Picking a side
Single player strategy in a multi-sided game economy
It’s time to confront one of the structural tensions in my life.
Now, at age 46, I’ve lived about as long in the United States as I have in the Netherlands, the country where I was born and raised. At this halfway point, I find myself just hours away from having to watch the World Cup 2022 showdown between the US and the Dutch this coming Saturday.
Already my friends and family have been harassing me with the question of what team I will root for. Relentlessly, they insist I pick a side.
I’m not ready.
On the one hand, I cherish my Dutch upbringing. The countless bike rides, swimming in the canals, cutting class, eating black licorice, kaas, and the annoyingly outspoken nature of my friends and family have left a deep impression on me. Locked in between three economic and cultural superpowers—the UK, Germany, and France—the Netherlands is nothing if not aware of how small it is. And from that position, it likes to call things out. For all its shortcomings, blindspots, and checkered cultural heritage, growing up Dutch meant growing up sober.
That is also why the US swept me off my feet so easily. Literally making the journey from old to New Amsterdam, my gradual migration has been a coming-of-age. The enormity of the place, its vast challenges, naivety, and sophistication offered a different perspective. Here, everything is bigger, which applies equally to the good and the bad. And for the past two decades, I’ve managed to carve out a life and a career, and even built a family here. I’m not sure any of that would have happened in old Amsterdam. I was genuinely moved when I finally naturalized and sat through the ceremony in a Brooklyn courthouse with 300 others. Becoming American, to me, meant raising my expectations.
With the game approaching in about 48 hours, I’m not even sure what to wear.
The Dutch and their insistence on the big accomplishments of a small country lean back on a rich history of soccer. The tactical system of ‘Total Football’ in which each player can take over the role of any other thereby ensuring that the intended organizational structure stays intact, is both a key innovation by which the Dutch changed the game and a microcosm of my birth country’s socio-political aspirations. It suggests a system in which everyone’s equally capable and we all support each other.
The American Project, on the other hand, is still an upstart. Like soccer, much of the United States can feel very much like an enormous, messy work in progress. Frustratingly, the US has yet to garner the world’s respect as a soccer champion. For one, football refers to American football thereby co-opting the term for a sport that few play outside its borders. It also claims itself world champion for sports that no one else plays, which can make it feel a bit self-congratulatory. To be world champions you need a world stage.
Speaking of which, by the way, for all their posturing around soccer, however, the Dutch hold the record for playing the most World Cup finals without ever winning the tournament. Ouch. Do you mean to say that despite having such a deep impact on the sport itself, they’ve never actually managed to win it? Correct.
Meanwhile, the Americans are only just now developing the bottom part of their soccer culture. To cultivate and grow the next generation of players, ground roots initiatives like Kingston Stockade FC are starting to form the necessary talent pool to develop the sport more broadly across the US.
It brings me back to the question: this Saturday, do I support the Dutch soccer powerhouse or the American upstart?
The answer is both.
Where I grew up and the childhood experiences that made me who I am can never be taken from me. And neither can the challenges ahead weaken my optimism about where I’m going.
I’m ready.
On to this week’s update.
NEWS
Pong turns 50
Born in the midst of pinball machines and foosball tables, Pong first arrived on the scene 50 years ago this week. The game doesn’t need much introduction as it’s been talked to death by every video game historian out there. Even back then Business Week was excited about how much less maintenance Pong arcades required compared to their “electro-mechanical” pinball counterparts. Generating an estimated $3 billion annually, one quarter at a time, the game allowed up to four players simultaneously to participate compared to the loneliness of the pinball machines. Even in its most rudimentary form did multiplayer gameplay manage to generate positive network effects. Happy birthday!
Loot box legislation
Australia introduced loot box legislation. Specifically, MP Andrew Wilkie introduced a bill that specifies that any “computer game that contains a loot box must be classified R 18+ or RC” and must display a warning.
Loot boxes have emerged as a point of contention as the novel revenue strategy has started to emerge across a range of different games. Its popularity, especially in titles that cater to younger audiences, has parents and politicians worried about normalizing gambling mechanics. Following a five-month inquiry in 2018, the Environment and Communications Reference Committee released its review on loot box monetization in video games, which includes a recommendation to regulate “on a case-by-case basis.” According to the 90-page report, loot boxes are "not a homogeneous entity" and therefore require a nuanced regulatory approach rather than a blanketed one.
The games industry has been enjoying a lot of regulatory interest in recent years. Some of it, like loot boxes, was well-earned as some publishers like Electronic Arts went a little hard on the novel monetization tactic and earned the ire of consumers everywhere. Other forms of political interest, like the ramifications of having citizens play games produced in another country and riddled with nefarious software components, have become more prevalent. India banned Chinese games in February this year and promptly gave life to its own games industry. And China isn’t making life easier for anyone either, including its domestic powerhouses for fear of children playing too much and becoming gambling addicts. According to an academic study published just last month, there remains an absence of relevant data, research tools fail to account for unique characteristics, and negligence of the overall economic impact prevails. We’ve come a long way from the trite debate on video game violence even if politicians seem hooked as ever.
UK anti-trust authority just regulating errbody
Within the same week, the Competition and Market Authority in the UK uploaded Sony and Microsoft’s comments to its phase one finding of the ATVI/MSFT deal (see below), opened an investigation into cloud gaming and browsers, and ruled out any action to help musicians earn more money from music streaming.
The CMA is worried that mobile platform holders, Apple and Google, act as “gatekeepers over operating systems, app stores and web browsers.” It is responding to other businesses ringing the alarm bell about their ability to offer competing services and innovations within these walled gardens on mobile devices. According to its press release,
“97% of all mobile web browsing in the UK in 2021 happens on browsers powered by either Apple’s or Google’s browser engine, so any restrictions on these engines can have a major impact on users’ experiences.”
It also determined there was nothing to be done about giving musical artists a bigger cut from streaming music platforms. Specifically, it concluded that “a change to the structure of the market is unlikely to result in a material increase in revenues for artists.” Because digitalization has facilitated a growth spurt in the number of artists able to publish their music, combined with a vast library of back catalog titles, there is such abundance on the supply side that it exacerbates the existing blockbuster dynamic. According to the CMA, less than 1 percent of artists generate over a million streams a month, which annualizes to £12,000 ($14,312). It further reports that almost two-thirds (60%) of streams were music recorded by the top 0.4% of musicians.
If this seems related, you’re right. The CMA has been making itself heard loudly and publicly as it is reviewing a host of digital entertainment markets. In addition to a wealth of fascinating market information, both these investigations serve as adjacent cases to the ATVI/MSFT deal and provide a look into the CMA’s logic and process. Its argument that any changes to the structural makeup of the music industry, where three major labels hold a combined share of more than 70 percent of total streams in the UK, would not result in more revenue for artists perhaps foreshadows its stance on video game streaming services.
As the music market consolidated, it also grew and through digitalization facilitated the entry of lots of new musicians, even if those can’t manage to eke out a living. A similar trend exists in the contemporary video games market. Of course, it’s naive to assume that several other investigations can predict what will happen to ATVI/MSFT. But it is remarkable that in the case of the music business, Sony agreed with the CMA’s conclusion that “music streaming is resulting in high consumer satisfaction,” where a similar argument is absent from its stance on gaming.
FTC likely to challenge ATVI/MSFT deal
According to Politico, the Federal Trade Commission is going to file an antitrust lawsuit to block the acquisition of Activision Blizzard by Microsoft. That’s not surprising, even if four of the FTC’s commissioners have yet to vote on the complaint or meet with lawyers for the companies.
That last bit is important to remember. While both Microsoft and Sony have issued public statements and responses to the finding of the Competition and Markets Authority in the UK, Sony’s opinion on the matter is irrelevant. Currently, the Japanese consumer electronics firm has managed to spin the ATVI/MSFT deal as if the two platform holders are having some kind of public argument and regulators are operating as referees. That hasn’t been too difficult, of course, considering the long-standing rivalry between the firms and how well it drives traffic for industry publications to speak of the “console war.” The constant comparison that pervades much of the coverage describing it in terms of “Sony said” but then “Microsoft said” suggests that rivals get to chime on what is good for the competitive landscape.
Having said that, I’m immediately going to commit the same foul. I’m currently working on a more cohesive synthesis, which I’ll save for later, but for now, I thought I’d share some rudimentary text analysis based on the documents filed by both Sony and Microsoft to the CMA last week.
We can discern a few key differences. First, in the 8,010-word Sony filing, we observe 71 references to Call of Duty, compared to 471 mentions in the 52,250-word Microsoft filing. Because Microsoft’s filing is 6.5 times longer based on word count, we can attribute a similar degree of importance based on usage for the shooter franchise because it occurs 6.3 times more in the longer document or roughly the same amount. Similarly, the term “exclusive” and its associated nouns (e.g., exclusivity) appear 21 times in Sony’s document compared to 143 times by Microsoft, for a ratio of 6.8.
Predictably, Microsoft will make relatively fewer mentions of terms like “harm” which has a ratio of 1.2, and “foreclosure” (4.4). It serves Sony’s argument, of course, to repeatedly point out all the ways in which the deal will have a negative impact.
Notably, the Japanese firm shows much less of an emphasis on consumers, however, making mention of “player” and associated terms only three times compared to 64 by Microsoft for a ratio of 21.3. Similarly, “gamer” appears 24 times in Sony’s filing versus 444 times in Microsoft’s, suggesting a greater focus on how the proposed acquisition of Activision Blizzard may ultimately impact audiences.
In Dutch we have an expression that says “Waar het hart vol van is, daar loopt de mond van over” which roughly translates to “For the mouth speaks what the heart is full of.”
🎙 Podcast update & recommendations
It’s been a busy few weeks so I figured I’d catch you up on some of the conversations I’ve been having.
Obviously, there is the weekly podcast, UNBOXING: Play & Profit for the Gaming Curious, that Laine and I started at the beginning of the semester. We’re having a good time with it, and we really enjoy it when you send us questions.
Together with Menno van Doorn, I explored the “Future of Gaming” and what growth looks like against a background of inflation and metaverse hype.
Yonatan Raz-Fridman from Supersocial and I talked about the evolution of the gaming sector and how moving forward may mean we are taking steps backward. You should subscribe to his newsletter.
And, finally, during this year’s Converge, an event organized by Globant, I spoke with a long-term industry buddy, Fabien Rossini, on how video games are shaping the metaverse.
Phew. That’s enough self-promotion for now.
MONEY, MONEY, NUMBERS
According to the official Call of Duty Twitter account, 25 million people played Call of Duty: Warzone 2.0 in the first five days since its release. By comparison, it took Overwatch 2 roughly twice as long, and then counted a total of 35 million within its first month. For Call of Duty Warzone Mobile there are now more than 25 million pre-registrations, which says a lot about Activision Blizzard’s mobile prowess and, by extension, the firm’s strategic value for would-be parent Microsoft, but I digress.
PlayStation announced that the latest release in the God of War franchise, Ragnarök, is its fastest-selling launch. The title set a record with 5.1 million copies sold within its first week.
Not to be outdone, Nintendo announced that its latest Pokémon titles, Scarlet and Violet, sold a combined 10 million units within their first three days. It represents a new sales record on any Nintendo platform, according to the firm.
PLAY/PASS
Play. According to the China Game Industry Group Committee (the what?), the country’s stringent regulations have resulted in young audiences successfully withstanding the spiritual opium that is games. Youth gaming addiction has officially been resolved.
Pass. The Financial Times, which otherwise regularly offers a rather nuanced read on video games via its dedicated columnist, argued in an op-ed that gamers will have to agree to “greater and more intense scrutiny and self-reflection” on account of playing war-themed games.
Great update Joost. Enjoy the game, and happy holidays!