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.
First, and foremost… Happy Thanksgiving to all you fellow Canadians!
Now then, some news from a few of our friends in the world of gaming:
- Enthusiast (TSXV:EGLX) – Last week we talked about how Gaming Street publisher Enthusiast’s team has put together a truly impressive media organization that was verified as the largest gaming network in the US (~64M monthly uniques, and bigger than Twitch). This week they announced their sales team, anchored by none other than the one of a kind beautician that is Jon Dwyer. For some organizations, this isn’t that big of a deal. For an organization where direct sales across their network of sites is a key to their blue sky growth, this is a big deal. They’ve got the key man on the ground to do it, and it will be really fun and exciting to watch them grow their brand presence across the network.
- On the radar: Influencers Interactive Inc. (“I3”) – Bodog is a big dog when it comes to the gambling, and anecdotally generates +US$1B to their 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 and 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.
- Millennial Esports (TSXV:GAME) – Acquired 51% of LetsGoRacing this week for ~C$500k in cash and ~C$200k in common shares. It’s a similar deal that they used to acquire racing sim manufacturer Allinsports. Darren and the team are establishing themselves as leaders in the racing vertical of the gaming and esports space with their Streamhatchet data play. Let’s not forget that competitor Streamlabs was acquired for US$118M (with earnout) in late September.
A quick bit of other news before we geek out
Gaming on the cover of SI
- My good buddy Dallas Clancy was in Boston for the New England game last week. He picked up a copy of SI, and along with a few headlines about Luck and Clemson, you had ‘The Millennial Man’ on the cover playing video games.
Let’s talk about the news of the week: Our own special version of 1984
- All eyes are on Hong Kong right now, and the battleground is gaming. Here’s a snapshot of some news bits:
- Blizzard banned pro gamer and rescinded money after HK protest support.
- Google has pulled a mobile game that lets people role play as an HK protestor.
- Blizzard employees staged a walkout on Tuesday to support the Hearthstone player.
- Sydney startup faces a cyber attack after supporting the HK pro gamer.
- China accused Apple of aiding HK protests through apps on the App Store.
- Blizzard is facing a boycott after banning the pro gamer.
- What happened and why? After finishing his final match of the second season of the Asia-Pacific Hearthstone Grandmasters, Hong Kong player Ng “blitzchung” Wai Chung appeared on the official Taiwanese Hearthstone stream for his post-game interview wearing a gas mask. He would go on to lift the mouthpiece and shout, in Chinese: “Liberate Hong Kong, revolution of our age!” – which has been the rallying cry for ongoing protests in Hong Kong against mainland China. On Tuesday, Blizzard would expel Blitzchung from the Grandmasters league entirely, including retroactively revoking the prize money he had earned throughout the season, and additionally banning him from competing in events for the year.
- Blizzard would later partially walk back these punishments following massive criticism from the gaming community.
- Let’s talk fallout. This comes at a time where the NBA is dealing with its own separate issue after Daryl Morey, the Houston Rockets’ GM, tweeted – and quickly deleted – a message in support of HK protestors. When taken together, the Daryl Morey tweet and the on-stream protest by Blitzchung are microcosms of the larger issue. This, like most things, boils down to control. There is only one true behemoth in the gaming business. That behemoth is Tencent, which has a unique relationship with their government. Tencent effectively controls game distribution in China. For major players, like Activision-Blizzard, or for traditional content players, like Disney, that is a big deal. This is likely why Blizzard was so quick to move against Blitzchung. It all boils down to power. When taken in context with the bigger issue involving trade and investment between the US and China, we are likely only seeing the beginning of more and more publicized political tension.
It was a big week for mobile games
- Nintendo’s Mario Kart Tour saw 90M downloads in its first week, while Call of Duty Mobile saw 100M downloads in its first week.
- Let’s put this in perspective. PUBG, Apex Legends, and Fortnite had 26.3M, 25M, and 22.5M downloads respectively in their first week of launch. Both Mario Kart Tour and Call of Duty Mobile had singularly more downloads than PUBG, Apex, and Fortnite combined in their first week of launch. The US has been the largest market with 17% of downloads (17M).
- What does it mean? The power of IP and mobile. Mario Kart and Call of Duty are two of the most powerful franchises in gaming. The simple fact that, together, both games saw 190M downloads in their first week is staggering. We also have a belief that this is a foreshadowing of things to come for the upcoming Call of Duty esports league. Call of Duty is a made-for-North-America franchise, and it has a huge following here. The fact that the US led downloads in a 100M download week speaks to the likely following this league could have. Overwatch was just the tip of the iceberg likely when compared to CoD.
- Here’s more details on branding for the Call of Duty League and the trailer for those interested.
Just some cool content that may or may not have anything to do with gaming
- Have you ever wondered what pro gamers in Overwatch made? In 2019 the average player earned US$114k comprising US$97k base, US$16k from prize pool winnings, and US$1k from signing bonuses. The median player salary was US$80k. Link
- Here’s how you super lock your iPhone to prevent prying eyes (anyone!!!) from gaining access. It’s called Pair Locking. Link
- Here’s a cool article talking about why games are so big now. From the bytes perspective. Link
Weekly Feature: Nothing Else Matters
Open mind for a different view
No, nothing else matters
– Nothing Else Matters, Metallica
It’s Thanksgiving weekend in Canada, everyone, and in the spirit of a long weekend, we thought we’d flash a few charts that we think are meaningful for some deep weekend thinking. The topic of conversation below is gaming and is underpinned by quantitative data. Before we dive into that, an important piece that is worth mentioning is esports. A lot gets said about esports as a content vertical (this year US$1B – $2B in size depending on who you talk to). In comparison to gaming, that market is minuscule. That’s missing the point, though.
Esports is doing something vastly more important for gaming. For the first time, potential investors can go to an event and see tens of thousands of screaming fans at a professional gaming match. Esports has made gaming tangible. We are just beginning to see this trickle through the investor universe of gaming, and I personally have seen this have an effect on investors of all types.
With that said, let’s dive into the numbers…
Gaming is simply the largest content form
In terms of annual revenues, gaming this year will outpace the music and movie business combined. It’s interesting, given that the media seems so dead focused on the ‘streaming wars’ between music and movies when neither content silo comes close to the size and scale of the game content vertical. The way I see it, the movie/music streaming wars are a nice preamble for the real war that is just starting for distribution of the most valuable content vertical in the world.
Chart: Game total market in 2019 in billions of US dollars
Gaming outpaces every content form in terms of growth outside of display ads
This year, the entire gaming market will expand by 9%. It is the fastest-growing area in content, and at this rate will outpace both Pay TV and TV advertising in 2 years. This isn’t pie in the sky hope. This is simply more people around the globe having internet and having smartphones to play games. It’s esports stars making gaming look cool. By the way, in Canada, there are <10 publicly-traded gaming companies.
Chart: Game market growth in percent
Gaming is the second cheapest form of entertainment
Why does this matter? It matters for two reasons. First, it makes gaming accessible for everyone globally to enjoy. Virtually the entire planet can afford to play games. Secondly, and perhaps most pertinently, is the gravitation to gaming in a recession environment. There isn’t a day that goes by that there isn’t talk about a coming recession. Whether or not it happens is not my call. What we can discern, though, is that elastic spend on the most expensive content forms in a recession environment contracts, while time spent on inexpensive content forms remains consistent or increases.
Chart: Cost per hour in US dollars for each content form
Gaming increased total market size in the Great Recession
In ’08 and ’09 the game market actually increased in size while the rest of the world went into a negative tailspin of GDP growth. Yes, the growth rate in gaming dropped precipitously from +20% the years prior, but it still was growing at ~5% in the worst economic conditions arguably since 1929. This year we will grow the entire gaming business by 9%, from US$122B last year. That’s a US$17B increase in global revenues to the space and is an impressive growth rate for this large an industry.
Chart: Game total market in US$B since 2000, with annual growth rate and worldwide GDP growth
Gaming has a makeover, and that makeover is free-to-play
In 2008 and 2009, the free-to-play revolution was just beginning, and it was being led by Asia and the smartphone revolution. Asia, particularly Korea, was the first to truly begin to understand and hone the free-to-play business model with Maple Story. Today, China, Korea, and Japan show exactly where the rest of the world is going for gaming. Free-to-play will only continue to increase. Subscription services like Apple Arcade are +decade strategies in an attempt to wrap control around the gaming industry. They’re looking at the same charts we do and understand there are ways for game developers to bypass the App Store 30% ‘tax’.
Chart: Implied spend by country on free-to-play games (US$ per person)
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 at 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.