Welcome to Master the Meta, the #1 newsletter about the business of video games.

Here’s your weekly roundup and analysis of what’s happening in the video game industry.

📰 News

Xbox earnings + showcase. After several quarters of relatively stagnant growth, Xbox’s trajectory shifted in a major way. Gaming revenue grew 64%; broken out, hardware sales grew 49% and content/services grew 65%. This is all excellent and a positive sign for other gaming companies yet to report. Of course, this momentum can’t automatically be extrapolated to future quarters and years. Even though widespread quarantining did create new gamers and accelerated ongoing trends, engagement across the industry will normalize. Plus, even if growth stays strong it’ll be for different reasons like the upcoming release of next-gen consoles. Link

What’s more interesting than the earnings release was the Xbox showcase. Three main takeaways:

• Game Pass stole the show. Every single game that was shown will be available as part of the Game Pass subscription. Not only is this incredibly gamer friendly, but it’s clear proof that gaming subscriptions can work and that Xbox’s long-term focus is more about software and services than hardware. As I mentioned last week, Xbox will eventually use its services (Game Pass + xCloud) to target new gamers outside of the traditional console demographic and scale its addressable audience. No one is close to matching Xbox’s subscription abilities, especially when taken cross-platform and to the cloud.

• Unsurprisingly, Halo Infinite was the standout game that received outsized attention across YouTube and social media. The game is going open world, which is a new direction. It left fans craving multiplayer insights, so that’s something Xbox will follow up on. Also, the game is being built as a platform where new content will be added over the 2020s (perhaps similar to Destiny 2).

• The majority of Xbox’s 15 internal studios presented what they’re working on — Fable, Avowed (Obsidian’s new RPG), Forza, Stalker 2, Everwild, State of Decay 3, etc. — and there’s more to come in the future. In general, Xbox’s progress on exclusives is impressive. They still don’t have the same number of heavy hitters PlayStation has, but there’s nothing stopping them from eventually achieving the same thing.

Check out the showcase:

Ubisoft Q1 update. As is the theme this quarter, Ubisoft’s results showed positive momentum. As CFO Frédérick Duguet said, “First, and very impressively, our quarter was bigger in terms of unique users, session days and play time than any given quarter in Ubisoft history.” Rainbow Six Siege, Assassin’s Creed, and Just Dance each experienced meaningful growth in engagement and net bookings. For a company who, nine months ago, was facing severe underperformance and numerous delays this is welcome news. Of course, it’s all being overshadowed by a cultural overhaul in response to numerous allegations of harassment. These personnel changes may lead to some internal dysfunction in the short-term, but over the mid/long-term the changes being made will improve the company’s culture.

In terms of future results, a ton rides on the upcoming AAA games Ubisoft has now revealed (many of which were previously delayed): Assassin’s Creed Valhalla, Far Cry 6, Watch Dogs: Legion, Hyper Scape, Rainbow Six Quarantine, Gods & Monsters, and Skull & Bones.

I’m optimistic about AC Valhalla, Far Cry 6, and Rainbow Six Quarantine. Early signs are positive and Ubisoft knows how to properly execute on those franchises. Watch Dogs: Legion is promising but the high ambition brings execution risk. I’m glad Ubisoft is targeting free-to-play but still struggle to see how Hyper Scape will stand out in a crowded playing field. I don’t have much to say about Gods & Monsters (or whatever the new name is), which probably isn’t a great sign, and although I’m excited to see more of Skull & Bones, Sea of Thieves (a pirate game from Rare / Xbox Studios) has already succeeded in that market. All in all, there’s a ton of promise in these games, but there’s still execution risk and timing implications. Growth is nearly inevitable given the magnitude of this line-up, but nailing most of those games is critical not just from an initial revenue bump standpoint, but because longer-term digital/recurring revenues will be a function of how well these games sell and engage players. There also remains tremendous opportunity in mobile, but Ubisoft still hasn’t shared a clear mobile strategy to talk about. Link

Will Nintendo use a new mobile strategy? Even though Nintendo’s mobile gaming attempts have mostly underperformed, the company still recognizes the importance of mobile as a platform. Remember these charts?

Unsurprisingly, instead of making several new mobile games that would likely share the same fate, it seems like Nintendo is shifting tactics. Under relatively new leadership, the company has increasingly prioritized licensing… for theme parks, merchandise, movies, and more. There’s a chance that licensing will also lead to content collaborations that put Nintendo’s IP in other games (like Fortnite). While nothing is confirmed, I think that’s wise, especially for mobile games. Nintendo should also consider working with co-development partners (like how The Pokemon Company is working with TiMi on Pokemon Unite) or even sell out to Apple Arcade at generous terms. After all, even if mobile isn’t how the company chooses to prioritize internal development resources, finding alternative approaches should only lead to upside. Link

Glu is ready to strike deals. Back in June, Glu Mobile raised $151.8 million in a secondary offering. It’s hard to blame them. On one hand, much of the company’s historic growth stemmed from acquisitions and acqui-hires, which required healthy capital. Chris Akhavan from Glu says:

“Going back to 2011, we acquired Blammo Games. They went on to create the Kim Kardashian game. In 2012 we acquired the Deer Hunter IP from Atari and went on to have a very successful franchise with that IP. We have the next version of Deer Hunter currently in development. In 2013 we acquired a small studio that’s now become our sports studio, with the MLB Tap Sports Baseball franchise, one of our top games. In 2014 we acquired PlayFirst, which made the Diner Dash franchise. Tom Hall was part of that. And then obviously in 2016 we had the CrowdStar acquisition, which brought us a phenomenal studio with Covet Fashion and Design Home.”

On the other hand, a quickly rising stock price (thanks again, COVID) after a tough 2019 made selling shares a more favorable means of fundraising. As of March 31st Glu had $74.5 million in net cash, so adding $151.8 million means the company now has meaningful firepower. Glu is only a $1.5 billion business, so that capital can make a serious dent. As the interview with Chris shows, Glu is willing to strike deals of varying sizes, but it’s pretty obvious that the company hopes to nail down a larger deal that can move the needle in a more profound way. It’s only a matter of time before we hear an announcement. Link

Rocket League goes free-to-play. It’s been over a year since Epic Games acquired Psyonix, the studio behind Rocket League, and we’re finally getting some major announcements. One announcement is that the game is going free-to-play at some point this year. That’s not surprising given Epic’s success with Fortnite and where industry trends are headed, and the change should result in an expanded audience. It also sets the stage for Rocket League to launch on mobile. There’s no official announcement about that yet, but given Epic’s cross-platform ambitions it seems close to an inevitability. No matter how you look at it, Rocket League’s upside in terms of attracting more players remains high, even though the game is 5 years old.

It’s also worth noting that when the game goes free-to-play it will turn into an Epic Games Store (EGS) exclusive on PC. People who play the game on Steam will still be supported, but all new players must play through the EGS. Sure, some players won’t like the reduced choice, but exclusives are the best way to increase store engagement, and Rocket League going free-to-play should attract lots of new EGS users. It also means in-game sales bypass Steam’s 30% cut, which Epic is on a crusade to lower. It’s a shrewd move that sets Rocket League up for larger success on terms that are more favorable to Epic. Link

Roblox’s social Party Space. Back in April Fortnite launched Party Royale, a gun-free mode purely for socializing and hanging out. Roblox is following Fortnite’s lead and launching Party Place. It’s still in beta and hasn’t seen much traction, but it’s simply an area for gamers to chat, discuss what to play next, and maybe even gather for digital parties or other occasions. It’s still sparse and lacks activities, but it’s built on the same tech that enabled in-game concerts and award shows, so there’s plenty of room to innovate if there’s any traction. Plus, with an audience of 120+ million users, finding new methods of engagement is an important way to expand the audience and maintain status as a dominant digital hangout spot. Link

• Related: Larger servers that support over 1,000 players are on the way, which could unlock completely new gameplay modes people haven’t imagined yet. Link

Twitch enters additional categories. Video games may always be Twitch’s core focus, but the company is eager to branch out. Doing so is the best way to attract new users and it helps better engage Twitch’s existing users, especially at a time when YouTube, in particular, is getting more competitive in gaming.

• Logic (the rapper) signed an exclusive deal with Twitch and debuted with over 100k viewers. Link

• Twitch also added a sports category. Amazon has dabbled in sports rights (Thursday Night Football) and recent lock-downs pulled many sports fans to esports, so this move is definitely timely. Twitch is exclusively partnering with four soccer/football clubs to create exclusive content, and we can expect more from league streams like NBA and UFC in the future. Link

Modern Times Group’s earnings + CEO exit. The company’s esports segment (ESL, Dreamhack) took an unsurprising hit during the quarter, but the team did a decent job pivoting to purely digital events, and record gaming segment results helped counteract that decline. Esports will eventually return to normal (probably 2021), and new game launches mean there’s more room for growth in general. All that said, the business faces bigger transitions. For one, management is looking to separate the esports and gaming businesses (through a divestment or direct listing of the gaming side), and now CEO Jorgen Madsen Lindemann and Chairman David Chance have announced their intentions to step down. It’s a relatively stable business but with a lot to figure out. Link

Mobalytics raised a $11.25M Series A. The company’s analytics platform helps gamers get insights into and improve at their favorite games. The company is extremely Riot focused right now — serving solutions for League of Legends, Teamfight Tactics, Legends of Runaterra, and Valorant — but this capital will enable the company to add employees and target new games in new genres. I’m bullish on software companies that can actually help improve player performance, and since Mobalytics already has 7 million users it’s a good sign that they’re onto something big. Link

🖥 Content Worth Consuming

The Imminent Ragnarok of M&A in Mobile Gaming Space. “I believe that the deprecation of the IDFA will catalyze a period of accelerated consolidation in the mobile gaming space via M&A. Smaller, single-game mobile gaming studios will see their growth trajectory obstructed completely and suddenly. The valuations of these companies will drop rapidly. Portfolio accumulation will become a predominant user acquisition driver as large players gobble up smaller developers on a discount. This will lead to Ragnarok in the mobile games space.” Link

Are You Ready For the Metaverse? “There’s no universally agreed-upon description of the metaverse, but there are some widely recognized characteristics… Ball, the VC, identifies seven: The metaverse is always on; it’s experienced live and in real time; it can host any size audience; it has a fully functioning economy; it spans across platforms, as well as digital and physical realms (think augmented reality); it allows digital assets to be carried across platforms; its experiences and content will be created by individual users and huge corporations alike.” Link

John Egan: On the Road to a Digital Species. “In the inaugural episode of Metaverse Musings, host Piers Kicks sits down with John Egan the CEO of BNP Paribas’ L’Atelier. John and his team focus on foresight in order to identify future market opportunities and challenges in digital and virtual domains through research, analysis, and exploratory fiction. The most compelling area they have identified is the virtual economy, on which they produced an unusually thorough landmark research report which is linked below. Together, they explore the primary drivers behind our accelerated transition into a digital species as well as the novel financial opportunities unlocked along the way.” Link

Interview: How AudioMob is shaking up the rewarded ads space with its audio offerings. “It has even bigger plans for the future, including looking outside of just games into mobile apps in general, and potentially moving beyond just audio ads into music discovery within mobile games. ‘Each mobile application could become a mechanism for music discovery, that is something that we are very interested in working on,’ says Facey. But for now, AudioMob is focused on its open beta and bringing audio ads into the mobile games space - or as Facey puts it, ‘we are basically setting up the infrastructure to connect the $18 billion audio ad industry to the $70 billion gaming industry.’” Link

Evil Geniuses’ new mastermind must reckon with the past to chart a future course. “Nicole LaPointe Jameson, the 26-year-old chief executive of Evil Geniuses, doesn’t come from esports. LaPointe Jameson cut her teeth in private equity, turning around “distressed businesses.” And, she says that’s exactly what Evil Geniuses was when she joined the company over a year ago… In the time since, LaPointe Jameson has led the company through a front-office renaissance. She’s staffed up, creating marketing and sponsorship teams, with offices in Seattle and Los Angeles. She’s ushered in a new era for the 21-year-old esports brand with a redesigned logo and a new slogan: ‘LIVE EVIL.’” Link

See you next week!