's user base very likely continues to grow, all of the future revenue tracks – including proprietary games – are ambiguous at best.
All in all, and despite the revenue ambiguity, Discord’s welcoming community-centric approach might be exactly what ends up providing it a long-term competitive edge. With its tenuous revenue streams Discord's valuation is arguably on the high end, but on the other hand it's easy to see hobby groups abandoning services like Facebook and flocking to Discord servers instead. If the user base growth continues and Discord finds a better way to monetize at scale, in some years we may well see Discord joining the decacorn club. (written by Miikka Ahonen)
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#3: How Epic Games’ Acquisitions Fuel Its Metaverse Ambitions
On Tuesday, Epic Games announced the acquisition of Capturing Reality - the creator of RealityCapture, a programmatic software for 3D scans to reconstruct objects and scenes from images or laser scans. For Epic, the acquisition provides Unreal Engine developers another powerful set of tools to streamline the asset creation process and create ever-more-realistic representations of the real world in digital spaces. Meanwhile, the acquisition will allow the team at Capturing Reality to accelerate the adoption of its technology across Unreal’s 7+ million installed base, which includes users from various industries.
This is the latest in a flurry of acquisitions for Epic, which has been quite acquisitive over the past several years. A non-exhaustive list of the company’s recent acquisitions includes:
Tonic Games Group (maker of Fall Guys)
Psyonix (maker of Rocket League)
3Lateral, Cubic Motion, and Quixel (contributed to development of Epic’s MetaHuman Creator)
SuperAwesome (a platform that gives developers tools to create safer digital experiences for younger audiences)
So, what exactly is Epic building towards? We know that CEO Tim Sweeney is outspoken about Epic’s desire to play a large role in building the metaverse. And we know that in order for that vision to come true there’s an insane amount of work to be done regarding interoperable infrastructure, enhanced developer tools, consumer access points, content, and more. Epic can’t do it all — the entire world will play a role in what the metaverse ultimately becomes — but Epic’s emerging ecosystem can certainly play a foundational role.
Let’s begin with content. Epic’s 350+ million registered Fortnite users is a great start, and a game (increasingly platform) like Fortnite can serve as a testing ground and gateway to some of the company’s broader ambitions. Plus, adding popular content and talented developers through the acquisitions of Tonic Games and Psyonix — not to mention other developer-friendly publishing deals — allows the company to expand its consumer audience and give them more reason to go to the Epic Games Store. It takes heavy investment to maintain storefront relevance, especially with low take rates and ongoing exclusives, but it makes sense why Epic would want a creator-friendly central hub that connects developers with consumers.
Furthermore, Epic’s Unreal Engine is the centrepiece of Epic’s entire strategy. Acquiring technology — such as 3 Lateral and Cubic Motion — helps third party developers better create virtual content more quickly and in a more realistic way (and can even get take-rate discounts when sold on the Epic Games Store). This helps Epic gain developer market share and differentiate from well-funded competitors (like Unity) plus developers who use their own proprietary platforms. Adjacent platforms and tools like SuperAwesome, Manticore (a UGC platform Epic has invested in), and Epic’s own Epic Online Services (which enables cross-play and access to Epic’s social graph) also show how its development efforts are widening both in scope and potential impact. A mix of acquisitions, investments, and internal reinvestment help turbocharge Epic’s wide-ranging efforts here.
Of course, there are always challenges when chasing lofty goals, and, ultimately, the path to building the metaverse remains unclear. However, it is no secret that Tim Sweeney is captaining the Epic Games ship in a direction that should expand the market for creators in digital worlds. With the acquisition of Capturing Reality and others, Epic adds to its growing list of technology and content that will keep the company as a frontrunner to developing the immersive internet of the future. (written by Jimmy Stone)
#4: The Rise of VTubers
Creator Kizuna AI’s first YouTube video in late 2016 remains iconic. She introduces herself using a term that was peculiar and unknown at the time, but has now become a new category of creator - the “Virtual YouTuber.” This video became, as one of the commenters put it, the moment when “the virtual legend from Japan (was) born”. And as motion tracking software and face detection technology have become increasingly accessible, more creators began popping up - not with their own faces on camera, but projecting themselves onto an avatar. Today, such creators are more commonly known as “VTubers” and the world’s a stage.
VTubers come from a primarily Japanese subculture of YouTubers and live streamers who use anime-inspired avatar designs instead of their real faces. According to Google Trends, it appears that the first inflection point for VTubers occurred in January 2018. However, what’s even more interesting is that the timing of this inflection is connected with Kizuna AI’s (キズナアイ) success as the widely acknowledged first ever VTuber. Since 2018 the number of VTubers entering the market has rapidly grown, and the trend is traveling fast to the West.
In Q1 2020, UserLocal reported that the number of Japanese VTubers crossed 8,000. It’s safe to assume that this number is now well beyond 10k with new VTubers emerging all over the world. Even notable creators like PewDiePie and Pokimane have started dabbling with VTubers. The VTuber trend was also recognised as a key trend in YouTube’s 2020 Culture and Trends report, with VTuber views growing to over 1.5B views per month by October 2020. Further, a November 2020 online survey of ~17k individuals aged 18-44 across USA, Europe, and South America noted that 47% of them are open to watching content from creators or characters who are fictional or virtual.
VTuber content started out as short, simple videos using a webcam and basic face tracking software, but it continues to evolve in sophistication. While slightly out of the VTuber realm, at the most sophisticated level is high production value virtual entertainer/influencer content, which requires full body motion rigs, high accuracy face tracking technology, best in class CGI software, and deep production know-how, amongst many other things. This helps pull off experiences like live virtual events, music videos, or even still photos for social media. Even though virtual influencers have almost 3x the engagement of their human counterparts and their business models mirror that of today’s influencer space, I (Manyu, here) generally feel there is a novelty effect attached to many of them. There will likely only be a few successful names due to an imbalance between content creation costs and publishing frequency required to sustain large fan bases over long periods of time.
What I find more interesting is how VTubers are evolving their engagement and monetization techniques at lower content creation costs to grow massive followings. The most notable example is Codemiko (shown in the cover photo), who refers to herself as “The Technician” when in human form. With a little more than half a million Twitch followers, she is a VTuber who uses a relatively cheaper Xsens motion capture suit, the Live Link Face app for face tracking, and custom created Unreal Engine rigs to livestream in a whole new way and with a unique personality. Further, she uses Twitch’s Bits to allow her audience to alter aspects of her environment and body, and therefore have some agency on the streamed content itself. It results in a hugely interactive experience that’s turning Codemiko into one of Twitch’s rising stars.
Needless to say, what Codemiko and VTubers more broadly are able to pull off here directly intersects with the larger trend around streaming’s next frontier. Sure, VTubers aren’t specifically about gaming, but this innovation absolutely effects the way gaming personalities can function on live streaming’s most important platforms going forward. Further, the extreme points to new types of interactive live stream gaming content that is possible, especially with companies like Genvid powering the technologies to enable it. In other words, VTubers are yet another driver towards a future where 1) our digital identities are more often represented via avatars, 2) streaming evolves from a passive linear experience to a more two-way interactive one, and 3) new forms of interactive streaming game content come into existence.
🎮 In Other News…
Roblox completed its direct listing and now trades at a market cap of $40 billion. Link
Microsoft/Xbox officially acquired Bethesda. Several games have already been added to Game Pass and xCloud, and Phil Spencer has made it clear that Bethesda will support exclusives wherever Game Pass is. Link
TinyBuild launches £340m IPO. Link
Super League Gaming acquires Mobcrush. Link
Nodwin Gaming Secures $22.5M Investment From PUBG Owner Krafton. Link
Rogue Games raises $2.5M to publish ‘batsh*t insane’ indie games. Link
Omeda Studios closes $2.2m round of funding. Link
Humble Bundle raised over $30m for charity in 2020. Link
US game spending jumped 35% in February, says NPD Group. Link
PC and console games sales surged across Europe in February. Link
Sumo Group launches Secret Mode indie publishing arm. Link
German legal reform to set new standards for loot boxes. Link
🖥 Content Worth Consuming
The Roblox Microverse (Stratechery). “In short, Roblox isn’t a game at all: it is world in which one of the things you can do is play games, with a persistent identity, persistent set of friends, persistent money, all disconnected from the device that you use to access the world. That is the transformational change…. Roblox, though, isn’t simply the same game everywhere, it’s the same persistent world everywhere, from PC to console (Xbox, not PlayStation) to smartphone, in which games happen to exist. It’s a metaverse…kind of.“ Link
Tomorrow with Rovio - Blake Robbins (Rovio Entertainment). “‘Kids making videos while playing video games’ have become some of the most influential voices in modern entertainment and the source of admiration and idolization for millions. Join us as we deep dive into the Creator Culture with Blake Robbins, partner at Ludlow Ventures.“ Link
Building Games For A Female Audience (Deconstructor of Fun). “How do you design mobile games for a female audience? In this talk, we cover genres, motivations, mechanics, and much more!“ Link
The Oral History of Guitar Hero (Vice). “At the height of its popularity, a song featured in a Guitar Hero game could boost its individual downloads by as much as 843 percent. In the case of Dragonforce, the inclusion of the band's song "Through the Fire and Flames" in Guitar Hero 3 boosted their CD sales by 126 percent. Guitar Hero: Aerosmith made more money for the band than any of their studio albums. Every time Stephen Tyler buys something, part of him should thank Activision. Which is impressive, sure. Until you consider that for Guitar Hero this is just a notch on the belt. Since its debut in 2005, the Guitar Hero series has sold more than 25 million units, making more than $2 billion, and cementing itself as one of the best-selling video game series of all time. It was also a watershed moment culturally, with some of the largest bands in the world seeking out their own deals with Activision, hoping to cash in on the Guitar Hero boom. Guitar Hero left a sizable crater in the music industry and pop culture in general.“ Link
Are we entering the new era of mobile social gaming? (Gamesindustry.biz). “When looking at mobile social gaming features, we can break this down into two main areas. The first one is the creation of social spaces and experiences in games that lie outside of the core gameplay experience. These have been very common in China and are heading to the West. The second is the inclusion of more social elements within the gameplay, such as guilds and co-op tasks.“ Link
Thanks for reading, and see you next week! As always, if you have feedback let us know here.