Online, but for music
Live events are changing.
Marshmello’s Fortnite concert was the talk of the town last week.
I missed the live performance, of course, on account of being old and boring.
But I didn’t miss the usual cadre of opinion makers about the seeming vacuity of a virtual concert. There was a palpable ‘wth’ across the various media streams. Surely 10 million people watching a popular song inside a game does not meet the minimum requirements to be considered a cultural event, does it? And even if it does, it must rank at the very bottom. Right?
No.
Live events are changing. We’ve already seen esports skyrocket, and live streaming is a quickly growing business, too. Gaming video content caters to almost 700MM people globally. Gamers are the canary in many cultural coal mines: after sports and live TV, gamers are now reimagining music events.
If we compare Marshmello’s performance to, say, the Fyre Festival, we notice a few differences. For one, we were spared the relentless stream of supermodel tweets and other vapid social media influence. We did not hear from Kendall Jenner and Bella Hadid looking to trigger our envy that could only be quenched by flying to a Caribbean island.
Second, like many of the other major events nowadays, they’re all trying too hard and charging too much. Burning Man used to be a bunch of artists in the desert. Now it has Beyonce and ventilated tents. And that’s fine, of course. But it really raises the bar for anyone wanting to participate, either as audience or artist. The same applies to a festival held on some island. It resulted, inevitably, in seedy economics managed by some frat-for-life team of bros.
Third, no one had a good time. The Fyre Festival was originally billed as the Woodstock of this generation. People were supposed to tell their grandchildren about it. And I suppose they now will. But not as attendees for the cultural highbrow get-together they thought it would be. But for being the a public display of fraudulent fame and FOMO exploitation.
By comparison, Marshmello barely advertised his concert, it was only ten minutes long, and everyone had a good time. Even orthodox industry writers found themselves having a blast.
From an industry perspective it opens up several new avenues: much like the emotes that Fortnite already provided to players to interact, organizing musical events is a fertile way of further engaging players. Music plays a key role in movies and television drama, so there is no reason why it can’t do the same for games. Besides the brilliant playlists in the Grand Theft Auto series, companies like Bungie have found enough demand for their games’ soundtracks to sell vinyl records.
Beyond selling more stuff to people, there’s another, more promising layer. Here you find a generation of people and players that want to enjoy and share a good time. They come together in an environment all of their own and to which parents and others have only limited access. That makes this less about Marshmello and focuses the experience on a generation carving out its own cultural place. Compare that to the rah rah vacuity of a Fyre Festival, which is governed by a different set of organizational principles and ideas, and you see the outline of a budding generation centered on meaningful, shared experiences.
Imagine people enjoying themselves.
On to this week’s update.
NEWS
Is EA’s miss a signal for the whole games industry?
This week EA reported its earnings and it wasn’t pretty. Its net bookings came in at $1.609bn (-18%), which was well below the company’s guidance of $1.725bn. Main culprits were the lower sales for Battlefield V and a drop in mobile revenues (-22% y/y). But since EA is one of the biggest publishers out there, does its miss mean the games business is in trouble, too?
To a degree, yes. There is a disconnect between the value that game publishers create and the way that investors value game publishers. Certainly EA got into hot water by overpromising and under-delivering. But it is also crazy that a game that sells 7.3 million units is considered to ‘underperform’ even if it’s only by a million. Investors don’t like that. And we already saw in 18Q4 exactly how investors feel about legacy publishers when pretty much every stock dropped after the release of their key holiday titles. There is a stubborn contingent of investors that continues to value game publishers on the number of units they sell. The value, however, is in the long term as publishers establish ongoing revenue in the form subscriptions and continued content updates and add-ons.
Then, low and behold, its Apex Legends almost instantly brought EA back from the slaughter house as investors rallied after they saw exactly how many people were watching the game online. Only a day after EA dropped 19% in value, investors found their appetite rekindled by a new release. It’s like they are day-trading against EA’s portfolio without understanding the fundamentals. Even if EA isn’t the best in class right now (what’s up with Anthem, yo?), having investors all over the lanes shows what kind of stock drivers they really are. Bad ones. Link
Jeff Bezos kills AMI and emerges as journalism hero
What an odd tale. After being vilified for being just another billionaire buying up media properties, Amazon CEO Jeff Bezos’ statement regarding the National Inquirer’s attempted extortion, or ‘sextortion’, based on a few d!ck picks exposed a more insidious vein of malicious ownership. The attempt was clearly politically motivated given the tabloids parent company AMI's close association with the current administration, and a terrible idea. Yeah, let's go after the wealthiest guy in the world who disrupts entire industries for breakfast, said no one ever. Until now. Bezos’ full article here.
The annual 'hate/love E3' cycle has started anew
I don't want to say I told you so, but I totally did. The biggest industry event in the North America has been struggling to adopt to the new market realities of mobile and digital. To be clear, I want it to succeed. So while several of its major attendees are bowing out for this year's show and doing their own thing on the side, now is a good time to hit the gym, buy some new clothes, and get out there again. The ESA has a new CEO who I expect to want to take this head on. Link
US telco's cut investments
Funny coincidence, it seems. After swaying FCC chairman Ajit Pai in 2017 to repeal rules forcing them to treat all internet traffic equally, the big four US telecom providers have invested less in infrastructure in 2018 than the year before. Total spending was down -1% at $56.9bn from $57.1bn in 2017 and $56.1bn in 2016. A key argument behind rolling back the rules was incentivizing telco's to invest and expand broadband networks. Link
Unity is going public
It’ll be interesting for investors to learn that Unity is, in fact, different from Epic. Yes, both of them are game engines. And the latter has been getting a lot of airtime because of its success with Fortnite and the sudden popularity of its digital storefront. Unity, on the other hand, is not betting on having a breakout title associated with its technology and building it from there. Rather, it is looking to integrate its technology across applications and platforms, and go beyond gaming. There is conceivably more money in working with enterprise industries like automotive and architecture where Unity’s VR solutions can play an important role.
Critical to the narrative here is that gamers are the canary in the coal mine. They’re generally early adopters and the technology that serves them needs to satisfy a lot of demands. What Unity has learned from building its engine for the games industry will no doubt benefit it when talking to other technology-based industries.
By sidestepping the risk/reward conundrum associated with title development, Unity is placing a more measured bet that is, of course, harder to build but potentially more valuable on the long term. Its CEO, John Riccitiello, has been around the block more than he’ll want to admit. In my opinion that means he has less to prove and can build things slowly.
Unity generates $300MM annually and was most recently valued at $3bn and is aiming for its IPO in the first half of 2020. Link
MONEY MONEY NUMBERS
Glu Mobile booked $98.2MM (+18%). Its portfolio is a bit more narrow now as Design Home contributed $44MM to bookings (+46% y/y and +7% q/q). Its second biggest title Covet Fashion rose +49% y/y, and Tap Sports Baseball contributed $17MM (+37% y/y). The rest of its title portfolio, representing 23% of total, was down -27% y/y. Link
Zynga reported $267MM (+19%) in bookings, and record mobile bookings (+28%) led by Merge Dragons! (+64% q/q). Its former evergreen Zynga Poker is on the fritz and down -14% y/y. Link
Take-Two Interactive came in with net bookings of $1.569bn (+140%) and a total of 23MM sold-in copies of RDR2. Now fully focused on recurrent consumer spend, its NBA 2K19 is also outperforming. Unsurprisingly, GTA 5 is starting to show its age but it should be of no concern given RDR2’s unique offering and quality at the end of the current hardware cycle. Even so investors came down hard on TTWO because, well, investors are often wrong. Link
Nexon generated $2.3bn (+8% y/y) which is crazy, especially since it largely came from MapleStory and Dungeon&Fighter. The latter had "double-digit growth in its 10th year of operation in China,” Owen Mahoney, Nexon’s CEO and President. Link
Finally, NCSoft came in with $1.513bn (-2%) but profitability was up (+5% y/y) as mobile now accounts for the bulk of revenues. Lineage 2M, the successor to its key franchise and moneymaker is delayed. Link