Musk gets into gaming

Here we go

Nov 28, 2024

The SuperJoost Playlist is a weekly take on gaming, tech, and entertainment by business professor and author, Joost van Dreunen.

It’s Thanksgiving in the United States so I wanted to express my gratitude and appreciation for the love, feedback, and support from the now 13,000+ subscribers to this newsletter. Thank you for keeping me honest and writing.

On to this week’s update.

BIG READ: Musk gets into gaming

In response to a comment by Bill Markus, the co-founder of Dogecoin, that gamers have become “ideologically captured,” Elon Musk announced that his firm xAI will open a game studio. Musk states: “Too many game studios that are owned by massive corporations,” and that said studio will “make games great again.”

Avid readers of this newsletter will know, of course, that the real issue in the industry is not the concentration of content creators under publishing labels, but rather the shift in economic power towards platform holders. In 2023, 8 of the 10 largest companies active in the games industry were gatekeepers, several of which, like Apple, don’t even make games. The push toward consolidation we saw among publishers during the pandemic is reversing, as several major firms including Embracer, Netflix, and Take-Two Interactive are spinning off subsidiaries in response to changing market conditions.

Despite his credentials in game development—first as a programmer on Cadillacs & Dinosaurs and later in his role at Tesla where he hoped to feature titles like Cuphead as part of the Tesla driving experience—Mr. Musk’s accusation is based on a skewed image of the overall games industry and would benefit from a more careful consideration of reality. I’d argue that games are already “great,” both in abundance and creativity.

The supply side is indeed struggling with layoffs and increasing marketing expenditures, as cheap capital from investors has dried up and the cost of winning new customers has reached new, record-breaking levels. It has worsened the overall risk profile for game makers, making new launches more costly, and, by extension, less predictable. It is in part why many major industry players have taken a backseat in embracing emerging technologies like virtual reality, spatial computing, the metaverse, and, indeed, Web3 gaming. After several publishers announced blockchain-based initiatives a few years ago, including Take-Two’s subsidiary Zynga and French game maker Ubisoft, legacy firms have been notably quieter recently. As consumer demand has started to soften, it simply makes no sense to invest in a novel technology that has yet to deliver on its assumed disruptive promise.

It is also true that consumers currently benefit from an enormous variety of available content through a growing number of new devices, distribution channels, and pricing models. Purchasing power has declined across most major markets, but we’re still experiencing the release of a wealth of great content and hardware.

What would make games decidedly less great is if, for instance, the necessary hardware were to go up in price, as is increasingly likely under imminent leadership by Mr. Musk’s newfound friend, the US president-elect, who has announced a string of tariff increases that would directly impact the cost of video games.

Bill Markus’ comment likely comes in response to the lack of success in crossbreeding crypto-based functionality with interactive entertainment, now that digital currencies are again experiencing an upswing in monetary value but have yet to either achieve critical acclaim or cultural relevance among gamers. Even highly-anticipated Web3 game releases like Off the Grid and Illuvium have only met lackluster enthusiasm, despite the literal hundreds of millions of venture dollars subsidizing the effort. It is why I agree with Musk and Markus that gamers have always been “anti-greedy corporations, anti-bs” and “rejected dumb manipulative bs, and can tell when someone is an outsider poser.” They fail to see, of course, that it is them.

I do not expect xAI’s supposed entry into gaming to be immediately impactful or long-term transformative. It nevertheless seems like an auspicious strategic move for X to move into gaming, especially now that the Australian government is voting to ban access to social media for people under 16 years of age.

NEWS

Arcane differences

Speaking of government censorship, one image that caught my eye this week was a frame-by-frame comparison (above) from the recently released second season of the Netflix series Arcane, which is based on the popular MOBA League of Legends. It shows the romantic relationship between two female characters in the series omitted from the Chinese version.

While I’m unable to verify its source, it suggests that China either outright bans the depiction of same-sex relationships, which is consistent with standing practices, or that even large publishers like Riot Games, which is owned by Chinese corporation Tencent, preemptively self-censors to not upset domestic politicians. It stands in contrast with the growing enthusiasm for both content coming out of China (e.g., Wukong Black Myth) and vice versa, with concerns around market entry alleviating as the Chinese National Press and Publication Administration approved 119 titles for release.

PlayStation 2 hits 160 million in sales

Not that you would run out and buy one this Black Friday, but Sony confirmed that the PS2 has sold 160 million units over its lifetime. Previously, then-CEO Jim Ryan had said as much, but now the firm's corporate materials confirm it.

Even so, console makers face a tougher upcoming holiday season in the absence of major releases and reaching the end of the current hardware cycle. Nintendo's Switch console sales have declined from 15.3 million to 12.2 million units in its fiscal year ending March, while Sony's $700 PlayStation 5 Pro received mixed reviews, despite the PS5 selling over 65 million units since its November 2020 launch. My money is on the Portal, currently, which offers a more digestible price point at $199 and now also offers access to the PlayStation Plus content subscription via cloud streaming. That gives it a leg up on Microsoft’s push with GamePass and the industry’s broader adoption of cloud gaming.

Tariffs Q&A follow-up

Last week’s write-up on the proposed tariffs on video game hardware proved rather popular and, if I say so myself, timely in the wake of newly announced protectionist import taxes vis-a-vis neighbors Canada and Mexico.

Several reached out wondering what the impact would be on physical carriers like, CDROMs and cartridges. The impact is, in my opinion, limited as the industry has been steadily moving away from physical media, with recent console releases like the PS5 Pro and Xbox Series S omitting disc drives entirely, reflecting both consumer preferences and publishers' logistical advantages in digital distribution.

While physical video game production wouldn't be entirely immune to tariff impacts, its declining market share makes it a diminishing concern. Digital ownership has become the norm, particularly among younger gamers who have grown up with downloadable content and streaming services, despite occasional controversies when games become inaccessible due to server shutdowns or platform policy changes. Nevertheless, I’d expect a small collector's market for physical media to persist, similar to what has occurred in the music and film industries, though it will likely remain a niche segment of the overall gaming market. This ongoing shift toward digital distribution may inadvertently provide some insulation against the broader economic impacts of proposed tariffs on the gaming industry.

PLAY/PASS

Pass. Both antisemitism and extremism are alive and well on Steam, with 1.5 million unique users circulating 1.83 million unique pieces of extremist or hateful content, according to a study by the Anti-Defamation League.

Play. World of Warcraft turned 20 years old this week. It takes me back.

UP NEXT

Once I wake from my turkey-induced food coma, I plan to dig into CD Projekt’s recent earnings to take stock of how well it has managed to recover since the Cyberpunk 2077 release and get a better sense of whether Call of Duty 6 is the keystone to GamePass’s success.