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It’s been a week of distractions.
Never mind the usual fallout period that follows E3 during which I try to catch up on things. Much more importantly, this year there’s the World Cup and it's really successful at laying claim on my schedule. (I've probably missed only one-and-a-half game so far.) It presents a great reference point every four years to take stock on a few things.
Previous World cups were a productivity disaster. Back in 2010 my office was located right next to the communal area where the proprietor of our shared office space would make sure that there’d be ample snacks and beers from the countries playing. It’s entirely impossible to focus on work when there’s a giant screen just out of sight with blaring excitement. So I gave up and in. This year, I like to think I’m more mature (lies!).
Beyond much greater availability, this year everything is also noticeably easier to watch. I used to just leave work early and make my way to the Irish pub on 9th Street. Nowadays I watch the games on my phone. A massive upgrade to be sure: over the weekend I took my kid to two birthday parties and was still able to watch most of the matches and make some new dad friends in the process. Technology at its finest.
To a degree it is a reckoning of my personal identity: in response to the most recent elections I’ve applied for citizenship here in the US. That would make me Dutch-American by the time the next cup rolls around. I’ll have two teams! Until then I’ll have to reconcile the reality that neither of them made it to the tournament this time. There’s always room for improvement.
But most of all, I feel it is somewhat of a cultural duty to participate excessively. It is fantastically diverse. Soccer brings out every nationality around the world to watch a bunch of grown man kick a ball around in a time of global fragmentation and isolationist policy-making. Soccer connects us. A world that plays together, stays together.
On to this week’s update.
NEWS
GameStop up for sale
In the wake of E3 the world’s largest video games retailer admitted to dating. After gobbling up a whole bunch of other retailers over the years, it is now looking for its own exit. At E3 it let Wall Street know that it has “engaged consulting services to try to boost in- store profitability,” which tells you that they know they have a problem and are working on it. In addition to trying to grow and revitalize per-store profitability in a market dominated by digital successes like Fortnite, the retailer is also exploring a potential transaction.
Previously I made the prediction that Amazon might buy GameStop, which I still believe to be a viable option for several reasons: GameStop (1) has a large footprint with 7,200+ retail outlets, (2) is already trying to sell comparable products (e.g. refurbished hardware) and services (e.g. data plans) which would line up nicely with Amazon broader cons tech offering, and (3) it would give Amazon a valuable ‘analogue moat’ in trying to win over publishers for its digital services (e.g AWS). In particular that last one is appealing now that Amazon and MSFT are clearly on a collision course over who gets to host all that games data and do inventory management.
Of course, the question on everyone’s mind is whether GameStop can fetch a decent multiple, perhaps something akin to the $13.4bn Amazon paid for WholeFoods. That may be more difficult, especially giving the seasonality of the physical games business, its challenges for the foreseeable future now that especially big publishers are bailing and buying their own digital distribution infrastructure, and the unfortunately timed management issues over the past year. Link
AMC reveals MoviePass competitor
Following an ongoing feud, the AMC Stubs A-list is the exhibitor’s own subscription plan. The announcement coincides as MoviePass is in mid-search for new capital as the big three movie exhibitors continue to hold out. Initially hailed as disruptive, MoviePass is shaping up to be more financially disorganized. MoviePass had been continuously lowering its prices to $7/month, triggering a surge in its subscriber count from 20,000 subs in December 2016 to 3MM in June this year. According to a June 21 filing MoviePass’ monthly spending has roughly doubled y/y and it is forcing the company to soon start charging more for popular movies.
AMC’s launch is a clear move to adopt the subscription model without intermediation from a third party. More generally, subscriptions are finding favor with a growing number of media and entertainment firms as they seek to re-wire in the face of digitalization. Several exhibitors currently offer their own subscription plans: Cinemark MovieClub in the US, and Cineworld Unlimited and Odeon Limitless in the UK. Link
Disney ups ante. Who’s going for broke first?
After Comcast raised its offer for 21st Century Fox’s assets, Disney followed and raised its bid to $71bn (71st Century Fox, anyone?). The broader context is the easy part: consolidation is accelerating as content producers and distributors are looking to build scale and all that. More so, the recent approval of the $80bn AT&T/Time Warner deal set the tone for many hoping that another mega-deal will see the light of day. But one often overlooked aspect is that things, well, cost money. To finance the deal both Comcast and Disney have to take on debt, which following the acquisition by either one will show up on their balance sheets. Disney currently has a lower debt level allowing it to spend more without risking the farm. Comcast can conceivably raise its bid by another $40bn; Disney another $50bn. Faites vos jeux. Link
E3 attendance up, coverage down
This year’s edition was a blast. With almost 70k attendees it was one of the biggest shows in years. Even so, media coverage was down compared to previous years (thanks Thomas!). The combination of no new hardware announcements, which is historically a big to-do at E3, and the growing army of YouTubers that found its way to the Staples Center this year likely took the wind out of many publications’ sales. Big winners were Fortnite and Fallout 76. No surprises there, obviously. My expectation for the years to come is that E3 will transition to a consumer-focused event (like Gamescom with its 250k attendees) or something that more generally celebrates gamers and their heroes (Vidcon, Twitchcon, Comicon). There is clearly demand to meet some of those brilliant introverts, and, in fairness, dealing with the unwashed masses is part of being famous.
Roblox raising at $2.5bn valuation
Not bad for a 14-year old company that was clearly outmaneuvered by Minecraft. That said, I'm observing a noticeable difference between a block-building game that was imagined by a single genius and one that is run by a business. Roblox generates around $46MM a month across platforms and leans heavily on licensing. So 5x annual revenue makes sense even if it's on the high end and provided it manages to sign a few convincing IP holders. Way back in the day it would have made a great acquisition target for Disney (remember Club Penguin?). Link
Netflix and TellTale Games partner on Minecraft
I was watching over the shoulder of my 5-year old the other day to see what he was watching. Turns out it was Puss in Book: Trapped in an Epic Tale which offers him regular points in the cartoon where he can choose between two narrative branches. Cool, I thought, but not unlike those choose-your-own-adventure books I read when I was little. The announcement of the Netflix/Telltale collab raises two questions: (1) does this mean that Netflix is getting involved in games or something something interactive?, and (2) is Telltale here expanding their portfolio in a meaningful way? The answer to the first is likely no because the firm is squarely focused on film and TV series. This is a targeted effort to broaden its offering to younger audiences but it is not enough evidence to conclude that Netflix is going after games. The answer to the second question is less obvious. Telltale has had some notable success by offering novel experiences. They’ve carved out a niche for themselves by becoming experts at developing experiences that TV executives can understand. Its vision of what interactivity looks like is clearly broader than most. If only it had some proprietary IP! Link
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