Busy week. Writing this straight from the mountain in upstate NY.
Quick shoutout to Square Enix, Amazon Game Studios, the team at Antenna, Niko Partners, InterPop, Vindex, Bill Grosso, and Manny Anekal. THANK YOU ALL for reaching out and finding job openings to help my old crew transition now that Nielsen formally stated that it is winding down SuperData. ❤️
On to this week’s update.
🎙 PODCAST: How innovation in technology, strategy, process and artistic production has created a mega-industry
I very much enjoyed having this conversation on the digitalization of the games industry with Matt Mulford. Go check it out!
QUICK READ: The biggest game companies for 2020
Now that March is over, the lion’s share of earnings numbers are in. That allows us to do a comparison and review a few updated trends.
The past year has been nothing short of spectacular. The top 10 firms grew their annual revenue from $33.4 billion in 2010 to $119.1 billion in 2020, an increase of +257%.
Needless to say, most game companies have experienced their best year as gaming went mainstream in the midst of a pandemic. Looking under the hood of some of those gains reveals exactly how much market leadership has changed over the past twenty years as a result of digitalization and widespread popularization of the smartphone.
The chart is based largely on publicly available information. For any privately-held organization, I’ve relied on available market research. It is the same approach I used in One Up.
First, the top dogs have changed dramatically over the last decade. In 2020, six out of the top 10 game companies are platform holders based on games revenue only: Tencent, Sony, Apple, Microsoft, Nintendo, and Google. Combined these firms generated $92 billion in revenue last year, up +19% from $72 billion y/y.
Second, two of the largest game companies today are Chinese: Tencent and NetEase. It is absolutely wild how quickly and convincingly China has claimed market share in the global games market. That has some relevant implications (see below) as trade relations between the United States and People's Republic of China have not exactly improved in recent years.
Third, the observation that platforms, not publishers, dominate the market today provides some sense of what’s at stake in the Epic vs Apple and Google debacle. It certainly puts a lot of strain on the notion that content is king. Does a king pay rent? The only reasonable counterpoint here is that top platform holders, both physical and digital, tend to also publish first-party content. Kind of.
We’ve entered 2021 with a wholly new market landscape. Let’s hope creativity continues to thrive.
[Update: Previously I incorrectly labeled CyberAgent which is of course a Japanese company. Thank you, kind people of the internet, for helping me spot the error.]
NEWS
Bilibili opens -2.2% on Hong Kong stock exchange debut
On Monday we witnessed the secondary public offering of Bilibili in Hong Kong. Considered the YouTube of China, the company’s valuation has quadrupled over the past year, with revenue growing +77% y/y in 2020. Its monthly user count reached 202 million, up +55% y/y. Last week, expectations were high.
Bilibili has been trading on the US-based Nasdaq, but the growing tensions around trade between China and the US has led the firm to pursue a ‘homecoming listing.’ Most recently the Securities and Exchange Commission adopted a new law called the Holding Foreign Companies Accountable Act, which originated under the last administration. But the situation doesn’t look like it will improve under Biden. Top officials from the US and China clashed last week at a high-level summit in Alaska.
The implication is that interactive entertainment will fragment rather than grow into a truly global industry. Already a lot of trade hurdles exist for foreign publishers when trying to enter the Chinese market. At the same time, Chinese publishers like Tencent are establishing a presence in North America. As video games grow in relevance as a cultural industry, I expect its major players to soon get pulled into this broader conflict. The recent interest in gaming from policy-makers and government administrators is in response to spectacular revenue growth. That’s going to be awkward as game companies have never really been asked to have a clear stance on anything other than perhaps gun violence.
CD Projekt Red delivers toothless strategy update
After delaying its scheduled earnings reports to April 19, leadership hosted a scripted video call instead, without Q&A, outlining its plans. After losing about 50% of its market value since December, both consumers and investors have been eagerly waiting for the firm’s conciliatory strategy.
Management waffled for a bit on working conditions without going into specifics and clearly has some work ahead to earn back the goodwill it lost. If it is dedicated to accomplishing its self-imposed ambition to become one of the top three game developers in the world, it may be just the kick in the head it needed.
During the call, the firm outlined three growth drivers: (1) RED 2.0, an updated org structure to “transform” the development process and enable parallel AAA development starting in ‘22; (2) build out franchises, which obviously refers to The Witcher and Cyberpunk and the implication to go beyond gaming and into other entertainment categories and consumer products; and (3) an online expansion which focused on adding online gameplay to existing titles.
CD Projekt also announced the acquisition of Digital Scapes. Even so, Wall street analysts commented on the strategic announcement as “uneventful” and did not adjust estimates. The wait-and-see isn’t over yet.
Capcom trades at highest price since forever
The release of Monster Hunter Rise was a hot topic during my class last week. Apparently I was lucky to have anyone attending at all. Capcom announced that the game has shipped 4 million units within its first three days and is sold out in Japan.
Share price tends to rise when you release a solid new title. Add a pandemic and the fact that the Nintendo Switch is a top-selling console and you’ve got yourself a historical record. Capcom traded at $63.44 at market close yesterday, up +108 percent y/y.
MONEY, MONEY, NUMBERS
Tencent reported $74 billion in 2020 revenues, up +28% y/y. The Chinese giant continues to dominate and grow at a spectacular rate. It attributed growth of its gaming division to the success of several titles, including “Peacekeeper Elite, Honour of Kings, PUBG Mobile and recently launched titles such as Moonlight Blade Mobile.” Total mobile gaming revenue for 20Q4 was $5.6 billion and PC gaming generated $1.6 billion. League of Legends attracted over 45 million peak concurrent viewers for its 2020 World Championship Finals, which is a record in terms of esports event viewership.
Manticore Games raises $100 million in series C. Things have, predictably, started to heat up around user-generated content following Roblox’ direct listing. The obvious runner up is Manticore, which now has the war chest it’ll need to claim its market position. All of the momentum is promising, but now comes the task of getting out of the enormous Roblox shadow.
Modern Times Group acquired Ninja Kiwi for $189 million. The studio is best known for Bloons Tower Defense, a series of strategy titles. Ninja Kiwi’s games have been downloaded approximately 140 million times to date, with a total of more than 1.1 million daily active users and 6.2 million monthly active users, according to the press release.
Ex-Blizzard devs Frost Giant secures additional $5 million in funding. Investors for this round include Korean VC fund Kona Ventures, Global Founders Capital, the co-founder of Rxbar nutrition bars Jared Smith, and Eden Chen. The studio has now raised a total of $9.7 million since October, 2020.
The round illustrates a broader trend among senior talent from a myriad of large well-known firms going out on their own. Why make Bobby Kotick rich when you can enrich yourself? It echoes the sentiment among game developers in the 1980s who figured out that the games they created generated millions in revenue for the firm, while they were on salary. The abundance of cheap capital currently available is fueling a renewed disintermediation between creatives and conglomerates. Personally I am super-excited because real time strategy is where it’s at and this is basically a crew of creatives that worked on StarCraft, C&C, and Warcraft. Squeeee.
Nexon invests $874 million in a string of entertainment firms. The South Korean game giant disclosed investments in Bandai Namco, Konami, Sega Sammy, and Hasbro. Nexon’s board recently approved plans to invest up to $1.5 billion in entertainment companies to "demonstrate the ability to develop and sustain strong, globally recognized intellectual property." The firm emphasized that these are "long-term friendly investments" with "no intention of acquisition or activism."
PLAY/PASS
Play. Who cares about free-to-play games when you can spend $311,800 on a 1st Edition Holo Charizard?
Pass. This Thicc Pidgey currently trading for Ξ0.27. Good lord.