Welcome to Master the Meta, the #1 newsletter about the business of video games.

Hi everyone,

We were excited to see our analysis of Stillfront’s Nanobit acquisition get some attention last week. It sat at the top of Pocketgamer.biz, COO Alexis Bonte commented on it, and we got some good feedback. Not everyone agreed with us, and that’s okay. One criticism was that we didn’t focus enough on Stillfront’s financial objectives, but that was partially intentional. Our goal was to dig into what Nanobit unlocks for Stillfront (beyond the fact it was a decent price), and we saved our broader Stillfront analysis for a company deep dive that’s coming out this Wednesday (in partnership with Joakim from Elite Game Developers). Stay tuned for that!

Now, here’s your weekly roundup and analysis of what’s happening in the video game industry…

🔍 Mini Deep Dive: Playco

This past week, the mobile gaming industry got a new unicorn! On September 21st, Playco announced a whopping $100M Series A at a valuation just north of $1B. Playco regards itself as the first instant play gaming company that hopes to create games that not just millions, but billions of people can play together. Instant play games are essentially game app-like experiences that can be played and shared with friends instantly on a variety of platforms (for example browsers, within messaging apps, or directly on the app stores), without downloading an entire app. In this mini-deep dive, we dig into why renowned investors like Sequoia see this as such a massive opportunity!

📰 News

Microsoft to acquire ZeniMax Media for $7.5 billion. This is a big deal and, in fact, represents the second largest acquisition in the gaming industry’s history (topped only by Tencent’s $8.6 acquisition of Supercell). ZeniMax, which includes 8 games studios, will bring the number of internal studios Microsoft/Xbox owns from 16 to 24. It also gives the company a major adrenaline shot of AAA firepower, which will certainly be used to strengthen Xbox’s content ecosystem. Here’s a quick summary of what’s included in ZeniMax Media:

• Bethesda Game Studios — Elder Scrolls, Fallout

• ZeniMax Online Studios — Elder Scrolls Online

• id Software — Doom

• Arkane Studios — Dishonored, Prey

• Machine Games — Wolfenstein

• Tango Gameworks — The Evil Within

• Alpha Dog Games — Wraithborne (mobile)

• Roundhouse Studios — TBD?

So what’s the long-term strategy here? Yes, it’s well documented that Xbox lags PlayStation when it comes to exclusive content, but that’s an overly simplistic view. ZeniMax’s value is worth several billion because its AAA games are accessible everywhere; making its blockbuster games exclusive to one console immediately destroys immense value. It would also anger the gaming community, which Xbox wants to avoid.

Instead, this deal is much more about shifting the narrative from “competing based on exclusives” to “competing based on player value,” which further catalyzes a service-based business model — aka Xbox Game Pass. In other words, most ZeniMax games will not be exclusive to buy on Xbox — although maybe there will be small exclusives or timed exclusives — but instead will be exclusively bundled in Xbox Game Pass. Sure, you can buy the next Elder Scrolls game for $70 on any device… or you can get it as part of your $15 Game Pass subscription, which is playable on both Xbox, PC, and increasingly xCloud. Xbox is working to make Game Pass a no-brainer from a price perspective, and tucking in ZeniMax’s IP is a major step in the right direction.

Lastly, the trajectory of bundling almost definitely means two key things: 1) Microsoft will make more content deals, adding new studios and major IP that will support Game Pass (or more deals like including EA Play), and 2) the bundle will include more than Game Pass. Time will tell on #1, but #2 is already in motion. For only $25/mo (or $35/mo), consumers can receive a new Xbox Series S (or Series X), Xbox Game Pass, Xbox Live, and xCloud access. That’s a killer deal that only grows more valuable as the underlying services — Game Pass most of all — improve.

This acquisition won’t be enough to tilt day one console sales in Xbox’s favor. As we’ve noted multiple times, the PS5 will still win this generation, and it will take time for game production across Xbox’s 24 studios to scale up. There’s also uncertainty of whether Xbox’s strategy shift towards services is the right call. I suspect it is, but it’s a bold bet that will take years to unfold. As Ben Thompson said in Stratechery last week, “ I would probably bet on Sony winning this generation’s battle, but Microsoft is clearly focusing on the long-term war.”

Despite ongoing legal battles, Epic Games continues to make moves. A couple interesting deals :

First, the company invested $15 million into Manticore Games. For those who don’t know, Manticore is building a UGC platform on which ideally anyone can create games without having traditional development skills. In my mind, this deal is sort of surprising and sort of isn’t (very helpful, I know).

I’m not surprised in the sense that both Epic and Manticore have overlapping visions. They both are developing technology that democratizes game development and, as a result, hypothetically grows the industry. Epic’s vision is a bit broader / “metaverse-ier” than Manticore’s, but lowering the barriers to digital creation is a big part of enabling Epic’s broader objectives. It’s also a strong endorsement of Manticore Games, which previously raised $30 million but is still in open alpha. It’s also important to note than Core (Manticore’s platform) is built on the Unreal Engine, which Epic owns.

What does kind of surprise me is that I thought Epic would compete more head to head against Manticore. After all, we know Epic wants to democratize the full spectrum of creator tools — all the way from Unreal at the top to Fortnite at the bottom (and everything in between) — and network effects mean there will only be so many winning UGC platforms. I’m curious to know what Tim Sweeney and team are thinking. Do they want to be frenemies, and if so what does that look like over time? Will the companies collaborate on tech? Is there a path to a full buyout one day? Tim Sweeney has gone on record saying he thinks Core is great, no one company can figure everything out alone, and that everyone needs to work together. It will be fascinating to watch this relationship unfold in the years ahead.

Second, Epic acquired SuperAwesome. SuperAwesome is the leader in kid-tech infrastructure with the vision of making a safety-first, privacy-enabled internet experience for kids. The company’s Kids Web Services (KWS) platform — “a parental consent management toolkit” — helps over half a billion kids and hundreds of brands interact safely, and the focus on advertising/monetization enables over 12 billion digital transactions each month. It’s likely a solid tuck-in for Epic (price undisclosed), which aligns on vision. There are obvious tie-ins with Unreal and even Epic’s own games, but as Epic seeks to expand its infrastructure further beyond just gaming, other use cases could come into play. Combining forces will allow the joint company to create new services for kids/parents.

Amazon wades into cloud gaming. We knew it would eventually happen, but Amazon just announced its own cloud gaming endeavor, Luna. As with all cloud gaming initiatives — especially after watching Stadia struggle — it makes sense to approach Luna with skepticism. For the service to eventually work, Amazon needs to nail 1) the tech, 2) the business model, 3) content, 4) device access, 5) integrations, and possibly 6) new use cases.

We’ll hear reports on how the tech runs once Luna launches, but this should be Amazon’s forte. Building on top of AWS gives the company an advantage that few can match, and since the service will run on Windows servers / Nvidia GPUs it will be friendlier to developers (at least versus Stadia, which required studios to port their games to linux). Of course, Amazon doesn’t control the full experience, which also hinges on internet providers. Fighting for latency improvements will remain a battle for many in the ecosystem.

The business model is mostly straightforward. Users can subscribe to different “channels,” which represent different all-you-can-play bundles of games. Luna+ is the first bundle (priced at $5.99/month for early access users) and it looks like the library of games is still coming together. Ubisoft is the only other channel/bundle that we know is coming, but there aren’t any details yet. Already, this sounds better than Stadia, which makes users pay for cloud streaming and many games separately. In my opinion, finding a way to include Luna+ as a Prime Gaming feature (once it is fully ready) would be the best path for adoption, and then selling access to other channels is the business on top of it (like how you can purchase HBO or Starz through Prime Video). Similar to Xbox, making cloud gaming a feature of a broader bundle versus the sole product is likely to increase adoption while keeping expectations in check.

In terms of devices, Luna should be easily accessible on Mac/PC and on FireTV-powered screens. That’s limiting on the TV front but makes sense as a starting place, at least. Mobile is where it gets weird. Apple, in particular, is making it difficult for anyone to spin up a functional cloud gaming app, so Luna is launching on mobile via browsers. That’s obviously less ideal and limiting, but I’m curious to see how it functions as a work-around. In general, the device front has clear issues (for all cloud gaming providers), which is a major headwind to overcome.

The other important piece for Amazon is integrating Luna with its broader gaming initiatives. Twitch is the keystone, of course, and it looks like Amazon has plans to give Twitch/Luna users the ability to start playing games they see others watch. It’s a cool feature (if/when it launches) but it’s not a make-or-break factor. What’s most important is showcasing the benefits to users at scale, similar to how Twitch users have grown familiar with Prime Gaming (ex-Twitch Prime). Potentially leveraging that audience to build new types of interactive experiences that cloud gaming can uniquely provide is another interesting avenue. Obviously, Amazon has other gaming ambitions — Lumberyard, publishing, etc. Maybe there’s a world in which everything comes together into a robust, complementary ecosystem, but Amazon still has immense room for improvement before that occurs. At least they have the resources to invest however they see fit.

All in all, I’m not sold Luna will be the hit Amazon wants it to be. I’m not writing it off entirely — people who underestimate Amazon are often very wrong — but it will be an uphill battle that takes time to play out. What’s more interesting than Luna specifically, at least to me, is watching the company figure out what it wants its gaming ecosystem to become in the first place. Will the company continue to stumble along or is it the dark horse of the industry? TBD!

Quick hits:

• Mobile Premier League raises $90 million Series C. Link

• Blizzard co-founder Mike Morhaime launches Dreamhaven, which established two new studios. Link

• Krafton is merging with PUBG Corp. Link

• Roblox welcome Andrea Wong to its board of directors. Link

• Ryu Games is launching its own games tournament platform to compete with Skillz. Link

🖥 Content Worth Consuming

Among Us, a murder mystery set in space, is the latest multimillion dollar craze in video games. “As people stay at home across the world, their latest favorite pastime is a 2018 murder mystery game set in space called Among Us. The game's exponential popularity drove its developers to announce on Thursday they were canceling a sequel to the game, to better focus on growing the existing version. The game reached over a million players on September 3 and had grown to over 3.5 million concurrent users worldwide by Friday.” Link

Stadia Makers say transition to Google’s platform challenging, but rewarding. “I think we're going to see some very big changes in terms of how games are made, marketed and seen by both gamers and non-gamers. In such a world it's going to be increasingly important that programs like Makers exist to ensure games large and small have a voice and can reach the right audience.” Link

Before & After Don't Starve - The History of Klei Entertainment | Noclip. “We talk to Klei Entertainment founder Jamie Cheng about the company's history. From working on EETS in his spare time, to the breakout success of Don't Starve and beyond.” Link

Thanks for reading. See you next week!