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Naavik Exclusive: Roundtable #20

This week, Aaron Bush, Yon Raz-Fridman, and Miikka Ahonen join Nico to discuss:

• The present and future of Roblox — nearly six months after IPO, Roblox is continuing to bet big on building out the capabilities of its creation platform. New monetization models, more immersive experiences via voice chat and updated textures, and of course, making it easier than ever for developers to build new games.

• NFTs and player-run game economies — NFTs are redefining how game economies are built. The group discusses a recent write-up from Mobile Dev Memo, which lays out a framework for player-owned economies.

You can find us on Spotify, Apple Podcasts, Google Podcasts, our website, or anywhere else you listen to podcasts. Also, feel free to shoot us any questions here.

#1: Scopely Buys GSN Games For $1 Billion

On Monday, Scopely announced that it is acquiring GSN Games from Sony. GSN Games is part of Game Show Network which in turn is owned by Sony Pictures. The purchase price is approximately $1 billion, with roughly $500 million in cash and another $500 million in Scopely preferred stock.

GSN Games has a long history in online games. It started out as the skill gaming website WorldWinner in 1999, and ten years later rebranded as Game Show Network's digital branch (WorldWinner still exists, but as a separate business entity). GSN Games' free-to-play business really took off after it acquired Bingo Bash from the Indian startup Bitrhymes for $170 million in 2014.

Since then, GSN Games has continued to develop and operate social casino games. The bulk of its revenue comes from three games: Solitaire TriPeaks, Bingo Bash, and GSN Casino Slots. During the past three years, GSN's biggest win has been Solitaire TriPeaks that has slowly grown into a formidable $100-million-a-year business.

Scopely, on the other hand, has seen four consecutive years of aggressive revenue growth, originating both from acquisitions and growing live games. Prior to the GSN Games acquisition, roughly 80 percent of Scopely’s revenue originates from its three largest titles: Star Trek Fleet Command, Marvel Strike Force, and Yahtzee With Buddies.

There are two companies whose valuations are worth examining here: the acquirer Scopely and the acquiree GSN Games. Let's start with the former. Scopely has raised a total of about $1 billion in venture capital. The latest round was last year's $340 million Series E with a rumored valuation of $3.3 billion. Incidentally, the GSN Games deal is partly structured as a stock swap, providing us a new valuation to speculate on. According to a source close to the company, the deal suggests a rumored valuation of $5.4 billion, which hints at a 63 percent increase from 2020.

Next, let’s look at the acquiree. GSN Games' forward-looking gross revenue run rate in mobile in-app purchases is about $257 million (SensorTower). We have no information on GSN's revenue outside mobile IAPs. Considering that most games in their portfolio are playable on browsers, it may be in GSN's case a notable chunk of their topline. The rough assumption that 85% of GSN Games' total gross revenue is in mobile in-app purchases provides us a revenue multiple of 3.3x, which makes the valuation consistent with comparable past deals.

The $1 billion deal will be by far Scopely's biggest acquisition to date. GSN Games joins Scopely's previous acquisitionsL DIGIT Game Studios (May 2019), FoxNext Games (January 2020), PierPlay (April 2020), and Genera Games/Genjoy (October 2020). Acquisitions of these four companies have contributed to Scopely's top line with the live revenue from Star Trek Fleet Command, Marvel Strike Force, Scrabble Go, and Tuscany Villa, respectively.

The deal also marks Scopely's entry to the exclusive club of strategic buyers in free-to-play. Not unlike its competitors Zynga and Playtika (to name a few) Scopely has realized that making new hit games is hard. Scopely and its ilk can gain market share through acquiring successful live games in a much more predictable fashion than launching all-new products. Notably, once the GSN deal goes through, Scopely's biggest revenue drivers are Star Trek Fleet Command (developed by DIGIT), Marvel Strike Force (developed by FoxNext Games), and Solitaire TriPeaks (developed by GSN Games). (Written by Miikka Ahonen, Co-founder of Lightheart Entertainment)

#2: New World — Amazon’s Rollercoaster Hit

Amazon gaming can’t seem to stay out of the news. It was only a few weeks ago I wrote about how Twitch was under fire for one of the industry’s biggest leaks ever. Now the company’s first commercially successful game, an MMO called New World, is facing a full-blown economic crisis. The New World crisis requires a bit of context on Amazon’s foray into gaming.

In some ways, the release of New World was one of the most pivotal moments in the company’s gaming strategy to date. Amazon Games has seen numerous missteps over the course of its 8+ years. The studio has blown nearly $500 million/year, canceling multiple anticipated titles (including a rumored Lord of The Rings MMO) due to issues with development timelines and execution. All that to say Amazon needed to get a good game out, and it needed it badly.

That’s why when New World was first revealed at Twitchcon in 2016 as part of a three-game line-up, everyone approached the title with a healthy dose of skepticism (for context the other two games announced, Crucible and Breakaway, have since been canceled). On paper, the title has an interesting concept: players take up the roles of colonists and expand their reach across the fictional world of Aeternum, fighting in 50v50 wars to earn their honor and land. But having a cool idea, and actually bringing to market are two very different situations. New World ended having numerous delays, launching nearly a year and a half after its original release date. In that time, the game also came under fire from the press for its problematic imagery and themes, prompting the company to bring in external consultants to build certain parts of the game from the ground up.

By the time the title actually launched, there was enough headline-driven anticipation to ensure the end result would either be a historic flop or a spectacular success. New World was released on Steam and pulled in 700,000 concurrent players on launch day, making it one of the most successful launches ever. The game even managed to maintain momentum, with 450,000 concurrent players still engaged a few days after launch, and nearly a million viewers tuning in to watch over on Twitch during the same time period.

Much of the game’s success has been attributed to its polish — combat feels unique and engaging, the crafting mechanics feel intuitive and worth spending time on, and the game’s faction battles are built with a sense of scale and impact that give players the sense of a truly massive battle. However, for every seemingly tight and precise input, there is a core mechanic in need of fixing. This brings us to the root cause of the economic issue facing the game today: New World is facing a deflation problem.

Money is so scarce but integral to the game that people are afraid to spend it. As a result, this is driving down prices of in-game items and services. In the game, money is everything. You need it to repair the game’s constantly breaking items. You need it to pay taxes on land and to maintain the homestead. Items that sell for upwards of 50+ gold can cost as much as 40 gold to repair, making the purchase of an axe in the first place nearly 2x the cost. According to a report by PlayerAuction, the games tax system and the relative scarcity of coin has become so problematic that players are avoiding the currency completely, opting instead to trade goods as part of a growing barter economy due to the relative disinterest in parting with something as rare as money.

The long-term effects of this deflationary system are game-breaking. The game can become prohibitively expensive if the cost of crafting or repairing items becomes a barrier to progression. In turn, this barrier could incentivize new and negative behaviors among players — hoarding, lower market activity, and an eventual market floor where prices aren’t able to physically go any lower (in New World, that’s 0.01 coin, the lowest possible valuation for an item). It isn’t as simple as introducing more currency or increasing drop rates either — the need for currency is deeply ingrained in everything a player does in New World, which means if the company overcorrects they could end up with servers filled with excess goods, over buffed players, and extremely high price tags (Raph Koster has written extensively about in-game economies — problems and solutions — on his website).

The economic issues come at an interesting time for the gaming industry as a whole. Trends in P2E titles leverage economics as a core component for their games. Game economists are in hot demand everywhere (Activision, Valve, and Ubisoft). Not to mention, with Web3 adoption increasingly picking up speed thanks to games like Axie Infinity, in-game economies are starting to have real world consequences. Designing and maintaining a sound economic system for any title will likely become even more table stakes when there’s value in owning digital assets through NFTs. Companies that aren’t intentional in how they fix the problem could very well be left behind.

For New World, the economic issues are among a litany of other problems for the game that people aren’t happy with, including 7-day respawn timers, currency duplication glitches, and invulnerability exploits. While Amazon almost certainly has a hit on its hands with this title, keeping it afloat in an era defined by live ops and community-driven game development is a challenge in and of itself. I’m interested to see if New World serves as a turning point for Amazon’s gaming ambitions — the first step in a journey to finally make good on its ten-year vision or perhaps only a rare moment of success amongst a sea of failures. Either way, the journey of New World’s economy, and Amazon Games as a whole is something I’ll be keeping a close eye on. (Written by Max Lowenthal)

🎮 In Other News…

💸 Funding & Acquisitions:

• Scopely will acquire GSN Games from Sony for $1B. Link

• Galaxy Interactive announced a new $325M fund. Link

• Riot Games Alums Brian Cho and Jason Yeh announced Patron, a $90M venture fund investing at the “spectrum of play”. Link

• Animoca Brands received $65M in venture funding at a $2.2B valuation (we previously featured Animoca here). Link

• Parallel, the NFT trading card game, announced a $50M round at a $500M led by Paradigm. Link

• Concept Art House raised $25M to make digital art. Link

• Superplastic raised $20M to build digital IP. Link

• Piepacker raised a $12M Series A led by LEGO Ventures. Link

• Genopets raised an $8.3M seed round. Link

• CD Projekt Red acquired the studio Molasses Flood. Link

📊 Business:

• Google will lower the Google Play subscription fee from 30% to 15% in January. Link

• After the success of squid game in Roblox, Netflix now explicitly allows Roblox developers to create their own experience (we wrote about this here). Link

• Sony continues its expansion to PC, with God of War as its latest port. Link

• 1) Facebook will change its name to reflect its metaverse ambitions and 2) Tencent launched a metaverse-focused studio. Facebook | Tencent

🕹️ Culture & Games:

• Cult AI game Universal Paperclips launched an update. Link

• 100 Thieves acquired Higround and released the first drop. Link

👾 Miscellaneous Musings:

• The Crypto Gaming Revolution. Link

• An interview with the Wilder World founders. Link

• Dawn of the Guilds: Settlers of the Metaverse. Link

🔥 Featured Jobs

• Immutable: BD Exec, Gaming (Remote, US/EU)

• Ubisoft: Junior Technical Artist (Bucharest, Romania)

• Hypixel: Senior Game Designer (Remote, Global)

• Piepacker: Tech Director (Remote, EU)

• Playco: Financial Planning & Analysis Consultant (Remote, US)

You can view our entire job board — all of the open roles, as well as the ability to post new roles — below.

Thanks for reading, and see you next week! As always, if you have feedback let us know here.