Virtual reality is just that

A 5% attach rate does not a platform make.

I try to be a cool dad.

Whenever a publisher sends me a game that I believe is appropriate for the 6-year old, I let him play it. Even if I don't make games myself, I still insist on eating my own dog food.

I've noticed, of course, that said 6-year old gets really engrossed and finds it difficult to put down what he's playing when it's time for homework or bed. And, more often than not, I find myself at odds with a kid whose brain is entirely scrambled.

Naturally my wife and I limit his game time. More so, we actively coax him away from games and other screen activity, and steer him towards independent play and drawing. He loves that just as much.

Before this starts to sound like I'm trying to explain away some sense of guilt, I'm not. However, it is important to look at things objectively. Here's today's WSJ article why kids have a hard time regulating their response when someone suddenly interrupts their game. Succinctly, it speaks about how children's brains are underdeveloped and what a household can do to limit both the short- and long-term fallout.

It is true that games don't really 'end' as they used to. Especially the now popular Fortnites, Overwatches and Apex Legends of the world present ongoing experiences that encourage one more round. Just one more.

This is, in part, an industry problem. Digitalization has driven the bulk of content out there today to incorporate a heavy emphasis on online multi-player game play. These games have proven very sticky, especially in tandem with a free-to-play monetization strategy. And to that end, I believe, Apple's upcoming Arcade will provide a much-needed breath of fresh air with finite, story-driven titles (from the looks of it) in the otherwise almost exclusively never-ending mobile gaming universe.

What I don't see is why this is somehow exclusive to children. Sure, their prefrontal cortex is still underdeveloped, preventing them from easily switching this off and resulting in an aggressive response.

But let's be honest: science or not, deliberately interrupting someone who is deeply engaged is a shitty thing to do and, I think, deserves an outburst. Switching off the TV when someone's playing is completely lame and equivalent of violently hitting the book out of the hands of a quiet reader or switching on the lights in a movie theater.

Don't try to science your way out of being an ass.

On to this week's update.

NEWS

Publisher layoffs are about the future, not the past

With some degree of cyclical predictability, publishers have been cutting into their workforce despite a pretty good year. Among them are Activision, EA, ArenaNet, Capcom, Bandai Namco. It’s important to remember that it is not because of past performances. Rather, the games industry is in a transition year. It’s always a sour moment when droves of people lose their jobs and it feels unfair as some of these firms have had record years. However, publishers don’t tend to lay off folks because of recent results but because of what’s ahead.

In this case we can identify two drivers of change: first, several of the major firms are at the start of a rather anemic year and have relatively few titles in the pipe. For many of them it is better to stick with what they’ve got than to spend big on something new. The current title line-up reflects that.

Second, there is an imminent shift coming among platforms. Historically, this is typical of especially the console games market because it relies heavily on the introduction of new hardware to rejuvenate. And certainly, we are starting to hear more details about the next console generation, but on the short term it makes no sense for big publishers to place any big bets. Especially now that digitalization has persuaded big newcomers like Google and Apple to play a more significant role, there is comparatively more uncertainty. This forces publishers to reduce risk and cut costs.

Oh, and by the way, SuperData is hiring.

Tencent kicks off beta-test of its cloud gaming service START

Based on the job openings it seems that the Chinese giant is planning a cross-platform rollout that includes Mac/iOS, Windows and Android devices. We’ll see, I suppose, but Riccitiello from Unity has already expressed support. After Google’s announcement at GDC, I’m a little surprised by how small scale Tencent's effort is so far. Tencent already runs cloud operations which generated $864MM (RMB 6bn) in revenues in the first nine months of 2018, and more than doubled y/y. Let's get this popping.

Following the recent government-induced slowdown in games revenue, Tencent has been put on notice. It now knows that it needs to diversify its portfolio if it wishes to continue to grow and, more importantly, keep a comfortable distance between its operations as a firm with global ambitions and its domestic regulators. Despite some movement in title approvals, things are still pretty anemic. In response Tencent has been shifting focus to other revenue areas, including advertising. According to a recent earnings report, “social and others advertising revenue was RMB11.1 billion, up 61% year-on-year and up 19% quarter-on-quarter.”

I have no doubt that Tencent can play a significant role in cloud gaming in China and across Asia (where it may very well partner with Sony and Nintendo), but I’m curious to see whether they’ll roll it out in western markets as well. That would truly be the start of something. Link

Does it mean VR is back now that Sony sold 4.2MM PSVR units?

Meh. As the in-house skeptic of virtual reality (high barriers to entry for developers, expensive and difficult to set up for consumers, etc.), I continue to be surprised how well PSVR is doing. Sony has certainly put a real effort behind it. But with an attach rate of less than 5% among all PS4 owners, I don’t think that the PSVR is quite yet the platform that it could be, and may yet remain a novel accessory.

Even so, there’s continued momentum. First, there are several titles that look promising and will come out this Spring. I’m curious to see what a shooter game like Blood & Truth will offer in VR that I can’t get in regular game play. I’m pretty sure I’ll have to wear brown pants when playing Five Nights At Freddy’s VR: Help Wanted. But king of the hill for me will likely be Iron Man VR.

Second, Valve continues to push into VR, too. Despite laying off a bunch of folks working on its VR effort, it announced it will release its device, named Index, in May. It competes most directly with Microsoft and HTC, but the biggest loser in all this will likely be the Oculus. But having several billion dollar firms duke it out over virtual dominance may just provide the right circumstances from which a new platform rises.'

Twitch and Nintendo announce partnership

To be sure, it is only a modest benefit. We’re talking about a few bucks of value here, which is great, but not the most important aspect. What this arrangement suggests is that Nintendo is partnering up with what is conceivably GameStop’s biggest rival, Amazon. Over the last few years GameStop has been struggling but has held out well in part because of its close partnership with Nintendo, which accounts for about 25% of revenues and has been heavily investing in marketing the Switch. It should be worrying, then, to both GameStop’s management, particularly its brand new CEO, and investors that the Japanese giant is starting to casually date other retailers. Link

PLAY/PASS

Play: Kazuo “Kaz” Hirai. After 35 years at Sony, Kazuo Hirai, currently Sony Corporation chairman and former head of PlayStation is stepping down. In 2006, he took over Sony’s video game business worldwide and that worked out quite well, I’d say. In the decade that followed Sony’s PlayStation revenues increased +24% (publishing rev only) and the PS4 has an install base of 92.4MM, making it both by far the dominant platform holder in console and the top grossing division in the Sony empire. A job well done. Link

Pass: Tyler Barriss. I have little mercy for small men calling a SWAT team on other players. I’m glad he got 20 years in jail for what he did. Hard pass. Link

Play: Humble Bundle founders. Throughout my career I have always enjoyed small firms working together to achieve better results for everyone. I believe this is what defines the indie scene which functions more like a network of collaborators than a market segment of small rivals. Fewer initiatives have symbolized this better than the Humble Bundle which started as a way for small firms to make some money, and ended up becoming a primary marketing channel for lots of game companies and donating over $100MM to charities in the process. Its founders are now stepping down, but what an impressive legacy. Link