The Gaming Recap: Call of Duty

This article is part of The Gaming Recap, a weekly rundown written by The Gaming Shark. Please refer to the disclaimer for further information.

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:

1. Aquilini GameCo / EGLX (TSXV:EGLX) – This was the first week of trading. It went out last Monday, and we have received a bunch of questions on structure and how the ratios work. Perhaps most importantly this past week, the boys announced that they had officially vended in their non-controlling interest in the Overwatch Team, the Vancouver Titans, AND announced their non-controlling interest in the Seattle Call of Duty team. Getting a franchise isn’t easy.

For the Titans, this has been something that a lot of people had been questioning: their ability to bring an interest in the Vancouver Titans public. That ability has now been proven. The Call of Duty League is a “made for North America” game franchise. Similar to other groups, I wouldn’t be surprised to see someone from the world of traditional sports enter the picture as a brand ambassador off the back of this announcement.

Other key news from this week:

1. See Doug Ibbitson’s note on Gaming Street publisher Enthusiast’s announcement of their interest in the Call of Duty team.
2. Enthusiast has fully consolidated their cornerstone web asset, The Sims Resource.

A quick bit of other news before we geek out

• Let’s talk traditional sports for a second. Right now, you could say that Antonio Brown (“AB”) is the NFL. Last week, after getting iced by the Raiders for not wanting to wear the right helmet, the New England Patriots swooped in and grabbed AB. Randy Moss 2.0 anyone? Then, to add more fuel to this drama fire, AB is accused of rape and battery with his former personal trainer across three separate incidents in 2017 and 2018.
• Zynga canceled all institutional marketing last week
  • There have been rumors flying around about this one. Zynga would be an interesting acquisition target for one of the majors given their mobile IP portfolio and current valuation / gross margin expansion. They may also be a key bidder for FoxNext, Disney’s in-house mobile games studio with IP such as Marvel Strike Force and Alien: Blackout.
• NRG
  • We’ve heard a rumor that the former don of Optic Gaming, Hector Rodriguez, has joined NRG Esports as co-CEO.
• GG Group announced the formation of their production company ‘Do Not Peek Entertainment’
  • The idea here is that ~70% of viewed hours on Twitch are casual content, and 30% is esports. YouTube sees ~200M unique DAUs consuming game content, of which ~90% could be estimated as casual. This is exactly why they are looking to create a pipeline of original content.
  • Steven and the boys got a bunch of good press here, here, and here.
• For music lovers out there, here’s a couple cool reads from this week:
  • When old is new again: Vinyl is set to outsell CDs for the first time since 1986.
  • For the nerdy music lovers like myself who continuously say to yourselves, “there has to be a formula for hits”: Using Spotify data to predict what songs will be hits.
• Apple announced Arcade this week – here’s all 51 games announced so far
  • The tech giant firmly staked its claim in the gaming world last week with more details on their new ‘Netflix for games’. Apple Arcade will be available on Sept 19 in ~150 countries.
  • My 2¢: This is the tip of the iceberg for subscription-based content delivery. We see the major tech giants just starting their war for game distribution dominance. Apple is leveraging their impressive walled garden in the App Store, but the competition to deliver content already includes Google, Microsoft, Valve, Epic Games, Tencent, and others. Don’t be mistaken, this will be an all-out war for distribution. However, Apple will try to build a moat around their mobile ecosystem. This begs the question; will they look to acquire content? You could speculate that they would be an ultimate buyer of one of the key baskets of mobile IP. FoxNext anyone?
• Disney plans sale of FoxNext
  • Disney is said to be moving forward with their plans to sell FoxNext, the video game business they acquired with the purchase of 21st Century Fox’s entertainment assets earlier this year. The business makes free-to-play mobile games such as Marvel Strike Force (did ~US$150M in topline in its first year).
  • My 2¢: Disney acquired the asset with their US$85B purchase of Fox assets. Disney has been slowly exiting the studio component of the video game business, instead focusing on their IP licensing. This brings into focus the value of IP versus the actual game creation. Nintendo, for instance, has perhaps the most diverse and valuable IP library. In gaming, it’s not so much about how you create the game (commoditized), it’s about how you create unique brand IP and characters.
• Opinion: What we can learn from Nordic developers
  • The Finnish games industry generated EUR2.1B in 2018. The success of Mojang, Supercell, and Rovio have had a significant impact in building a unique development silo for games. Here is an insider’s view of a few of their keys to success.
• Loot boxes in games are called to be banned in the UK
  • We did a full note on it here a couple months ago. It was just a matter of time before this vaulted to the top of the pile for game regulation.
  • Here’s what happened in Belgium when they were officially banned.
• TSM is building a US$13M training center in LA
  • TSM is building a 25k square foot building in LA that will serve as their training center.
  • My 2¢: We were speaking with these guys this week. They’ve got tons of cool stuff in the pipeline. That’s all we can say here.
• NFL’s Raiders partner with Twitch on the Allegiant Stadium
  • My 2¢: Great to see more deals between esports and traditional sports, particularly in regards to physical locations. Allegiant Stadium plans to use Twitch’s live streaming capabilities for a variety of entertainment at Allegiant Stadium.

Weekly Feature: Call of Duty

Hey folks,

A baby is born,
Crying out for attention
– Kids, MGMT

What is a game? What makes a game? What makes gaming such a powerful piece of cultural identity for so many people? These are things that a lot of people who are not familiar with the gaming space ask. They see people at conferences dressed up as game characters (known as cosplay in the gaming world) or maybe they see their kids playing games with their digital friends, and they ask the simple question… why?

September 12 was National Video Games day. We thought the best way to help explain the power of gaming was with a simple story. The story we chose made national headlines a few years back and is one of my favorite stories in gaming.

This is the story about Caine’s Arcade, a little boy’s gaming dream built on cardboard, tape, and pure creativity.

If you’ve been to Los Angeles and head down to the eastern part, the last thing you would imagine would be that it’s the home of a famous kid in the gaming industry. It’s an industrial zone, with the street dotted with auto repair shops. The funny part is, that was exactly what spawned Caine’s Arcade in 2012.

Caine Monroy was a nine-year-old kid who just loved to be an engineer and create. His dad ran an auto parts shop in Boyle Heights, Los Angeles, and Caine would come to work with dad. The thing about running an auto parts shop is that you get all sorts of cardboard boxes from the parts you ship. While just about any normal person would have them earmarked straight for recycling, Caine saw an opportunity to make lemonade when life gives you lemons. He spent his summer taking the cardboard boxes from his dad’s shop and building an elaborate arcade made of cardboard. How much did he charge?

For $1 you got 4 turns.

For $2 you got a fun pass, which could get you 500 turns.

He had tokens, he had tickets, he had prizes (his hot wheels collection), he had games, but the one thing he didn’t have: customers. You see, the industrial zone in eastern LA isn’t exactly hopping with foot traffic. So, when he opened shop, no one came. It was just Caine and his arcade, day after day after day. He wouldn’t even wear his Caine’s Arcade t-shirt at school, because he was afraid other kids would tease him.

Until a stroke of fate happened…

This 37-year-old filmmaker, Nirvan Mullick, rolls up one day needing a new door handle for his old Civic and stumbled into Caine’s Arcade as Caine’s first customer. He took the fun pass deal, played the games, and what would happen next would become video game history.

Nirvan and Caine’s dad hatched a plan to create a ‘flash mob’ to show up at his arcade on a random October Sunday. What they thought was that they would take Caine to get pizza, and then when he got back there would be a few customers waiting for him with open arms at the arcade. What they got was beyond anything they could have imagined.

They created an event page on Facebook titled ‘Filmshoot & Surprise Flashmob at 9 year old’s Cardboard Arcade’. This was cool enough, but then someone found it and posted it into the ‘Hidden LA’ group, which had ~230k fans. Then it went viral. Reddit picked it up, mainstream news outlets picked it up, Caine’s Arcade became the place to be on a nondescript October Sunday afternoon in LA.

When they got back from taking Caine to get pizza, hundreds of people were there to greet him, along with NBC, the New York Times, and all the usual mainstream media suspects. Caine’s Arcade had officially gone mainstream.

The aftermath

After the flash mob, they made a short 11-minute film that they released on YouTube and Vimeo, which also went viral and has close to 10M views. Caine would go on to speak at the USC Marshall School of Business, as a nine-year-old. EA would give him an internship at their studio in LA. A college fund of ~US$250k was raised for Caine to get him to engineering college.

Most importantly, it showed that at its core, gaming is about creation and community. It’s about people rallying around something that they believe in. Whether it’s a massive creative project like Fortnite, or a cardboard creative project like Caine’s Arcade, it’s about bringing people together around a common goal. That is gaming.

What’s out there

Enthusiast Gaming (TSXV:EGLX) – Bringing in a CoD Franchise

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) – Canadian mobile gamer joins World’s Fastest Gamer competition as Gear.Club winner

Canada’s Riley Gerster becomes the sixth confirmed finalist for this year’s competition which will provide the winner with a real-world race seat competing around the world in 2020 in GT sportscar racing.

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.