Level 85: Gamestop & The Financial Machine
Free Market Dynamics in Shambles?
đ This Weekâs Notable News
Retail Gaming & 2021âs Fasting Growing Company
(Editorâs Note: If youâre already familiar with the events of $GME and the ongoing Short-Squeeze, skip below to continue reading. If you arenât, now's a good time to get up to speed via this Twitter thread before you read our thoughts below)
In July of 2019, we covered the once popular retail-based gaming chain whose fall from grace had been marred by stagnant business practices and missed opportunities. At the time, Gamestop had posted half a billion dollars in losses and share prices had dropped $10 during the first half of the year, leading to a pivot based around âexperience-focusedâ gaming stores. 18 Months and one pandemic later, the company entered 2021 not much better off. Share prices increased from $4.29 to over $17, but the company was on the brink of bankruptcy, and COVID-19 had not been kind to the firmâs many retail locations. Â
We mention all of the above, because itâs important context to understand what has happened over the last few weeks involving the company and the ongoing âshort squeezeâ. Youâve probably heard all about it by now. Gamestop went from a struggling relic of the retail era to have a market cap rivaling some of the worldâs biggest companies seemingly overnight. Letâs be clear â Gamestop as a company isnât worth as much as itâs priced at today. Rather, Gamestop has evolved to become a vehicle for an ongoing game of chicken between retail investors & Wall Street bankers. The financial and regulatory implications of this weekâs events will be continuing to unfold over the next few weeks and months.
Further Reading:
Investor Chamath Palihapitiya on CNBC. Link
A discussion on Robinhoodâs limitations of stock purchasing via Hacker News. Link
Gamestop is a rage against the financial machine via Bloomberg. Link
đĄ Industry Content
Xbox Backtracks: Late last week Xbox announced that it would double the price of an annual Xbox Live Gold subscription from $60 to $120 (the same price as Xbox as Game Pass Ultimate). The assumption here was that people would immediately switch from Live Gold to Game Pass Ultimate due to price differential, but Xbox backtracked on their decision amid a ton of backlash. Ultimately, removing Live Gold and forcing Game Pass doesnât actually solve their problems of scale beyond hardware and delayed IP. Link
To continue: Itâs an obvious play for Xboxâs team to continue to develop their subscription and IP ecosystem beyond hardware. Game Pass is greater revenue per user over time than other services like Live Gold. Theyâre acquiring IP like crazy and developing their own. Further, multiple entry points through game pass, console, PC, etc. equates to recurring revenue and greater user exposure. Though Xbox is responsive to criticism, their strategy will continue to be to onboard as many people as possible onto Game Pass. Theyâre well on their way, announcing in their earnings report that they currently have 18 million users using Game Pass. Link
TapTap: We wrote a bit about TapTap in our Gaming Predictions last week, but as itâs one of the more interesting products weâve come across lately, we did a bit more digging. China is running into a similar problem that became increasingly public in the US last year, which is that platform taxes on Apple/Steam are too high (30%) for developers. Discord infamously took a stab at this problem and failed, but Epic is successfully leveraging its original IP to distribute games through the Epic Games Store at a ~12% fee.
In this process of content creation, the content creators should have more benefit. â Huang Yimeng, CEO of XD, which owns TapTap
China recently had a public power struggle between Tencent (games) and Huawei (distributor) where Tencent pulled all their games off of Huawei because their platform tax was too high at 50%. Because Tencent has major leverage with their games, Huawei immediately renegotiated to get Tencent games back on their phones (ironically, Tencent has a similar fee on WeChat for distribution). TapTap â with 25 million users and counting â is disintermediating the fee away from platforms much the same way Epic did with Steam. Except TapTap is ad-supported and free for both the player and publisher. TapTapâs popularity is growing at a 50% clip globally. Weâll be keeping tabs on their progress particularly because as it exists today they have a lot of room to expand beyond original IP and games. In theory, this is a huge market shift in a predominantly mobile games zeitgeist. Link
The 2020 Epic Games Store Review: Epic Games Store has been crushing it. To think that someone could invest the necessary capital to unseat Steam from its golden gaming throne was optimistic at best. But after Epic Games released its Game Store 2020 Review earlier this week, it seems they might be on the path to do just that. The platform is seeing north of 56M MAU, and has processed over $700M in purchases just this past year. Most notably, Epicâs Creator Code system, which allows buyers to split their purchase revenue with their favorite creators, was used over 4.2M times. Long-term prospects for the store are positive, with a promise of a social feature overhaul and streamlined publish process in 2021. Itâll be interesting to see how the PC market share shakes out in another 12 months! Link
Games Growth + The Metaverse: For the past three days, Gamesbeat has been hosting a virtual conference on Growth in Gaming & The Metaverse. You can access the full recordings of the conference for free here, but there are also a few that caught our attention:
Epic Games CEO Tim Sweeney on âWhy We Need an Open Metaverseâ. Link
Novak, Linden and Meloni on âHow to Build the Metaverseâ. Link
Roblox CEO Dave Baszucki on âUser-Created Content + The Metaverseâ. Link
ESAâs Stanley Pierre-Louis on âHow to Build a More Diverse Metaverseâ. Link
đź Fun & Games
Guitar Hero: An Oral History: The Mid-2000s were a foundational period for gaming. Titles that defined the era, including Bioshock, Portal, and World of Warcraft, would become the bedrock for some of gamingâs most famous franchises and companies. But when you think back to the âitâ game â the title that would draw crowds of both casual and hardcore fans alike â no game made such a unique impact like Guitar Hero. A genre-defining series, Guitar Hero has grossed over $2B since the launch of the first game in 2005. Vice shared their research on how over nine months of development, two game studios joined forces to create a beloved franchise. Link
How to Good Gameâs Writing Works: One of the main appeals of video games is the interactivity they provide compared to different mediums. Agency in a seemingly randomized and unfolding world; escapism; storytelling and visuals. With that in mind, why is it that many modern AAA titles have discarded story for the sake of something much more transactional? In this Twitter thread, gaming narrative designer âDoc Squiddyâ shares his thoughts on what good games writing is, and how titles like Yakuza and Persona 5 succeed in investing their players in a gameâs outcomes from start to finish. Link
đ Other Cool Reads
âWhat Do Gamers Wear?â: An NYT writeup by Imad Khan on gaming fashion and style. Among Gen Z and Millenials, thereâs a narrative building that gaming is inextricably tied to pop culture. This narrative is buoyed by the influencers and creators weâre watching daily: what theyâre weathering, their interests, etc. Link
Video games entered mainstream culture decades ago, but these days, gamers are more like celebrities, with millions of fans online. That means, among other things, that the days of gamers wearing jorts and oversize T-shirts are long past. Esports athletes and streamers alike now dress with urban panache mixed with opulent sensibilities.Â
2020 Game Ratings in Review: Earlier this week, one of our readers (s/o Sarah!) shared a recent study on video game ratings, how they skew and what influences them. This is the first study of its kind! As consumers in our mid-20s, ratings havenât influenced our purchasing decisions for quite some time, but for the 51M players under the age of 18 in the United States thatâs not the case. Interestingly, nearly 70% of titles fall into the standard âE for Everyoneâ rating. With such a majority of content being rated for a majority of the gaming community, itâs interesting to consider the second level impact for revenue, marketing, and availability as games enter the âT for Teenâ rating and beyond. Link
⥠Quick Bytes
Tencent bought a major stake in Klei Entertainment, the makers behind hit survival game Donât Starve Together. Perhaps this will be the next party game revival? Link
Twitch viewership doubled during the pandemic. Link
Opera acquired game engine YoYo Games, which powers games like Undertale, for $10M. This will presumably lower the barrier to entry for browser-based game development and scale it out to Operaâs 380M users. Link
Invest Like the Best had gaming-focused author/NYU professor Joost van Dreunen on to chat about Gamestop, Nintendo, and the future of games. Link
Peak viewership at the M2 World Championships exceeded 3M concurrent viewers! MOBAâs like Mobile Legends: Bang Bang continue to shatter records on mobile. Link
Youtube is getting a clipping feature. Link
đ Our Current FavoritesÂ
Fawzi (@fawzitani)
Xbox Game Pass Ultimate for PC is phenomenal. Iâve never been much of a PC gamer (Iâm trying!), but I love that Iâm able to access a host of titles for the same price I would normally pay just to play games on Xbox. Currently, Iâm deep in Gris and Control. Barring the Game Pass price debacle from earlier this week, Iâm impressed and canât wait to keep using the service. Any PC rig recommendations?
Max (@MaxLowenthal)
If it wasnât clear from our 2021 Predictions piece last week, I am super bullish on the return of movie-based video games. What used to often be cheaply made tie-ins to blockbuster hits are quickly becoming a wealth of famous IP that already has thousands of fans, a well-written story & characters, and an entire lore + world to use. Since the beginning of last year, weâve learned about a new game focused on Lord of the Rings, 007, Harry Potter, Indiana Jones and even a full 9-movie Lego Stars Wars game with 300 characters. Iâm super curious to dive into more series that might be a good fit here (my current bet is on The Matrix). If youâve got any series you think would be a good fit - email me and let me know!