Tag: ec gaming

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Why Microsoft’s $2T+ market cap makes its $68B Activision buy a cheap bet

Even though consumer gaming constitutes a small fraction of its overall business, Microsoft’s announcement yesterday of its all-cash $69 billion deal to buy Activision Blizzard proves that the technology corporation takes the sector plenty seriously.

It is easy to think that Microsoft should have invested the money into other, perhaps more lucrative businesses in its portfolio. But with a market cap just over $2 trillion (a number so large it’s hard to wrap your head around), Microsoft has vast resources to invest in the most logical parts of its business.

Even if this $70 billion bet doesn’t pay out, Microsoft will come out on the other side fairly unscathed. That kind of financial power gives a company myriad options, even if it involves making one of the largest acquisitions in tech history.

Let’s not forget that this deal comes on the heels of Microsoft’s acquisition of speech-to-text company Nuance last spring for $20 billion. That deal that is stuck in regulatory limbo in the U.K., which begs the question: Given it size and scope, could regulators end up taking a close look at the Activision Blizzard deal, what could be perceived as a gaming market land grab?

Even if this $70 billion bet doesn’t pay out, Microsoft will come out on the other side fairly unscathed.

With that in mind, we’re examining this deal’s financial viability to see whether Microsoft might have been better off putting those resources into the enterprise/business side of the house, or if its resources are simply so vast that the company doesn’t have to consider the sort of tradeoffs most companies must make when it comes to an M&A of this magnitude.

Digging into the portfolio

Although Microsoft is reporting earnings next week, we can still see the breakdown of how the company makes the majority of its money from its most recent report, disclosed October 26, 2021. In that earnings digest, the Redmond, Washington-based software giant reported over $45 billion in revenue, with its Intelligent Cloud division accounting for $17 billion of the total, and its Productivity and Business Processes group good for $15 billion more.

The consumer side of the house produced more than $13 billion in top line, but gaming was just a portion of that division’s results that includes certain Windows and Surface incomes, along with search and advertising.

In spite of the differential in scale between the company’s entertainment work and its enterprise income, Microsoft CEO Satya Nadella called out gaming in its earnings report call with analysts, praising its growth:

And in gaming, revenue increased 16% at 14% in constant currency, ahead of expectations. Better-than-expected console supply, and continued strong demand resulted in Xbox hardware revenue growth of 166% and 162% in constant currency. Xbox content and services revenue increased 2% and was relatively unchanged in constant currency against a strong prior-year comparable. Segment gross margin dollars increased 10% and 8% in constant currency. Gross margin percentage decreased roughly one point year over year, driven by sales mix shift to gaming hardware.

Clearly, the company sees gaming as an important growth driver. How does that fit into the recent deal announcement? Not merely in terms of the company stacking accretive gaming revenues, with Constellation Research analyst Holger Mueller viewing the transaction as a way to grow related incomes via Windows and Azure cloud services.

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Blockchain gaming survey: 7 investors discuss regulation, opportunities and NFT hype

The video-game industry has always been on the bleeding edge, but blockchain gaming is still widely viewed as emerging technology.

In October 2021, Valve banned all blockchain-related games from its Steam platform. Meanwhile, within Axie Infinity, an NFT-based online game, new players are paying hundreds of dollars to acquire mythical pets and love potions.

There’s still a haze of uncertainty surrounding blockchain games, so we reached out to several active investors in the space to get a clearer picture of where opportunities exist today and what they see on the horizon. We asked them to share the advice they’re giving their portfolio companies, along with their thoughts on how future regulation might impact the industry.

Interestingly, at least one investor noted that growth wasn’t a key consideration: “We tell our companies to really think about the missing pieces, particularly in gaming infrastructure,” said Banafsheh Fathieh, head of investments, Americas at Prosus Ventures. “What are the pain points we can alleviate for users and builders? Growth is less of a focus now, utility is incredibly important at this stage.”

We surveyed:

Anton Backman, principal, and Kenrick Drijkoningen, general partner, Play Ventures

What was your initial reaction on hearing about Steam’s ban on blockchain games?

It was not an entirely unexpected move from Steam. Incumbents tend to be more wary of adapting new business models and gaming is no different. As a fledgling space, NFTs are beridden with projects of varying quality and we believe Steam wants to do some quality assurance and wait until the situation stabilizes before allowing blockchain games en masse. Interestingly enough, at the time of writing (Nov 14) MIR4, a crypto-enabled MMORPG on Steam, is running at 88,000 concurrent users. Seems that there’s still a gray area in terms of how these games are classified.

What advice have you been giving your portfolio companies to grow? What sort of guidance and assistance do blockchain gaming companies seek from you?

We typically act as a sparring partner for founders in strategy-related matters. With blockchain gaming companies we have mostly assisted the teams in navigating the technology stack, i.e., what blockchains and/or scaling solutions to consider, as well as token economic design. In our view it’s key to embrace a crypto native approach of building and experimenting with the product while also involving your community in the process.

How do you view the regulatory environment for blockchain gaming? Is the uncertainty making you reconsider your strategy?

No. It’s not the first time innovation has outpaced regulation and we see it as a natural reaction to new consumer behavior and ways of building companies. Similarly, Uber fought an uphill battle with regulators before eventually democratizing the taxi medallion system and providing an outsized improvement for end users of taxi services. This doesn’t mean that companies and projects should build products that are against the law but rather engage in healthy discussion with regulators as the adoption of their products increases.

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What we can learn from China’s mobile gaming economy

Jeff Sue Contributor
Jeff Sue is GM, Americas at Mintegral, a mobile ad platform helping the world’s largest developers with global user acquisition, ad monetization and creative services.

The mobile gaming economy has been in a state of flux for the past couple of years, and it has become quite difficult to predict what will come next. China has had its own set of unique issues, mainly stemming from the nation’s desire to rein in the market and provide more security and privacy to all parties.

Despite this, the Chinese mobile economy has continued to thrive over the past 18 months. Last year was a big one for China’s mobile scene as mobile app publishers found new audiences and explored new mobile advertising channels, many of which are here to stay — 681.7 million mobile gamers were reported in China in 2020. To add to this, the country also leads the way for gross revenue, accounting for over 35% of mobile gaming revenue worldwide in 2020.

Western publishers have taken note, but recent regulatory crackdowns have given pause to some. What can be done to quell some of these concerns and help open the market to global gaming publishers?

China’s top developers are going global

It can be argued that Chinese tech giants like Tencent and Netease have actually seen these restrictions as an eventuality and have acted accordingly by investing and acquiring global studios. Tencent alone has invested in over 30 gaming companies, including Roblox, Supercell, Riot and Voodoo.

Chinese publishers that employed a global strategy increased their revenue by 36.7% in 2020 and are seeing more revenue in international markets than in China. Some of this is fueled by publishers pivoting away from ISBN-restricted games with in-app purchases (IAP) to fan-friendly free-to-play (F2P) games with well-executed ad monetization models.

Given that mobile gaming giants such as Zynga and Scopely hold a winning formula for gaming IP as well as ample resources, there is an opening in the market for cross-platform growth. To be clear, it is an ambitious goal, but could be seen as a necessity to sustain user and revenue growth.

What Western publishers are learning from China

Publishers wanting to go East are seeing the success of Chinese studios capitalizing on intellectual property (IP) such as Journey to the West in their domestic markets. Zynga has taken notice of this and is making wise investments into the market with IP titles from Harry Potter and an upcoming Star Wars mobile game.

Kabam’s Marvel IP has also been successful, with its F2P game Contest of Champions tops the U.S. charts for licensed action mobile games. Subsequently, Kabam partnered with Netease and localized the game for the Chinese market.

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3 methodologies for automated video game highlight detection and capture

Nathan Babcock Contributor
Nathan Babcock is a computer scientist and freelance writer in Chicago and a co-founder of automated highlight detection startup Clip It.
Benjamin Clingan Contributor
Benjamin Clingan is a software developer specializing in Python back ends, finance, genetic neural networks and other machine learning strategies and a co-founder of automated highlight detection startup Clip It.

With the rise of livestreaming, gaming has evolved from a toy-like consumer product to a legitimate platform and medium in its own right for entertainment and competition.

Twitch’s viewer base alone has grown from 250,000 average concurrent viewers to over 3 million since its acquisition by Amazon in 2014. Competitors like Facebook Gaming and YouTube Live are following similar trajectories.

The boom in viewership has fueled an ecosystem of supporting products as today’s professional streamers push technology to its limit to increase the production value of their content and automate repetitive aspects of the video production cycle.

The largest streamers hire teams of video editors and social media managers, but growing and part-time streamers struggle to do this themselves or come up with the money to outsource it.

The online streaming game is a grind, with full-time creators putting in eight- if not 12-hour performances on a daily basis. In a bid to capture valuable viewer attention, 24-hour marathon streams are not uncommon either.

However, these hours in front of the camera and keyboard are only half of the streaming grind. Maintaining a constant presence on social media and YouTube fuels the growth of the stream channel and attracts more viewers to catch a stream live, where they may purchase monthly subscriptions, donate and watch ads.

Distilling the most impactful five to 10 minutes of content out of eight or more hours of raw video becomes a non-trivial time commitment. At the top of the food chain, the largest streamers can hire teams of video editors and social media managers to tackle this part of the job, but growing and part-time streamers struggle to find the time to do this themselves or come up with the money to outsource it. There aren’t enough minutes in the day to carefully review all the footage on top of other life and work priorities.

Computer vision analysis of game UI

An emerging solution is to use automated tools to identify key moments in a longer broadcast. Several startups compete to dominate this emerging niche. Differences in their approaches to solving this problem are what differentiate competing solutions from each other. Many of these approaches follow a classic computer science hardware-versus-software dichotomy.

Athenascope was one of the first companies to execute on this concept at scale. Backed by $2.5 million of venture capital funding and an impressive team of Silicon Valley Big Tech alumni, Athenascope developed a computer vision system to identify highlight clips within longer recordings.

In principle, it’s not so different from how self-driving cars operate, but instead of using cameras to read nearby road signs and traffic lights, the tool captures the gamer’s screen and recognizes indicators in the game’s user interface that communicate important events happening in-game: kills and deaths, goals and saves, wins and losses.

These are the same visual cues that traditionally inform the game’s player what is happening in the game. In modern game UIs, this information is high-contrast, clear and unobscured, and typically located in predictable, fixed locations on the screen at all times. This predictability and clarity lends itself extremely well to computer vision techniques such as optical character recognition (OCR) — reading text from an image.

The stakes here are lower than self-driving cars, too, since a false positive from this system produces nothing more than a less-exciting-than-average video clip — not a car crash.

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Can advertising scale in VR?

Michael Boland Contributor
Mike Boland is chief analyst of ARtillery Intelligence, an AR/VR research firm.
More posts by this contributor

One of VR’s prospective revenue streams is ad placement. The thought is that its levels of immersion can engender high engagement with various flavors of display ads. Think billboards in a virtual streetscape or sporting venue. Art imitates life, and all that.

This topic reemerged recently in the wake of Facebook’s experimental ads in Blaston VR. As TechCrunch’s Lucas Matney observed, it didn’t go too well. The move triggered a resounding backlash, followed by the game publisher, Resolution Games, backing out of the trial.

This chain of events underscored Facebook’s headwinds in VR ad monetization, which stem from its broader ad issues. In fairness, this was an experimental move to test the VR advertising waters … which Facebook accomplished, though it didn’t get the result it wanted.

VR advertising is a bit of a double-edged sword. It could take several years for VR usage to reach requisite levels for meaningful ad monetization.

Regardless, we’ve taken this opportunity to revisit our ongoing analysis and market sizing of VR advertising in general. The short version: There are pros and cons on both qualitative and quantitative levels.

The pros of VR advertising

VR advertising’s opportunity goes back to factors noted above: potentially high ad engagement given inherent levels of immersion. On that measure, VR exceeds all other media, which can mean higher-quality impressions, brand recall and other common display-ad metrics.

Historical evidence also suggests that VR could follow a path toward ad monetization. VR shows similar patterns to media that were increasingly ad supported as they matured. These include video, social media, mobile apps and games (just ask Unity).

To put some numbers behind that, 75% of apps in the Apple App Store’s first year were paid apps — similar to VR today. That figure declined to 15% in 2014 and hovers around 10% today. Over time, developers learned they could reach scale through free downloads.

Prevalent revenue models today include in-app purchases — especially in mobile gaming — and advertising. The question is whether VR will follow a similar path as developers learn that they can reach scale faster through free apps that employ “back-end monetization” like ad support.

This trend also follows audience dynamics: Early adopters are more likely to pay for content and experiences. But as a given technology or media matures, its transition to mainstream audiences requires different business models with less upfront commitment and friction.

“Today, there are only about 18% of applications in VR stores such as Steam and Oculus that are free,” Admix CEO Samuel Huber said. “This is fine for now because we are still very early in the market and most of these users are early adopters. They are willing to pay for content, just like they were willing to pay for prototype unproven hardware and generally, they have higher purchasing power than the average person.”

Drawbacks of VR advertising

Considering the above advantages, VR advertising is a bit of a double-edged sword (or beat saber). Those advantages are counterbalanced by a few practical disadvantages in the medium’s early stage. Much of this comes down to the requirement for scale.

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5 mistakes creators make building new games on Roblox

Joe Ferencz Contributor
Joe Ferencz is the founder and CEO of Gamefam, a game publisher operating exclusively on Roblox.

With Roblox’s massive IPO this month, game developers, brands and investors alike are wondering what factors cause the most successful games on this $47 billion platform to break out from the millions of user-generated passion projects.

According to Roblox’s S-1 filing, nearly 250 developers and creators earned $100,000 or more in Robux in the year through September 2020 out of nearly 1 million creators on the platform.

From Gamefam’s first game two years ago that topped out at only 25 concurrent players to our current portfolio with 2 million to 3 million daily visits, our team learned to develop on Roblox the hard way — by trial and error and by getting better at listening to the Roblox community’s unique gamer culture and vernacular.

Even the most experienced and talented game designers from the mobile F2P business usually fail to understand what features matter to Robloxians.

For those entrepreneurs just starting their journey in Roblox game development, these are the most common mistakes I have seen gaming professionals (myself included) make on Roblox:

1. Using the established free-to-play (F2P) mobile game mechanics

In the F2P mobile games market, it’s all about layered game loops: play a match with the hero, level the hero up using resources from the match, buy more heroes to merge with the first hero, open up new matches with new rules to win more resources, and on and on. These require ongoing player tutorials across hours of play sessions. These mechanics tend to backfire on Roblox because players have no tolerance for anything but immediate, visceral fun.

Accordingly, in mobile F2P, a robust tutorial for new users is oftentimes one of the biggest investments during development. But in our Roblox game Speed Run Simulator (more than 400,000 daily visits), we saw a significant increase in D1 retention when we removed the tutorial entirely and just allowed existing players to guide new players’ understanding of the game. The differences between Roblox and mobile F2P are not only numerous but also sometimes profoundly counterintuitive.

2. Optimizing to make money off of “whales”

Roblox players spend because they’re getting something they want. They won’t be cajoled or coerced into spending like in a mobile game where progress is restricted or slowed without making an in-app purchase (think Candy Crush).

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NFTs could bridge video games and the fashion industry

Non-fungible tokens (NFTs) offer new ways for consumers to collect, wear and trade fashion online, and now that most fashion shows have scaled back or gone virtual, they may become an important tool for the industry.

Because some of the most profitable NFTs are produced by celebrities with teams, it makes sense that music corporations, fashion brands and designers are venturing into the NFT market as well. Just this month, sneaker brand RTFKT Studios garnered $3.1 million in seven minutes by selling crypto collectibles. In December 2020, NFT startup Enjin partnered with Netherlands-based fashion house The Fabricant on a virtual collection. Real-life fashion brands use NFTs for marketing in virtual worlds like Minecraft, plus several Atari and Microsoft video games.

The fundamental value NFTs offer to bridge virtual fashion items with video games is the option to secure custody of the item for use in other games or mobile apps.

“Brands are coming up with some creative solutions because the pandemic is persistent, and fashion is something that is so close to our identities,” said Bryana Kortendick, Enjin’s VP of operations and communications. “You can snap a photo of yourself wearing your Atari-branded NFTs. You’ll also be able to wear them in video games.”

Breakout NFT star Beeple said he imagines a future where fashion NFTs could be redeemed for specific items in physical stores, especially at luxury retailers like his former client Louis Vuitton.

“You can relate NFTs to clothing in new and interesting ways,” he said. “This will be seen as the next chapter of digital art history. This is a continuation of digital art history that started decades ago, by that I mean art made on a computer and distributed through the internet.”

Fashion designers like Schirin Negahbani are already creating NFTs that represent actual clothing. Precisely because multimillion-dollar NFT sales are breaking records, spectators have been prompted to question the role speculative trading plays in this trend.

Textile designer Amber J. Dickinson says fashionable NFTs shouldn’t primarily be viewed as speculative trading opportunities. “The way I think fashion translates to the digital world is to view an NFT as a collectible piece of the garment for history,” said Dickinson, known for hand-made silk scarves and her work with Alexander McQueen. “I would only buy art as a piece that I liked. Whether digital or in the real world, I don’t take an investor’s point of view.”

There are many fashion fans who disagree with Dickinson, preferring to invest through assets like Birkin bags. They may have a different approach to NFTs. The DIGITALAX crypto fashion platform, for example, is being built with a plethora of trading features. As for Dickinson, she said she is still looking for her tribe of crypto-savvy artists on Twitter.