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) – This past weekend was EGLX, Canada’s largest gaming summit, run by Gaming Street publisher Enthusiast Gaming. It started with an investors and industry day, where investors had a chance to learn from some of the best and brightest in the space (including a nice solid dose of millennials). The next two days were jam-packed with gamers from all over Toronto coming to let their hair down and get a taste of E3 right in their own backyard.
- What came up on day 1 that was interesting was the analog between Livenation (a very successful, vertically integrated media organization) and Enthusiast. Livenation built its business on combining the data and power of the events business with Ticketmaster, a ticket seller, to fully vertically integrate across the live events space. It’s apparent Enthusiast has a similar opportunity in the gaming business by combining their digital data presence, with their live events footprint and organic content from their esports division to truly vertically integrate in the gaming and esports content vertical.
- Some news from this week: The Expo, partnering with PartCasino.Fun, partnering with Champion
- Versus Systems (CSE:VS) – Announced this week that their OMEN Rewards platform (on HP machines) now offers rewards for in-game achievements in League of Legends. It’s a big milestone for the boys and a sign of the times with how the HP integration continues to open doors that weren’t open before. League of Legends regularly reaches eight million concurrent players at daily peaks, making it one of the biggest games in the world and, perhaps, the biggest PC title currently out there. This is after almost a decade after its launch.
- This one is live: Influencers Interactive Inc. (“I3”)
- Bodog is a big dog when it comes to the gambling industry and anecdotally generates +US$1B to its bottom line annually. I3 has brought together a number of key guys from the Bodog team to build out Bodog 2.0 on the back of two acquisitions, leveraging the influencer firepower of guys like Floyd Mayweather. I3 has secured state online gaming licenses in NJ and has LOIs in place with PA, MI, IA, IO, CO. The US in 2018 opened up sports betting across states, and effectively through the legislation down to the states (think of it like US cannabis legislation). It’s a material catalyst for the gambling space and a driving reason why key guys in the space are positioning themselves with early equity exposure. The LOI has been executed with Pike Mountain Minerals.
A quick bit of other news before we geek out
Here’s Andreesen Horowitz’s six trends revolutionizing games
Andreesen Horowitz is arguably Silicon Valley’s most prolific tech VC firm, and of course they have a soft spot for the world of gaming. They put out what I thought was an interesting, brief thought piece on how they see the world of gaming evolving. I recommend diving in here.
At the end of the day, they believe the next generation of games will grow faster and larger than today’s hits, fueled by network effects from platform convergence, organic social discovery, and user-generated content. In other words, Fortnite is really just the beginning. Not to mention we are just beginning to scratch the surface of what transformational tech like cloud streaming, 5G, and immersive reality will do to the space.
Here are the highlights:
- Games are the new mall and sports bar.
- Games are no longer one-off hits, but living franchises.
- Platform convergence will creative massive hits.
- Game discovery will be organic and social.
- The next Marvel universe will be born from games.
- Consumers are co-creators.
A few other pieces of news…
- Hiro Capital launches US$110M game, esports, and digital sports VC fund.
- Psyonix considering franchising for Rocket League.
- The Washington Post launches esports-dedicated coverage.
- Microsoft’s xCloud game streaming preview is now live.
Just some cool content that may or may not have anything to do with gaming
- A history of pizza. People have been trying to tie pizza with gaming about just as long as we’ve been tying Pepsi to the NFL.
Weekly Feature: Black Holes and Revelations
Our hopes and expectations
Black holes and revelations
– Starlight, Muse
On Sunday, Oct 13, 2019, at ~2:00 p.m. ET, you may have felt a great disturbance in the gaming world. That disturbance was the collective cry from millions of voices (~250M to be more exact) as Fortnite, the western world’s battle royale darling, concluded its tenth season with something of a surprise. In a move that would even have the Game of Thrones directors reeling, Epic Games obliterated their entire game ecosystem in a cataclysmic in-game disaster of, well, epic proportions. What was left in its place was a black hole, and as of the afternoon of Oct 14, if you tried logging into North America’s arguably most popular game, all you saw was a black hole.
First, the ‘story’
This isn’t exactly the normal course of business for a big update in a game. Typically, such an update means a mundane server downtime, where the game goes offline with little fanfare while developers work on piecing together and shipping their new content. However, Epic Games has set a new precedent in the world of full-fledged game update pushes. It’s not their first rodeo either. In Season 4, they had a meteor shower reshape the island, and to celebrate the new year in 2019 they ushered it in with a giant disco ball that descended from the sky.
The way that Epic executed was both art and science. They telegraphed to the world that the conclusion to Season 10 was going to be big by having a character in the game called ‘the visitor.’ The visitor throughout season 10 was constructing a massive rocket in the map, which naturally caused players to wonder what would happen when the rocket launched. Then, at 2:00 pm on Oct 13, the rocket launched, causing a chain reaction of events that would ultimately culminate with a giant black hole. The cultural phenomenon it created is now colloquially known as ‘The End’.
When you logged into the game during this ‘down time’ event after The End, all you saw was a black hole. That wasn’t all, though – Epic also hid an Easter egg. They buried a mini-game of space invaders if you entered the Konami code (up, up, down, down, left, right, left, right, B, A, Start). Not only that, strange numbers would materialize and then disappear in the black hole. People who put the numbers into Google Maps were trolled by the game creators by directing them to an image that referenced the crab rave meme.
On Oct 15, Fortnite returned with their second chapter. Not only that, Chapter 2 provided a litany of updates including revamped gameplay, a new map, updates skins, new locations, the ability to swim, new weapons, and new game modes.
Now the real story
Ladies and gentlemen, Fortnite seemed to be dying and in need of a transfusion of new content. Or so it appeared. Let me explain…
To understand what was going on under the hood of Fortnite, let’s take a quick look using Streamhatchet to find the total views for the game. Now, it’s very hard to measure the total concurrent player trends for Fortnite, but what we can interpret is the total viewership trends on Twitch for this game. This can serve as somewhat of a proxy. Assuming all things are equal, more people watching Fortnite should translate into more people playing Fortnite, and vice versa. The following data shows the viewership trends on Twitch for Fortnite year-to-date.
On Oct 13, when Epic Games unleashed the black hole on the world of Fortnite, ~106M people watched Twitch, which was more than the entire previous week of viewership combined. This is also the single largest viewership number for Fortnite on Twitch, period, in history. If we look at the months leading up to this event, for the first time we saw steady declines in Twitch viewership, suggesting that the game was starting to wane. Epic Games simply needed to shake it up, and boy oh boy, did they ever.
What can we learn and how does it fit in with the world of gaming going forward
We’ve talked many times about thinking of gaming like content (even though it’s bigger than the movie business and the music business combined). If we look at an analog for most wide-release games, like GTA 5 for example, you can think of them like big movie franchises. Years of development are spent on producing a new game, which is produced, distributed, and sold. It’s much like feature films. This was the video game production business for quite some time.
Free-to-play changed this. All of a sudden, you couldn’t rely on the gaming business’ equivalent of ‘ticket sales’ and ‘dvd sales’. You had to rely on keeping people in the game ecosystem you created for years after you released the game so you could monetize them inside the game, with digital goods, advertisements, and a range of other ways. You needed to keep people engaged.
I think of this like the gaming business’ equivalent of TV Shows. That’s what Fortnite is. Like big TV show productions like Game of Thrones, the name of the game is to keep people engaged. Fortnite has borrowed the TV show formula of throwing a grenade in the cast or the world in the show to keep people engaged. Long term series like Grey’s Anatomy know all too well of this formula, and it works.
While the internet exploded and showed the cultural power that a single game can have, I looked at it somewhat differently. It was just another sign of the formulas from traditional content streams making their way into the gaming business, and another all too auspicious sign that the future of content really is in the game.
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) – Announces name change and share consolidation
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) – Announces initiation of Rising Fire Mobile prototype and potential co-dev deal with second new partner
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.