Palworld, the equal-opportunity offender
Oddball success erupts against a background of widespread industry layoffs
The SuperJoost Playlist is a weekly take on gaming, tech, and entertainment by business professor and author, Joost van Dreunen.
Barely one month in, it is clear that 2024 has a cold start problem.
Widespread layoffs (see below) and a disappointing outcome of Apple’s updated policy around its app store tax set a bitter tone for the start of the year. Also, my heater broke and we’ve been without heat during the coldest two weeks here in Brooklyn.
It’s a mess, yes, and brings us back to basics. It forces the question: How much can you get done with less?
We bought an extra space heater, accepted our fate that we were going to be cold for a while, and slogged through a string of service providers until we found the right one.
Similarly, the games industry’s temperature right now feels very chilly. There’s little comfort to be had and times are tough. But we’re also at the end of the current hardware cycle and a new console generation is around the corner. Watch all those firms that improved their margins in 2024 find themselves forced to re-hire and ramp up spending to make the most of the inevitable upswing.
That should heat things up a bit.
On to this week’s update.
Palworld, the equal-opportunity offender
The hottest game this week is Palworld by Japanese developer Pocket Pair. It’s an open-world survival craft game where you tame monsters and put them to work. And it has earned more than $200 million in its first five days. Not bad for a $7.6 million development budget.
But the game stands out for a few reasons beyond its initial monetary success.
To start, Palworld borrows blatantly from existing hit titles and intellectual property. The studio denies this, even if its various creatures' similarities with Pokémon are hard to miss. The similarities are so strong that it has earned the game the moniker ‘Pokémon with guns.’
More so, its environment and heads-up display look eerily similar to that from Zelda: Breath of the Wild. Both feature large open worlds and show the same exact environmental indicators (e.g., temperature, weather). The environment is riddled with enemies that look a lot like those helmet-wearing Helghasts from Killzone and is littered with Fortnite-esque chests.
Beyond its look and feel, the gameplay mechanics found in Palworld also closely match those from other well-known games. The concept of having monster companions and mounts clearly comes from Ark: Survival Evolved and the technology tree skill system looks almost identical. The survival mechanics and in-game tasks draw on Rust. Beyond Pokémon, some of the creature designs are similar to those found in Dragon Quest. Oh, and did I mention its similarities to Minecraft?
Understandably this has raised a lot of eyebrows. But in a write-up from Pocket Pair’s CEO, Takuro Mizobe, dryly states:
“While many people currently probably see Palworld as just a rip-off game, in reality I believe it has as much originality as BOTW and Genshin Impact. First of all, in the open world survival craft genre spawned by Minecraft, the only major hit title where you can tame monsters is ARK: Survival Evolved.
And Palworld differs from ARK in the stylized graphics of the Pals creatures combined with a realistic background look, autonomous base-building by Pals, different taming methods, and the ability to freely reassign various skills to each Pal.”
Unencumbered, Pocket Pair has developed several titles that borrow heavily from other popular games. Previously it released Craftopia which similarly emulates existing games, described as “a short-haired Zelda throws a core crystal from Xenoblade Chronicles at a giraffe.” But Craftopia proved a more modest success.
The 7 million figure is Steam-only, as Microsoft has undoubtedly gagged Pocket Pair from publicly sharing its player count on Game Pass. Add another few million and Palword totals about 10 million players across all devices.
Its sudden success, however, proved to be a challenge. Encouraged by initial feedback on its trailer, much of the planning around Palworld went off the rails. Pocket Pair planned for a one-year development timeline but soon realized that its scope had expanded and that it would take much longer. By 2023 it expanded the team to more than 40 people and finally released in Early Access in January this year. On Wednesday is counted more than 2 million concurrent players on Steam, surpassing Counter-Strike 2’s all-time record of 1.85 million players.
Palworld managed to strike a different chord and not just with players in Europe and the United States. While most of the Western press currently focuses on the unit sales on Steam and Xbox, Palworld is also among the top-ranking titles on Chinese streaming platforms. Live streaming is generally a useful proxy for broader appetite and purchase intent. According to Niko Partners (disclosure: I’m an advisor), Palworld was the 4th most popular title on Bilibili with 140,000 streamed hours reaching 18 million subscribers. That makes it currently more popular than Minecraft (10 million), Apex Legends (9.2 million), VALORANT (9.1 million), CS: GO (7.4 million), and PUBG (6.3 million).
It evidences a global appetite and also raises the question of long-term sustainability. Certainly, Palworld came out the gate with a bang. Its indifference to blatantly copying the best parts of other wildly successful titles is now part of its marketing narrative. But can it maintain its momentum, especially given its $30 price tag?
The fact that the game is only 60 percent completed provides one hint about its possible future. Certainly, some of the more buggy elements will smooth out over time. Palworld has more in the works, including player-versus-player gameplay using creatures and weapons, team-based challenges (e.g., guild raids), and connecting different communities to facilitate the trading of creatures across servers. Taking such an approach allows for de-risking the initial release.
Considering its low cost, massive success, and iterative approach that borrows freely from popular aesthetics and gameplay features, Pocket Pair’s breakout hit Palworld offers both an enticing experience and an innovative approach to contemporary development.
NEWS
Microsoft layoffs seem worse than they are
On the news of Riot Games’ 530 layoffs, Microsoft announced its own reduction of 1,900 jobs.
The year has started with a bloodletting. Following a breakout year in 2023 with a string of blockbuster releases, the current year is much less promising as publishers shift down. Further exacerbated by growing marketing costs on key platforms like mobile, every major firm is looking for ways to reduce costs. Layoffs are a try-and-true answer to improving margins in the short term. When Electronic Arts announced it was letting go of people mid-last year, its share price went up 8 percent. The light at the end of the tunnel is the anticipated release of the Switch 2 and the start of a new console cycle in 2025.
But unlike the rationale for many others, most prominently around the tougher year ahead with a far less exciting release slate, Microsoft has additional reasons.
After an acquisition, it is common for a new parent company like Microsoft to reduce overhead and improve the cost structure of a recently acquired asset like Activision Blizzard. There’s no need to keep, for instance, two HR departments. Today’s layoffs are an anticipated decision as acquisitions generally rely on the expectation to create more value at a lower cost.
Second, not everyone plans to stay post-acquisition. The departure of Mike Ybarra, for instance, is an example of an established executive who’s taking this moment to refocus. Ybarra, by the way, came to Activision from Xbox a few years back and I expect Microsoft doesn’t have any surprises left for him to stay.
Finally, despite its size, Xbox has to respond to current market conditions. We’re about to hit a new earnings cycle and it simply makes no sense to be the only firm on record with no layoffs. Investors will ask, why aren’t you letting go of more people when your competition is making cuts left and right? Publishers, platforms, and investors, much as they fool themselves into a sense of eclectic autonomy, move like a herd. As the overall industry readies for a tough year, it is not out of step with the rest of the market.
GameStop gets out of NFTs, into equities
Diversification is a go-to strategy for any failing business. Following the transition away from product-based game sales (e.g., cartridges, CDROMs), specialty retailer GameStop has tried and failed at several attempts to broaden its market. Taking up a new hobby is a common approach among tired executives facing the dry reality of their midlife crisis.
One of its more recent ventures led the firm into non-fungible tokens. The blockchain hype proved irresistible and the retailer, eventually, launched an NFT marketplace. However, even if Web3 gaming is going the way its biggest fans expect, GameStop can’t possibly sell enough animated GIFs to fill its financial hole. Quoting “continuing regulatory uncertainty of the crypto space,” GameStop is shuttering its NFT marketplace on February 2nd.
But the ride’s not over yet. We can expect more misfires after GameStop’s Board of Directors delegated authority to its CEO to manage the company's portfolio of securities. Sure enough, 2024 doesn’t have the same release slate as last year. Rather than growing its business, GameStop is now apparently hoping to achieve better results by managing an equity portfolio.
PLAY/PASS
Play. Matt Ball penned 12,000 15,000 words (dude) on the troubled state of gaming which you should read.
Pass. Apple, a $3 trillion consumer electronics manufacturer currently exploring “spatial computing” with a $3,500 device, announced it will now charge a 27% fee on all payments generated from in-app clicks to a webshop.