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    Deconstructor of Fun

    TWiG 240: A BIG Return, A BIG VC Check, and A BIG Brand That Can’t Seem to Win

    Thu Jul 13 2023
    Executive eventsLicensing dealsMicrosoft's acquisition of Activision BlizzardChallenges in developing games with licensed IPsTips for pitching and working with IP developersRemote work in the gaming industryThe future of free-to-play gamesInvesting in indie/AAA hybrid projects

    Description

    This episode covers various topics including executive events, licensing deals, Microsoft's acquisition of Activision Blizzard, challenges in developing games with licensed IPs, tips for pitching and working with IP developers, remote work in the gaming industry, the future of free-to-play games, and considerations for investing in a gaming company targeting the indie/AAA hybrid market. The episode provides insights into the gaming industry and highlights potential risks and opportunities.

    Insights

    Microsoft's acquisition of Activision Blizzard

    Microsoft's deal with Activision Blizzard is driven by growth in consumer business and subscriptions. However, concerns about the impact on smaller gaming communities and game quality have been raised. The deal also raises questions about Microsoft's ability to manage a large complex organization in the long term.

    Challenges in developing games with licensed IPs

    Developing games with licensed IPs can be challenging due to strict approval processes, limited exclusivity, and the need to differentiate the game experience. The popularity of the IP and the cost of licensing agreements are also factors to consider.

    Tips for pitching and working with IP developers

    Successful pitches to IP developers require extensive research, understanding of the IP holder's motivations, and articulation of the market opportunity. It is important to show how your game fills a gap in the market and delivers on the core fantasy of the IP.

    Remote work in the gaming industry

    The survey suggests that on-site remote or hybrid work is preferred in creative organizations. While many respondents are currently working remotely, a significant portion expects to return to the office. Pay rise is seen as a key factor in increasing job satisfaction.

    The future of free-to-play games

    While major franchises are not expected to go free to play soon, the revolution of free-to-play games is continuing and expanding. The PC market is highly concentrated among a few games that generate the most revenue. Investments in indie/AAA hybrid projects present opportunities but also carry risks.

    Considerations for investing in a gaming company targeting the indie/AAA hybrid market

    Investing in a gaming company targeting the indie/AAA hybrid market requires careful evaluation of the team, their experience, and the potential risks. The valuation and exit strategy should be considered, as well as the challenges faced by smaller independent shops in scaling their business.

    Chapters

    1. Introducing the guests
    2. Barbie and Stumble Guys licensing deal
    3. FTC fails to secure injunction against Microsoft for Activision acquisition
    4. Challenges and implications of Microsoft's deal with Activision Blizzard
    5. Challenges in developing puzzle RPG games with licensed IPs
    6. Factors affecting the success of games with licensed IPs
    7. Tips for pitching and working with IP developers
    8. Remote work and job satisfaction in the gaming industry
    9. The future of free-to-play games and investments in indie/AAA hybrid projects
    10. Considerations for investing in a gaming company targeting the indie/AAA hybrid market
    11. Summary and risks of investing in a gaming company targeting the indie/AAA hybrid market
    Summary
    Transcript

    Introducing the guests

    00:10 - 06:32

    • Eric Kress, Philip Black, Jen Donahoe, Miska Katkoff, and Laura Trento are the guests
    • Philip shares the news of getting a second cat named Kaya
    • Discussion about Philip's cats and Eric's indifference towards them
    • Miska talks about upcoming executive events and partnerships
    • Plans for executive events in London, Stockholm, Helsinki, Tel Aviv, San Francisco, Los Angeles, Seattle
    • Mention of big events in Singapore Gamescom and Abu Dhabi with Unity
    • Closing the year with Slush event in Helsinki
    • Correction on Barbie and Stumbleguys collaboration payment arrangement
    • Chris agrees with Crest's opinion on the payment arrangement

    Barbie and Stumble Guys licensing deal

    06:08 - 12:37

    • Cross-promotion without payment may be happening in some cases
    • IP can be used to attract and acquire new players, as seen with Stumble Guys' attempt to target female players

    FTC fails to secure injunction against Microsoft for Activision acquisition

    12:13 - 19:09

    • After 18 months of anticipation, the FTC has failed to secure an injunction against Microsoft for the Activision acquisition
    • Microsoft is working with the CMA and halting current litigation on the appeal, indicating that the deal is likely to go through
    • The judge's ruling revealed interesting data, such as half of Call of Duty franchise's monthly active players playing on phones
    • Valve did not sign the agreement offered by Microsoft to keep Call of Duty on the Steam platform, showing their resistance to giving ground
    • Despite concerns about bundling and potential damage to the industry, Microsoft is driving this deal for growth in consumer business and subscriptions

    Challenges and implications of Microsoft's deal with Activision Blizzard

    18:48 - 24:45

    • Microsoft is driving the deal with Activision Blizzard for growth
    • The growth is coming from consumers and subscription revenue
    • The Game Pass subscription service may lead to smaller gaming communities and walled gardens
    • Third-party developers may be forced to sign different publishing deals or work as co-developers
    • The quality of games may decrease in a decade, and budgets may get smaller
    • Prepare to pay for multiple subscription services like streaming services
    • Microsoft's deal with Activision Blizzard will keep them as competitors to Sony and Nintendo
    • There are concerns about Microsoft's ability to manage a large complex organization in the long term
    • Subscription services have disrupted other industries like HBO, Disney, and Netflix, which could happen to the gaming business too
    • Jam City has a new game called DC Heroes and Villains, but there were layoffs at Ludia studio

    Challenges in developing puzzle RPG games with licensed IPs

    24:17 - 30:38

    • The puzzle RPG game was relaunched six months later with mixed KPIs
    • The game is a combination of AFK Arena, Empires and Puzzles, and Best Beans
    • The CPI for this genre tends to be high, ranging from $8 to $12 in the US market
    • Ludia may be trying to chase after successful puzzle RPG games like Monster Strike and Puzzles and Dragons
    • The design of the game is old and not interesting enough to attract players
    • DC characters are not as popular as Marvel characters, making it harder to build a successful character collection game
    • Creating a superhero game with an IP like DC or Marvel can be expensive due to minimum guarantees and revenue sharing agreements
    • Strict approval processes and limited exclusivity can hamper the velocity of development for superhero games

    Factors affecting the success of games with licensed IPs

    30:17 - 36:47

    • Limited exclusivity allows for different games with the same IP to be released at different times
    • Success of an IP is unpredictable, as demonstrated by movies like Aquaman and Suicide Squad
    • Marvel Future Revolution experienced a collapse in downloads and revenue despite exceptional production quality
    • Putting an IP on a proven genre increases the probability of success
    • Licensing an IP requires considering competition from other games with the same IP
    • Differentiating your game experience is crucial when using licensed IPs

    Tips for pitching and working with IP developers

    36:19 - 42:51

    • Successful games with IPs require extensive research and understanding of the IP holder's motivations
    • Preparing a pitch for an IP developer involves a lengthy process with feedback and rewrites
    • Show what's in it for the IP holder and how you can increase their reach or portfolio
    • IP holders will have people involved to ensure adherence to brand guidelines and timely delivery
    • Approaching a brand without prior experience or a strong team is unlikely to yield a deal
    • Articulate the market opportunity and how your game fills a gap in the market
    • Consider the financial implications of royalty rates, minimum marketing commitments, and realistic launch timing
    • Double your production timeline when working with an IP licensor due to approvals and opinions
    • Ensure your concept delivers on the core fantasy of the IP before pitching the game

    Remote work and job satisfaction in the gaming industry

    42:23 - 49:15

    • On-site remote or hybrid was found to be the best way for a creative organization, according to the survey
    • 60% of respondents are either working fully remotely or remotely with occasional trips to the office
    • Only 40% believe they will continue working remotely in the near future, while 20% believe they will go hybrid
    • Nearly 40% of respondents say that a pay rise is the best way to increase job satisfaction
    • The majority of respondents are happy or reasonably satisfied with their work at the moment
    • Naraka Bladepoint, a PvP game by Netty's, will be free to play starting from July 13th and will be available on PlayStation 5
    • The game has reached a milestone of 20 million unique players since its launch in 2020

    The future of free-to-play games and investments in indie/AAA hybrid projects

    48:49 - 54:52

    • Major franchises are not expected to go free to play soon
    • Many games have not done well as free to play
    • Premium Plus model makes sense for AAA games with high production costs
    • The revolution of free to play games is continuing and expanding
    • PC market is highly concentrated among a few games that generate the most revenue
    • Lightspeed co-leads a $31.3 million series A investment in Gardens, an indie/AAA hybrid game project
    • The team behind Gardens has a track record of working on successful games like Journey
    • $31 million Series A funding will likely get them to Alpha stage, but more funding will be needed to finish the game and bring it to market
    • There are risks involved in these types of deals due to the long development time and potential need for additional funding
    • Estimates suggest that at least $75-100 million may be needed to finish the game, with another $50-75 million for marketing or publishing deals
    • If the game does not break even or achieve significant success, further funding and equity dilution may be required for future projects

    Considerations for investing in a gaming company targeting the indie/AAA hybrid market

    54:37 - 1:01:17

    • If the company only sells a few million units, they will have to give up more equity to fund another game
    • The founders lack experience in software as a service
    • Investors are taking risks on content, which is rare these days
    • The company received exceptional reviews and acquisition offers for their playable prototype
    • On-site demos are more valuable than Zoom pitching
    • Microsoft, Sony, and Nintendo executives are joining as advisors and investors, not as part of the cap table or board of directors
    • Series A funding is typically for scaling a proven product with a clear market fit
    • The founding team consists of two brothers and a technical co-founder who hasn't worked with them before
    • Having the creative director also serve as CEO could be problematic
    • Being fully remote without prior game shipping experience is a red flag
    • The valuation could reach $500 million by the time they start marketing the game
    • A successful exit would require a one billion valuation

    Summary and risks of investing in a gaming company targeting the indie/AAA hybrid market

    1:00:52 - 1:02:33

    • Based on the red flags, it is not recommended to join as an angel investor
    • The team size is estimated to be around 25 to 35 people
    • The concept art for the game is highly praised
    • The game is described as an ever-evolving online fantasy adventure sandbox ARPG, similar to Final Fantasy XIV, Zelda, and Journey
    • Genshin was estimated at $100 million to build, while Breath of the Wild was estimated at $120 million
    • It will likely cost at least $125 to $150 million to develop this game
    • Smaller independent shops face challenges in scaling their business without big marketing budgets or publishing expertise
    • Investing in companies targeting this market with quality and funding increases the chances of making a return on investment
    • However, there are risks associated with these investments and the exit strategy may not yield high returns
    • Publishers often take a significant portion of the economics, leaving less for shareholders
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