Join gaming leaders, alongside GamesBeat and Facebook Gaming, for their 2nd Annual GamesBeat & Facebook Gaming Summit | GamesBeat: Into the Metaverse 2 this upcoming January 25-27, 2022. Learn more about the event.
“I must not fear.
Fear is the mind-killer.
Fear is the little-death that brings total obliteration.
I will face my fear.
I will permit it to pass over me and through me.
And when it has gone past I will turn the inner eye to see its path.
Where the fear has gone there will be nothing. Only I will remain.”
— Frank Herbert, the litany against fear in Dune.
We had another panic this week about the decline of triple-A video games, and it showed that we have a lot of fear of missing out as fans. But I think some of this fear is based on a misunderstanding about the industry’s unique status as both a business and an art form. Hardcore gamers like the art form, while business people want to get rich from it. They don’t always trust each other’s motivations.
Ubisoft chief financial officer Frederick Duguet set off the panic among hardcore gamers when he said in an earnings call this week that putting out three or four triple-A games is not “a proper indication of [Ubisoft’s] value-creation dynamics.” Instead, Ubisoft expects to make generate more revenue from free-to-play live-service games. And so it had announced The Division: Heartland, a free-to-play shooter. Many fans took Duguet’s comments to mean that Ubisoft is going to make fewer triple-A games. So Ubisoft’s PR department had to intercede with a clarification the next day.
The 2nd Annual GamesBeat and Facebook Gaming Summit and GamesBeat: Into the Metaverse 2
January 25 – 27, 2022
“Our intention is to deliver a diverse line-up of games that players will love – across all platforms. We are excited to be investing more in free-to-play experiences, however, we want to clarify that this does not mean reducing our triple-A offering,” a spokesperson said in a statement. “Our aim is to continue to deliver premium experiences to players such as Far Cry 6, Rainbow Six: Quarantine, Riders Republic, and Skull & Bones, to name a few, while also expanding our free-to-play portfolio and strengthening our brands to reach even more players.”
In other words, Ubisoft reassured fans that it’s not taking away your triple-A games. By extension, I will argue that all of the fads of the moment — nonfungible tokens (NFTs), blockchain, augmented reality, free-to-play mobile games, live services on FIFA Soccer, esports, user-generated content, remakes and retro games — are not taking away from your triple-A games. As Jeff Grubb pointed out, they’re additive. The game industry is expected to hit $175.8 billion in 2021, according to game and entertainment data firm Newzoo. As an industry, it is taking away time from sports, movies, music, TV, and other hobbies.
The industry has enough money to go around. Everything in games is getting funded. Investors are pouring money into public offerings, acquisitions, and game startups. Even indie game makers are benefiting from this, and they continue to be the creative heartbeat of the industry, supplying the innovative games like Hades that triple-A game companies aren’t making. The first quarter saw $39 billion invested into the game industry in 280 announced transactions, according to InvestGame. That quarterly amount was higher than $33 billion reported for all of 2020.
Will mobile games get more budgeted money? Yes. Mobile games are 51% of the market and are growing. The PC and console game segment could actually shrink in 2021, based on delays shipping big games during the pandemic. That’s going to happen, as it’s easier to invest in mobile games, and increasingly harder to invest in PC and console games, which are often delayed.
“That’s the dirty little secret of the video game business — it is a business, after all, and we need to do, we need to create an audience, we need to create a revenue stream, the cash flow, in order to continue to create new and exciting games for people to play,” said Shawn Layden, the former chairman of Sony Worldwide Game Studios, said at our recent GamesBeat Summit 2021 event.
You may not trust my answer here, but this is a good thing. The strategy that I see everybody pursuing right now makes perfect sense, and it will be good for all of games.
Why this is good news
First, mobile and free-to-play triple-A games are expanding the market. They are the tip of the spear when it comes to penetrating new markets and convincing people that games are a good use of their time. We’re at 3 billion gamers and growing, but not everybody on the planet is a gamer yet. By making the price of games more accessible, we enable games to reach more people. Those people will pick up the habit. They will find the new point of entry, and they will become gamers, hopefully for life. They will also keep playing these accessible and less time-consuming games even in periods of life when they’re busier, like when they have kids or have to study a lot or have to pour a lot of energy into work.
The key is that they are the point of entry into the vastness of games. Consider Call of Duty. Bobby Kotick, the CEO of Activision Blizzard, had some foresight in getting three major game studios to make Call of Duty games in parallel, so that a new one could be launched every year without a sacrifice in the quality of the triple-A game. That wasn’t an easy process, and many accused Kotick of wrecking the franchise by making it too frequent. But the developers didn’t run into creative exhaustion. They converted players into wanting to play Call of Duty every year.
Now, nine studios or so are working on Call of Duty. That allowed Activision Blizzard to add the free-to-play games Call of Duty: Mobile and Call of Duty: Warzone. These became the new points of entry for Call of Duty. Call of Duty also went cross-platform so you could play with friends wherever they were. You could start at the top of the funnel, playing for free. Within Warzone, all you had to do to upgrade to the $60 premium game was click a few buttons. Analyst Michael Pachter of Wedbush Securities estimates that Call of Duty premium game sales went up from around 25 million a year to 35 million a year. The result was record performance for Activision Blizzard in 2020. Now, people play Call of Duty every day. And if you follow what Kotick said at our GamesBeat Summit 2021 event, increasing the amount of time spent playing each day by creating some kind of Call of Duty metaverse is probably the next goal.
Kotick said that the 10,000-person company now needs at least 2,000 more people to meet its production obligations. It’s making triple-A games like Diablo 4, but it is also making the free-to-play Diablo Immortal game for mobile. Do you see the pattern? Kotick is using the same strategy he used with Call of Duty on Diablo. Mobile and free-to-play games are the onramps to the franchise and you can expect to see Activision Blizzard execute on the same strategy for every major franchise.
The financial success of Call of Duty and Activision Blizzard isn’t lost on Electronic Arts, which is making a mobile game based on Battlefield. That will be the onramp for Battlefield VI, the triple-A game that is in production. EA has a mobile Apex Legends game that will be the onramp for the free-to-play Apex Legends, and maybe Respawn will fill out the roster with a triple-A Apex Legends (or maybe Titanfall) premium game.
With Ubisoft, the free-to-play The Division: The Heartland can be an onramp to The Division or The Division 2 games. And so on. These efforts are not going to cannibalize each other, in my opinion. They are going to make it more likely that players will become hobbyists. The hobby will not just be games. It will be more specific than that. The hobby will become Call of Duty, or Diablo, or Apex Legends, or The Division. These franchises will command all of our time, and people will constantly cycle through them from the top of the funnel to the bottom.
On our GamesBeat Summit panel, Layden was more focused on Sony’s own specific challenges. But he was right in that platform owners — and by extension the whole game industry — have the responsibility of expanding the market. The lower the price point, the lower risk is for the industry. Hollywood, by contrast, has been slow to lower the ticket prices of movies. In fact, it raised them just in time for the pandemic. It’s no surprise that streaming movie services took off during the pandemic because they were cheaper. The price spectrum of games captures all the right players.
Hardcore gamers should also be aware that what they want to play isn’t what everyone wants to play. As the game industry expands out of its smaller house of 200 million or 300 million gamers, it will have to serve more diverse content than it ever has, to capture people like older players, international players in emerging markets and different cultures, and women. As it expands to mobile and free-to-play games, the industry should remember that it shouldn’t make just the same old franchises for the new players.
And as everybody becomes a gamer, the game market becomes bigger, the opportunity for each game is higher, and we will get better games of all kinds as a result — including better triple-A games. Those mobile and free-to-play games will bankroll better triple-A games.
The goose and the eggs
Layden, who oversaw 13 first-party game studios for the PlayStation business, said that churning out sequels and providing fan service on important franchises is a necessary part of the business. But eventually, everyone comes around to realize the importance of doing original games.
“If we continue to make the same type of game over and over again, we will continue to appeal to the same audience we already have over and over again,” Layden said. “We won’t be able to break out gaming into into a wider and larger business. We talk a lot about how video game business is the largest entertainment business in the world. But we really don’t punch above our weight when it comes to society and culture. And I think that’s because we don’t bring a diverse enough audience into enjoying gaming. And that’s why original intellectual property is important.”
Layden knows that going to a board of directors and pitching them an original game that will cost $280 million to make over five years isn’t easy. That is a difficult pitch for anybody to make, no matter who you are. But those kinds of bets have to be made.
“It’s definitely problematic that the budgets have skyrocketed,” said Nick Tuosto of Liontree and Griffin Gaming Partners at GamesBeat Summit 2021. “On the other end of the spectrum, that translates to defensibility in a market with 10 million developers working to try to build hits every month. There are precious few that can assemble the budgets, have the IP, have the distribution network, and have the global brands to be able to compete in a market where people’s time is exceedingly scarce.”
A game like Grand Theft Auto V can sell 140 million units — a number that wasn’t possible more than a decade ago. So the upside is tremendous, and these franchises once established can give birth to live services, media spinoffs in adjacent entertainment markets, and high-margin mobile opportunities. The upside to that initial hundred million investment may be tens of billions in market capitalization for the companies that execute against the opportunity fully, Tuosto said.
“If you perform at the highest level, and you have structural competitive advantages, it might actually be a virtue for the platform players at the top of the ecosystem to spend that much and deliver something that is polished and really, truly, triple-A,” he said. “You get a disproportionate share of a much, much bigger pie.”
Also on Layden’s panel was Ante Odic, the senior vice president of product at Outfit7, the maker of the Talking Tom series and other games that have been downloaded 15 billion times. Even Outfit7 is investing to find the next Talking Tom as it knows that new IP is so critical. And just because it is investing in Talking Tom doesn’t mean that it isn’t investing in new IP. It’s not a zero-sum game.
“We have a wide audience,” Odic said. “But we want to go even wider.”
Marty O’Donnell, the cofounder of Highwire Games and a former leader at Bungie, noted how the creative team wanted to move on from the successful Halo franchise to something new, so much so that they eventually spun Bungie out of Microsoft to be able to reach that aim.
“We wanted to do something new,” O’Donnell said. He reminded us of the fairy tale about the goose that laid the golden eggs. The important thing wasn’t the golden eggs. It was the goose. You don’t want to kill the goose laying the golden eggs, O’Donnell said.
“My slogan is be nice to the goose. And the goose is the team that lays the golden egg,” he said. “And being nice to the golden egg means you’re just going to make sequels that that are dead. But if you’re nice to the team that makes the lays the golden egg, that’s the only way to get really good new golden eggs. Certainly you don’t want to stab the goose and try to cut it open. But all I would ask for for publishers and developers is be nice to the goose because that’s how you’re going to get more eggs.”
A beautiful industry structure
And remember, if one company retreats from triple-A games, another may attack that opportunity. If Sony were to bail out of triple-A original games and shirk its responsibility, only to focus on sequels and free-to-play low-hanging fruit, it would lose its triple-A creators. They would go to another company like Nintendo or Microsoft or Epic Games or Valve or Ubisoft or Electronic Arts …. You get the point.
They could also seek creative freedom in indie games or start a new triple-A studio. That sort of thing is happening, as Harold Ryan has multiple triple-A games going at Probably Monsters. If Riot Games gets a little sleepy at innovation, the former Riot veterans at Theorycraft Games, which raised $37.5 million, or the scrappy ex-Riot team at Hidden Leaf Games will be happy to pick up the mantle and hire the Riot leaders who prefer to work on groundbreaking titles.
As I mentioned, a record amount of money is available to the game industry’s creators at all levels, from the newly minted public company Roblox that is worth $39.6 billion to Animoca Brands that has raised $88 billion at a $1 billion valuation to make NFT games to DreamHaven Games, founded by former Blizzard president Mike Morhaime and Amy Morhaime. The game industry has enough money pouring in at once to fund everything that it needs and to make every game that we want. It has never been like this before.
For gamers, don’t worry, be happy. And for game developers, heed what Layden said. “Find the best risks and take them. If you stay the course and keep true to the vision, you will be more delighted with the outcome.”
GamesBeatGamesBeat's creed when covering the game industry is "where passion meets business." What does this mean? We want to tell you how the news matters to you -- not just as a decision-maker at a game studio, but also as a fan of games. Whether you read our articles, listen to our podcasts, or watch our videos, GamesBeat will help you learn about the industry and enjoy engaging with it. How will you do that? Membership includes access to:
- Newsletters, such as DeanBeat
- The wonderful, educational, and fun speakers at our events
- Networking opportunities
- Special members-only interviews, chats, and "open office" events with GamesBeat staff
- Chatting with community members, GamesBeat staff, and other guests in our Discord
- And maybe even a fun prize or two
- Introductions to like-minded parties