Working in the games industry, post-Corona
Pokémon Malone, Roblox’ $55 billion valuation, and Epic’s aesthetic
This week I’m diving a bit deeper into a recurrent question: “How has Corona impacted the games industry?”
But first a pop quiz.
Q: In ten years, entertainment will look a lot like…
the Post Malone Pokémon concert: an animated infomercial in which a musical artist seemingly travels through a Pokémon universe while performing a medley of his best-known songs.
Rival Peak: an “experimental competition reality show” with millions of people that each week collectively decided how each of its AI-driven characters would behave to become the ultimate winner that reached its season’s finale this week.
The former combined all of the conventional building blocks in entertainment by leveraging a well-known artist with a well-known franchise and creating a passive experience. The latter established the unsexy back-end (well, speak for yourself, actually), enabled a lightly scripted shared experience, and showcased how we may soon use all of the high-end technology that we keep hearing about to create novel interactions and experiences.
The correct answer: Rival Pokémon.
On to this week’s update.
BIG READ: Working in the games industry, post-Corona
I’ve written previously about how gamers are the vanguard among consumers and generally the earliest adopters of new products, services, and technologies, So, too, I believe, are game companies often at the forefront of novel ways of doing business. Wiser people than myself seem to agree. Ben Thompson from Stratechery argues that that media businesses are often the first to adapt to new paradigms because of their relative simplicity. I’d go even further and say that game companies are the first among their entertainment peers.
As vaccines are slowly restoring some of the remnants of pre-Covid life, we are confronting the obvious question of what the games industry will look like post-corona. There is a distinct connection between how creative organizations operate and what they produce.
Two examples come to mind. First, there is Valve’s Handbook for New Employees, which details the different components and general attitude toward work. It’s worth a read, if not for the cheeky humor alone. What stands out to me is the level of respect such a company has for its employees. It offers a different mindset with regards to an average person’s ability to make decisions and identify priorities.
Second, Supercell has been a poster child of how internal organization impacts creative output. Its catch phrase of being run by the “least influential CEO” refers to a myriad of principles and organizational behaviors. Among them are the ample downtime, the emphasis on feedback, celebrating the lessons learned from failures, and the generous schedule and surroundings to bring out the best in people.
Make no mistake: both Valve and Supercell are among the most spectacularly successful companies in the fastest growing entertainment industry. Valve generates an estimated $5 billion in revenues annually from a thriving digital PC marketplace and three of the top-grossing PC titles: Team Fortress 2, CS:GO and Dota 2. And Supercell has delivered not one but four (!) billion dollar mobile titles: Clash of Clans, Clash Royale, Boom Beach, and Brawlstars. It is fair to say that their success is not the result of great fortune but by design. And given how different they are--one is entirely dedicated to the PC market and the other to mobile--they share a common belief system.
That brings me to the opportunity presented by the changes in how companies operate as a result of Covid-19. More commonly, the question I’ve been asked over the last year is how the pandemic has impacted the industry. Mostly, people are curious about the ramifications on the demand side. Consumers are stuck at home and therefore spending more time and money on games which, in turn, have become a more widely adopted form of entertainment than they were twelve months ago. I believe, however, that we’ll see an equally significant impact on the supply side.
Specifically, I think that remote working is going to solve several issues in game development that will benefit the industry at large in the long run. These are changes perhaps that without Covid-19 would have not just taken longer to occur, but may never even have happened.
Gaming develops creative strategies around talent and finding effective ways of having talent collaborate. In broad strokes, there are three stages in game development: (1) concept/brainstorm, (2) production, and (3) finalization. The names for each speak for themselves.
We will soon notice the impact of remote working on the first and the last parts of the creative development process. During the concept phase it is critical that people work closely together and can easily respond and iterate on each other’s ideas. And in the final stage, when a game is about to go to market, there is a flurry of logistical and coordinating conversations that have to take place in order for a release to be as successful as possible.
Remote working is going to most significantly impact the second, and most time-consuming, component of the creative process. Once a creative direction has been set, the organization is firing on all cylinders to get things done. It is the perfect time to put your head down and bang out the work in front of you.
The first opportunity presented by Covid-19 presents is getting to rethink the nature of work and meeting the demands of a career in a creative industry. According to Spotify:
“Effectiveness can’t be measured by the number of hours people spend in an office.”
A deviation from the erroneous romanticization of working overtime is encouraging. Growing up I, too, witnessed a parent who toiled far more hours than he was compensated. And the blurring lines between work and life have had predictable results: not only do people work too many damn hours, but it is still by and large the women in traditional relationships that end up with the extra work at home and children.
Before Corona, women preferred to work-from-home to catch up on work and deal with their family’s needs. For men it was more a personal preference, according to 2018 data from the US Department of Labor. It can be no surprise then that in the work future to come people express a desire to stick to a combination. Only one-in-three employees want to return to the office full-time.
This impacts how we do business, of course. It lowers costs and presents obvious efficiencies. That’s easy enough: no need to rent a fancy highrise downtown. But setting your organization up to work from home has another benefit: it can increase the diversity in your talent pool. As you widen the radius from within which you recruit talent--say, from a city-wide search to an entire time-zone--the number of available candidates increases dramatically. It is comparable to the idea that only a narrow group of privileged recent graduates can afford to take unpaid internships which invariably makes the talent pool homogenous.
A second benefit of re-organizing yourself to allow more departments to work-from-home is an improvement of quality control. Logistically speaking it is one thing to organize a birthday party with your three best friends. Arranging a wedding with all the fixings is another.
Some production components take sheer volume of labor. As probably the most thankless job in game development, most firms rely on large teams to do quality assurance. They hire a large number of people to try and break their game and report bugs and errors to the production team. It is incredibly time-consuming and costly. Of course, some clever firms like SuperGiant manage to rely on their rockstar status and crowdsource this process. Amir Roa from Supergiant disclosed that they put out twelve early releases to hundreds of people in order to perfect their award-winning title Hades.
That’s a novelty, still. For large publishers that stake their success on the release of a single title, quality assurance is a critical piece of the development cycle, and even the big dogs get poor results.
The most disappointing example of the importance of proper QA testing is the recent release of Cyberpunk 2077. Following three delays the game launched with reams of bugs and issues which may have permanently damaged the firm’s good standing with consumers and investors. CD Projekt Red’s market cap tripled from its first E3 trailer in 2018 to almost $12 billion just prior to its release. Built on the success of The Witcher III and the growing anticipation it made the firm briefly more valuable than the French prince of game publishing, Ubisoft.
The persistent difficulties and the ultimately disappointing release led to a decimation of the Polish publisher’s market cap after an 18-month rally: today CD Projekt Red is worth around $6 billion. That is unfortunate, especially for an industry darling whose management does appear to have creative integrity but now finds itself at the wrong end of a string of shareholder lawsuits and dwindling support from players.
It is an important part of equitable access common in creative industries that the stakes are just as high for billion dollar developers as for indies. Merely adding more people to a project does not make its outcome necessarily more successful. It requires more agile and more efficient ways of working.
A third benefit post-Corona is, hopefully, the removal of geographic, political, and cultural obstacles across the industry.
Most of the current research on how Covid-19 will impact how we work focuses on the back-end. But in entertainment, marketing is half the business. To that end, a year later the move toward virtual events and conventions is still in an early stage of development. I wrote last week about the changing face of industry events. Watching BlizzConline, for example, evidenced how seamlessly key components of conventional events translate to an online environment. Missing, however, was an opportunity to try out early releases. Especially firms like Blizzard have made it a habit to showcase upcoming titles to their biggest fans at an early stage to both build excitement and get some valuable feedback and response.
More significant than merely formulating a new approach to broadcasting news about upcoming releases and creating hype, industry conferences have also been largely inaccessible to a broad subset of creatives. Several of the major ones take place in the US, for instance, which hasn’t been too kind to travellers from, well, a disheartening list.
Unfortunately, this is not a new thing. For years creatives from a host of countries have been categorically denied visas. Having a broader range of voices and more diversity on the creative side, I’d argue, would go a long way toward the prevention of reducing complex geo-political conflict to simplified point-and-click game play. I can think of no greater purpose to use new technology and novel ways for people to interact virtually than to create a broader dialogue as gaming ascends to become a central component to the exchange around the human experience.
So, how will work in the games industry be different once the pandemic subsides? The promise of remote work for creative industries post-Corona is a better balance between work and life, greater diversity of talent, a closer handle on quality control and opening up new markets by making both the supply and demand side of the industry more accessible.
It is worth laboring on that, remotely and otherwise.
NEWS
Roblox IPO valued at over $55 billion in private market
Look, it’s just what I was told and, no, I don’t believe it nor do I have any more information. I’m only sharing it to tell you to watch yourself (and your money). It would mean that the firm gained +86% in value since January when its series G gave it a valuation of $29.5 billion. Naw bro. The private market seemingly hit a frenzy after last week’s investor day. And now that there’s a date for Roblox’ IPO on the books, all bets are, well, on. But we have clearly entered a zone of high volatility.
Briefly, the latest figures on Roblox go as follows: the IPO is planned for March 10th; it lost -$253 million on $924 million in revenues, which was up +82% y/y; Roblox DAU rose to 32.6 million, up +85% from 17.6 million in 2019; its current developer community is now 8 million strong.
As the dollars increase so, too, does disagreement. Personally I’m bullish on Roblox, even if it doesn’t make a profit currently. Its model of allowing players to create for and sell content to each other is, I believe, what the future holds. There is in fact a long history of gamers breaking the barrier between merely playing a game and taking creative ownership that has resulted in some of today’s most profitable titles, including Valve’s CS:GO, which generates around $600 million annually, and Riot Games’ League of Legends which makes about $1.8 billion a year. Giving people a chance to participate in making the game breeds loyalty, which makes Roblox’ future relatively bright. And there are also ample opportunities to cross-pollinate with other industries (e.g., music) and a growing list of brands is eager to connect with younger audiences. I expect Roblox to benefit from all this initial enthusiasm because it’s the first-mover in a new category.
On the other hand, there’s Wedbush’s Michael Pachter who doesn’t approve of Roblox because he felt management was “stupid” for skipping his firm and going with a string of much less experienced sell-side analysts instead. He argued that these novices only spoke highly of the firm because they were paid to do so. Perhaps. And Pachter is arguably one of the most knowledgeable finbros out there even if it does sound like he felt passed over on what may be one of the biggest transactions this year. Even so, by pursuing a direct listing some of the usual checks and balances may have gone missing. Roblox raised a series G in February 2020 valuing the company at $4 billion. And now just a year later we’re expected to believe that there’s been a 12x value increase. That’s pretty rich, even in a pandemic that has benefitted the video game sector as much as it has. It leaves us with the question how much more growth we can expect in the years to come, and how Roblox is going to get into the black.
Epic Games acquires the maker of Fall Guys, Mediatonic
Tim Dreamy continues to build out the Epic flywheel on all sides at the same time. It is a fantastic outcome for Mediatonic, obviously, and well-deserved. It also hints at Epic Games’ broader ambition to become one of the dominant companies in the video game ecosystem. It is developing a content portfolio that has an aesthetic consistency of bright, colorful, and fun game play. Between Fortnite, RocketLeague, and now FallGuys, Epic is clearly targeting accessible games with broad appeal. Such a content strategy will start to pay dividends over the long-term as it builds a recognizable brand that caters to a mainstream audience, and further strengthens the firm’s economics as it prepares for an IPO. And if you want to be acquired by team Sweeney, you need to avoid dark hues.
Wizards of the Coast is bigger than you thought it was
In lieu of the usual Toy Fair, Hasbro organized an investor day event that came with a few notable takeaways. Among the highlights were the improved transparency on its gaming business. Where apparently most analysts had considered Wizards of the Coast (WotC) a sideshow that generated around $250 million annually, Hasbro revealed that with $907 million in net revenues (+19% y/y), the division is well on its way to reach the symbolic one billion dollar a year mark. That’s a lot of mana.
The driver of this success has everything to do with a change in mindset. WotC has historically hired people that were enormous fans of its games. That has arguably made it more difficult for them to consider the experience for newcomers to Magic: the Gathering. More so, the digital releases of its card game were fatally tied to a strict retail release schedule. That meant that it was unable to benefit from the affordances of a digital distribution and revenue model for a long time and, unsurprisingly, left the door open for a competitor like Hearthstone to gobble up market share. That seems to now have changed. Over the last five years the toymaker has invested $210 million in the development of digital games and plans to spend “several hundred million more” over the next few years. It claims to have over a dozen titles in development. Notably planned releases for 2021 and 2022 include three Magic: the Gathering titles and two Dungeons & Dragons titles. Tabletop is back on top.
PASS/PLAY
Play. This Virtual Gallery of the Gamer from Activision Blizzard.
Pass. Important life lessons are best served cold. Streamers are discovering that role-playing a job in GTA 5 Online is just as boring as it is IRL. Wait till they realize they were just a NPC for most of us all along.