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📰 News

Unity launches the Game Growth Program: Through this accelerator program (teaser video here), Unity is looking to partner with select free-to-play mobile game developers to:

• • design and run strategic user acquisition (UA) campaigns that bring in new players

  • provide support with analyzing game economies and implementing optimizations

  • manage and optimize ad placements and in-app purchases

  • provide access to various Unity tools to help increase player lifetime value

The program uses a revenue sharing business model where Unity fronts the UA costs, recoups those costs first, and then equally shares all subsequent profits with the mobile game developer. It is also important to note that program participants retain full ownership of their studio and intellectual property. To get into the program there is a testing phase where various game metrics are checked and funding up to $1,000 can be gained. Once in the program, future UA funding amounts vary depending on a game’s performance and scaling success. However, in general, mobile game developers who partner with Unity should gain a significant UA advantage.

With this move, Unity is following in the footsteps of AppLovin and ironSource, who not only own ad networks but also help publish games through Lion Studios and Supersonic Games, respectively. Further, Unity is throwing its hat in the competitive ring of notable mobile gaming UA partners, such as Tilting Point, N3twork, and SuperScale. All of these other companies should be closely (if not nervously) watching, because over 50% of mobile game developers are already part of the Unity ecosystem, mostly through using the Unity Game Engine. As we covered in our Unity deep-dive, the company’s wide range of offerings touch upon many aspects of the mobile gaming value chain, and Unity’s solutions for various developer needs will always seamlessly integrate with its game engine. Plus, having multiple solutions in one place is often a better experience than integrating a bunch of different third-party product/service providers.

Broadly, the Game Growth Program is just another way for Unity to double down on its “land-and-expand” strategy. Given how Unity’s Operate side of the business is mostly driven by Unity Ads, this move makes sense. Not only is potential revenue share upside nice to see, but it showcases the power of its other Operate solutions to a large market of mobile game developers who don’t use them but are already part of the Unity ecosystem. Frankly, the move is coming quite late, but at least Unity has now acknowledged the opportunity.

With the carrot of fronting UA costs, Unity will likely look to improve, upsell, and cross-sell its Operate solutions to program partners, ecosystem participants, and enthusiastic onlookers. There might also be fringe benefits attached to building up a portfolio of program partners over time to help protect Unity’s ads business against the impending IDFA apocalypse. Of course, the program currently feels too small to make that a leading reason.

All that said, improving in-game metrics and scaling UA is no easy task, especially in partner-style relationships. Yes, Unity has many solutions to help with those activities, such as Personalized Advertising, Contextual Advertising, Unity Ads, Unity IAPs, deltaDNA, GameTune, and GameSim. But there is a big difference between the game developer deciding how best to use those solutions versus Unity ensuring optimal usage of those solutions. The graveyard of companies that have tried to make this business model work in the past is a large one, mainly because developers’ creative visions often clash with the ROI-driven visions of the UA/publishing partners. It remains to be seen whether Unity is a great partner, which ultimately determines how well the program will pay for itself, generate profits, last a long time, and drive long-term growth for the Operate side of the business.

The Huya + DouYu merger is confirmed. This rumor has swirled around for months but is now finalized. China’s two largest game streaming platforms — plus Penguin e-Sports, another Tencent entity — are officially coming together to create the dominant market leader. There are a few notable pieces of the transaction. First, each DouYu share will convert into 0.73 shares of Huya, and post-merger each shareholder base will roughly own 50% of the combined business (roughly a $10 billion market cap). Second, Tencent is concurrently reassigning the Penguin e-Sports brand to DouYu for $500M. Third, the Huya and DouYu CEO’s will remain on as co-CEOs (curious to see how long that works), and the Huya board of directors will remain in place, except for adding the DouYu CEO. Lastly, shareholders on both sides should expect to receive a cash dividend.

Successful mergers are always easier said than done, and this is no exception. It’s a complicated transaction that has ongoing ramifications for all stakeholders (consumers, employees, shareholders, etc.). On the surface, merging sounds intriguing. Huya and DouYu have 168.5 million and 165.3 million MAUs, respectively, and even though there’s going to be overlap, this will become China’s mostly uncontested game streaming titan (and, for perspective, be much larger than Twitch). It also holds interesting ramifications for international expansion. Huya’s Nimo TV — which focuses on SE Asia and Latin America — is already scaling, and if the combined company reorients from competing domestically with each other to aligning on broader expansion, then global growth could take a larger spotlight. Plus, the combined business should find some efficiencies. Although we need more details on if/how Huya’s and DouYu’s platforms would ever actually combine on a technical level, it’s reasonably safe to say that the company will gain R&D, workforce, and even content/talent cost efficiencies. It will just take some time to play out.

To probably no one’s surprise, the biggest winner is Tencent, which is masterminding this entire deal and will own a 67.5% stake in the combined business. Tencent probably views this transaction as not only a way to create value but to ensure it controls yet another important pillar of China’s gaming ecosystem. Additionally, even though there are ongoing geopolitical headwinds, Tencent is constantly seeking international growth, and having one combined entity makes it easier to scale internationally in a unified way. I’m curious what it means for Trovo Live, Tencent’s mobile-focused streaming platform targeting the West. It’s not part of the merger and still looks to be an afterthought, but it may become a more important piece of Tencent’s global streaming puzzle in time. TBD.

All in all, this transaction makes a ton of sense as long as it’s effectively executed. What it means for the underlying platforms and international expansion are my biggest questions. The good news is that even though there’s room to mess up, there’s even larger room to grow and create value around the world.

ASA bans misleading ads in Playrix games: Remember these ads from Homescapes or Gardenscapes?

Well, on September 30th, the United Kingdom’s Advertising Standards Authority published a ruling that bans Playrix from using such ads in the UK to acquire users for its games, because they were deemed to be misleading. Playrix tried to justify its strategy by making three points:

1. 1. The ads included the line “Not all images represent actual gameplay”

   2. They stated that the ad content was implemented in their games as “mini-games” that show up at various points of the game experience

   3. They said that Facebook’s ad policies limit ad length, and it’s not possible for them to showcase all game content in a short period of time

Unfortunately for Playrix, all these arguments fell on deaf ears. The ASA understood that the Homescapes and Gardenscapes games in large part consisted of gameplay that did not represent the ad content and Facebook’s ad time limits were enough to showcase more representative gameplay. Therefore, the ads are misleading in the eyes of the ASA.

It is important to note, however, that the ASA is a self-regulatory and non-statutory organization of UK’s advertising industry. It is not funded by the British government but by a levy on the advertising industry. Therefore, it cannot interpret or enforce legislation. In other words, a ruling by the ASA does not directly translate to Playrix abiding by it. That said, the UK government does take misleading advertising cases very seriously, and Playrix’s ruling falls into that category.

The following piece of text from the UK House of Common’s August 2020 briefing paper on Regulation of Advertising by the ASA makes this ruling significant and therefore important for Playrix to fix its ads for the UK market -

“Importantly, for misleading or unfair advertising, the ASA can refer the matter to Trading Standards to take action under the Consumer Protection from Unfair Trading Regulations 2008. It is the ASA’s decision whether to make a referral to Trading Standards. It will normally do so in circumstances where ASA’s sanctions have not deterred a marketer from continuing with misleading advertising. It is then Trading Standards independent decision whether to investigate or take any enforcement action, in accordance with their own enforcement policy and administrative functions.”

Misleading ad practices have been rampant in the mobile gaming industry for some time now, and in most cases to the detriment of the acquired players’ gameplay experience. These ads are great at lowering user acquisition costs due to their high top-of-the-funnel conversion rate, and therefore highly effective in ROI driven ad campaigns. While the start of misleading ad practices is rooted in the highly competitive nature of the UA market, other major companies like King have been able to sustain their games without succumbing to such tactics. As King puts it, they value building brand trust over short term UA gains.

We’re in full support of ASA’s ruling and while it is just limited to the UK, we hope Playrix steps up to set the right example for the entire industry. And given that the ASA is a founding member of the European Advertising Standards Alliance (EASA), our hope is the ruling helps instigate a larger scale domino effect to eventually move the industry towards a better future for both developers and players.

Embracer raises $648 million. We’re covering this news a week late, but I want to quickly mention it since Embracer is debatably underfollowed (at least in certain parts of the world) and we’ve received a couple requests to write more about it. The recent news itself is simple: Embracer issued new shares worth approximately $648 million in order to raise capital for future acquisitions. Insiders also sold an additional $4 million as part of the transaction. This announcement is important in the sense that $648 million is a lot of money, especially since Embracer has an ~$8.2 billion market cap. However, it’s not that surprising in the sense that Embracer has been on a super aggressive acquisition streak lately. If I’m counting correctly, Embracer now has 42 internal studios, and it’s announced nine acquisitions since the company last reported results in mid-August.

It’s too early to say if all of those acquisitions are adding significant value. Yes, there’s financial value created when Embracer sells shares at 30+ times cash flows to acquire companies trading at 10 times cash flows, but we’ll have to dig deeper over time to understand the returns on invested capital and organic growth of all these deals. Similar to Stillfront, Embracer is, err, embracing a decentralized model, and it will be fascinating to watch and see how that decentralized model lends itself to value creation. In the meantime, the company is experiencing rapid acquisition-fueled growth and high margins, and there’s no sign that the business will slow down anytime soon.

Quick hits:

• Playtika, a large China-owned mobile gaming company, is looking to IPO in the US. Link

• Beamable files for bankruptcy. It turns out that partnering with user acquisition leaders (Tilting Point, in this case) doesn’t always work out. Link

• Gamestop will get a cut of every digital purchase on Xbox consoles it sells. No idea how GameStop negotiated this deal — or how big the cut is — but the terms are a bit better than what I suggested last week. Link

• Elo Entertainment acquires Speedrun.com. Link

• According to one survey, 35% of gamers have a subscription service, and 9% of subscribers are subscribed to more than one service. Feels high but results also vary by region. Link

• MyGames buys a partial stake in hypercasual studio Mamboo Games. Link

• Rockstar Games acquired Crackdown 2 developer Ruffian Games and rebranded the studio as Rockstar Dundee. Link

🖥 Content Worth Consuming

Xbox Boss Phil Spencer On Series X Launch, Halo Infinite & Bethesda. “‘Is it possible to recoup a $7.5 billion investment if you don’t sell Elder Scrolls VI on the PlayStation?’ I asked. ‘Yes,’ Spencer quickly replied. Then he paused. ‘I don’t want to be flip about that,’ he added. ‘This deal was not done to take games away from another player base like that. Nowhere in the documentation that we put together was: ‘How do we keep other players from playing these games?’ We want more people to be able to play games, not fewer people to be able to go play games. But I’ll also say in the model—I’m just answering directly the question that you had—when I think about where people are going to be playing and the number of devices that we had, and we have xCloud and PC and Game Pass and our console base, I don’t have to go ship those games on any other platform other than the platforms that we support in order to kind of make the deal work for us. Whatever that means.’” Link

With Nowhere to Go, Teens Flock to Among Us. “The young fans of online influencers weren’t just watching Among Us streams, they began playing the game too. Millions of teenagers and kids across the country have become hooked on Among Us, which has begun to serve as a default social platform for young people stuck in quarantine…. The game’s continued success is further propelled by a never-ending stream of Among Us-related content on the internet. Twitter accounts like No Context Among Us and Among Us Struggle Tweets publish memes about the game to hundreds of thousands of followers. Videos on TikTok including the Among Us hashtag have amassed more than 13 billion views.” Link

How Tempo Storm is aiming to become the Bloomberg of esports. “An esports team isn’t really like the squad that you see on the field in professional sports. Instead, a company like Tempo Storm is much more like the business organization that runs a franchise. Sure, the team members compete to win in tournaments, but they are also often content creators. During this week’s How Games Make Money episode, I spoke with Tempo Storm chief executive Andrey “Reynad” Yanyuk about embracing diverse responsibilities… Reynad realized early on that esports wasn’t only about playing games all day. He quickly spun up a production arm of Tempo Storm to begin creating content for brands and sponsors. But that also unlocked an idea for something new for Tempo Storm.“ Link

The UI & UX of Sonic Racing. “Sonic Racing is an Apple Arcade iOS exclusive title. The game went through different phases during development. It started as a Free to Play title which eventually shifted to a premium experience.” Link

Thanks for reading. See you next week!