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Dear Tim Cook,
I had a great week. Mommy was out so it was just the kid and me for a few days. Since I travel a lot, I really cherish those days together. We end up hanging out, doing a bunch of dad/son stuff, and play games.
You had a great week, too. You managed to prove a lot of skeptical analysts wrong. When they thought the market for smartphones had reached saturation (which it kind of did with only +3% in volume growth), you made them look silly by also showing a +14% increase in revenue because the iPhone X is selling well and at a higher price point. You also came out looking pristine when Facebook was getting quizzed on data privacy. In fact, you wasted no time making the most of the moment and releasing an update across devices to remind everyone that Apple thinks privacy is a human right. Finally, you’re also actively involved in figuring out whether you owe Ireland any back taxes. All of this is very commendable.
But your offering for kids games sucks and I need you to fix it.
Case in point: I bought my 5-year old a new iPad because he, of course, broke his old one and loves having his own ‘TV’. As a games analyst I eat my own dog food and give him access to video games because I believe that games have a positive influence on his development and creativity. And certainly there are lots of beautifully-made games that are suitable for kids: Alto’s Odyssey, Toca Boo, and Super Mario Run. These all bring that sense of wonder that got me excited about this industry in the first place, and I'm happy to share that with him.
What’s missing is better curation of the other 99% of kids games on two counts: first, there’s a sobering amount of overly aggressive in-app monetization going on. In most free-to-play games (looking you, Minion Rush) there are way too many interruptions that force you to buy some meaningless currency to spend it on things you don’t need. These are not games: they only create noise in my house because the kid is constantly prompted to do something other than play. A poorly designed user interface with too many buttons asking interrupting actions from the player successfully break the spell of any magic circle.
What’s worse, however, is the abysmal targeting by whatever infantile user acquisition algorithm companies are using. Here’s my kid playing some brightly colored game with characters that go la-la-la and, boom, here’s a 30 second ad for a high-def shooter game. What. The. Hell. Clearly your age categories are totally meaningless because all those desperate firms trying to get my kid’s attention have no problem reaching him with guns and violence.
Here's an idea: I'll pay you a monthly fee for access to a library of curated, age-appropriate titles that has no advertising and no nickel-and-diming. Help me solve your inevitable and increasingly expensive discovery issues and connect my kid with great content. You have the leverage to fix it. So fix it.
Thanks.
On to this week’s update.
NEWS
People watched over 600MM hours of Fortnite in March, worldwide
That’s an insane amount of watching other people play games. And largely thanks to Drake helping it get the attention of mainstream publications everywhere. By comparison, people *only* watched 187MM hours of PUBG. Riot Games, however, is not worried and was kind of trash talking. Others think it is more than just a passing fad.
Guitar maker Gibson files for bankruptcy
No, millennials didn't also ruin this. It’s tempting to take the demise of an instrument maker as evidence of a massive shift in consumer preferences. But in this case Gibson has mostly itself to blame. In response to the comment “there are no guitar heroes” from guitar retailer Sam Ash here in Manhattan, I’d like to point to a few pieces of data. First, guitar-based bands dominated among the worldwide top 10 grossing concerts in 2017: U2, Guns N’ Roses, Coldplay, Metallica, Paul McCarthy, Ed Sheehan, Rolling Stones, and Garth Brooks. Second, Gibson made a terrible bet to try and become a music lifestyle company by buying a headphones and home entertainment business from Philips in 2014 for $135MM. Currency fluctuations nullified the expected margin on this effort, leaving the company in debt with nothing to show for it. Third, there were surprise restrictions on rose wood, a key material in the production of Gibson guitars. Most companies fail because of poor internal decision-making, and to a far lesser extent due to economic shifts or changing consumer preferences. Guitars and the people that play them have been around for centuries. Link
Hasbro buys Power Rangers for $522MM
In a 50/50 cash and stock deal Saban sold off a bunch of its well-known licenses to the toymaker, including Popples (folding bears) and Luna Petunia (a Netflix series about a girl who’s basically having colorful empowering hallucinations, produced by Cirque de Soleil). Last year Liongate produced a Power Rangers movie which grossed $142MM globally. Link
Peppa Pig is now subversive in China, gets blocked
Douyin, a video platform, removed 30,000 videos and blocked the hashtag #PeppaPig. Succinctly, the icon has become associated with vulgar, violent, or pornographic content. In response to criticism from regulators Douyin is circulating a document listing banned material, including sexual content, male transvestism, and making fun of national leaders. In the same vein, Winnie the Pooh has been banned under Xi Jinping, because the bear bears a faint resemblance to China’s president. Insert eye-roll here. Link
Facebook announces $200 Oculus Go
At an obviously timid F8 developer conference following recent drama, Facebook did have a few interesting things to show. What stood out to me was its affordable, untethered Oculus Go. According to some reviewers it’s a game changer but that word has no meaning any more. Instead I like the price point and Facebook is slowly eroding my skepticism. Key take-away: if you own a VR device already it’s probably not worth it to get the Go. But for a first-timer (think: grandparents) it’s a step in the right direction. Next challenge will be to wholesale differentiate itself from the Gear VR, with which the Go shares its game library. But one more thing. Can the creative agencies of the world please come up with something other than a bunch of unnecessarily smiling young people sitting on a couch against an exposed brick wall to sell this thing? Link
MONEY, MONEY, NUMBERS
Activision-Blizzard (ATVI): Earnings of $1,384MM came in above Wall Str expectations, largely the result of (1) Call of Duty, (2) Candy Crush, and (3) pre-sales of the upcoming World of Warcraft expansion pack. Investors have been mostly concerned with how Fortnite’s success (battle royale, free-to-play, heavily streamed) might impact the legacy publishers’ ability to claim mind and wallet share. The very first title mentioned on the call by CEO Kotick was Fortnite in an attempt to dispel concerns.
Apple (AAPL): Apple successfully disproved Wall Street’s thesis that its smartphone segment is saturated by posting +3% volume increase on its iPhone but a +14% revenue increase. The iPhone X, initially hailed as too expensive, managed to drive the average selling price up to $728, up +$73 from a year ago. Apple currently has a 15.1% share of the global smartphone market, trailing only Samsung (22.6%).
Glu Mobile (GLUU): A record quarter with $86MM (+25%). Biggest drivers were Design Home and Covet Fashion which earned the firm a combined $47MM. Kim Kardashian: Hollywood is going through a resurgence of sorts with the last three quarters now showing growth and earnings $10.5MM last quarter.
Spotify (SPOT): Following its debut on the stock market last month, Spotify had a bit of a rough first swing at earnings. Despite reporting an increase in sales to €1.14bn (+26% for the quarter) and reaching 75MM paying subscribers (+45% y/y), its share price dropped -10%. Investors had expected more, apparently.
Zynga (ZNGA): First quarters bookings came in at $220M and beat analyst expectations. Zynga now derives 88% of revenues from mobile, which were up +10% y/y. Biggest contributors were WWF, CSR2, and Zynga Poker.
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