Why the Games Industry Might Triple (Despite Its Challenges)

Former Nexon CEO Owen Mahoney joins Aaron Bush for a candid, wide-ranging conversation about the current and future state of the games industry. While Owen had a successful decade-long run leading one of Asia’s most important gaming companies, this episode explores what he’s been thinking about since stepping down – namely through his sharp (and sometimes spicy) essays critiquing industry norms and offering a vision for what comes next. 

We discuss the realities of managing $100M+ budget decisions, the troubling positions of many Western publishers, the benefits of simplifying publisher strategies, and Owen’s bullishness on AI. Notably, despite slow industry growth at present, Owen explains why he thinks our industry could triple in size from here. Whether you’re an executive, founder, or just fascinated by how games are built and funded, this episode is packed with battle-tested insights and bold predictions. 

We’d like to thank Lightspeed Venture Partners for making this episode possible! With its dedicated gaming & interactive media practice, the firm invests from an over $6.5 billion pool of early and growth-stage capital.

We’d also like to thank Overwolf for making this episode possible! Whether you're a gamer, creator, or game studio, Overwolf is the ultimate destination for integrating UGC in games!

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

Aaron: Hi everyone. I'm Aaron Bush and I'm pleased to be joined today by Owen Mahoney. Owen, of course, had a great decade long run as the CEO of Nexon, and if you're interested in learning from his time there, you should check out our previous two episodes with him. But today we're gonna take the conversation in a different direction.

Since stepping fully away from Nexon earlier this year, Owen has been cranking out essays about our industry and some of them are kind of spicy. We'll link to his website in the show notes where you can read the essays yourself. But for this conversation, we have a bunch of really interesting topics to get into from managing massive game budgets, the struggles of Western publishers, the upside of AI and more.

So I'm personally very excited for this conversation. And Owen, welcome back to the podcast third time round.

Owen: Thanks. Thanks for having me. Nice to see you.

Aaron: This is gonna be super fun. And I know the last time we talked was when you decided to step away from Nexon. How has life been so far since then? How has, maybe taking not as much time in, in work, been for you?

Owen: Well, it's been great. I mean, as you know, running a, a big organization is a, is an all-consuming task and they usually end up spending a lot of time on people issues and, and, and you spend a little bit of time thinking about strategy and where the industry is going and what your company's place in the industry is, and then you end up spending a lot of time just executing, or 90% of your time, executing against that.

So it's been nice to have my head out of the game a little bit. I realized a, I was a little myopic about how things work. A little time and a little space has helped me a lot and, and especially talking to everybody else in the industry. I, I made a point when I would, I made a point of meeting and talking to other CEOs or game development teams around the world when I was running Nexon.

And, but I spent a lot more time on that since then. And it's, it's been eye-opening, in all sorts of interesting ways.

Aaron: Yeah. And I've really enjoyed many of the essays that you've written since departing Nexon. And we'll spend most of the episode really digging into the ideas there. But before we do that, I kind of wanna zoom out and just hear you talk about why you're writing all of this, because in general it's rare for someone of your stature, someone who's been a successful public market CEO, to speak out against the industry that propelled your career to such heights.

So why, why write all of these blog posts? Why speak out against industry practices that you are once a part of?

Owen: Well, I'd say, first of all, my, my objective is not to speak out or against anything or against the industry in any way. It's really to, it was a couple things. Number one, as I was thinking a lot, and you always understand the topic a lot more when you, when you write about something that you're thinking about, you can sort of be glib in your own mind.

But when you have to put it, you know, on a page and then have other people look at it, you have to be a lot more precise in your thinking, so it helped me think through things a lot more. The other thing was, you know, I, I think some of the ideas that we played with NEX at Nexon, I found to be, frankly, much more powerful than any of us expected when I was at Nexon.

So we went in with some things, like for example, in 2017, we got really serious about AI in games and that was really powerful. And then the challenges of being very innovative in large companies. So all those things, we experimented around with, and we found those ideas were really powerful and, and surprised us in terms of what came back.

So I think that those are, those need to be explored a lot more deeply. And one of the best ways to do that is bounce those ideas off of other people. And I always look for smart people to push back on me and, and find the smartest and most thoughtful people that I can get to, to tell me where I'm wrong.

And if I can sort of survive there withering criticism of any idea I have, usually it turns out to be a pretty good idea. Not always, but a lot of times. And so part of it is, you know, throw a, a radar, ping out, see what comes back and, and hear what people have to say. And I think everybody right now, when I left Nexon,, you know, or announced that I was, uh, going to leave Nexon, you know, I, I did a couple interviews where I said, listen, I, we've had a great run, but I think the industry is heading for some real big challenges and, and a few people came back to me who I know well, said, you know, and you sound kind of depressed and I'm like, I'm not depressed at all. I had a great run and I'm, I'm totally happy and I'm happy with where the company is and those sorts of things. You know, here we are a year and a half later or so, and it's kind of rough and I think everybody, you know, has seen the tens of thousands of layoffs we've had in the industry and the challenges that everybody's facing, and we're in a very, very different place.

I sort of want to explore those ideas because I think the stakes are very high. And, and we can, if we can get out of our own heads and think, think through this stuff, we've got enormous opportunity in front of us.

Aaron: Totally. And I relate to, to much of the idea of thinking and learning in public.

That's very much been a, a foundation of our entire business here at Naavik, and a great way to spur conversation. So, so yeah, I mean, props to you for, for taking that approach. I think more conversation in the industry is better, especially when there are challenges, so everyone can be thinking together and putting their heads together on, how to tackle the future for sure.

Let's go ahead and, you know, start talking about some of the ideas in your essays. And there are, I think really like four, four primary essays to kind of dig into, and in this conversation. And let's start with the one that you titled On not misreading the mini map. In this essay you lay out a helpful mini map framework that segments the industry.

And I guess a tactically helpful way for thinking about how to manage a games business, and maybe you can tell our industry what this framework is briefly in case anyone hasn't read it, but also would love for you to unpack how you used it in real life to refocus Nexon in a major way when you were CEO.

Owen: Sure. So the, this idea of like how to split up and think about the industry is, um, is really, it's embarrassingly simple. It's just one way. There are many ways to think about our industry. This is just one of 'em. And, and it came out of what we were doing at Nexon and grappling with what to do and what not to do.

But to summarize it very quickly, if you think about the industry, you know, people think about mobile games, they think about casual games, they think about Xbox console, you know, PC and all those sorts of things. And they sort of, they get confused sometimes about what game we're making and we needed to simplify down a lot.

I didn't, in a lot of ways, I, when we came up with this, we were of the mind of the platforms and converging anyway, so, you know, platform mattered a lot less. What really mattered was, is it a casual game or is it a hardcore game? And, you know, there's a lot of different words for those two things, but like hardcore, we call deeply immersive, meaning you're gonna play a long time at one session, you're gonna play for a long time, maybe years on end.

So that's one axis. That's what we made the vertical axis. And then on the X axis we made offline and online. And so, and there's a lot of hybrids in this stuff. You know, sometimes you can have people talk about midcore, some games start as offline games, and then they become more online experiences like GTA five, or what have you. But, but that's a pretty simple way to do it. Some things are pure, hardcore online, and up in the upper right-hand corner of the quadrant of the, the graphic that we made was Eve Online. That's a hardcore, you are going to play that for a long time. I, this is a game I really love, but you're gonna play it for a long time and it's very complex to play and it's, you, you can only play it online.

Another would be the, you know, Battlefield 1942, which was the original one in the series, or The Finals from Embark Studios. Those are, those are purely online, relatively hardcore experiences. So that's the basic of what it is. How it came up was, you know, we were, we were, it was 2019. For a variety of reasons, we felt that we needed to reorganize the company. We didn't end up doing, any layoffs really. And, but what we needed to do is have some very hard discussions about what we were gonna do and what we're not gonna do 'cause some stuff was definitely not working. And we had, as in any organization, you're gonna have huge debates about why we need to be in a certain business, why we don't need to be in a certain business.

And for us, one of the big questions was casual games. And are we, should we be in the casual games business? Remember, this was 2019, so it was still very considered as pre I-F-I-D-F-A. It was a time when, you know, it, there was a lot of reasons to be in the casual games business. And we looked at it and we said, look, we're, we're, we're not very good at this.

It what needs, what we need to be good at to be successful in this business. And so let's think about what our roots are, where we really like to spend our time, who our staff is, and, and what we we're doing. So we just, this, all, this was not like, we didn't hire McKinsey to help us think through the industry.

They never would've come up with anything like this. We just wrote it on, I, I wrote it up on a whiteboard and I said, okay guys, what are we doing here? And let's think through each one of these. And we, it, it made the decision making very easy. So that's the, that's the genesis in the nutshell.

Aaron: Gotcha. Yeah, I mean that's, that's cool.

I like how simple ideas like that can have a lot of power in wrangling complexity and trying to, you know, take like just multifaceted situations where there's a ton of games, a ton of projects, a lot going on, and you can kind of slice it in a simple way to drive a very straightforward strategy, I guess just to dig like one layer deeper there, like what was it actually operationally like to implement that kind of change in your business?

Was it harder or easier than you expected? Were there certain, like really big things after you. Came up with the, the big picture strategy that you really had to, to nail and the team had to work on. Like maybe you could just paint the picture a bit more for us.

Owen: Yeah, I mean, the, the by, by sort of laying it out. You know how sometimes when you just say something that is sort of a vague idea in your mind, it, it everything be, if you put a name on something or if you write it down on a piece of paper, it becomes tangible. Just writing it on the whiteboard and then starting to talk through it made a lot of things very tangible.

And, and I, I sort of made the point in this, in, in the essay, but like, here are the things that change by quadrant that nobody really examines. Like I've been in a million of these conversations over decades and nobody really examines it. So for example, what's the customer experience? The customer experience in a casual game, like let's say a hyper casual game that's offline is utterly different from a, again, Eve Online or The Finals, right? Like it, like, they're not even in the same universe. Well, guess what? The developer skills are also utterly different. You cannot take a person from, I mean, it's happened, but it's very rare that someone transfers between one, you know, one of these quadrants to another quadrant.

How you manage the game is totally different. The, the, the tracking is, is totally different. Like how, how you define success. So, for example, in mobile games, you live off of the discussion of ECPI versus LLTV, effective cost per install versus the lifetime value of the game. And you can take that metric into a hardcore online game, but you're gonna, but if you obsess over that in the near term too much, you're gonna, you're gonna miss the larger picture that will keep people in, retaining in the game for a very long period of time.

So the way you hire, the way you manage the business, the way you count up the money. And, and your effectiveness. All your KPIs, every way you operate. This business is totally different. And when you think through it, you know, you spend a couple hour, like literally just a couple hours to think through it, what you realize is these businesses are so different as to be almost different industries.

And when I think about the, you know, gladiator Academy, that is the, the iStore, you know, the Apple store of trying to get people attention to download a game and then, you know, monetize them as quickly as possible, that's an utterly different business. And so if you're a manager like me trying to figure out how to structure a company, it has enormous implications if you're an investor and, you know, I talk to a lot of investors, you, you just can't take the old world, the old way of looking at something and apply it to a new way. And we dealt with this very specifically in Japan because we're, you know, we, Nexon is listed in Japan and I talked to a lot of Japanese investors and equity analysts and they'd be like, okay, well, you know, how many units are you gonna sell?

Like, literally they would ask me how many units we would sell because there's such a rich tradition of selling boxes in the channel. Now that doesn't happen much anymore, but their models in Excel look pretty, you know, are still sort of, that legacy is still very strong. And I was like, look, you know, we could end up doubling our bus business in a few years without ever introducing a new product.

So your obsession about catalysts and your obsession about what our pipeline is, I get it, but it's only a small part of the picture. What's what you, here's, here's a list of questions you ought to be asking me if you wanna figure out whether, and so we, we just have, we spent thousands and thousands of hours with people dealing with this exact thing.

So it has enormous implications. Then I, I think the, the, maybe the most relevant thing is if you work in the video games industry, you have to think through these things hard. I knew a lot of people who were very, very successful, you know, console, meaning hardcore game developers, and they were brilliant at that, and they really knew how to do it.

And then they went to casual game companies. There were a lot of those people at EA at the time that I was, you know, that left EA and they ended up at these, you know, casual games companies and it just, it was really, really a hard transition for 'em because all their old ways of thinking about the business were no longer applied.

Aaron: Gotcha. Yeah. That's super interesting. So, I guess when you look across the industry today, who out there would benefit the most from going through the same type of exercise you guys did? Like, I, I guess this is primarily a focus question, like who is the most to gain from dialing in their focus in order to best be prepared for success in the future?

Owen: That's a really good question. Do you mean by companies or people or categories of people or?

Aaron: Yeah, I mean, however you want to take that. If you wanna bundle companies of a certain type together, that that's fine. If you wanna get specific, that's fine too. Just, just curious where, where your head goes when you think about like how this exercise, like really should be used by others.

Owen: Well I, I guess my, my thought is everybody should be thinking, should be asking these sorts of questions and trying to piece apart or, or deconstructing their own heads how certain aspects of things work and, and, and go down to sort of first principles. And so if you're an employee, if, if, if you're a game developer, let's say, you just really love online roleplaying games, like, or even not even roleplaying games, but just online games where you're gonna be playing for a long time. I happen to love that category a lot. I, I love all the genres. But, but I happen to love that a lot. You have to think long and hard about how you're gonna spend your day.

And if the world of casual games or offline casual games or hyper casual games is not inherently interesting to you, you're probably not gonna be very good at it. And there's gonna be people who are better at that. I think for companies, companies have to think long and hard about strategy because the, the single biggest mistake that you see companies do is they try to do everything and they don't really know what they are as a company.

And so you have to make the hardest choice is that you have to decide what not to do. And for us at Nexon, at that time, you know, it's a very different time. Now, this was, you know, several years ago, half a decade or more that we made this decision. But for us, we had to make the hard decision. In the face of a lot of withering protest about what we were not gonna do.

And so I think any company is, is in that boat and most companies get it wrong in some way. You know, maybe you've got a developer who you really like in your, swayed by their arguments, or you've got a board member or you've got a, a trend that you think you need to follow. And so, I think everybody can benefit from that a lot.

I mean, there's, there's some companies right now who are just sort of all over the place and they are flailing about.

Aaron: Yeah, that's kind of where I'm coming from mentally. We don't have to take shots at anyone specifically, but like even when you think about like the big platform companies, like a business like PlayStation, you know, was thinking a lot about mobile for a while, which they dialed back on. They've dialed back on their like outsized bet on live services and have started dialing back in on. The core thing that they're best at, and maybe that's more of like a success case of, of, of kind of taking a similar type of exercise, whereas if you look at Xbox, you know, like there probably is not that focused and I think they have some other, other issues.

But even when you look across other major publishers like, like at Take Two in the same business, they have Grand Theft Auto, they also have Zynga. And I guess maybe that's not bad per se, but it presents challenges and how you think about your focus and direction as a business. I, I imagine so. So yeah, I mean, just kind of when I see how you lay this out and how you implemented it at Nexon, it actually does feel kind of unique compared to what I see elsewhere in these big public companies where like the idea of growth often just means doing more, not doing less. And I, the idea of doing less in order to be bigger and better is just like a very unique idea, that maybe more people need to, to grasp. I don't know.

Owen: Well, when I was at Nexon, you know, like everybody, we really admired Nintendo a lot. And what I particularly sang and sang, was the CEO who was, who passed away, sadly a decade ago. But he, when I just joined Nexon, he was the CEO and, or, uh, and before that, I, I met him when I was at EA. They were always a really interesting case study for us to examine, not necessarily always to emulate, but, but, but to really understand and what their thinking was about.

And you know, if you look at the, the history of the 15 years of Nintendo, when WA son took over, he, I mean, the place was a mess for many of the reasons that you just mentioned. And they had, had, they'd come off a very bad console, and so on, but he was a product manager at, he, he had done that. He had, did, among other things, punch out.

And he was really product-oriented, and he really made some hard, decisions, was willing to make some very hard decisions about what they, what they were and were not as a company. And they had, he was very clear-eyed about the legacy that the company was coming from. They were, you know, everybody talks about being customer first and fund first and all that, those sorts of, you know, cliches, but they, they truly were, they just didn't care about much else besides that. Or they realized, actually, I would, I would say phrase that differently. They realized that in order to get to financial success, the only there was an order of operations. The only they had to pass through customers loving their products first before they could get to financial success, right? And as obvious as that sounds, you know, a lot of companies have a hard time understanding that. So, in order to do that well, they were very clear about what business they were in and what the business they were not. They were not, for example, in the business of outspending Microsoft and Sony on the GPU, they were not going to differentiate themselves in an arms race about, you know, polygons on the screen.

And so by staying, you know, one or two steps behind the state of the art in the GPU, they could have, they could focus their resources on fun and user interfaces and those sorts of things a lot more than the others. And we always, at Nexon, we were not in the hardware business, but we always really appreciated their mode of thinking, which was go down to first principles, you know, just, and, and just kind of forget about the noise in the industry and then just decide based off of what you know, and examine that really hard.

And that's, you know, there ought to be a book, maybe you'll write the book on the turnaround at nt of Nintendo under Iatan. But it's one of the great business histories of all time. It's just a wonderful, wonderful story built by wonderful people, basically. Um, so take that back to what we're talking about.

You know, we, we think that you have to kind of have a map in your mind of what you're gonna do, because then what happens is these things turn into daily decisions and they happen in the heat of the moment in a 45 minute meeting with a lot of personalities around the table. And you like, you just kind of have to have a simple, you have to boil it to simplify your business.

You have to give it a lot of thought, and then you simplify down and then you can go execute across an organization that, you know is in different offices around the world, speaks different languages, come from different cultures, those sorts of things.

Aaron: Hmm. I love it. Let's go ahead and switch gears and talk about the, another essay you wrote called Sympathy for the Devil, which is a great title by the way.

And in this essay, you're really talking about just the dynamics of AAA games. Today being these massive multi-hundred million dollar budgets that present all sorts of risk when you green light them and have ripple effects for the entire business and for the careers of everyone who's working on these games when you get it right or wrong.

And so, I mean, maybe a good place to start here is I, I'm just curious, what is it like to be the person in the room who is making multi-hundred million dollar budget green light decisions? Like what concerns go through your mind when bearing the weight of that responsibility, and how did that weight maybe make you realize something was broken in, in that process?

Owen: Well, let's see. First, I'd say that as CEO of a company, you're under enormous pressure to deliver and you're making these decisions and, but I, I think it's probably least bad for the CEO in the room by comparison to everybody else. I mean, when I was not the CEO, and I would just sit in on these meetings when I was a DA 20 years ago, I think I, I, I think I put this in the, in the essay, but we used to, we used to joke, it's called Big for Life.

You know, we're a group of people who have a really good idea that they're really in love with. Go to the CEO and say, we at the green light meeting, we'd like you to fund the game, and we know your job is on the line, Mr. CEO, but, or Miss CEO, but it's not gonna, you know, but you really need to do this. And so it be like you're sitting there begging for life, like begging for the thing to continue.

It's not pleasant for anybody in the room. Maybe it didn't, it wasn't that unpleasant for me. I was just watching it all go down, but I learned a lot it, and I remember this stuff, and then when I was sitting in that seat, I, I remember those, you know, those dynamics came back to me, a lot. What it boils down to is, you know, AAA game under the current.

Regime or the current way we do things, which is a holdover from how we did things all the way back when I was at EA, which was a holdover from the way things were done long before I was at EA. So it's a very old and antiquated system. That whole system kind of doesn't work. And if you're the CEO and the management team trying to make a decision on a green light, you're encumbered by a lot of mental models.

You are encumbered, but you're not encumbered with a lot of information about what the game will look like and whether it's any fun and, and whether it will do well. So, you know, you know, as the game starts and as the game progresses, during development, you know how much it's costing you, but that's about it.

And so you have these questions that are like, okay, is the game that you're showing me gonna be fun? Like, like let's talk about that. What's gonna be fun about this game? 'cause you know, that fun is probably the most important thing. So then you have these questions about it. And remember you're at the, at a green line meeting, you're at the beginning of the development process.

Then it is like, okay, well maybe it's gonna be fun for a few people, but is it gonna sell in large numbers, right? Because you're in for this massive undertaking. And then, and then the question is, okay, well how massive is the undertaking? And did the team really know that question? And so you end up, you know, and again, this is not all meetings look like this, this doesn't always happen over a single meeting.

This, you know, there's a lot of variance on this core thing of the green light meeting. But, you know, you, you, you have these, you're, it's like being in a dark room with a, you know, the lights off and there's spiky things all over the room, meaning a lot of ways you can injure yourself or kill yourself, but the light is not on.

The only thing you know is where, is how much it's costing you. So what do we do? We end up doing this pantomime of, oh, this is the lore and this is what the graphics look like. And isn't that cool? And so therefore, graphics end up taking the front seat because that is something you can see and you do understand that and allure, okay, it's based on X, Y, Z. So what do, what does everybody do? Think of, just like strictly as an investor, what do you do? Well, you, you try to light up the room as much as you can. And so you say, okay, is this like another game? You know, you turn your marketing person and say, okay, what's the market for this type of game?

And your marketing person might say, well, I don't know, but they're not gonna say that. So they're gonna say, well, it's kind of like, you know, it's an FPS genre game and we know the industry is this big and maybe they'll take a certain percent share and blah, blah, blah, blah. You know, you go through all these sort of ways to try to get your hands on it.

You're making a number of mistakes just by doing that. Number one is you're making a huge decision based off of almost no information. Number two is you're assuming there's gonna be, you know, what the game is at the end of the process when you start out the process. And that, that is one of the biggest inherent mistakes.

There's all sorts of other ways that there's fraught. So all these things are going through your mind. And the point that I was trying to make in the, in the post was in a world in which a AAA game title was a $10 million investment, you know, this was a, a reasonable thing to be doing because you, in a large company, you know, when I joined EA it was about $15 billion in market cap.

And a new game might cost 10. I mean, a, a really insanely expensive game to develop would be like $30 million. Okay. So like one 10th of what it was, what it is today. In, in a world where the games cost that much, that makes sense because you could have, you know, you can make a number of bets and if you Biff one of 'em, it would be okay.

But in a world in which games cost $300 million to make, it makes no sense at all. It doesn't make any sense from a development perspective, and certainly doesn't make any sense from a investment perspective of a public company. And then what you're really thinking about is $300 million. Hmm. If this doesn't work, I'm gonna have to go to my board who's kind of moving my grill right now because of something. And there's always something that your board is in your grill about. And then I'm gonna have to tell him that I torched $300 million. And it's an, I can tell you I've been there. It is an unbelievably unpleasant conversation.

You think about it for months before and after and, and, and you get like kinda one chance to have that conversation. If you do it a second time, they're talking openly, maybe not openly, certainly behind your back and maybe in front of your back about replacing you. And by the third time you're out, one way or another, the board will fire you or you'll get an activist investor and you'll be out.

And so you end up, you know, as a result of this process at this scale, it doesn't work. And so my, my point of the whole thing was, and the reason why I called it sympathy for the devil is okay, just like that's the situation that you're in as CEO and there's gotta be a better way to do things. It, it clearly doesn't work at the scale that we're at.

It's a structural problem. But then, you know, kinda like, don't have too much sympathy because how many people do you find in the industry who are talking about this exact problem is saying, we got a real problem here. This is not making a lot of sense. No. What we've done is gone headlong in this exact process for years and years now.

We hit a brick wall. We as an industry have hit a brick wall. There's blood everywhere and people are going, oh, the industry needs to rethink. Well, this situation has been going on for, you know, more than a decade. And, um, and so you really need to think about it and and, and do it differently and you can.

There's a lot about this that you can change. You can do very different things, but they tend to be, tend to be way off the reservation in terms of how you solve these problems.

Aaron: Yeah. So it sounds like the, the core of the issue that you're describing is just when big budgets meets uncertainty, it just creates a lot of risk.

And so I am curious then, like, if there is a structural problem, like, and the old way is broken, what should the decisions look like instead? Or like, is that a dumb question? Because, you know, with these big publishers, like they kind of have to operate that way in order to, to stay competitive. Like, how should we be thinking about where these kinds of decisions should go in order to be less broken?

Owen: Well, uh, great question. I mean. Stay tuned, uh, because there's a lot to talk about on that. But I, I guess what I'd say is, I mean, if, if you were really to boil it down, it's as, as you said, like big budgets or big spend against a lot of uncertainty. But, but let's invert the discussion and say, okay, what do you really get paid for as a CEO or as a gain company exec or as an investor, you get paid for really, you get, you get paid for ROI, right?

Like I invest a hundred dollars and back at me comes a million dollars, you know, five years later. So it's sort of like big return on investment in a and the more you can compress the time, you know, meaning the shorter the return time that you have to wait for that return the better. So that's how you get paid.

So let's think about that. Well, where have the great returns come from in our industry? Probably the single best return on investment over a compressed, in the most compressed period of time that I can think of at the top of my mind is Minecraft. You know, one dude eaten Top Ramen in a dark apartment in Stockholm in February, you know, coming up with a beautiful piece of art that set the world on fire.

And, totally. And do we spend much time talking about that? You know, people spend time talking about, you know, what that developer is doing with his life now more than they talk about what it took to really get there and, and the brilliance and the sort of creativity and the, the sort of sense of life that that developer had to create that beautiful piece of art that we all love.

And, um, there are other examples. You know, Nintendo, going back to Nintendo, there's examples like that. You can look at League of Legends. You know what Brandon and Mark did? Very, very high. From a strictly investor perspective, it's very, very high, ROI, but also from a gamer perspective, from a, the perspective of someone who loves games, those were really wonderful outcomes.

And is our industry, especially at the big money tables, you know, at the, at the big publishers, spending any time thinking about that? No, because I can tell you when, well, at least in the case of Notch, there was an enormous amount of iteration that went into that game. Like, I don't think, you know, he certainly didn't have to go present to a group of executives who may or may not even play games, about getting funding to get his game going.

Another really good example, I mean, there's some great examples in the indie space. You know, one of the people that I most admire in the industry is Tynan Sylvester, who made Rim World, rim World just came out with an update and here we are all these years in and it's just getting better and better every year.

He wrote a wonderful book on this exact topic, or not on this topic alone, but on on, on the process of game development. And he talked about how much iteration he did to create the rim world that we know today. So to go at it, you have to think about how to, how to get that iteration process in and get the truly thoughtful developers, the tiny and sylvesters or the notches or you know, the, the, the next generation of Miyamoto's sort of put them in charge, have them iterate, and then be okay somehow in making a decision that, where you don't know what the outcome is when you start the game development process. And that's where the really good, that's where all the goodness is. And that we were thinking about this back in 2019 when I wrote that, you know, when I had that whiteboard discussion about what business we're in, we went through this with, the Embark team.

Embark had just exited EA. They had been building Battlefield after Battlefield after Battlefield. I mean, they, they like, they, they pioneered this incredible. segment of the FPS business. And then what they get asked to do is just SQL Battlefield. And they were happy to do it for the first couple generations, but after a while it was like, okay, there's more to life than, you know, bigger, better Battlefield, so let's try something new. And what they really wanted was some time and space to think about the game development process, and then also to think about what, what we could do that hasn't been done before that would be highly differentiated. And I gave it to him. I can tell you I took, I've never taken so much, you know, the nice word is pushback on a deal.

The, the not so nice word is total withering abuse for doing a deal is when we Embark, when we did the Embark deal. But, but it was all for this reason was you gotta think about, okay, you know, again, if your, if your objective is ROI and your objective is to grow your company, you have to think about how you give, what kind of environment you can give to get developers to be able to do something that's new and different. And, you know, what they came up with, the first one they came up with is, was the finals. The finals is very much an FPS, but it has service side destruction and some other pieces of technology that made it very, very differentiate or makes it very differentiated from what else is out there in the market.

It's a beautiful game that I play all the time. The next game arc writers is gonna be very different, as well. So, you know, those are the types of things that you go about doing.

Aaron: Yeah, it, it's, it's an interesting challenge to think about because some of those examples, right? Minecrafts, Riot Games with League of Legends, like, that's not particularly helpful for like the big studios to think about in some sense, because they already have their established teams in some sense.

They already have some of their established franchises, and so it's a conundrum to think about, like, how do you. Change the way you think about these decisions when you already have a massive structure in place that serves the decisions and the product the way that they have been. And in our initial conversation together, we talked about anti-fragile and kind of the barbell approach that you were working on at Nexon, which is of course, like having part of your business not be utterly, massively transformed and rethought. It continues doing, its staying around your biggest franchises, the forever games that, uh, you know, will be run hopefully decades into the future. But also the other side of the barbell, taking more of these unique bets on the embarks of the world.

And that was also like pretty interesting and compelling to me at the time when we were talking about that because when you look across a lot of these other big publishers, there really doesn't seem to be that kind of mindset. There's a lot of managing. Yeah. Of risk, but that's not necessarily in, at least from what I see, the, the green lighting project of new and interesting games as much as just like cutting what, what doesn't work and trying to be run more efficiently so that they can just focus around the biggest things that have been, been working and continue to lean into those franchises at bigger budgets, hopefully for bigger outcomes.

So I mean, I guess to kind of like weave this together, like, is the solution for more of these publishers to take that kind of barbell approach in a way that they, they haven't before or is there something else to it?

Owen: Well, it's a great question. If, if I were still running Nexon or running some other big game company, which I'm definitely not 'cause I'm not sure that this is the best way to do it, but if I was stuck running a big video game company now, I would, I would do what I did at Nexon, which is exactly as you described, meaning people, people often don't ask what your job is as a CEO. Like, what are you really there to do? Do you make all the decisions? Do you hire smart and let those people run the company? You know, there's a lot of different pieces of advice you'll get is what you're doing as a CEO. But in, in my experience, the, the CEOs that I really admire we're able to, and I think we may have talked about this before, they, they were able to keep this balance.

And the balance is,  I gotta deliver today's business. 'cause if I don't, the company will die quickly and then I gotta deliver tomorrow's business. And I have to think down the road, let's call it five years from now, and say, here's where the industry is going. Here's where my company is going, here's where my company's strengths and weaknesses are.

If I don't get ahead of this now, there's gonna be problems. And all the companies that I know that have failed. Have made one of those two mistakes. You know, I, I started my career at Apple, and Apple grappled with us mightily, but one of the companies that was Apple's hero was Xerox, not the larger Xerox, but Xerox Park.

And then they famously hired all the people from Park and kind of stole their technology. And today we have the GUI and the, and we have OOP, and we have, you know, the laser printer and ethernet and all these other things that came outta Xerox Park, like literally everything we use today, including a whole lot of core AI technology came out of Park from those days.

But Park was, or Xerox was, smart enough to understand that they were dominating in the office automation business. I mean, it was literally in the world. It was Xerox and IBM. And if you were putting, if you were typing stuff or calculating stuff or making copies, it was those two companies and. Then, but they were smart enough to realize that it wasn't gonna be like that 10 years from now or 15 years from now.

And there were all these ex Darpa ex, you know, basically technology people hanging around the industry. And they hired a guy named Robert Taylor. And Robert Taylor was an incredible, you know, coach. He, he had a, an enormous eye for talent. He got the best of the best. And then he basically make a long story short cut the question of, okay, what's the office of the future gonna look like?

And to them, and they created all this amazing technology. But that was Xerox saying, okay, five years from now, here's what the industry's gonna look like 10 years from now. Here's what, here's what you're gonna do when you work at an office or you do productive work. And they came up with, among other things, the graphic user interface.

You know, we're not gonna type these commands into these data processing machines. We're going to use these as tools that make us smarter and ma and enable us to communicate better. So take that back to where we are today. As a game, as you are, as a game company, you're sitting in a CEO job. You've got to, decide how you invest your money and you can continue to, you know, deliver on today's business.

It's going pretty well. You've got these big franchises, you got thousands of people all over the world, and they can make the next version of whatever hit game you've got. Um, but that will only work so well. It'll kinda work until it doesn't work. You know, a lot of people talk about Apple and the John Scully years was like that, right?

Like he had received the Macintosh and then he optimized the Macintosh mostly by raising prices. And, and you could say that Disney had a degree of that, where like they received, the management team received Disneyland and then they raised the prices in Disneyland. And I'm oversimplifying it.

But then what happens when something replaces your current business, which always happens? And I, when I started my career, I was in Japan and the Japanese electronics companies of those days, they dominated a lot of these industries by then, right? Like their PCs were awesome, their consumer electronics were off the charts, and then they just got wiped out by Apple and Google and Samsung like wiped out the electric, the consumer electronics industry is basically dead.

You used to buy stereo, you know, and like stick it in your, you know, living room. So that went away. So the question is, what do you do that's down the line? And if you, you have to, and the core job of a CEO is to keep these things in dynamic balance, like deliver today's business and then go and invest for tomorrow as intelligently as you can.

But you don't do that by making a few, couple hundred million dollar bets, a few $300 million bets if you're, let's say a $23 billion game company. You have to think about where the asymmetric upside opportunity is. And so one way to do that is, is to call that a barbell. I think of it as like surfing, like on a wave where you're barely standing up.

Because if you lean over too far one way, like to today's business, you're gonna forget about tomorrow's business and someone will come in and wipe you out. You lean too far into today's business, you'll, you'll miss your numbers and you'll get fired and, or you'll get an activist or something like that.

So you have to keep these things in dynamic balance. Companies who do this well, you know, outside the games industry include Amazon who's done this brilliantly. Um, you know, apple in its day did this brilliantly, like Apple under Jobs did this. Nintendo certainly does this extremely well. And that's, I, I think that's the core question about how you manage this.

Sorry, it's a little longer, but it's a, it's a fascinating topic.

Aaron: I think it is fascinating too. And I guess just to connect it to another essay you wrote called How Empires Die, you, you say, and I quote, if you want a glimpse of where many Western publishers seem to be headed. Ubisoft is the blueprint end quote.

I mean that's a, it's a pretty stark statement. Is it as bearish of a pronouncement as it sounds like? How screwed are Western publishers?

Owen: Well, I think the point was I was trying to make more than if, than taking, you know, aim at Ubisoft, which it could certainly be perceived as I, I, I think the, the thing that I, I, I think it's really a cautionary tale.

Like if you don't de grapple with this stuff head on, it's gonna, it's gonna end up badly and it would be soft. You know, everybody looks at their stock price because that's like. The most tangible barometer of a company's health and their stock price is ugly. And my point was, everybody's stock price is gonna end up like that at some point.

If you don't, you know, you don't deal with this. And so it's a, it's, it's less of a bearish pronouncement than a statement of what the stakes are that you have to deal with. I, if by not dealing with it and I think that's a, I mean, there, but for the grace of God go, I is sort of like, you know, if you don't, if you don't deal with this right away, you're gonna, you're gonna end up in a train wreck and sooner or later, and I think the first, the front line of this train wreck has been what we all read about and talk about, which is the layoffs that have happened.

And I think it's really, really bad. And one of the things that I, you know, maybe one of the reasons why I brought this up, or you know, named a company specifically is that. You know, I, I, I do care a lot about corporate governance. People talk about corporate governance a lot, but they talk about it like there are best practices and here's how you, you know, you have to construct a board and here's what, you know, here, here's, here's how it's properly done.

There's like a sense of why it's properly done. There's armies of consultants that'll happily charge you a 500 or a thousand bucks an hour to talk to you about corporate governance and tell you what you should do. And yet, despite all that money, and despite all that, you know, talk of corporate governance, you get these companies where like, they, they don't know how to ask a, an intelligent question.

They're CEO and, you know, they're, they're supposed to rep, their core job is to represent the shareholders, the owners of the company to make sure that they do their job. Where is the corporate governance here? And I think it's an enormously important topic. You know, an example outside the games industry is Intel, right?

Like when I was growing up, Menlo Park, Intel was the company at the Valley. They had created the 80, 88. They had, you know, famously done this tactical retreat off of memory chips, you know, drams because the Japanese had had, you know, killed them in Drams and they got in the micro processor business. And thanks to them and a couple other companies, you know, they, they basically built the business and they dominated right in the nineties.

They just do, they, their biggest problem was antitrust at that point. And they had wonderful, you know, ordinary managers or CEOs like Andy Grove, who was, you know, famously wrote the bug. Only the paranoid survive. And what do they today? Well, they're a company that their only board member who knows how to make a ship is, is last eye checked, is the guys running the company.

Once they replaced their last guy who ran the company. It like they, and their, and their business has fallen apart. Like, like, I mean. I don't know how to make a ship. I would be a terrible board member. They should never hire me to be the board of of Intel, but it's, it's filled with people like me who don't know how to make ships.

Aaron: Right. So, yeah.

Owen: I think take that back to the games business. Where are these questions being asked among these large companies? I, I think that's an important topic.

Aaron: Yeah. And you call out Western publishers more in that piece. I mean, do you think differently about Eastern publishers more or less, or, like, I, I guess to like what extent do you think the problem is geographical or cultural versus just the fact that these, like old school companies now, all of them like need to evolve?

Owen: Yeah. When I wrote that, I was thinking a little bit more about Western companies because they had come out more of the tradition of packaged goods and, and to some extent are still evolving from that tradition. It was a lot more acute when I was at ea. Right. Had built a very successful packaged goods business, and the internet happened, and then mobile happened, and they were having, in both cases, a real bear of a time trying to figure out how those businesses work.

Going back to the, like misreading the mini map type of thing. And, yeah. So, and today, and, and, and the eastern companies, particularly those in Korea and China, are completely unencumbered by what online games are all about. And they struggle with all sorts of things. But, but, you know, knowing, I used to joke that Nexon was, you know, had, there were, there were people in Nexon who had forgotten more about online games than the entirety of, you know, a Western game publisher had ever learned.

But they, they had forgotten that in the last day more than, you know, the entire of the Western game, they would just be so much more sophisticated about how to think about an online game. And. So I, you know, I think I was writing more towards Westerners because the situation was a little more acute in terms of how, how they're thinking about their business.

But I think it applies to everybody. I will say one of the things that I am enormously impressed by, especially Chinese companies, and I'll just use Tencent as an example, they, I've never met a group of people who ask more questions quicker than the Tencent organization. I mean, up and down the organization from the CEO on down.

And like, I'll get in a meeting with them and they'll say, Hey, how's it going? And like, they'll, they get you talking and then you learn. They learn and learn and learn. They just, you know, sit there and nod and say, oh, well what do you think about that? And they, and, and they will learn. And so they're like a learning machine.

And that is by contrast to if I go to Hollywood, for example, and I, not only, don't usually get an EA word in edgewise, like I'm, I'm listening to all sorts of things about the person who's talking to me if they're, especially if they run a big organization or they've had a lot of experience. And so I, I, I learn a lot in those conversations.

It's very helpful to me. And, but I think over time it's, it's, the western companies could learn a little bit from how a company like Tencent just, just like learns and learns, and learns. That may be cultural, that may just be people who feel like they have a lot to learn and, and are able to take that.

So I, I think part of what I was saying was like, we got a lot to learn guys and, and, you know, since I grew up in the United States, I was talking more to a Western audience.

Aaron: Yeah. Also, I, I feel like maybe. I mean, I haven't been in the industry nearly as long as you, or probably even many people who are listening to this episode.

But I mean, there is like a cultural element too, in terms of just like the intensity of the work. And it seems like especially in the West, you know, many teams have just gotten softer, right? You see more union presence, you know, especially around COVID and kind of the low interest rate era. There was talk in many places about, you know, trialing four day work weeks.

Whereas, you know, in places like China, like obviously it's great that a company like Tencent is learning like it does, but we also hear about the 9, 9, 6 mentality of just, you know, teams grinding and such. Is that an element at play here too, you think? Just from having talked to many companies and observed different, different cultures across the, the games industry.

Owen: Well without wading into the number of work hours discussion, and maybe even wading into the return to work discussion, here's what I would say. 20 years ago when I was at EA, I was there for about nine years, and the big topic from about 2003 to two, the all the way from 2003 on was, oh my God, China's opening up.

Our costs are rising. This is like when it cost $50 million to make a trip to the game, or 30 or whatever. Like, oh my God, our costs are rising. We're gonna outsource to China to low cost, developers in China. And this was for a grunt work of AAA game, like painting stuff, right? Like, like painting stuff in Photoshop.

So a lot of companies did that. UB Soft was one. EA was, did, did, did some, I think everybody in the West did this and. It was, there was such a differential between pay scales and work that, you know, and the world is flat and Tom Friedman and everybody was talking about, you know, the internationalization of, of the labor force and so on.

Aaron: Yeah.

Owen: Okay. So that was a long time ago. Do you think that those literally millions of people have been sitting around and doing still, you know, happy to paint and Photoshop all day long? No, we're now in their forties and they are damn good game developers and like, really good. They play a ton of games.

They've reverse engineer that, a lot of the tech that they used to have to work on, um, and they're, they end up building companies like Miyo or, you know, they spin out a 10 cent and they do something else. Amazing. And there are a lot of those people, I mean, it's not like they're not in the tens of thousands.

They're, they're in the millions and they're coming for the world of, you know, the, the global market. So Wang is like, oh my God, it's this overnight hit. No, it was 20 plus years in the making and there's a lot more where that came from. So again, I, the way I would go at the, your question is not, Hey, you're not doing enough or there's not enough.

We, we, we gotta those things. Like I like a work-life balance as much as anybody. I tend to work a lot, but, I, you know, and I would never ask anybody to work harder than I'm working. But I think the thing that we all have to grapple with is that there are some amazing development talent and they are global and they have aspirations to have a global audience like we all do.

And, and if we're gonna hide behind this idea that, oh, we're more creative than they are, I would certainly call that into question. And because some of the, the content that I see, content or games that I see coming out of those regions. Are enormously good and you know, that, that sort of way that we sleep well at night, that, oh, we're more creative and you know, they're just like grunts who work all, all night long.

I, I think that's, in my experience in various countries, that that just is a myth. So I think the stakes are high. There's gonna be a lot more good stuff.

Aaron: Yeah, that's true. Well, beyond the games industry too, if you look at manufacturing, robotics, drones, it's a pretty massive list. Electric cars, it's a massive list across so many important things.

But it's a great point. Anyways, we could talk about kind of the way things are for a long time, but naturally the things are not going to stay the same. And if, if, if anything, the change might accelerate with the next technology shift, which of course is ai. And so, and another essay called Size Matters.

You wrote about how, you know, big picture, how each technology shift, the games industry has seen, has led to essentially a tripling or quadrupling increase in the size of the games industry. Triple. Yeah. The industry tripled after GPUs were invented and brought mainstream after the internet, you know, took things to a new height again after mobile.

And now as you write, you seem to think that the AI wave might lead to another tripling. So big picture, maybe you can just kind of talk about how you see that potentially coming to fruition.

Owen: Yeah. Well, what I was thinking about there, and I, I've been giving this a lot of thought, is like everybody, there were a couple things.

Number one is I, I started playing video games when I was a kid and that was the CPU era and you know, I was playing on an apple too. Kids played on Nintendo a little bit after that, that left us with an $8 billion game industry. And that was super big and super cool. And then the GPU and really was the GPU plus, the CD ROM came online and that enabled a whole new class of games.

One of the games that I played in those days was called Mist. I think most people have forgotten now, but is a fabulous, you know, it didn't look like any game that I had ever played before, but it was wonderful. And it was only enabled because you could do CD ROMs. And then, you know, we were all starting to play FPSs a lot in those days, and then the internet came along and of course, changed everything and redefined a game and, and mobile came along.

And then once again redefined. But in each of those waves, a couple things happened. Number one, the industry tripled. So, you know, CPU, the GPU took us from eight to $20 billion. The internet took us from 20 to $75 billion and mobile took us from 75 to about 200 billion today. So that was interesting.

Number two is the industry always responds really well to technology, and this is a point that Matthew Ball has pointed out, numerous times that unlike music or other forms of entertainment, music, movies and so on, it, which surprisingly don't respond well to new technology hitting them, they either go down or they go flat from where they were before.

So like the CD ROM actually didn't help the music industry that much. It's sort of helped you buy new media, but to replace your old media. But on that, and then of course streaming has been a disaster for the music business. It's been a 20 years of darkness, literally from the time of the year first iStore, or Apple downloads to today.

You know, in those days it was Napster and now it's just coming back to be bigger than that. The games industry always responds well to dislocations of major new technologies. And what I mean by that is not vs technologies like vr, let's call it, or Metaverse, or NFTs, which really don't have a big effect on games, believe it or not, but like to serious new technologies like a CD rom or the internet and so on.

So I was thinking about, okay, well what does AI really mean? Well, really, a lot of people look at it as a cost savings or a labor savings technology. I don't see it that way at all. I, I, I see it's a whole new media, the way that online games are a whole new media. The second thing you notice is, or the third thing you notice is it's usually a new crew of people who are able to think through.

They're not encumbered by their old mental models, they just invent new stuff. So I'll use the Nexon example. You know, Nexon didn't make any sense to the people at EA when I was trying to buy Nexon, when I ran Corp Debit EA, like they would look at it and they go, oh, that's a simplistic pixelated game that's in 2D.

Yeah, it's online. But that online stuff doesn't matter. And by the way, when I figure out, when I, when I get around to it, I'm gonna come up with a really high fidelity version of it and of that game, and I'm gonna crush them, right? Because high fidelity is what matters. And you know, we laugh at those discussions today.

Like, oh, those people were so dumb. They weren't dumb at all. They were just encumbered by their mental models. And so taking that forward today, you go, okay, well I, I, if Patterns hold, and they usually hold pretty well, there's gonna be a new crop of people who understand what games are about and why they love games.

And then use this new medium, not as a. Automation tool, but is a way to redefine what media we're actually talking about. Yeah. They'll take AI and there's some great examples of that, and Mitch Laskey pointed this out in his podcast a few months ago about a company called Annu Con, which makes this game, which I won't describe, but you know, they're, they're clearly thinking about a different way of conceiving what a game is.

It's not an FPS in a 3D environment with a bunch of polygons. It's something completely different. So that's one way to look at it is go, okay, tops down. What do the waves usually do to our industry? Well, that's one way to do it, but it's got some holes in doing it. And then you can say, okay, bottoms up what we really need to, to get there, you'd have to have more gamers.

You'd have more gameplay per day. You'd have the number of hours have to go up, and then you'd have, you know, so like, what's the revenue per hour per gamer? You know, you, and so you can make a very simple little table and you go, okay, well what, what would it take? For this generation to, or a new generation of technology to get us to a, something that is, that did what the previous generations of technology are.

Turns out when you do the math, and I sort of walked through the math in this post, it's actually small changes in a few of those things. Like number of hours played per day amount. You spend going up from an average of 25 cents a day to 33 cents a day. You know, small changes, percentage wise, end up being in massive aggregate changes over time.

So then you start to ask yourself, okay, does it make sense that that's happening? And then in order to do that you have to ask, okay, what's really happening in the platforms? And then the platforms are, well, I think the platforms we're in a major shift. Everybody's talking about it. We're, we're, we're literally going from walled garden consoles with big GPUs and that being the world that we, and, and trying to deliver a game through that orifice of, you know, those large companies to a much more open, bespoke environment where your mobile device is essentially got a killer GPU in it. Now, it didn't used to, but now it does. It's got a killer networking layer so I can render a really, really good online game. And those are in billions of pockets and they're all being upgraded as we speak. So, you know, it means that the total addressable market goes up by, in terms of GPU enabled devices, goes up by a factor of 10 or so.

So all those are tailwinds for our industry. And the major thing that I think is really important here for everybody to remember is, you know, almost always when you think back to these major dislocations that I talked about before, everybody was really unhappy with the state of the art or the state of the industry at the time that those new dislocations came in.

I mean, they, the, the games industry was sort of not growing that much. People started depressed and so on, and then came the GPU and the CD rom. The same thing happened around the time of the industry. It was like, oh, it's consolidating. We're a few companies, the buzzword of the day is consolidation. Then the internet happens, and it just changes everything for everybody.

Same thing happened with mobile and I, I feel like we're at that stage right now. Um, but we gotta get a few things right. So again, the stakes are very high. So that was basically the idea of where we are.

Aaron: Yeah, that's well laid out. You might find this interesting, This was the, the essay kind of in my, my private circles that got the most pushback or questioning.

Yeah, so I mean, obviously you're laying out like something major, you know, the industry going from 200 billion to 600 billion, and lots of people are thinking like, how, and they're looking at your numbers and just, you know, wondering things like, is AI really. A platform to expand the industry, like mobile or like, how exactly does that come to be?

Or will average monetization really rise, from this technology? Like, how does that make sense? Or like, if there are more gamers coming onboarded, maybe many of these people are coming from poorer regions, like how could that make sense or

Owen: Yeah.

Aaron: You know, like obviously lately, a lot of time from gaming has, if anything, kind of been taken away from platforms like, like TikTok and so is video still competitive?

And there are like all of these different questions that are kind of poking at the different assumptions that you're making. And, and obviously you're not trying to be super precise in any assumption. You're making as much as just painting a directional picture. But, I guess like is there anything that you would say to kind of the skeptics of, of like some of the assumptions you're making, or I guess people that are just kind of caught up on like more of the specifics here.

Owen: Yeah. So, a couple things. Number one is, again, I would say it's interesting you say that I, I, I didn't get any pushback on my negative sounding posts. That sort of, the headline is like, you know, the world is ending.

Everybody's like, yeah, you're absolutely right. Somebody's saying it. Yeah, we agree. And then, and then I say something positive and what I didn't get back was a lot of details about like the, the assumptions. It was just almost more about the aggregate. And maybe that was because I made the point very clearly that you could take issue with any assumption here.

Like any and all assumptions. I've, I've been through a million forecasting exercises over the years and I, I know how these operate, basically. Everything that I say will be wrong in some way, of course, because they're long time, the question in forecasting is. Do in aggregate, do they paint a worldview that is in more or less, right?

In other words, monetization may go up a little faster, number of users may go up a little slower, blah, blah, blah. Like, like, like, does that work? So I'd say there's that. I think the other thing is it is enormously difficult to envision a world that runs counter to every, everything that you're seeing right in front of you today.

Humans are, tend to be bad at that, and that's why forecasting, it's one of the reasons why forecasting is inherently difficult. In other words, if the sun is out today and it's been that way for three months straight, it's kind of hard to even remember what a raining day looks like or vice versa. If it's been raining for a long time, it's, it's hard to see.

So the games industry and, and as humans, we are always encumbered by these mental models and these near term things is our, that, that dictate our worldview. This is why environment is important in getting out there and thinking. Forcing yourself in someone to think differently is important. And today we all know somebody who's gotten laid off, or many people, we all are seeing exactly the same games.

We're seeing a lot of new games introduced that are failures. And we are all seeing the same genres of games. We're not seeing much new these days. Okay. So in that environment, is it easy to think through how these numbers could go up and this is why I think it's important to think about what's really happening from a user perspective.

And I was able to take some of the things that I saw at Nexon and apply them to my view that would counteract some of what you, you friends said that they mentioned to you. And what I heard as well, for example, when we found at Nexon that, for example, when I joined Nexon, the monetization per user in China was exceedingly low, like per user revenue.

However you measure that, you know, average revenue per paying user is, is how we did it. And Japan was exceedingly high. So like the differential was massive and they almost, it was, it was hard to compute. It was like more, much more than 10 x. Okay. So over time, over the 13 years that I was at Nexon, it just grew and grew and grew.

And Japan state grew a little bit, but, but like kind of went like that. So you had a developing country that was playing more games and the monetization went up and it was much more dramatic than what I'm positing here. I mean, it was hugely dramatic. And then, and then, so that's one thing also. Once you start playing a more immersive game, your hours tend to go up very dramatically over time.

And there's a lot more devices in pockets. So we got a lot of people globally who were coming online to the games industry to playing games as a major form of entertainment. And because it's so competitive with other forms of entertainments on multiple different fronts, it's not hard to think at all if you have that as your experience that you can see that those numbers go up modestly.

So I, I've, I saw in my, with my own two eyes dramatic increases, but I didn't see dramatic increases. And what I'm proposing here is actually modest increases. But then I think about what the tailwinds are. And again, I think about what's happened with the GPU that most people don't talk about is the GPU is on every device.

Your iPhone, your late model iPhone is a killer workstation. It's like a, it's like a console of a few years of, of a short number of years ago. And so that, and that's all in your pocket with you at all times. And are we taking advantage now? One of the things I thought of after I wrote this. Was, it doesn't mean that the Western game companies are necessarily gonna take advantage of this because some of this growth comes from the West, but a lot of the growth, additional growth because of new users is gonna come from worlds outside of Western established western game markets.

And I think that is an issue. Going back to your, you know, your question about China. But overall, I think on the, when I'm talking about the global $200 billion games industry, these numbers are very defensible to me.

Aaron: Gotcha. We do need to start wrapping up, but maybe a couple more questions. Another one, just like, on this AI point, maybe just to kinda dig, dig one layer deeper and put our visionary hats on.

Like, do you have any like, specific ideas of like how, you know, this technology will enable, like, new forms of play that, you know, do open the audience up to, to many more people or that people just naturally want to spend more time in like, like how could that industry just like fundamentally look different or have like new branches that don't exist today?

Like, do you have any like more specific thoughts there to kind of back up some of the, like the assumptions that you're, you're making?

Owen: Well, I have a lot of thoughts on 'em. I'm, I'm not sure that I'm ready to, I, I've got, this is the forum to introduce those ideas. I, I'd say, I'd say generally, so we started implementing AI and, and frankly a lot, uh, a series of new technologies, software based technologies at Nexon in, as I said, in around 2017, and there were two things that came up.

Number one was, boy, it's a lot more profound than we really understood and expected. The more we experiment, the more there is. And, and it requires a lot of iteration to get there. But, but boy, it, it, it's quite profound. So I, number one is, it's really big. Number two is it comes in really unexpected ways.

In other words, it comes from like outer space in a weird, you know, in like ways that you never thought before. And because it enables, it's really a new type of medium in the sense that the internet was a new type of medium, like hyper, what we used to call hypertext, which is today what we call links.

Like, you gotta understand how revolutionary this was. And people didn't even know how to think about it. They didn't have the metaphors for what hypertext was. If you, if you grew up on books and tv, it was all linear. So the idea that you, you're like, oh, that's a really interesting topic. I can click a link and then I can go learn more about it or give a definition of a word.

All that stuff we do today, like. There was, there was no way to, there was no way to even understand that really. And so we went through about 10 years of just understanding the new metaphors that matter to us. We are in exactly the same position today. And, um, I'll give you an example that actually isn't about game development, but, but illustrates this point.

And we can take it back to game development. But I'll, I'll give you a really quick example. So we started introducing matchmaking, AI based matchmaking in live games. And let's take a first person shooter within about 17 seconds of you using your keyboard and mouse in a tutorial of a first person shooter.

We can tell where to level you, right? Like, are you good or bad? And the reason why this is really important obviously, is, I mean, people talk about skill-based matchmaking now and whether that's a problem, it's been overused and you've got all sorts of problems. But it fundamentally, if you're really good at this FPS and I stink, you're gonna get bored and quit.

I'm gonna get frustrated and quit. The retention rates that will translate into bad retention rates for both of us. After spending all this money to acquire both of us, the game company loses, right, if it, especially if it's a free to play game. Okay? So that's just ranking based off of leveling, but that's not where the machines went when we started experimenting a lot in any given liquidity pool of FPS players, you know, thousands or tens of thousands, there's an optimal group of, let's say a team, a squad, five people versus another squad, five people.

And that squad of five people may be ranked in terms of skillset sets very differently, but they have different ways of playing different play styles. Maybe one guy hangs over, the other guy's left shoulder, you know, one is super aggressive and there's an optimal pool that works against another optimal, you know, teen and they're much more likely to have fun.

So it goes way beyond. Ranking in terms of skill sets, and the machines can do this on the fly. This is a perfect machine learning or AI problem to optimize for retention, which really means optimizing for fun. And no hu I, I could hire a million humans to do this, and they wouldn't be able to do this.

Within several hours, this machines came up with their own ways of thinking about how to do this. And so, as a result, we're all having a lot more fun, which means our retention number goes up, retention numbers go up, the company wins, the customers win, right? Like the players win. All that's great. But it was so orthogonal to how we were thinking about it when we went in and it like, we never would've, we never expected this outcome.

So my point is that you get a new tool and you have no idea how this new tool can be used. Some. And now with ai, the tool will sometimes tell you how it can be used. Like you didn't even need to think out. It's talking to you about how it can be used to achieve your objective. And that is such a different way, like, I wanna say it's mind blowing, but it's not mind blowing.

What it is is just different than any way we've ever thought about using tools in the past. And so you take that back to game development and suddenly, you know, you can get emergent behavior left and right when you're doing game development. Some of this stuff we, we started experimenting heavily with at Embark and it just worked a big, so a lot of it didn't work.

A lot of our going in assumptions were, didn't work at all. But a lot of them, a lot of different ones worked, worked a lot. And the weirder they were, the more they tended to work or the ones that survived tend to be very weird and unexpected. Yeah. So that's, that's a long-winded answer to say I got a lot of ideas on this and how to implement that point.

But, but, but the, the fundamental thing that anybody can use is, is a, is a different mode of thinking than we t typically have in the game development business.

Aaron: I agree. And yeah, I mean, I've loved exploring all of these ideas with you today. I, I guess one other quick question here. Obviously, you know, most of this conversation has been built upon what you've written publicly.

Are there any other, you know, big ideas that you have that you haven't written about yet that would be fun to just kind of throw out there for a minute or two and talk about?

Owen: Sure. I mean, there's a lot. One of 'em that I've been thinking about is that I'll, I, I'll write about soon. I, I was sort of calling it Derek Zand or industry executive, meaning, um, how did, how did all the trends that we end up chasing in the games industry, like someone, I mean, as an example, I, I, there were, there was a period of about three years where I could not get out of any interview or any investor meeting without somebody asking me what my VR strategy was. And I was like, we have none. It sucks. And you know, my PR people were like, you can't say that, Owen. I was like, yeah, I can.

Because it's, it happens to be true. And I mean, I sometimes play VR games, but not very often and as a business. But like in the time everybody was chasing that, right. And then, you know, NFT games, metaverse, eSports, all those sorts of things. So the question is why do we do that and why we do that as an industry so much that that was one topic for sure.

Another is about how we make investing decisions and how we have to make, this would be something that's near and dear to your heart, I'm sure, but like the idea that we live off of the DCF, that the discounted cash flow, we go into a project as if it's building a bridge. Where we know what the cash flow, you know, building a bridge across a river and we're gonna collect a toll.

And, and, but in fact, in the real world, first of all, those models are never accurate. And, but they're used all the time in m and a, they're used all the time in, in everything. And so, is there a better way to think about that? And then more importantly is how to, and then maybe, you know, another really big one is about how, how we implement technology in companies and, and, and how we can better do it.

So it goes back to the points that we were making about AI, And so I, I've been, I don't know, I've got a series of, of things coming up. And again, they're helpful for me because it helps me think through these issues in much more detail.

Aaron: Yeah. Yeah. All makes sense. I guess, I mean, maybe just to, to wrap, obviously we've talked about a bunch of things.

We've talked a lot about how these ideas, you know, probably should fundamentally change the way that a lot of big companies in our industry. Think about managing themselves and obviously, you know, you are someone who has, who has been in that seat, and, and doesn't seem to be, you know, you might be out of that seat temporarily, but, you know, you're, you're still obviously like really interested in, in thinking about the future here.

Anything you wanna say just about how all of these ideas are kind of guiding, you know, your future and kind of what you are thinking about next?

Owen: Well, you know, I, I am, I was hugely, so again, I, when I was a kid was when the PC came out and I remember the adults around me talking about how revolutionary it was, but it was just normal for me to wanna get, you know, I just, I'm older than you, so I remember the days of the Apple too.

You may have read about it once or twice 'cause it's ancient history now. But, um, but you know, like it was just natural for me to, to play with an Apple two or similar computer, you know, the kids had different computers.

Aaron: Yeah, those Scape for me in its own way.

Owen: Yeah, yeah. It was Scape. Yeah.

So exactly. And so, Scape, you know, for you was like kind of natural, but for a lot of people it was like, what the hell? You know, like, how is this low poly thing like appealing for kids? And , I think we're it. And then of course my career started in earnest. I, I got outta school at really the dawn of the internet.

And I remember everybody who was, you know, my, the, I, I had studied at that time a lot of, and I was sort of, my heroes were some combination of the technology titans of their, of the day. This would've been in the early to mid-nineties and the media titans of the day. So, you know, the Eisners and oes and you know, those sorts of people who were running Hollywood and I, I.

They were in each of those times, the adults, you know, the people who were the titans, their day were baffled by what was coming. But they were like, we gotta be really serious about understanding this internet thing. And we, we sort of make fun of them in hindsight now, of talking about the information super highway, you know, or, you know, what's a homepage or things like that.

They, they were grappling from metaphors to help them understand, and they were smart enough to realize that it was, that this new wave of technology was gonna change everything. But they, they couldn't figure out how to find the signal and the noise. They, they couldn't figure out how to, like, how it was gonna change their business.

And certainly nobody in those days could have ever conceived of a TikTok or an Instagram, you know, like basically replacing their business. And one of those companies. Now there's really only one survivor, which is Disney. And from what I understand about Disney, which is pretty limited, it's. Probably no more sophisticated than yours, but I think they're basically in a panic because they understand that so much can change about their business, and they're the only survivor of the traditional media, titans of their day, right?

Yeah. So, they, they knew the storm was coming and it was gonna replace everything. And what it replaced with was something was more compelling as a consumer and actually a lot bigger and more interesting. But it came from a new, essentially new modes of thinking. And so, you apply that today and you go, okay, well there, I, I would respectfully submit based off of my own experience, which is, is substantial in implementing AI as early and as aggressively as anybody in the games business, I'd say, boy, this is really big.

And I look back and I, and I think that it could really change a lot of things and make a much better, more healthy industry based off of what I've seen with my own two eyes. And, you know, really with a lot of, a lot of stakes in the table. I think it's a very, you could look at it as, oh my God, this is a threat, which is how some people look at it.

Or you could say, boy, this is a great opportunity. I wanna be part of this. And it's, it's exciting. Creatively, it's exciting as a business. And so part of what I, I think we really need to do, and what I really want to do is be working with creative people who are able to think differently, who are able to get outta their own heads and to, and, and, and probably a lot of those people are new generation people, and then build a better industry for all of us 'cause it, it's kind of messed up now. And, uh, so that, that's what I'm working on.

Aaron: Love it. Well, can't wait to see more about what you're working on and maybe talk about it one day in, in more detail with you here. But we should probably wrap up here.

We're a bit, bit over what we, we, we, our usual time allotment. But, Owen, I mean, it's always a real pleasure chatting with you and really digging deep into how you see the industry in the future. So, thank you so much for taking the time today.

Owen: Thanks, Aaron. I appreciate it.

Aaron: And to all of our listeners, thank you as always for tuning in as well, and we'll catch you in the next episode.

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