Last week the Chinese government wisely issued a new rule that further restricts the amount of time people under 18 years old are allowed to play online. The National Press and Publication Administration (NPPA) determined that kids should only be permitted to play on Friday, Saturday, Sunday and legal holidays, for one hour per day between 8pm and 9pm. Compared to its previous ruleset, that is a reduction in game time from the 13.5 hours per week (really, a half hour increment?).
The popularity of interactive entertainment during the pandemic has reinvigorated the debate whether video games lead to antisocial behavior.
Sigh.
A common omission is the observation that while kids may play games for hours each day, so, too, do people still watch almost five hours of TV daily. Grandma spends way more time on Facebook than your 7-year old plays games every day. Worse, she is a grownup. Across all categories, entertainment spending has increased but few expected games to become a relevant cultural industry so quickly and so prominently.
According to my former employer, especially younger audiences couldn’t care less about old-timey television watching. We already know this. But it is the same channels that are seeing their audiences evaporate that are dictating the narrative. Bill Maher, a television personality whose career depends on ratings, doesn’t have a lot of love for newer formats, calling Twitch “a waste of time.”
Of course he would.
Another part of the issue is lumping online games in with social media. The latter has established an immensely successful ad-driven revenue model that thrives on provoking discord through the distribution of misinformation and clever algorithms. Online gaming, on the other hand, manages to connect people. They come together complete a quest, to socialize and share, to attend immersive experiences of their favorite performers, and to co-create new experiences for others. Bucketing such vastly different industries together tells you that anyone writing policy hasn’t the slightest idea of what they’re talking about.
But most damning is the absence of historical context. The invention of the printing press resulted in the widespread availability of not just books but the ability to read. Silent reading allowed for a person to sit quietly with their thoughts compared to the reading-out-loud that had been common previously. The ability to consider new ideas privately was, according to theorists, a foundational component to critical thinking and the reshaping of intellectual thought and political life.
Playing games and playing with games are similarly important practices that improve society. Through trial and error we encounter novel ideas, make discoveries about ourselves and others, and connect with a largely abstract information-based world in tangible ways. Sports, for example, have contributed to the breakdown of racial barriers. The element of play in culture is a necessary component to critical thought and practice.
No one in their right mind would accuse the Chinese government of being a strong proponent of critical thought. An entire generation has determined that the balance between what is expected of them (e.g., work, start a family) and what is provided for them (e.g., unemployment, high cost of living) is broken. This “lie flat” generation opted instead to live life according to what makes them happy. Unsurprisingly the Chinese government and various neighboring countries have vilified the behavior of people claiming agency over their own lives.
An increasingly invasive exertion of power by incumbent politicians and parents tells you they feel their grasp weakening. The steady erosion of traditional institutions that offered fair wages for fair work, the decline in trustworthiness of news organizations and media, and the failure of affordable education to prepare you for the world out there has resulted in people looking for fresh answers. The same policymakers that criticize games as addicting call for regular active shooter drills in schools as an apparent answer to a widespread gun problem.
Games, both on- and offline, represent a desperately needed place in society where we play around and experiment with ideas that are bigger than everyday life. They always have. Centuries ago Olympic athletes competed to honor their gods. Today, co-creative universes like Roblox instill a sense of agency and expression in the cacophony of digital entertainment. And as I wrote last week, blockchain gaming is a literal playground where we experiment with, socialize, and discover the rules of a new technology that is expected to free us from a rich-rule-all financial system.
For as far as the games industry has come, both in terms of revenue growth and as a focal point for online social interaction, a collective mental inertia continues to haunt its progress. Society is addicted to unsustainable economic and financial models. Games may very well prove to be our last remaining antidote to escape such a harsh reality and, hopefully, arrive at a more promising solution.
On to this week’s update.
NEWS
PUBG creator leaves Krafton to start a new indie studio
Finding himself suddenly industry royalty, the OG developer behind PlayerUnknown’s Battlegrounds was a broke photographer when he first started to tinker with games. Not only did his game become one of the biggest titles in recent years, it evolved into an entirely new genre (the most popular iteration to date is Fortnite). After the fanfare and accolades, Brendan Greene has decided to leave the mothership to explore new creative opportunities. When I met him in Paris a few years ago he was humble and a slightly introverted but curious person. Now he faces the terrifying challenge of repeating his success. Not an easy thing to do. I wish him the best.
South Korea bans restrictions on 3rd party payments
Whenever you look at South Korea, you’re looking at the future of gaming. It was here that esports first established an ad-based business model that set into motion a global emergence of competitive gaming. It is home to some of the most successful and innovative game companies like Nexon and NCSoft. And it also the place where professional League of Legends players go to train. Cyclists that ride the Tour de France practice in the high altitude of the Alps to increase their red blood cell count. League players go to South Korea.
While the North Americans and Europeans prepare for their photo op and boast that they’re finally calling Big Tech to the mat, South Korea just went ahead and did it already. It will be the first country where mobile marketplaces are no longer allowed to restrict third-party payments, giving both consumers and complementors a wider range of options. It suggests that the change many developers have been waiting for is starting to take shape: reduced app store rates means access to more capital to make cool things.
However, it also means fragmentation. What Apple and Google have managed to offer so far is a uniform, easily accessible experience for a global consumer audience. Breaking that into smaller pieces means that the big dogs keep more of their money. Epic Games has argued that app store fees should be around 12 percent instead. But in an already saturated market for digital content, a fragmented payment layer adds more steps and, potentially, increased exposure to fraud and other trouble.
NVIDIA runs into regulatory problem over ARM acquisition
Despite its concessions to appease regulators and the many tech firms that now face the prospect of depending on only a single chipmaker, the UK’s Competition and Markets Authority isn’t having it. That’s probably part political grandstanding post-Brexit. Nevertheless there is a real concern as ARM processors are commonly used in smartphones, mobile devices and tablets. A further exacerbation is the worldwide chip shortage and inflated prices for graphics cards: AMD's chips power both of the next-gen consoles and those are, as many of us know too well, hard to come by right now. During earnings NVIDIA FY2Q’s revenue increased +68% y/y and reported +85% y/y growth for its gaming segment.
Tripwire CEO fucks around, finds out
After publicly stating his support for the recent change in Texas law to make abortions illegal based on the controversial “fetal heartbeat”, it took just 53 hours to terminate CEO John Gibson’s career. The self-acclaimed “pro-life game developer” led a team that makes games called Killing Floor and Maneater, but discovered that many of his co-workers felt different about the issue.
The incident highlights the growing relevance the game industry and its many constituents have in contributing to a broader public discourse, and the naive assumption of studio heads to speak for their entire crew.
Jam City raises $350 million, buys Ludia for $165 million
In the wake of a cancelled SPAC which valued the company at $1.2 billion, attributed to “changing market conditions,” the mobile game publisher instead raised a bunch of money from Netmarble, Kabam, and Fortress Investment Group to sustain its momentum and start its next chapter. The purchase of Ludia from its parent, Fremantle, which I discussed previously as a credible strategy for non-endemic media firms to integrate vertically, marks a new beginning for the Canadian developer. It also evidences a softening of the overall appetite for gaming SPACs, considering that Jam City isn’t just some two-bit shop. Its CEO, Chris DeWolfe has all the credibility one would need to pull this off, leaving us to conclude that investors are less interested in the SPAC strategy that people couldn’t shut up about last year.
MONEY, MONEY, NUMBERS
GameStop shares dropped -7%. Despite narrowing losses and growing sales, investors were not impressed. Net sales were up +26% at $1.183 billion, against a consensus of $1,123 billion, and operating losses declined from $86 million to $58 million in the same quarter last year. Hardware drove overall results with consoles and accessories sales up +38.0% y/y. Wall Street analysts were unimpressed by the persisting lack of a clear strategy. Link
Playtika acquired a majority stake in Reworks. Following its IPO in January, which raised $1.9 billion, the firm reported a +20% increase in revenue and upgraded its revenue forecast to $2.6 billion for the year. In May it reported healthy revenue growth, but also fewer players: its DAU count was down -10% to 10.4 million and its MAU declined -15% to 31.4 million. The $400 million acquisition of 80% of Reworks, a Finnish developer best known for its home decorating app Redecor, is expected to stave off the decline and add $30 million in revenue for CY21. With another $1.4 billion on its balance sheet, Playtika plans to continue to feed the beast. Link
ProbablyMonsters raises $200 million. That’s a lot of bread. The company plans to finance additional triple-A games and establish itself more firmly for the long term and provide its creative talent with “meaningful and long-lasting careers.” Link
Nifty Games raises $38 million. Following the high profiles acquisitions of sports properties by EA, a clear strategy emerges for Nifty Games. It has added former EA-COO, Peter Moore, to its advisory board, and plans to use its warchest to launch its NFL Clash and NBA Clash mobile games. A big chunk of the money is earmarked for user acquisition. It is a classic strategy for a former C-suite exec to join a faster, cooler startup and build it up before selling it to your old employer. “It’s a bold move Cotton, let’s see if it pays off.” Link
[N.B. Companies and their data displayed in this table are not considered peers. It’s only meant to provide some financial context. But you knew that.]
PLAY/PASS
Play. It was my birthday yesterday. Here’s a gift idea. 🍰