Supercell struggle
Navigating market saturation in mobile gaming
The SuperJoost Playlist is a weekly take on gaming, tech, and entertainment by business professor and author, Joost van Dreunen.
It’s the Summer of Soccer.
And now that the Copa América has kicked off, too, I’m juggling my work schedule with sometimes up to six matches a day. The otherwise emotionally cold Dutch took me through the full spectrum of human emotions yesterday but ultimately made it to the next round.
I’ll be watching the remainder of the tournament from the emergency room, just in case.
On to this week’s update.
BIG READ: Supercell struggle
Tencent has been busy. In May it (finally) released Dungeon & Fighter: Origin, which promptly generated a cool $500 million in its first month, according to Niko Partners, and has since remained second only to Honor of Kings among Chinese live-streamers. Its ability to capture audience attention in such a cluttered market is no easy feat.
It is the same challenge that its subsidiary, Supercell, faces. For the first time in five years, the publisher released a new title, Squad Busters. That’s great news for the fans, of course. The five-year hiatus has left many wondering whether Supercell would be able to capture lightning in a bottle for the fifth time in a row.
Early revenue numbers suggest it can’t.
For one, the increase in revenue for all of Supercell’s existing titles—Clash of Clans, Clash Royale, Hay Day, and Brawl Stars—tells you that the game maker has been stepping up its marketing spend over the past six months. Much like Monopoly Go and Match Royale, ample marketing spend has been a crucial component of current success. It has also raised the cost of doing business in mobile gaming.
In preparation for the new release, revenue increased by 65 percent across its entire portfolio between November 2023 to June 2024. However, since the release of Squad Busters, there is no indication of an organic revenue increase. Combined earnings are slightly down, sure enough, but that’s not the worst of it. Early market signals suggest that Squad Busters’ success draws largely on Supercell’s existing fan base. All of its other titles are showing a decline in monthly revenues, indicating cannibalization at least in the short term.
It makes sense, of course, that an IP holder like Supercell would build on its existing franchises and drive players already familiar with its many characters to a new release. But that’s just a play for continuity.
Mobile gaming is now a well-established entertainment category and player behavior is proving increasingly universal. A recent study that looked at 118 billion minutes of playtime across 214 countries showed that mobile gamers in China and the US play roughly the same amount of time. That means industry leaders like Supercell have to capture substantial audiences in both markets. To grow their player base and maintain their market position, large mobile-only game makers will have to expand beyond their comfort zone.
My take: even a powerhouse like Supercell has seemingly reached the full extent of what’s achievable in mobile gaming. When even one of the most successful hit-makers in the category is struggling to build lift for a new release it suggests an ecosystem-level market failure. Despite its spending in the run-up, Squad Busters relies heavily on existing success to drive adoption and spending.
Supercell's strategy of capitalizing on its established franchises offers both advantages and challenges. By leveraging the loyalty and familiarity of its existing fan base, such as those of Clash of Clans and Clash Royale, Supercell enjoys high engagement and simpler marketing for new releases. This reduces the risks associated with launching completely new games. However, this approach can also inhibit innovation and the capture of new market segments, leading to potential market saturation and a reliance on existing customers that risks cannibalizing their own revenue streams.
Missing from the equation is a broader marketing strategy that goes beyond the mobile ecosystem. Successful gaming franchises exist on multiple platforms and leverage a broad range of channels used by their audience. Supercell, for that matter, is virtually invisible outside of the mobile ecosystem. By comparison, a title like Monopoly Go has managed to leverage its brand to attract players without taking from the top-performing mobile titles. It indicates a shift in interactive entertainment toward brand building to offset the rising costs of app store marketing.
More broadly, it suggests impending challenges for Tencent, despite the positive publicity around recent releases. A recent analysis of the firm’s global market positioning suggested it needed to “strengthen brand publicity and marketing.” To do that it will have to look beyond the mobile market.
Tencent is busy, alright. Busy trying to figure out how to build brands.
NEWS
Netflix and pivot
With the head of Netflix Games, Mike Verdu, switching to another role, it is becoming evident that the company hasn’t been able to deliver on its lofty expectations in gaming.
The initial logic, if you recall, was that then-CEO Reed Hastings wasn’t worried about rival video services but would lie awake at night fretting over Fortnite. That sentiment reflects a broader trend in the entertainment industry—companies are increasingly focused on capturing where audiences spend their time.
As the games industry pushes into subscriptions, it’s worthwhile to look at how that revenue model fares in other categories. In Antenna’s most recent quarterly update, a few notable insights suggest what’s to come for gaming.
Premium, well-positioned services suffer less churn. Central to the subscription model is a service’s ability to both convince new users to join and existing users to stick around. Subscriptions that target a specific audience (in the context of SVOD services like Crunchyroll and Funimation) have a harder time retaining subscribers. Overage, churn for these specialty subscriptions was 7.8 percent compared to 4.4 percent for premium services. Netflix has one of the lowest churn rates at 1.9%.
However, where Netflix is among the dominant players in video streaming, it is much less of a big deal in gaming. It must have really hated it when CNBC ran an article stating less than 1 percent of its subscribers had even tried the gaming service two years after its launch.
Second, ad-supported subscriptions are increasingly popular in streaming video, suggesting that it will soon be a part of gaming, too. According to Anntena, 38 percent of streaming video subscriptions were ad-supported in Q1 of 2024, up from 28 percent two years earlier. I predict that in order for Microsoft to achieve its lofty goal of 100 million Game Pass subscribers, it, too, will soon rely on ads for its Game Pass service. I am also keenly aware of the irony, of course, that most of these digital subscription services initially marketed themselves as ‘ad-free’ as an alternative to broadcast and cable TV options.
Nothing works quite as well as content does, however. The combination of promotional pricing with the release of House of Dragons, for instance, resulted in a 5x increase in annual plan subscriptions, says Antenna. We find a similar dynamic in gaming. Microsoft had everyone’s attention when it announced the new Call of Duty is going to be released day-and-date on Game Pass.
As for Netflix, the release of Grand Theft Auto contributed to a 14 percent increase in the number of people that have tried its games offering, according to a recent survey by Evercore. Such reliance on third-party IP isn’t the way it had originally planned things to go.
Worse, as Michael Katkoff from Deconstructor of Fun points out, Netflix’s catalog felt random, with a mix of exclusive titles and ports that often lacked mass appeal. The alleged push into high-end shooters, a category that is fiercely competitive (ie. even newcomer The Finals has dropped to about 18,000 concurrent players), seems like an odd choice. In addition, Netflix’s approach is more reactive to consumer demand than truly leading it with innovative ideas. A recent job opening for a senior-level design centers on the development of a “cozy, non-violent social life-sim.” Where is the blockbuster content that is going to put Netflix games on the map?
More generally, it is not yet clear to me whether subscription services will become the dominant revenue model in gaming as it is in video. Perhaps single-publisher subscription plans just don’t offer enough value and continue to struggle. But a push into novel distribution models away from premium releases and micro-transactions has the makings of an audience favorite. It certainly sets the stage for further bundling and acquisitions.
Netflix appears poised for a strategic pivot. Unable to find traction with its own IP, it will likely issue some announcement in which it tempers its push into gaming and doubles down on video. Integrating interactive entertainment as part of a broader business strategy is currently high risk and high-reward. Despite spending $1 billion, Netflix isn’t much wiser, whereas the New York Times managed to insulate itself from a downturn with a clever word puzzle.
The push by conventional media firms into interactive entertainment will prove more difficult than initially assumed, and, I have no doubt, galvanize the broader negativity around the video games industry’s momentum. That doesn’t change the fact that, as Hastings observed, young audiences show a preference for interactive and online entertainment. It leaves it a critical category for media companies and tech firms alike, even if their initial approach is proving unsuccessful.
PLAY/PASS
Pass. Embracer shut down the developer behind the Alone in the Dark franchise. There should be a law against this type of stuff.
Play. A consortium of some of my favorite gaming-focused venture funds announced a $45 million investment in k-ID, a cross-platform sign-on solution aimed at protecting underage gamers. It’s about time.
Pass. Popular Twitch streamer Dr. Disrespect (real name Guy Beahm) disclosed he was banned from the platform back in 2020 after sending private messages to a minor that “sometimes leaned too much in the direction of being inappropriate.”
NEXT UP
The second edition of Matthew Ball’s The Metaverse is scheduled for release on July 23rd, and he’s graciously sent me a copy. Clearly, Matt doesn’t have enough things to do. Expect a review as soon as his publisher lets me. In the meantime, you can bone up on my write-up on the first edition.