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I’m in San Francisco this week so that I can brag about how many meetings I’m having. Let's get right to the point:
Is Tencent going to buy the rest of Epic?
The recent upward success of its free-to-play shooter Fortnite has stirred rumors that Tencent may be looking to scoop up the remaining 51.5% it does not already own. The rationale is pretty straightforward and based on a quick rundown of a few figures: in January Fortnite had 32M monthly active across platforms compared to PUBG’s 25M. During a streaming session with popular musician Drake, Ninja’s channel reached 635,000 concurrent viewers. Earlier this month Tencent invested $632MM in live-streaming platform Douyu. Owning the whole of Epic would give Tencent a possible second League of Legends.
If you’ve been reading my writing the current momentum can’t really be a surprise: I’ve covered gaming video content and esports extensively as they represent key components to the games industry’s future. Gaming is mainstream now which is changing the underlying business model.
Social media has made your fave celebs more accessible and more prolific. Now you can also play with them! Considering that musicians now make most of their income from live performances, they look for scalable ways to market themselves. Traditionally that meant going on live broadcast radio for a scripted softball interview. Now it means that Drake and his colleagues can make themselves available at scale and build their fan base directly. Can you imagine a bunch of celebrities playing Fortnite together for us to watch? Well, you don’t have to because Epic is already doing that at E3 this year.
From Wall Street comes the question about the source of all these Fortnite players. In their part of the world someone gaining means someone else is losing. It raises concern among investors when they see their kids at home playing a game that is currently not being developed by the company whose shares they own. I imagine that the IR divisions at Activision Blizzard, EA, and Take-Two are getting the same question: is this Battle Royale business a passing fad or eating your market share? Certainly an interesting question. For one, in the new live ops/recurrent revenue universe, it’s all about retention and ongoing monetization. Second, how are they leveraging this phenomenon of people watching other people play games? My expectation is that Take-Two is going to feel the heat from investors who reason that a delayed release of RDR2 exposes them because their expensive marketing effort now competes over eyeballs and mindshare with bedroom streamers. (Spoiler alert: Take-Two is going to do just fine.)
And, finally, what about PUBG? The short answer: PUBG is fine because (1) it’s been pulling in over $100M in monthly revenue, (2) is positioning itself well by rolling out a blend of community focused investments and competitive gaming, and (3) its publisher, Bluehole, is actively looking to expand on their success and build their portfolio. Sure, there’ll be some growing pains as their team goes through a growth spurt, but that is really only a threat for small firms with little experience. Bluehole is not that.
Meanwhile, Epic is reciprocating the warm love that only a pile of cash can provide by giving away $12M worth of assets. Fortnite’s success is a signal of the imminent changes to the industry. And so whether Tencent buys them or not, gamers are set to have a good time. That’s what this business is about in the first place.
MONEY, MONEY, NUMBERS
$5B debt bankrupts Toys R Us, shuts down
Retailer Toys R Us is shutting down. Instead of blaming Amazon or pointing a finger at video games and mobile gaming, the retailer did this largely to itself. Mostly, it took on too much debt: a total of $5.2B costing it $400M a month. This prohibited Toys R Us from evolving its business and growing with the market. Certainly, Walmart had managed to dethrone them by competing on price and consumers have changed their purchasing patterns. But those are strategic issues. Meanwhile, overall toy sales are fine. Turns out it’s hard to manage your business with your hands tied (or some other metaphor on crushing debt). Now all eyes are on toy makers Mattel and Hasbro, of course, to see if their business will follow suit. In 2017 Toys R Us represented 8% and 9% of their sales, respectively. Link
OWL events add +118% viewership
Granted, it’s still early days but the initial numbers are promising. So far ATVI’s Overwatch League is driving viewership.
Apple buys digital magazine service Texture
Undoubtedly as part of its overall effort to increase its service revenue to $50B, Apple acquired Texture, a digital magazine subscription service. As a joint venture formed by Condé Nast, Hearst Magazines, Meredith Corp, News Corp, and Rogers Media, the firm had received a $50M investment from private equity firm KKR. Link
US President blocks Broadcom $117B take-over of Qualcomm
Citing national security concerns, a presidential order ended Broadcom’s dream. The firm had been aggressively pursuing chip-maker Qualcomm to become the largest tech deal. Link
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