|
Last week was nothing short of spectacular in terms of funding announcements.
It is clear that the venture capital community has finally discovered interactive entertainment. Where the fin bros of the world have long been preoccupied with industries much less exciting, the lion’s share of their attention tends to go to the big 4: Activision Blizzard, Electronic Arts, Take-Two Interactive, and Ubisoft. Maybe there’s some love for Tencent, but that one is already a ways outside of the usual investor comfort zone.
What the most recent earnings round has taught a lot of them is that digitalization is finally here for video games. Notably Ubisoft managed to sidestep the looming threat of Vivendi’s empire building, in no small part due to the publisher’s ability to remain financially prosperous by embracing its “digital transformation."
But there’s money in the privately-held hills, too. What Pokémon GO didn’t do, Fortnite did: convince the broader financial community that video games are not a fad but a mainstream form of entertainment. Suddenly the math makes sense: offering innovative game play with a broad appeal, that is platform-agnostic, and promoted by an enormous network of streamers equals big happy success. It is no surprise then that venture capitalists are popping up all over the place looking to get in on the action.
And so money. started. to. flow. everywhere.
Certainly it’s a great time to be in the games business. And, for redundancy’s sake, here’s what we learned when we raised money last year.
It leaves the question: who is going to deliver on all that promise? Or, how will you differentiate yourself from all the other well-funded industry participants?
But perhaps it doesn’t matter when the first generation of super-successful firms like Mixi starts allocating close to a billion dollars for investments and acquisitions. As gaming grows into a more mature industry, it is also going to inherit the challenges common to established entertainment markets. Hype-cycles are one of them.
On to this week’s update.
NEWS
Epic to spend $100MM on Fortnite esports tournaments
By dedicating this type of cash to fund prize pools for its competitions, Epic renders Fortnite the biggest esports in the world in terms of prize money in a single pen stroke. The biggest prize pool for a single event currently goes to Dota 2: in 2017 the International paid out $25MM, most of which came from audience contributions. But no other publishers have committed comparable resources. If not now, when should other publishers start worrying about Fortnite?
US Government releases report on Chinese games market
The U.S.-China Economic and Security Review Commission published a report investigating the rising prominence of the Chinese games market. It concludes that Chinese-developed titles are yet to emerge as international competitors but that Chinese firms are building a global presence via foreign acquisitions. This, the report concludes, raises data privacy concerns “given the power of the Chinese government to request information from domestic companies and the broad array of data that can be collected by mobile games.” Link
Nintendo Switch won’t have virtual console. That’s cute, says hacker
Barely a week after announcing that it had no formal plans to bring old games under the Virtual Console brand. A loss, according to some, since Nintendo benefits greatly from the nostalgia factor. No matter, there’s one brave hacker out there with detailed instructions to keep the dream alive.
Apple Music streaming service now has more than 50MM users
In an interview last week Tim Cook mentioned that Apple’s music service is now up to 50MM users for both its paid and free service combined. That’s still not at many as Spotify (170MM of which 75MM are paying subs) but enough reason for YouTube to renew its Music service this week. Seems like everyone in the market with a smart speaker is trying to make sure they have a music service as tent pole offering. To up the ante Spotify is now also actively removing (curating?) certain artists from their in-house playlists that would drive traffic to their songs. Its certainly the right thing to do ethically because it's better to pay a bully no mind. But the long-term benefits are unclear and it apparently hasn't hurt R. Kelly's stream at all.
MONEY, MONEY, NUMBERS
NCSoft (KRX: 036570): Quarterly earnings were $441MM and almost doubled from a year ago (+98%). However, compared to the previous quarters there’s an observable decline. With the exception of Aion, all of NCSoft’s major title’s showed a slight q/q decline. Mobile earnings dropped from $512MM to $245MM in the past six months due to a “stabilizing Lineage M”.
NetEase (NTES): Reporting $2.3bn for the quarter, up +4% from a year ago, NetEase’s online gaming division accounted for $1.4bn (61%) of total revenues and was up +18% y/y. Highlights included its mobile battle royale title Knives Out as one of its top earners due to international appeal.
Take-Two Interactive (TTWO): With 81% of revenue now coming from digital channels, Take-Two came in a little light with net bookings of $411MM (+1% y/y). But that’s mostly because physical is dragging a bit, since digital grew +12% to $333MM. GTA V has shipped over 95MM units over its lifetime, which is just ridiculous. More importantly, it may set some unrealistic expectations for the release of RDR2 scheduled later this year.
Tencent (HKG: 0700): Total revenues for Q1 were $11bn, up +48% y/y. Reporting $3.4bn in smartphone games revenues in its first quarter earnings meant Tencent outperformed analyst forecasts across the board. Mobile gaming represents 29.5% of total revenues.
Ubisoft (UBI): As one of the big winners this earnings season, Ubisoft reported record levels of sales and profitability. Driven by the success of Assassin’s Creed and Far Cry 5, the publisher increased its annual sales for 2017 by +19% to $2.04bn. Digital revenue was up +38% at $1.17bn and now accounts for 58% of total (up from 50% y/y).
|
