Busy week with earnings and the billions of triangles coming our way with Unreal Engine 5. The future is ultra realistic.
Here are some my thoughts from an ongoing conversation why GameStop won't make it until the end of the year.
On to this week's update.
NEWS
Unity readies up for IPO roadshow
Whenever a CEO of the caliber like John Riccitiello starts doing interviews with Bloomberg and disclosing revenue, it’s not an accident. Especially in tandem with the announcement of Unity’s acquisitions of Bolt and Finger Food, one of its largest purchases to date, we are clearly looking at a media strategy.
So what gives? Well, the plan is for Unity to take what it has learned from servicing the games industry and bring it to other verticals, and on the basis of that success go public. To do so it needs to control its own narrative. So far, its major rival is the fantastically successful Epic. It is really hard to get out of the shadow of the company that keeps dominating headlines after it cut the ‘industry standard’ rate of 30% for sales on its platform to 12%, dazzled everyone with a snazzy AR visualization of the weather, Fortnite (obviously), and now also UE5 (nice touch btw to waive royalties on the $1MM in gross revenue for Indies).
With $500MM in revenues Unity is presumably well underway to carve out its own path. It’s come a long way. But it’s still got a way to go. Link
VR: yay or nay
There’s a lot of disagreement, still, around virtual reality and what everyone believes is going to happen next. There’s Rob Fahey who believes that VR’s moment is now, if people could get their act together. And then there’s Ben Evans (previously at A16Z) who believes we’re in the midst of a “VR winter.” My view: a lack of a clear path forward makes it harder to raise capital which pushes the timeline for this alleged disruption further into the future. Again.
Sony Music looking to follow up on Fortnite success
Here’s a worthwhile write-up of how Sony Music is looking at the intersection between games and music after the success of Epic Records (a Sony Music subsidiary) with the Travis Scott experience in Fortnite. Link
Big essay on cloud gaming
Industry buddy Matt Ball penned a whopping 10,000 words on cloud gaming. Get some coffee first. Link
Games boom can’t last forever
The WSJ ran a piece on the “hazy” future of game companies. Now that all eyes are on the safe haven known as interactive entertainment, it’s a matter of opinion how long the party will last. Link
PewDiePie signs exclusive with YT streaming
With 104MM subscribers, I suppose you could say that Mr. Kjellberg is still a big deal. But there’s the unshakable feeling that his best years are behind him. He obviously missed out on the surge in live streaming and has been stuck in the same VOD format for years while the games business moved onto new ways of reaching audiences. That’s not his fault. But he did unsuccessfully try to move away from YT and signed an exclusive with DLive which “puts creators first.” It’s one thing to be a big deal on a massive platform like YT. It’s another to disintermediate and go rogue. Granted, he’s not my cup of tea, despite having had a brief brush with the power of his celebrity when he retweeted one of my (now defunct) tweets. He had massive reach then. I doubt he can replicate the success in this new space. Link
MONEY, MONEY, NUMBERS
Tencent exceeded expectations with $15.2 billion in 20Q1, up +26% y/y. Not entirely unexpected, of course, because Tencent is eating the world, which is also where its weaknesses are. For the largest game publisher in the world to accomplish meaningful growth it will have to expand in the US and Japan. Online games revenue was up +31% y/y to $5.3bn despite a decline in PC game revenue which dropped -17% to $1.7bn. Over the past few years Tencent has been relying more on IP-based titles for revenue growth and Riot's recent plunge into a string of League of Legends-related titles evidences this approach. Link
Sony’s overall gaming revenues decreased to $18bn (down -14% from $21bn y/y) for the year ending March 31, 2020, largely because we’re at the end of the current hardware cycle. It shipped 1.5MM PlayStations in 20Q1, which was down -42% y/y. Software sales were up +9% with 59.6MM software units (y/y) as a result of the firm’s push into digital services: PS Plus subscribers grew to 41.5MM, up from 38.8MM reported in January. Despite challenges due to Covid-19, Sony claimed neither its scheduled release of the PS5 or its titles have been impacted. The games division (“Game & Network Services”) accounts for ~23% of Sony’s annual revenue (about the same size as its consumer electronics group) and is the same size of its music and movie business combined. Link
Glu Mobile crushed earnings with 20Q1 revenues of $106.5 million (+15% y/y). Its biggest titles were as follows: (1) Design Home generated $46MM (+0% q/q and +11% y/y) and was a quarterly record; (2) Covet Fashion totaled $17MM (+2% y/y); Tap Sports Baseball contributed $16 million (+20%); and Kim Kardashian Hollywood came in at $10MM which was its best quarter in 2 years. Notably, Glu’s adventure with Disney, Disney Sorcerer's Arena, has not yet had time to prove itself due to the timing of its release on March 24. Link
Nintendo reported $2.7bn in Q4 earnings and blew away consensus forecasts from Wall Street’s finest ($2.2bn). Big ticket here was obviously Animal Crossing: New Horizons which sold 11.8MM units. Digital sales accounted for a record 48.5% of total dedicated video game platform software sales. Given the lack of new titles in the foreseeable future and the announcement that it isn’t planning on releasing a new Switch model in 2020 may put some drag on this momentum. Covid-19 has also caused production and shipment delays of its console, in addition to key accessories like the Joy-Con controllers and its recently released Ring Fit Adventure. Nintendo is ramping up production in response, which is fine while it takes a seat to the upcoming console releases from Sony and MSFT.
RIGHT QUICK BITS
Can’t decide what MMO to play? Here’s a handy infographic.
Parsec raised USD$7MM in a round led by Makersfund. It scores high on 3 of my favorite metrics: tech, team, and timing. It’s P2P streaming technology will play a critical role in facilitating remote access to a high-end rig at the office for creatives, and in establishing a quick device-agnostic multiplayer connection for consumers. The team is seasoned and has been building this quietly for several years. And their timing could not have been better. All of which is why I’m happy to be one of their advisors. Link