#307: Pokemon Game Rises, Supercell's IPO Dreams and VC Misdeeds

[Music] hello everyone and welcome to this weekend games 307 where we read and distill all the weekly game industry news and American politics for you so you don't have to I'm just kidding we are not going to do that today the day after the election but here is what we are talking about Nintendo switch stalls so we're going to dig into what going on with the Nintendo earnings Netflix users only want to chill and not actually interact with anything supercell acquires space ape to establish supercell London that's our words not their words but that's what we're going to talk about Pokemon TCG pocket mobile has a strong start Call of Duty Black Ops 6 is the best launch ever well on player stats and so Phil has a lot on there and then Crest has a very very deep dive on BC funding there's a great article about ex Activision Blizzard

Founders so since we gave all of that conversation to ex Riot Founders last time now we're going to go a little bit deeper so hi everyone I'm Jen donaho strategic marketing consultant at Jaden Inferno and beta hat and I going to mix it up and make each of you introduce yourself so can I can I do my catchphrase can I start with that what's cooking what's doing what's brewing hey I'm Phil from C Economist Consulting you shouldn't give us the space joh this is a mistake I am Eric Crest principal of gosr Consulting Group yo and I'm Laura Toranto I'll go with uh puzzle Queen puzzle Zar any of those but I'm a senior director of product at Big Fish Games you're right I should not have done that [Laughter] okay okay okay so crass do you want to go first on what we're doing today on November 6

yeah let's make two mistakes this episode already Trump wins moving on okay so actually what I do want to talk about is is anyone watching The Penguin which has been my escape from all of what's going on in American politics so the penguin is the best of The Sopranos meets Matt Reeves Batman movie and all of the you know going after the throne from Game of Thrones so this has been just such a gem it's such a good show I thought had like a little slow start kind of establishing a little bit of the context and then once it picked up I was like whoa this is great great cast too I think the best thing about it is that you really know don't know what the hell to expect exactly every episode it's like I think they keep you guessing and the the actors are amazing they really did build the characters really well but again I think keeping you guessing in terms of what's going to happen next is kind of a shocker because this is not what I expected from this thing I I I expected something completely different more like you know superhero type show but it's

certainly not so oh I just hope they take more of this these so this is the you know I know we don't want to talk trans media but if you can take this kind of Liberty with an IP and do something unexpected I think that's kind of the key to success um I mean Gotham ran for like six seasons it was kind of like mediocre that hung on pretty tight you remember the investigation show yeah yeah the investigation show ran on Fox yeah yeah I watched that too I didn't watch that one I usually watch all the DC stuff too it's crazy but one that's Marvel related Agatha all along so good it's keeps you guessing oh I loved it I got to watch that I haven't watched it it was great if I could show um another show I didn't bring up a Agatha all along because I thought you would all make fun of me but it is probably the best Disney plus Marvel show that has aired I agree with that like so good magic keeps you guessing and if you are a nerd about that stuff there's all

kinds of Easter eggs I've been watching all of these YouTube videos on like here's all the Easter eggs in the show to help me in because I'm not a Marvel fan I know that's weird but which was helpful anyway and there's a brand angle though like they did it during Halloween like please almighty God if you're gon to do something seasonal I'm looking at you Shane black Iron Man 3 like you can't do a Christmas movie in the summer like align it with the season that's why Agatha was also like really great to watch I was immersed yes they did a two episode finale on Halloween perfect if I recall yeah from last week chef's kiss oh so good so good all right so let's get the Shilling um so slush is coming up which is the VC Fest that goes on in Helsinki so Mishka is doing a supper club on the Monday the 18th it is invite only very limited space which is why he wants me to announce it publicly on the podcast so Founders execs investors and product folks Market leaders DM Mishka either in

the slack or go to him on LinkedIn male katoff and ask for an invite and he will see if he can get you into that another shill is I did a podcast on Creator programs and how they're different from traditional influencer programs and I had a great Creator a gamedev and a platform expert to share a bunch of their learnings on working on supercells creater program and also a creater program that was inside of balloons td6 and so this was Ninja Kiwi is the dev and they after they implemented the Creator codes they had a 40% lift in firsttime purchases and players who engage with the Creator codes often play the game more than twice as long as average players with increased session counts and spending so thanks to Scott Walker from nja kiwi for coming on sharing some stats and just the general of like how do you actually use creators inside of the game so was a very cool

implementation for mobile games and Phil Phil sigh at me and I just like we need better causal inference I just I I'm calling bull I'm calling [ __ ] I'm calling total [ __ ] on this one dude I couldn't even get through what you were saying what are we talking about it's like you put a Creator code in so there are creators that influencers that live outside of your game because there's an SDK inside of your game when a player comes and they put in this code and when they put the code into the game they then you can track the behavior of that person who came in by seeing an influencer or a Creator outside of the game the idea makes a lot of sense right because you're basically giving performance-based pay for the creators you're giving them attribution it is correct one of the you couldn't imagine a worse ux for this which is a complicated code that I have to find somewhere and copy and paste into the game from some alternative browser or from a console I've got like my phone open and then I've got this code it is

horrendous but even if we put the ux issues aside the theory makes sense but the idea that you could say that that it's been successful so far because there's a 40% lift in firsttime purchases is not the right metric to look at no it's not it's the wrong it's a small integer value like there's elasticity along the curve like a conversion might be 2% so moving that 40% is still a very small nominal value like I you should look as a marketing tool I think it's the wrong way to think a marketing tool yeah of course that's what I that's why the marketer on the podcast did did the podcast with them yeah but you cannot you you cannot say the codes resulted in a sus substantial shift lift for firsttime purchases it implies something completely different right for that small audience that did the lift sure but that doesn't matter like if you look at the game it hasn't changed at all right in terms of the revenue trajectory it's like I don't know and then the the other point you made was that like players with creator codes players who enter

Creator codes play the game twice as long as average as other players but like that just says they're purchasing right cuz usually use a Creator code when you're purchasing something so people who are customers just end up playing the game more so I I don't know if this is the right causal inference this is the right evidence I think to to make a conclusion about this I don't that doesn't mean there's no effect just to be clear I'm not necessarily arguing it I just think this is the wrong the wrong way to look at success for something like this I would love to defend it and take more time to do that but we do need to move on I will say that the idea that you can now have an attribution method for creators that incentivizes them to promote your game where they get a cut of the revenue the game is seeing kpis that are moving from these players that are behaving better is better than a shitty UA ad that doesn't actually do anything anymore and we have no insight into those things and the ability ility to make sure that your

audience is like actually helping to promote your game and doing it in a positive way and you can have metrics that show some success to that is better than what like doing you know you yell at me for brand advertising all of the time no no if he had said if one of the bullets was the ROI for this x amount of spend is X right that would have made more sense right that means that it is a valid channel to promote the game right but that's not what he said all these metrics are not as meaningful from that perspective well I I will go back and get more better metrics okay thanks all right so um a a minor correction it's actually not really a correction it's an addition so a few weeks back we talked about plka and their acquisition of Superplay and so we mentioned that we thought PLO wanted to buy dice dreams which was actually the precursor Clos to What Monopoly go ended

up doing but I was reminded that they also have a game called Domino dreams and that's actually growing faster than Dy streams right now and so that might have been another reason for PL Tika to buy them and then you know Superplay is actually making new games and so that's you know maybe plti is like well you they seem to be doing something great so let's buy them and they can be our source of new games so right now we're looking at monthly downloads and revenue share the title that's mentioned Domino dreams is still what 5 to 7% of monthly Revenue so it's still relatively small as a share of the portfolio it is growing that is fair to say but the growth seems to have slowed down at least since summer of this year it's on a long run decline so still it was growing faster at larger parts of the year but it starts to slow down a little bit I have a couple questions about why it slowed down what's happened since summer and I think the last thing to take a look at is what's happened if we Index this from the sense beginning of the year how things have grown caely and

when you look at the download side Domino dreams hasn't increased as much on the download size as dice dreams despite being at a much smaller scale however when it comes to revenue it's exploded like it's launched relatively recently but I would still just have some more questions about some strange growth things you know is it still growing at the rate we think it's growing has growth slowed down you know what's happening on the CPI side I think you're trying to figure out where the ceiling is for this game that's be the first question I'm asking if I'm including this in the acquisition price yeah I I got nothing on this I mean I think the push back was the fact that the the valuation was super rich for the company particularly the earnout and I guess his contention is that there's other things that are happening which include Domino dreams as well as other games that are in the pipeline they'll help justify these yeah crazy earnout targets okay yeah so yeah yeah no I think it's just it's not that one thing and I was like okay yeah I didn't know there were other things by the way it's great to get feed back though please

keep it coming we need to be kept check and when I do this VC thing I'm sure they're going to beat people coming out of the woodwork so yeah I think that's what is most helpful for us is I always say that we're not journalists like we don't go out there and like investigate everything to the fullest extent before we talk about it so it's nice to have folks giving us some feedback and giving us broader context so on Nintendo they had a rough earnings report Revenue fell 177% year on year net profit fell 69% versus the same time last year there's no switch to announcement so a couple weeks ago I said that there was a Brazilian journalist leaker guy who was like oh they're going to announce the switch two to get ahead of earnings well they didn't do that they're staying on their whole path of we'll announce the switch to by the end of March which is the end of their fiscal now people are saying they're not going to announce anything because you know with the switch struggling so much on year seven that it's going to hurt sales if they do

announce the next thing is coming and it's also tough for them to comp last year with the great Zelda that they had in the Mario movie so that is the sad state for switch and there was like a really cool image if you're watching on Spotify or YouTube that just kind of summarized all of their announcements onto one slide Laura I was say everyone's gonna wait for the switch too to me it's kind of makes sense and what was it yeah Mario movie did really well cheers of the Kingdom did well I think I went through I think I went through the last couple quarters to see what games had been released echo of wisdom was good I think it was really well received it's a short game it's a easy game it's nowhere near the scale and or I don't think it hit the expectations that like a tears of the Kingdom or breath of the wild or any future you know iteration of that FR of that franchise would have it's a blip I think it'll get better once once they finally get the new switch out and they just need to get faster at releasing games like big games yeah well today

they also the stock was up like 6% partially because of trump but also because of the company announced that the console's going to be backwards compatible which is still an outstanding issue with people in general like they still think that this could be a new platform which it will not be it'll just be another switch which we've been talking about forever so I think that actually has gotten people more excited so anything they lost the press release for the quarter they game back because he said that it was great backward but we've known that when we covered the switch to like leaked when they talked about it we've known it was backwards compatible no I look it it it's really kind of shocking as to what actually what we think we know and what Wall Street knows right what wal tre's estimates are they're a bunch of they're morons like they don't know anything about gaming right so they they make these assumptions so this is a big shock and surprise to you know a group of investors and I think the Japanese analysts are even worse than the US analysts from that perspective so so

that's part of the thesis here so people really misunderstand exactly what this next switch is going to be it's just basically going to be the iPhone model it's just a bit too late but I think the upgrade path is going to be relatively brisk and then the content's going to be there at launch so I'm still relatively very bullish on Nintendo yeah I think that I mean I've said this before is the families the moms don't know anything about the next switch coming every time at I'm at Target or I'm at the store and I cuz I'm still a nerd and I walk the video game Miles because it's fun to be dgic and look at like packages on a shelf like the old days but that's where moms go and they're you know they stare at the Nintendo switch and all the games and they have this look of like I don't know what the hell is going on and what do I do and I end up helping them like you know buy a switch they don't they're just trying to get a console for their kid that's kid-friendly and get him a Mario game because that's all I know about gaming I think that once the next switch comes out like it's going to be the next wave of that and you know that

doesn't change the idea that that platform is the kidfriendly platform especially when GTA comes out and Mom's going to be like well let me distract you with this kid-friendly game instead of the the naughty game that you're not going to be allowed to play did Nintendo gave you a Creator code and the moms punch it in Jade Ferno 2028 Jade Inferno at least say my J Ferno sounds funnier I wish I got a referral for them sh that pie yeah I know all right so let's go on to someone who is probably not giving me any sort of referral fee which is Netflix dis referral fee yeah we can't seem to go a week without having them in the news and we got a two for one this week so the first one is I'll just do it quick because it wasn't really games but it was this idea of they're shutting off all of their interactive titles so if you remember there was a Black Mirror bander snatch which was was kind of like Choose Your Own Adventure in video format and you know and my point is it's

Netflix and chill for a reason so clearly we're all too lazy to interact with our videos we just want to put it on and sit there and like do nothing so it's there's no hybrid in this space so they're shutting that piece of it down but the bigger news is that uh we finally know what Mike Purdue is up to so Mike is was the former head of Netflix games so he announced that he is the VP of geni for games at Netflix so let me try to distill his LinkedIn poach which had lots of work words and was seemingly written by AI but I'll just say this he aims to revolutionize game development and player experiences using generative AI technology right he is focusing on a Creator first approach placing creative Talent at the center while using AI as a catalyst to accelerate development and unlock novel game experiences he's excited about the transformative potential of General Ai and gaming likening this moment to the Innovative surge of the 90s and is eager

to lead this new initiative Crest this is your favorite topic I don't think I can say anything better than you could would you like to [ __ ] on this first honestly I was goingon to let this all go right but unfortunately he called us out I think as uninformed media in his post regarding my predictions of the demise of Netflix gaming so I'll will admit that I was not 100% accurate on those predictions but you know they're not shutting down clearly but what I did get right is that the fact that they were bringing Nintendo IP to a competing platform was a sign that Netflix had lost faith in the gaming group and that changes needed to be made planned or unplanned as he would suggest that they were all planned these all these changes were planned evidently according to his post but I don't think shutting down a 30% AAA Studio was planned I don't think the change in leadership was necessarily planned and removing this interactive stories maybe because these things been longer than for a while but I think this

new leader basically has three years to figure this [ __ ] out and to make it useful and profitable for them increase retention and engagement Etc or they will get shut down in three years that's my prediction this gobbly goop that he wrote about what he's doing next it doesn't even make any sense right um be specific what the [ __ ] you doing you know like I I really I the problem is I really like Mike I think Mike's a great guy I just don't like this is just not very genuine in terms of what they're producing here so we'll see what happens well everyone's got this is remember when everyone had the web thre are at their company now it's the genis are exactly and so you know you made fun of the EA initiative last time I think all the different companies have something like this and listen I think there there is a place for efficiency and all of those different things but I think the word salad of how this is going to be Creator first and you know it's a way of plating being internal people who are afraid of losing their jobs it's a way

of plating players who think they're going to get generic you know shovelware thrown at them like this is just an efficiency play in in my humble opinion that isn't that sexy are you annointing Mr bike Purdue as the AI gamings are is that what you're doing Jen well I I don't know I think he did it for himself he said his title was VP of gener generative Ai and Ne for Netflix games like he did it praise be to the AI gaming Zar Mr Mike Verdo let's track his progress in his new Lane as AI gaming Zar all right all right I got you I got you all right so let's move on to the next section Crest supercell all right this bought all out all of space AP they are friends of the podcast I I've know those guys for so long since my Kabam days I really like them they're nice great they're great the space eight

brand is dead that's sad very sad they are I guess turning it into the London office for supercell by Spring of 2025 Long Live space ape but now it is dead supercell London is is the replace this is big [ __ ] this is big [ __ ] this to me says IPO this confirms IPO if there were any lingering doubts I think you got to keep moving your priors like you're going to war they're like we're about to storm the beaches we need all our troops in line let you you turn to your trusted advisers you buy them out they've already been working on supercell games like we already know that they've been working on Boom Beach they've been working on Heyday they've openly talked about that they even had the supercell IP remember they tried to do a boom beach title no pun intended that didn't work out boom beach front lines I think this is a total culture fit they know it they've worked together I don't know how how else you can look at this this is Super C spanning I think supercell London is big [ __ ] news too I mean this is the first time they're opening another HQ location they've had North America which was user acquisition and

they've had a North American Studio that is remote and uh very very interesting to see what they've a minute you're being sarcastic I hope dude they opened up a San Francisco office it is the most amazing office in the city and now they're shutting it the [ __ ] down right the the SF one yeah that's what I've been told yeah it's getting shut down okay their empire is far from expanding it's anyway whatever the other thing to keep in mind is I really think it's about the labor here this an alah hire so we've been looking at Chrome Valley Customs which you pulled Laura you know it's not been great it's on a declining run rate I mean it was at 50 million run rate at one time and it's kind of down to like what $20 million a year game I mean maybe they're moving labor off it onto supercell projects that could be a part of this beatstar is not in a great place either we know it's mostly ad driven so I think it's hard to just look at Revenue I think you have to look at ads and I think the only way to look at ads is by downloads because it's an LTV you'd be buying more users and that doesn't look that great either so I know this looks like IPO Aqua hire to me all right let's see let's see what happens

all right let's focus on some good news right we got some amazing releases on AAA these this days like Dragon Age and and Call of Duty let's talk about that step into the future of game monetization with exola the premier partner for game developers seeking to expand their reach and revenue exola provides a robust Suite of tools designed to enhance user acquisition maned subscriptions and streamlined Payment Solutions worldwide unlock new markets and maximize profitability through their customize secure payment architecture and dedicated support team exola powering game developers to achieve Global [Music] success this podcast is brought to you by apps flyer in today's Digital World understanding your apps Journey from Discovery to download is more than just insightful it's essential enter apps

flyer the leader in Mobile attribution and marketing analytics that allows you to measure the full potential of your marketing efforts making every ad dollar work smarter with apps flyer that's your new reality dive deep into Data driven insights that reveal exactly where your users come from and how they'll interact with your app apps lier where your app's potential meets performance [Music] shall we the new Dragon Age is Eric you know what Eric take this one away You're the Dragon Age fan here we're looking at the Metacritic stores it came in at 83 the most recent title which is about the series average oh that's crazy I didn't know that anyway I think what's great about this Dragon Age game is it's kind of true to their form in terms of how they do things but they modernized the battle system right so it's more of an action game which is I think more contemporary and More in line with how people are playing these type of games these days with elder ring and others so

in a sense they've kind of kept what make Dragon Age and BioWare unique but then also tried to monize a bit the game is absolutely visually stutting I think the one criticism they get is they didn't go too far enough with the battle system but I mean I think this is actually a really good thing for BioWare that could keep them alive because if this thing really kind of bombed then it might likely that studio would have been shut down so I think the game is great and I think they did a good job so I'm excited to see how well it does it looks like it's tracking reasonably well what do you think on that side since you kind of looked at this Mr Black so right now we're looking at cumulative estimates unit sold from Partners at VG insights so again we're just looking at steam data there's a lot that gets invited into this for example like when did they launch on Steam it was on the EA program for a long time then you also got to remember there are steam effects too that the steam platform has just grown over time but as far as I can tell it looks like it's off to the strongest start of the franchise even when you just look at cumulative units sold it looks like it's already around 400,000 probably will approach 600,000 by next

week and that is good enough for third in the entry third in the franchise right now I think the other point well in terms of Revenue by the way it's number one in terms of Revenue just because the price is much higher and they have special editions so it's already off to the strongest Revenue start cumulatively of all the games even if you add up all the prior sales that they've had on Steam because they've just sold at lower prices but I think the other point to make here is that when you make these single player games particularly ones that have some decent engagement tail you know even if they don't have a lot of DLC content but had a really long tail you can maintain price you can keep a really strong price wall you don't have to Discount down to like five or even less dollars and you can stack up cumulative units sold over time like these single player games can give you dividends like don't ignore your box strategy and even just putting a skeleton crew on a game like this can be Roi positive like you can keep moving these ctive numbers up and up and up with even just small updates I think it's pretty impressive to see this moving even after 10 years was Dragon Age Origins and it continues to sell

units first of all I've been playing this game like I think I played like eight or nine hours it's a it is a very good game but they did announce that they're not doing any DLC for this this is it so I think that could be a little bit disappointing because but then again I don't think DLC is a really good model generally speaking unless you pre-bi it as as Phil black has said a million times but um anyway but they're focusing on more now their Studios on Mass Effect is that that's what they kind of said so but I think it's is a great result for EA we'll provide them some upside this year the Stock's actually at an all-time high again partially because of trump with balla because of fundamentals so all right moving on Call of Duty Cod man this one crushed It Black Ops 6 was the biggest Call of Duty three-day opening weekend ever in terms of total players total hours played and total matches unit sales on PlayStation and steam were also up 60% 60% year-over-year and it also was a

record for day one game pass subscriber ads of course we didn't disclose that number because that would be embarrassing so we'll just leave that ambiguous says the CEO of Microsoft the other thing to keep in mind is when you look at the max daily concurrent players on Steam in its second weekend it actually had a higher PSU than its first one which is sometimes rare to see they're stacking da a bit the other thing again just to keep in mind is that this is the Call of Duty app so this includes war zone which is free to play play remember they put everything under this single package skew so that could be getting mixed in here you could be looking at reactivations or uplifts from content updates in war zone the other thing that I thought was interesting to point out is the share of players that were in China and again I I think it's hard to to know what this really means because we don't have it as a Time series you know for instance we could be mixing in war zone players from you know like 2022 into this but China was still 22% of Call of Duty players on HD and with the increased amount of Chinese users I'm curious to see how the franchise will do in China I don't know if you have any predictions for that

Eric is there anything here I think it's all good news for Call of Duty this year but I want everyone to keep in mind because there was some posts about here about like this is like the turnaround story for Microsoft it is not right it is not at all last year's Call of Duty independent of this whole Microsoft thing was a terrible like launch for Call of Duty right so it was like it had a really rough year last year this is the hero skew which I've said a million times on the podcast Black Ops is the big ex skew so this should in theory be the best performing game next year we will be talking about a game that's down 20 to 30% right so anyway but this is really really good news for Call of Duty right and it's good news gaming ecosystem on consoles in general but it's not necessarily good news for Microsoft because they've cannibalized the [ __ ] out of themselves by providing it free to subscribers so anyway the Dame is amazing the tech has gotten so much better they really Consolidated a lot of things with the tech on the tech side it's really smooth launch for how big it is no complaints there really um

some initial issues with the Xbox app but yeah really really good news for the industry overall that this game is is crushing it um so yeah I didn't see it as much in marketing as I've seen other years which was really interesting if I wasn't watching American football or watching the World Series I don't think I would have seen any ads I saw they're doing a partnership with like Little Caesars in the US and was actually a really cool Pro promotion that was like the only time I saw Call of Duty I think in the ecosystem that I'm in I guess I'm just not a 18 to 25 year old male gamer anymore yeah no offense Jen I don't think you're the Target demographic for Call of Duty right 45 year plus women no I know I ironically though like my all of my behavior online is as if I'm an 18-year-old boy which is pretty funny that I didn't actually get it because of all my interest see above penguin and Arcane and all these other things but

yeah yeah no I didn't see any ads my instinct on this is that they're getting smarter and smarter about how they spend money and they're not wasting it on [ __ ] like like a [ __ ] you know Super Bowl ad or something so perhaps they are getting more targeted and getting smarter about how they're spending their dollars and not wasting it on you know wasting on Little Caesars and cod points for Little Caesar Pizzas real targeted [ __ ] there's room in the world for those types of mass Market programs that have those kinds of collaborations and then then there's a role in Performance Marketing to your point you do have to kind of hit different different levels of things and Sports Marketing I think is the last place where you can do more awareness driven marketing because that's the last like you know kind of live event tracking that you can do anyway all right so moving on to another game that seems to be doing well that I think I [ __ ] on this was Pokemon TCG mobile this so well well I [ __ ] on it

when it was announced I don't know a few weeks ago it just I made fun of it because it looks like a a mobile game from you know 10 or 15 years ago yeah just just the look of it like the ads everything about it looks so dated to me and that you know it looked like at the time that we saw it a month of wherever that was ago it just looked like you were opening card packs and there wasn't actually like gameplay involved apparently actually there is gameplay involved so here are quick stats on the game so it came out last week and so only in about six days it at 7 million downloads 20 million in I AP Revenue according to sensor Tower so what was interesting those Japan really leads on Revenue with 9 million of that and it's double that of the US which is the in the number two spot so the US leaves on downloads which is 3x out of Japan so you know crest in my honor of you I looked at RPD Revenue per download so

26 is Japan so Japan is $26 RPD us is only like four bucks yeah right so just for fun I I looked at Marvel snap because I had fill in my head of like well what's Marvel snap so Japan was only 10 bucks and the US was 19 bucks so kind of flipped but first I wanted to ask Laura who's a you know our Nintendo fan what's been your experience and what do you think of the monetization puzzle Queen who's now going to look at a ccg I was skeptical too actually a friend of mine was like you need to try this game I was like I don't know it looks a little what is it and I was like okay I'll give it a go he described it and I think what's interesting is what it doesn't have they're approaching Revenue how they want to get capture Revenue very differently when I first opened it it it reminded me a little bit in terms of the style of the battle play and ter what you would find in one of the card games in Final Fantasy kind of the first thing that came in mind and I think that should speak a little bit to

it feels quite casual so it's they're going wide that's at least on this first version also everything is based on timers so yeah this is more of a collection game than a badler right now let's see it looks it feels very lightweight I don't know what they're going to do I don't know what their road map has but it is very focused on collecting all the cards you can unlock you basically can open one pack per day for 24 hours and then the things you earn in game through completing missions and the things you can fire basically timer reductions to opening your next pack and the other thing that I think of note is their battle pass is subscription there is no place to just do a single IAP purchase like a one-off purchase for the battle pass it is a in the US it's $10 a month if you want their battle pass it's a subscription payment that allows you two packs per day and a couple of other benefits it's just an interesting take and I played the battles they're very simple I mean I was like oh I can do this and what's interesting is there's not they're not ranked I mean who I don't know what

they're going to add but this is not like your typical you're going for gold you're trying to get top of the leaderboard if you fail a match you're going to you're going to drop or you're going to lose progress or lose cards or whatever this is not that game right now I don't know Phil have you have you taken a look at this I have and I think this game is a huge mistake I think it's just Absol huge mistake like we talked about a couple Twigs ago but they there was another version of this game on the app store that's been around forever and they literally don't have I in the game like that literally you cannot spend money on the game and obviously you should have a Pokemon ccg like that's digital and that's on mobile that's obvious it's a very obvious thing to do Nintendo or pocket monsters and this isn't even that right it's simplified all the game mechanics to your point Laura and not only that there's Auto Battle Yes you heard me correctly there's Auto Battle uh I like it I like it a lot and they keep telling us what they are in the game Loop because after you open a pack there's the reveal that shows you all the the cards but then what they do is they slot it into your Pokedex so you really feel this

collection mechanic as being a really important part of the game Loop and not only that you I far as I can tell L you can't actually buy packs in this game it's all wrapped around this timer system so you're buying time to like speed up and they make it into consumables it's actually like a fairly deep meta collection economy I was shocked by this and this is something that I think ccgs have really struggled with is building a meta or building traditional free-to-play mechanics like when you look at the history of ccgs you got match of The Gather which dominates the physical format and again I'm starting from a certain point in ccg history and you've got Hearthstone which is the first digital I would argue ccg popularizes the digital format and takes advantage of what it means to be digital and then I think what I where I place snap as like the first mobile digital ccg and so like this this doesn't really like advance that Paradigm whatsoever but it does add more mechanics that I think snap was playing with the collection level system framing up cards like I it it has a lot of that going on it's not just like open packs there's a free-to-play pack here there's interesting ideas like a rental deck I don't know if you got to experience that

where if you collect X number of cards they will give you a pre-made 20 card deck that you can go out and use x times I don't know if you can refresh that that was kind of interesting there are cool ideas here for sure the problem is that when like you kind of look at the Paradigm it kind of splits three ways between the East the west and China and there are really interesting games that are only in Japan like there's this one called dual Masters which was actually spin-off of matching the Gathering and actually was owned by Wizards of the Coast but operated by a separate company so there's been kind of this three region Paradigm and I think this one it'll be interesting to see where this one Falls I think it'll probably spit split you know closer to Japan but Japan has like its own thriving ccg Market but at the end of the day like the Run rates for these games are just super disappointing when you look at the ceilings like last time I looked at Marvel snap we were still looking at like maybe a 50 to $60 million year game and it's not been on a good trajectory and everything from there on in is just a decline so I have a hard time imagining that this game can be successful but like never count Pokemon out my debate with the my friends and I were playing was will this be a shark fin

that was the only thing we couldn't figure out like yep it's looking yeah we we'll see I think we need to track it a little bit I don't like the fact that the downloads are really just kind of anemic relatively so I don't know it's interesting yeah no it looks like a lot of Japanese excitement the UA ads are from a especially from a creative standpoint I was looking at them I'm like ooh who are you going after because the color it looks very female looks it just doesn't look like and it just looks dated it looks as though they did not hire a us-based North America based creative agency which many times happens on these kinds of games and this is why it's so important to find creatives in the region that you're marketing who know the sensibilities of the region maybe my [ __ ] on it does still hold true we'll see all right so let's get to our big topic crass do you want to summarize it and go into it do you want me to summarize it for you what would you like why don't you help summarize it

so that people don't get tired of my voice okay you've heard of heroic Labs by now and we keep talking about them because you need every Edge to be successful in today's market heroic Labs gam stack is built like a Breck house you got the Nama their backend game server hero their game development framework Satori their liveop service and last but not releast heroic Cloud to provide massive scalability heroic Labs is a battle tested partner and their Tech enables you to be flexible creative and scale for Success focus on your game avoid Tech risks grow your product with scalable liveops and save a big chunk of cheese all with heroic [Music] Labs so there was an article that dug into all of the untold stories of EX

Activision Blizzard Kings Founders and so a few months ago there was another article that talked about how for Riot ex Riot developers a lot of VC money has gone into those Founders and there hasn't actually been a lot coming out of it and so this was in a sense a take now looking at Activision and blizzard Founders so here's a bit of a summary just on investment success so like the x- riot founder ERS these ex Activision Founders tend to secure large deal sizes and more successful in follow-up funding rounds you know we hear many many times it's about investing in the team so since 2020 X Activision startups raised nearly point7 billion across 40 rounds surpassing the average industry funding holy [ __ ] that's a lot of money going to those folks so Peak investment years funding activity peaked in 2021 is obviously a lot by blockchain and high investment profiles like mythical games

getting 225 million after 20122 the average investment size declined you know obviously as the economy tanked we all remember I remember I was in startup world then that a lot of deal flow just really really stopped at that moment in time now in 2024 there's been a little bit of a rebound but not as much so from a focus standpoint out of the 28 funded companies 7 are making PC console games you know not shocking given their talent there's some for mobile others are focusing on web 3 projects a little bit on mobile these Ventures continue to attract attention especially from larger VC funds like a16z bitc and Galaxy interactive and then finally these startups generally secure followon funding within one to two years at a faster rate than most other gaming startups the quick Pace really reflects you know hey these investors still believe in these Founders that there's

early traction potentially for these Founders so that's a recap of the article and so Chris why don't you yeah first I want to give a shout out to the invest game guys who are sharing all this analysis first on Riot now on the ex Activision they started tracking this stuff years ago and it was kind of like build it and they will come type thing and it looks like they're getting a little bit more resources to analysis and I think it's pretty well done and informative but I guess the angle I wanted to take is more about the VC angle here and I've been talking about this for a while and how I don't think the big VCS are necessarily good for the gaming industry but I wanted to make a more finer point on that because there was an article or a Blog that was written recently that that kind of covered this and kind of covered the same points I've been trying to make for the last few years so for the most part like on the VC side the smaller guys are doing you know God's work right they're you know getting cies up and running they're making giving them fun making informed investment from pretty smart people that have been doing this for a long time but I continue to believe that

these big VCS are really just not really good for the industry and any at all and so this has kind of been echoed by shth at the all-in podcast as well as the rest of the guys in the all-in Fred Wilson from Union Square Ventures Bill Gurley from Benchmark and this guy jamine ball from uh ultimar Capital who wrote a piece called shifting BC incentives and I think it's a really well- written piece about the perverse incentives around big venture capital and I think he does a good job of kind of explaining why the current state of VC is not really sustainable at a high level the thought here is that fund size have grown so much on these big BC C firms that partners are now focused on getting rich by the 2% management fee instead of the 20% profit share right which is the historical re way people make money in VC I I quote this shift encourages to focus on quickly deploying huge sums of money to secure predictable fees

sometimes at the expense of the founders long-term success he writes in his article so to be clear here's the the model for VC is a fundamental 2 and 20 right so smaller VCS get you know raised between 50 and hundred million dollar or whatever they get a 2% management fee and a 20% carry that means that 20% of the proceeds from the returns made by the Investments over the initial investment amount is given to the venture capital and that's how they make the majority of their money historically the 2% management fee is just a way of paying for small salaries and and operating results so at the end of the day the partners really couldn't get all that rich with a 2% management fee so they were aligned and mutually aligned with the companies to find an exit for the portfolio companies right to get the best returns possible with the biggest exits either an IPO or a sale right so everyone was mutually aligned on the outcome during that time of the original

type of the VC firms so I quote again in the past the only path to get rich for GPS also resulted in a get-rich path for Founders today there is a get-rich path for GPS where the outcome of the founders is irrelevant doesn't matter how the underlying companies in the fund perform you collect the annual management fees regardless so again the incentives are not aligned in this current environment between the LPS the partners of the VCS as well as the uh Investments so again this creates perverse incentives you know it's not about returning outcomes for Founders at all it's about investing as much as possible as fast as possible so they can continue to raise funds so that they can get additional 2% fees so when a16z is Raising A7 billion doll [ __ ] tenture Capital fund that's $140 billion that they're getting to spread around to Partners and staff and pay for their [ __ ] insane parties at GDC and

ridiculous speeduns that make no [ __ ] sense every few months you know so again the perverse incentives here are one is to drive as much investment possible at insane valuations two once the funds are depleted to raise even more funds to build the 2% management fees and then three by investing in so many companies that BC per firms can't possibly support all these Investments right so the more Investments they have the more they're spread out in terms of support suppor in these guys and number four by the time anyone gives a [ __ ] you know 10 to 15 years from now these VC principles are going to be driving their Bugattis in some [ __ ] Villa in the south of France right they don't give a [ __ ] right they've already made their money because the 2% fee is what's paying their salaries right and they're huge salaries did you just describe a Ponzi scheme exactly I feel like I'm watching The Bernie made off Netflix special as you describe this so Edie another thing that makes this a quick Nuance that makes it even worse um from an exit perspective

from an m&a or uh IPO is that providing such large Investments at later stages it does not incentivize the company actually to get ready to get public because all their funding needs are solved by venture capital and also increases their valuation putting Acquisitions off the table they they become unacquired to some degree at these levels so why does this matter for gaming because this is what happening across the board and I don't want to pick on second dinner because I love those guys but this was listed as the biggest success in investments in the article right which because they raised a100 million do from Griffin right right this is not success in bener capital or at least it shouldn't be it's about exits it's about IPO and acquisition it's not about raising the most amount of money right raising a high valuation is not the endgame for these companies so and then the other investment success that they're talking talking about in this article is like action face which sold for $10 million ectra was $21.1

Million these are not successes firewalk was a kind of an aqua hire by Sony and that was shut down after Concord snow print was equired by stillfront and we know how that ended up the stock is down like 95% from its high these are not successes these are not exits there have been no successful exits in any of these Investments that I could find anyway so again I think these big VCS have kind of lost their way and I would be very hesitant as a Founder to take money from these guys they don't share common incentives with the founding teams at all I would work with smaller funds that are hungry and aligned with your success and that can add value to either the strategy of what games to make or to how you develop the development process or finding finding new people or whatever and then find a strategic publishing partner that can help bring your game to market right like more of a traditional model so anyway I thought the article was really interesting I think it's worth a read just so you kind of

understand kind of like how things have changed over the years but any other thoughts from the panut gallery well I just want to know if I should schedule a podcast cage match with you and Moritz on the right VC Philosophy for games uh but seriously so are are you saying that there's no path for VC for ingame cont and this is probably more on the content side right like this isn't necessarily distribution or Tech or you you know are these amounts just too crazy so I I don't disagree that there's you know a model for success in the BC world that the the model seems to require these really high multiples to do payback but where do people go when they want to try out a new idea and they want to try something new does this in a sense scare off VCS from ever investing in anyone ever again well I I I would argue that this is probably the best the most valid argument right they are providing liquidity to fund new ideas right and but I would also say that the it's not

setting up these companies for Success like you know allowing these ridiculous like million dollar salaries and Skyhigh valuations and most importantly not really setting them up with any operating experience to guide them on what to build or how to build it right or how to get their games to market right they you know VCS should not be [ __ ] Publishers right VC should be VCS right so I I think you should just leave the publishing to Publishers right so finding smaller VCS to help you kind of get to get your product ready for a publisher that that's probably the best way I would say to get to Market so what of course one of these VCS Who Shall Not Be Named but it starts with a more and ends with an its said very eloquently to me after sharing this uh article he said I quote I understand change can be scary just don't become that bitter old man who yells at the clouds I said too late already there so does he know he was

talking to yeah but seriously these type of chames chames are not always good right and I don't think these this new BC environment is good for Founders at all or the LPS for that matter the companies the employees and the industry as a whole right this is a big Ponzi scheme that will blow up when these principles are long and retired living out in the [ __ ] their dreams in the Riviera you know with their Bugattis and their hookers but I think we're already seeing these results in the market right you know like this there is no exits right now right these devaluations are ridiculous right so I think I I will be proven right but meanwhile all these guys at these VC firms are going to get far wealthier than I can imagine why isn't there a bracketed management fee system where the first let's say you know $500 million is at 2% and the next $250 million is at 1% % because why do you need like I would imagine that there

are fixed costs to deploying capital I guess that would also be the Counterpoint to you Eric is that a16z isn't using fixed costs as the fund sizes have increased that they're deploying that management fee against things that help these firms move along the funnel speedrun being one example of a tutoring process they now have like a head of acquisition like they are becoming a mini publisher it's starting to almost become like a venture studio and I think it's just because they need the capital to go places and so they need to kind of go in into the early parts of the funnel because they need to widen it it's not big enough right now but I would argue like they're at least deploying some of these Capital right like I don't know if the margins at a6z what Mark andreon is retiring I don't know if his fund size or his yacht is increasing because of this it looks like some of this is being redeployed no I again but do you really want andreen to be a publisher of video games that really maybe is that the VC role is that the change that Mr Moore and itss is talking about like is that a good thing for the industry is that Venture capitalists become Publishers they're filling a gap I think

they're filling a gap right now because Publishers aren't publishing how is that going let me just ask how is that going where where are the successes where are the exits where are the outcomes dream games is one example that was a huge huge exit Graham games there's been Acquisitions along the way no no those are not BC funded things the way yeah that's exactly the opposite of what I'm talking about I think it's fair to increasingly ask these questions but I guess I'd be curious what are you looking at like a five-year time span to get an exit you know a lot of this happens during Zer so you still got a couple years to go until I think we can put the final marker on The Ledger right yes no that is true yeah I'm making a prediction that this is not going to end well and I think the the one part of it I don't understand and I don't think they really talked about it as much is why is are the LPS still throwing money at this [ __ ] right they're seeing the results bew yeah I mean like we're talking about endowments that have billions and billions of dollars in Harvard Yale you know all

these you know other institutions that are out there throwing tens hundreds of millions of dollars at these guys right so again get this gets really complicated because the IPO market is closed the m&a market is closed right now so no one's seeing any exits on any industry much less gaming and so it's like I don't know why they keep throwing money at this and what I've been hearing though from LPS that I've talked to is that they're all like they're sitting on all this money inv money and they have no way of getting it out it's completely a liquid so CS it's getting eaten by inflation yeah no no they can't touch it they can't even put it in like safe CDs or something like it's already deployed it's deplo yeah I said it's deployed okay it's no it's the deployed and then it's also promised as well so they have like they're on the hook to give them money going forward that money is already accounted for and I think if B the drugs they wouldn't be putting it back in but they're already committed to it right the the music is going to stop

eventually right unless the IPO Market changes or now maybe with Trump in the office maybe the regulatory environment will come down and but who knows right but like maybe that's what they're waiting for and then I'll be wrong right if they get more liquidity and we get more things to Market but s that's a separate thing though gaming is a specific [ __ ] thing that's why I wanted to avoid that subject because that's much more complicated and out of my wheelhouse for gaming yes BC never made sense and you could ask almost everyone in BC believe not that's not true a lot of people believe this true to be true is that the BC should not be [ __ ] Publishers and that's what they're acting as and it's a specific problem to for gaming versus the rest of the market I've heard very similar comments from I had the pleasure of being in a lot of women investor meetings and brunches and and things like this and I've heard very similar feedback as well from that side of things why doesn't VC invest in a publisher so I that that's where like

maybe there's an opportunity because all of the Publishers are kind of shut down if you think about it like they're also saying we're only focusing on our own IP we're GNA only you know do very specific things you know we talked about companies like play takea earlier today saying like oh we don't want to make new games so the challenge that I hear as I'm out there meeting with different people is that there are no Publishers giving out checks that are meaningful checks the checks they're giving out are like a million dollars and under and you know the these types of developers that have these aspirations don't know how to make a game for under a million dollars like that's you know younger folks that are like okay I can go and do this so why doesn't a VC like fund a publisher and give them money to do something investing in a publisher does not meet the criteria for VC returns just full stop yeah no I get it they need a 10x like they're going for 10x Plus other [ __ ] as 10x I mean they it's like investing in you know an

an a kid who wants to go to the NBA and it's like a 0.1% chance that that thing is going to actually succeed I guess they're trying to you know earlier whole thing about causation and causality it's like oh these people worked on games that were really really big so they must know how to go and do it and start the next one and maybe that some of them do but I think we don't have the results on that yet you know even Frost giant right like frost giant look we have tons of results of this thing failing there's been no success really in terms of liquidity right there all been failures so far coming from the 2020 you look at our cohort the cohort of theal the cohort before that in terms of all the companies that spun out of blizzard and Riot like we've talked about right there's been no success I mean but that doesn't mean there's not going to be success going forward it's always a potential right but like it just doesn't the way the model doesn't work in this environment and

again back to the original point of this whole thing is that they are getting paid on deployment they're not getting paid on returns and so if you think about it with that incentive they should just be investing in anything they can because then they can get make raise more money right and so this is the problem right this is the fundamental problem and I've heard from some of these bigger BCS is that they all know this so they they know where they're their money is coming from right and I don't think they care as much on whether they actually get returns that's what's scary right and so again the whole other argument about why VC doesn't make sense for gaming I wanted to avoid this time but like what I'm saying is that these incentives are not aligned with Founders and the founders need to understand that because a lot of them are not that sophisticated about this stuff they they see the fact this is the point that was made in the article and I want to reiterate is that they see the fact that they are now worth $400 million on paper and that's a win right that is not a win that is a fail right like that precludes

you from a lot of things like from exits by being that valuable right that's not a success hund hundred million doll for second dinner investment not a success that could be the opposite of success depending on how things go because you're GNA be at a huge valuation that may you may never actually live up to right if they had sold for $400 million after their first round correct that is a success right that is a [ __ ] huge success but that but being invested in it from Griffin right like you know like that that that's the problem and so he writes about that in the article as well so this is a great Public Service message to all the founders out there who are kind of staring at that shiny valuation number and I think your lesson is really important which is those aren't the droids you're looking for you shouldn't be chasing a valuation number you need to be chasing your exit you actually just need to be raising the right amount of capital to do the right

thing hopefully keeping that lower being efficient so that you can ultimately likely I mean get acquired that's really the exit that people are looking for is that kind of a summary of yes is the risk that you put the VCS on your board now that they've invested they have real control over your company and they push you towards an exit that you're uncomfortable with which is you know either going public or multi-billion dollar valuation you can't choose the one you want or you get pressured and exiting and maybe you don't want to do that at all all but if the incentive is in the deployment at that point they don't care right exactly exactly that's that that's the issue but they double dip though but they would double dip and get the win they would fin I didn't explain this well at all I was trying to with his best job I can no they're on the board they don't give a [ __ ] if they get liquidity so what's the downside for Founders the downside for Founders to to take the check is it's not high right they aren't going to push you to in fact they're not even going to be involved that sounds awesome as a Founder like just give me the check yes and no no

because they make the most money if they exit if they get sold right and not mentioned the LPS which are gonna be just stuck with nothing right they get no liquidity on the lp side oh sure if you're taking the lp perspective I'm just thinking about Founders themselves thinking about like should I take the VC check if it's in front of me well Ian I think they are but I don't think that's a good thing for the longterm viability of the company itself like you're just going to be the walk wounded right you're going to be I think there's like 30 or I I can't remember the number there's a huge number of unicorns out there they're just the walking wounded they The Walking Dead they have no way of exiting because they are funded at such high levels that it's impossible to get sold and impossible to go public because they're just not ready for it right they're all set up for failure not success because of all this funding um I feel like you would expect if you take money from a VC at least I would expect some sort of doesn't have any publishing support but I would expect I get this person's expertise I get their

connections and it sounds like that's also would be missing from these Founders and whether the founders May realize it or not that I feel like that they are going in less armed and less prepared than they could have been had they gotten more interest post deployment of funds no I don't think you go to a VC expecting to get that kind of help I would I'd want to pick someone that was okay maybe I'm too ideal istic I'd want to pick someone that kind of really wanted to see something great come to Market or could offer some you know could offer at least cover some of the gaps that I know I would have I just want to focus on the like the fact that all the incentives are not aligned to do what you're suggesting right yeah again if their incentive is to raise money and deploy money that is a completely different thing than investing and wanting that 10x return right that's why these things are not working right and the why they likely

will not work is because when you spend $100 million per second dinner at whatever $400 $350 million valuation or whatever or the carry first whatever the team is in Africa or you know the kid valuation stuff like that shit's absurd right like and and that's because the incentive is again to deploy and raise and not look for the big you know 10 time to exit so got it understood I think you're right I think I'm gonna get Mor on this [ __ ] podcast and deep this out and debate if he showed you a breakdown of the management fee and how that capital is being reinvested into the business that Personnel costs are rising would you find that persuasive so like the VCS are using that money in order to help yep I think Chris's point is the outcome hasn't been there to justify that that's fair I agree on that point but I think there's just there's a number of facets here right there's the perspective of the founders there's the perspective of the VCS there's the LPS

and I think there's also like you know how do we think about what the VCS are doing when they're raging these really large funds because we're suggesting something Insidious like this is their incentive is to go out and just raise the large fun because of management I'm I'm suggesting that by way I I want to make sure that I have been saying this but this is what These Guys these experts in the VC have been doing this for 30 years you know they're saying it right these Mega funds are just their incentives are all [ __ ] [ __ ] up right like this is Benchmark these are like main guys and so I think Morris's point is that things have changed the VC world has changed either embrace it or go to your grave you know and and like become worm food or something you know but like that doesn't mean it's good I don't think change is always great you know but I mean they're taking money to the bank they're well they care right they're making they're making Oodles of money so even if you were to tell me that they are deploying some of those funds to help publishers how much money is going in their pocket versus going into the Publisher's pocket from you

know that perspective right like in any Ponzi scheme at the end of the day like five to 10 years from now we will know exactly as these big endowments write down these huge Investments on these funds that have been paid back or the opposite right you know we'll know right I mean they do have like a s to 10 year Horizon now it's more like 10 to 15 According to some sources so it's really really far out there right you know like I mean I'm going be long retired before this [ __ ] comes to fruition um so anyway ah moving on yeah let's get mors on WE we'll hash this out yeah I think that would be a fun podcast is you know what is it today and what is it about this article that is not framing that correctly or not and how are you using the management funds to help companies be better you know maybe we just don't have all the info so Mor let's do it all right everyone thanks that was a good chat all right good times see you next

week you did it you made it to the end of the episode as a fan of the show it would help us out if you subscribe and leave us a review on the podcast service of your choice more importantly are you a member of the deconstructor of fund slack group if you have 5 years or more of games industry experience go to deconstructor of fun.com slack and apply to join join the games industry's best professional Community filled with peers always willing to lend a hand or subscribe to our newsletter to get all the latest insights from the deconstructor of fund content creators thanks for listening [Music]