Hi everyone. Welcome to another issue of Naavik Digest! If you missed Sunday’s issue, we covered Hogwarts Legacy’s mega-launch and shared a deep dive into the ever-evolving landscape of third party app stores.
Today, we talk about what’s next for FromSoftware — Elden Ring is a hard act to follow — and share the intro to our Mobile Legends: Bang Bang deconstruction.
Let’s dive in.
Earnings Roundup: Sony, Take Two, Konami, Nintendo, and Kadokawa
Venture Debt 101: Alex Takei, chats with Patrick Lee, founder and managing partner of Top Corner Capital, about a financing vehicle often misunderstood: venture debt. What is venture debt and where did it come from (turns out, it’s 20% of the venture market)? How is it different from venture capital? Who should raise it, and when?
Deconstructing BAYCs Dookey Dash: Has Yuga Labs, the team behind many of the biggest NFT projects on the planet, finally built the next hit Web3-native game, and potentially even the beginnings of a Web3 gaming ecosystem with Dookey Dash? Your host Niko Vuori talks with Web3 analyst Thomas Pan to find out if Dookey Dash is the next big milestone moment in the evolution of Web3 gaming.
#1: What’s Next for FromSoftware?
If you’re anything like me, you spent much of last year “maidenless”, wandering the Lands Between in FromSoftware’s Game of the Year, Elden Ring, and dying over… and over… and over.
First released in late February 2022, Elden Ring proved to be a smash hit for the Japanese game maker, selling more than 17.5 million units in less than a year from launch. Media conglomerate Kadokawa (the majority shareholder of FromSoftware) saw its fiscal Q3 (October to December) net sales in its Games segment increase 123% year-over-year on the strength of Elden Ring’s performance. FromSoftware, known for little else beyond its Dark Souls action RPGs, suddenly felt like a household name in gaming.
Much has already been written about the surprising nature of Elden Ring’s breakthrough success, given FromSoftware’s penchant for creating punishingly difficult games that cater to more of a niche audience. Elden Ring provided the company with a level of global scale and mainstream popularity that is incredibly difficult to replicate, while at the same time proving there was still a healthy appetite for polished, (mostly) single-player experiences in an era dominated by live service and free-to-play gaming.
Now that the company is nearly a full year removed from Elden Ring’s stratospheric launch, the question becomes: how will FromSoftware sustain (or improve upon) this newfound level of success?
As alluded to in a recent episode of the Naavik Gaming Podcast, there are at least two potential paths available to FromSoftware: double down on what’s worked for the company historically, or try to innovate and create something new. Of course, these aren’t mutually exclusive strategies, but for a company of roughly 350 employees, investing limited resources will always have meaningful opportunity costs (though the team will almost surely look to grow following its recent successes and as recently as June of last year was reported to be hiring aggressively for several “new projects”).
In the “double down on what’s worked” category, industry observers have been quick to point out that Elden Ring still has plenty of legs left: the company released a free PvP DLC update in December and is rumored to have more on the way. If history is any indication, we should expect to see further investment in the franchise, such as a Game of the Year edition, paid DLC, soundtrack releases, and the like.
While FromSoftware has previously made comments shying away from producing more sequels, its global publisher, Bandai Namco, may be eyeing other expansion opportunities. Bandai Namco’s President and CEO, Yasuo Miyakawa, has gone on record stating his company will be “expanding the [Elden Ring] brand beyond the game itself, and into everyone’s daily life.” The press release went on to note that fans should “look forward to more of 'Elden Ring' as an IP (characters and other intellectual property) in hopes of expanding beyond the realm of games," which sure sounds like a transmedia strategy in the making.
To that end, there has been some buzz from Sony about potential collaborations via PlayStation Productions. Though nothing has been formally announced, it’s “not unthinkable” according to PlayStation Studios CEO Herman Hulst. Given the recent success of HBO’s The Last of Us, alongside the host of other forthcoming Sony transmedia projects (Twisted Metal, Ghost of Tsushima, God of War), I certainly wouldn’t rule it out.
It’s easy to dismiss the Elden Ring IP as too obtuse or narratively disorienting for TV or film, but in a world where Gran Turismo, Battleship, and even Tetris can receive adaptations, I wouldn’t bet against it happening, especially considering Game of Thrones’ George R.R. Martin’s involvement. After all, Sony has a vested interest in FromSoftware’s success after increasing its ownership stake to 14.09% last August.
Beyond the Elden Ring IP, FromSoftware is reported to have multiple projects in development, though there are few details publicly available beyond that. We do know of one game though: a revival of the Armored Core franchise, announced at December’s Game Awards, titled Armored Core 6: Fires of Rubicon.
While one could argue that this is something of a doubling-down on what’s worked in the past, the Armored Core franchise has been dormant for more than a decade at this point. Long gone are the days when mech combat games were popular among mainstream gamers, and given the company’s public statements trying to describe the title as anything but “Soulslike”, it’s fair to say this is something of a risky play.
With that said, FromSoftware appears to be one of the few gaming companies that can do no wrong in the eyes of its fans. Armored Core will almost certainly generate massive hype and expectations, and while it will be hard-pressed to top Elden Ring’s success, the decision to move away from the “Soulslike” formula that has proven so successful historically feels like an intentional effort to find new growth avenues for the company. With Elden Ring still riding high and set to expand further, what better time to try and capitalize on that brand equity with something a little more experimental?
Clearly, there is more yet to come out of FromSoftware. Armored Core 6 will be an excellent test of the developer’s momentum, but even if it is a spectacular failure, which seems hard to imagine at this point, the company is well-positioned to leverage its development talent, IP, and business relationships — we haven’t even touched on Tencent’s investment in both FromSoftware and Kadokawa — to navigate the next few years.
However, given the competition in the PC/console market, the risks associated with too much hype, and the incredibly high bar set by Elden Ring, I believe FromSoftware will likely see a regression in performance this year. I’m sure Armored Core 6 will be a successful launch, but I suspect that 2023 will be more of a building and reinvestment year for the company as it looks to solidify its place in a rapidly-consolidating industry.
One thing worth watching: the developer-publisher relationship with Bandai Namco. FromSoftware relies on Bandai Namco to distribute its games globally, with the rare exception of the Activision-published Sekiro: Shadows Die Twice. But given the breakout success of Elden Ring and the recently increased ownership stakes of Tencent and Sony, could we see FromSoftware absorbed into a larger entity, leaving Bandai Namco significantly weakened? We’ll have to wait and see. (Written by Matt Dion)
#2: Mobile Legends: Bang Bang — Moonton’s Controversial MOBA
This is the introduction to a full game deconstruction of Mobile Legends: Bang Bang, written by Harshal Karvande. Check out Naavik Pro to request a demo, read the full write-up, and access our entire research library.
Mobile Legends: Bang Bang (MLBB), which launched in 2016, is a competitive free-to-play 5v5 multiplayer online battle arena (MOBA) for mobile developed and published by Chinese studio Moonton Games, now a subsidiary of ByteDance. The gameplay and presentation was heavily influenced by Riot Games’ PC hit League of Legends (LoL), pitting two teams of five heroes in battles on a three-lane map to destroy the enemy base while defending their own. MLBB grew in popularity — particularly in the South East Asia (SEA) region — and by the end of 2022 had generated $851 million in revenue with 511 million downloads, according to data.ai, with the latter figure climbing to more than 1 billion downloads when accounting for third-party Chinese app stores not counted by data.ai.
The action MOBA genre has not traditionally resonated well in the West, with the first MOBA title to enter the U.S. 2022 top grossing charts at #123 being Mobile Legends with revenue of $28.7 million. The second is League of Legends: Wild Rift — at #242 with $11.3 million in revenue — which was built from the ground up for smartphones in 2021 and arrived 12 years after the original LoL’s PC release. Yet MLBB has dominated as the No. 1 top-grossing position in 2022 for SEA countries like Malaysia, Indonesia, the Philippines, and Singapore. China, meanwhile, has been dominated by another China-only MOBA, Tencent’s Honor of Kings, which has generated $6.51 billion over 307M downloads.
Before unraveling some of what went on behind the scenes in the development of the MOBA genre, let's put a timeline on the notable MOBA game releases:
Defense of the Ancients (DotA), a popular mod released for Blizzard’s Warcraft III in 2003, helped establish the MOBA genre and was the first such game for which competitive sponsored tournaments with ever-increasing cash prizes were held. One of the early developers of DotA joined Riot Games in 2006, where they worked on and helped release the studio’s flagship title League of Legends (LoL) in October 2009.
Meanwhile, Valve hired the lead designer on DotA to make an official sequel and franchise starting with Dota 2, which launched on PC in July 2013. LoL and Dota 2 have remained the flagship MOBAs on PC for the last decade, and both have helped pioneer innovative games-as-a-service concepts around monetization and update frequency, though LoL has maintained the larger audience of the two.
In February 2011, Tencent acquired a majority stake in Riot Games (Link) and in December of that year fully acquired the company (Link). Tencent saw an opportunity for LoL on mobile considering Vainglory, launched in November 2014 by ex-Riot developers at Super Evil Megacorp, was the only notable MOBA title on smartphones at the time. Riot, at the time, declined to work on a mobile version of LoL as the platform didn’t seem suited to the title’s complex gameplay and competitive nature. Tencent was still determined to launch a mobile game and after a few internal studios competed to make one, TiMi Studios, a subsidiary of Tencent and the eventual creator of Call of Duty Mobile, developed and launched Honor of Kings (HoK) in China in November 2015.
In July 2016, Chinese developer Moonton launched its own mobile MOBA, Mobile Legends. Later that year, the studio relaunched the game under the title Mobile Legends: Bang Bang after Riot complained to Google about potential infringement of LoL IP and demanded the game be removed from the Play Store. In October 2016, Tencent launched an international version of HoK outside of China, branding the game Arena of Valor (AoV). Riot had acknowledged the potential for LoL on mobile, but the company wouldn’t develop and release League of Legends: Wild Rift (LoL: WR) until March 2021.
Tencent’s launch of HoK in 2015 as a mobile take on LoL caused strain on Riot’s relationship with its parent company (Link), as the gameplay, heroes, and abilities in HoK closely mirrored those of LoL. Given the popularity of LoL, which was also published by Tencent, in China, HoK was a smash hit and remains the No. 1 top-grossing title in the region. Further straining Riot’s relationship with Tencent was the release of AoV, in which Tencent used notable LoL players to promote the new international version of the game in esport tournaments.
It was during this time that Moonton entered the market with MLBB. Riot immediately took action against Moonton over the game’s likeness to LoL, contacting Google and demanding the company remove the game from the Play Store (Link). Moonton removed the game before Google could take any action and relaunched it with the slightly altered title.
In 2017, Riot Games became more aggressive in its pursuit of Moonton and filed a lawsuit against the studio (Link), claiming MLBB infringed on its copyrights for containing “a vast array of elements that were directly and deliberately appropriated from LoL, including but not limited to LoL’s characters, artwork, map designs, and unit and monster designs.” Riot’s lawsuit went on to say, “And, to add insult to injury, Moonton marketed and distributed certain of its games with a logo that is confusingly similar to Riot’s LoL logo, using the exact same font and color scheme as Riot’s LoL logo.” The case was eventually dismissed, with a U.S. court judge determining that Tencent’s crucial role in the case made it more a matter for the Chinese court system.
Overseas, Riot Games’ parent company Tencent launched a separate lawsuit targeting Moonton Games’ CEO and a former Tencent employee for violating non-compete agreements, and Tencent won the case for a settlement of $2.9 million in 2018 (Link). In March 2021, Moonton Games was acquired by ByteDance through its video game subsidiary Nuverse (the publisher behind card battler hit Marvel Snap), for $4 billion, outbidding Tencent in the process. In the same year, with the release of LoL: WR, Riot and Moonton butted heads once again as MLBB-affiliated esport organizations were reportedly forced into exclusivity contracts barring them from competing in LoL: WR competitions (Link).
Riot filed yet another lawsuit in May 2022 in the U.S., attempting to keep the case in California by accusing Moonton of plagiarism and “blatant copying” of LoL: WR, which we covered in our market update at the time (Link). That suit was similarly dismissed last November (Link), with US District Judge Michael Fitzgerald issuing a ruling similar to the 2017 case arguing the lawsuit was more appropriate for the Chinese courts.
Seemingly unscathed by this tumultuous legal journey, MLBB has continued to perform strongly thanks to its first-mover advantage and the philosophy of Moonton CEO Justin Yuan of arriving first and perfecting later. Initially launching with 10 heroes, one game mode, and overall buggy tech, MLBB has since been refined with the added intent of distancing the product from LoL.
In this deconstruct we’ll cover:
- A look at the action MOBA market
- The mobile-first gameplay of MLBB
- Monetization of the gacha-based cosmetic economy
- The future of MLBB and takeaways for the industry
Content Worth Consuming
GameCraft: “Mitch and Blake debate the continuing relevance of dedicated gaming consoles to the video game business. They begin with a discussion of the economics of the console business, and how console manufacturers built defensible moats that have remained relevant for over 40 years. Mitch compares the current state of the console business to the theatrical feature film business -- and how both have become the domain of big-budget blockbusters with cultural significance but dwindling market share.” (Link)
The Case of Playrix And Why Product-Market Fit Is a Moving Target: “Playrix is a leading mobile gaming company that has been making waves in the gaming industry for its highly successful games, incredible production value, and, yes — misleading (aka non-representative ads) ads. With a portfolio of popular games such as Gardenscapes, Homescapes, and Fishdom, Playrix has established itself as one of the most prominent players in the mobile gaming market, with over $8B in lifetime revenue. What inspired me to write about them is their approach to User Acquisition (UA) and how UA and creative findings impact their product roadmap. This approach not only helped them survive the proverbial mobile marketing winter but also helped them record one of the highest revenue months in their recent history. According to Sensor Tower, in January 2023, they grossed over $250M in IAP revenue which is their 3rd highest revenue month ever. The other two highest-grossing months happened pre-ATT launch during the peak of the COVID pandemic.” (Link)
Building Games Portfolio At Netflix (Rise & Play): “Netflix has been in the spotlight since it announced its game platform. How do you approach building a portfolio of games for an entertainment platform? What are the skills required as a Publisher vs a Developer? How do you select the game developers who will be the best partners from the point of view of a publisher?” (Link)
Is Xbox Game Pass In Trouble (Windows Central): “Today, we're looking into Microsoft's comments to the CMA in response to that examination, namely Xbox Game Pass, the model which serves as the vehicle for its cloud gaming aspirations. On a monthly subscription, Microsoft offers hundreds of third-party games in the service. However, contention revolves around the fact it includes all of its exclusives, many of the best Xbox games, as day-one entries. This means that users can skip paying $70 for a full-price title and get it for essentially $10, for a month's worth of access.” (Link)
- Modulate: Content Marketing Associate (Somerville, Massachusetts)
- Carry1st: Head of Product Marketing (Barcelona, Spain | Remote)
- Flick Games: Chief of Staff (Remote)
- FunPlus: Lead Game Developer — Casual Games (Barcelona, Spain)
- Naver Z (Zepeto) USA: Technical Community Manager (Remote)