In this week's Roundtable, the squad dives into the public reversal of China's proposed bans on game monetization tactics, plus ponders the future of these regulations and their impact on Chinese game stocks. We then shift focus to Tencent's CEO's candid reflections on the company's 2023 gaming performance and its hopeful outlook on AI for 2024. The conversation heats up with a detailed analysis of EA's and Microsoft's earnings reports, highlighting the boost from the Activision Blizzard acquisition and the strategic transition from FIFA to FC. We also discuss the implications of Microsoft's recent layoffs at Activision Blizzard and Johanna Faries' new role at Blizzard, debating whether these moves set the stage for success post-acquisition. The team then scrutinizes Apple's begrudging compliance with the EU DMA law, opening iPhones to alternative app stores, and the potential fallout of their 'malicious compliance' strategy. Finally, we explore a new study which reveals that smartphones have surpassed Nintendo as the primary gaming gateway for younger audiences. Join us for all the latest games business news with Matt DionDave EltonFelipe Mata and host Devin Becker.


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This transcript is machine-generated, and we apologize for any errors.

Devin: Hello everyone. Welcome to another Naavik Roundtable. I'm your host, Devin Becker, and with me three great panelists as always, Dave, Matt, and Felipe. How you guys doing? Hey, great, thanks Dave. I think you had something you wanna share with everyone.

Dave: Yeah, absolutely.

I wanted to announce in conjunction with Naavik that I'm starting up a fractional co and operations consulting services. These days, we know the teams are focused on making great games. But everyone needs to make sure they're also focused on having a great business. And with the reality of the games business today, many studios wanna focus their cash on those games and may not want to or be able to afford a full-time operations person.

So a fractional operations fellow specialist can help ensure that you structure business for success while focusing on a great game. So the services I'll be offering are around production company pipelines and processes such as overseeing hr, recruiting, finance as well as, helping with business development and contracts.

And for those really tough questions. If I don't have the answers on hand, even though I'm bringing, 30 years of experience to the table, I do have an extensive network of experts to be able to call upon. Yep, looking forward to seeing if there are teams out there that I can help.

It's a very interesting time inside the industry. A lot of people, looking for new roles and a number of people thinking about starting up, potentially new companies or companies trying to figure out how can they do the best at stretching the the funds that they have. So instead of hiring full-time staff, looking at some people to help out, be it fractional COO is what I'm offering fractional CFO or such.

Details around it will be in the show notes. And yeah, I'm really looking forward to helping out anybody that I can.

Devin: Awesome. How should they get ahold of you? Through Naavik or you

Dave: directly? Either way. Through either website again, will be inside the show notes or through Naavik.

Naavik will be able to point point folks to me as well.

Devin: Awesome. I'm sure you've all heard quite a bit of Dave here to know that he knows what he's doing and what he's talking about. So hopefully that'll be a great thing to see off here this year as like you said, a lot of people may need that as things shuffle around quite a bit, I imagine this year in general awesome.

Great to hear Dave. We have a full just docket of topics today as well as a full house of people. So I think a lot of great stuff to discuss. We'll see if we get to all of it. But we've got some stuff around China and their gaming restrictions. Maybe a pullback, maybe U-turn. Tencent on a similar topic, but maybe not the good news that they would hope to be sharing.

EA and Microsoft with some earnings and more discussion around Microsoft in general after their acquisition and some layoffs. Apple in a very interesting spot in general. We'll definitely be digging into that one. And then just some statistics we've got around young gamers and smartphones versus consoles.

So why don't we just jump right into the first one around China and relating to the the proposed bans. Why don't you recap the ones that were up as well and make sure people know for context.

Felipe: Yeah. So China proposed some bans on several widely used monetization tactics from its like by the government.

And the proposed bans had included the login rewards incentives for repeat or first-time spenders. I would say like many of the monetization tactics that, like many, like not just Chinese games, but like maybe gacha systems that, that used like for many type of games. So this was like really I could say dangerous or like problematic for many companies.

Like the based, the business model is based on those and the mid face and in certain times trying to figure out how to. Change and adapt to the regulation. Indeed the adoption, the adoption by the market was like the stocks for several Chinese companies like really drop heavily after this announcement.

 It was taken as very severe changes which has like all these criticisms probably has forced the China government to, to make a U-turn and remove these proposals or at least like the web page that was hosting this. It's no longer having them. And I feel like the market also has responded to this and like several of the company stocks have regained some of the value I dunno exactly if to the same level or not, but at least it has been perceived positively by, by the market.

 I don't know what, whether you think it, this is something temporarily while they work on something that maybe makes more sense or is something that is still could be applied without creating like a huge harm to the existing companies, or is something that they will take it back forever.

Matt: Correct me if I'm wrong here, Felipe. What I had heard, I don't know how true this is, but like I, I had heard that the original intent of the restrictions was to limit them to children rather than all gamers. And some of the backlash and concern from the Chinese game development industry was related to.

This unexpected application of these restrictions to all gaming. And that was at least in part why there was this like vitriol and backlash. Like my thinking is if that is the case some, these will come back in some form or fashion, right? I don't think it's fair to say that it's like open season on game development in China by any means.

There's still gonna be restrictions, there still have been restrictions historically. So I would be surprised if these don't come back in some. Softened pared back fashion. But I don't know. Did you hear the same thing when you were doing your research? This was originally intended for children.

Felipe: I feel like it was long time ago that they had something like more focus on children, and I think also like limiting the time they spend on the game, not just like attacking the monetization. This time I didn't see that was only for children. I felt like it was for trying to protect all the customers.

So I don't know if others have heard something I could, yeah.

Dave: I didn't hear whether or not it was for children only. I'd spent the, anything around the announcements were across everyone. And maybe that's why the the hammer fell on the people that did the announcing that the announcement was wrong.

Potentially that's why, rather than the people that are actually building out the the terms themselves I do expect that they will be back in some manner. China's continue to say that their main goal is to protect the children. But I do know that they also have some desire to protect the populace as a whole given some of their other restrictions they have in place.

But I agree, I think it will be back. I think they're just gonna do a different rollout.

Felipe: Yeah. I'm reading now. I think part of those were tailored specifically for children. For instance, loot boxes cannot be sold to children. But the others were like generally applied too.

Anyone like the daily login rewards and all that was for everybody.

Devin: I think it does make a little more sense for China to be doing that targeted towards kids. Not just because, in general that kinda makes more sense to target those things, but also they have more of an ability to enforce that because of the previous stuff that was mentioned around enforcing hours where they were doing like an hour a day on these specific days and like they were really curbing big time.

The amount kids could play games and they would do that through things like facial identification with an ID and things like that to actually verify that it was a minor playing or not. Now of course, kids get around that, especially if they happen to look like they're siblings that are hap to not be minors.

They tended to find ways to get around that pretty. Easily, but it did have, there was an enforcement mechanism. And I do I think the stuff that we could see eventually roll out towards the US or the EU around we have the COPPA stuff that has been a big deal. Even I believe there was like, a number of  lawsuits around, like the Fortnite even just had to settle, like Epic settled around market stuff to kids or selling stuff to kids.

And there's it's a constant ongoing battle. Obviously China can do a bit more top down enforcement on that, whereas we're piecemeal laws and things like that. But this does sound like something that, you know, even if it doesn't roll out here anytime soon. Is very likely to probably come back to China.

'cause they seem to want to weaken the ability of games to have a strong effect on the populace for, at the young level to make sure that, they're doing their studies and stuff like that. Obviously I can't speak to their objectives, but that seems to be the pattern.

And very likely possibly to return. And the question is of course, like what amount of the audience is kids versus, adults. 'cause if it's all kids, then obviously you're targeting everyone, right? Like then it is just the same effect as if it was applied to everyone. So we'll see where that goes.

But on the topic of, affecting Chinese stocks and things like that I believe Tencent was one of those ones that got hit by that. And they had some maybe not so great news. Kinda reflecting back recently as well.

Matt: Yeah, thanks, Devin. It was interesting, the Tencent recently had their annual meeting I guess it was at like a stadium in Shenzhen.

And so this news leaked out of that. It was unnamed sources, but the coverage of this was interesting, which I'll come back to in a moment. But the headline was that the CEO of Tencent Pony Ma, he's also one of the co-founders was quoted as saying that their games business quote achieved nothing during 2023.

And this is obviously like attention grabbing for the largest gaming company in the world to have achieved nothing in 2023. Maybe that's putting it a little bit strongly. But that, he cited that some of the new games Tencent had launched, had not performed as well as the company had hoped, but didn't reference any specific titles.

For reference gaming is. 30% of 10 cents revenue. I was actually surprised. I thought it would've been higher. And the stock is down about 29% from a year ago today, so a year ago, end of January. So certainly it's taken a hit. You could say that a lot of Chinese stocks have taken a hit in that same time, but worth noting.

And then, I mentioned earlier the coverage was interesting when I was doing some Googling around this this report, Reuters says, Tencent chief says gaming business under threat, but they're catching up on ai. But the South China Morning Post says, Tencent Chairman Pony Ma sets confident tone for internet giant in 2024.

By the way, both of these things can be true. It may be that he had a confident tone, but that he was down on the games business and was looking for improvement in the coming year. And of course this is related to our last topic, when those restrictions were announced on Chinese gaming Tencent and others, NetEase and what have you, their stocks just went in the tank and then when the restrictions were removed, their stocks rebounded.

I thought this was interesting. Tencent is still the biggest gaming company in the world. Do you guys think that just because they've had some some underperformance, let's say in 2023 according to their CEO, that they're in danger of losing the crown, whether it's by their own efforts or macro conditions in China and gaming conditions in China, like any concerns that they might be overtaken by another company?

Dave: Were there companies that had upticks last year? I think it really was an industry-wide situation in terms of their stock. I think so. It did rebound some after the, the new terms were paused by the Chinese government, but I don't think they recovered all. I don't know that any of the Chinese stocks really covered all, and I think that's in part because, people are still building in the, that those will probably still come back in some form or another.

So I think there's still worry for for Tencent and for NetEase and other Chinese companies in terms of what they'll be able to do revenue wise in in China. Do I think they'll lose their position number one? No. No. They're a behemoth. They own some some blue chip stocks, I'd say inside the games landscape.

So I, I really don't see them seeing any threat to their crown this year. I think they're going through a lot of the same challenges that a lot of companies are right now in terms of what their results are comparative to year ago, two years ago and where things are going. Just in general an overall general sense.

Tencent companies have gone through a large number of layoffs as well. They've been doing the same sort of approach to how they're game, how they're handling their game companies.

Devin: Yeah, we just talked about Riot being part of that recently as well, which is under Tencent and I'm sure a number of their companies had to do a lot of scaling back, but there was, it is worth highlighting there, despite all, like you the stock problems going on in China, like the economic problems, especially real estate, things like that.

There has been some positive aspect, like things that have happened two of which in the, for some reason feature one was around when this, the announcement of that restrictions happened. They also passed through a whole bunch of approvals on licenses, which they'd been holding out on for quite a while.

Say what you will of the typing that maybe it was like, it's distract from that or whatever. But it did offer opportunities, especially for a company like Tencent that does a lot of partnering to then start to allow companies, start to get back games back into the country.

And then on that same note, we just recently talked about net and blizzard, Activision, Blizzard, like making up. And then that could lead to the instructions of games like Diablo IV and bringing some of the other Blizzard games back. And that could also, again, help with that.

That if that trajectory continues, that could still be good for recovery for Tencent, but obviously that's a big if, right? Because they tend to be hot and cold in terms of those game approvals. And for all we know that, none of those Blizzard games even get back into the country. We can't really be sure on that.

But I mean in terms of Microsoft's, Activision, Blizzard and all that, we actually switching over to them had some earnings reports along with EA to discuss.

Dave: Yep. So very quickly, I'm gonna start off with EA and then we'll get to Microsoft. So EA released their earnings report for Q-three of fiscal year twenty-four.

So the three months ending, december 31st their revenue was 1.95 billion net income, 290 million net bookings overall, 2.37 billion. So breaking that down, their revenue fairly flat up 3% year over year. Their net income up 42% year over year. And their bookings again was flat, about 1%.

A couple of note a couple of points to note inside there. So their live services accounted for revenues about 1.71 billion, up 3% year over year, which is I believe a new record for for the live services inside the company. And live services now makes up about 73% of EA's total revenues.

And then, but on the other hand, so if you look at what the full game sales were like they were down about 5%. Year-over-year and down twenty-seven percent compared to th third quarter, two years ago. Going back into when the games industry is still seeing their covid high. But I think one of the real bright spots was EA Sports football club continued to outperform expectations again, this quarter it delivered about 7% year-on-year net booking.

And this is compared to the last FIFA, which also had World Cup attached to it. Typically the the yearly version of FIFA that does really well when the World Cup comes around every four years. So overall, I think the highlight for them was that, they made the right decision when it comes to stepping away from the FIFA license.

So there's still, football clubs doing really well for them. But overall it was fairly flat. Now, and this also does take into account that there are they don't have some of their big titles or big franchises coming out this year. No battlefield and no no need for speed.

So switching over to Microsoft. So Microsoft saw total revenues of around almost $16.9 billion inside the Xbox content and services and revenue group. Now interestingly, we're curious to see what, this is the first quarter where we actually see Activision Blizzard as being part of that.

And it certainly ended up offering some ups and downs. So overall revenue that it brought into the Xbox group was just over $2 billion. But they did take some some hits in terms of costs associated with the purchase. So overall the operating income was at a loss of about four 40 million.

So definitely some pluses and minuses there. Looking at. The very short version of the P&L impact of Activision. Once you remove those costs it would've been a net positive. So it'd be interesting to see how they continue to affect Microsoft's bottom line. But they certainly did, talk about some of the large amount of growth they had in terms of not just revenue, but also time spent inside now Microsoft Activision, Blizzard games.

So adding a lot of engagement inside that overall Microsoft ecosystem.

Devin: Cool. It's it, and that's good news, right? Because that was a long time coming in that acquisition obviously very expensive, especially all the stuff they had to deal with, going through all the concessions and everything like that, and those concessions themselves may end up being like long term, a little bit expensive in terms of I.

Maybe not being able to do the exclusivity of Call of Duty. They were maybe hoping to, quietly. It's things like that. I'm curious too what impact something like King had because we talked about Activision Blizzard's side, but it's actually really Activision Blizzard King and Candy Crush is still doing quite well on mobile, I believe

Dave: it is.

And there's still, they're bringing out new adjacent titles to the Candy Crush franchise trying out a bunch of new games in very quiet, soft launch around the world. It will be interesting to see how the King side increases their revenues over the next while as they release some new games.

But it certainly has a lot of benefit to the Microsoft, but certainly a lot of turmoil overall.

Matt: Not to put you on the spot here, Dave, but I'm wondering if they reported game pass numbers,

Dave: From the. Items that I saw from the areas I was looking, I didn't see a breakout for game pass numbers.

I'm gonna go, my personal opinion is I think that they probably are continuing to have some growth, but not a lot of growth right now. Still not being able to match the numbers that they wanna be able to hit with with Game Pass.

Matt: Okay. Yeah, no worries. For context, for the listeners, we're recording this podcast after they released earnings, what, after market hours last night, so it's still quite fresh.

Devin: I gotta imagine those Xbox past numbers will be important because the company seems to be betting a lot on that in the future. And I would be interested to see if, and then obviously they probably won't report anything like this if it's not good news, but what effect that's had on game sales.

Because there's some of the big, the day one launch titles, that's a big seller for the past, but also the risk of cannibalizing game sales. Now, if those aren't first party titles, may not have mattered. Obviously Starfield is a first party title, but some of the stuff like, say Payday three or some of the other ones that were big ones, but that maybe people were skeptical to play may have impacted sales.

In a situation where demos aren't normally as readily available as they used to be, for example, now you have the ability to try it on game Pass first.

Dave: Yeah, and I do expect that we'll probably see some continuing testing around monetization, similar to what they did with Starfield, where game Pass subscribers, will have access to the Activision Blizzard games day one.

But they'll have the opportunity to have some upselling available to them, through exclusive content or exclusive timing. Starfield subscribe. The Starfield players were able to get access a few days early if they if they purchase some DLC above and beyond what their game pass offers.

Devin: Yeah, I guess we'll see. On the topic of Microsoft Activision Blizzard also, there was a number of things going on there around some layoffs, some position changes to fill Bobby, Kotick's void, things like that. If you wanna dive into that.

Matt: Yeah. A big time of change at Microsoft and Activision.

The, the headline is the layoffs of course. There was 1900 employees at act, Xbox and Activision let's say Xbox gaming broadly that were laid off. And this represented something like 8% of the entire Xbox gaming workforce. So a pretty meaningful reduction in force. This was joined by the news that.

The president of Blizzard was stepping aside Mikey Barra, and as well as the Chief Design Officer, Alan Adam, who is I guess a co-founder of Blizzard as well. Leaving the company the survival game. The often cited much anticipated survival game. Codenamed Odyssey at Blizzard has finally been canceled after more than six years in development.

So that's, that's sad. I was excited about that. But in terms of shuffling the jet, the deck chairs. The new leader at Blizzard is Johanna Ferries. I apologize if I'm mispronouncing her name. She comes over from Activision where she was the head of Call of Duty eSports for 12 years.

And before that she worked at the NFL for a long time. And I guess there is some concern rightly or wrongly that she's an Activision person coming in to manage Blizzard. And this is what you might interpret as like the last, I don't know a check mark or success for Bobby Kotick in terms of installing Activision executives at all of the subsidiaries Blizzard King, whatnot.

So it's certainly a big change. And for her part, she seems cognizant of that concern. She released or the organization released her statement to all the employees. And she seems to be recognizing that I think I have a quote here. Yeah. Walking into this role with sensitivity to those dynamics, very different organizations and cultures.

So a lot of changes at Activision and Blizzard. We know that they're gonna be integrating Activision sorry. Integrating yeah, integrating Activision Blizzard King into the larger Microsoft organization. We've heard talks about maybe a mobile app store coming. They referenced several promising new projects that Blizzard has in the early stages of development.

But at the same time, letting go a lot of, certainly really talented employees hitting the market right now. What do we think is next for this. Behemoth in the industry. And I'll just leave it there for now. I have some follow up questions, but what's next for Microsoft? What do you make of these moves?

Felipe: I would say it's like the normal consolidation, right? And probably in a different market situation, you will let a bit more time to do this consolidation. But probably at this stage and like with the many companies tight in the belts that they have decided to do it faster, right?

Like rather than later. I don't know. I don't have like much inside knowledge about this. And then I would say that this is trying to make the integration more efficient as soon as possible, right? And trying to have like different hat doing the. The same thing, different ways and like being harder to to, to focus.

Dave: Yeah. I think the integration is gonna take time. They're gonna pick the items that they want to get figured out as quickly as possible. I think part of that's gonna be what their green light process is for projects going forward. Just because, they're just the large amount of cost associated with those.

And, when it comes to games that have been in development for six years and not as, and and still not ready for prime time, then I think there's always gonna be some questions about will they ever be ready for prime time? And where inside, the previous Blizzard style of green lighting games and allowing games to continue on, I think there'll be a difference in, microsoft style versus Blizzard style. And as you start looking at how they can start bringing the Microsoft culture in, I think the Greenlight process is gonna be one of the first things that they're gonna start looking at main.

Devin: By the end of this though, Blizzard won't look anything like it looked like a decade ago because they were already in a process of like being taken over by Activision people, like to an extent, like in terms of just control of what the company was doing creatively in a lot of ways.

And obviously like the survival game getting canceled, it's probably part of that, like you guys said, the Greenlight process you're not gonna see the Blizzard of old, right? Where they're just working on quote unquote sort of dream projects and long gestating sequels to, to hit franchises and things like that.

Yeah, 'cause that's, that's not Activision style, right? Like they, they pump out the Call of Duty games every year. They're not looking for these long gestation periods. And now with this bigger sort of takeover, people leaving the company, I gotta imagine like at this point, whatever kind of sort of independence Blizzard had.

Is mostly gonna be gone by the end of this. I mean that it could be for the better, don't get me wrong, that Microsoft might be like, Hey, we actually really liked what you used to do and, shake up things for the better. But realistically, I think at this point Blizzard that kind of, we all knew is pretty radically changed at this point and a lot of the people are gone.

So I'm curious what like the identity even of Blizzard looks like going forward. Especially, they can't, all this e-sports stuff, obviously, like that did work out super great with the Overwatch. I don't think we're gonna see like StarCraft III all of a sudden or something like that.

Diablo IV did pretty well as you mentioned on the earnings reports as well. Like it had a positive impact there. But I don't see Diablo five getting instantly greenlit for the office or it's gonna be interesting to see. We, they did have the art, the Warcraft game come out though, which was an interesting, like in the middle of this process getting put out.

But it's I do wonder what does Blizzard have left to release after this? Because obviously they release, expansions for World of Warcraft, but that's a little long in the tooth and they've got the two life service mobile games that can keep going for a bit, assuming those keep making money.

But I don't know what they've got. Obviously feel free to enlighten me if they, if there's other stuff they've announced. But outside of that survival game, I can't think of a lot they've mentioned publicly and this kind of leaves it like, are they just gonna help 'em the next Call of Duty game?

At this point, I do wonder what they're gonna be doing going forward. That they wanna be doing or, at this point you've got people again leaving in the middle of this and possibly because of decisions like that. We'll see.

Dave: Yeah, Blizzard has seen a lot of their long-term staff depart over the years.

I think even before this happened, I think a lot of people would say, the Blizzard of three years ago wasn't the same as the Blizzard of 10 years ago. But yeah, I do think that, as you look at the top line infrastructure, the C-suite of ABK, I do expect to see some changes.

Especially in more of the Activision Blizzard side, just 'cause that's more of Microsoft's wheelhouse. They have their own exec team already in place and will wanna have that them staying in as the command group for the for the. The new version of Microsoft now, including Activision.

Blizzard on the other hand, I don't really see Microsoft really being that company that does wholesale changes to cultures of companies. If you look at Bethesda, there, there hasn't been, huge reports of Bethesda being absorbed into the Microsoft Borg, the same as what you'd typically find inside, like electronic arts, for example, where, the.

The the reputation for EA is that they just absorb everything into the EA culture and everything must be the EA way, whereas I think Microsoft still allows that the culture of the individual studios to, to be maintained. So I don't really, while Blizzard has changed over the last number of years, I don't expect that they'll be forced to really change, a hundred percent away from what the Blizzard identity is.

Matt: You guys are really hitting on like my, what my follow up question was gonna be I think like the two sort of reasons that two of the biggest reasons in my opinion that this acquisition. Gets so much play, so much coverage is Call of Duty Activision. And then Blizzard we as let's say, more experienced gamers, senior gamers we grew up with a certain like image and brand around Blizzard and their sort of legendary titles and oh, this is place where creative geniuses are pumping out these amazing games.

But I, I think you guys hit the nail on the head, like that's the past, like the founders are all gone. The OGs are all gone. They've all started their own other companies or they're working elsewhere. When's the last time Blizzard released a hit? Like Diablo four was I think, pretty successful as a launch, but as an ongoing live service, I think remains to be seen.

Warcraft rumble, I think is a really fun game. Personally. I think it's a lot of fun, but I don't know that it's gonna be a successful, long-lasting product. You know what's as Devin said, like what's in the pipeline? Should we be excited? I think that's like your point, Devin, like about them becoming a Call of Duty support Studio is hilarious.

It would be the ultimate irony. I don't think that's gonna happen. But I think it's really funny. So I, I guess my point, or like question if you will is does the Blizzard brand the name like really mean anything anymore or is it just like a, an artifact of our sort of collective nostalgia for StarCraft and Warcraft and these legendary games?

Dave: I think it's still a bit of both. I think there's still some of the Blizzard name there, but that's more about what are the types of games that are gonna come outta the studio. I agree. It would be hilarious if, actually, no, it would be sad if Blizzard became Studio number 612 to work on Call of Duty for Activision.

But I think there still is a relative feeling of what a Blizzard game is, and I think they'll probably continue along those lines. But, Blizzard has gone through the same thing that Activision went through themselves, where it was, they're gonna take a look at what are their, what do they consider their key franchises?

And if something's not a key franchise, if it's not, anticipated to provide, X millions, hundreds of millions of dollars to company revenue, then it's they're gonna get shut down. I still remember Blizzard as of, lost Vikings Blizzard, the very, very early days of Blizzard and they certainly.

Took a lot chances on things and they had some fantastic games and different styles of games, but I expect that they'll be, they'll, they've been streamlined and I expect they'll stay probably that way. For the foreseeable future,

Devin: it would be kinda interesting to see if this acquisition led to some MO mobility over to other Microsoft properties.

Let's say the Blizzard people are like, ah, we're not really doing RPGs here anymore, but I'd love to be doing them and move over to Bethesda for example, because they clearly need some development support it seems like at times as well, and maybe a bit more than Call of Duty does. So it would be interesting to see maybe a little more mobility across these, because obviously that can happen, without being part of a bigger umbrella company.

But, in these situations where there's, rather than leave the company altogether and just go out into the. The woods, so to speak, like maybe there's some opportunity for some cross-pollination between these companies for some of those overlaps. 'cause Bethesda say, falls into that same sort of like old school, back in the day, computer game company that has been around for a long time made a lot of kind of somewhat beloved franchises.

Pretty much Elder, Scrolls games for the most part. But they made some cool Terminator games as well. I don't wanna, I don't wanna forget about those, but like there is some opportunity there for these two to work together, stuff like that. We'll see obviously.

I don't wanna belabor the point because it could go a million different directions. But one of the things you mentioned earlier as well Matt was around the the idea of them potentially launching an app store, which of course, would be pretty interesting in general.

And that kinda leads to the other sort of big topic that we have today around that maybe the opportunity for that opening up through some legislation on Apple.

Felipe: Yeah, I think this is a big one. So according will apple will open iPhone to alternative app stores, but that's what they say. But what really they announced is something that we will discuss, for sure.

So first of all, this is just for the EU, the European Union, and it's in, in, in regards to the DMA, the I forgot the direct markets. How is the Digital Markets Act? So this is to get the everybody on the same page. Let's start with what's the DMA? I is and it's like a set of rules from the UA to try to, prevent some practices from gatekeepers. And they mentioned gatekeepers, like companies like Microsoft, Google Facebook, apple in this case, right? And it's aiming to, to try to avoid them, like having self-preference to their own products. And I think that the, this case of the app store belongs to this one.

Also by fostering data access and interoperability forbidding to, to bundle services, and then the customers having to have more services than what they really want or need. And having some amortization transparency. So according to this legislation that will start to be applied in the EU soon.

Then Apple has proposed a solution specifically for the EU. So they have unveiled the, this plan that will allow users to install apps from outside of the app store and use alternative payment systems as well. The changes they will take effect in March and will apply to all iPhones sold in Europe.

I feel like it will be like directly applying to new iPhones and existing ones. They need to really update to the new version that is coming with this in place. With this apple, we'll also lower its commission rates for in-app purchase from 30% to 15% for developers that use their payment system.

And they say that these changes will increase the choice and competition for app developers and consumers in Europe. So meaning that they believe that they're really complying to what is required by this new legislation in the EU. But, there are some things that are not maybe publicly or transparently mentioned.

And this is something that we could get to it in more detail in a minute. But before that they have been complaining that with all these the Apple ecosystem will become like a less secure, a less private space, and it'll be more dangerous to the users. So that's probably why they have started the campaign about privacy.

One of the reasons probably was this, like why they started so, so long time ago talking about privacy and what privacy was so important for them. So then on the things that are not like, like the other side of the coin. Apple has introduced some limitations to like, who can create a new app store and what happens to the companies or developers that that enroll with these other app stores. And basically what they're introducing is a new chart that the, they will charge developers a fee for every annual install that goes beyond the first million. And developers can avoid this fee by remaining on apple existing terms.

That means like not using third-party storefronts or payment other payment providers meaning that this fee is optional and they can choose whether to stay with current terms and stick to apple App Store and not use like third-party services or they were, they're really willing to use these other services that they will be charged this fee.

And like it, it looked like they, they were trying to copy Unity because basically it's a very similar to Unity runtime fee. And I think like probably the indeed was their intentions in the response from the Unity runtime fee. So not the any developers wanting to have that. So they say, okay, if you stay with us, like you don't have to pay that, that you don't want.

So that's the alternative probably. They choose that very much on, on purpose. So what do you think about all these moves? What do you think about this core technology fee that they will introduce?

Dave: There's a couple of other things. And some of it, similarly is a little bit buried.

But one of the items in there is that if you go through the developer terms. If you decide to accept the business terms to allow you to go to a different a different store, you cannot go back. They have stated flat out in their, the agreement that you sign that if you stay with Apple Rules, fantastic.

You get old, you know exactly what it's like. If you go this new way, you cannot come back. What I've heard, but I still need to confirm is, what effect that is? Is that what a per game basis? Is it a company-wide basis? Can you have some games that are inside different marketplaces and others inside the Apple?

Knowing Apple, I would probably suggest that they would say. All or nothing, either you as a company follow or maintain the Apple rules that you've had up to this point, or you go into a different store and then, that's, it's everything goes across. They've provided some calculators that allow you to figure out what does this actually mean in terms of the fees that they're still gonna be asking for?

And that apple will also still be looking at trying to review the games that are available in other stores, not just the games inside their store. It'll be interesting to see what they can do in terms of, forcing takedowns of games. But they still want to, as you said, really wanna maintain not just the privacy, but the safety of of any apps that are usable on side iOS devices.

Yeah, I think the question is has Apple reached their unity moment in terms of runtime fees and everything? It's interesting that, the same level of outcry isn't there in that apple has said, Hey, yes we are we are in in compliance with the new ruling around the marketplaces.

But I think if you look at what they've done in the EU, what they've done in the US and the Northern and South Korea in terms of their alternative payments, when the, it's just the alternative payment side that's being forced. I do think that they are skirting within that, yes, we've followed the letter of the law, but the actual what the intents were behind that.

They're doing their best to make sure that it's still apple is the winner not the developers or the public. Yeah. I think they're still trying to maintain as much control as they absolutely possibly can. Even with court systems around the world trying to force them to open up some, oh,

Matt: yeah. It's interesting you make the comparison to Unity. I think maybe one of the biggest points of difference here is that Apple is good at messaging and obfuscation where Unity kind of fell flat. But let's be clear, like this is malicious compliance. Like it's really bad.

It's you it's not just game developers who are speaking out on this. Like Daniel Eck, the CEO of Spotify was just like laying into this on social media and it's it's not great. Like they're just giving the finger to developers like which is not that different from what Unity did.

Apple is huge, and they're gonna continue to like, move the goalposts for as long as they can to extract every last sliver of profit that they can while they have this position of power. We as little guys or medium-sized guys, depending on where you work, don't have a whole lot of power to influence this at least not on an individual level.

Collectively. Certainly there will be pushback from the development community for, from big game publishers and obviously from other companies like Spotify. And, you see some other areas of resistance, like for example I think Spotify and Netflix and maybe a few others have stated that they're not gonna be releasing apps on Vision Pro, for example.

Look drop in the bucket for Apple, like barely. But it's something the long-term concern would be like, do developers start to abandon Apple because of this anti-developer stance? Because clearly the consumers are not at this point. So who's gonna budge first? I don't know. I don't think it's gonna be Apple.

Dave: Yeah. I, and I think there's also the, one of the other differences between Unity and Apple is Unity started off as a friend to the developers. They were, embraced by the development community. It was about all, it was about, the tide raises all ships type of experience.

A lot of love there. Apple's always been about apple. The number one thing Apple's wanted, always looked after is apple. And I think this really is just a case, people just going, all right, here we go again. It's just Apple looking after Apple. And as you said, the consumers are not making any changes.

The amount of revenue that, developers would be foregoing if they decide to ban an apple and just focus on Android. It's just it's too much. I think people will just suck it up and take it, unfortunately. I do hope that the complaints not only by the developers and that Tim Sweeney already has gone on multiple tirades about the various things that that Apple's done.

So hopefully we will see some, continuing movement on things. I think for me the one plus side of the recent Apple announcements has been the the game streaming apps finally being allowed on iOS and that being worldwide. But but yeah, I think outside of that, it's been a lot of frustrating news outta the changes that Apple's been making.

Felipe: I would say also the difference is that Unity did that out of the blue without any anybody expecting it. And here is like Apple is saying, okay, like we are forced to do changes and like we allow you to keep as you are, or because we are forced, we need to do some changes and this is the changes.

So it's, I'm not the bad guy, it's the you EU. That is the bad guys this. So as Matt said, I think it's like it's they communicated

Devin: much better. I still this is definitely like falls under that malicious compliance and I'd like to see that become a catchphrase because you're talking about Apple being good at messaging and like maybe some counter messaging and marketing being needed to really put the pressure on.

It especially to the point where hopefully at some point users care, not just developers, like that idea of like malicious compliance and them like just spitting at the system sort of thing. Like through multiple court cases now, not just this one would hopefully at some point make people go, maybe Apple actually isn't like the friendliest company.

Like they've convinced us they are when it comes to looking out for us. Obviously the privacy campaign was a great way for them to make themselves look like, Hey, we're looking out for your best interest when. It could be argued that there was a lot of monetary incentives for the strategy that they employed.

So it would be interesting to see, say, some counterplay from Google, for example, because Google, while they still, you are a little bit looking out for themselves and things like that can be a little more developer friendly. And then especially, there was talk during the trials of trying to, bribe Microsoft and things like that.

Maybe there's an opportunity for those two to Hey, if you wanna release an alternative app store, why not do it here over here on Android and we'll actually set up some good terms and make it a good case for you. And maybe that starts to be, something that maybe chips away things because Microsoft is also very developer friendly.

They've got a huge, stable of games that they've just basically acquired through all this. Obviously it would not look great if they made them exclusive to one environment after that whole thing's Call of Duty. But if it's not Call of Duty that maybe that won't be a big enough deal.

But this does feel like mafia protection racket kind of things like, oh, we would hate for something bad to happen to you. Because. One thing that's, not said in here that I guarantee is gonna happen based off of how they complied with the the alternative payments is when you go to install something from an alternative app store, it's gonna pull up scare screen and be like whoa.

We can't vouch for this. This could be bad, like the way that Google does for the unauthorized sources because that's what they're gonna treat this Hey, you could install from these stores, hey, like it could just blow your phone up in your face. We can't vouch for it.

And there's also the other aspect which is still gonna probably require code signing from the Xcode side and things like that. And certificates, even if it's going through an alternative store, it's still gonna need to use the encryption, all that stuff of the phone, which means if a developer doesn't apply and things like that and they're like, Hey, we wanna like cease and desist that app, they probably can just block that developer from being able to deploy apps that can be installed on the phone regardless of the source.

So apple's still in, in the driver's seat here and clearly making that, that very obvious. And I think as they implement this stuff, it'll become even more obvious. 'cause we saw that when they start releasing the screens for how the alternative payments would work, you could see it was even more malicious than you thought it would be.

Which with the scare screens and stuff like that. So I gotta imagine like this is going to continue to push and see how far they can get away with because. The problem is, again, that if the consumers don't care, that doesn't offer a lot of power unless developers straight-up, say, we're not gonna release any good games on your thing, and you're gonna be at some point just left with nothing left on the platform.

But that would require like a huge effort of, Netflix pulling out, Spotify, pulling out as well, and all these other ones, Amazon pulling off, like all these ones that are not happy with the ecosystem there, especially around alternative payments just going elsewhere. But that would also mean Google would need to put a good welcoming environment there because Google also has their payment restrictions and stuff like that.

But if they were smart, they would be like, Hey, just come over here we'll be your homie. And even if it's only for short, while that could be enough to put serious dent in iOS if it were big enough, I think.

Dave: But, speculant, I wonder if it pushes more companies to look at cross-platform play.

Just because they can then get, apple doesn't allow you to really push and say, Hey, go do all your purchases on the pc, through some decent UI you can certainly make it more interesting, more appealing to purchase on, platforms outside of the, outside of iOS.

Devin: The X Cloud stuff is already, like you said, they're allowing that now. Yes. So that will be actually something that is cross-platform, because that's played on Xbox servers, which means they'll be playing with the Xbox players or PC or yeah. I believe it always does the Xbox service for all the games that I've seen.

But yeah, there might be some that do with the PC side as well, and they just put Power World on there, so there you go. Everyone could join in on that as well potentially on iOS in the near future. But speaking of smartphones versus consoles a study around young kids in terms of what they prefer maybe shifting?

Dave: Absolutely. The Magged Games team which is a research company took a look at where players are being introduced to games. And I think a lot of people they have it in their mind that, kids start off with a Nintendo as the the entry point into the games. The games world, the world of games.

But MAGA did both quantitative and qualitative research, talking with folks, both their kids and their parents went directly into their homes, spoke with people from ages 10 years up to around forty-four according to the report. And what they've said is they certainly have seen a change in terms of where people are being introduced to the world of gaming.

And, how long is it before they start really taking switching in terms of from mobile to console and so forth. In earlier days, they may have started off with a Nintendo handheld as their first system. But when talking with 10 to twelve-year-olds these days thirty-seven percent of them, their first game was on mobile.

And interestingly for me, the second platform was actually PlayStation at 19% before they got to Nintendo. And that stays pretty consistent between the ages of 10 to 15, where you know, that those, the vast majority of the kids were introduced to games through be it a mobile phone or through a tablet.

As compared to being introduced on consoles. Some other interesting facts. By the age of seven, over 80% of kids play video games monthly. And then ninety-seven percent of kids have played a game by age 10. At age 5, 35 or thirty-eight percent of kids have tried games.

And so if you look at what that means generally, if players have been, introduced to the world of games through mobile, and that still stays, fairly consistently high in terms of the kids, the new generation of gamers playing on mobile, what does that mean in terms of terms where the mobile industry goes?

What does that mean in terms of console? Are we gonna see more cross-platform play? As you look at the games that are. The games that we typically pull out as the ones being really successful for the younger generation, be that Minecraft be that Roblox be that Fortnite, you're playing these across multiple platforms, Fortnite, I'm sure now that streaming and the alternate stores is coming around Fortnite will make it back onto iOS.

Are kids gonna be looking at more and more mobile as their platform that they remember fondly the most as a kid? Growing up, I played the NES, I played the SNES, I played Sega, Genesis as well. But, NES was that really big console to start off with.

And that helped ingrain Nintendo as that quality provider of games. Does that mean that the kids that are growing up today, are they gonna have that same level of fondness for the iOS ecosystem or the Android ecosystem? And will we need to make sure as we're building out games that we're making sure that we're covering off the mobile?

So really trying to work on that, those cross-platform games. There's been a lot of questions around the mobile, mobile business overall, as it's become harder and harder for companies to do effective UA. Does this mean that the, because the upcoming generations of of players are still gonna have a large focus on mobile, that as an overall business, the mobile industry is still gonna stay really strong overall?

It's gonna be more of a case of trying to figure out how to better find those players directly. So overall, I think some really interesting statistics out of it. A couple of other pieces in terms of overall entertainment, music takes over from gaming is the top entertainment activity by the time players reach reach the age of 18.

And the younger audiences are looking for definitely those social experiences that offer the cross-play abilities. We are playing Roblox or Minecraft as as examples.

Yeah. So thoughts on, now that we've got generations of kids growing up with mobile games, what does that mean for the mobile industry versus console and PC?

Matt: One thing I think it's important to delineate is like when we were growing up playing Nintendo or Sega or whatever, like we weren't fans of the Nintendo or Sega ecosystem.

We were fans of the IP. And so no one's gonna be fans of oh maybe, I don't know, maybe not there are Apple fans, but I don't know, you grow up playing smartphones on your Apple. Like it's, I think it's more about the IP and the games that you're playing. Oh, I don't know about that.

Dave: I remember, no, the Nintendo versus Sega Flame Wars. Oh my God, those were hardcore, sure.

Matt: It still exists today, right? There's Xbox, PlayStation, flame Wars, Android I iPhone battles for sure. I guess you have a point there, but I feel like it's more about the IP of the games that you play growing up than it is about.

It, let's say in larger part than it is about the. Platform on which you're playing them. But to bring it back to the data, look, it makes sense to me intuitively let's just say you're a parent and you want to see if your kids are interested in games or you just want to keep them occupied.

It's easier to download a free app and hand it to them than it is to go and buy a dedicated console. So I'm not entirely surprised that these are the findings, although it's good to get some actual data behind it. And I don't see why this is gonna change moving forward. Those are my high-level kind of knee-jerk reactions.

Devin: It's not just buying the consoles. It's also buying the game.

Felipe: Yeah. I feel like my feeling is that right. It is. It's more like the platform relates more to the parents specifically to some certain age than what the really the kids want. I don't know if you parent is a gamer and has a, an Xbox, you're going to be an Xbox player until like maybe you are a PS fan, but until like you manage to, to get a PS in your house is it's going to be expert.

So I feel like in this case is that like parents hand the mobile phones to the kids and probably even the kids are the ones that install whatever and get the game I don't know, I'm tired of YouTube and then they install the A game or I see the ad in YouTube, I click it and whatever.

So it could be even that, like that. That's why they start like playing in mobile because they don't have access to other

Devin: platform. Keep in mind also that a lot more core games are coming over to mobile. So obviously the GTA ones were getting scooped up under Netflix.

There was just a new Devil may cry game that came out. A mobile, there's still like a lot of penetration from core and then the other direction as well, like Roblox, Fortnite, all that stuff on consoles, that's cross-play potentially with mobile and things like that. So I think maybe the lines start to blur as well in this.

And we see smartphones is just what they have access to all the time. Because they're you're out and about or whatever. It's easier to give them a smartphone, as Matt was saying. Like it may just be pure exposure at that point. Combined with the fact that more often than not, the games are free to download.

So there's a, like a higher chance they get, the game because they don't have to ask someone to buy it for them. And more often than not, people parents aren't doing a great job of securing, the passwords to install games or to buy stuff or whatever anyways. But it's, I gotta imagine a situation where it's just.

It's inevitable or like obvious from the situation we're in. The question is can they, can consoles call that back? If Nintendo at least has the most popular handheld, like there's some opportunity to like, maybe chip away at that because part of the reason for the smartphone or tablet being popular is it's handheld and therefore, like you could shove it in their hand at the store or wherever you're at, and you need to keep them busy.

In theory you can do that with Switch, although Switch maybe isn't as easy for you to do that with potentially. But switch two maybe. Who knows? Maybe they'll design for that because it's a nice big like plush casing on it so it doesn't die when you drop it. But there's an opportunity.

And I was even just looking at some other analysis the other day, trying to figure out like what kinds of games kids are playing. And it was still a little bit of a mix between, the Roblox, Fortnite and all that stuff. And still like Nintendo games, it seemed like when it came to console, where some of the more popular franchises, like Mario Wonder Zelda, like things like that are still, I think.

Have some hold, but it's clear that like this as a study shows like that's receding, right? Nintendo is probably the one kid-friendly company out of all this. And so that's, I guess why this is a bigger deal 'cause you're losing maybe the more kid-friendly one to just random mobile games. I do wish this was a little more granular in terms of the number of ga like the specific games to like really see, okay, what is it?

Is it just Roblox and Fortnite? Because in that case it doesn't really matter as much. That's totally cross platform, that's all over the place. It's not VR even at this point. Like you can't really use that as a great benchmark. Obviously the PlayStation ones are maybe even the more interesting ones, if that's still getting some people over what kind of games are compelling enough to bring people to console from from mobile.

And so I think a deeper study on this would be, I think, really useful. Maybe even for mobile developers in the future to figure out how to better develop their games to address a future like future-proofed audience and also not lose sort of the aging adult audience that like may have grown up on consoles and be like where'd all my games go?

At that point, Steam Deck actually maybe even could help with that, right? Because there's a lot of people that are like, Hey, as a dad, Steam, Deck's a blessing, because I could play it while I'm taking care of my kid, because I remember seeing that with Stadia as well with cloud gaming, stuff like that.

So there is that sort of aging day dad audience that also needs an iPad or phone in their hands for the same kind of reason. Or, for the mom out playing Candy Crush or something on their phone. There's definitely these demographic audiences to hit and they people age up into these things.

Dave: But I think as we look at what styles of gaming did people grow up with how does that translate to game design? How does that translate to genres going forward? We're seeing a lot of interest in the UGC side of things because of the games like Minecraft and Roblox, and now seeing how does that actually progress into the older audiences?

So as those people that grew up with Roblox, what are they playing as they get older? So looking at so yeah, smartphones certainly are the easiest thing to hand to kids. You're looking to occupy them, but if that's what they're gotten used to, this is what a gaming experience is and what consider fun, how does that translate to older audiences?

If you think of the number of platform games that dominated when it came to super Nintendo and Sega Genesis and what that meant, as time went along, there were still attempts to try and recreate that magic somewhat successfully. And in terms of Nintendo and I think, a little bit more unsuccessfully across other games and genres but there was still the expectation of trying to do those platform games.

Are there gonna be expectations in trying to recreate some of those mobile game experiences across console and PC for the people? For the players that are 10 years old today, they've gotten used to a certain style of gameplay. Are we gonna have to try and recreate those types of gameplay as they continue to grow older and continue working through the various platforms in the overall gaming ecosystem?

Felipe: But I think this is very tied to what is the input system, right? So in, in a phone, in a tablet is like striping is touching. That's something that is hard to replicate. And that's why probably the type of games that are more popular in mobile are different than the ones that are more applying in consoles that are different.

That other ones that are different that the ones that are more popular in PC. I don't know. I'm probably I'm old and saying this, but I can't play a shooter in p in console. I need to play in a, on a PC, I cannot play in the console.

Dave: Yeah. So you, I won't even ask if you play shooters on mobile phones, then

Felipe: I've tried.

Devin: But the funny thing is I find that easier than using thumb sticks actually. Oddly enough. But it is, yeah, it's definitely a challenge for those of us who grew up like on keyboard and mouse. But I think the other thing that, that you mentioned earlier on that I think maybe is getting even ignored a little bit in this is the social aspect.

Like when we think back to when we were social on these console games, it was the neighborhood, the friends coming over, you were all playing. Like you think of the what a big hit GoldenEye or Halo was because of their sort of multiplayer sort of party aspect in those days that kind of helped them become a big force.

And you look at Nintendo now and sometimes there are the antithesis of social when it comes to how, like not online, they are online friendly. They tend to make it very difficult to do online stuff. You have to deal with all these friend codes and stuff like their inability to like progress more smoothly into the social online, especially post covid.

I is a situation where like things like Roblox, Fortnite, those things become the lobbies for the kids. They become the social experiences. We had more as a physical thing, but now they're all doing online. Especially like I said, because during Covid they had to. That may be a big part of it. If the Nintendo can't make these more social, more UGC friendly, like at least they had Mario Maker.

But and like I guess there's some pseudo-UGC in, in Zelda, but it's, it definitely sounds like that may be an aspect you look at, like even among us or some of these other like games that are very social-driven or streamer-driven, like these, all these different cultural aspects, I think to what drives kids to play these games.

But I guess we'll have to see how this goes forward in terms of whether or not this has a long-term impact in Nintendo and they adjust, obviously they, have their strategy and we'll continue executing on it and they're not doing bad as a company. So we, at least for the moment.

We'll see how things shake out. But in the meantime, I wanna thank everyone for tuning in and of course, you guys for joining for a very in-depth discussion that I'm sure could go on for a lot longer if we wanted to make this a three-hour special. But a lot of interesting stuff happening this year, especially when it comes to regulation, both in China, in the EU, in the us, like all these impacting video games on top of layoffs, economic changes.

I think it's gonna be a big year for gaming, just hopefully in some useful directions. But we'll see, right? It's only the very, the kinda the end of the very first month, although if you're hearing this, it's already February. So hopefully the groundhog scene is shadow, I think is the good way to go.

But either way we'll catch you guys I think after Pug's Tawny, Phil or wherever you're from, in terms of your Groundhog's day. But thanks everyone for listening, and we will catch you guys next week.

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