Naturally, I have cleared my schedule to watch both the US and Dutch teams’ matches. Can’t miss it. And while watching a minimum of two matches a day will certainly have an opportunity cost, it’ll never be as expensive as actually going to the matches.

Officials in New York and New Jersey have launched an investigation into FIFA’s ticketing practices. I wrote previously about the enormous increase in the cost of attendance. Soccer, one of the more modest games enjoyed around the world, is pricing itself out.

The Dutch metaphor for this is that FIFA made soccer all about the marbles, not the game. It has adopted dynamic ticketing, a practice borrowed from concert venues that allows ticket prices to be adjusted according to demand, and it is creating a costly headache for fans. And that is in addition to the cost of getting to the stadiums. The most beautiful game in the world has never been closer and somehow feels further than ever.

FIFA can keep its $6,000 tickets. I’m watching it at home with the kids.

On to this week’s update.

BIG READ: Data and compute (Part 1 of 2)

Play often reflects the trends and tensions that take place in the larger world around it. We’ve already seen how tariffs and geopolitical conflict affect what the industry can produce. The biggest impact, however, comes from AI.

After Google’s Project Genie provided a free haircut for all major game companies’ share prices a few months ago, the jury is still out on the economic impact. Will AI make studios more efficient? (No, it won’t.) Will it make games more complex? (Also no.)

As AI marches toward becoming the center of the new economy, two macrotrends are making themselves felt: data and compute. This week, we’ll take a look at how data ownership will impact the games industry through the lens of Reddit’s recent policy changes. Following, in part two, we’ll take a closer look at the impact of AI on compute and device ownership.

All about Jasons

While the major AI companies are getting ready for their moment in the sun and filing for their inevitable IPO, the other half of this business is refining its strategies, too.

Specifically, once the dust settles from the reshaping of the planet’s skyline with data centers that provide access to computational power, the next infrastructural investments will focus on developing value-added services. That’s when access to a repository of unrefined materials will be key, and we’ll soon see a switch to a greater emphasis on data as the raw input.

Case in point, Reddit announced this week that it is changing its policies regarding data scraping. Specifically, it is “shutting down unauthenticated .json endpoints,” making it harder to download its data without permission.

While I’m a big advocate for the protection of users—your audience is the business—I’m also naturally wary when billion-dollar firms start wielding terms like ‘user protection’ because, frankly, that tends to be the number two reason.

First and foremost, social platforms and online communities have to resist the constant gravitational pull to monetize their user data. It is an important reason why I think Reddit is doing this, without having to say so. In its earnings report, it noted that it is “one of the internet’s largest corpuses of information with over two billion posts and 22 billion comments,” and that Reddit is “one of the most sourced and cited domains in AI.”

It may have sold some of its data a bit too soon.

According to its earnings report, Reddit generated an additional $100 million in 2024 after it started licensing its data to AI firms. (In its financial reporting, “Other Revenue” includes licensing plus income generated from Reddit Premium and its user economy.) Google reportedly pays Reddit about $60 million annually to use its data for training Gemini AI models. By 2025, this revenue line represented 6 percent of the total. That’s pocket change for perhaps the most-cited resource in AI, and precisely why Reddit is closing the gates.

Looking at its share price history, it is clear that things are going well, but that there’s also potential for more. Over the past 24 months, Reddit has had a wild ride, reaching nearly 5x its value, but ultimately trading 64 percent higher last week. A hefty infusion of revenue from its data feeds would go a long way toward sparking shareholder excitement.

It’s the kind of decision all of these firms have to make at some point or another. Meta, on one extreme, has already committed both its user and employee data to train its models. Discord, in contrast, has historically shied away from the practice, but since the departure of its founding CEO, Jason Citron, that may yet change, especially as it prepares to go public. Data, like regular oil, is a commodity tightly controlled for maximum value capture.

In turn, this creates a strategic problem for market research and intelligence firms. Access to audience data to reduce demand uncertainty and build more effective marketing models in cluttered digital entertainment markets is increasingly critical. (And, coincidentally, precisely the model we built for ALDORA, which measures the presence and performance of S&P 500 brands across the gaming eco-system.)

Just last week, I wrote about the data monopoly that has been materializing in mobile gaming. This is where the games industry is most vulnerable. The richest behavioral data in entertainment belongs to the platforms. Valve knows what every Steam user buys, refunds, and abandons; the app stores log every session; Roblox watches its players in real time. None of it belongs to the developers who generate it. The same logic walling off Reddit’s corpus applies to them in spades. Once your data is the raw material AI models are starving for, why keep handing it out for free? The day Valve or Apple decides to close or reprice that spigot, the analytics firms built on top of it, and the studios that lean on them to find an audience, find out they were renting, not owning. I have no doubt that Reddit is truthful when it says it’s changing the rules of engagement because of so many bad agents and automated aggregators that are up to no good. It would help, though, if there were some lawsuits or other evidence that made it more tangible than what management tells us.

The long view: Data will be both abundant and, therefore, inaccessible. We’ve mostly accepted that the record and output of our online activity no longer belong to us. After leveraging our sociographic information for almost two decades, social media firms have been targeting us with ads to the point that we can’t tell anymore whether anything we come across online is serendipitous or whether we are slowly moving through someone’s conversion funnel.

Making sense of all that information, however, requires centralized data depots capable of structuring and supplying specific data sets. Firms that excel at this will supply the proverbial ‘data is oil’ resource. Firms like Reddit provide a valuable service, certainly, and will increasingly represent aggregators that refine data so it can be licensed by others, specifically to make AI models smarter.

Data aggregators will become even more valuable, especially when the price of compute collapses (again). That’s a topic for next week.

NEWS

Valve raises prices on hardware and then some

“Due to rising memory and storage costs,” the existing Steam Decks are now substantially more expensive. The 512GB model will now cost $789 USD (up $240), and the 1TB model will cost $949 USD (up $300). It’s got gamers in a tizzy who now fear that the upcoming Steam Machine will be similarly expensive. I had previously updated the anticipated cost, but the extra 40 to 50 percent announced for the Steam Deck suggests the new hardware may launch closer to $800 USD on the low end, losing its competitive pricing versus the existing PlayStation 5 and Xbox.

And speaking of Valve, Bloomberg’s Cecilia D’Anastasio penned an excellent update on Valve’s monopoly moment. It is facing a class action suit that has produced some notable insights, including Valve employees arguing that consumers benefit from ecosystem policies, because it means users get the best available content for the same cost as anywhere else. I have a few thoughts on this, too, of course, but I will yield my time beyond pointing out that there really aren’t any meaningful competitors. Insisting on parity when you control the market means you’re preventing other platforms from competing.

Finally, Lord Gaben is apparently selling the Rocinante, one of his yachts. If any of you want to go in on it, hit me up. It’s currently docked at Canary Wharf in London, so let me know if you’re game, and I’ll ping the private jet so we can zip over there for a quick test run. (h/t Joost Rietveld)

PLAY/PASS

Play. I thought Lewis Packwood’s article on aging gamers was well-researched and timely. It offers an important strategic perspective (i.e., demographic changes) that goes beyond trying to guess the next hit game.

Play. The ESA issued its annual state-of-the-industry report.

NEXT UP

The growing momentum behind AI’s investment in compute is starting to take a material toll on gaming. Next week, we’ll take a look at how this may change how we play in the future.

His high-calorie slide decks, his book on the metaverse, and a steady stream of long-form essays have made Ball the most-cited analyst in the industry, and I’m glad he’s getting a chance to put his ideas into practice at scale.

I also commend Asha’s willingness to shuffle the team and take a different direction. Just three months in, she’s already changed the narrative around Xbox’s future. She lowered the price of the premium Game Pass tier and issued a memo that echoed the spirit of the old Xbox. Both Xbox and the industry desperately need to evolve, and so far, Asha is proving to be an agent of change.

Ball is the exclamation mark on a string of hires that began with several execs from her old CoreAI crew. It is entirely too early to speculate what’s going to happen next, especially because I don’t think that Asha hired him with a specific agenda in mind. But I’d expect him to follow his instincts and build on some of the major trends he’s outlined in the past. For Xbox, that may entail doubling down on user-generated content. Ball has long held a strong affinity for Roblox and comparable digital experiences. Building a healthy third-party ecosystem in which individuals and small studios can bring novel experiences to market seems likely.

So far, I’m liking the new Xbox. The real test is whether one of the industry’s most prescient strategists, who built his name on charting the industry’s course, can actually move it there.

NEWS

Take-Two schooling investors during earnings

The idea that someone as bulletproof as Strauss Zelnick would just give you, a shareholder, the information you so desperately want is hilarious. He doesn’t work for you. During earnings last Thursday, Zelnick seemingly frustrated investors and, by extension, gamers, by saying words other than “Yes, GTA VI is going to launch on November 19 as planned,” and “It will cost $80.”

Instead, we got a masterclass on being an entertainment executive.

Zelnick’s job is to make sure he’s got the best possible people working on the biggest possible project that yields the greatest possible return. He knows he has a monster hit on his hands and is therefore doing the fiscally responsible thing by tempering expectations.

In case of any disappointment, it contains downside risk, and in case of a blowout success, the firm looks even better. In addition, while the GTA VI release is material to Take-Two’s success, the firm is more than a single franchise and has been diversifying its offerings across all platforms and categories. Investors tend to look for short-term gains, while successful entertainment empires focus on consistency.

Does that mean it will or won’t launch on November 19th?

Well, now that we’re six months out from GTA VI’s release, I take this earnings cycle as the firm’s last chance to announce drastic, additional 6- to 12-month delays. We may still have to wait a few extra weeks past the current date, but Take-Two is not going to miss the holiday season.

Its predecessor, GTA V, sold $1 billion within its first three days. I predict that GTA VI will sell $1 billion in its first 24 hours and 38 million copies within its first year, even before its release on PC. Historically, Take-Two’s blockbuster releases have consistently outperformed expectations because, well, they prove to be so popular that it is difficult to accurately predict even the most optimistic scenario.

What did you think the word ‘Grand’ meant here exactly?

The emergence of a new data monopoly

Last week, Sensor Tower announced that it had acquired AppMagic, another smaller mobile market intelligence provider. The reasoning is that AM will serve as Sensor Tower’s “new small and medium-sized business (SMB) offering.”

Having built and sold several data companies myself, I have at least three thoughts.

First, flowers are due. I’m happy for AppMagic’s founder and CEO, Max Samorukov. From the start, the quality of his data was on par with Sensor Tower’s and, importantly, cheaper. When I first met him a few years ago, I got to know him as incredibly sincere in his efforts and work ethic. It’s a great outcome for a great operator.

Second, acquisitions rarely occur in a vacuum. Beyond comparatively smaller deals like AppMagic, private equity is looking to buy and roll up several data providers across the measurement layer. My tea leaves tell me that sooner or later, a firm like AppLovin or AppsFlyer is going to look to scoop up Sensor Tower.

Sensor Tower generated $48 million in 2025, up from $17 million a year earlier. According to CEO Oren Kaniel, AppsFlyer is generating $500 million in annual recurring revenue as of early 2026. Reportedly, the firm is valued at around $2 billion. Combining the two halves of competitive intelligence and marketing campaign measurement would effectively create a Nielsen-style organization for the mobile app ecosystem.

Third, all this makes me increasingly skeptical of continued consolidation among mobile data providers. After absorbing data.ai in 2024 and VG Insights in 2025, Sensor Tower has been bulking up through expansions. That’s fine, of course.

In the data business, each acquisition removes another independent data source from the market, and the cumulative effect creates a structural barrier to entry. It means that only well-capitalized firms can credibly compete, and increasingly, only mobile studios that have mastered the user-acquisition algorithm have a real shot at success.

You can see this in the DNA of today’s winning mobile studios. We spend a lot of time talking about consolidation among publishers and platforms because, on average, economies of scale tend to disincentivize innovation and creative risk-taking. It reduces the number of voices in creative markets.

A highly concentrated data market deserves the same degree of scrutiny, because it, too, throttles creativity and the free flow of ideas at the supply side.

My prediction is a further rollup in this category, especially as private equity seizes the opportunity to build a mobile data monolith.

New study validates that empty feeling

The emotional connection we find in games is real. Real enough for players to experience a sense of emptiness, sadness, and loss once the credits roll.

In a new study, researchers Kamil Janowicz and Piotr Klimczyk surveyed 373 players and found that many experience “sadness caused by the impossibility of going through the game first-time one more time.”

Several findings stand out. First, role-playing games are the strongest trigger. Genres built around deep narrative immersion and character attachment produce the most intense post-game reactions.

Second, the players most susceptible are those who spend the most time gaming, meaning publishers’ most engaged customers are also their most emotionally exposed. It raises questions about managing expectations and supporting players.

And, third, the strongest post-game symptom isn’t just sadness, it’s what they call “game-related rumination.” Players keep thinking about the game, hunting for fan content, soundtracks, and lore long after finishing. It is further evidence that games sit at the center of a wide range of ways people engage with content.

The researchers conclude: “If video game developers aim for their games to be considered thought-provoking, with rich narratives and the capacity to evoke deep emotional experiences, knowledge of [post-game depression] becomes crucial in the design process.”

I agree. You’ve done everything you can to deliver a deeply meaningful experience. Does it make business sense to leave them hanging?

PLAY/PASS

Play. Dream Games just added interstitial ads to its most popular game, Royal Match, which tells you a lot about where mobile gaming is headed next.

Pass. Reading through the SpaceX S-1 document in preparation for its IPO, I’m seeing very few references to gaming. I guess Elon has forfeited on making games great again. I’m not surprised.

NEXT UP

I’m scheduled to give a talk at Unreal Fest Chicago 2026. Come say hi!

It’s been fascinating to see the prominence of AI grow with each batch, and this semester was no different. I’m nevertheless starting to develop mixed feelings.

For context, I allow, nay, encourage students to use AI in their work. The trade-off is that you tell me precisely how you used it, so I can tell where your own work ends and AI picks up.

The benefit, I think, is that you need to get comfortable.

When the seven most valuable firms in your economy have invested a cool trillion dollars in a novel technology, it will inevitably be part of your future experience. It serves my students well to be at least somewhat literate, and school is a good place to practice these skills before they are inevitably evaluated on them in the real world. Alternatively, maybe by exposing them early, this next generation may yet grow jaded before they’re lulled to sleep entirely.

Which is why my sympathies go out to the student who handed in a paper that ended with the sentence: “If you need the next part, I can turn this into the supporting charts/visuals section or combine everything into one polished final paper.” You figured out how to crack the safe and steal the jewels, but you forgot to leave.

The only real threat that AI poses is human error.

On to this week’s update.

BIG READ: Nintendo versus hyperscalers

Nintendo's price increase for its Switch 2 was both a notable break in the firm’s history and a glimpse into the future of console gaming.

When the console launched last June, it was already substantially more expensive than its predecessors, and presented a clear break with Nintendo’s historical pricing strategy. Sure enough, the firm is known for rarely lowering the cost of its hardware and games. In fact, that has been a central tenet of Nintendo’s strategy, as part of its pursuit of quality. Any discounts, former president and US COO Reggie Fils-Aimé told me recently, were retailers taking a loss to drive traffic. “The company never discounted,” he said.

But to have Nintendo announce a price increase is surprising.

Starting in September, the Switch 2 will rise to $499.99 in the U.S., with parallel increases in Canada, Europe, and Japan. In addition, its Switch Online subscription is going up roughly 25 percent in Japan.

It forms a clear break with the firm’s long-standing pricing strategy, right as things were going well. The Switch is off to a strong start. It has sold close to 20 million units since its release in June 2025 and 49 million software units. The firm should be celebrating a triumphant launch. Instead, it tries to temper expectations. In its guidance, it warned of a softer year ahead, anticipating selling 16.5 million units and an 11 percent year-over-year revenue decline. President Shuntaro Furukawa apologized to shareholders and even conceded that the $50 price increase will not cover all of the cost inflation.

Nintendo’s stock fell 8.4 percent on the news to its lowest level since August 2024, and is down roughly 34 percent year-to-date.

Forecasting a decline in sales during the second year of a recently released console is unusual. Historically, this is the time when console manufacturers benefit from price reductions, economies of scale, and a broader software library that attracts consumers who need more convincing.

The Switch 2 is doing the opposite. It is raising its price, lowering its volume expectations, and entering year two with the first-party slate still front-loaded with safe bets—Yoshi, Star Fox, and Splatoon Raiders—rather than the tentpole 3D Mario or Zelda titles that normally anchor a holiday window.

Nintendo’s circumstance is not unique.

In March, Sony similarly announced price updates for its current hardware generation, including an $899 price tag for the PlayStation 5 Pro. It puts the symbolic threshold of a $1,000 console within reach, effectively making the category a luxury expenditure. And Microsoft has done the same by raising Xbox Series X prices twice in 2025. It amounts to a pivotal moment in console gaming.

Historically, console makers cut prices as a generation matured. Even the famously expensive PS3 fell from $599 to $249 over its life. The Xbox 360 went from $399 to $199. The Wii dropped from $249 to $129. Every prior generation launched high, cut repeatedly, and ended its cycle at a fraction of the original sticker. The current generation has inverted that pattern in the US market. The devices have stayed the same but have become more expensive later in their cycles. AFAIK, this is the first time in the console business's 40-year history that this has happened.

This decision is largely the result of external factors. Three structural forces are simultaneously squeezing the console business.

First, memory is now wildly expensive.

The reason is obvious: AI companies are buying up all inventory to satiate their computational needs and thereby raising prices. Capital expenditure among hyperscalers is projected to exceed $725 billion in 2026 alone, and firms like Samsung, SK Hynix, and Micron are naturally allocating capacity to customers who sign the longest contracts at the highest prices. I’m told that chipset manufacturers like AMD see no near-term relief in sight on supply. Their capacity is maxxed out, and it takes years to expand production. Even the obvious alternative, cloud computing, merely moves the problem around but doesn’t solve anything as cloud providers compete for the same components.

There’s also the Hormuz closure, which has been in place since February 28. Shipping through the strait runs at roughly 5 percent of pre-war traffic, which has made oil, as well as insurance and container slots across every Asia-to-West lane, substantially more expensive. The memory of how a dragged down value chain impacted console sales, and the ability to deliver devices to consumers, should still be fresh in people’s minds.

And then there was the US tariffs that were announced in April last year.

Sure enough, the US Court of International Trade ruled Trump’s tariffs were unlawful, but the damage is obviously already done. Moreover, it’s but a single volley in a broader effort to construct trade barriers and artificial inefficiencies that raise prices. You’ll recall the 2024 report by the Consumer Technology Association, warning that tariffs could drive up the price of consoles by up to $246. Judging by where current MSRPs have landed, we are most of the way there.

Ready player when

Investors are divided on what this means for Nintendo. On the one hand, there are those who have started to lower Nintendo’s stock price. They argue that the “triple squeeze” on margins will have a more permanent impact on the new hardware cycle. They find evidence in the fact that there currently are no release dates for any of its marquee properties, like Mario and Zelda.

On the other hand, investors are looking to buy the dip. They argue that Nintendo recently reaffirmed the value of its Pokémon franchise with Pokopia and did, in fact, just launch the fastest-selling console in its history.

It tells you that the disagreement isn’t really about Nintendo or any of its peers. Rather, Nintendo is the canary in the coal mine.

A historically conservative, financially disciplined operator that builds its own hardware, owns its own IP, and answers to almost no one—and even Nintendo cannot absorb these costs without raising prices. If the most disciplined player in the category can’t hold the line, the rest of the industry has already been redrawing its plans. Sony has. Microsoft has. The question is no longer whether the pricing model needs to change. It is the version of the new model each company commits to.

So, what’s next?

As one would expect, Nintendo remains relatively insulated. For one, it retains over a quarter (27%) of its current market value in cash on its balance sheet. Considering Nintendo is not an acquisitive company, that money provides a buffer to navigate any additional financial uncertainty.

It has also established a credible new revenue stream through its box-office productions. To date, The Super Mario Galaxy Movie has earned $940 million on an $110 million budget. The previous film, The Super Mario Bros. Movie, generated $1.36 billion. What both productions lack in narrative structure, they make up for in profitability.

Another option is to announce the next iteration of either a new Mario or Zelda game. Here, I suspect Nintendo will disclose an upcoming title for April 2027 in the lead-up to this year’s holiday season. There’s no point in trying to go head-to-head against GTA VI, not even for Nintendo, so releasing a teaser in the latter part of the year will prime audiences to buy the new hardware in anticipation of a first-party Spring release.

A hard reset

None of the old rules—seven-year cycles, mid-cycle price cuts, predictable refresh windows, separable device-purchase decisions—survive the current environment intact. Forecasts built on the last cycle’s assumptions are already obsolete. What’s happening in console gaming is a direct reflection of what’s happening in the global economy.

For decades, the industry has been understood by investors, the press, and increasingly by its own executives, as a technology business.

But gaming is not a technology business. It is a cultural business that happens to run on technology. And while perhaps in the past growth came from better chips, its current value comes from the characters, franchises, and the social rituals built around them. Hardware is just a delivery mechanism.

The firms best positioned for what comes next are the ones that are developing novel ways to reach audiences and ways to play without the intermediation of large tech companies. A $4,000 price tag for NVIDIA’s latest RTX graphics card buys an epic ton of collectible cards and board games.

Nintendo’s price increase tells us that the existing economics for console gaming are breaking. The question now is whether the industry at large is going to recognize what it actually sells, and to whom—or whether it keeps insisting it is a technology business right up until the technology prices its customers out of the room.

PLAY/PASS

Pass. I’m still recovering from eBay’s formal rejection of GameStop’s offer, calling it “neither credible nor attractive.” Lol.

Play. The New York Times announced a televised game show based on Wordle that will air on NBC in 2027. Mario has movies, Cyberpunk got an anime, and now Wordle gets a quiz show.

UP NEXT

Take-Two reports earnings this week. Expect final confirmation of GTA VI’s November 19 release—and, if past is prologue, a new trailer to go with it.

[N.B. I’m sending this from the juror waiting room as I was summoned this week. The internet connection is what you’d expect it to be. I will correct any errors once I return to civilization.]

You can watch our conversation in its entirety on Twitch, or read about some of the highlights here, here, and here.

One of my favorite parts was Reggie’s account of how Nintendo sees the world. As a firm founded in 1889, it has seen more than its fair share of societal shifts, to say the least. During a period as we experience now, with lots of layoffs and abundant uncertainty, Reggie reminded everyone of a quote from Hiroshi Yamauchi, Nintendo’s third president, who served from 1949 to 2002:

“No matter how good the business is, remember it’s not that good—and no matter how bad the business is, remember it’s not that bad.”

The hallmark of any chief operating officer is their steady hands and ability to navigate a company through economic turmoil.

Given that Nintendo added 500 people in the last year, while layoffs continue to pester the industry, it’s a lesson we’d do well to take to heart. The discipline that looks unimpressive in good years is the only thing that makes bad years survivable.

On to this week’s update.

BIG READ: GameStop’s $56B offer for eBay

Once the most powerful games retailer in the United States, and arguably the world, GameStop is a bottomless well for anyone studying strategy and entertainment.

I previously dedicated a full chapter to the company’s history and rise to power in my first book, and have written about it repeatedly since, including on its midlife crisis and transition into a meme stock. In the latest development, its CEO, Ryan Cohen, announced an acquisition offer for eBay over the weekend, valuing the firm at $56 billion.

The news raises several red flags.

First, the math doesn’t math.

GameStop, a company valued at $11 billion, wants to buy a company worth $46 billion. That’s not necessarily a new idea (several American retailers have transitioned to become holding companies), but GameStop is raising the stakes considerably.

Certainly, Cohen has managed to improve the retailer’s financial position over the last few years, from a $381 million net loss in 2021 to $418 million in net income last year. To accomplish this, GameStop has had to close stores, cut its headcount, and turn the corporate treasury into a cryptocurrency hedge fund. It’s a tactic we’ve previously seen deployed by Tesla CEO Elon Musk.

The stock has rewarded the turnaround unevenly: GameStop is up about 17 percent year-to-date but still down 12 percent over the trailing 12 months and 41 percent over the past 5 years, while eBay is up 81 percent over the same period. The market, in other words, has never quite believed the story.

But GameStop has fallen far from its 2012 peak. Since then, revenue has dropped from $9.6 billion to $3.6 billion in 2026, or roughly a third of its size. The profit Cohen cites as evidence that he turned the firm around is mostly interest income, not from retail. Of the $418 million in annual profit, $130 million comes from interest on its $9 billion cash hoard. It means that GameStop is much less a specialty games retailer and more an investment fund with a side business in selling games.

And, considering it’s in the business of selling physical goods, it’s done little to insulate itself from the current spike in oil prices (due to the War in Iran), chipset costs (due to the heavy investment in AI), and tariffs (due to no reason at all, but here we are). Its reliance on a healthy relationship with console manufacturers has historically been key, and that category isn’t exactly on fire. Retailers are already known to operate on razor-thin margins, and a 2024 report from the Consumer Technology Association was prescient in predicting the rising cost of doing business for consoles. None of it is good for GameStop.

It has drifted from its physical games business. Roughly 80 percent of its $11 billion is based on its $9 billion treasury, and the operating business is valued at just $2 billion. Moreover, the physical assets that differentiate GameStop—its storefronts and staff—are down, too. Its store count currently sits at around 3,200, down from 7,535 in 2017, and headcount is down from 20,000 to about 4,000 today. So, quick math, roughly 1.25 full-time employees per storefront, down from double that.

Despite this, GameStop is offering $55.5 billion for a company that is four times its size, meaning it will have to borrow money. According to Cohen, it has access to $20 billion based on a “highly confident letter” from TD Bank. The $11 billion market cap, incidentally, is roughly halfway to the $20 billion floor that triggers the first tranche of Cohen's $35 billion compensation package, granted in January (more on that in a moment).

That brings me to the second part that feels off, the overall vibe.

Watching the strained CNBC interview, Cohen seemed almost annoyed that anyone would raise any questions—about financing, about strategic logic, about the basic mechanics of how this works. In the cringey 16-minute exchange, rather than answering the question, he repeatedly directed viewers to the company’s website.

Ok, not what live interviews are for, but fine.

He has also, by his own admission, not spoken to eBay’s management, which, for its part, has acknowledged receipt and said the board will review. It’s the corporate equivalent of “we got your message,” as the firm has a fiduciary duty to report such offers to its shareholders, but not much else.

It’s probably because I have not yet reached the leather-jacket stage in my own career that I misunderstand how these things work. But in my experience, acquisitions, especially ones of this size, take a little more runway than a single weekend. Even EA’s $55 billion leveraged buyout took several weeks, and that one had a sovereign wealth fund ready to front the money when it was announced.

Instead, Cohen went public first. His audience, the shareholders who help him get rich, are retail investors. He’s done it before.

In 2024, GameStop announced its quarterly earnings early, coinciding with an anticipated live stream of popular retail investor, Keith Gill, aka “Roaring Kitty.” During the live stream, GameStop’s shares rallied, and the firm promptly unloaded 75 million shares at $28.50 each, raising a cool $2.1 billion, doubling its cash pile.

Or, put differently, the eBay bid is the show.

There’s no realistic way for GameStop to drive revenue to the point where Cohen’s compensation package materializes. A large bid for another firm, on the other hand, can move the share price and, by extension, Cohen’s payday.

I’m in good company on this. Even Michael “Big Short” Burry, who took a long position in GameStop in January on the thesis that Cohen was assembling an “Instant Berkshire,” sold his entire stake the day after the eBay bid was announced. According to Burry, the deal pushes leverage to roughly 7.7x EBITDA, “bordering on distressed.” Or, more to the point, “Never confuse debt for creativity.”

I don’t get the impression Ryan Cohen has set foot in a GameStop recently. GameStop used to be a place for gamers to gather, hang out, and talk about their favorite pastime. Today, it plays stupid games and wins stupid prizes.

NEXT UP

This coming Friday, both Sony and Nintendo are reporting earnings. It’ll give us a better sense of what’s next for console gaming.

I’m tired of buying mugs and was never one for shot glasses. Figurines, on the other hand, are lightweight souvenirs that I will enjoy assembling and painting at some later point, to remember whatever trip I was on at the time.

It’s also a great motivator to leave your hotel room between meetings and head to some unrelated part of town. I’m a seasoned and spoiled traveler. But that lobby life has limits.

Anyway, along these lines, I found myself in a board game store during a recent trip to the Netherlands. There’s something quaint and deeply relaxing about standing in front of a wall of board games and related paraphernalia.

Given how prominent digital play has become, you’d think that this odd form of analog, offline play is a relic.

It is not.

Today, the global tabletop games industry is a consumer entertainment category valued between $16.8 and $24.9 billion, fueled in part by what researchers have called 'digital fatigue' and a growing preference for nondigital forms of entertainment. It is a growing market, brimming with innovation and perhaps a place for civic engagement.

Just last week, we saw the incredible success of a Kickstarter campaign for the Cyberpunk 2077 trading card game, raising $28 million. People vote with their money. I’d be curious to see which other AAA publisher would dare expose its IP to the raw reality of a consumer-facing investment market.

Board and trading card games are also an incredible source of strategic innovation. Interactive entertainment at large is so deeply tethered to the tech industry’s idea of positive network effects that we’ve completely forgotten to challenge any of those assumptions. It is something as modest as analog cardboard-based play that unnerves the incessant addition of social features as “wholly advantageous” and proves they are not “unequivocally beneficial.”

But my favorite feature is how these games, perhaps because they do not require a $3,000 to $4,000 NVIDIA RTX 5090 graphics card, serve as a way for people to connect.

In a 2020 study on Saudi card game players, researchers found that participants consistently valued board games for their ‘low-tech, natural community-building properties’—preferring the face-to-face negotiation of a shared table over the convenience of a screen.

Saudi designers used locally made games to express national identity, and board game cafés became gathering spaces where social norms were negotiated in person—especially in a country undergoing rapid modernization under Vision 2030, where the analog game table became a site of cultural self-definition rather than a retreat from progress.

Offline play might be my next move.

On to this week’s update.

BIG READ: Toys diverging

Since Asmodee's IPO in February 2025, the first moment all major toy and entertainment companies were publicly traded simultaneously, the market has delivered a clear split.

Firms that have successfully established a secondary, high-margin revenue engine alongside their physical business are doing well. This includes Hasbro (+55 percent), Games Workshop (+44 percent), and Asmodee (+26 percent). In contrast, competitors that haven’t quite formulated such a strategy, like Mattel (-32 percent) and Spin Master (-38 percent), are down.

The companies that are struggling aren't struggling because digital isn't working. They're struggling because they're still monetizing their biggest brands through one channel at a time. Hasbro, for instance, figured out how to make Magic: the Gathering pay across physical cards, digital games, licensing, and community all at once. It has defined its metagame strategy while competitors are still formulating theirs.

An integrated approach pays dividends. Wizards, Hasbro’s games division, generated $2.2 billion in 2025 (up 45 percent year-over-year) at a 46 percent margin. Its best-known franchises are performing well: Magic: The Gathering alone grew 59 percent, and Monopoly Go! added $168 million in licensing revenue. Interactive entertainment accounts for almost half of Hasbro’s total revenue and the vast majority of its profit.

Similarly, UK-based Games Workshop reported a 42 percent profit margin on $1 billion in 2025 revenues, driven by the success of its licensing business. Space Marine 2 sold 7 million copies, pushing licensing revenue from $39 million to $66 million.

Asmodee is the most interesting case in the leader group, because it’s also the cautionary one. Recently divested, it reported “the strongest sales and profit performance” in its history, according to CEO Thomas Koegler. That momentum is an important part of what drove the firm’s recent $194 million acquisition of ATM Gaming, a company with a 50 percent profit margin.

Despite a strong run since gaining its independence from Embracer, Asmodee sits at the start of a long-term transition. Its digital assets show promise. Board Game Arena has almost 11 million users, but generates very little revenue. Growing its audience by expanding the reach of its most popular IPs, such as Catan and Ticket to Ride, will go a long way toward building the war chest needed to establish a more robust digital front.

Owning a well-known franchise is similar to having a great idea: it is worthless unless you execute well.

It is, in effect, the challenge that Mattel faces. After spending $159 million to take full control of Mattel163 and its mobile gaming partnership with NetEase, it is investing another $110 million, with digital games as the largest area, to make 2026 what CEO Ynon Kreiz calls “an inflection year.” Following a disappointing holiday season, the firm proved vulnerable to global trade dynamics and saw its margins erode. It is now taking charge of building the digital gaming infrastructure that some of its rivals have already established.

Case in point: Mattel’s Uno is one of the most universally recognized card games in the world. With around 300 million lifetime downloads, it generates around $3 million in monthly revenue. Monopoly Go! earns about 30 times that. And Uno’s mobile revenue is down 16 percent over the past eight months.

Owning demand economics

What will matter most for toy makers and board game companies is the effective integration of digital and physical play. Their future is not digital per se, but control over the economics of demand.

Companies that are monetizing IP and software—Hasbro, Games Workshop—have pricing power and the best margins in the category. Companies still selling physical goods through retail channels—Mattel, Asmodee, Spin Master—have the worst.

When Hasbro sells a Magic booster pack through its own digital platform, it controls the price, timing, audience, and margin. When Mattel sells a Hot Wheels set through Target, the retailer decides the amount of shelf space, the promotional effort, and, importantly, its cut. Chain stores own the customer relationship, while manufacturers fulfill orders.

Going all in isn’t necessarily the right answer either.

Games Workshop doesn’t even make its own video games, but it licenses the IP and lets someone else build Space Marine 2. Because it controls what Warhammer is and who gets to use it, it captures 42 cents of profit on every dollar of revenue. Asmodee, by contrast, generates record sales but keeps only 7.6 cents on the dollar, in part because a meaningful share of its business is distributing other publishers’ products through physical retail. Firms that own demand—that control why people show up—are pulling away from the companies that merely fulfill it.

Faites vos jeux

Despite the casual nature of a lot of these games, their strategy is anything but.

One important catalyst for change is trade tariffs. In 2025, Hasbro absorbed $70 million in tariff costs and recently modeled $60 million in tariff costs for the year ahead. Mattel saw its profit margin on goods sold drop nearly five percent in Q4, partly due to tariff timing. Digital revenue has no tariffs, no shipping costs, and almost no distribution expenses. The economic argument for building a digital business gets stronger every quarter—not because digital is inherently better, but because the physical side is getting more expensive to operate.

Another is the recent entry of major digital firms into in-home casual gameplay. Amazon, for instance, recently relaunched its Luna gaming service as GameNight, offering more than 25 party games, all free with Prime, and letting you use your phone as a controller. Netflix made a parallel move. After years of cautious mobile-first gaming, the company put games directly on TV screens. Co-CEO Greg Peters quite literally called it “a successor to family board game night.” For companies like Mattel, Hasbro, and Asmodee, this is a new licensing channel that didn't exist two years ago. And Uno—quick, social, couch-playable, universally known—is arguably the single most GameNight-shaped IP in the world. Whether Mattel moves fast enough to capture that is an open question.

Digital-first companies are pulling away, while companies still in transition have to spend real money to catch up. Physical-first companies are doing fine on the strength of their products, but every quarter without a functioning digital business is a quarter where they fall further behind. Figuring out a metagame that plays across both worlds—physical and digital, product and platform—will define the next ten years.

If this was useful, consider becoming an ALDORA client to receive the full 2026 Q1 Toy Brands at Play report, including detailed company profiles, an overview of the competitive landscape, and access to the ALDORA Leaderboard data that underpins this analysis.

Get in touch at joost@aldora.io.

NEWS

Gaming platforms with 100,000+ daily users under scrutiny in Turkey

The Turkish Grand National Assembly passed legislation requiring foreign gaming platforms—Steam, Epic, console stores, and any title exceeding 100,000 daily Turkish accesses—to appoint a local representative, display age ratings, and offer "clear, convenient" parental controls. Non-compliers receive a one-month warning, then face fines of up to 10 million Turkish lira, or about $225,000 USD.

It is the little sister of Turkey’s Social Media Law, which prescribes the same requirements for social media platforms with over 1 million users. The Turkish government has previously blocked some of Meta’s services and threatened to reduce bandwidth by up to 90 percent.

A new challenger appears: Microdramas

Short-form vertical drama apps such as FreeReels, Story TV, and Kuku TV posted a 403 percent year-over-year download surge in India (per Sensor Tower). Notably, 70 percent of viewers are under 34. Born in China, accelerating across India and Latin America, AI-native microdramas are now the obvious next test for European and US audiences—competing head-on with games, TikTok, and social for the same minutes.

PLAY/PASS

Pass. Niantic announced the shutdown of the mobile game version of Peridot. It’s not that I was such a big fan myself, but their head of partnership showcases it to my students before its release, and you just hate to see the effort go to waste. It also proves how hard it can be for even the most successful firms to launch their own IP.

Play. A Manhattan federal jury found Israel-based Papaya Gaming liable on all of Skillz’s federal false-advertising claims, awarding $420 million for marketing “human-only” multiplayer matches that the jury concluded were populated with bots. The verdict puts the entire skill-cash-game category on notice that bot-vs-human transparency is now litigable as a form of advertising fraud. Good.

NEXT UP

I had to put the write-up on the toy sector on the back burner because Xbox’s new leadership is moving faster and improving (?) things. I expect to have a data-driven response to last week’s Game Pass price reduction soon.

One of my favorite memories of the Nintendo Wii is the time my mother-in-law absolutely destroyed me in Wii Tennis.

My wife and I had just received a brand-new Wii as a wedding gift. It was the hottest thing in gaming at the time, and I was stoked. Sony and Microsoft were veering further into grown-up games with mature themes (the PlayStation 3 had launched catastrophically at $600, pricing out the broader audience), and here was Nintendo with a device built on the radical premise that everyone could play together.

Excited to share one of my favorite things with her, I handed my mother-in-law a controller and booted up Wii Tennis.

Whoo, boy.

She got the hang of it in seconds. I barely got a chance to situate myself before she started peppering me with fastballs. I watched in horror as a woman twice my age squealed with joy, swinging her white remote around the room. Despite years of training and thousands of hours spent playing all kinds of games, none of it prepared me for any of this.

It taught me, though, that play is for everyone. At any age, games allow us to access a part of ourselves and connect with each other in a way that nothing else does. Even in my tiny one-bedroom apartment in the East Village at the time, we found something we could both agree on.

She passed away last week.

Since we played that afternoon, a million more things happened, of course. She became a loving grandma to our children and read stories for hours. Each holiday, she’d cook mountains of food, like she was feeding a garrison. And she could not help but bring all kinds of flowers and plants into our house whenever she visited.

And while I’ll miss all those things, I’ll never forget that afternoon when we played.

BIG READ: Not crashier

I have enormous respect for Brenda and John Romero. Their creative contributions to this industry span decades, and their willingness to keep shipping, even when the market isn’t especially kind about it, is something worth admiring. Which is exactly why I feel obliged to push back on something they said last week.

Speaking at a recent industry event, Brenda offered her assessment of the current moment:

“We were there in the 80s for the crash, and this is definitely crashier. There are so few people that have not been affected, or their partner’s affected, or they’re worried about being affected. It’s a really difficult time right now.”

She’s not wrong that times are tough. But “crashier” is doing a lot of work in that sentence, and I don’t think it holds up.

There’s also a historical sleight of hand in the comparison worth flagging. In last week's Unboxing episode, my vigilant co-host Laine Nooney, a video game historian, made a good point: the Romeros weren’t actually there for the 1983 crash. That was the console industry. What hit their world was the 1984 software shakeout in computing, an entirely separate event with its own causes. Or, as Laine put it: “The PC market had been vastly overpredicted... software was being manufactured ahead of any installed hardware base that could absorb it.” It was a crash that few people talk about, because the 1983 one casts such a long shadow.

Let’s start with the numbers, because the 1980s crash was genuinely catastrophic in a way the current moment is not.

Between 1983 and 1985, the North American games industry lost roughly 90 percent of its total value, and consumer spending collapsed from $2 billion to about $200 million. Today, the global games market sits at approximately $200 billion and grew 4.5 percent year-over-year. For the Romero comparison to be accurate, the industry would need to shed $180 billion in consumer spending in a very short window. That is not where things are headed. The only company that has pulled off anything close to that level of value destruction is Ubisoft, and they managed it all by themselves.

So: not crashier. Not by a long shot.

But here’s what I think Brenda is actually picking up on, and why the comparison feels emotionally right even when it’s analytically wrong: the anxiety is everywhere, and anxiety is a leading indicator that something has genuinely broken down. The question is what, exactly.

The 1980s crash was a demand-side problem. A flood of low-quality titles alienated consumers. Players stopped buying because the games were bad. Atari had lost the plot on quality control, third-party developers were churning out shovelware, and the audience, which was still quite small, simply walked away. The fix, when it came, was Nintendo’s licensing regime: enforce quality, rebuild trust, restore demand.

Today’s problem is almost the inverse. There are plenty of extraordinary games. The supply of good work is not the issue. What’s broken is the production logic that governs how the biggest titles get made.

Over the past two decades, major publishers convinced themselves that the right response to increased competition was escalation. More assets, more cinematics, more photorealism, more celebrity voice acting. The Call of Duty franchise went from an $80 million production in 2009 to a $638 million one by 2024. Halo Infinite cost 8.5 times what Halo 2 did. The Last of Us Part II had nearly four times the budget of its predecessor.

In each case, additional spending did not produce proportional returns. Instead, it raised the floor on what “prestige” required, locking studios into an arms race nobody could sustainably win.

Meanwhile, the marketing side of the equation got worse. Apple’s App Tracking Transparency framework, introduced under the banner of privacy but conveniently tilting digital advertising revenue toward Apple’s own platforms, effectively tripled mobile user acquisition costs. Between 2015 and 2025, mobile marketing spending went from roughly $6 billion to over $15 billion. The math stopped working, and it stopped working everywhere all at once.

And then came the venture capital hangover. Between 2015 and 2021, VC investment in games surged from $3.4 billion to $19.5 billion. Developers who had spent years at the mercy of legacy publishers suddenly had alternative funding and used the moment to adopt investor vernacular—monthly actives, lifetime values, monetization funnels—as their primary vocabulary. By 2025, that investment had collapsed back to $4.3 billion, down nearly 80 percent from its peak. Thousands of developers were left holding term sheets from investors who had already moved on to AI infrastructure.

All of which brings me back to the Romeros.

Their read on the industry's emotional temperature is correct. The worry is real, the layoffs are real, and the structural disorientation is real.

But calling it “crashier” implies a collapse in demand that simply isn’t happening. What’s actually collapsing is a production model that never made much sense. It prioritized spectacle over fun, investor timelines over creative development cycles, and winner-takes-most market logic over the experimentation that produces the next great thing.

The 1980s crash happened because consumers stopped caring. Today’s problem is the opposite: the players are fine. It’s the business that lost the plot.

NEWS

Cyberpunk TCG Kickstarter raises over $27 million

When CD Projekt’s chief marketing officer, Jeremiah Cohn, spoke to my class a few semesters ago, he did not mention a trading card game for the Cyberpunk property. But with a few days left, the official Cyberpunk TCG has raised, at the time of writing, a record $27 million on Kickstarter. That makes it officially the highest-funded campaign in the platform’s history.

Developed by WeirdCo in collaboration with CD Projekt Red, the campaign hit its $100,000 goal within five minutes after launching on March 17. It’s a notable accomplishment, certainly, but what truly makes it stand out is the franchise’s incredible comeback. Following an initially buggy release, CD Projekt lost half its market value, only to turn the tide with a deliberate overhaul and commitment to the franchise and its fanbase. (If you’re interested, there’s a dedicated case study to this remarkable turnaround in my upcoming book.)

I read the success of this upcoming trading card game, with approximately 49,000 backers, as evidence that CD Projekt has turned things around.

First, the amount of money tells you the firm has successfully restored the trust of its audience. It is a vote of confidence. Second, it demonstrates the flywheel in action. By licensing the IP rather than developing the game itself, CD Projekt unlocked $27 million in third-party investment it would likely never have allocated internally. Even if it did, licensing the IP out is a more elegant way to let fans buy in. And third, it fits neatly into my broader theory that during the distribution cycle, game makers are redefining how they connect with audiences. A crowdfunding record is, if nothing else, proof that players are excited to get involved and willing to commit.

The debut set draws on characters from both Cyberpunk 2077 and the Cyberpunk: Edgerunners anime series, with backer shipments planned for Q3 2026, followed by a retail release.

PLAY/PASS

It’s Spring, so we get two favorite things this week and zero things we don’t like.

Play. I don’t care what the haters say, I thought the new Mario movie was a blast. Despite a complete lack of character development or narrative, the sensory overload is both a timely homage to our current age of brainrot and a welcome antidote to the global chaos.

Play. The Artemis II Journey to the Moon inspired a whole host of players to go play space-themed titles like Starfield and Kerbal Space Program. Seems like a wildly expensive flywheel strategy, but it works!

NEXT UP

On April 30th, I’m doing a fireside with Reggie Fils-Aimé, former president and chief operating officer of Nintendo of America. It is the highlight and final session for my class this semester, and I couldn’t be more excited. Yes, it is open to non-NYU attendees. Details below.

After announcing the next console, Xbox Helix, just weeks into her new job, it is clear that the recently appointed CEO, Asha Sharma, isn’t wasting time. Despite an initial wave of skepticism, the new leader of Microsoft’s $25 billion gaming empire seems undaunted.

In a leaked memo obtained by The Verge’s Tom Warren, Sharma writes that Xbox’s Game Pass subscription “has become too expensive for players.”

Following a recent increase to $30 per month for its highest tier, demand appears to have soured. The $30 tier was built on the assumption that heavy users, willing to pay more for premium experiences, represented the bulk of the customer base. The memo suggests that this assumption did not hold.

So what could a cheaper, more valuable service look like?

One version I’ve suggested a few times is an ultra-low tier priced at around $5.99 per month. Giving players access to an entire library of games for the price of a single premium title is one way to reset the value equation. Price alone, however, doesn’t solve the underlying problem. Research on subscription models in the console industry has found that while subscriptions change purchasing behavior—subscribers buy fewer individual titles—they do not meaningfully expand the overall market. Adding more games to a library does not attract players who weren’t already gaming. Subscriptions excel at retention. They perform much worse as a driver of growth.

This is the bind Microsoft has been in. Game Pass was built on the Netflix-for-games thesis, and that thesis has a structural ceiling. This points toward the second version of a cheaper, more valuable service, one that doesn’t rely on subscription revenue at all.

The economics of direct monetization in gaming have always been hostile to scale. Microsoft’s own internal documents, leaked in 2023, revealed the math behind this problem. Generating $7.8 billion annually across 100 million Game Pass subscribers would require an average monthly revenue of just $6.50 per user, well below the $9.26 Xbox was actually earning at the time. The only way to close that gap without pricing out the mass market is to find revenue that doesn’t come directly from the player.

As video games have become a more mainstream form of entertainment, they have come to behave more like media businesses. As such, they’re now coming up on the same financial logic that has built every major advertising-supported media business in history. Television didn’t charge viewers. Radio didn’t charge listeners. The internet didn’t charge readers. Each of them subsidized access through indirect revenue and captured scale that direct monetization never could.

Gaming has resisted this logic longer than any other mass medium, partly out of cultural pride and partly because, for a long time, the premium audience was large enough to sustain the business. That time is ending. The players willing to pay $30 a month for a game library are not enough. The three billion who won’t pay anything at all are the actual market, and the only way to monetize them is indirectly.

The Advertising Play

I have argued several times (here and here) that Xbox will start relying much more heavily on advertising. Under Sharma, Xbox is more likely to behave like a scaled platform business, monetizing audience attention rather than just access to content. Microsoft has been signaling this direction for some time now. It has consolidated its ads business to combine console, mobile, and LinkedIn, for one. (More on this another time.)

The economics behind this shift are starker than most people appreciate. Gaming captures less than four percent of digital advertising spend while commanding roughly thirteen percent of consumer time, a tenfold gap between attention and monetization. Every other platform that has reached this level of sustained audience attention has eventually closed that gap. Streaming platforms resisted advertising until they didn’t. Ride-sharing apps added it. Smart TVs built entire business models around it. The pattern is consistent enough to be called a law: ads eventually reach all addressable surfaces. Or, as Eric Seufert likes to say: everything is an ad network.

(BTW, check out my recent conversation with Eric on AI on his podcast here!)

What’s changed is the audience. When Microsoft tried in-game advertising in 2006 through its acquisition of the platform Massive, it failed. The dominant gamer demographic at the time was a subculture actively hostile to commercial messaging. But that resistance has since largely dissolved. The average player today is closer to a forty-year-old on a commuter train playing a puzzle game than to a teenager in a basement. Or, put differently, three billion players worldwide don’t constitute a subculture. They constitute a media market.

The Instacart model

Instacart, which self-identifies as “a grocery technology company,” and where Sharma served as COO from 2021 to 2024, offers a useful template. According to its most recent quarterly earnings report, Instacart has three revenue streams.

The first is transaction-based income—delivery fees, service fees, and the Instacart+ subscription. It generated $2.7 billion in 2025, or about 72 percent of total revenue. The second is advertising. It generated $1 billion in 2025, crossing a symbolic threshold for the first time. Brands pay to appear in sponsored product placements, display ads, and off-platform partnerships with social channels. It is the highest-margin part of the business and is positioned by management as the core growth driver. A third stream, still maturing, charges participating retailers to power their own e-commerce sites within the ecosystem. It closely follows Amazon’s playbook toward becoming an online shopping mall. In 2025 alone, Instacart added over 70 net-new third-party storefronts, more than double the number from the year before.

The trajectory matters as much as the snapshot. In indexed terms, advertising revenue has grown faster than transaction revenue every year since 2022. The absolute gap is widening. Instacart is not primarily a logistics company that sells some ads. It is increasingly an audience platform that also delivers groceries.

Having helped build that model, Sharma will look to translate elements of it to Xbox. The memo signals as much: direct monetization alone won’t be enough. Lowering the cost of subscription tiers, pricing premium titles at regular market rates, and building an advertising ecosystem could allow Xbox to expand its addressable audience while improving unit economics.

The storefront opportunity

It is not hard to imagine a third revenue stream emerging in the Xbox ecosystem as well. For years, Xbox has been hoping to build a Steam competitor, and the battle with Valve has been definitively lost on that front. But the more interesting opportunity may be narrower: charging game makers, especially AA-sized studios, for dedicated storefronts within the Xbox universe holds real promise. The model is already proving out elsewhere. Epic’s Unreal Editor for Fortnite now includes native tools for sponsored campaign rows, giving creators a direct pathway to brand partnerships. The infrastructure for platform-level commerce is being built, piece by piece.

The Spencer-Sharma difference

If this direction holds, it marks the clearest structural difference between the Spencer and Sharma eras, and between two different theories of what a game platform is for.

Phil Spencer operated Xbox as a content-centric platform. The logic was acquisitive: buy studios, fill the Game Pass library, keep subscribers. It was a supply-side bet based on the assumption that enough content would eventually generate enough demand. That bet has proven expensive and inconclusive. The studios cost billions. The subscribers didn’t follow at the rate the model required.

Sharma is steering toward something different: a full-stack platform model where distribution, monetization, and audience aggregation take precedence over content ownership. This is not a games-industry idea. It is a technology-industry idea applied to games. And it is, arguably, what the industry’s own trajectory has been pointing toward for a decade. The free-to-play market normalized ad-supported access. Mobile conditioned billions of players to accept advertising as the price of free content. The regulatory dismantling of anti-steering provisions, following Epic’s successful lawsuits against Apple and Google, has opened direct-to-consumer channels that bypass platform gatekeepers entirely. Each of these shifts has been quietly building the conditions for exactly the model Sharma is likely to pursue.

The legacy console model is on its way out. What replaces it looks less like a console business and more like a familiar tech platform playbook, with one important difference. The platforms that got there first, Apple and Google on mobile, built their advertising empires on the back of an audience that never really chose them. Xbox’s audience did. Whether that loyalty survives the transition is the more interesting question.

It’s in the nature of empires to destroy themselves.

But instead of a sudden collapse, the root cause is often a gradual loss of control of the very systems that made them dominant in the first place.

The news of Epic Games’ latest layoffs adds to the mounting evidence of the real-time collapse of American cultural dominance in interactive entertainment. After decades of setting the tone for video games, US-based game makers face a bevy of strategic and economic challenges, forcing them to adapt to a new world order.

We can observe the signs of this decline when even the largest, most innovative, and most successful entertainment firms begin to struggle. As I see it, Epic Games is more than a casualty of bad timing or a bad quarter. It is the most legible example yet of what happens when structural conditions make decline inevitable.

Last week, it became painfully clear that, at long last, Fortnite’s cultural moment is starting to fade. Its active user count has been more or less stagnant for several years, in contrast to rivals like Roblox, which have grown. Even the investments and collaborations with Disney and LEGO have not led to sustained growth in the user base. And despite a well-executed strategy around the use of licensed IP (e.g., Star Wars, Marvel), its product market fit is waning.

Certainly, using someone else’s IP imposes a ceiling on creativity. You can play as Darth Vader, but you can’t make him your favorite color, give him wings, or bend him to your own aesthetic expression. In the absence of organic growth, Epic Games has spent a lot of time playing defense, ultimately leading to the firing of 1,000 employees.

As Bloomberg’s Jason Schreier observed, these layoffs are a symptom of more deep-seated problems. Companies spent the last decade chasing the live-service model that Fortnite pioneered, wasting billions in the process, he writes. The cruel irony is that even one of the OG free-to-play titles is proving unable to sustain itself.

Forever games, it turns out, aren’t.

By comparison, Roblox, for all its brainrot chaos, lets players create culture rather than consume it. Instead of playing in a world designed and shaped by incumbents, the comparatively unstructured playspace Roblox offers allows for greater expressive variety. There’s a reason why those Brainrot games are so jarring to your sensibilities. They are not for you.

But Schreier doesn’t take it far enough. Beyond the surface-level, Epic Games’ decline points to a cascade of market developments.

One major contributor now showing its true impact is the encroaching, disproportionate power wielded by platform holders. Over the ten years leading up to 2025, platform revenue, from app stores, console marketplaces, and digital storefronts, jumped from $14 billion to $41 billion, a 191 percent increase. By comparison, game publishers saw their revenue rise from $65 billion to $128 billion, a more modest 98 percent increase. Over the course of a decade, gatekeepers have captured value at nearly twice the rate of content creators.

In the United States, we now see what happens when platform holders gain disproportionate power in interactive entertainment. Unlike legacy platforms (ie, console makers), firms like Apple and Google don’t make games themselves and have little interest in cultivating a healthy ecosystem beyond their ability to extract revenue from it. A key example is Roblox, which is still financially vulnerable despite its massive success. Even with nearly 150 million daily active users, Roblox remains unprofitable. Instead of allowing publishers to offer discounts and benefits to their most avid players, platform firms have insisted on keeping as much economic activity as possible within the confines of their walled gardens.

After taking both Apple and Google to court, Epic Games is now licking its wounds. The cost of having taken on the firms at the top of the food chain is starting to materialize. Despite winning several important concessions, it has spent a fortune on lawyers and forfeited even more in lost opportunities. Before its removal from the App Store, Fortnite was generating an estimated $1-$2 million per day on iOS, or roughly $500 million annually. Even after Apple’s 30 percent cut, that’s $375 million in net revenue, every year, gone. Five years later, that totals close to $2 billion.

Some would go as far as to call it a Pyrrhic victory, a battle won at such great expense that it eventually means losing the war. Maybe. But given the enormous difficulty, even the most well-capitalized challengers cannot sustain prolonged conflict with platform incumbents economically.

A look at the responsibilities held by those laid off makes the damage more tangible.

Based on a self-reported sample of 227 employees of the 1,000 that were just laid off, nearly half worked in art, animation, and design—the disciplines most responsible for what Fortnite looks and feels like. It suggests an incredible loss.

Further adding to the brain drain, most were also senior- and lead-level employees (the dataset shows a 20-to-1 ratio of senior to junior staff). And many of the people who lost their jobs worked directly on LEGO Fortnite, one of Epic’s most significant strategic bets. It is hard not to read this as a creative bloodletting that cuts into the company’s future.

Unforced errors

A second contributor to the erosion of American leadership is the rising cost structure of its domestic market. As demand softened, instead of lowering prices, playing video games has become more expensive. The Switch 2 launched at a 50 percent higher price point, and while it is, thus far, one of the fastest-selling devices in the firm’s history globally, the domestic picture looks quite different.

According to Bloomberg, Nintendo cut production of the Switch 2 by over 30 percent after US holiday sales fell well short of expectations. Its performance in the United States was roughly 35 percent lower than the original Switch’s during its debut, making it the worst November for hardware sales in the region since 1995. It has normalized a higher price point for everyone else, too.

According to an analysis by the Federal Reserve Bank of New York, in 2025, “nearly 90 percent of the tariff’s economic burden fell on US firms and consumers.” It’s why $1,000 consoles are now the norm. At scale, American game makers navigate higher prices, lower flexibility, and a structurally less competitive domestic market.

And speaking of self-inflicted injury, adding a $100,000 fee to H-1B visa applications virtually ensures that publishers will relocate talent elsewhere. It makes the US less competitive and causes it to miss out on tax revenue from high-earning employees.

The ravenous appetite for hardware components is similarly making games more expensive. Never mind that NVIDIA has largely pulled away from interactive entertainment now that it has found trillion-dollar success in catering to AI hyperscalers. But high-end components (e.g., RTX 5090) have become prohibitively expensive even for the more affluent PC builders.

Taken together, these are not isolated pressures but compounding constraints on production, talent, and consumption.

The sun comes up in the East

At the same time that American preeminence is starting to flicker, the lights are burning brighter everywhere else.

In Europe, a new generation of smaller, more agile firms is building audiences even in the most cluttered gaming categories. In places like Turkey and Israel, a slew of new studios has sprouted with a talent for user acquisition, even if their content doesn’t rank at the top tier of high-brow entertainment.

Scopely, for instance, recently valued the 8-month-old studio Loom Games at close to a $1 billion when it took a majority share. And last week, Nazara, a Mumbai-based gaming and esports firm, invested $100 million in Bluetile, a studio in Barcelona that specializes in social and casual games.

An important part here is the difference in DNA. Many firms that succeed in current market conditions do so by embracing novel technologies. Western developers and audiences insist that they disdain generative AI.

When Sandfall, the maker of Clair Obscur: Expedition 33, admitted to using AI to generate a handful of placeholder textures during production, a grassroots awards body promptly stripped its Game of the Year win. Never mind that every major ceremony (e.g., The Game Awards, the Golden Joysticks) kept their honors. The backlash says less about the creatives and more about an industry culture that has decided purity matters more than pragmatism.

Meanwhile, the games industry that has emerged in China, India, and Southeast Asia is part of a broader internet-based industry. It presents a generation of creative firms that is more inclined to embrace technologies like AI, which, especially in cluttered markets, enables them to scale and succeed. Moreover, in these regions, publicly traded game makers in Europe (+60%) and Asia (+26%) have, on average, performed notably better than their American counterparts (+18%) in 2025.

As for Epic itself, Tim Sweeney is a builder, not a suit. He took real technological and regulatory risks because he genuinely believes in a better future for games, and my bet is he navigates this the way he has every previous crisis.

The assumption that American game makers would indefinitely set the terms of global interactive entertainment—culturally, commercially, technologically—is no longer operative. The platforms they built on have turned against them. The audiences they cultivated are moving on. And the competitors they ignored are now eating their lunch.

Empires don’t collapse all at once. They hollow out, slowly, until one day the walls come down and everyone acts surprised. We are currently somewhere in the middle of that process.

The big kid and I have been playing Undertale, a 2015 indie title that’s proving a lot of low-tech fun for both of us. Everywhere I look now, I notice that my kid and his buddies don’t care for the latest and greatest.

They just want to have a good time.

It’s a pity, always, that the people who bring us such joy often find themselves undervalued and disposable. And yes, I’m obviously referring to the 1,000 employees Epic Games let go this week. Despite ample coverage (for instance, here and here), much of the analysis seems to be missing the bigger point.

Look for this weekend’s special edition exploring the question of what it means when one of the most successful game makers is starting to stumble.

On to this week’s update.

CD Projekt builds momentum toward $1B in revenues

Reporting total sales of $217 million and a net profit of $149 million, CD Projekt had its second-best year in its history. After selling its digital storefront, GOG, a few months ago, the Polish publisher is moving full steam ahead and is squarely focused on game development. On Wall Street, the narrative is emerging that the publisher could reach an annual revenue run rate of $1 billion within the next five to six years, assuming it releases at least one major title every two years.

European game makers are having a moment, of sorts, and outperformed their local tech index in 2025, whereas the US and Asia did not. And the contrast could not be more pronounced: contrary to many of its American counterparts, CD Projekt has been hiring, adding 220 employees over the past year. The bulk (500) is working on The Witcher 4, and the firm is planning to spend more in the year ahead. According to management, Project Hadar, its third original IP, is in early active development.

One of the firm’s more innovative strategic components has been its franchise flywheel—a combination of concerts, merchandise, comics, and collaborations—which has generated over $25 million in cumulative additional revenue since 2015.

Its management team is working on a performance target of $500 million in cumulative net profit for the period from 2023 through 2026. After three years, the counter sits at 74 percent, meaning they’ll have to earn $132 million in the coming year.

Roblox eyes cut from ad campaigns

The odd-shaped power structure that characterizes the games industry has given rise to one of my favorite conundrums. On the one hand, Roblox is one of the most popular firms active in interactive entertainment. On the other hand, it’s struggling to turn a profit.

Revenue has grown impressively from 2018 to 2025, reaching $4.9 billion. But costs have grown faster, hitting $5.7 billion, meaning Roblox is still losing roughly $800 million in 2025, and the gap appears to be widening, not closing.

Developer payouts and infrastructure have expanded in lockstep with revenue, which is structurally baked in: the more people play, the more Roblox pays creators and the more it costs to run the platform. Overhead has also ballooned. Together, they’ve outpaced every dollar of revenue growth the company has generated.

As a consequence, the firm continues to experiment with revenue models. It is why its most recent innovation is an overhaul of its advertising policies. Roblox is updating its guidelines to make it easier for brands and advertisers to reach its user base.

Remarkably, starting January next year, Roblox will take a percentage of the sponsorship revenue generated by game makers on its platform. It’s an unexpected move for two reasons.

First, the company has consistently described ad revenue as “insignificant” in its earnings reports. Central to its strategy, Roblox has long focused on transaction-based revenue. Unlike its social media and tech peers (Roblox likes to compare itself to YouTube), it continues to rely on direct revenue, incurring app store fees and cutting into its own margins. Pushing into advertising is a clear strategic shift.

Second, planning to take a share of all ad revenue is a notably different direction from that of comparable platforms. Certainly, it makes sense to make life easier for content creators active on its platform and to facilitate a better-organized, smoother exchange with sponsors and advertisers. But inserting itself into a revenue stream that is generally left alone everywhere runs the risk of unfairly taxing content creators.

One explanation may be that its user base’s growth may not be as consistent or as infinite as it hopes. Currently, Roblox has set itself a lofty goal of one billion daily active users. And while that is theoretically feasible, it also sets a high bar.

Branded games and online experiences offer one way to close the gap. As younger audiences have taken to digital play spaces for entertainment and socialization, brand holders have begun developing ways to participate. According to eMarketer, the average daily time spent playing video games is 14 percent, roughly on par with social media (18 percent)—yet the latter receives ten times as much ad spend from marketers. That gap will close, and Roblox wants to be positioned to capture it when it does.

The problem is the math. Revenue grows, costs grow faster, and every new lever Roblox pulls to monetize its platform, including taking a cut of creator sponsorship deals, is a reminder that the model hasn’t found its equilibrium just yet.

India’s game makers are expanding, adopting AI

At the same time that Western game makers are experiencing a decline in global cultural prominence, new market participants are emerging and taking positions.

Nazara, a gaming and esports company based in Mumbai, India, is acquiring a 50 percent stake in Bluetile Games. The Barcelona-based studio specializes in casual and social games, serving 22 million monthly active users across a portfolio of 17 titles, and operates Bestplay, which lets players earn rewards by playing regularly.

It’s an unconventional transaction that may be part of a broader, emerging narrative.

First, Nazara is likely an unfamiliar firm to many, despite being India’s only publicly listed gaming company. In 2025FY, it generated $192 million in revenue, up 40 percent y/y, and reported record EBITDA of $18.5 million. The company’s Gaming segment, which is home to titles such as Kiddopia, Animal Jam, and World Cricket Championship, generated $61 million in revenue with an operating margin of about 20%.

The bulk of revenue, however, comes from its Other segment, which includes esports platform NODWIN Gaming, sports media property Sportskeeda, and ad tech business Datawrkz, contributing $131 million and a 7 percent margin. While less profitable, this part of the business provides substantial reach, with 74 million monthly active users.

It helps understand the logic behind its acquisition. Nazara is deliberately pushing toward higher-margin, IP-owned gaming businesses and away from lower-margin distribution and media. It previously acquired UK-based Fusebox Games, makers of the Love Island mobile game. All of it seems to be part of establishing itself as a credible player outside its domestic market in India.

But perhaps the most notable comment emerging from the transaction is the company’s strategic framework. According to CEO Nitish Mittersain,

“AI is not just as a tool, but as a competitive advantage across development, marketing and live operations.“

Unlike Western developers, who are far more squeamish about artificial intelligence (despite it having been part of their toolset for, like, decades, but whatever), Eastern counterparts regard it as an exciting new technology that will allow them to leapfrog.

One explanation is the difference in origin, as creative firms in places like China and India largely emerge from their respective internet-based economies. Unlike the film industry in the United States or the animation industry in places like Japan, a new generation of game makers has its roots in tech and therefore takes a very different approach to innovations like AI. It will be worthwhile to keep an eye on how this continues to change the global landscape of interactive entertainment as Western publishers lose prominence.

In 2025, Bluetile generated $154 million in revenue and $28 million in EBITDA, valuing the deal at 3.6-7.1x EBITDA, depending on whether it achieves the earn-out targets. Nazara will initially acquire 50 per cent of the equity in Bluetile and its subsidiary Bestplay. Following an upfront payment of $59.7 million at closing, the remaining $40.6 million is due six months later. Finally, Nazara has the option to acquire the remaining stake by 2028 at a valuation of 6.6x trailing EBITDA.

PLAY/PASS

Play. UK-based Merlin Entertainments is investing $67 million (£50 million) to set up Minecraft World, which will open at Chessington theme park in London in 2027. It will include a world-first Minecraft coaster, themed retail, and dining.

Pass. Jurors in a landmark trial around social media addiction found both Meta and YouTube “negligent.” It blows a hole in the existing Section 230 defense that frees tech firms from responsibility for user-generated content.

NEXT UP

I’ve been home for barely a week. But my flight to the Netherlands boards in 9 days. Probably best to go wait in line now.

Now, having survived my second snowpocalypse this winter, I’m ready for spring.

Brooklyn has started to thaw, and we’re able to walk outside again without the risk of frostbite. It’s all just in time before the next round of trips kicks off.

First stop, GDC.

The new schedule, starting earlier in the week, and the new layout (i.e., a smaller expo footprint) tell me that it’s not just GDC but the industry at large that is going through a transformation. It echoes later-stage E3, when publishers avoided the main venue and set up their own events nearby to save costs and improve the experience for everyone.

Over the years, the center of power in gaming has certainly shifted toward the moneyed class, as venture firms, banks, brokers, and large platform holders have become the gravitational center. At the same time, the cost of entry is prohibitively expensive, and for non-US travelers, the trip itself is now a high-risk venture. The inevitable end result will be either a complete transformation of the GDC format, which seems to have already started with its recent rebrand, or a scattering of conferencing energy across a multitude of smaller events around the world throughout the year.

We’re doing our part and hosting our annual happy hour again.

Hit me up if you’d like to join our Monday event when we’re taking over the Press Club near the Moscone Center (March 9th, from 6 to 9 pm). We’ll also feature several indie projects from the Game Design Future Lab and the NYU Game Center. (N.B. Paid subscribers to SJPL are automatically invited.)

And for a preview of my annual SXSW talk, I’ll also be doing a state of play at the CEO Cabal, a private gathering of industry leaders, as a warm-up.

Hope to see you there!

On to this week’s update.

BIG READ

Last week’s news that Xbox CEO Phil Spencer and several key executives are leaving signaled a strategic inflection point. Leadership turnover at this level rarely means continuity. It means Microsoft is redefining the role of its gaming division.

Naturally, a change of guard at the top of one of the largest gaming platforms, especially after going all out to acquire intellectual property and struggling to deliver the expected results, has raised a host of questions.

I've covered many of those previously, from why Xbox made deep cuts despite strong growth, to how Game Pass pricing revealed its struggle with high player costs, to Nadella's now-failed endgame in the wake of the Activision Blizzard purchase.

The news was nevertheless a bombshell and marks an important milestone for both Xbox and the industry at large.

We’ll start at the gooey center.

Over the years, I’ve met Phil and Sarah a few times and have found them both to be personable and candid. Phil, for instance, took me aside years ago after I presented a state of the industry to an audience of more traditional media executives for some feedback. We went back and forth on market definitions and on how best to help non-gaming execs understand our industry.

Similarly, Sarah took me aside after running the scripted part of our exchange to share some of her experiences of being thrust into the spotlight, quite possibly as the face of change at Xbox.

Yes, both are about as corporate as corporate executives go. But they were also in it for the games. Which is why their sudden departure is odd. For one, why didn’t Sarah get Phil’s job? Why are all of them leaving?

We find some answers in Xbox’s history.

Since its inception, Xbox has been tasked with accommodating a host of novel technologies as part of Microsoft’s ongoing, largely ineffective effort to dominate product categories. It failed to beat Nintendo and Sony in console gaming, missed becoming the premier digital storefront on PC (and lost to Valve), spent $10 billion to enter mobile, only to exit soon after, and couldn’t get live streaming off the ground. Even when Xbox pushed into cloud gaming, leveraging Azure, the results fell well short of its initial ambitions.

These mandates have generally meant that Xbox functioned less as a category winner and more as Microsoft’s experimental arm, adapting to whatever tech wave Redmond wanted to surf next.

And today, that mandate from the corporate office is clearly AI.

The appointment of Asha Sharma, who ran Microsoft’s CoreAI product division, makes that unmistakable. Hardly a gaming insider, Sharma brings the logic of a platform operator. Rumor has it that if she proves successful in this role, she may gain a line of sight on ultimately replacing Nadella.

And for the record, does it matter that the new CEO doesn’t play games? I don’t think so. And neither does Take-Two CEO Strauss Zelnick.

What does matter is the organizational shift.

Over the years, Xbox has evolved from a gaming business experimenting with AI into an AI platform that distributes games. As Microsoft reorganizes around AI-first products and compute infrastructure, gaming now sits downstream of that strategy. Where AI once served the gaming business, gaming will increasingly serve AI.

It personifies the end and the beginning of two eras: Under Spencer, Xbox tried to win in gaming. Under Sharma, gaming’s role is to strengthen Microsoft.

From this point of view, we can make a few inferences.

Prediction 1: Margins over matter

In the short-term, Xbox will be further optimized and focus on margin growth. Since Microsoft insists on a 30 percent margin across all its divisions, Xbox will be managed accordingly. That means single-digit year-over-year growth for the next few years. Given its modest share in the PC and mobile categories and the relative affluence of its console audience, the focus will go to console players. The business won’t double in size. It’ll improve margins, increase revenue, and report annual growth of 3 to 5 percent.

On target, and dull.

I’m hopeful that Matt Booty’s promotion to EVP and Chief Content Officer signals a balanced marriage between the business’s creative side and Microsoft’s tech DNA. Booty has led nearly 40 studios and earned the trust of developers across the industry. If Sharma represents platform discipline, Booty represents cultural continuity. The question is whether that balance is real or symbolic.

Don’t get me wrong.

The incoming exec team I’ve spoken to seems eager and disciplined. It might prove to be the shakeup the firm needs, and I’d love to be proven wrong. I hope this moment marks the beginning of a genuine process of renewal. But it has the hallmarks of a repositioning of Xbox from growth engine to efficiency engine—one focused on operational leverage, margins, and AI integration.

Next, the change in management revives a more pertinent strategic query.

Prediction 2: Divestiture

In the long term, I see two scenarios.

The first plays out internally: after a few years of optimizing the offering for subscribers and maximizing monetization, Game Pass will reach a natural plateau and fall short of its original ambitions.

Already, competitors like Netflix and Amazon are rolling out casual services aimed at mainstream audiences that sing and dance to the same tune of ‘everyone plays,’ and compressing Game Pass’s upside. Matt Ball’s annual deck pointed to the increasingly competitive attention economy. The same applies here. Microsoft’s gaming business becomes a grind, and its single-digit growth stops looking like stability and starts looking like stagnation.

The second is external, and, in my opinion, more likely: an AI market correction.

It’s increasingly evident that AI may enter a corrective period. Rising valuations built on anticipated cash burn, absent clear revenue conversion at scale, will eventually collide with the force of financial gravity.

For example, OpenAI is expected to burn $218 billion in cash before reaching profitability, roughly equivalent to Ukraine’s GDP or 12 times what Uber spent. Those billions in pre-purchased compute capacity will need to be rationalized, and while depreciation timelines can be extended, that only smooths the optics. When that correction hits, a gaming business growing in the low single digits, even if it pulls in $5 to $6 billion annually in profits, won’t be existential to Microsoft.

Instead, Xbox may prove most valuable as a way to cushion some of the AI costs.

The uncomfortable follow-up: who would buy it?

Xbox generates roughly $20 billion in revenue, and with the hardware business increasingly given away, the operation is lean and transplantable. But assuming a valuation of, say, $100 billion, the buyer pool is limited. That makes the more realistic scenario a breakup.

That brings me to its subcomponents and studios.

For instance, King Digital, which has been losing market share to newcomers, may be a key asset to sell off. This week, Gossip Harbor generated more revenue than Candy Crush, suggesting that the latter’s dominance is in decline. Additional pressure is coming from Turkish studios that excel at user acquisition. Scopely’s recent majority stake in Loom Games, an eight-month-old studio valued at nearly $1 billion, underscores how competitive the mobile landscape has become. Mobile is the least accretive to Game Pass, anyway, and therefore the most sellable. In contrast, AAA console properties are harder to value and harder to move.

Regardless of what asset will be sold off first, given a five-year time horizon, the current change in management marks the beginning of the end of the Xbox legacy as we know it. Too robust to collapse suddenly, the Xbox empire will instead gradually transform, recede, and divest.

There’s something almost structurally inevitable about it. Capital markets rarely allow such a large asset to simply fail. Instead, its components will be repositioned, reframed, and reallocated to justify their place in the corporate portfolio, or sold.

To avoid doing that, Microsoft will have to earn its credibility with players and developers all over again.

The $69 billion question is whether they can.

PLAY/PASS

Play. Discord has wisely delayed its age verification plans in the lead-up to its not-yet-announced IPO.

Pass. New York State’s attorney general is suing Valve over lootboxes, accusing it of promoting gambling.

NEXT UP

Doing my laundry, packing for SF and Austin.

✈️ I’ve decided to book a last-minute trip to Vegas for DICE.

If you’re there, let’s connect!

Different from my usual newsletter, I fell down a rabbit hole between Nintendo’s earnings and Valve’s announcement that it’s now unsure about the pricing for its upcoming Steam Machine. In short, the combination of global tariffs and AI companies' voracious appetite for compute is pushing up consumer prices.

That’s nothing new, of course.

When cryptocurrencies were all the rage, NVIDIA deliberately limited people’s ability to use its hardware to mine Ethereum. It tells you where their loyalties lie. Since its early days, NVIDIA has all but abandoned the gamer audience. In my December write-up, I argued that volatility in hardware components would shape the next generation of gaming hardware. And this week, we see that reflected in both Valve and Nintendo.

And so, before I board my flight to Vegas, I wanted to share a few thoughts on an important reframing of the conventional games industry and how large-scale geopolitical events are shaping contemporary play.

BIG READ: RAMpocalypse comes for Steam Machine

On Wednesday, Valve announced it would need more time to set the initial consumer price for its upcoming Steam Machine.

Since its original announcement last November, the firm’s entry into the console category has sparked growing speculation about its impact on the current market structure. Both Sony and Microsoft have been raising prices on their hardware, and the cost of RAM and other components suggests a future in which these legacy firms will outsource hardware development to third parties. It could mark a meaningful shift in console gaming.

That market has already been shifting significantly over the past year.

Microsoft, for one, is clearly on a path that greatly reduces its exposure to hardware development. Claiming “overall weakness,” the tech giant is shifting its strategy and pushing into its digital services, where risk is lower and margins are higher.

Its Japanese rivals, Nintendo and Sony, have also made notable moves. Both have sought to offset global trade volatility by prioritizing their domestic markets. But despite these efforts, firms like Nintendo still rely for 40 percent of hardware sales on markets like North America. After a strong release of its Switch 2 device, selling 14.7 17.4 million units in the first nine months, investors are becoming skeptical of Nintendo’s ability to maintain margins. After its earnings this week, Nintendo’s share price dropped 11 percent (more below).

Along the same lines, Sony stunned the market last month with the announcement that it is exiting the TV business and handing control of its home entertainment division to Chinese group TCL Electronics. It means the PlayStation will soon be its primary hardware device, signaling a shift in the games industry’s hardware foundation.

What has many excited about Valve’s plans to enter the console market is this relative moment of weakness, as incumbents are in the midst of their own transitions. As I wrote in November, the Steam Machine looks less like a one-off hardware play and more like a Trojan horse for expanding the reach of SteamOS, using hardware as a lever to rewire how games reach players. But as component costs have skyrocketed, it raises the question of how this will impact Valve’s plans.

When I first analyzed the Steam Machine in November, I expected pricing around $549 for the 512GB model (without controller) and $749 for the 2TB version. Those estimates assumed a competitive positioning roughly on par with console pricing, which made strategic sense given Valve’s new objectives.

Since then, the cost picture has deteriorated rapidly. DRAM and NAND spot prices have spiraled well beyond normal cyclical peaks: DDR5 is now 6-8x above pre-September 2025 levels, and TLC NAND is trading at over 3x its pandemic highs, with no signs of peaking.

Much of this is structural rather than cyclical: chip fabricators are reallocating wafer capacity toward high-margin HBM memory for AI data centers, thereby squeezing the supply of consumer-grade DRAM and NAND. That means this isn’t a spike that will self-correct on a normal timeline. For a device like the Steam Machine, which Valve has confirmed uses standard, user-upgradeable memory and storage, these cost increases are passed directly into the hardware price.

Valve confirmed as much, stating that “memory and storage shortages” have “rapidly increased” since the November announcement, forcing them to “revisit exact shipping schedule and pricing,” particularly for the Steam Machine and Steam Frame. They’re still targeting a first-half 2026 launch but are no longer committing to specific dates or prices.

My revised expectation is that the 512GB model will likely land $50 to $75 higher than originally planned, closer to $599 to $629, while the 2TB SKU could see an even larger adjustment, potentially $100+ above target, pushing toward $849 to $899. Valve may also consider lowering storage tiers rather than passing along the full cost increase. Making storage and memory user-upgradeable is strategically smart as it allows them to ship a lower-spec base model at a more reasonable price while letting enthusiasts upgrade on their own.

Valve is not alone in feeling the squeeze.

Nintendo's most recent earnings underwhelmed investors, with net sales of $5.3 billion and operating profit of $1.0 billion both trailing consensus estimates. The cumulative sell-in of 17.4 million units outpaces sell-through by roughly 2.4 million, suggesting retailers over-indexed on early demand.

On the cost side, contract prices for the LPDDR5X memory used in the Switch 2 have surged roughly 40 percent, adding an estimated $18 per unit in RAM costs alone, a structural displacement driven by the same reallocation of chip fabrication capacity toward AI datacenter memory. It compresses Nintendo’s hardware margins from a healthy 18 percent at launch to roughly 13.5 percent before factoring in tariffs.

The same cost pressures affect console makers and PC OEMs, so the competitive landscape may not shift as dramatically as the raw numbers suggest. But Valve, as the newcomer, has the least margin to absorb it, and that weakens its pitch of "console convenience at PC value."

Valve’s Trojan Horse may yet prove its worth, but the cost of entry to Troy just went up.

NEXT UP

Regularly scheduled programming: Take-Two’s earnings, Ubisoft’s restructuring, and a bit about Disney.

Middleware is sexy as hell, is what I always say.

Often, the unsung toolset that makes it possible to build the universes in which we play is the software engine, the foundational codebase that makes up the interactive world. New features expand creatives’ ability to dream up novel experiences. It is fundamental, yet the least understood category. That’s the lesson I take from this week’s stock drop.

On Friday, Google’s release of Project Genie, a prompt-based AI solution that generates explorable 3D environments, triggered the sell-off of several prominent game makers’ shares.

That’s entirely too soon, as I don’t expect people to start spinning up their virtual universes quite yet for a few reasons.

First, established publishers have been at this for a while, and even their worlds lose their appeal. It’s no secret that Ubisoft, which has been making all manner of more-or-less historically accurate environments, has been struggling financially. Here’s a legacy game maker with strong IP and more French people with art degrees than you can throw a baguette at, yet it’s having a terrible time innovating. That’s too bad, of course, and evidence of why the idea of instant open-world games is going to be difficult to realize.

Second, creating compelling game worlds is harder than it seems—much like how AI can’t simply prompt its way to the next great American novel. Developers like Rockstar spend such attention to detail that their games, like Red Dead Redemption II and Grand Theft Auto 5, hold up extremely well, even a decade later. Part of the secret sauce is building proprietary engine software. It is this combination of in-house tools and incredible talent that makes it possible.

And even then, it’s not a given. Ubisoft employs 17,000 people who do this for a living, and even they struggle to consistently generate universes that captivate players. The creative vision required isn’t something you can commoditize through better prompts.

Third, Genie is currently only available to Google AI Ultra in the US, which costs you $250 a month. While I’m enticed by the idea of creating my own private playable environments, I’m going to forfeit the opportunity and have professionals make me something instead. For that kind of money, I can buy three copies of GTA6 and a sandwich.

Navigating these AI-generated worlds also happens at a measly 24 frames per second. That makes for great prototyping and clever demos. But a fully immersive interactive experience it is not.

The immediate counter-argument is, of course, that prices will come down, and that in a year or five, from now, we’ll all be quietly snickering at home in our own custom adventures.

I think it’s unlikely.

People enjoy agency but only for the fun parts. Ask yourself how much time you’re willing to spend deciding what to watch on streaming video. Between a dozen providers and hundreds of shows, audiences are often exasperated within minutes of having to navigate, decide, and commit.

Remember when sneaker companies made it possible for people to custom-design shoes on the internet? Yeah, that went nowhere. People like it when professional creatives make something marvelous for them. You are the wizards. Show me some magic!

The real challenge, however, is economic.

In a recent article, Tim O’Reilly argues that the current issue with many of these consumer-facing AI applications is that, yes, supply is coming online, but demand is not (h/t Bill Grosso). An economy requires production matched to a consumer base willing to pay for it because it provides value. And demand, in turn, requires both capital and time to purchase and enjoy. It’s something that Henry Ford understood: mass production requires mass purchasing power, which is why he raised wages and created the weekend leisure economy.

AI has yet to provide a clear answer to any of this. Consumers certainly have no love for AI-based games. Recently, Enzoi, a Sims competitor, initially sold well, but the abundance of clearly AI-generated items and characters quickly became a thorn in players’ sides. Demand, in other words, isn’t quite there.

Beyond an initial aversion to AI slop in games, there is also an abundant inventory already available. Platforms like mobile app stores and Steam are absolutely cluttered with content. Selling into a vacuum is one thing. Flooding an already saturated market with cheaply produced, undifferentiated products is hardly a winning strategy.

Nevertheless, Wall Street’s immediate response to Project Genie’s release was a massive discount to several of the most prominent gaming companies. Specifically, Unity was down 24 percent, Roblox 14 percent, and Take-Two Interactive 8 percent. AppLovin, an industry star, saw a 17 percent drop in its share price, despite its user acquisition offering being an obvious panacea for the current content glut.

It’s true, of course, that game makers find themselves in a strained period. Despite overall consumer spending rising again in 2025, the underlying trend is that more revenue is coming from a smaller, more affluent group of players. It means that everyone is catering to the same minority among the overall consumer market and raising prices.

At the same time they’ve started increasing prices, publishers have also spent the past year focused on margin improvement: cutting overhead and deploying AI solutions in costly development areas. In this context, worldbuilding is hardly new—procedurally generated environments have existed for years. What’s changed is that newer AI tools lower entry barriers, creating competitive pressure for incumbents who’ve relied on proprietary toolchains as moats.

Novel technology is named after what came before. The current iteration of middleware is squarely in the “horseless carriage” phase. Applications mostly replicate existing ideas and gameplay patterns at a lower cost. We’ll see real transformation when AI-based design creates experiences that are uniquely its own, not just accelerated versions of traditional workflows.

But for now, investors are trying to price in any efficiencies that may emerge as the value chain consolidates and reduce overhead to improve margins.

Meanwhile, studios face a predictable, strategic question: build proprietary AI capabilities internally as a differentiator, or buy commodified solutions? Most can’t afford to develop tools that provide a genuine competitive advantage—particularly after venture capital’s retreat from gaming over the past year. It pushes the industry toward off-the-shelf infrastructure.

And that’s fine. In creative industries, differentiation comes from compelling content. The industry at large finds itself in a period centered on distribution innovations and novel pricing models. Based on my theory, the Play Pendulum, we’re still a few years out from technology disrupting and evolving content creation. In the current market, companies likely to thrive are those that use AI to lower production costs and invest the savings in what truly matters: creative vision, world design, narrative depth, and the intangible elements that make experiences memorable.

The market panic assumes that AI will replace creativity. The more likely outcome is that AI will raise the stakes for creative differentiation. Studios with strong IP, established player networks, and creative talent will adapt. Those relying primarily on technical execution as their moat will struggle.

It only feels like AI is showing up now to disrupt gaming, but it’s actually a comparatively old and integrated toolset. My NYU colleague Julian Togelius published his first book on AI and games back in 2018, and the industry has been experimenting with these approaches for years. When Togelius began his PhD in 2004, he presented his work on evolving neural networks to play racing games to executives at Electronic Arts and Microsoft Game Studios. Their response? "AI and games don't go together. We don't need this." Two decades later, the market is having the exact same panic.

🎙 You can find my full conversation with Julian here.

His most recent book, Artificial General Intelligence, takes a critical look at how game developers define and apply this technology. He makes the case that the future of AI isn’t about building ever-larger general models but about creating specialized systems optimized for specific domains, a perspective I share.

This historical context reveals a pattern: the gaming industry consistently overestimates AI's near-term disruption while underestimating its long-term integration. It offers some much-needed context to counter the sudden panic around Project Genie, which assumes AI is about to replace game development.

Unity CEO Matthew Bromberg's response to Project Genie reframes the entire conversation. Rather than viewing world models as an existential threat, he positions them as input for Unity’s deterministic execution layer. Or, as he puts it:

“Video-based generation is exactly the type of input our Agentic AI workflows are designed to leverage—translating rich visual output into initial game scenes that can then be refined with the deterministic systems Unity developers use today.”

In other words, AI-generated environments become raw material that Unity’s engine converts into structured, controllable simulations with physics, gameplay logic, and monetization systems. World models expand content supply, and engine providers like Unity remain the system of record for runtime and distribution.

It is a dynamic that actually broadens the addressable market rather than threatens it. During a fireside chat with Matthew last semester, he told me that a primary directive for Unity is to democratize game development. It is a vision he shares with his colleague and rival, Epic Games CEO Tim Sweeney, who’s in charge of the other major software suite, Unreal Engine. AI accelerates environment generation while engine providers focus on what developers actually need: reliable, repeatable, monetizable experiences.

The real limitations are economic and creative. As Togelius notes: “You can use Gemini or Claude on the backend, but that’s going to be really expensive, and it doesn’t work with economic models of games because you’re going to have to pay several cents for every conversation.” More fundamentally, AI-generated content requires more authoring, not less: “Instead of authoring four lines of dialogue in a dialogue tree, you have to author an entire world.”

Studios with strong IP, established player networks, and creative talent will adapt by using these tools to lower production costs while investing savings into what actually differentiates them. In contrast, those relying primarily on technical execution as their competitive moat will struggle.

World models like Genie represent meaningful progress in content generation. But they can’t replace the creative vision, narrative depth, and intangible elements that make games memorable. If anything, they raise the stakes and force creatives to find their voice and realize their vision as a critical part of what distinguishes them.

The new medium thesis and the demand problem aren’t mutually exclusive. The opportunity is real, but it only materializes if the first wave of experiences is genuinely compelling enough to pull people in, not just technically impressive enough to impress investors.

Until then, somewhere in Silicon Valley, an AI is generating its 47th billion procedurally-created medieval tavern, each one slightly more beige than the last. Progress.

The horseless carriage phase will pass. When it does, the winners won’t be those with the fanciest AI tools. They’ll be the ones who used those tools to make something genuinely worth playing.

At some point last year, one of my advisors asked me: “What does business intelligence look like in the age of AI?”

You know the scene. Room full of smart people, drowning in dashboards, reports stacked to the ceiling, precogs on speed dial. And just reams of data. But the moment someone needs to make an actual decision, the whole room goes quiet. “What does this actually mean?” Nobody knows. No one is quite sure—or worse, willing to bet their career on an innovative choice. That’s what business intelligence looks like in 2026.

The question stuck with me. It crystallized something I’d been thinking about for a while, that the real bottleneck in modern organizations isn’t access to data. It’s the ability to make sense of it at the speed decisions require.

The timing feels significant.

Just this week, Valve amended its AI disclosure policy on Steam, signaling a shift in how the industry’s largest PC platform views the technology. First spotted by the relentless Simon Carless, Valve now only requires developers to disclose AI use if it generates content that ships with the game, such as assets, art, sound, narrative, and localization.

But for “efficiency gains” in the development process, disclosure is no longer mandatory. As Valve puts it: “We are aware that many modern games development environments have AI powered tools built into them.”

It’s a pivotal moment.

For one, it follows a broader pattern. Valve has allowed the vast majority of AI-assisted games on Steam since January 2024. Research from Totally Human Media shows that 7 percent of games on the platform now disclose the use of generative AI, up from just 1.1 percent the year before. Major publishers like Nexon and Krafton have fully embraced the technology. And Epic Games CEO Tim Sweeney has argued that platforms shouldn’t be labeling AI-created projects at all, predicting that “AI will be involved in nearly all future production.”

The underlying suggestion is that rather than contaminating interactive entertainment with slop—as we’ve seen everywhere else (including in the writing of industry professionals and my students, oh god)—AI may yet afford creatives the efficiencies they need to safeguard their independence.

With Valve making this critical distinction, the industry and its ravenous userbase are entering an era in which AI is more common and accepted. It shifts the conversation past the question of whether AI will reshape the games industry and focuses it on how and where the leverage will be greatest.

But let’s not confuse adoption with progress. The generative AI wave didn’t solve the data quality crisis in gaming. Rather, it amplified it. Now, instead of just bad research, we have bad research at scale. ChatGPT can hallucinate market sizing with remarkable confidence. Consultants armed with LLMs produce reports that sound authoritative but rest on the same shaky foundations I criticized years ago: estimates based on estimates based on estimates. The tools got faster. The thinking didn’t.

It explains the current fashionable pessimism about AI. Some of it is warranted. But the conversation has become weirdly binary: either AI replaces everything, or it’s all hype. Both positions miss what’s actually happening.

Business Intelligence in the Age of AI

You’ll forgive me if I look at this development through my own lens: data.

Traditional business intelligence was built for a different era. It assumed that data was scarce, that analysts were the interpreters, and that dashboards were the delivery mechanism. But in 2026, data is abundant, analysts are overwhelmed, and dashboards sit unread. The infrastructure we built to support decision-making has become a bottleneck to it.

As consumers and creatives grow more comfortable with AI in game development, the data-heavy nature of contemporary publishing faces a crossroads. Small language models, compact alternatives to the massive foundational models, are proving increasingly capable, offering a competitive edge for those willing to use them.

Unlike the massive, general-purpose models that dominate headlines, SLMs are compact, efficient, and trainable on proprietary data. They don’t try to know everything. They try to know your domain—deeply, accurately, and fast. When fine-tuned on curated datasets, models with fewer than 10 billion parameters now match or exceed larger models on domain-specific tasks, at a fraction of the cost.

This isn’t about chatbots or “BI via chat.” It’s about embedding expert-level strategic insight directly into decision workflows, supporting planning cycles, competitive benchmarking, and scenario analysis at the point of action. In effect, it gives decision-makers a reasoning partner, not a search bar. The affordance isn’t about having the biggest model but about controlling the decision context.

I expect 2026 to surface a new generation of intelligence tools across entertainment. The ones I'm most excited about are those building deep, predictive capability at the title level, forecasting whether a game will connect with its audience before it ships. That’s different from measuring how brands and franchises perform culturally across platforms. But rather than being at odds, these divergent approaches are complementary. And I predict the most interesting outcomes will come from partnerships that combine both.

Interactive entertainment presents an ideal environment where data is abundant, the stakes are high, and current solutions fall short.

In 2025, the global games industry generated $250 billion and catered to more than 3.3 billion consumers globally. And yet, decision-making remains constrained by incomplete insight, delayed reporting, and siloed data sources. The consolidation of mobile data into a single provider only made things worse. Publishers subscribe to a dozen vendors and still can’t calculate basic metrics. Critical markets like China remain opaque. The real competitive signals (e.g., Discord sentiment, TikTok virality, Twitch viewership patterns) live in spaces invisible to conventional analytics.

Gaming is also where the cost of failure is highest. AAA development budgets have grown from $47 million in the early 2000s to over $440 million today. Grand Theft Auto 6 reportedly cost $2 billion. I have no doubt that it will be successful, but what about every other release? The margin for error has collapsed, but the tools for avoiding error haven’t improved.

It offers an environment where domain-specific AI can prove its value. If it works here, in a market defined by fragmentation, velocity, and high stakes, it can work anywhere.

It’s also something I’ve been chewing on since we sold SuperData to Nielsen in 2018: what comes next? Over the holiday break, I finally put it all in one place.

The white paper I’m releasing today lays out this thesis in detail. It covers the structural limitations of traditional BI, the technical case for SLMs, and the specific dynamics of the gaming industry that make it an ideal proving ground. It includes data on vendor fragmentation, cost escalation, and the gap between media time and ad spend that represents billions in unrealized value.

It proposes a shift in how we think about intelligence infrastructure, from centralized analyst teams to distributed, AI-native decision support.

I’m sharing it because I believe this shift is coming, and I want to be part of the conversation about how it should happen. If you’re working on similar problems or think I’m wrong, I’d welcome the dialogue.

The full white paper is available for download below.

Business Intelligence In The Age Of AI - van Dreunen

1.54MB ∙ PDF file

Download

White paper exploring how small language models can transform business intelligence by unifying fragmented data, with gaming as the proving ground before expanding to sports, music, and media.

Download

Abandoning all hope at the start is healthy.

Most of us are naive romantics, secretly harboring extravagant fantasies about what life could be like if only circumstances were different.

That creative writing project you wanted to do for years? Harder than it looks.

Living the startup life? Hope you like being broke.

A new year full of promise? Don’t count on it.

We fool ourselves repeatedly, saying “This time it will be different,” only to find out it isn’t.

And yet, we must. Even at the start of a bitterly cold January here in Brooklyn, you can sense a relentlessness brewing. Short days, long hours, and a wealth of work ahead. I’ll borrow words from Gramsci here and point to the timeless tension between the pessimism of the intellect and the optimism of the will.

And so, at the start of 2026, I offer you not a wild anticipation of breakthroughs and windfalls, but a reaffirmation of steady effort. I promise to do the best possible job with this newsletter, keeping it frequent, original, and data-driven. We’ll make this the best year yet, one write-up at a time.

On to this week’s update.

BIG READ: Discord’s IPO heralds a year of sobriety

On January 7th, Discord confidentially filed for an initial public offering, according to Bloomberg.

It’s a decision that has been in the works for quite some time and has become inevitable after its founder and CEO, Jason Citron, announced his departure from the role last April.

As one of the last remaining social networks, Discord faces a wholly different economic and cultural landscape for this important milestone. Its 200 million monthly active users, or about 85 million daily actives, are proving difficult to monetize directly, and the firm has introduced a variety of ad-based initiatives over the past year that more closely emulate the heavy hitters in social media. By comparison, Reddit, considered a close peer, relies on advertising for 94 percent of its revenue.

Moreover, the ubiquity of bad actors on the platform is evidenced by a growing number of reports of suspected child exploitation, totaling 241,000 in 2024, according to the National Center for Missing and Exploited Children. That is about a quarter of TikTok and Snap, which were each referenced over a million times that year.

But perhaps the most important number here is the firm’s valuation. In 2021, investors valued Discord at $15 billion, according to a spokesperson at the time. This was after it had rejected a $12 billion buyout offer from Microsoft that same year.

However, there’s skepticism that the firm will be able to fetch as much this time around. Despite growing revenues since then, roughly doubling from $309 million in 2021 to $600 million in 2024, its valuation seems to have halved. Secondary markets, where employees and early investors can sell their shares directly to other investors, suggest a market capitalization of around $7 billion.

That puts it in very close range of Reddit’s initial $6.4 billion valuation, after it had been valued at $10 billion in a 2021 funding round. At the time, this was considered a “positive sign for tech,” which had been red-hot during the pandemic. Today, Reddit is valued at almost seven times its previous valuation, around $47 billion.

It sets the tone for the year ahead.

Five years ago, a key contributor to a firm’s value was its future potential. Today, they have to show proof. Discord’s revenues doubled, yet its implied valuation got cut in half. It’s a fundamental shift in company valuations. With growing uncertainty, investors are no longer impressed by aggregating large audiences without a credible plan for monetization. Reddit, Roblox, Snap, Pinterest, they’re all being judged on a similar set of metrics: monetization efficiency, margin trajectory, and regulatory resilience.

My take: As Discord prepares for its public offering, growth still matters, but only if it comes with operating leverage and a believable path to sustained profitability. Discord’s IPO will be among the first floatations in a new era where ‘community-first, revenue-later’ is officially over.

NEWS

Roblox’s Brainrot Tsunami propels stock

Investors have taken the December launch of Escape Tsunami for Brainrots, another viral, home-grown hit on Roblox, as renewed evidence of the platform’s ability to “surface new winning content on a consistent basis.”

They’re not wrong.

In 2025, multiple breakout games drove Roblox’s bookings and engagement up by more than 50 percent year over year, exactly what a healthy user-generated content ecosystem should do. Investors had priced in a sharp post-boom drop, but history (and the pandemic) show that when Roblox pulls in users quickly, it keeps far more of them than skeptics expect. The 9 percent stock increase this week follows the rollout of its age-gating effort, which many expected would hurt engagement by adding friction. The sudden success of Escape Tsunami seems to have dispelled that concern.

Add to that a shrinking universe of publicly traded game companies, following the leveraged buyout of Electronic Arts, and there are simply fewer investable American game companies left. Capital naturally crowds into the remaining platforms with visible growth.

It offers further evidence that in 2026, we’ll see even greater emphasis among investors on assets that drive revenue and deliver, while the broader economic landscape is expected to include a growing portion of activity that won't deliver in the near term. Notably, AI continues to absorb enormous sums, but the payoff remains distant. In the meantime, investors are rewarding companies that actually deliver revenue growth today.

It suggests it’s going to be a great year for firms that are doing comparatively well and have robust financials. The catch, of course, is that no one can predict which game will break out next. Roblox’s bet is that if you host enough creators, someone will.

Meta transitions away from VR toward AI

Starting the year with fresh layoffs, cutting 10 percent of its Reality Labs workforce, Meta is now fully transitioning to artificial intelligence as its next growth driver. The Metaverse, which inspired its previous overhaul, has yet to deliver on its promise.

It raises more than a few questions. For one, is AI going to be the big success Meta hopes it will be, or does it have no other choice but to join its peers in hoping to develop a unique, supersmart AI model that will solve some unsolvable problem everyone wants solved?

Maybe.

A more cynical read is that Meta is still trying to own its ecosystem, which it has been unable to do since smartphones became a thing. Much of the investment in consumer hardware, including its partnerships with RayBan, is geared toward vertical integration. After plunging headfirst into virtual reality (waaay back in 2014 with the purchase of Oculus) and, soon after, the metaverse, it still has landlords.

It doesn’t really matter, since Meta generated $164 billion in 2024, up from $12 billion a decade earlier. Its ad-based model prints money and funds the war chest for all these pricey projects.

GameStop CEO eyes $35 billion payday

I’m all for performance-based compensation: providing financial incentives does tend to motivate people. But GameStop CEO Ryan Cohen is working hard to boost the retailer’s market cap to $100 billion as part of a potential $35 billion payout, at the expense of its staff.

Polygon spotted a rash of social media posts from recently laid-off staff members suggesting that GameStop is accelerating its job cuts. Estimates suggest that up to 470 outlets, roughly 10 percent of its global storefronts, have been closed in the wake of last year’s holiday season. The news coincides with a noted softness in demand for the Nintendo Switch 2. Given the specialty retailer’s close relationship and reliance on the Japanese console maker, the two seem to have gone hand-in-hand.

I think even Cohen’s ability to reach the threshold for the maximum payout is a bridge too far. It means the firm will have to become almost 10x as valuable as it is today ($9.3 billion). To do that, it will either need to boost video game sales, which is unlikely, or see a spectacular increase in the valuation of the cryptocurrency it has accumulated in recent years. But his compensation is on a sliding scale, of course. But to make anything at all, he needs GameStop to hit both a $20 billion valuation and $2 billion in cumulative EBITDA. That seems more plausible, even if unreasonable.

Either way, I fail to see this as a positive for either consumers or creatives.

PLAY/PASS

Play. The big kid and I have been playing Skinfreak, a survival-horror slasher he loves—and that scares the living daylights out of me. That counts as quality time, right?

Pass. Gaming got a sideshow slot at NVIDIA's 2026 CES, while AI took center stage for nearly two hours.

NEXT UP

I’m still catching up on the various 2026 predictions that have sprung up in recent weeks. I’ll have a few thoughts of my own to share, of course, but I’m going to let the dust settle first. My Q1 travel schedule is also firming up, and I have some news I’m dying to share soon.

My long-standing concern has been that the games industry shouldn’t emulate other forms of entertainment merely for the sake of perceived legitimacy. Gaming caters to enough people and produces plenty of meaningful, heartfelt experiences to have a lasting cultural impact. Imitating film or music awards shows seemed unnecessary—even counterproductive.

Yet this year felt different.

More so than in previous years, the 2025 show featured a growing array of mainstream artists (e.g., Hollywood, music) joining the fun. Lenny Kravitz showed up to hand out an award, stating that lending his voice to the new James Bond game was his first entry into games. Jason Momoa's casting as Blanka for next year’s Street Fighter movie release is obviously a perfect fit. Mila Jovovich made an appearance, reminding me of her starring role in the Resident Evil film series (would those games have achieved the same cultural penetration without the movies?), and, of course, there was the musical performance by Evanescence. Did I mention Miss Piggy?

Indeed, it was a bigger show in at least two ways: first, the cost of a 60-second trailer slot was $450,000, and a three-minute clip cost $1 million or more. Okay, Geoff. Nice, nice. Second, unaudited viewership rose 11 percent y/y to 171 million. (Please take these with a grain of salt, as I learned the hard way previously.)

Here’s what felt different this year: celebrities from film and music are finding their way into the video game culture matrix. In a variety of capacities, they lend themselves to hosting, voicing, and promoting new projects, increasingly playing a supporting rather than starring role. This stands in sharp contrast to gaming’s historical lack of celebrity culture.

It suggests that, at last, The Game Awards has quietly reversed course from its Spike TV offshoot days. The Spike Video Game Awards, as it was called then and which ran from 2003 to 2013, aggressively prioritized Hollywood personalities over game developers to “legitimate” gaming through borrowed prestige. Today’s celebrity appearances feel more organic, with stars genuinely participating in game culture rather than condescending to validate it.

Maybe Geoff was catering to a Gen X audience, making me like it more. But watching the TGAs this year was fun. The show managed to be commercial, celebrity-studded, and earnest about gaming all at once. And somehow, it worked.

On to this week’s update.

BIG READ: Soccer unties the world

With two announcements within the same breath, it’s clear that the FIFA World Cup 26 is kicking off soon.

First, just yesterday, Netflix announced it is launching a “newly reimagined FIFA football simulation game.”

A lot is happening in that sentence.

For one, this is the highest-profile video game licensing agreement we’ve seen from FIFA since its divorce from Electronic Arts after 28 years. Allegedly, and not surprisingly, FIFA needed more money, but EA wasn’t going to budge and went its own way.

It suggests that Netflix was willing to shell out substantial cash to benefit from what will undoubtedly be a frenzy next year (more on that in a moment). It’s been looking for a new long-term partner ever since, but has so far only managed a few dates, including one with Japanese legacy game maker KONAMI as part of an esports collaboration.

The announcement also comes at a moment when Netflix stands accused of rolling back its previously stated plans to enter gaming. In the hubbub surrounding the firm’s plan to offer $83 billion to buy out its rival, Warner Bros., it sold back development studio Spry Fox to its original founders and showed a glaring disinterest in WB’s gaming assets. And now that Paramount’s hostile takeover bid has been shut down by its shareholders, Netflix is likely doing some damage control around the messaging of the past two weeks.

My guess is that the agreement had been signed for a while, and the moment presented itself to release it when it mattered most.

Sports and similar live events are a unique asset class for streaming platforms. Previously, Netflix signed an agreement for the exclusive rights in the US to broadcast the 2027 and 2031 installments of the FIFA Women’s World Cup. It is all part of the streaming service to push into live sports events to drive subscription signups. The late-2024 showing of the heavyweight fight between Paul Logan and Mike Tyson, for example, drove almost 800,000 new daily signups, according to Antenna (Disclosure: I’m an investor).

Another thing that FIFA recently reimagined is its ticket prices.

It did not go over well. Because of its newly introduced variable pricing scheme, die-hard fans would end up paying a multiple for premium seats compared to previous tournaments. FIFA’s response was to point out that it’s a non-profit organization that invests in the growth of soccer worldwide. (It’s not immediately clear how much it spent on its recently awarded Elden Ring-inspired peace prize.)

But after substantial backlash from several fan organizations, it announced a modification that would make a subset of seats available at a reduced price. If nothing else, FIFA is reimaging a popular adage, from ‘bread AND games,’ to ‘bread OR games.’

NEWS

Government regulation to set the tone in 2026

In a period when mobile game marketing costs are already showing “an abnormal 10% increase,” the long-term prospects aren’t much better. Australia recently banned social media for anyone under 16, setting off a firestorm of reactions around the world.

Failing to self-regulate, despite mounting evidence that their various platforms and applications harm young users, tech firms now face further pushback. In the US, for instance, researchers have initiated a study to see whether smartphone use impacts student test scores. (Yes. The answer is going to be yes.) It’s part of the broader movement and will likely put severe limitations on games targeting anyone under 16 as well.

Rather than coming up with solutions themselves, firms like Meta are now adopting an age-checking system like K-ID. There’s something to be said for a third-party solution, given the underwhelming progress made by tech firms’ reliance on more technology to moderate or age-gate content.

The deliberate inertia is now met with government regulation and a more pronounced pushback from parents and politicians. The net result for game makers will be an increase in costs among those firms that disproportionately rely on younger players in the year ahead.

Embracer’s divestiture reaches next milestone

Without much fanfare, Coffee Stain went public this week, as part of its spin-off from Swedish gaming conglomerate Embracer. The publisher owns popular titles like Goat Simulator, Valheim, and Deep Rock Galactic.

Notable about the firm is that it’s a Steam-first company. The bulk of its $103 million in revenue comes from PC and console, with “other platforms” effectively zero. Despite analysts' emphasis on firms such as Roblox, mobile gaming, and user-generated content, Coffee Stain’s economics remain firmly anchored to premium PC publishing, making it another Swedish firm to watch, especially now that it’s flying solo.

Activist investor pressuring Square Enix

As a firm that has stared into the abyss before (ie, Final Fantasy is named that way because it was their last Hail Mary before having to close up shop), Square Enix now faces an internal threat. Activist investor 3D Investment Partners has been buying up shares and is now the second-largest shareholder after its CEO, Yasuhiro Fukushima.

It released a 112-page presentation to make its case, and it contains a wealth of information, both in the level of detail and as a prime example of how investors look at the games market.

My favorite part is the subtitle, “That Excitement Once Again,” which refers to the wonderful experiences and entertainment that have delighted players over the years. But it reads like a major shareholder who is salty about not getting their share buybacks.

Hope they work it out.

PLAY/PASS

Play. Looks like Christmas arrived early for the kindhearted video game historians in your life, with the unearthing of 100 new Sega Channel ROMs, including system data, exclusive games, and even unpublished prototypes.

Pass. Ubisoft acquired the yet unreleased title March of Giants from Amazon Games, which doesn’t immediately feel like the rehoming it deserves. Also, I don’t want to get ahead of things here, but unless it's offloaded at a really low price, Ubisoft has no business acquiring anything.

NEXT UP

I should probably do some predictions for the coming year. What started as ‘survive to 2025’ became ‘survive through 2025,’ and now look where we are. Next up is what’s next.

In anticipation of The Game Awards, my prediction for the GOTY is Hades 2. I will be proven 100% correct, and no, I’m not taking questions at this time.

On to this week’s update.

BIG READ: Irrelevant play

Immediately evident about Netflix’s $82.7 billion agreement to acquire Warner Bros., and Paramount Skydance’s subsequent $108 billion hostile counter-bid, is the conspicuous absence of gaming from both parties’ strategic narratives.

The question is whether the games industry should care.

One of the games industry’s happiest memories must be when Netflix CEO Reed Hastings admitted in 2019 that Fortnite had become a competitive threat. The sheer recognition of games, showing up on the radar of one of the largest media and tech firms, validated the entire sector. It prompted an aggressive push into interactive entertainment, including a string of studio acquisitions. The attention elevated games to a new level of cultural and commercial relevance. The pandemic that followed catalyzed further growth, and the future looked bright.

Six years later, Netflix has apparently all but abandoned the effort.

The company has closed several of its studios: in October 2024, it shuttered Team Blue, and in 2025, Boss Fight Entertainment wound down. In the same week it made its bid for Warner Bros., it announced it was selling Spry Fox back to its founders.

The pattern suggests that Netflix’s retreat is less about a failure of gaming as a category and more about an underestimation of what success in this domain requires: a fundamentally different set of capabilities. Owning IP is not enough. Gaming demands long-term investment in development infrastructure, iterative workflows, and community management—capabilities Netflix has yet to build.

If that seems like an odd coincidence, Netflix’s acquisition deck provides further evidence. Games appeared only twice, both times in name only, without any substantive discussion. The first investor call didn’t mention gaming at all. And during a recent Q&A, Netflix co-CEO Gregory Peters dismissed it as “relatively minor compared to the grand scheme of things.”

He’s right, of course.

Warner Bros. presents a similar paradox.

The company holds genuine franchise strength, as evidenced by the commercial performance of Mortal Kombat and Hogwarts Legacy. Yet its games division has had its head on the chopping block for years. Most studio leadership has departed, and the portfolio has struggled to achieve consistent commercial or critical success. It’s hard to imagine why Netflix would even mention Warner Bros.’ games division as a top ten reason for acquisition.

Paramount Skydance’s eleventh-hour hostile bid adds an interesting wrinkle, though.

Skydance possesses credible gaming infrastructure: Amy Hennig, the industry legend behind the Uncharted franchise, leads Skydance New Media with Marvel 1943: Rise of Hydra in development alongside a Lucasfilm Star Wars title. Unlike Netflix, Paramount’s acquisition deck explicitly references its “Unique Interactive Capabilities” and the potential to combine WB Games with Skydance Games.

We have yet to see what it can do. Indeed, it’s been expanding its games team. But the effort here centers on developing adaptations, leveraging gaming IP to make, so far, an underwhelming series for its streaming service. The 2022 release of Halo disappointed. One hopes the recently signed movie deal with Call of Duty will fare better.

Here’s the stranger thing: Netflix’s gaming efforts are actually working.

Recent survey data show that 51 percent of Netflix subscribers have tried Netflix Games, up sharply from 39 percent in May 2025. Four out of five are “extremely” or “very” satisfied—a 16-point gain quarter-over-quarter.

The addition of Grand Theft Auto V in December 2023 marked an inflection point, with engagement peaking at 47 percent penetration by Q3 2024. While that initial surge proved temporary, dropping to 21 percent by November 2024, the broader trend has resumed upward momentum.

And yet gaming barely warrants a mention in an $82.7 billion acquisition.

Well, so what?

Hollywood’s most-favored growth strategy is buying content. What it misses is the shifting relationship between creators and audiences.

Execs like to acquire discrete assets—movies, series—and release them with fanfare. Game production, by contrast, requires early access builds, live-service updates, Discord servers, and patch notes that create a continuous conversation between developer and player. Game companies treat audiences as collaborators rather than consumers.

Data bears this out. Games that support user-generated content generate 23 percent more revenue over five years than those without. Player retention is 64 percent higher at two years and 90 percent higher at five. Active modders are 2.4 times more likely to purchase premium downloadable content—meaning free user creativity complements rather than cannibalizes paid offerings. Roblox’s creator payouts have grown from $329 million in 2020 to $868 million in 2024, evidence of an economic model where players become stakeholders.

Netflix does seem to understand the value of facilitating a shared audience experience, as it’s been pushing into live events (e.g., boxing) as a key growth driver. But beyond passive viewing, it remains locked in an old media approach.

Meanwhile, the emerging logic in interactive entertainment focuses on establishing a flywheel of different touchpoints and activities. Players who engage with games by contributing to an online community, watching live streams, attending events, or building in-game items are more valuable customers. According to a Bain study, people who are involved in three or more activities beyond gameplay spend $0.80 per hour, five times the $0.16 paid by those who only play. Each dimension amplifies the others: watching brings in new audiences who seek connection in communities, inspiring them to create content others will watch. Unlike traditional marketing funnels that leak value at every stage, the flywheel accumulates it.

Yet Hollywood clings to its existing auteur-and-focus-group model—placing big bets years in advance, with audiences invited to react only after hundreds of millions have been spent. When Netflix or Warner Bros. acquires gaming IP, they’re buying the output of these systems without understanding the systems themselves. No amount of franchise ownership changes that.

So they fall back on what they know: economies of scale. Instead of future-proofing themselves, few executives will risk their careers on a fundamentally different way of making things. Better to rebundle everything into one gargantuan subscription-based TV buffet. You know, like cable.

Gaming isn’t material in this Hollywood-centered acquisition. Rather than feeling left out, game makers need to stop basing the worth of their creative efforts on a legacy business that’s clearly suffering a midlife crisis.

NEWS

Metaverse losing steam

After several years of insisting that virtual reality headsets and legless avatars would usher in a new epoch of computing, Meta is expected to reduce its metaverse budget by up to 30 percent. Naturally, this will involve layoffs, likely concentrated in Horizon Worlds and the Quest VR unit. Investors have been increasingly skeptical about the mounting burn rate for years, especially since Reality Labs has spent a whopping $70 billion since 2021, with only modest consumer adoption to show for it.

In fairness, it did produce some notable traction. A title like Beat Saber proved a sleeper hit and has performed exceptionally well, emerging as a key discovery platform for musicians. There’s also Marvel’s Deadpool VR, which is nominated this week at The Game Awards.

But the pivot is clearly away from virtual environments and toward AI. More specifically, AI glasses, wearables, and anything that aligns with the current industrial appetite for generative intelligence instead of speculative digital worlds. Meta insists this isn’t a retreat, just a reallocation. Of course it does.

The metaverse has so far failed to attract competitive pressure or cultural adoption, and Meta no longer has the confidence (or appetite) to drag it uphill alone. More generally, large tech firms cannot afford to miss out on the next technological wave, for fear of being left behind. It’s precisely what happened to Meta when it was late to mobile, and found itself at the whim of Apple’s rule-making. Being first to a new platform is gold, and second-runner-up is fine, too. Late means death.

So is the metaverse dead? Maybe. Kinda. It’s always been a strategic hallucination born of a company’s desperate attempt to escape its own past. As always in tech, what’s most important is what’s next.

Will hardware price increases impact the next console generation?

One of the more sobering truths about AI’s rapid ascent is how completely it depends on an enormous volume of processing chips. Like its appetite for energy, AI’s demand for computational hardware is both rising and expensive. This creates an ominous backdrop for the games industry as it nears its next hardware cycle. It raises a very different kind of “how will AI impact gaming?” question.

The gaming industry is heading into its next hardware cycle under unusual circumstances. Memory chip prices surged 25-30 percent at the end of 2025, with projections of another 30-50 percent increase each quarter through 2026. The shortage is expected to persist through 2027. For anyone tracking the business of games, the question is straightforward: What does this mean for the next generation of consoles?

The short answer: consoles are better insulated than you might think. But the broader hardware market will feel real pain.

Start with the supply side. Just three companies—Samsung, SK Hynix, and Micron—control 95 percent of the memory chip market. These suppliers are increasingly prioritizing high-bandwidth memory for AI servers, which commands better margins than components destined for consumer electronics. Big tech companies are locking up supply for data centers, creating intense competition for the remaining inventory. We saw a version of this during the 2020 crypto boom, when GPU prices spiked, and availability collapsed. At the time, NVIDIA deliberately made its high-end processors 50 percent less efficient to discourage crypto-miners from buying up all of their available inventory and to ensure that its hardware would “end up in the hands of gamers.”

Aww. That’s nice.

Since then, however, that relationship seems to have cooled, as gaming is now a notably more minor component of the NVIDIA empire. According to The Economist, the firm’s “early customers are feeling jilted.”

This time, the pressure is more structural and likely to last longer.

PC manufacturers face the worst of it. In general terms, memory represents roughly 20 percent of a PC’s bill of materials, and these companies operate in a brutal competitive environment. They can’t easily pass costs to consumers. Research shows PC demand is highly elastic, with a 1 percent price increase typically causing a 2-2.5 percent drop in unit sales. Hardware makers are caught in what analysts call an “asymmetric pricing trap”: suppliers can raise prices at will, but manufacturers absorb the hit or watch sales evaporate.

Console makers occupy a different position. Sony, Microsoft, and Nintendo have spent two decades learning to manage component volatility. They negotiate supply contracts years in advance of product launches and have deliberately extended console lifecycles to 7-8 years, reducing their exposure to any single supply crunch. That doesn’t make them immune, but it provides meaningful insulation.

The more interesting effect may be strategic rather than operational. As high-end hardware becomes prohibitively expensive for mass-market consumers, we should expect the market to bifurcate. Enthusiasts will continue paying premiums for top-tier specs. Everyone else will seek alternatives—whether that’s mid-tier consoles, devices like Valve’s Steam Machine (which promises PlayStation 5-level performance at a reasonable price point), or cloud gaming services that eliminate the need for expensive local hardware.

Crucially, this dynamic accelerates a broader shift toward distribution innovation—new access models, pricing schemes, and delivery infrastructure—echoing the industry’s recurring transitions from physical retail to digital storefronts and now toward cloud and hybrid device ecosystems.

It forces a simple but essential question: if AI demand keeps pushing component prices higher, will consoles stay a safe, steady part of the gaming business, or will they get squeezed out by forces they can’t control—and what does that mean for where the industry’s value will sit next? It explains why, for instance, Microsoft has partnered with AMD and Asus to develop its gaming hardware.

Console manufacturers face both risk and opportunity. The risk is that a delayed or overpriced next-gen launch pushes consumers toward substitutes. The opportunity is that consoles, with their fixed specs and subsidized hardware models, become even more attractive as the PC market prices casual players out.

My expectation: The next console cycle arrives roughly on schedule, but manufacturers will be conservative on specifications and aggressive on price positioning. The memory shortage won’t derail the generation, but it will most certainly shape it.

PLAY/PASS

Play. Speaking of listening to your audience, Activision announced this week that it will no longer release Call of Duty on an annual schedule back-to-back (h/t MB!). Its most recent release didn’t go so well, and the publisher is now switching back from volume to quality.

Pass. In case you were wondering what their priorities are, Wall Street investors are surprised to find that age verification isn’t proving a headwind for Roblox, suggesting it might even be a positive.

NEXT UP

I’m wrapping up the semester this coming week and will bring you the latest from the academic front. Spoiler alert: judging by this semester’s discussion and paper topics, indies are experiencing a renaissance.

As the semester comes to a close, I’m bracing myself for the inevitable flood of AI-generated final papers.

To be fair, I’ve permitted my students to use AI—with one condition: they must tell me exactly how they’ve applied it. The point isn’t to police their work but to help them familiarize themselves with a technology that’s likely to become as ubiquitous as smartphones. Technological progress has historically been instrumental in moving the expansive bureaucratic effort of higher education along, and ignoring AI, I think, would be doing them a disservice.

Still, skeptics abound.

Take Valve, which now requires developers to disclose AI-generated content in their games. It didn’t go over well with everyone. Epic Games’ CEO, Tim Sweeney, disagreed:

“The AI tag is relevant to art exhibits for authorship disclosure, and to digital content licensing marketplaces where buyers need to understand the rights situation. It makes no sense for game stores, where AI will be involved in nearly all future production.”

It’s been hard to miss the rise of AI slop in all its splendor. But Sweeney has a point: Valve’s requirement is akin to asking authors to disclose whether they used spellcheck.

But not everyone’s convinced. Another critic is Pope Leo XIV, who made what amounts to a Platonic argument: rely too heavily on this new technology, and you’ll lose the ability to function without it. Plato himself worried about the written word, fearing that external storage of information would atrophy our memory and, with it, our cultural consciousness.

The Pope said it better, though, warning that AI “won’t stand in authentic wonder before the beauty of God’s creation.” Sheesh. Way to raise the stakes.

At its core, this debate exposes something students have been doing for years: performing understanding rather than earning it. They’ve become experts at gaming the system—acing tests while sidestepping genuine learning. It’s the natural result of an education system that prizes GPAs as gateways to the next level, whether that’s graduate school or employment. Common sense gets lost in the shuffle.

Turns out, AI is shaped in our image.

Anthropic researchers discovered that when training models to perform tasks accurately, AI doesn’t always take the high road. Rather than laboriously writing code to solve a problem, it can pretend to have done the work and provide you with the result. Worse, it’s able to disregard outright explicit user instructions (e.g., don’t access the internet to complete a task) and not tell you about it.

If it were a human, we’d call it cheating. But in AI terminology, it’s called “reward hacking.”

Grading this semester is going to be a blast.

On to this week’s update.

BIG READ: Europe’s gaming reset

As the American gaming market enters its year-end slowdown, Europe offers a valuable lens into the global industry’s efforts to adapt to economic headwinds and shifting structural pressures.

Regular readers will know that the European game makers have been on my mind for a while.

A few months ago, I did an analysis showing that privately-held game makers in Europe were hiring, contrary to their publicly traded counterparts. And I’ve shown you the numbers on why the Trump administration’s effort to make H1B hires more expensive hinders the United States, but potentially helps the industry in Europe.

Over the past decade, Europe’s games sector scaled rapidly, with total publishing revenue rising from approximately $6.3 billion in 2015 to a peak of nearly $20 billion by 2023, primarily driven by consolidation strategies and aggressive capital deployment. The slight contraction to $18.0 billion more recently signals a market entering a transition phase, where operational discipline, sustainable audience engagement, and differentiated content now matter more than acquisition-led growth.

With demand normalizing and capital flows tightening, Europe’s leading publishers now face a critical juncture: adjust to the new operating reality or risk obsolescence.

To understand this inflection point, it is helpful to examine three major European firms—CD Projekt, Ubisoft, and MTG—each pursuing a different path: recovery, restructuring, and reinvention, respectively.

At the top sits CD Projekt. After its disastrous release of Cyberpunk 2077, the firm has managed to rebuild itself, and with it, the trust of its fanbase. The game’s lifetime sales of 35 million copies, as reported last week, reflect this rebuilt trust. It had a solid quarter, in fact, with revenue up 30 percent year-over-year.

Crucially, CD Projekt acted early. In the wake of Cyberpunk’s whiff, it got itself organized. Rather than waiting for market conditions to worsen, it began cost discipline and internal reform shortly after the game’s launch troubles. In effect, the company fixed its roof while the sun was still out. This strategy has positioned the Polish publisher more favorably than its peers, while still adapting to the downturn. CD Projekt reported high profitability, with a 46 percent profit margin, demonstrating strong cost management and earnings quality.

The only challenge it faces now is that it doesn’t have a lot on the horizon. No major releases are expected until 2026, and development spending is still ramping up for future titles like The Witcher 4. To be clear, that’s something investors will likely fret over as they like to see regularly released hits to drive up the stock. Players, on the other hand, stand to gain more from well-executed and polished game releases.

Meanwhile, in France, Ubisoft manages to annoy both constituents. It raised investor concerns by postponing its earnings. It turned out fine, of course, but the growing skepticism among shareholders and players isn’t entirely unfounded.

Ubisoft’s situation shows how hard it’s become for big game publishers to stay independent. The company has been cutting costs, laying off 1,500 employees, and relying almost entirely on older games to keep revenue up. This is typically a precursor to either privatization or major restructuring.

I’ve previously predicted Ubisoft’s privatization, which it seems to have staved off, for now, by divesting its most popular IP into a separate entity and using the money generated by letting Tencent buy a piece to pay off its debt. Rumor had it that the firm enlisted the French government to avoid a full-blown sale to private equity, citing its cultural relevance.

That cultural capital may be why it continues to avoid collapse. But if Ubisoft were to fall, the implications would be broad:

First, because of its size, there would be a massive displacement of labor. A collapse would push thousands of developers into a job market already defined by layoffs. Second, subscription wars intensify. Its top franchises, like Assassin’s Creed and Rainbow Six, are key assets for retention on Game Pass, PS Plus, and Netflix Games. If those franchises were to change ownership, it would have a noticeable impact on the streaming games market. And, third, Ubisoft’s in-progress “Creative Houses” reorg shows a shift toward semi-autonomous franchise teams. If a sale happens mid-transition, you’d see further decentralization of production, similar to what happened when Embracer spun out studios.

Ultimately, these make strong arguments for bailing out firms like Ubisoft and prevent further decay of a key cultural industry. Its sales were fine, but it is hard to escape the feeling that Ubisoft’s playerbase will stay forgiving forever. It recently got into hot water after it came out that the firm had cancelled a controversial Assassin’s Creed expansion involving the KKK, and it is planning to release its Rabbits franchise on Roblox. Ubisoft is ubiquitous. But increasingly less unique.

It’s nevertheless a worrying sign when Europe’s leading game maker has to go through all this effort to stay afloat. At the same time, its American peers, such as Electronic Arts and Take-Two, enjoy record valuations.

What offers a glimmer of optimism is the emergence of new models. Across the European market, some game makers are rethinking how they operate. One of the most compelling examples is Modern Times Group (MTG), a Stockholm-based publisher.

When I spoke recently with MTG’s CEO, Maria Redin, she emphasized the need for financial discipline. She told me: “Europe has a great talent pool, and the industry was growing 5 to 10 percent a year during the peak years. But in the process, some companies got oversized. You have to have processes in place to ensure you stay lean and efficient.”

MTG is unusual in its structure. Rather than centralizing creative decisions, it operates as a hybrid, allowing its studios significant autonomy while retaining strict oversight on capital allocation, marketing efficiency, and strategic coordination.

This mix allows it to grow across many types of games—such as word puzzles and strategy games—while still maintaining substantial profits. In the second quarter of 2025, it doubled its sales and kept a 22 percent profit margin, even after increasing its user acquisition spending by more than 50 percent. Its user acquisition is not indiscriminate but guided by a return-on-investment model tailored to game type and lifecycle.

MTG also stands out for its approach to structural change. Rather than trying to control distribution, it adapts to it by responding to new app store rules, competition from Asian studios, and tightening platform economics with flexibility and long-term planning. It illustrates a different strategy than, say, Embracer’s ravenous, ultimately unsuccessful, takeover bid to become the largest publisher in the region. Ambition, unmet by discipline, is irrational exuberance.

Its success offers some hope while Europe recovers from its pandemic hangover. The bloat that made it sluggish is starting to thin out among a few fiscally clever game makers. But even disciplined companies will soon reach the limits of cost-cutting. As Redin put it: “You can optimize every lever in the stack, but fundamentally, you can’t have a shitty game.”

Together, these three companies illustrate the spectrum of strategic responses in Europe’s gaming sector—from the stabilization of CD Projekt to Ubisoft’s fragile restructuring to MTG’s structural reinvention. As global competition intensifies and the cost of growth rises, Europe’s long-term competitiveness may depend not on size, but on adaptability and operating discipline. The question remains whether European publishers can leverage their unique strengths—diverse talent pools, cultural capital, and regulatory support—to carve out sustainable competitive advantages in an increasingly consolidated global market.

NEWS

Discord launches in-app commerce for in-game items

In the lead-up to its anticipated IPO, Discord announced a new monetization strategy this week, centered around allowing players to purchase in-game items without leaving the platform.

It presents the next episode in the firm’s quest to figure out a revenue model. Previously, it started integrating ads after its attempt to set up its own digital game storefront had failed. Despite reporting a 44 percent increase in revenue to $445 million in 2022, Discord’s monetization remains narrow, relying on premium subscriptions called Nitro and expanded server tools. If it is going to make good on the $10 billion valuation it turned down a few years ago, it’s going to have to figure out how to make money.

The current offering, however, has merit. For one, it fits squarely in the broader industry’s shift toward distribution innovation. As a popular digital destination, Discord has proven itself a mainstay. To many, it’s an important “third space” to hang out with friends.

Next, working with Marvel Rivals makes sense. Despite its popularity among the AI crowd, with the official Midjourney server counting over 20 million members, gaming has remained its most popular category. Moreover, Marvel Rivals is the third-most populous, with over 4 million members and more than twice as popular as VALORANT (1.6 million).

The new features also include the ability to create a wishlist and send in-game items as gifts via direct messages.

It is, in effect, an extension of several other initiatives we’ve seen emerge over the last year, including Walmart’s expansion into digital play spaces and Roblox’s integration with Shopify as it moves closer to virtual commerce.

Provided it can successfully position itself as a revenue channel for game developers, helping them monetize their online fans through a broader range of channels, it would bolster Discord’s narrative toward a public offering.

It also raises an essential question for game makers, especially given their recent push toward a direct-to-consumer model: If Discord becomes a point of sale, who actually controls the customer—the developer or an intermediary platform like Discord—and how does that reshape the economics of game distribution?

Xbox Game Pass marches forward

It’s been a tumultuous year for team Xbox, to say the least. In quick succession, it suffered the one-two combo of the bad optics of its subscription tiers updates and increase, and Valve announcing its new hardware, which I’ve called Xbox’s worst nightmare. At the center of the storm sits its Game Pass strategy and how, exactly, it plans to make it work. Both players and investors are skeptical.

It is probably why the announced increase in usage has failed to make any headlines. In a statement earlier this week, Xbox said it saw a 45 percent year-over-year increase in cloud gaming hours among Game Pass subscribers. Console users are also streaming 45 percent more, and Xbox reported a 24 percent increase on other devices.

Part of Xbox’s plans to reach a profitable scale includes a global expansion. To that end, it announced its cloud gaming services are now live in 29 countries, including India, where it expects an addressable audience of 500 million gamers. We’ll see if that thesis holds in the coming years, of course, because its various forays into that part of the world have been somewhat checkered. But reports of Xbox’s premature death continue to prove exaggerated.

PLAY/PASS

Play. Roblox CEO David Baszucki spoke to the New York Times in a tenuous exchange on child safety and how to moderate its digital playground at scale.

Pass. Sony announced a cheaper PlayStation, but only for Japan. Yes, I know I already have one. Still want it.

NEXT UP

The Game Awards are coming up (with Clair Obscur: Expedition 33 coming in with no fewer than twelve nominations!), and so is my book deadline. Buckle up.

Y’all, can you wait till I get home? Damn.

On to this week’s update.

First impressions on Valve’s new hardware

Valve has declared its move to take over the living room with a newly announced Steam Machine and updated Steam Controller, slated for early 2026.

The Steam Machine is essentially a console-sized PC running SteamOS, designed to bring the convenience of console gaming to the Steam ecosystem. Under the hood, it promises six times the performance of the Steam Deck and can run 4K at 60 frames per second. It performs roughly on par with a PS5 and looks like a mini-Xbox.

Alongside it comes a new Steam Controller, which reintroduces customizable trackpads, gyro, and grip controls—essentially packing the Steam Deck’s input flexibility into a standalone device. The whole setup is tightly integrated with other Valve hardware, such as the Deck and the new Steam Frame VR headset, emphasizing cross-device streaming and ecosystem continuity. You can have it in any color, as long as it’s black.

As for pricing, I expect the Steam Machine to land around $549 for the 512GB model without a controller and $599 with one, climbing to $749 and $799 for the 2TB versions. The Steam Frame makes the most sense at $549 for the 256GB unit and $699 for the 1TB model, with the standalone Steam Controller coming in at about $79.

Strategically, this looks less like a one-off hardware play and more like a Trojan horse for expanding the reach of SteamOS. It fits squarely in my broader thesis that the games industry is going through a period of distribution innovation. Valve is betting on PC gaming’s appeal without the headaches of full PC builds, offering a streamlined, semi-open alternative to traditional consoles. But instead of taking on Sony or Microsoft and beating them at their own game, Valve is looking to shift the game entirely by turning Steam into the default ecosystem. That means premium PC gaming on a handheld, a living room setup, or VR. Suppose Valve can lower the barrier to entry without cannibalizing the Deck or overpricing the Machine. In that case, it can carve out a space no one else occupies: console convenience with PC freedom.

Valve’s new Steam Machine essentially validates Microsoft’s worst fears. The traditional closed-console model, where companies tightly control hardware, software, and distribution, is now in open retreat. With Valve offering a subsidized, aesthetically mature device that supports cross-device play, the Steam Machine is a direct challenge to the console’s claim to the living room. And, to be sure, Valve doesn’t need to win the console war to succeed. It just needs to erode the distinction between PC and console enough to make Steam the default platform.

In short, it’s distribution innovation in action. Valve is using hardware as a lever to rewire how games reach players, undercutting the console model with a more flexible, open-ended distribution stack.

BIG READ: Grand Theft Auto 6 announces its final delay

Following a week of complaints and strong opinions about the second delay of Grand Theft Auto 6 to November 2026, some historical and financial context is in order.

Yes, I’m disappointed, too. Of course.

But I’m also not surprised. Over its history, the franchise has, in fact, generally involved several delays. Its predecessor also showed up much later than planned, for instance, which is why I’ve been able to predict the now-final release date for GTA6 fairly accurately.

In my previous analyses, I’ve tracked how Take-Two’s financial guidance has telegraphed GTA6’s arrival. When the publisher forecast a $2.5 billion year-over-year revenue increase for 2025, I projected the game would generate approximately $2.7 billion at launch (38 million copies at $70 each). This follows the franchise’s proven track record: GTA5 has generated $8.3 billion over its lifetime ($5.2 billion digital, $3.1 billion physical), with the series typically accounting for 30 percent of Take-Two’s annual revenue.

After the first delay announcement in May 2025, it became apparent that the game would likely slip to September or October 2026 based on Rockstar’s historical pattern of dual delays. This prediction proved conservative given today’s November 2026 announcement. What I’ve called Rockstar’s “ultimate flex” continues. While competitors scramble to meet deadlines, the studio can afford to optimize for maximum market impact, leveraging its mastery of anticipation through minimal marketing (just two trailers that have generated over 400 million combined views).

Despite everyone’s big feelings about it, this presents an opportune moment to examine the broader industry. No game launches in a vacuum—not even GTA6. Its delay raises two questions that, when answered, reveal several key industry trends.

The first is why.

CEO Strauss Zelnick is a media executive. He understands the principles of blockbuster releases and has remained loyal to the model despite the industry’s shift toward ‘forever games’ with ongoing content drops, season passes, and seasonal events. It is one of the reasons why franchises like Grand Theft Auto and Red Dead Redemption do so well at launch. An unrelenting focus on quality also means these games remain popular as the player experience doesn’t deteriorate as quickly. It makes the firm’s approach very different from competitors that rely on annual releases and incremental improvements.

It’s also worth considering that Take-Two reported strong results in its earnings last week. While the world has been waiting for GTA6, the publisher has managed to bolster the rest of its operations as well. The $13 billion acquisition of Zynga, for instance, initially struggled as the pandemic’s momentum ebbed away. It has since notably improved. So, too, has its 2K Games label. Notably, its Borderlands 4 release proved popular. It’s a positive note after the film's release, which had earlier disappointed.

And in the wake of Electronic Arts’ (EA) privatization, Take-Two has ascended to become the largest independent American game publisher. Its main rival in sports video games is now under new management. It is likely to undergo some disassembly to pay down the debt incurred by its Saudi Arabian buyers through the sale of culturally undesirable assets. That makes Take-Two the flagbearer of American video games, and raises the question of where Zelnick wants to take this next. Will he be its CEO forever? Or will he, like his peers Bobby Kotick (former CEO of Activision Blizzard) and Andrew Wilson (EA’s CEO), look for a crowning achievement? (My guess: Yes.) Regardless, EA’s buyout has significantly improved Take-Two’s prominence, allowing it to take greater liberty with the GTA6 release.

A second question is the extent of its impact.

For competitors, next year’s holiday season could turn out a lot less merry. A seismic event like GTA6’s release will suck the air out of the room for everyone else. Regardless of how well the game lands, there’s no use in trying to garner attention for anything else during the few weeks following its release. I suspect we’ll see a level of audience captivation similar to that during the pandemic and predict several weeks of declined player activity across household titles like Fortnite.

Following the delay announcement, Take-Two’s stock initially dropped 8 percent. Even so, several Wall Street analysts raised their price targets, citing the company’s second-quarter performance. Since the first announcement of the game’s delay in May this year, the firm’s share price has risen by 6 percent, even after the most recent drop following the second delay.

It’s not all bad, of course. The broader channel mix around video games will likely experience a boost. In particular, Twitch viewership, where GTA has long been a mainstay, will see a demonstrable bump. Moreover, it will signal to the broader entertainment ecosystem that gaming has regained some of the momentum it has lost in recent years. Combined with other indicators such as record sales for Nintendo’s Switch 2, evidence is mounting that video games are back in vogue.

Finally, after the high comes the hangover.

But what it won’t do is save us all. The incredible build-up has contributed to a somewhat naive expectation that this one release will reverse the industry’s current direction. It won’t. Once Take-Two releases the game, and both players and investors each enjoy their respective highs, a period of sobriety will follow. In the absence of any similar releases in the near future, investors are likely to redeploy their capital elsewhere, thereby lowering the industry’s overall valuation.

Rockstar’s approach represents the ultimate distribution power play: maintaining such control over the release pipeline that even a multi-year delay only increases demand. Sometimes, the most innovative distribution strategy is simply to refuse to distribute until the market begs for it.

NEWS

Supercell, the early years

It is hard to overstate Finnish game maker Supercell’s ingenuity in navigating, especially in the early days of mobile gaming.

This week, an episode released by Sequoia featuring CEO Ilkka Paananen provides a worthwhile deep dive into the thinking and lead-up to the firm’s success. Starting with its decision to kill its first hit, just months after taking venture funding, and pivoting away from Facebook to mobile offers a master class in thinking creatively about game design and strategy. Worth a listen!

Goldman Sachs earns record $110 million fee on EA buyout

As the sole advisor on the $55 billion deal, Goldman Sachs is poised to earn its largest fee in history.

The September announcement of EA’s privatization—already the largest leveraged buyout ever—continues to generate headlines. New filings reveal how much the firm earns on the deal involving a consortium of Saudi Arabia’s Public Investment Fund (PIF), private equity group Silver Lake, and Jared Kushner’s investment firm Affinity Partners.

These substantial fees reflect a surge in mega-deals, driven by “stable debt markets, relaxed regulatory oversight, and executive confidence in the US economy’s strength,” according to the Financial Times.

A securities filing on Monday discloses that Goldman received $10 million when the deal was first announced, with another $100 million due upon closing, which will require shareholder and regulatory approvals.

It also gives some notable insight into such transactions. For one, EA had not paid Goldman any fees in the previous two years, despite being candid about entering and reviewing deals on an ongoing basis. More so, according to the filing, Silver Lake approached Andrew Wilson first in March about a possible transaction, after which PIF and Affinity joined the bidding group. In September, it made an initial offer of $200 per share, and eventually settled on $210, a 25 percent premium of EA’s share price at the time.

Japan’s global anime industry now worth $25 billion

The Association of Japanese Animations has released its 2025 report on Japan’s anime industry. Globally, the market is now worth over $25 billion, up $10 billion from a little over a decade ago. Growth has come mostly from overseas demand for Japanese anime. Domestic revenues increased 3 percent year over year, while overseas revenues rose 26 percent, totaling $14.5 billion in 2024.

It is partly explained by the success of franchises like One Punch Man and Dragon Ball, which have been gaining massive traction of platforms like Roblox. Specifically, One Punch Man reached close to 600 million uniques earlier this year.

Finally, it bodes well for the current push into animated series based on gaming IP.

PLAY/PASS

Play. After a month of speculation that Ghost of Yotei had failed to deliver on expectations, Sony’s earnings revealed that the game had sold 3.3 million copies in its first month. It reinforces the firm’s commitment and reliance on strong narrative-driven IP for its success.

NEXT UP

In a previous newsletter, I pointed out that there is not one but several new revenue models quickly becoming more relevant to game makers. After this week’s fireside with Unity CEO Matt Bromberg, I plan to do a more complete assessment of in-game advertising.

For one, a tarot card reading revealed my own fortune. Evidently, I’ve come a long way, but am now in the middle of a reconciliation, and the road ahead is coming into focus. That is good to know. And, frankly, it is better guidance than I’ve gotten from any algorithm lately. New Orleans’ vibe has a way of reminding you of the cyclical nature of things. And beignets. Oh god. Beignets.

Another vision I gleaned there is the imminent manifestation of two distinct revenue models in gaming.

The first, direct-to-consumer monetization, has been gradually evolving as a necessary alternative to the iron grip platform holders have held over their ecosystems. The legal victories won by Epic Games’ Tim Sweeney against Apple and Google have cracked the walled gardens and started to oxygenate mobile gaming—a little, at least.

The court-ordered removal of ‘anti-steering’ clauses, which prevented publishers from guiding players off-platform for in-game purchases and offering them better value, initially resulted in a $4.1 billion windfall for mobile game makers. Since then, several firms have spun up alternatives. A newcomer like AppCharge raised $58 million in August to build the infrastructure game makers need to facilitate off-platform purchases. And we also heard from incumbent Unity last week, which launched a free payment product enabling ‘app-to-web payments’ together with Stripe. (N.B. Unity’s CEO is coming to my class in a few weeks, and, yes, the event is open to the public. Details below.)

The second, ad-based revenue, also seems ready for prime time. After years of trying to get in front of gamers, both publishers and advertisers appear poised to do so.

The latter, represented by a growing consortium of brand managers, is eager to, sigh, get in the game. The declining efficacy of increasingly toxic social media has turned their attention to more emotionally meaningful alternatives. In 2024, social media accounted for 19 percent of total time spent by consumers and 42 percent of total ad expenditure in the U.S., according to eMarketer. Gaming commands a comparable time share of 13 percent, but receives only 4 percent of total ad spending.

But more than merely stickering their logo all over, it is the newfound ambition to develop an integrated approach that leverages gaming as a growth driver. A few months ago, Julian Runge and I wrote a piece on that for Harvard Business Review. And then there’s Bastian Bergmann, who just published an entire book hammering the point home, titled: Press Play: Why Every Company Needs a Gaming Strategy. I strongly recommend it if you care about where culture and consumer attention are actually going.

Game publishers, on the other hand, find themselves in an obvious bind.

Hoping to offset the threat of additional regulatory speed bumps that could hinder their financial reliance on micro-transactions, they now lean more heavily into indirect revenue models. Firms like Zynga and Square Enix have recently expanded their commitment by partnering with Gadsme to offer in-game ads to mobile players. And on Friday, Xbox confirmed that its employees have access to an ad-supported version of Xbox’s Cloud Gaming service, according to Zachary Small from the New York Times. (You can find my prediction from July 2024 here.)

It’s all part of the broader push toward distribution innovation. To offset rising development and marketing costs, publishers are developing new strategies to generate income. Revenue models, however, are not business models. And so while novel ways to make money will help offset the suffocating dominance of Big Tech, creative firms will also have to overhaul the rest of their operations.

Maybe I’ll go back to New Orleans for another reading.

On to this week’s update.

BIG READ: Game Pass, or fail

“We are now the largest publisher after the Activision [deal] so therefore we want to be a fantastic publisher, similar to the approach of what we did with Office. We’re going to be everywhere, on every platform. We want to make sure, whether it’s consoles, whether it’s the PC, whether it’s mobile, whether it’s cloud gaming, or the TV, so we just want to make sure the games are being enjoyed by gamers everywhere.”

Satya Nadella, CEO, Microsoft. (Bolding added. h/t )

Xbox recently made its third major Game Pass overhaul in two years.

It is the most tangible proof that the firm is still searching for the right formula rather than confidently executing. By far the most telling change is its locking Call of Duty: Black Ops 6 behind a new $30-per-month Ultimate tier, a 50 percent price increase from the previous $19.99.

The growing evidence that premium subscription titles cannibalize unit sales, as reported by Bloomberg’s Cecilia D’Anastasio, tells us two things: first, Game Pass hasn’t delivered the immediate, explosive growth Microsoft anticipated after acquiring Activision Blizzard, and, second, it has realized its infrastructure costs don’t align with its pricing model. Worse, the rapid sequence of pricing updates makes for, as one former Xbox employee told me, “bad optics.”

This aggressive repricing reveals another uncomfortable truth: the service has what one might call ‘airline economics in reverse.’ In air travel, premium passengers subsidize economy fares. On Game Pass, every user effectively flies business class while paying economy prices, creating an inherently margin-thin model in which heavy users consume disproportionate resources without proportional revenue.

Microsoft is now trying to fix this structural problem by segmenting its user base. The $30 Ultimate tier targets power users—those who stream Call of Duty daily and download multiple new releases each month—whose infrastructure costs far exceed what the previous flat fee could cover. At the same time, management has also confirmed cheaper, ad-supported tiers coming for lighter users, particularly cloud-focused players.

It’s all part of Microsoft changing direction to accommodate a broader industry shift. It now aims to reach as many people as possible—or, in Xbox corporate speak, “reach people where they are,” which means abandoning its console-centric approach.

However, while subscriptions are a more established monetization strategy in other entertainment categories, such as streaming video and music, there is still precious little research on their viability and benefits in the context of console gaming. It partly explains why Microsoft seems to be making a series of uncertain decisions, leading critics to conclude its service isn’t performing well.

Based on data provided by Antenna (disclosure: I’m an investor), we can see that weekly signups for Xbox Game Pass have indeed been trending downward.

The Game Pass signup data exhibits a stable baseline of weekly additions, punctuated by distinct event-driven spikes. The overall trend shows declining signups over time. The most pronounced increase occurs in late October 2024, coinciding with the announcement and promotional campaign for Call of Duty: Black Ops 6 launching on Game Pass, which led to more than a threefold increase in new subscriptions relative to the baseline.

Smaller increases align with additional high-profile title releases and the holiday gifting period, while weeks without major content announcements or news coverage show a consistent return to baseline levels. Taken together, the pattern indicates that subscription growth is now primarily driven by specific high-visibility content releases, rather than the intrinsic appeal of the subscription model itself.

It is that shift that underscores why Microsoft is transitioning to differentiated pricing tiers: usage intensity and value realization are unevenly distributed, and the previous single-price structure did not adequately reflect the different playing habits within the subscriber base. (Coincidentally, it matches the analysis and conclusion I did a few years ago on Ubisoft’s game subscription.)

The pricing restructuring attempts to address a fundamental mismatch: Game Pass operates like an all-you-can-eat buffet where the biggest eaters quickly make it unprofitable. Unlike streaming services, where bandwidth costs are relatively predictable, gaming’s infrastructure demands—from high-resolution streaming to massive day-one downloads—scale dramatically with usage intensity. The inclusion of Fortnite Crew and Ubisoft+ Classics in the new Ultimate tier represents an attempt to justify the price jump through bundling. Still, fundamentally, Microsoft needed to charge power users more because subscriber volume alone wasn’t delivering necessary returns.

But a combination of research and available data suggests that, perhaps, Microsoft isn’t that far off.

Microsoft is repricing its gaming service based on actual usage patterns rather than projected subscriber growth. Die-hard fans, who play Call of Duty from the moment it’s available and stream dozens of hours every month, create disproportionate infrastructure costs. At $19.99, Ultimate was underpricing this heavy-usage segment.

If constant restructuring suggests Microsoft is still searching for the right formula, emerging research offers clues about what might actually work. The shift from a single-price to a multi-tier structure may, in fact, be the key to making subscriptions viable in gaming.

Who really benefits from Game Pass

The first piece of evidence comes from a study from the University of Washington. Based on proprietary Xbox gameplay data, it finds that introducing differentiated Game Pass tiers increases overall player value (the benefit consumers get above what they pay) by 16 percent.

But if Xbox shifted to a single “Grand Bundle” subscription that includes every title, similar to Netflix or Spotify, consumer surplus would drop by 38 percent compared to the traditional pay-per-title model. The very thing that feels more generous actually makes the player experience worse, because it forces light users to subsidize heavy users and players with narrow tastes to subsidize more ravenous players.

More generally, subscriptions make sense when the audience is highly varied and when players bounce between multiple titles. When players concentrate their attention, say, on flagship titles purchased at a high premium, they struggle.

How subscriptions reshape the console business

While the Washington study examined player value, a second piece of evidence looks at platform-level impacts.

The second piece of evidence comes from a 2025 empirical analysis of Xbox Game Pass and PlayStation Plus in the U.S. console market. Researchers from Erasmus University in the Netherlands examined what happened to both platforms after their respective subscription services launched. They found a counterintuitive pattern: subscriptions did not cannibalize the traditional console business. In fact, they strengthened it. As the researchers noted:

“the introduction of […] subscription models in proprietary video game console markets: (1) enhanced console revenue, (2) had limited impact on video game revenue (contrary to the cannibalizing effects observed in the music, movie and TV industry), and (3) created a healthier video game supply.”

Following the launch of Game Pass, Xbox console revenue increased by 66 percent relative to the prior trend. In comparison, PlayStation’s launch of PS Plus drove an even larger 122 percent increase in console revenue in the month following launch.

At the same time, the study found only limited evidence of cannibalization in video game sales, a notable departure from what we’ve seen in music and streaming video, where subscription adoption tends to hollow out unit sales. Instead, subscriptions reshaped supply: Xbox saw a reduction in the total number of new games introduced after Game Pass launched, but the drop concentrated among lower-quality titles, raising the platform’s average catalog quality. PlayStation, conversely, saw an increase in game supply following the launch of PS Plus, particularly in the number of new third-party titles featured on the platform. In short, subscriptions acted less like a blunt “Netflix for games” and more like a platform health intervention—boosting hardware revenue, stabilizing software revenue, and improving the overall quality and visibility of the catalog.

This finding appears to contradict Bloomberg’s report on cannibalization. The discrepancy likely stems from different measurement approaches: Bloomberg focused on individual title performance, while the academic study examined platform-wide revenue. Additionally, the studies cover different time periods—the Erasmus research predates the Activision acquisition and the aggressive push into day-one AAA releases.

But it nevertheless leads to the perhaps counterintuitive observation that subscriptions are, in fact, both an improvement for the player and the platform, even if few seem to perceive it that way.

Of course, both studies offer only a partial perspective, and their limitations are apparent. The first focused solely on internal Xbox data for the first two years of Game Pass, from 2017 to 2019. The second builds on platform-level revenue and supply data rather than individual play patterns, looking at what changed after the launches of Game Pass and the revamped PlayStation Plus, but without visibility into who was playing what and why.

What these studies suggest, combined with Microsoft’s pricing evolution, is that the company is moving from a growth-at-all-costs strategy to a more sustainable, segmented approach. This shift becomes even clearer when we look at the broader competitive landscape.

A new center of gravity

Since 2018, we’ve come full circle.

Services like Google’s Stadia have come and gone, unable to establish themselves as the future-proof solution or technological disruptors of the legacy console model. It’s been a central part of Big Tech’s push to claim dominance through a recurring revenue model. The question here is what type of games will prove most suitable.

These competitors are betting that gaming’s future lies not in AAA blockbusters but in accessible, social experiences. Amazon’s GameNight, which I recently tested, exemplifies this approach: simple party games that prioritize low barriers to entry over production values. Unable to justify any acquisition of equal size to Activision Blizzard, tech competitors instead focus on accessibility and low cost to sway consumers to their services. This casual approach contrasts with Microsoft’s premium-tier strategy, highlighting two divergent bets on gaming’s future.

Does that mean that Xbox is getting out of the console business? Yes. And more accurately, it means that the console is no longer the economic center of gravity in Microsoft’s gaming strategy. Hardware sales are now a low-priority, pass-through business rather than a subsidized growth driver.

Consider, for instance, that the Series X price has risen roughly 30 percent since launch, and major U.S. retailers have at the same time scaled back shelf space. In earlier console cycles, those moves would have been unthinkable: manufacturers sold hardware at cost (or a loss) to maximize install base and recoup through first- and third-party software royalties. Microsoft no longer plays that game. It’s deliberately passing tariff and component costs through to consumers, even if that limits unit volume.

That shift tells you that Xbox is decentralizing the hardware layer—outsourcing chipset design to AMD, licensing its brand to ASUS for handheld devices, and building Game Pass into smart-TV partnerships like Samsung’s. Moreover, the Halo remaster relied on Epic Games’ Unreal Engine rather than its own proprietary software. Xbox has clearly made a course correction, developing a profitable distribution model that leverages its strengths as a large-scale data infrastructure operation.

The evidence suggests Microsoft isn’t abandoning Game Pass but transforming it. By shifting from a one-size-fits-all subscription to a segmented model that better aligns price with usage, Microsoft may have found the formula that eluded Stadia and others. It is here that Microsoft can lead: if this pivot from growth to profitability succeeds, it will determine both its own service’s future and whether gaming subscriptions can ever truly rival their entertainment counterparts.

All it needs now is for Game Pass not to fail.

EVENTS CALENDAR

• NYU Tandon’s Game Design Future Lab is hosting its inaugural cohort launch party on Thursday, November 6, in Brooklyn—don’t miss it! (Registration required.) Its recently appointed Associate Director, Mitu Khandaker, is also scheduled to appear on the Unboxing podcast in the coming weeks.

• I’m headed to Gamesbeat Next in San Francisco for the week of November 10. Come through!

• On Thursday, November 13, I’m hosting a fireside chat with Unity’s CEO & President, Matthew Bromberg, to discuss the firm's recent turnaround and his expectations for the years ahead. Register here.

PLAY/PASS

Play. Take-Two CEO, Strauss Zelnick, threw some cold water on the current AI fever, calling it “a combination of metadata with a parlor trick.”

Pass. After Valve released a seemingly innocuous update, the trade value of digital items for Counter-Strike 2 fell by 48 percent, erasing around $3 billion in value. I’m going with Hanlon’s razor on this one.

UP NEXT

I’m working on a few different pieces simultaneously. The first analyzes how middleware is about to change drastically. The second focuses on what the games industry’s current approach to AI says about what’s to come, especially as the word ‘bubble’ keeps showing up in my timeline. Let me know which you think I should cover first!

The announcement today of a $55 billion buyout of Electronic Arts by a group of investors led by Saudi Arabia’s Public Investment Fund, PIF, evidently caught many people off guard.

One reason is the speed at which the deal is materializing, considering its size. From what I’m told, there were buyout discussions between EA’s management team and a private equity bank in early August, but these had stalled. Although EA maintains it regularly consults with bankers about potential deals, the silence in late August signaled to the financial community that no significant transaction was imminent.

However, Friday’s news of JP Morgan’s involvement as the financing bank was evidence that “the deal is real.” With the transaction now confirmed, EA will go private at $210 per share in cash, with PIF rolling over its ~10 percent stake. The deal is expected to close in EA’s fiscal Q1 2027. CEO Andrew Wilson will stay on as CEO.

It means that we’re looking at the second-largest transaction in the history of the video games industry. Moreover, unlike Microsoft’s $68.7 billion purchase of Activision Blizzard in 2023, the current deal highlights the dramatic evolution of the industry in just a few years. Video games, despite their assumed frivolity, are now a significant cultural industry. The deal, backed by state capital (PIF), private equity (Silver Lake), and political capital (Kushner’s Affinity Partners), underscores this transformation.

While traditional M&A focuses on synergies and market consolidation, this transaction represents something fundamentally different: the acquisition of cultural influence and soft power by sovereign wealth, marking gaming’s transition from a pure entertainment product to a strategic geopolitical asset.

A second reason for surprise among industry insiders is that the math doesn’t add up.

The $55 billion offer represents an approximate 20 percent premium over EA’s recent market value. With the firm generating approximately $2.8 billion in annual cash flow (EBITDA), the deal values EA at 19.6 times that figure.

In typical leveraged buyouts, acquirers borrow against the target’s cash flow at a rate of approximately four times EBITDA. Entertainment companies with breakout potential can command higher multiples. For instance, PIF’s acquisition of Scopely in 2023 reportedly generated 20 times cash flow. Additionally, Microsoft’s purchase of Activision Blizzard valued the company at a 21.5 times multiple ($68.7 billion for $3.2 billion in EBITDA), although that occurred in a much stronger market.

But neither EA’s mature business profile nor the current market environment appears to justify such lofty valuations.

EA’s publishing business relies heavily on sports titles, which generate roughly 70 percent of its earnings. Yet, this mature segment shows little growth potential, while the company’s lone live-service success, Apex Legends, has peaked without achieving the cultural permanence of its rivals, such as Fortnite. The firm’s near-term upside rests partly on Battlefield 6, a pivotal but high-risk catalyst that challenges the firm’s ability to compete with titles like Call of Duty. Its steadfast anchor remains the recurring revenue of Madden, EA Sports FC, and NHL.

More broadly, against the backdrop of softening consumer spending and an increasingly precarious global trade environment, EA’s competitive position has eroded. Even the pandemic-era expansion that once appeared to insulate the company from economic shifts is proving less effective than anticipated.

EA’s own guidance projects 5 to 7 percent annual revenue growth through 2027, well below the double-digit targets that might justify such valuations. Even assuming double the average leverage (8 times EBITDA), PIF would need to contribute roughly $30 billion in equity. Accounting for PIF’s existing 10 percent stake in EA reduces this to approximately $27 billion—a massive commitment for a company that faces such headwinds.

This raises the question:

What exactly is Saudi Arabia’s strategy?

The simple answer is that the country has a clear mandate to reduce its economic dependence on oil by investing in global growth sectors, particularly sports and entertainment. Games are an obvious avenue because they combine IP, global cultural influence, and long-term monetization potential.

The premium multiple here reflects EA’s fundamentals only in part. Most of it has to do with PIF’s consolidation logic: building an integrated portfolio that spans Scopely (including Niantic and Pokémon Go), Nintendo, Take-Two, and now EA. In this framing, EA is being valued less as a standalone company and more as a strategic asset in a broader strategy.

Saudi Arabia earmarked $38 billion to make Riyadh a gaming hub. The strategy also reflects strong domestic demand, with approximately 58 percent of Saudis playing games, roughly 21 million people, and the regional market projected to expand by 56 percent to $2.8 billion by 2026, according to Niko Partners. (Disclosure: I’m an advisor.)

In just a few years, it has refined this approach. Examining its various holdings, we observe a significant shift from even two years ago.

Between 2023 and 2025, Saudi Arabia’s PIF has focused its gaming investment strategy. Instead of spreading money across companies worldwide, it has expanded its positions in American gaming companies.

Savvy Gaming Games Group, its publishing subsidiary, nearly tripled in value from $7.4 billion to $18.5 billion, due to Scopely’s breakout success with titles like Monopoly Go! and a $3.5 billion acquisition of Niantic’s gaming division. Meanwhile, PIF’s position in publicly traded firms shrank from $13.1 billion to $10.5 billion after it sold its stakes in Asian gaming giants like Nintendo, NCSoft, and Nexon. By contrast, it held on to its shares in EA and Take-Two, which both roughly doubled in value.

Though its total games portfolio grew 41 percent to $29.1 billion, we find a clue in its geographic concentration: U.S.-based assets more than doubled to $25 billion, while non-U.S. holdings halved to $4 billion. Saudi Arabia is clearly betting that American gaming companies offer the best path to both financial returns and cultural influence.

Scopely plays a starring role here. Initially criticized as overvalued, its $4.9 billion acquisition of the mobile game maker has proven doubters wrong. The company has outperformed the market by spending significantly more than its competitors—Scopely’s co-CEO, Javier Ferreira, revealed that they spent over $1 billion marketing Monopoly Go! alone.

This suggests PIF’s strategy is straightforward: throw staggering amounts of money at establishing market dominance. Given the Saudi Arabian government’s virtually limitless resources, it’s actually a solid plan. Along these lines, Scopely’s success seems to have emboldened PIF to double down with even bigger bets.

Unsurprisingly, a firestorm of comments and speculation followed the announcement. At the center sits the irrational financial logic that tells you it’s about power, prestige, and staking Saudi Arabia’s claim in American entertainment. Understandably, people are worried about…

What a potential buyout means for Electronic Arts

An immediate effect of its privatization is that some breathing room has been created around the upcoming release of Battlefield 6. Initial impressions for the new shooter are promising, but given the performance of the rest of EA’s portfolio, Wall Street investors are watching the release closely. One could argue, as I have, that it’s an existential test.

If PIF is serious about leveraging EA as the crown jewel of its gaming strategy, it is likely to be indifferent to short-term profit margins. Saudi Arabia is seeking to foster engagement, providing EA with at least a temporary reprieve from its strict focus on profitability.

That may yet have its benefits for the publisher and its players. In an analysis from a few weeks ago, I demonstrated how privately held game companies outperform their publicly traded counterparts. Public companies tend to function as financial vehicles, optimizing for liquidity and quarterly earnings. Private companies, by contrast, can operate as true product businesses, focusing on creative vision and long-term value. For EA, this means it will be better insulated from market pressures as it becomes a spearhead of Saudi Vision 2030.

Nevertheless, the size of the EA empire and its heavy reliance on sports video games suggest there will be some degree of right-sizing, especially as a subset of its activity will likely be relocated to Saudi Arabia. That brings me to my predictions.

• The deal’s size and EA’s global footprint will trigger regulatory review in the U.S. and elsewhere. The acquisition will draw a CFIUS review, since handing a U.S. publisher and its player data to a foreign sovereign wealth fund raises both security and immigration oversight questions. However, the participation of US President Trump’s son-in-law, Jared Kushner, is likely to ensure that the deal gets approved. He’s made it clear that the US is for sale, and that includes Electronic Arts.

• EA will likely be divided into sports and everything else. Given that sports games dominate its portfolio and play a crucial role in Saudi Arabia’s sports and entertainment ambitions, splitting the company into focused divisions seems inevitable.

• Expect political fireworks. Already, skeptics view the buyout of an American entertainment firm by a country’s sovereign wealth fund and point to a weak human rights report card. Just last week, a slew of well-known standup comedians drew ire from colleagues and audiences for performing at the Riyadh Comedy Festival. That said, there are ample parallels with oligarchs buying up European soccer clubs.

In the weeks to come, we’ll undoubtedly learn more. Suffice to say, just as during the pandemic, the video games industry finds itself again at the center of one of the defining transactions in the global economy. How the proposed buyout plays out will tell us about the state of interactive entertainment and the emerging character of the new global economy.