The Gaming Recap is the world of gaming, through the eyes of an investment banker. Each week we take a look under the hood of a key theme we’re seeing in the gaming industry, and sprinkle in some news from around the street.
Some news from a few of our friends in the world of gaming:
- Enthusiast (TSXV:EGLX) – First, let’s start out with the big news. Since starting the company, Gaming Street publisher Enthusiast has rolled up many of the largest independent gaming-focused websites to create a truly integrated digital network across the digital ecosystem. They now have a network of over 100 gaming websites, 900 YouTube channels, and over 50 influencers and players. The government doesn’t like the word ‘monopoly’, but I do. They announced this week that with verification from Comscore that they surpassed Twitch.TV (bought by Amazon in 2016 for US$1B and probably is worth an order of magnitude in excess of that today) as the largest combined web and video entity in the gaming information category. It’s quite amazing to see what the guys have built in such a short amount of time.
- The Vancouver Titans went to Philly this weekend for the Overwatch League season two finale. Here’s a pre-match breakdown right here.
- NFL star Richard Sherman hit the airwaves on BNN Bloomberg this week to extol the virtues of esports and all things Luminosity. If you missed it, you can catch it right here.
- Canaccord hit the street with formal research coverage last week, which you can read right here.
- Versus Systems (CSE:VS) – The research team at Haywood launched formal coverage of the boys, which you can read right here.
- By the way, it made it all the way up into the Globe. At the end of the day, Versus is rethinking the way not only the game industry thinks about rewarding gamification, but anything that can have a win condition (like picking up the phone to make a sales call).
- They also added Jay Tucker (media guy) this week to the advisory board, which is an addition to help solidify their brand side of the business.
A quick bit of other news before we geek out
- Let’s get a quick laugh off our chests, right here, right now. Quote of the week is from Antonio Brown: “The game needs me.” As a recap, he entered the national spotlight after walking out on the Raiders after not being willing to change his helmet, and then the Pats picked him up before promptly releasing him. What are the odds that Antonio Brown is the latest addition to the Canadian Football League? I mean, Money Manziel made his way up here. How long until the Toronto Argos put in a bid? My only question… Is there a helmet up there that can fit him?
- This is worth a read too. A guy dislocates his shoulder while cycling, puts it back in, goes on to win, only to be disqualified. Ouch…
- Logitech acquired Streamlabs for US$118M in a cash and contingent stock deal
- Founded in 2014, Streamlabs creates tools and software to help broadcasters, which has included subscriber and donation alerts on the back of a partnership deal a couple years ago.
- This impacts Millennial Esports (GAME) and their asset Streamhatchet, which doesn’t do exactly the same thing, but is still fairly similar. It helps broadcasters with all sorts of rich analytics, sponsorship reporting, and a variety of other features, as well as aggregating data across all the broadcasters. It is positioning itself as a Nielsen of esports. They also added a motorsports data provider this week as well.
- Faze Clan and Manchester City announce a partnership
- Not much has been revealed yet, but it sounds like the two brands will be combining forces with Man City’s players and Faze’s FFA players in the same shared facility.
- In essence, this is a classic cobrand deal. Man City wants to hedge their exposure to only traditional sports by partnering with one of the premier brands in the esports world, while Faze wants to leverage the cache of one of the premier traditional brands in the world. I expect the key partnership is around products, yes, but also on streamed content.
- Louis V enters the esports game
- Luxury brand Louis Vuitton has partnered with League of Legends developer Riot Games to create virtual clothes as well as a League of Legends-inspired fashion collection and a custom-made trophy case for the League’s annual esports finals. The finals will be held in Paris this November.
- George Jung has a great line in the movie Blow. When asked why the market blew up for his product, he said it became cool because Hollywood and celebs were using it. I’m not trying to make a comparison here, but what I’m trying to say is that gaming is going through a never-before-seen transition. Gaming and gamers are becoming viewed as cool! As someone who grew up as a gamer myself, this is beyond cool. More importantly, major fashion brands lending their brand to the gaming community is social proof that it isn’t happening, but has already happened. Ladies and gentleman, gaming has become cool and will only become more cool. Watch the waterfall of brand deals coming on the back of it.
- This one is huge. Mario Kart has finally been brought to smartphones
- It’s official, Nintendo’s Mario Kart is available on your smartphones to play now. I’ve played it, it’s fun. It also was number one across the app store the last time I checked, and sitting right below it was the other recent Mario release.
- We’ve talked a lot about IP. Nintendo, in my humble opinion, has some of the strongest IP of any content vertical in the world. Their digital IP in gaming is unparalleled. Last week, we mentioned that Apple typically doesn’t do anything that isn’t part of a multi-year/decade strategic plan. Apple Arcade isn’t just dust in the wind, it is part of a long term strategy to own the platform side of mobile gaming. I’ve always wondered what the world would look like if one of the world’s strongest integrated technology brands merged with one of the world’s strongest IP brands. It’s just a dream for now…
- A few big numbers from the past little bit (US$280M raised for the below)
- NBA 2K League expands with a reported US$25M deal with Gen.G
- Dignitas secured US$30M in funding
- Comcast Spectacor breaks ground on their US$50M Fusion Arena
- Manticore Games rased US$30M to launch a game making platform
- VENN raises US$17M to launch a Cheddar-like TV network
- London Venture Partners raises US$80M for game startup investments
- PlayVS raises US$50M for high school esports platform
- Playful Studios raised US$23M for spectator enabled games
- Just some cool content that may or may not have anything to do with gaming:
- An Apple iWatch saves a guy’s life after calling 911 when he fell unconscious after a devastating bike crash: Link
- New Yorker long form piece on the past four years of startups (topical if you’ve been following all of the IPO drama): Link
- Recent research shows the brain’s rewards regions activate when males crave video games, and girls face more depression when overusing social media: Link
- A nice and nerdy deep dive on the Fermi Paradox (one of my favorite theories, period): Link
Weekly Feature: Beautiful War
Don’t mean nothing
Left them something
Worth fighting for
It’s a beautiful war
– Beautiful War, Kings of Leon
I don’t mean to be dramatic right now. In the gaming industry, there is an all-out war going on right now that is overshadowed by the TV and movie business. I would argue (given the gaming industry is bigger) that this one is more important for the future of content consumption, but the simple reality is that most of us touch services like Netflix more than Apple Arcade yet. A new generation of platform war is upon us. The tech giants (Facebook, Google, Apple, Microsoft, Amazon??) are stepping into the world of gaming distribution and fighting for their share of the pie. The thing is, these giants are used to owning, winning, and controlling their share of the pie. Each has built effectively a monopoly in its own special product category and built their business on winning.
This time the battleground is in the world of digital and not in the world of physical. To really have a look at this, lets peel open our history books and take a brief crash course on the history of ‘console wars.’ Because during a console war, there is no better time to be in the business of creating content.
Let’s peel back the onion on game consoles real quick
There were a few precursors to the first real console, but at the end of the day the first real stake in the ground was created by none other than Nolan Bushnell at Atari. The Atari 2600 was released in 1977 and was a starting point that would lead to initial chaos in the world of consoles. The success of the 2600 would lead all sorts of companies from Mattel to Nintendo to start their work in the world of consoles and bring to light the idea of a home video entertainment system exclusively for gaming. Perhaps most importantly, it set the stage for the console era that was just a decade around the corner – an era that would cement Nintendo as a global leader in gaming.
By 1989, Nintendo would be at its peak of the gaming market with the original NES, the release of the Game Boy, games like Mega Man, Super Mario, and Zelda, and just about no competition. Until of course, Sega came along with the Genesis and their famous as proclaiming Genesis does what Nintendon’t.
While Sega was brash in their marketing and found domestic success in the good old US of A, they were never able to compete with the next generation SNES Nintendo console on the global level (Nintendo would sell 49M SNES units globally). It really was just the precursor – the Franz Ferdinand of WW1 of the console wars if you will. The real war was just around the corner with soon-to-be Japanese arch rival Sony.
Sony and Nintendo had been working on putting an agreement in place for a CD addition to the SNES, which would end up failing and leaving both companies on poor terms. Sony would turn around and build a video game console around their CD technology called PlayStation which would be released in 1995, and be the first console with CD capabilities. A year later, Nintendo would introduce the Nintendo 64, and the war officially began. The key for Sony was locking down a variety of content titles to compete with incumbent Nintendo franchises like Metroid, Mario, and Zelda. In the end, Nintendo would sell 33M units of their N64, which would pale in comparison to the 102M units that Sony would sell of their PlayStation, cementing their position as the number one hardware solution for gaming. WW1 of the console wars was officially over, and Sony had won.
World war 2 of the console wars would be marked by Microsoft entering the game with their Xbox to compete with Sony’s new PS2. I can clearly remember this time as a time where people either became a ‘Xbox’ person or a ‘PlayStation’ person. It was an excuse to socialize, though, because if you were a PlayStation person, you couldn’t wait to go over to your buddy’s place to play Halo. Sony was clever, though. They integrated a DVD player into their console and made it less expensive than many pure DVD players on the market. It was a clear case of using hardware prowess to cement market advantage. Sony would sell 150M units worldwide with great titles to back it like Grand Theft Auto 3 and Gran Turismo 3 A-Spec. Meanwhile Xbox and the Nintendo GameCube would sell little over 20M units over their lifetimes. The two giants would go head to head with each other and Nintendo over the coming decade with new console iterations, dedicated titles, and marketing.
What can we learn from the wars of past?
At each point in time, the console wars were marked by a tech giant entering the gaming industry with a bold stance to aggressively capture it. The first was Sony attacking Nintendo. The second was Microsoft attacking both.
At a glance, the console wars of old were founded and built on the distribution medium. Sony cemented itself as a leader by continuously making bold bets on the future of the distribution medium. With their PlayStation 1, it was CDs; with PS2, it was DVDs; and with their PS3, it was Blu-ray tech. Today, the ascendance of each distribution medium seems very obvious, but at each point there was a lot of uncertainty as to the future way to distribute content. Sony understood the console not only as a video game machine, but as a central device to every living room. They made a device that was more mainstream, and the sales treated it as such. It was a brilliant strategy from the outset to own the living room, and own it with the kids of the parents asking for a game console – why not get the one that can play DVDs as well?
Of course, we can’t ignore the other side of the coin as well: content. Sony was prodigious in their ability to bring in very high quality game franchises to their platform. Games like GTA3 and Gran Turismo were monster game titles that helped sell the console. Sony was an excellent case study in understanding the psychology of the ultimate decision maker from a monetary perspective (the parents) and executing on a strategy to own the living room. It was brilliant.
How does this relate to today?
Again, it boils down to the big players making educated bets on the future distribution medium. Apple is betting that the medium is going to be through their App Store on phones. Google is betting that it’s on any device period, and Microsoft looks to be working on something similar. Nintendo has bet that you just want to take their hardware with you if you want (Switch) and are utilizing mobile platform for some of its key IP (like Mario Kart).
At a glance, it looks completely different from the platform wars of old. In reality, it is, and it isn’t. This battle isn’t being fought on a hardware battleground, it’s being fought on a digital background. But the same rules apply. If we look at how Sony approached this battle years ago, their stance was to own the living room. Own the customer. There is currently one player making a strategic bet on that premise: Apple. Own the customer from top to bottom, and end to end. In my view, if they are indeed following the Sony playbook, then Apple Arcade is really just the tip of the iceberg of a multi-year deliberate strategy to own the customer.
Now, this has a profound effect for creators of content. Behind the scenes, there is more money available from platforms for content creators than there has been for a long time. We’re back to the good old days where platforms are fighting for quality content, just like the movie/TV show giants (Netflix, Hulu, Disney, etc.) are. This war is just beginning, and expect it to – for now anyways – be a strong boon for content producers behind the scenes. We’re really just in the first inning of this battle.
What’s out there
Enthusiast Gaming (TSXV:EGLX) – Verified as the largest gaming network in the US by Comscore
Gaming Street collaborators helped bring our publisher company public last year, and now the merger with Aquilini GameCo has finally closed to become a premium vertically integrated esports and gaming company.
Millennial Esports (TSXV:GAME) – Consolidating their share structure and changing their name to Torque Esports Corp.
Millennial Esports was fully recapitalized with C$15M over the summer and has had a complete restructure from the board and management side. It’s effectively a brand new company, and it is good to distance itself from the OG legacy of Millennial. Good to see.
Versus Systems (CSE:VS) – Signed a deal with HP
Versus makes the technology to let people play games for rewards.
In December they brought on Keyvan Peymani as their Executive Chairman (the former head of startup marketing for Amazon Web Services and a former VP ant Warner Bros and Disney) as they began to scale their platform to new games. They allow players to win real-life rewards while playing in-game, and can be integrated into any Unity-based game.
Axion Ventures (TSXV:AXV) – Presented at the Gateway Conference
The only Canadian publicly traded game studio with a JV with the largest gaming studio in the world (Tencent). Their marquee game Rising Fire is distributed under JV with Tencent. They also have a AAA quality mobile game made in Thailand under JV with the True Corporation.
BRAGG Gaming (TSXV:AXV) – goes live with LeoVegas
GiveMeSport now reaches more than 95M monthly unique users (up from 29M in January 2019). Bragg’s core asset is ORYX Gaming, a B2B gaming technology platform and casino content aggregator.