Esports versus Covid-19
What inoculated competitive gaming against the pandemic.
It has been a week of beginnings and ends.
On the up: I did my first talk ever at SxSW and made my maiden appearance on a Clubhouse panel. The feedback and love was overwhelming (over 1,200 attendees!) and I’m still catching up on the conversations that spun out from it.
On the down: I’ve been receiving reports that Nielsen is shutting down SuperData. I can only speculate as to what’s going on or why but what a journey it has been. But more important than any of that, email me if you know of any good employers looking to hire some of the smartest analysts in the industry.
On the up: We’re having a baby girl! I am stoked. In a few months, player two will enter the game!
If this is how the rest of 2021 is going to be, I’m going to need another coffee.
On to this week’s update.
NEWS
Google lowers rates for tiny mobile devs
All of the positive press without any of the financial risk: Google is reducing platform fees from 30% to 15% for developers that generate under $1 million a year. It follows Apple’s earlier commitment but neither represents a meaningful loss in revenues for the platforms. As the mobile games market matures, we observe an all-too-familiar power curve where winner-takes-most: in 2018, developers that earned under $1 million accounted for 3 percent of total games revenue. A year later that had dropped to 2.3 percent. Such generosity. Such wow.
The dance card is filling up for the Epic/Apple ball
Both firms are deploying an array of high-level execs from their own ranks and others, according to this filing. We’ll hear from the two Tims, but also from Facebook’s VP of gaming, and a Microsoft VP of Xbox business development. If it weren’t for this lousy pandemic, we’d have some spectacular courtroom TV coverage, which would best serve team Sweeney in bringing attention to Apple’s practices. The trial is tentatively scheduled to start May 3.
Microsoft and Discord in acquisition talks
I like to speculate as much as the next person, but this Bloomberg article leaves a lot to the imagination. What gets me excited is that many of my contacts at both firms are suddenly unusually quiet and non-responsive.
My expectation is that it is the Xbox group rather than Microsoft that is evaluating this deal. And I believe that there is a strategic fit that is two-fold. First, Discord would be a natural fit with Xbox’ broader effort to build a vertically integrated, global gaming platform. It’s been building hardware, buying software, and is now stitching it all together with the connective tissue of a community layer. Second, it would give Xbox access to a healthy and growing audience. Discord is native to gaming and you can easily imagine its premium tiered offering to be bundled with one of Xbox’ existing subscription plans.
The big question is whether the acquisition of Discord will be a massive success like Minecraft or a costly disappointment like Mixer. Any deal can look good on paper but come undone in practice.
Gamescom plans a hybrid conference concept
I’ve been complaining plenty about missing events, but now I’m not sure that I’m ready yet. Props to the crew at Gamescom for coming up with a practical solution: the event in Cologne is designed to be business-only while consumers participate virtually. The expectation is that by late August around 80% of Americans will have been vaccinated. If that statistic translates across Gamescom attendees, I’d still expect a hesitation among companies to dispatch large teams. Instead, local teams will likely attend, with a few execs flown in.
From a PR standpoint things will be different, too, I expect: for years games conferences like Gamescom have been able to rely on the sheer novelty of being, well, video game events for mainstream media to cover them. Favorite among the b-roll footage has always been the droves of people pouring through the massive hallways at Koelnmesse (Gamescom), the Staples Center (E3) and the Moscone Center (GDC), to name a few. Visually speaking, the crowds tell a story about the size and promise of the industry in a way that nothing else does.
Conferences will undoubtedly be forever changed. But I am excited to see the world slowly emerging from its slumber.
Sony fires salvo of activity across ecosystem
At the top sits its acquisition of EVO, one of the longest-running esports tournaments, via a joint-venture with talent management agency RTS, Sony. It’s not just for the love of competition, of course, but also makes good business sense given that fighting games logged more than 1.1 billion gameplay hours in 2020 alone, according to the firm. Hopefully, this acquisition will undo some of the damage EVO suffered last year when it was cancelled due to a scandal.
Next, Sony invested in Jade Raymond’s new studio Haven. I feel ambivalent on this one because I’m naive. Raymond just left Stadia, which has yet to deliver on its promise, and previously didn’t last all that long at EA, either. But talent in games remains sparse and capital abundant, so it is a low risk investment for Sony to fund a game that will likely attract attention based on Raymond’s aura alone. If I had to speculate, I’d say that the ebb and flow of execs between gaming companies (Sony, Microsoft) and tech firms (Amazon, Facebook) tells you exactly who is going to dominate the market in the years to come.
Next, Sony added a bunch of new content and announcements, including 10 free games to its Play at Home program, a string of Indie titles, a 2-year PS5 exclusive collaboration with Square Enix on Forspoken(which looks delicious), and a FFVII Remake on PS+.
And, finally it also boosted its virtual gaming effort with PS VR Spotlight, and revealed its new PS VR controllers.
BIG READ: Esports versus Covid-19
Competitive gaming tends to bring out strong emotions. Caught in the moment with our favorite game or team, we stop thinking rationally and surrender to the moment. It is an important part of what makes esports so exciting. Irrationality is, however, entirely unhelpful when it comes to looking at the industry’s bigger picture. The business of esports is a game all of its own.
During a recent roundtable, someone raised the obvious question: “How has Covid-19 impacted esports?“
It is fair to assume that most of us have been wrestling with many of the same challenges this year. Among them: not getting to hang out with our favorite people doing our favorite thing. The implication here is, of course, that because we’re not able to gather, competitive gaming is basically doomed and done for.
Living two blocks from the Barclays Center in Brooklyn, NY where I’ve watched ESL One and witnessed London Spitfire win Overwatch League's first championship, I can’t say that I miss the thousands of hoodlums taking up all the parking spots on my block every. single. weekend.
I kid, of course. Being around other people is the whole reason I live in this neighborhood. But the empty streets and vacant sports arenas do appear to echo doom for the future of a still nascent entertainment category. Right as it started, it went away.
At the beginning of 2020, competitive gaming had enormous momentum. The number of fans, investors, and interested brands had been growing, and expectations were high. To meet demand, teams and leagues were investing internally in the hopes of capitalizing on the momentum. And then Covid-19 took a big dump on all those plans.
Reading the news makes the impression that even the large, well-funded esports programs have begun to stumble. Activision Blizzard’s announcement that it is laying off 50 people mostly from its live events and esports activities, sent a chill through the industry. Granted, there’s been a question mark next to some of these top-down initiatives for some time now. But what do we make of one of the industry’s biggest firms cutting its sails at a time like this?
Similar to much of gaming culture, it has taken a long time for it to penetrate society at large. Along the way we’ve seen many false starts. So, too, has competitive gaming. Back in 2007 we watched the thriving industry in South Korea collapse on top of itself. After an impressive rally that resulted in not one but three dedicated TV channels, audiences dropped esports like a hot potato. But what led to its decline then wasn’t the result of some faddish undercurrent that had run its course. Instead, it was the macro-economical shift from PCs to mobile devices that both figuratively and literally disconnected audiences from content.
Like today, critics at the time claimed it was precisely the type of extinction-level event that proved the point that esports were a statistical outlier, and not the shape of things to come. The disappearance of a novel phenomenon meant that its economics clearly didn’t hold water nor its content the attention of audiences. It was to be a fringe activity at best, destined to remain small. But small doesn’t mean weak.
So did Covid irreparably damage esports?
Of course not. Don’t be stupid. If nothing else, the past twelve month have merely strengthened the industry’s resolve. It’s been encouraging to see companies like Astralis report stellar figures: in 2020 it generated $8.5 million, up +92% year-over-year. We also watched Electronic Arts pay a 36% premium for a total of $1.7 billion for Codemasters, largely because it had successfully transitioned its usual competitive gaming initiatives to an online-only format, and tripled its active user base.
Similarly, investment continues seemingly at the same pace. Guild Esports managed to sign David Beckham as its patron saint, and esports betting platform Rivalry raised a cool $20 million. Both firms are publicly traded. Who would have imagined that a few years ago?
Arguably, one of the positive outcomes of this whole damndemic is that it has likely killed off all those half-assed initiatives by brands and game companies looking to ‘do esports.’ Good riddance. Take all your fake friends and go find some other category to clutter. What has inoculated competitive gaming against Covid-19 and every other cataclysm is the strength of the loyalty between fans, players, publishers, event organizers, and the compatriots that seek to build the bigger vision of what esports can be.
More generally, what drives the success of esports isn’t the mere novelty of the phenomenon. The momentum behind competitive gaming is two-fold: first, people have always and will continue to compete in things they enjoy. It’s instinctual and exists everywhere regardless of cultural context or historical moment. Second, esports provides an easily accessible entrypoint into the much broader world of live streaming as well as the reimagination of live experiences.
In response to the roundtable question, several people were quick to point out that esports have always been online. The glitz it borrows from more mature categories like conventional sports can blind you from its humble beginnings. But their struggles are their own. As Astralis’ senior management gleefully pointed out:
“as other sports shut down entirely, esports quickly demonstrated its resilience by moving tournaments online, and with it, growing viewership among existing as new audiences, alike. We capitalized on this trend and continued to invest into our core product and asset: the size and breadth of our audience and the long-term performance of our teams.”
Like all forms of play, esports abides.
MONEY, MONEY, NUMBERS
Epic Games raised another $1 billion at a $28 billion valuation. What are we even talking about anymore? Its previous round in July 2020 brought in $1.78 billion at a $17.3 billion valuation. That means Epic is now worth the same as publicly traded Unity ($28bn) and larger than Take-Two ($19bn). Epic has been announcing a steady string of acquisitions over the past year, so my guess is that the money is funding its warchest to build its B2B flywheel that houses the high quality software tools for game devs and movie makers in the lead up to its IPO.
ByteDance subsidiary Nuverse acquired Moonton for $4 billion. The maker of Mobile Legends, the largest mobile MOBA title with 100 million monthly active users, is the largest acquisition for ByteDance to date in an effort to build its presence in gaming.
Cloud gaming tech company Ubitus raised an alleged $45 million. Tencent led the round and Sony Innovation Fund by IGV, Square Enix and Actoz also put in. You’d think that Sony already has enough cloud action going on with owning both OnLive and GaiKai, and a partnership with Microsoft, but here we are. Ubitus was launched in 2007 (!) and its website is a hot mess riddled with dead links and dated articles. That tells you that it’s mostly a bunch of engineers hard at work building something rather than an opportunistic crew riding a wave of buzzwords.
2K acquired HB Studios, the developer of PGA Tour 2K21. Predicted by Piper Sandler analyst Yung Kim all the way back in August, the deal wasn’t a huge surprise given how aggressively Take-Two and Electronic Arts are trying to spend all that cheap capital on their balance on future-proofing themselves.
Rec Room raises $100 million at $1.25 billion valuation. Initially launched as a VR-only platform, it has expanded its reach to console, PC, and mobile. So far it claims “15 million lifetime users.” I have no idea what that means. At age 44 I probably have had around 10,000 lifetime sandwiches. It concerns me that after VR didn’t work out, Rec Room now chases user-generated content. That suggests there is no true creative vision other than ‘the users will build it’ which, in turn, means astronomical marketing costs to attract enough audience to build critical mass.
Overwolf raises $52.5M to expand third-party modding platform. Led by Griffin Gaming Partners and Insights Partners, the Tel Aviv-based company has pivoted into UGC. Offering a service to gaming companies who prefer to buy off the shelf rather than build their own, I expect Overwolf to do a lot of work for free in the coming months to build relationships with game companies worried about onboarding costs.
Embracer Group raises $890 million for more acquisitions. By issuing 36 million new Class B shares at SEK 210 ($24.70) per share, the gluttonous Embracer Group is actively looking to buy devs, pubs and the always mysterious category of “other assets.”
