I’ve never had to talk about GameStop so much in my life. Good lord. I also think that much of what I’ve heard others say about it is wrong.
To understand the phenomenon of millions of retail investors purposefully driving up the stock price of GameStop and other equities that were disproportionately shorted by hedge funds, we don’t need economics or finance. We need anthropology.
Specifically, Clifford Geertz’ writing on the “deep play” of the Balinese cockfight. You can go read the whole thing yourself here, but briefly described, the concept boils down to this: humans are involved and committed to a game and its outcome to a degree that is wildly irrational. In both the case of the Balinese cockfight and the WallStreetBets phenomenon, participants literally put themselves on the line.
According to Geertz, in instances of deep play there is more than meets the eye. A symbolic manufactured representation of something tangible from our social life allows us to channel aggression and rivalry into an indirect, symbol form of engagement.
He describes how the social universe in a small village in Bali is governed and negotiated by the involvement and outcome of having two purposefully-bred roosters fight each other. That sounds pretty low-tech. But in our contemporary context (paraphrasing Geertz), the millions of small individual investors engaged in
“such betting is to lay one’s public self, allusively and metaphorically, through the medium of one’s stock, on the line.”
Without a clear endgame in mind the millions of retail investors that have been buying GameStop and AMC shares, they are literally putting their life savings and retirement on the line. That is not for us to judge.
Despite its high-tech nature, it is a low-tech phenomenon. But we can strip away the technological intermediaries that retail investors use to take positions and attempt to artificially drive up the share price. What remains is a large crowd of people looking to make a point. As Geertz puts it: “It’s a story we tell ourselves, about ourselves.”
It’s a story that now cannot be untold.
On to this week’s update.
NEWS
Google forfeits on Stadia’s 1st party content
Big surprise, said no one. It’s no secret that I was skeptical at Stadia’s chances of success. But my heart goes out to the 150 individuals who took a chance on Google and switched over to a budding new platform in the hope to be part of something new, but failed. All because Google has decided to roll back its video game offering because it makes no sense to chase a losing hand.
To obtain marquee titles that differentiate its service from others, Google had two options. First, develop 1st party content in-house. It is clear now that this was a failure. We may speculate about the ability of its leadership team, but it is evident that there simply isn’t enough of a foundation to double down.
Second, Google could acquire a publisher. However, in the absence of rapid user adoption, it is difficult to justify purchasing an EA or Take-Two and lay claim to highly valued IP to differentiate themselves. After Microsoft bought ZeniMax for $7.5 billion and the rally in the games market over the past year, even mighty Google got priced out.
More generally, it is easier for a content firm to build its own distribution infrastructure (e.g., Disney) than it is for a tech firm to buy its way into gaming. Google’s rival Amazon similarly has tried to create differentiating game content for years to little success.
The way I see it is that Big Tech sucks at gaming. I suppose it was different when Amazon sent its execs to Hollywood, waived a big checkbook around, hung out with famous people, and purchased films to accumulate a catalogue. Leave it to Schreier to ruffle some feathers. Interactive entertainment requires the development of an ecosystem and user community, especially for service-based titles. It took Microsoft years and a fortune to get where it is today. The idea that Big Tech’s access to cheap capital would allow it to simply buy a seat at the table testifies of the arrogance with which they generally approach content industries.
Verizon, Pokémon Go, 5G, and the metaverse
It’s not every day that you get to poke two bigwig CEOs with mildly spicy questions. Admittedly, it is entirely because I’m not a creative that I remain skeptical of 5G’s near-term applications. So often do large corporations launch broad PR campaigns to convince us that there’s something bigger or faster that we can no longer live without. And so I had to ask Ronan Dunne what he thought of the critique that 5G is a solution looking for a problem, and how John Hanke was going to follow up his success with Pokémon Go.The discussion is worth a look.
MONEY, MONEY, NUMBERS
Embracer Group acquires Gearbox for total deal value of $1.3 billion
The firm also announced its acquisitions of Easybrain Ltd ($765M) and Aspyr Media ($450M). Two things jumped out: (1) The earnouts are substantial: most of Gearbox’ potential dealsize ($1bn) is based on future performance. The same for Aspyr ($350M). Earnouts are not unusual but in this case they are on the larger size. (2) My gut tells me that all of these acquisitions by the Europeans are the start of a broader consolidation trend in 2021. Certainly the abundance of cheap capital has facilitated the numbers getting bigger. Embracer’s share price has tripled since the start of the pandemic.
Electronic Arts reported $5.956 billion, up +8% y/y YTT
That puts it on a path to make. It bragged about its sports franchises reaching 230 million people, and FIFA Ultimate Team having a record DAU of 6 million players in December. Management is doubling down on the category with a slew of initiatives, including Codemaster acquisition, the return of NCAA football, the expansion of FIFA Online into Russia, Poland, and Turkey, and 6 new soccer mobile "experiences," whatever that means. Digital bookings accounted for 81% of total and were up +25% y/y.
Microsoft’s gaming earnings were up +51% y/y
The success of its Game Pass program and the new hardware launch drove Microsoft’s overall personal computing segment up +13% to $15.1 billion. Xbox hardware sales were up +86% y/y, and Microsoft also saw +40% y/y growth in its Xbox content and services segment. Link
Sony reported stellar earnings
Its Game & Network Services division totaled $___. Notably, packaged software accounted for $0.49bn in sales, roughly 6% of total, compared to $1.69bn for Full Game Digital Software, $2.45bn for Add-on Content, and $0.92bn for Network Services. Link
The Epic Games Store reached 160M customers in 2020
That’s not bad for a digital storefront that only launched in 2018. Similarly to the early days for Valve’s Steam, it was a disproportionately successful title that unlocked this achievement. It is practically a textbook platform rollout: (1) big successful title, (2) low rates to third-party content providers, (3) exclusive title acquisition to differentiate (e.g., Psyonix’ Rocket League,), and (4) lots of deals for users (e.g., Hitman 3, Star Wars: Battlefront II). Link
Pocket Worlds raised $7 million to expand its Highrise mobile MMO
Highrise claims more than 7 million users, with over 30% of active users trading items like clothes and more than 50,000 transactions every day. Bitkraft led the round. Link
AppOnboard raised $20 million series C for no-code game creation
The money will go to expanding the company’s workforce across product, engineering, marketing, and other support functions. Its focus is on the growing creator community. Raine Ventures led the round. According to its founder, “video games are the next major form of media to be democratized.” Link
Nexters, a “top-5 independent game developer,” went public at a $1.9 billion valuation
A few things stand out: (1) its tentpole title, Hero Wars RPG, was downloaded 36 million times in 2020, which isn’t all that much tbh, but (2) the 2018 buy-in of a 43% share by the Playrix brothers centered on scaling it business. It did so successfully by growing net bookings 10x to $318 million and $120 million in free cash flow. And we can expect that (3) growth to continue with the lock-in of 92% of the Nexters shareholders for at least another 12 months as Nexters goes public through a merger with the Kismet Acquisition One SPAC. Finally, (4) its investor deck is delicious.
PASS/PLAY
Play. This IKEA gamer furniture. There really is no better way to tell your guests: in this house we game.
Pass. As far as massively online multiplayer games go, Robinhood turned off its servers just when things started to get interesting. Lame.