Take-aways from E3 2019

Keanu is a beautiful human being.

Having spent my week talking to rooms full of investors and game makers at E3, I’ve come away with a few key observations. But by far the biggest question on everyone’s mind: what’s up with cloud gaming?

Across the entertainment spectrum, "the cloud" has become the go-to technology to distribute content to consumers and, in the process, disrupt the status quo. It carries the same promise of inter-generational renewal like a newborn baby.

Cloud gaming existed on the fringes of the industry a long time and then suddenly raced to the center. Ten years after Sony acquired both Gaikai and OnLive a decade ago to establish a proprietary service, there is now the critical mass necessary for it to become an industry-wide offering. It presents a unique opportunity for Google, Amazon, and Tencent to break into and disrupt the console business.

To that end, Google has rolled out an impressive new consumer technology and created high expectations. And we also learned from its press conference last Thursday that its effort is sincere: its senior leadership team is experienced and all have the vote of confidence they’d need to get things done. But to successfully launch a platform requires a lot of money and an entire ecosystem of third-party relationships.

That where it gets tricky: the triple A publishers have already indicated that they’re going to wait and see. None of them have committed any exclusives. It makes little sense for a strong incumbent content creator to risk the carefully-built value of their IP on an emerging platform. Better to wait for critical mass and remain a hold out so that you can charge a premium later.

Sure, we’ll have Ubisoft Uplay+ as the Stadia will also host subscription services. (And EA’s Access won’t be far behind.) But given how openly Ubisoft has been dating Google, I would have liked to see is a platform exclusive for Stadia like Watchdogs 3. It would have been the type of commitment that laid the foundation of Stadia’s differentiation.

When it comes to triple A content, Microsoft and Sony maintain the initiative here. They’ve invested billions over the years in technology, yes, but also in the relationships that enable them to build unique and differentiated offerings. Merely opening one’s wallet is not enough to establish an ecosystem. Perhaps there is a parallel here with Epic, which has been spending its V-Bucks on game studios, applications, and titles. However, so far, Steam seems unfazed.

As such Microsoft’s showcase was, in my opinion, far too timid. It has a clear opportunity to take the lead here and get out ahead of Google. There was no Sony to distract anyone, Keanu is a beautiful human being, and Microsoft had not one but two platforms to announce. That’s where I’m concerned: why did its presentation start with the xCloud and then move to the news about its upcoming console, project Scarlet, and not the other way around? Arguably cloud gaming will outlive whatever hardware comes next in the long run. That editorial decision gives a sense of priority and resource allocation on Microsoft’s end. This is consistent with its conversations behind closed doors: anecdotally I’m told that in an hour-long meeting, Scarlet is the main topic of conversation and only 10 minutes are spent on the cloud.

On the lower end we’re about to see what Apple has in store. Its focus is clearly on younger audiences and family entertainment, all wrapped up in a single, convenient content bundle. If you look carefully on Steam, you’ll see games on there that look and feel like iOS games, but aren’t. That’s probably because Apple has been buying up titles to fill it Arcade. Word around the campfire is that they're paying around $1.5 - $2MM per title, and $5M on the high end. For many of the smaller fries that’s probably more than they would have made going through the App Store.

That leaves Stadia squarely in the middle. It’s far too early to ask for this, but where is the application that showcases the unique properties of this new technology? What’s Stadia’s Mario/Angry Birds/Halo/God of War? In fairness, Apple didn’t figure this out until years after the release of its iPhone, and even then it took longer still to greenlight free-to-play monetization that ultimately resulted in the expansive growth of mobile gaming.

The economics of introducing a new platform to market are akin to launching a rocket into space: you have to burn a lot of fuel to overcome gravity and reach the stratosphere. If we negate the investment in hardware and infrastructure, the newcomers are still looking at having to make a massive investment in content in order to differentiate and attract consumers. Historically we’ve observed that tech companies struggle with the notion that content is king.

In sum, cloud gaming for both Microsoft and Google remains very much a horseless carriage: hardware-agnostic content distribution. Based on the amount of effort and resources allocated to marketing and content acquisition it is clear that the different contenders have different timelines in mind. This obviously makes cloud gaming a matter of when, not if. The salient component to its success, however, consists not of establishing a back-end technology but rather in the clear formulation of a unique content offering.

And it's going to take a village to raise this cloud baby.

PLAY/PASS

Pass. Epic’s exclusive of Shenmue. Epic is aiming to become a platform not unlike what Tencent has built in China. Its recent acquisitions, including Houseparty, indicate that Epic is assembling a suite of applications, games, and ways for especially younger audiences to interact digitally and share experiences online. Epic raised $1.25 billion on Fortnite's success. It needs that to make strategic acquisitions and establish itself as a platform. It can be no surprise that among its early investors sits Tencent, which followed a similar path with League of Legends. So while I understand their appetite with all that investment capital burning a hole in their pocket, it’s gotta be about the fans first, remember?

Play. Fallout 76 Battle Royale. Adding a battle royale mode has become a standard practice for developers of shooter games. It is a really engaging and refreshing new take on a popular genre. However, merely adding it won’t be enough as it ceases to be a differentiator. And what made Fortnite so popular was the goofy fun and wacky expressions that added an additional layer of interaction. Bethesda’s offers a convincing take on battle royale: it incorporates a contemporary market trend while building on its strength as a publisher known for engaging narrative-driven game play. I don’t expect Fortnite players to jump ship and run over the Fallout 76, but believe that it will fortify Bethesda’s user loyalty and engagement.

Pass. DrDisrespect’s bathroom antics. Along with the agencies, now the talent, too, is going full Hollywood. Decades of technological progress only to provide us with some tall guy live-streaming strangers taking a piss.