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We had a raucous but intelligent debate about video game hot topics at the recent GameDaily Connect event in Anaheim, California. Under the lights of the Disneyland Hotel, we held a panel discussion that touched on some of the most controversial topics with some loose cannon speakers.
I moderated a debate session that covered contemporary issues in the game business. Our panelists included Jim Ying, managing director, CVCapital; Michael Pachter, managing director for equity research at Wedbush Securities; Mike DeLaet, CEO of Rogue Games; Mike Futter, freelance journalist and GameDaily Connect contributor; and Stuart Drexler, CEO of Jago Studios.
I started us off with a discussion of loot boxes, but we solicited audience feedback on the topics to discuss, which also included game addiction, parent-child discussions about excessive gaming and esports careers, the hype around the esports business, and the battle between Steam, the Epic Games Store, and other store operators. We could have discussed more, but we capped it at an hour.
I hope you enjoy it. Here’s an edited transcript of our panel.
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GamesBeat: Our first topic is going to be loot boxes. Mike, would you please lay out the facts?
Mike Futter: [beginning truncated]. There were just some workshops that the FTC held, and one of the conversations around this is whether or not the video game industry walked itself into potential government regulation by failing to self-regulate in a way the public deems fit.
GamesBeat: Does anybody want to debate his laying-out of the facts?
Michael Pachter: I’m a recovering lawyer, and when I say “lawyer,” I passed the bar 38 years ago and practiced for about 20. I actually was a lawyer. The term “gambling” in the law requires a wager. Buying loot boxes is very definitely spending money. There’s consideration. Then a “chance.” There’s clearly a chance outcome to win something of value. That’s the trick. When you win something in a loot box, does it have value?
So far, only one court has said yes. They said that if you win a chance to play the game longer — in a slot game you win more coins in loot boxes — then that has value. It’s the only legal opinion ever which has said — it’s the court of appeals for the 9th Circuit in Utah. The judge was a 78-year-old Mormon, meaning he’d never gambled in his life. I don’t mean to say anything bad about Mormons. I just mean he’s not a gambler. It was based on Washington state law that was wishy-washy about value.
Any state with legal gambling — any place with Indian casinos has that — value means getting back something that can be converted to cash. If the game itself doesn’t allow you to sell the item you win in a loot box for cash, then there’s a very solid legal argument that you didn’t gamble. Gambling mechanics, 100 percent. Addictive, 100 percent. You don’t want kids to do it, of course. But if you call it gambling, it’s just illegal if the state law says it’s illegal.
These morons in the Hawaii legislature who decided to sponsor a bill calling it gambling — they thought they were going to legalize it and limit it to people over 21. Except gambling isn’t legal in Hawaii under their constitution. People over 21 aren’t allowed to gamble either. The reason I call these guys morons, they’re unfamiliar with Hawaii law, and they’re responsible for writing the law. It’s a really odd topic.
Futter: Two questions I want to pose back to you before I hand the mike over to someone else. One is the Steam marketplace, where there are games that have loot boxes and you have platform-like system where you can sell those items for money.
Pachter: Like I said, the state of Washington has real funky rules. Steam is really stupid to allow that to happen. They’re really vulnerable. It probably is gambling.
Futter: When I mention skirting that line very closely, that’s what I was talking about. The other thing is, we’re looking at U.S. law. Obviously international law is affecting EA in Belgium in particular.
Pachter: The Belgian law is very clear that that was gambling. You have to look at where — what was EA’s solution? They pulled FIFA out of Belgium and they had a spike in Dutch servers and French servers. They couldn’t figure out why. It was all the Belgian players just logging in to French or Dutch servers. They lost no money. Belgium collected no money.
I personally think it’s a stupid issue to approach that way. It’s different to the ethics. Ethically it’s a terrible thing. Ethically, somebody is going to lose their house because they’re addicted to buying these loot boxes. But it’s not gambling. It’s gambling mechanics. You can outlaw it. You can just say you can’t do this. But it takes a federal law. How do you outlaw FIFA loot boxes in California and not in Nevada? Same thing. Californians will go to a Nevada server and still buy loot boxes.
Jim Ying: I do think it is gambling. I think it’s unfortunate, because people conflate free-to-play and free-to-play mechanics with gacha boxes and loot boxes. Free-to-play mechanics, it is a digital good when you know what you’re buying, just like when you buy a physical good. If you want to apply dollars to a digital good, fine. Myself, I’ve spent hundreds of dollars on video games.
But it’s another thing when you’re spending money on a chance against something and you have no idea what it’s going to be, just as when you go to a casino and roll the dice. At least then you theoretically know the odds, or you can look at find out the odds. For many of these games you don’t even know the odds. There is increasingly legislation or guidance where they’re starting to reveal these odds, which is a step in the right direction. But the fact that — I don’t want to say unregulated. But it’s still kind of the wild west for these types of loot boxes. It’s concerning.
Futter: Is it gambling when you buy a baseball card trading pack? You don’t know what’s inside. There might be cards that are valued at 10 cents and there might be cards valued at $100.
GamesBeat: Do we solve this problem by simply forcing companies to tell you the odds?
Pachter: Is it gambling when you enter a contest on the back of a cereal box? It’s the same thing. The law is very clear. They carved out baseball cards. I don’t know why. But they knew that those existed, so they said they were okay.
Stuart Drexler: There are many types of blind packs. We’re doing a Garbage Pail Kids game. It’s a blind pack card trading game from the get-go.
Mike DeLaet: One thing I can say is, Apple has done a pretty good job of making developers expose the odds in their games. You know in advance what you’re getting into. You know you have a two percent chance of getting a four-star card versus a three-star card. People do know, in general, what they’re getting into. Now, from a business standpoint, I love gacha boxes, loot boxes. From a consumer standpoint I hate them. There’s always a fine line in what we do from a business standpoint versus the consumer standpoint.
Futter: I guess my question around — this came up in the FTC workshops as well. You suddenly have publishers saying, “Yes, we’re going to disclose our odds.” And they should. But my question is, is there any evidence that disclosure of the odds impacts the way someone spends money? Or is it just performative, like putting a warning on the side of a cigarette pack? Yeah, I know the warning’s there. There’s four different kinds of warnings. I don’t smoke, but is someone going to stop smoking because one day they pick up the pack and realize, oh my gosh, this is terrible?
Pachter: I’m not an expert on the evidence. I can say that every state lottery discloses the odds. I don’t think anybody ever thinks about that when they play the lottery. It’s a dollar, and I might win $500 billion. People just say, “I know I only have a one in a trillion chance, but $500 billion.” Everybody knows, when they play the lottery, they don’t have a chance of winning. But we all still do it.
Ying: This starts to get into a gray area. To what degree does your decision-making — are you responsible for your own actions? Everyone would probably agree that gacha boxes shouldn’t be possible in kids’ games, but for an adult who can make their own decisions, should they be able to play this type of game, knowing what the odds are?
DeLaet: At my last company, we did expose the odds. We were worried it would impact revenue in a negative way, but it didn’t impact anything at all. People knew what the odds were and they still bought just as many as they did before.
Drexler: And you probably had fewer customer complaints.
GamesBeat: To you guys, are loot boxes sufficiently regulated at this point already?
Drexler: What do you mean by regulated? Do you mean externally or internally?
GamesBeat: There are voluntary things that the platform owners like Apple have done, forcing companies to disclose. They did that to probably head off legislation. But it’s just as effective.
Futter: I guess what I would say in response to this is, if you look at actions the industry has taken in the past to circumvent or preempt government intervention, the ESRB is one, putting ratings on boxes when there was a moral panic around video game violence. That says, “We’re working to educate people.” The ESRB has run education campaigns and continues to run education campaigns.
I’d say the fact that we’ve gotten to this point indicates that maybe the industry isn’t doing enough to self-regulate. Maybe it’s time to look at whether or not the ethical nature — again, this is different from the legal nature. If the ethical nature of loot boxes is causing so many problems and exposing the industry to the risk of government oversight — once it starts, the risk exposure is huge. Perhaps it’s time to find something else. We’re starting to see the phasing out of loot boxes in some games. Fortnite didn’t launch with them. But Save the World did, and they’re phasing them out of Save the World.
Ying: When I was at Gree a few years back, there was government regulation in Japan where they got rid of “complete gacha,” which was a more sinister way, if you want to put it — not only were you rolling for a single item, but you had to gather up multiple items that you had to roll for in order to get a final item. That was banned and shut down. But they didn’t take the next step to regulate gacha in general.
Pachter: The good news is that Congress can’t even agree on a budget. The odds of U.S. politicians actually doing anything is almost nil. But I don’t think that game companies want to participate in hearings and have scrutiny of their practices.
Of the majors, the only one that makes any real money in loot boxes in EA. FIFA Ultimate Team is loot boxes. We can talk about Hearthstone card packs, but that’s a fraction of what Ultimate Team is. They’re probably second.
GamesBeat: There’s pushback from consumers against EA. We saw that with Battlefront II.
Pachter: Ultimate Team is cards, too. I think anybody who plays a game with cards understands card packs. That’s back to baseball cards. We grow up with that. We understand it. I actually think most consumers understand what they’re getting. But they still whine if they spend 50 bucks and don’t get the card they want.
Futter: From the press perspective, when we look at this, the sense that you get on social media isn’t necessarily the feeling from the entire player base. You have this vocal minority. “EA is evil. Ultimate Team is evil.” But you look at the revenue associated with it. It’s not just that it does well. People love playing those modes. They specifically pick up FIFA, Madden, and NHL for those modes. We need to be careful about, from a social media perspective — what we’re hearing from a group doesn’t necessarily represent the feeling more broadly.
GamesBeat: Maybe they’re all addicted, which gets us into another topic for debate. [laughter] Anyway, we’ve done 15 minutes on loot boxes so far. I wonder if the audience now would like us to switch to something else. Is there another hot topic for debate that follows the example that we just set with the loot box discussion?
Audience: Given what Blizzard is doing with Hearthstone and Overwatch — when you open X amount of packs, you’re guaranteed to get the highest rarity. Do you think that’s a route to tackle the ethical issue?
Pachter: I play a ton of those games. I’ve literally spent thousands of dollars. I’m seeing now, more and more, “If you buy this bundle of loot boxes you’re guaranteed these items.” So yes, if that’s why you’re doing it, then you buy that bundle. If you know that you want a certain character and it’s 100 bucks, that’s your decision. All the games give you a path to grind it out.
I spoke to the Finland Trade Council for games in the U.S. My impression is that the Finnish mobile games all do this masterfully, and the rest of the world just can’t get their shit together. I said, “Why is this?” She said, “We’re a social democracy and we believe in fairness. Rich people pay and poor people can grind it out.” It’s true. If you play Supercell, you see it. You get why their games work. I think what you’re talking about is exactly the right outcome.
Futter: The word “fairness” stands out to me in what you just said. Before I did what I do now, I worked in kids’ media for a very long time. Kids want life to be fair. That’s really important. That inner child in all of us lasts through. If you keep opening packs and boxes and you’re not getting what you want, you’re going to be a bit annoyed. If you have a sense of the fairness of it all — I don’t know who’s gonna regulate that. That’s a different story. A bit above my pay grade. But I think of a system where — people are willing to accept that they pay that $500 or $5,000 as long as they get what they want.
DeLaet: One thing I’d add is these studios definitely have an idea of what a certain rarity of character is worth. At my last studio, we’d say, “This character is worth $10,000.” When you get to a point where someone has paid $9,000 and still not gotten what they want, then you can increase the odds dramatically and say, “Now they get it.” There are ways to make that happen, and that’s something worth thinking about.
GamesBeat: We touched on addiction earlier. Everyone knows that the WHO recently decided to classify gaming disorder as a real medical condition. That sets loose a new debate on whether video games are too addictive or not.
DeLaet: I have a 15-year-old boy, and I can say the Fortnite epidemic that’s been going around has been annoying to me as a guy who works in the game industry. A kid who plays that nonstop when he’s out of school — I’m trying to tell him that you have to do real things in life.
GamesBeat: But he could win $3 million as the Fortnite world champion!
Futter: There was a lot of outcry against this. There are some positive aspects of something being classified by the WHO, and one is that it can be diagnosed. If you have addictive behavior, and that addictive behavior — a child is too young to gamble, let’s say. They’re not going to be diagnosed with gambling addiction or substance addiction, but you can identify early in their life that they’re prone to addiction. This is the way a tendency to addiction is emerging. Then you have medical professionals who can lean on that and say, “We can talk about that and start treatment for that.” Insurance will cover it.
In the United States, then, there’s some benefit in that. There’s also a misunderstanding that — I play 20 hours of video games a week, so that means I’m addicted. Really, I can play 20, 30, 40 hours a week as long as I get everything else done in my life. I take care of my relationships. I take care of my pets. They eat twice a day. I don’t play 40 hours. I wish I could play 40 hours of games a week. That era of my life has passed. But you can have someone who plays for two, three, five hours a week, and then they obsess about it.
My son is diagnosed on the ADHD spectrum. He perseverates about the things that he’s really interested in. Thankfully, it hasn’t progressed to a point where it negatively impacts his schoolwork. He’s performing well academically. But it’s something we’re aware of. It can get to a point where–the child is regulated, because the parents are saying they’re only allowed to play five hours a week, but all they’re doing is focusing on games. They go and read on the internet about games and watch videos about games. Even though they’re only playing five hours a week, those tendencies might be emerging in other ways. It’s not strictly about how long somebody plays. There’s a set of behaviors around it.
I spoke at a community college class for psychiatrists. They didn’t know anything about video games, and they asked me to come explain games to them, because they know it comes up in their work. The way it comes up is through addiction conversations, but also as a source of conflict between kids and parents. Parents are always trying to crack down in some way. They’re not understanding why the kid won’t cooperate, or why they’re having different kinds of family troubles because of this. The psychiatrists were saying, “This is a real thing that we’re going to have to deal with in our practice. That’s why we want to know about it.”
Ying: It’s interesting, because there are many factors that bring this up right now. One is that in video games, digital entertainment, we’ve gotten to a point where they are very substantive competitors to real-life activities. We were chatting before about how when we were growing up, we were playing outdoors, and that was the most fun we had with our friends. Now, for many kids, the most fun they have is playing Fortnite with their friends. That platform just wasn’t available to us.
Another part is, for the game developer, at this point, as metrics-driven as a lot of these games are, people are so focused on day one, day seven, day 30 retention that they optimize for those metrics. Those are the types of things that do lend themselves to addiction. You’re designing the game to get people to come back at regular intervals. All that wasn’t possible when there weren’t these metrics to tune games.
Futter: Along these lines, when you’re talking about a medical profession that’s well-versed in this — you can say, “Here’s how many drinks that we look for.” If you’re drinking X, we start to get concerned about that. But we look at these other behaviors, again. You can have a drink a night and it’s no big deal.
Pachter: Games, when I was younger, were single-player only. You could beat a game in 30 hours if you sucked. But you didn’t have to play it 30 hours in a row. You played five hours a week for six weeks and finish the game. Games have migrated now to being almost always multiplayer and social. They never end. It’s a different type of experience, which also is addictive and brings kids back into it.
I get asked this a lot by investors, because they’re trying to figure out if game companies are bad or good for society. We have 168 hours in a week. We spend about 40 hours working and about 40 hours sleeping and about 20 hours just getting to and from work, school, eating, showering, doing whatever. That leaves 68 hours where we just fuck around. When I was little, it was playing outside or doing sports or watching TV or reading.
Our kids are filling that 68 hours with screen time, which might be video games. It might be Snapchat. Mike made the point — if they’re getting everything else done, getting their schoolwork done, working or doing whatever they’re supposed to be doing in that 40 hours, who cares what they do with their time? Unless it’s stopping them developing as humans and keeping them from socializing properly. I think Snapchat’s a bigger threat to society than games.
Futter: I agree that it’s not just about games. It’s about Snapchat. It’s about social media. It’s not just about kids. It’s about all of us. We all have a smartphone in our pocket. We use it X number of hours a day for work, but then we socialize with it. We game with it. We watch videos with it. We do all these things with it, and you’re right. It’s social-cultural aspect of how our society is changing. Kids aren’t going outside, and all this other stuff we might want to get into.
But from an “addiction” standpoint, I think it’s just a choice of how you want to spend your time. There will be a percentage of people who are truly addicts, or who have addictive tendencies, and the rest of us are just really excited about a particular game.
GamesBeat: There are two things happening here, and it’s very similar to video game violence. The game industry has a faith that it puts out to everyone else in the mainstream. It doesn’t want to accept legal liability here. The actual strategy, for violence and for addiction, is to say that video games don’t cause this stuff. Other things cause it. There’s no research that links video games to violence and no research that links video games to addiction. They have this wall.
But within the industry, we can have this conversation. How do you design a game to be more or less addictive? That’s a very practical thing. I think parents and kids also–parents are having these conversations about addiction with their kids every day. It’s unencumbered by this fear of legal liability. People are intuitively coming upon this subject as a very important one. I don’t know if we want to talk about these two different levels, but is there a way to design games to be more socially acceptable and less addictive?
Ying: I do think there is, in my experience. I played a lot of the heavily social Machine Zone-type games where there’s a lot of social pressure to be on all the time and at key times of day. I played Rage of Bahamut, one of the first card battle games. They had wars every six hours, and I would always have an alarm at 2 a.m. to wake up and play this game. That, I would say, was addictive behavior.
Over time, you learn that this is not healthy. I deleted the game. Nowadays I’m playing Clash Royale, where I think they have good mechanics for limiting how much you play. Once you have all the boxes for the daily activities, there’s really not much point in playing more. I do play four or five times a day, but it’s not like you can just play the game forever.
DeLaet: Having worked for Kabam, we definitely tried to limit it, but there’s a lot of social pressure, to your point. These alliances pressure you to play nonstop. They kick you out if you’re not playing 15 times a day. It gets to a point where you have to self-regulate, like you did, and either delete the game or take a while off, or maybe get to lower-pressure alliances that are more your speed.
As game developers, there are ways to do that. You turn off some of these features like login counters or social push notifications that will help tone things down. It’s not always telling you to jump in and play all the time. That gets really annoying. Either you play and spend tons of money, or you don’t.
Ying: I do think that in the long run, the companies that are going to benefit the most are the ones who are able to design game mechanics where it does inhibit highly addictive behavior. If it’s highly addictive, it’s not going to be long-term gameplay. At some point either they walk away, or something’s going to drive them to delete the game.
Drexler: Just a crazy thought, per your question: could we do both? Could we create a game that’s both addictive and actually good for the planet somehow? Somebody was telling me at lunch today about a browser you could download to plant trees in the Amazon rainforest.
Audience: I’m curious about the potential for esports. Is it overhyped, underhyped, or something else?
Pachter: Esports is going to be a giant phenomenon on the planet, but the value chain — who is going to make money off it? That’s way overhyped. Everybody wants to be the ESPN of esports. Activision has self-proclaimed that they are. What do they own? They own Overwatch and Call of Duty. Are those going to be around in 50 years? Will we be watching people play those in 50 years? Maybe.
But will we watch people actually play soccer in 50 years, the real game? 100 percent. Football? Unless it keeps causing brain damage, 100 percent. I don’t think there’s a game yet that has universal appeal, that’s easy to understand, that everyone wants to watch. I think there’s an amalgamation of games. A few million people want to watch each game, and when you add that all up it’s hundreds of millions of people.
Esports is largely like a bunch of sports like golf, the WNBA, tennis. They’re all interesting sports, but you probably don’t watch them all. You don’t watch golf if you’re not a golfer. You might watch tennis because it’s easy to understand. The WNBA, I’ve never watched a game. I’m not saying it’s a bad thing, I just don’t care. I barely follow men’s basketball.
ESPN is good because they have the World’s Strongest Man and college football and baseball. They don’t care if only one percent of the audience watches each sport. It’s always on. I don’t see how Activision, with two games, is ever going to dominate. Zero probability.
GamesBeat: We have Twitch Rivals now, where they switch the game out that’s being played. That’s interesting.
Pachter: Twitch is going to win. Sure. Twitch is the ESPN. They have the audience. The most fascinating thing to me about esports is that there are these celebrity casters, these guys who are truly great. They came out of nowhere. What were they doing before they were Twitch casters? Some of these guys are like TV announcers and they’re really polished, but some are just fun to watch. Ninja’s good because he’s fun. I love that there’s this whole fun new thing. Before you’re gonna be Bugha and win $3 million playing Fortnite, you have a better chance at being Ninja and making, God, $50 million.
Again, it’s a big phenomenon. But think of it as all sports, as opposed to individual games. There isn’t going to be a game for a very long time that’s as big as NFL football or international soccer for real people to watch. I can’t think of that game yet. I’m not going to watch people playing Candy Crush.
Ying: It gets interesting when there’s enough of an audience base where there’s people willing to secure the broadcast rights. If you look at real sports, that’s where they make all their money. It’s not about selling merchandise or tickets. It’s when ESPN or ABC is willing to pay millions of dollars for broadcast rights. That’s when it floods the ecosystem with money.
Right now we’re still pretty far away from that. All the valuations the teams are getting, and all these companies trying to sell themselves as part of the esports ecosystem, all of those values are inflated. They’re all banking that they’ll be able to survive until that point and they’ll be one of the leaders getting a slice of that pie.
Drexler: It’s been interesting to watch the Echo Fox spot in LCS and what happens with that.
GamesBeat: How much is that worth?
Drexler: Exactly. What is that valuation going to do to the rest of the spots?
GamesBeat: The Kotaku story on this subject was very interesting to read. Anybody who’s interested in esports should go check that out, about the overinflation of numbers that are being used to hype esports. Whether it’s true or not as far as being on the money about esports — there’s debate on the specifics — do you guys have any opinions about the numbers being thrown around?
The other thing that’s interesting about esports, though, is that this is what kids use in their debates with parents about addiction. “What do you mean I’m addicted to this game? Haven’t you seen Fortnite? I could win millions of dollars.”
Pachter: I work for a stock brokerage company. Our CEO called me and said, “Is there a chance we can get some of these esports millionaires to invest their money with us?” I said, “Man, where do you even get a list of esports millionaires?” So instantly I get this top 200 esports earners list, and of the top 200, eight were from the United States. I said, “We would be better off going after the WNBA.” I know there are more millionaires in the WNBA than there are in esports in the U.S. Then we should go after golf, because there’s at least 250 golfers making a million bucks a year.
It’s really not a big deal! And yet look at all these billionaires that buy Call of Duty teams and Overwatch League teams. It’s because Bobby Kotick is a billionaire and he’s got his club of billionaire boys that he gets together and he’s convinced them that they’re going to make more billions.
They’re trying. He really did position it like this is the NFL. You’re getting the Cleveland Browns in 1930 and 50 years later it’s gonna be worth $2 billion. Maybe? Or 50 years later Overwatch isn’t a thing. I just don’t understand — if you bought the Los Angeles team for any game Activision ever made in perpetuity, I could see that. That’s worth $60 million or whatever because Activision is going to be there in 50 years. But not Call of Duty. If EA ever got their act together and made Battlefield well every year, Call of Duty would get cut in half.
GamesBeat: I still think the kids have another winning argument here, which is–everybody knows that AI is going to wipe out so many jobs. Maybe a third of all jobs could be wiped out by AI. So why should I go to college and study computer science?
Pachter: Most of those jobs are truck drivers.
GamesBeat: Why don’t I play video games instead, get paid to play video games, and create a career that didn’t exist five or 10 years ago, like being a Twitch streamer or a YouTuber or an esports star? Why can’t I do that, and that’s my career?
Futter: There are two paths there. There’s the esports athlete. You have degradation of the human body that happens in esports, just like it does in physical sports. Your twitch reflexes are going to degrade. You hit 25, you’re getting run over by kids who are 10 years younger than you.
Pachter: Is there a DOTA player over 25?
Futter: I don’t think so.
GamesBeat: Okay, dad. So I’m going to win a million bucks and quit after five years to go to college and become a lawyer and work for the Overwatch teams. That’s my career path.
Futter: I would have that conversation. All right, show me your talent. The beautiful thing about esports is that — Fortnite had open qualifiers. Go ahead. Show me how you do. We’ll have another conversation about it.
The other path is I’m going to be a streamer. Okay, well, let’s talk realistically about what a streamer’s life is like. You think you get to sit back and play video games? No, you have to worry about building your community, managing your community. You have to eventually worry about having moderators you can trust, that you can turn the keys over to. You have to have a streaming schedule. You think it’s all fun and games, but it’s a job. It is an actual job. People get burnt out doing it.
Drexler: I have two boys, eight and 12. My 12-year-old is very much into Fortnite. He played Fortnite for quite a while, and then he watched streamers on Fortnite, and I let him watch and listen with headphones, because God knows what these guys are saying that my eight-year-old might hear. But he’s bored of it now. If he ever came to me and said, “Dad, I want to be a streamer,” I’d say all the things you just said, and then, “Go for it.” You’re becoming an entrepreneur, a marketer, a media creator. There’s a ton of great things in there. But if he asked me, “Can you help?” I’d say, “Well, you gotta do it. You have to want it badly enough.”
I have a personal story, because a good friend of mine, his son — this is five or six years ago — he said, “I don’t know what to do. My son wants to become a professional League of Legends player. A kid playing video games, are you kidding me?” I’m in the industry, so we talked about it. Long story short, the next time I saw him he said, “I’ve decided it’s gonna be okay. I’m going to let him do it.”
He went and became a League player. He was one of the best in the world for a while. They were paying him six figures, putting him up. Then they were hiring Korean players to kick him off the team because it was easier. It was just cutthroat mayhem. This poor kid is now in his 20s, and he’s trying to piece his life back together, because he didn’t know how to take that kind of pressure and intensity.
You throw five or more teenagers in a house together and they’ve never lived on their own before, never seen this kind of money before. They’re asked to play this game 14 hours a day, and if they’re not playing enough or not playing well enough, they’re out. It does some things to your head.
Futter: The other piece of that is, who is the adult in the room? Who helps these kids learn how to manage their money, learn how to do all these things? There are some great services out there that will teach people, “Hey, here’s the basics of setting up your streaming schedule.” Understanding, do you want to be a variety streamer? Do you have a specific game you want to do?
DeLaet: I look at this with my 15-year-old kid. I said, “Sure, we can set up a YouTube channel for you. You can stream on Twitch.” He did it, and the funny thing is, he had about 10 or 15 views for every stream he did on Fortnite. I posted a time-lapse video of our pool we had constructed last year, and that went viral. We had 250,000 views of this pool, and he’s getting 20 views on his game streams. I’m like, “Kid, this is going nowhere fast. Maybe you should stay in school.”
Futter: As parents, we know that the more you say “No, you can’t do it” to a kid, the more they romanticize what it is. Go ahead. Give it a try. See how it goes. You’re still responsible for all your responsibilities around the house. You’re a member of this family. You have chores. Keep your room clean. Your job is to feed the dogs and take the recycling out. You have to keep doing it. And the second you stop doing those things that you’re supposed to do, you have failed to balance as anybody who has a job and a family and a life and other responsibilities needs to balance. Therefore something needs to go, and unfortunately this is the lowest priority. If you want to do it, show me you can take responsibility.
GamesBeat: Dad, I’m thinking about dropping out of college, because I’m getting really good at this game. It takes a lot of practice, and I’m not sure I really need school. Look, Bill Gates and Steve Jobs, they just dropped out of college.
Drexler: What esport did they play?
GamesBeat: But they were passionate about what they were doing, and that’s me too.
DeLaet: Tell him the same thing I tell my kid. Every choice you make in life, you gotta live with it. You’re getting to the point where you’re old enough to make these decisions, and you have to live with them. When you’re 25 and you’re thinking, “Hey, that decision I made when I was 18, where did shit go wrong?” Kid, you made that decision and you have to live with it. I can only guide you so much.
Drexler: Also, Facebook Memories will help you understand where you went wrong.
Game store wars
Audience: What do we think about new store platforms coming in? 30 percent has been the standard for a long time, but Epic and others are trying to change that.
Pachter: We don’t care about Epic. You do not care about Epic. You care about Google Stadia and you care about Amazon, which is coming in and they’ll be there the day the consoles launch. You care about Bobby Kotick, who is the only person who matters, okay? Bobby is the only person in this whole discussion who matters. Strauss Zelnick feels the same way, the president of Take-Two. But Bobby is on record. He says, “I’m playing them against each other.”
Strauss was president of 20th Century Fox 30 years ago. Strauss gets windows. Movies have windows, as you know. Movie theater first, then it’s on video rental, then pay-per-view, then streaming video on demand, then free TV. There’s all these windows. Bobby is going to say to Google, “You want our game? You want the same day as the console guys? 20 percent.” Google’s gonna say yes. Amazon will say, “We don’t want Google to have it. We want it for ourselves.” Bobby will say, “10 percent.” Amazon will say yes.
Then Bobby goes to Sony and Microsoft and says, “I’m giving it to them for 10. Why do you get 30? I don’t get that.” Sony will say, “Fuck off, 30 percent.” Bobby will say, “Okay, Amazon gets an exclusive window for three months. Amazon, will you take five percent?” This is an auction. This is a fucking auction.
GamesBeat: Then the anti-trust regulator will come in.
Pachter: No they won’t. No they won’t.
GamesBeat: They’ll say Amazon and Google can’t offer….
Pachter: No, no, no. Sorry, dude. You have it completely backward. Anything that lowers the take, that’s competitive. Bobby’s going to make these….
GamesBeat: It’s dumping. You lower the prices until they leave the market, and then you raise the prices.
Pachter: Yeah, yeah. And Google and Microsoft are going to leave the market, because they’re almost out of money. No, sorry dude. You’re completely wrong. That won’t happen. The console rates are going to drop to 15 percent. They’re going to get there. Everyone’s going to reach that accommodation and they’re going to be 15 percent.
Mobile is harder, because it is duopoly. It’s iOS and Android. There is no real pressure for those guys. You’re seeing Netflix work around it. Spotify works around it. They can somehow deliver it to you over the web and it works with your phone. I’m waiting — if Apple tries to stop them from doing that, that’s anti-trust. That’s going to take more years. But it’s a great question. You heard it here first. 15 percent by 2025. It’s going to take a while before anybody cares about Stadia or Amazon.
GamesBeat: Epic is already at 12 percent, right?
Pachter: That’s Epic. What can Epic deliver to? A PC?
Futter: It’s platform versus storefront. It’s a platform conversation versus a storefront conversation. This is where we get into trouble with consumers, who are like, “Epic is anti-consumer because they’re doing platform exclusives!” No. It’s a store. You load it up on the same PC that you load up your Steam games. They’re just giving developers more money.
In some cases you have indie developers who are coming in and saying, “Guess what? We had an uncertain future because we weren’t sure if your game was going to succeed. Now we have a minimum guarantee from Epic. I can guarantee that we’ll more than break even. We’ll be able to make game two.”
Pachter: Try to find Converse Chuck Taylors or Jack Purcell tennis shoes on Amazon. They don’t exist. Never have and never will. Why? Nike owns both. Nike gets full price at Foot Locker. The store is cutting Nike a break, a better take for Nike, more dollars to Nike, to keep them off Amazon. Is that anti-competitive? Absolutely. Is that bad for the consumer? 100 percent. But Amazon can’t get them. When the Wii came out, you could not find a Wii on Amazon.
Futter: That’s the big holdout, the consoles. It’s Nintendo and Sony and Microsoft. I don’t know where Nintendo is going. They don’t have to do anything right now. Switch is doing well.
Pachter: They don’t have any games other than their own.
Futter: Okay, I don’t know if that’s true.
Pachter: They’re getting Overwatch. Did you see that leak?
Futter: I did see that leak. That was interesting. I’m not sure if they’re getting Overwatch or if they’re getting Smash characters in Overwatch, or the other way around. Maybe that’s where it’s coming from.
But I think you’re right. I think we’re going to see pressure against Sony and Microsoft, especially as we start blurring the lines between what it means to have a living room console — that line between PC and console is starting to blur with Stadia and any other streaming platform that comes in. Especially as Microsoft pushes toward xCloud. Now you have a console — they’ve created their whole ecosystem where they’re less focused on their hardware, which does expose them to the conversation about platform fees.
This whole thing, there’s a lot of moving pieces here. As we enter the new console generation and streaming becomes a bigger deal with new entrants to the market, everything is being disrupted right now, and it’s super cool.
Pachter: Can I make one more bold prediction? This is something nobody’s calling. I actually think the winner of all of the streaming wars is Sony. People are ruling them out, but Sony comprises PlayStation Plus. Sony right now has 40 million people paying them five bucks a month. It’s 200 million bucks a month of essentially pure profit. If you take that audience and make it 300 million, 400 million people streaming, what does Sony care about royalties on games? They’re perfectly happy if they have 300 million people paying them five bucks a month to play multiplayer.
There’s a reason they bought OnLive and Gaikai. They have the technology just like everybody else does, and they have consoles, and they have a shit-ton more exclusive content than any of these other clowns who think they’re getting into this business.
GamesBeat: Are developers still happy with their share of Sony’s money?
Pachter: I never met a developer who was happy about anything, ever. They’re bitter, nasty little people. [laughs]
Futter: It’s a perspective thing. Oh, I’m giving Steam 30 percent, just so I can be on their storefront. The value of that, the perceived value of that, has changed over time as discoverability has gotten more challenging, which is why you see Valve responding with new ways to address discoverability. They’re playing around and seeing what sticks.
The big conversation that Epic is focused on, the 88/12 — they’re trying to lean away from the stuff like not having universal cloud saves yet. That’s an issue. They’re not offering the same currency options. That’s also an issue. There’s a variety of things that EGS doesn’t do yet. There’s a lot of noise whenever there’s an EGS exclusive announced. “Oh, no, it’s anti-competitive!” But they’re focusing on the wrong thing.
There are some people — I don’t want to dismiss the fact that there are members of the community who say, “Here are the five features that I use on Steam that aren’t on EGS yet, which is why I’m not really happy about these deals.” I think Epic has a lot of work to do in order to catch up on its infrastructure before we can really have that conversation about — there’s no parity in the conversation right now. They will catch up.
But this was something that came up at GDC where I went to the Steam business update. They said, “Here are all the things you get.” They didn’t come out and say “…that Epic isn’t doing for you.” But they have anti-cheat and anti-piracy stuff that goes across the board. They have hosting for a variety of things. They have the Steam Workshop. The biggest one was, “We moved into a market where people don’t like to use plastic. They want to buy with cash. They want to go to a store and buy a code and come home. These are things that simply aren’t available yet on other platforms.” The reason Epic is pushing the 88/12 conversation is because that’s where it’s succeeding, with the understanding that it has a lot of work to do to catch up.
Drexler: On that point, though, would you expect Epic to go back to 70/30 once they catch up?
Futter: No, I don’t think they would go back to 70/30. I think that they’ve reframed the conversation. It would be really challenging for them, although anything is possible.
Pachter: I think 12’s the number forever.
Futter: Yeah, I think that’s the number. They’re looking to push people in that direction because it gives them a competitive advantage. They know that there are other platforms, Steam included — for instance, Steam cards. You go to the store and buy a $50 game card. Steam eats the cost, which is somewhere between five and 10 percent, of putting those cards into the market. They just absorb that. Then that money is spent on purchasing games and it goes to the developer.
That’s a harder thing for people to intellectualize and internalize. “Part of my 30 percent comes back to me from everyone who purchases games with Steam cards.” I think Epic has, wisely for them, simplified the conversation so much that there’s a lot being lost.
GamesBeat: What’s going to be the biggest piece of news by the end of 2020? Biggest piece of news in the game industry.
Pachter: I was actually serious. I think the Intellivision Amico is going to shock people. I mean that sincerely. I know Tommy’s here. If you haven’t played it yet, it’s really fun. I mean, I got a private thing. It’s really fun. I think people are way underestimating Tommy. I think it’s going to shock people, how good it is.
Futter: Just as there was resistance to digital distribution, we’re going to see resistance to subscription gaming completely fade away. We’re going to see that people are starting to loosen their grip on the need to own their media. Ownership of media, even in a digital distribution context — when we reach parity with digital distribution, it doesn’t mean what it does now to have a physical copy of a game in your hand. People are going to further embrace the idea of a subscription model, as long as the content stays substantive in the way that Microsoft, especially, is setting the pace.
DeLaet: Apple Arcade is going to be a big platform in general. People aren’t thinking about it a lot, but I think that’s going to be the Netflix of gaming.
Ying: Because we deal with a lot of investment and M&A, one thing we’re starting to see is a lot of investment into China and M&A in China between studios there that are developing content for overseas games. In the last couple of years we’ve seen a lot of Asian companies acquiring and investing in western devs. Now we’re going to start to see more and more of the reverse.
Drexler: For me it’s social gaming. One of the last panels talked about community gamers and how they spend more, spend more time. They’re really driven by wanting to play with their friends and family, people they know, whether they have a history of being gamers, hardcore gamers. We’re democratizing gaming now. In the same way that social games on Facebook exploded, we’re now at a point in mobile and other cross-platform opportunities where that’s coming back to the fore. It’s not just asking somebody to milk your cow or mow your field or collect your fruit, but actually meaningful activities together, playing multiplayer together, with brands and experience that they love.
Disclosure: The organizers of GameDaily Connect paid my way to Anaheim. Our coverage remains objective.
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