Reading what's next
Another week of layoffs and wholly predictable restructurings
The SuperJoost Playlist is a weekly take on gaming, tech, and entertainment by business professor and author, Joost van Dreunen.
On the train to Amsterdam, a Dutch man couldn’t help but say something.
“You’re doing it the wrong way around.”
My 11-year-old son was reading the Garfield comic book I had just bought to bribe him. It was half of a two-part compensation package that also included taking him to see the new Ghostbusters movie. Jet-lagged, I was scrolling through a clumsy site on my phone looking for tickets.
"He’s supposed to be on a phone, and you’re supposed to be the one reading a book,” he continued. Two other passengers snickered.
The notion that reading has lost its appeal to younger audiences is untrue, however. Reading today just doesn’t look like it used to. Instead of sitting quietly paging through someone else’s inked thoughts, audiobooks have become the preferred mode of consumption. Up to 62 percent of readers under the age of 44 listen to audiobooks for up to 4.7 hours per week, according to a recent survey by Morgan Stanley.
And when it comes to finding new books, marketing has changed, too. Channels like TikTok, for instance, have had a notable impact on conventional media categories. Among the largest demographic purchasing books in 2022—women aged 13 to 34—one in five uses BookTok, a community on TikTok where readers share their reviews and recommendations. It has become so popular that retail-based booksellers like Barnes & Noble have started to display BookTok in their stores to drive sales.
Overall book sales have been in decline, but young readers are on the rise. According to Circana, annual print volumes in the United States have fallen 3 percent year-over-year to 767 million. Softening the decline, however, was growth in adult and young-adult fiction (e.g., fantasy, romance, coming of age), which are all popular with young, tech-savvy audiences.
Wrong way around?! I don’t think you’re reading that right.
On to this week’s update.
NEWS
Microsoft announces mind-boggling studio shutdown
Layoffs and studio shutdowns are barely newsworthy anymore, considering their frequency. It nevertheless came as a surprise when Microsoft emailed everyone about the planned shutdown of four Bethesda Studios this week: Arkane Austin (maker of Redfall), Tango Gameworks (Hi-Fi Rush, The Evil Within), Alpha Dog Games (Mighty Doom), and Roundhouse Studios.
On a mission to reduce its overall headcount in pursuit of profitability, team Xbox had previously laid off 1,900 employees. Following the acquisition of Activision Blizzard, Microsoft’s gaming division had swelled to around 23,000 employees globally. It is now the third-largest game company in the world and generated $23 billion in revenues across console hardware, and first- and third-party software sales last year. Pushed to provide evidence that its $69 billion purchase had been a good idea, Xbox is clearly looking to improve its margins.
Sure enough, Redfall wasn’t all that well received. That’s not to say everyone deserves to lose their job. Commercial success isn’t the only measuring stick in. a culture industry like gaming. Obviously. And yet, it does kind of put a target on your back when it’s time to decide on who has to go.
But it seems rather counter-intuitive to let go off a studio like Tango Gameworks which delivered a standout success, Hi-Fi Rush. According to one exec, the game was “a break out hit for us and our players in all key measurements and expectations.” It creates an awkward exchange when your employer says you’ve done a good job and promptly un-employs you.
The news casts a shadow on Microsoft’s willingness to develop innovative content. Typical of large acquisitions, management will focus on the most valuable franchises, freeze the smaller successes, and indefinitely delay anything unpublished no matter how promising. So, too, it seems, is the case with the quadruple shutdown. And now that 2024 is shaping up to be a modest year at best in terms of consumer spending, a clear retrenchment has emerged across the industry as the dominant strategy.
Stick with the winners while it’s still winter.
The Embracer empire crumbles
Europe’s second-largest game publisher announced its plans to break the company into three stand-alone, publicly traded companies. Once valued at $16 billion, the ambitious Swedish conglomerate proved unable to successfully integrate a slew of studios, distributors, and a vast IP catalog. Whenever money is cheap, growth through acquisition makes sense on paper, but rarely in practice.
The planned breakup aims to redistribute the firm’s debt load and provide a runway for some of the more promising assets. Maybe. At the very least it should provide more transparency on the inner workings of the different firms once they’re formally listed.
The first, Asmodee Group, is a global leader in tabletop games publishing and distribution, with a vast network of studios and an extensive IP catalog. In addition to owning the most popular board game, Settlers of Catan, it also holds the distribution rights to Pokémon and Dungeons & Dragons. The company generated net sales of $1.4 billion in the last twelve months ending December 2023.
Second is Coffee Stain & Friends which manages a diverse portfolio of indie, AAA premium, and free-to-play games for PC, console, and mobile platforms, with a significant portion of it reported as recurrent revenue. The company generated $1.0 billion in sales.
And finally, Middle-earth Enterprises & Friends specializes in AAA game development and publishing for PC and console. It also holds the rights to The Lord of the Rings and Tomb Raider. It generated net sales of $1.3 billion.
And so Embracer’s rabid appetite and acquisitive behavior has seemingly reached its logical conclusion. Following the piecemeal sell-off of a handful of its assets, Embracer proved unable to raise enough capital to cover all of its outstanding debt scheduled to mature at the start of next year. Further compounded by a soft year, Embracer has run out of options and sees itself forced to abandon its lofty ambition to become a European game powerhouse.
The Swedish gaming conglomerate struggled as a disjointed federation of different projects and properties. It means that every studio has to help pay the debt the mothership has accumulated by making so many acquisitions. That’s unsustainable and a distraction from the creative process. It destroys capital assets like talent and goodwill.
The expectation is that three parts will be worth more than a single Embracer. It had previously acquired Asmodee for $3 billion, and the tabletop and board game category has continued to perform well. Divesting the different components into publicly traded companies will free high-performing divisions from carrying the debt Embracer accrued during the boom of 2020.
It further makes the new Middle-earth Enterprises & Friends division a ripe acquisition target given the strength of its IP portfolio. Embracer has been trying to sell off several of its divisions for the past 18 months, but outside of a few sales like the $460 million sale of Gearbox to Take-Two Interactive, it was unable to find any buyers.
Following a disappointing yard sale, it is now splitting the company to alleviate the debt load and restructure its financing.
MONEY, MONEY, NUMBERS
Nintendo readies for Switch 2
First announcing the Switch a decade ago in 2015, Nintendo president Shuntaro Furukawa surprised everyone this week with a planned reveal of its successor late next year. He did not provide a release date for the yet-to-be-named “Switch 2.”
The announcement comes as Nintendo’s earnings show the beginning of the end of the current cycle. Full-year hardware sales were 15.7 million units, down from 18.0 million year over year, and 199.7 million software sales compared to 214.0 million the year before. Lifetime sales for the Switch have reached 141.32 million. For its next fiscal year, Nintendo expects to sell another 13.5 million Switch units and 165 million software copies.
Electronic Arts
The sports video game publishers reported $7.6 billion in full-year revenues, up 2 percent year-over-year. However, while still within its guidance range, EA also reported quarterly net bookings of $1.67 billion, which were at the lower end, and well below consensus of $1.77 billion.
Its live services generated $1.4 billion in the quarter, down 14 percent year-over-year from $1.62 billion. Full-game bookings came in at $259 million, down from $324 million a year earlier. EA did not have any big full game releases in the last quarter but managed to keep its promises on earnings due to FC Ultimate Team’s success, which was up year-over-year.
Like many other publishers, EA is focused on expanding the success of its existing franchises. Apex Legends surpassed $3.4 billion in lifetime net bookings and The Sims 4 surpassed 85 million players. To compensate for a drop in its share price EA announced $5 billion in buybacks over a three-year period.
PLAY/PASS
Pass. PlayStation has let go of its PSN signup requirement for Hell Divers 2 players on PC. Looks like Sony is still adjusting to the bright lights in a world where walled gardens cast shorter shadows.
Play. Related, Hell Divers 2 mods are here. Say hello to democracy!
💚🔥🌟