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.

✍️ My Latest Article

How COVID-19 is Impacting the Video Game Industry — Previous Weekly Metas covered the main stories (herehere, and here), but I figured it would be useful to take some time to write specifically about COVID-19’s effect on the video game industry. Link

📰 News

The Valorant hype is real. Gamers are pumped about Valorant, Riot Games’ entrance into FPS. On Friday, nearly 1 million peak concurrent viewers on Twitch watched non-live footage of a game that can’t even be played yet… and Riot didn’t even pay streamers to stream it. The opportunity for another global FPS esport exists, and if anyone has the trust of gamers and the skill to accomplish that, it would be Riot. That sole fact ensures everyone will give it a shot. Will Valorant stick? Only time will tell. Will it monetize well? I have questions, but winning over the hearts of tens of millions of gamers is the #1 priority.

A good complementary video from 100 Thieves:

The Last of Us Part II is indefinitely delayed. I recently tweeted, “Gaming is holding up well at the consumption layer, but it’s certainly being more challenged at the operating layer. Teams have to figure out how to ship while remote. Marketers need to make sense of this wild ad market. And there could be ripple effects on future launch dates.” This specific news is obviously unfortunate for both gamers and Naughty Dog (the studio behind TLOU2), but we should expect many similar announcements. Link

Not enough Switches to go around. I’m struggling to find exact numbers, but it’s clear that the Nintendo Switch is selling very well, similar to the peak of the Wii craze. The global quarantine is driving demand — as is Animal Crossing: New Horizons, which was either the Switch’s #1 or #2 biggest game launch (along with Pokemon Sword/Shield) — and logistics challenges are making it hard to keep up with demand. The Switch Lite has also sold well, but finding available units of all Switch types remains a challenge. This is obviously a net-positive for Nintendo, who is rapidly fixing these supply issues, and this console cycle has turned into a resounding success. The Switch Pro (or whatever it’ll be called) will probably launch in 2021, so there’s still more to go. Then it will be time to start thinking about what comes after the Switch. Link

NFL working with EA Sports to create virtual reactions by prospects during the draft. “Apparently, the NFL is working with EA Sports, the company responsible for the popular Madden NFL franchise, to create virtual moments depicting prospects walking out onto the stage and interacting with commissioner Roger Goodell after being selected by an NFL team.” Our physical and digital worlds are colliding. Tangentially, I previously said it would be fascinating to see Disney acquire EA, partially because there are definitely cool ways to connect content on ESPN to what goes on in games like Madden or FIFA. Baby steps. Link

ESPN2 will air esports for 12 hours straight. On April 5th (today!), the network will showcase the F1 Esports Virtual Grand Prix, Rocket League’s Grand Finals, the NBA 2K Players Tournament, and more. This is clearly a test while traditional sports content is unavailable, but even so… more baby steps. Like I mentioned last week, these events accelerate esports legitimization. Link

Total watched hours on Twitch, YouTube Gaming, and Mixer. Unsurprisingly, Twitch and YouTube Gaming are steadily growing their hours watched, but Mixer is clearly struggling:

Roundhill Investments

These results are clearly horrible when you layer on the fact that Mixer’s content costs spiked in 2019. Yes, as contracting with Ninja and Shroud clearly indicate, a company can acquire itself a network effect, but sustaining and strengthening a network effect in a competitive market takes more resources. It’s nearly impossible to compete when the top dogs can copy your tactics and justify paying more (in the same way Netflix can pay higher rates for content because it spreads the cost across more viewers).  Link

Amazon Pushes Into Making Video Games, Not Just Streaming Their Play. “The internet giant said it intended to release its first original big-budget game, an ambitious science-fiction shooter called Crucible, in May after several coronavirus-related delays. It is also developing a full-fledged cloud gaming platform under the code name Project Tempo. And it is working on new casual games that broadcasters on its popular Twitch streaming service can play alongside viewers in real time.”

Like I refer to in The Path to Titan, tech companies who want to better compete in gaming are working to build multi-pronged and self-reinforcing ecosystems. For Amazon that means cloud gaming services, developer tools, Twitch, and exclusive games. COVID-19 is likely delaying the announcement of its cloud gaming plans, but the company is still moving forward in multiple ways and dedicating serious capital. It’ll be fascinating to learn more in the months ahead. Link

Tencent Exercises Option to Become Largest Shareholder in Huya. Tencent now owns 51% of Huya and appointed new directors, although Huya’s existing management team will continue to operate independently. To be clear, Huya is not an exceptional business (high content costs + a relatively low % of paying users), but it’s growing quickly, and better integrating the world’s largest gaming business with 150+ million active viewers will surely lead to some form of upside. Of course, Tencent still also owns over a third of competitor Douyu, so it’s not like Tencent is going all in on one player (not yet, at least). Also, yes, it is likely that working more closely with Tencent will be rewarding for Huya, but there’s always risk in handing over majority ownership to another business who’s priorities may not perfectly align. Link

CoD Modern Warfare 2 remastered campaign 30 day exclusive with PS4. Activision will almost always choose the path that maximizes its financial return, even if it upsets gamers. The game will be coming to Xbox/PC 30 days later. Gamers are an angsty bunch, so exclusivity windows will always make people upset, especially during times like now where everyone is home playing. In the big scheme of things, this doesn’t really matter, and I’m sure Activision’s team thoroughly thought it over, but my 2 cents: now is the time for companies to be more generous when they can afford to. Link

Gearbox employees are upset about their Borderlands 3 bonuses. Borderlands 3 ended up more expensive to make than was expected, so the profit-sharing pool was greatly reduced. Employees are upset because 1) much of their income comes in the form of profit-sharing, 2) what they’ll receive is much less than was expected, 3) the game became more expensive to make because of poor management decisions, and 4) Gearbox’s CEO took a $12 million bonus in 2016. On one hand, it is what it is. You can’t expect higher profit-sharing bonuses without the profits that come with it, so maybe it shouldn’t be that huge of a surprise (plus, 2016 was 4 years ago, so the context may be misused). That said, I generally don’t like when leaders walk away rich when employees are struggling; leaders and employees should benefit and struggle together. Link

🖥 Content Worth Consuming

The Xbox Series X Master Plan. “Microsoft is making a series of gambles that it hopes will allow it to cover various unfolding scenarios. If the era of consoles is over, the company has its cloud. If the cloud fails to emerge as the winning platform, or takes longer than expected to become established, it still has the box (and Windows gaming). All the while, it’s grabbing share and guaranteed revenues through subscriptions, which increases its negotiating power with third-party game publishers and developers.” Link

That article pairs nicely with this interview with Head of Xbox, Phil Spencer:

Secrets to Roblox’s Success. According to this graph from Rtrack, Roblox has seen clear benefits of the ongoing quarantine.

Total Players Graph

For more perspective about Roblox — it’s history, how it monetizes, what makes it special — check out Deconstructor of Fun’s interview with Matt Curtis, Roblox’s VP of Developer Relations. Link

A Year in the Life of Bugha. “A cynic could say the honeymoon phase just hasn't worn off yet. And in some ways, that's true: The 17-year-old hasn't thought much about what will come after Fortnite because, well, why does anything have to come after that? Bugha found his dream job at 16 and became the best person in the world at it within months. There's not much need for a Plan B right now. Yet, Bugha has thought extensively of what he wants to do with the momentum he has now. His streams give him motivation while playing and support, but he also streams to grow his personal brand and image within the esports space. Moving forward, he wants to have more of his own merchandise and continue to showcase his personality as a public gaming figure.” Link

AMA with Mitch Lasky. Lasky has been an executive at major gaming publishers, a CEO of two startups, and most recently a partner at Benchmark, where he invested in companies like Riot Games and Discord. This Reddit AMA gives a good overview of how he thinks about the industry. Link

The Story of Teamfight Tactics. “‘Hey, have you tried Auto Chess?’ There was no escaping this question at Riot in the first few months of 2019—either you were talking Auto Chess, or you risked being “ok boomer”ed by your team. It didn’t take long for that question to become, “Wait, why don’t we make something like this?” We thought it was worth a try, but it needed to be done quickly because there was no way we were the only ones thinking this could be a big deal. Still, it didn’t make sense to take a bunch of League’s devs off their projects to pursue something we weren’t 100% sure about. So we kept the team small. Twelve people small. Since we didn’t want to risk being left behind, we gave ourselves an... aggressive timeline. Eighteen weeks. Eight to see if we could make something fun and ten to actually do it. That left us with two questions: How do we even? And who’s dumb enough to try?”. Link

Gaming and Livestreaming, Connecting While Distancing. “In this episode, a16z partner Jon Lai joins Lauren Murrow to talk about how game developers are grappling with skyrocketing numbers, why this may be an inflection point for VR, the surprising transition of professional sports into esports, and why live-streaming is having its moment.” Link

Advertising Strategy During a Recession. “The presentation was designed as an overview of how marketers might re-think measurement, forecasting / predictive models, and workflow in an adverse economic climate.” This isn’t specific to games, but it definitely applies. Link

See you next week!

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