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Democratization of an art form, or a poor player's tax?

Last week I predicted that Crucible wasn’t going to blow anyone away and that proved to be uncomfortably correct.

Roughly 250 people worked four years on the game with a budget greater than GTA V’s, only to have 5,000 peak concurrents on Steam in its first week and ‘mixed’ reviews with 44% positive ratings. Is it another Battleborn? Unsure. But it’s no blockbuster hit.

It’s painful, of course. But so are all new beginnings. Remember that Amazon is only at the early stage of establishing a defensible position in the games market.

I suppose with such an investment, team Bezos expected to make a bigger splash. Compared to the ROI we see among indies and medium-sized game makers with seasoned creatives at the helm, Amazon’s current approach is perhaps too big to succeed. The reason is relatively simple: in an online market there is no substitute for organic, iterative design.

When it comes to media and entertainment strategies, tech firms like Amazon but also Facebook, and, yes, ByteDance/TikTok all suffer from the same predictable challenges. They’re eagerly trying to buy their way into the games industry using their access to cheap capital to make quick, high-profile acquisitions of content and novel technologies. The immediate benefit is the bump in their stock price, as investors who only poorly understand gaming consider their entry into gaming a sure-fire way to grow long-term revenue.

But unlike audiences and customers which can be bought with free stuff and access to premium content, the creative culture that is necessary to achieve critical acclaim and widespread consumer adoption in gaming is less purchasable. In academic terms: the commodification of culture and the appropriation of its various manifestations by large multinational conglomerates who seek to package and sell it back to consumers varies in efficacy across different content segments.

Put simply, Amazon is learning what Nintendo, Sony, and Microsoft have known for a while now: you have to establish an ecosystem. Sure you have the technical backbone. But that’s the easy part. You have to wonder, for example, what level of quality we can expect when tech firms leverage their resources to hire hundreds of people at once to build their games division. Is there enough cohesion to create something compelling?

In the parallel universes of streaming video, Disney and HBO distinguish themselves by having established an ecosystem around their core franchises. A-list talent loves working with HBO because it facilitates ‘old Hollywood’ values. Their current success stems from carefully building a premium inventory and going all out with well-produced launch titles (e.g., Mandalorian). Aim low and expect your distribution power to the key differentiator and you’ll risk an abundance of mediocrity.

And consider the demand side, too: there are significant switching costs in online games. For me to give up one shooter for another means that your new release and its community has to be way cooler than my current one. Sure, I’ll check it out at launch and see what the fuss is about. But games today demand a time investment. It takes a while to ‘git gud’ and find friends.

Yes, I continue to believe that Amazon is serious about entering the games market. But it would be better off acquiring an EA, Ubisoft, or, maybe even, CD Projekt Red. To do that, however, it would need to spend substantially more than the $7 billion it has planned for original video content this year. Week one for Amazon’s crucible in gaming shows it has a ways to go.

On to this week’s update.

NEWS

Ramandan in Overwatch

I’ve long held the belief that games are a form of communication. A recent example involving Blizzard was the way it clumsily handled a Hong Kong Hearthstone player Ng "blitzchung" Wai Chung expressed his support for the protests in Hong Kong. The firm, and the industry at large, is still grappling with their newfound status as a mainstream, global entertainment industry. So I was happy to see it had integrated the annual Ramadan celebrated by Muslims in Overwatch. Sure, it’s only a few sprays, and I’m sure efforts around Easter, for instance, will be bigger. But muslims mostly miss out on seasonal events, so credit where credit's due. It is a welcome addition to what is really a global audience of players. Link

In-game banners showing up in League of Legends

When the category leader successfully moves in a new direction, you can expect the rest of the market participants to follow. In this case we’re observing the first steps by Riot Games to integrate advertising into its esports broadcasts by way of sponsored banners. Can you imagine the glee by the brand owners at Mastercard and Alienware right now, as they parade the media exposure internally? Looks like they’re starting to figure out how to integrate ads into gaming. It’s important to note, however, players themselves won’t see the banners. We’re one step closer to operationalizing in-game advertising as a viable source of income.

Long term view: if this proves successful, which it undoubtedly will because there is a lot of pent up ad spending waiting to access gamer audiences especially considering the absence of conventional sports and current popularity of gaming, we can expect to see developers and advertisers to meet earlier in the design process of upcoming titles. Like soap series and action movies before them, ad-based multiplayer games will become a genre in its own right. Link

A few thoughts on ray tracing

Historically the release of new dedicated hardware (aka consoles) comes with a lot of hoopla about how amazing things look and the massive number of triangles are about to hit the back of your eyeball. That's very exciting, always, even if consoles don't outperform PCs on graphics. Nevertheless, there's been a string of announcements around ray tracing and how it's going to make things more better faster.

Likely, ray tracing will serve at least two purposes out the gate. First, device makers have long touted their technical capabilities to both entice consumers and game makers. Playing in 4K and even 8K graphics is a notable upgrade from existing gaming hardware. Second it will go a long way toward closing the performance gap between high-end PC gaming and next-gen consoles. Because of its closed architecture it is ultimately impossible for consoles to persistently offer a higher-end experience than PC, but consoles come at a more reasonable price point.

Consequently, especially blockbuster productions will benefit most from ray tracing. It will allow the top-tiered publishers to really show their stuff and offer an immersive experience. Specifically, it will benefit their ability to tell compelling stories and provide accompanying cinematography. Among them are, of course, story-driven games like The Last of Us Part 2 and action games like Halo. However, games that characteristically offer lower end graphics, like Minecraft, will see a boost in player activity with higher end graphics. The industry's conventional technological determinism is alive and well. Let's see if consumers care.

First Mario jeans, now Pokémon t shirts

I’m only salty about it because as a white, middle-aged unemployed guy in New York, I can’t wear one in public without immediately suffering the social consequences. Maybe I'll buy one to "work out" in. Link

Activision: “Gamer Moms are the Next Level.”

Next level of what? Doesn’t say. Link

MONEY, MONEY, NUMBERS

Take-Two reported record bookings of $729MM (+49% y/y). Full year bookings reached $2.99bn, up from $2.93bn (+2%). Predictably its core franchises drove higher player activity and its share price almost reached $150 before collapsing back to $130 because, well, there was no news on GTA VI. It’s likely that TTWO retains the ability to make that announcement because doing so during a spectacular quarter like this clearly wasn’t the time. Until then no analyst is going to cut their price target and we keep on believing. Link

Chinese live streaming platform Huya reported $341MM in revenues and +48% growth for 20Q1. Monthly average users on mobile were 75MM (+39% y/y), and MAU for Huya Live grew 22% to 151 million. The company has more users, higher spending, and increased advertising. With a $1.5bn in cash, a market cap of $3.7bn, and this level of growth Huya should be more expensive but trouble brews. Like its peers Douya and BiliBili, Huya finds itself at the business end of looming US regulations which insist that public Chinese companies submit third-party financial audits to the SEC. This will likely also have a negative effect on Tencent, which owns about a third of Huya and 50.1% of its voting shares which it recently purchased for $262.6MM. Link

Magic Leap secured $350MM in financing. It’s an odd day in tech when even TechCrunch rolls its eyes at your new round. Link

Tencent continues to eat the world and buys 20% of Tokyo-based game maker Marvelous for $65MM. That’s cool. But not as cool as the $70bn (!) it plans to invest in infrastructure over the next five years. Link

PLAY/PASS

• Play. This guy getting his mind blown by a miracle sudoku.

• Pass. Amazon’s takeover of local TV stations to push out a scripted message.

• Play. Here’s Unity’s CEO John Riccitiello talking to a16z about gaming.