7 x GAME INDUSTRY TRUTHS with CHRIS HEWISH, PRESIDENT of XSOLLA

welcome welcome welcome everybody to the deconstructor of fun podcast Our Guest today is Chris Huish president of exola and also current interim CEO Chris welcome back to the podcast thank you Mel glad to be here yeah and and this is an honor since you woke up like you woke up probably before 5:00 a.m. you're currently North Carolina and it's 5 20 there 5:20 a.m. right it is it is bright and early so got up uh pretty much before the entire world out here but uh that means that we are undisturbed and I can focus on having a great time with you yeah I I I can only say that probably I wouldn't even wake up to do my podcast at this time but but thank you so much for for accommodating to to absolutely insane schedule and um for those who don't know Chris Chris has uh in addition to being being the president

of exola as the enm CEO he has a long tenure I mean you have a long tenure in in games industry sky dance surval DreamWorks and a good 13 years at Activision started your career at Gameworks where you got the job by writing uh the most interesting cover letter or like letter of recommendation from an orc to you the young student who wanted to work at at DreamWork so you're uh you're a true game executive starting from from uh from the beginning of your career yeah thank you I you know games have been my whole life basically grew up in a hobby store playing tabletop games and that letter that you referenced when I when I got out of University took a shot at uh applying at my favorite company which was Games Workshop and having no experience to speak of I wrote them a letter of Rec recommendation from an orc War Boss and this orc War Boss was recommending this dis woman you know that's how they speak

in the Warhammer universe and recommending that uh that I that they hire me and much to my pleasure and surprise they did and found out that that letter actually really hit the nail on the head because they were looking for people that were passionate about the the core product and um this really displayed that passion so that kicked off a great career and brings us to where we are today so it's been a well traveled career and um I'm just happy to come in and be able to share some some thoughts and insights yeah I mean it's always great talking to you like and and I feel like we could talk about everything because last time we talked we were Gamescom and I remember out of all the topics that we discussed I think we discussed wearing a weighted vest or a rock when doing Rock walk so it's like it can go from anything uh in terms of topics and from games to to sports and also you know everybody in the industry like through you have got an introduction to to the

likes of Goldman Zachs and and have them you know had those interesting discussions so so we can what I'm trying to say is like there were so many topics to decide what we could talk about that I decided let's just talk about everything and so I I went I went through your uh through your LinkedIn and you've been naturally active on LinkedIn as as any um any any leader has to be these days and you've been posting a lot of very interesting polls as as well as write ups about the industry and the implications of those so it kind of selectively went through different things and created this sort of a rapid fire session so uh would you like to attend I mean you can't say no now but would you like to attend to a rapid fire session about the games industry yeah I guess it's a little late to walk away from my own fiering Squad here huh yeah this this is how we get executiv to say anything no but U but yeah that would be that'll be interesting to kind of go through what you've been writing what you've been getting feedback on and then talk about

that in more depth absolutely yeah I'd love to you know being able to cover a variety of topics and dive in um happy to jump in with you here all right well let's start with question number one so this is a lot of these could be a little bit on the negative side but let's let's let's get some positivity into it so uh so the first thing that I want to talk about would be the macroeconomics of today uh and how that affects the gaming industry I'm really curious about this just you know because of I studied economics and I always drift back to that those are the uh the news news that I like to read the Wall Streets the financial times The Economist and um and kind of looking at the macroeconomics of today and what has been going on for for a few years now there's there's a lot of factors that are affecting the games industry at a at a macroeconomic so at a higher level uh number number one the

inflation rate meaning that the same money buys you less and that forces companies who can to increase their prices number two is the interest rates so because of the high inflation the central banks increased interest rate to decrease the money the amount of money circulating in the economy and in practice that means that the uh the mortgage prices have increased the payments for cars have increased as well as on the uh on the investment level the uh the appetite for more riskier Investments such as crypto has decreased because if you keep your money on your account or on a specific account that actually uh brings you safe uh return on investment through through the interest uh and then there's some us specific and we're going to be quite us specific because that's the biggest economy of the world and and and so forth so student debth payments during Co time they were stopped uh and now they're set to reassume or uh to be recollected

again and that's I think it's calculated to 100 billion at the moment annually that these these uh these payments will take and we've seen a lot of strikes as of late we've seen the Hollywood strike we've seen Auto Workers being on strike at the moment uh I think there's a game developer strike and so a lot of this type of a unrest that seems to come from just less disposable income all these factors affecting less disposable income and I'm very curious to hear your opinion on how these elements affect uh the games industry I mean I'm old enough to remember 2008 when we had the last recession which was actually pretty much a boom for games industry but how do you see these these um these you know economic downturn affecting our industry now yeah these are all great points and you're right you know 2008 really sort of while the rest of the the economy and the rest of the world or different market segments were going down games did see a lift um and that you know that has fed into a narrative that's been

ongoing or persistent where games are kind of a a counter recession uh industry where they they tend to do well when other Industries go down but we still need to keep an eye out for that and you know as you pointed out interest rates um you know cost of things really have a big impact on on the business and I love talking about macroeconomics about around the games industry not to be Doom and Gloom you know we talked a little bit before we got on here and it's like oh my gosh this is this is all negative we run for the hills but um but it's really important to keep it in mind when you're thinking about your business because it can impact a whole host of of things um you know everything from if you're going out there trying to raise Capital how do you how do you adjust your pitches uh what kind of messaging do you lean into or business plans do you lean into that might be appealing to investors when we were in sort of the boom times of a few years ago and uh as as they say Capital was free meaning

that interest rates were near zero or are extremely low so it was very um cost efficient to fuel things by borrowing money for investors uh at that time investors were much more willing to pay higher uh valuations on things they were willing to invest in more experimental uh Technologies or ideas or unproven teams and uh that all happens when when the market is kind of booming but where we are now with interest rates up um looking at last year I believe the interest rates in the US were 8.26% uh up nearly 5% from their long-term average of 3.28% and and that means that the cost of that capital for investors gets more expensive uh because it costs more for them to borrow it from central banks uh or for their um the people contributing to funds the limited partners and whatnot it costs more for them to you know to use their money and that changes the kind of Investments so

that's one area if you're if you're running a games business today and you're looking to raise Capital the investors are really looking for things that are sort of safer bets they're looking to drisk their investment as much as possible so they're no longer uh investing in the hyper growth kind of initiatives they're really investing in proven teams profitable companies so keep that stuff in mind right that's that's why I like to talk about macroeconomic uh conditions but then you know you talked about some other things as well like in the other impacts that inflation have um you know inflation just to remind everybody is as you pointed out uh inflation is really uh you know when the cost of things go up right over a period of time prices increase and that translates to declined purchasing power and that is becoming important these days as we're seeing a real squeeze on um people when it comes to spending uh you mentioned student debt I think the average monthly student

debt in the US is $500 uh per month um which is a lot of disposable or discretionary income that can't be spent on games and uh not only that but the prices of the games could be going up um you mentioned what was it Capcom I think you said yeah Capcom president said he said uh this week he I think it was this week was the statement that even though we've seen the price go from 60 to 70 uh and he was saying that that's not enough like we need to keep increasing because even though that is significant increase in price it's not in line with the increase of cost of developing these games over the past decades yeah so there you go you know that's a that's a great example of where inflation can have a real impact on the games industry where those those game prices are going up and at the same time disposable income is going down and the um value of the the sort of the money or the wages that we make is also going down because

inflation is going up so it's a real squeeze and um you know it also can have an impact even if you know you're M you're out there you have you're running a games business and you're saying you know well I'm not really raising the price of anything in my game so I'm not passing that cost on to the consumer well the reality is that even if in-game currencies stay stable and inflation's going up uh they are getting more expensive because the absolute value of those items even though the number has stayed the same the impact it has on the consumer has gone up uh so this can create some real uh sort of defl or inflation on your your in-game currency as well that hurts hurts your overall game business um so it's just something to keep an eye on no no specific recommendations but whenever running a business like we're part of this this macroeconomy and it's something that people really need really need to keep uh I think keep track of yeah those are those are really good points so especially with those who are raising the capital capit so as you mentioned

the Dr risking the having the The Proven business model proven team uh really focus on getting to revenue fast and the second point is like when when we are being compared as an industry to 2008 recession um 2008 was drastically different in terms of entertainment that was provided to people compared to 2023 I mean we didn't have Netflix's we didn't have all these subscription Services we didn't really have mobile phones and freeo playay back in the days like we had p products and at that point if you went out and bought your Call of Duty that gave you a lot of uh a lot of time or Madden or FIFA that gave you a lot of entertainment for the same value but at the same time like you know we have now services that are almost mandatory for some people whether we're talking about Tinder whether we're talking about spotifi you know as I said the Netflix's and some other subscription Services these all take from the the diminishing disposable income that people have during the recession so that is um that is the uh the challenge I feel like the game

industry is is is facing at at this point and and kind of continuing from that is like when you have higher interest rate and when getting money is more expensive it exposes a lot of businesses that were not being that that that um that were relying on cheap capital in the sense so they could grow while not being profitable so Blitz scale if you will and one of those businesses is of course dear Unity that um I think was it last week or week before had objective objectively objectively the biggest communication blunder of the year I would say so maybe over the over the couple of years uh something that forc you know forced them to back trap backtrack their communication they took tremendous brand damage and just in terms of monetary value they lost 25% of their stock which accounts to to my quick calculation to about three billion dollars give or take few hundred millions here and there so the but but the underlying reason why

Unity went to this route in my opinion is that the the fundamentals of that business have been off since the beginning and they're just now exposed because they can't go to the money market and just get few billions more of of of uh of cash or or ass you know of cash basically to continue growing to continue growing the revenue despite being increasingly less profitable and that fact that their Core Business is not profitable and the fact they' spent I think I might be wrong but I think the number was around four billion in different Acquisitions out of most of which haven't being able to diversify their business enough and bring those growth areas apart from the ads business that has been extremely successful with the acquisition of of um of applifier here in Finland that became Unity ads as well as the acquisition of iron source that allowed them to to to to Really scale this this ads business so what's what's your take on on unity and what do you think are we going to see more companies um that have been unprofitable

to kind of force themselves to be profitable and that coming in as a shock to the ecosystem like Oh I thought this was free it's like no no no no no it's it's not yeah absolutely I mean gosh you know Unity I'm big fan right of unity and and what they've done for the industry and in sort of democratizing the ability for people to make games and get them to market right so the the engine and the technology is fantastic but you're right I mean they oh boy that that was a um still you know as somebody who does a lot of messaging I am still trying to figure out what that strategy was in the approach to to putting that messaging out and putting that plan out I mean they they have done a good job I think over the past week of clarifying and refining that a bit and shifting it to more of a uh a revenue share fee uh if if people are interested and and all of that um but you touched on I think you know and this links back to the macro

stuff macroeconomic part of it is you know there were companies that when when we were in these low inflation rate or low interest rate uh periods companies were really focused on hyper growth and that was this narrative that's what investors were looking for and uh there's there's this thing called multiples that a lot of people are probably familiar with where uh these multiples um sort of establish a valuation for your company and they're really impact by how investors view the potential for the business and we had these multiples that were much much higher a few years ago for tech companies and now those have come down and that means that not only are these companies worth less but the as we said that access to Capital is down and in the case of somebody like like a Unity who's been focused on The Narrative of sort of hyper growth and market share and all of that they now really need to figure out how are we going to generate revenue and shift to a narrative talk about profitability and what is our

margin you know very much p&l management and profit and loss uh management versus the growth management and that forces companies to come up with new ways to uh generate more revenue and you know there's I'm not saying this the saying applies to Unity but it's a saying that I love and it applies generally in this situation and you mentioned it a lot of companies kind of are being caught and and called out now and and facing some issues but the there's a saying that that uh somebody I worked with in the past had said which is deodor uh what is it success is a great deodorant right so I feel like success in the sense of you know hyper growth or generating a lot of Revenue um for for some other companies that might be down um but that that success of the hyper growth phase kind of covered the fact that a lot of these companies don't have great core business plans so they're going to generate additional Revenue so a lot of people are now scrambling to figure that out and I I think that's what we saw with unity um you know obviously they've got

a great place in the industry I think you know we all know there's a lot of probably competing ideas inside the company on how to grow it and it's been interesting to watch this play out um but I do like the shift too with their their Pro and Enterprise uh developers shifting to an option of just doing a a revenue share fee uh you know similar to what unreal right epic is done with unreal yeah and and just to be clear I don't think unreal is profitable either in terms of the Unreal Engine so so it's a it's always a little bit of a confusing when I when I hear these um propositions of whether you should build your own engine or whether let's use this or that these are not good businesses as as a business themselves no so it's uh it's it's it's quite um quite difficult position where Unity put themselves in but they also succeeded perfectly on the strategy of of the past decade which is Blitz scaling which is just taking over the market by being excellent at raising capital and I don't

think there's many people that are better than that than Jr who has been able to sell the company over and over and over again with multiple different positioning and that led to the multiples that you were talking about and multiples is the valuation valuation of unity has gone to about 200 billion I think it was at some point um at least the stock was no the stock was worth 200 a piece and now it's 30 so I'm not sure what the valuation is but from 200 to 30 that is a quite of a drop and then what happens is you can't you can't um you can't take as easily money off the market and money is more expensive because your valuation is lower like you're borrowing against an asset and if the asset depreciates so significantly now you have to figure out your core business so it's all tied that's why we talked about macroeconomics and then how that exposes uh the the company Chris I think you checked the the valuation I I did I did I just pulled that up so you're right you're right so currently

its value its market cap is 11.68 billion and it's off of $30.45 us per share and you're right it was um back in November of 2021 it hit the all-time high of of close to 200 um so that is a significant significant drop and you know one of the things you mentioned which I think is a great point for uh anybody who's who's running a games business to keep in mind you know John Rell has done a fantastic job of raising money as you pointed out uh over the years and one of the one of the bits of advice that I had got from somebody on the banking side of things as to why he's able to do that is he is always out there talking with the different investors and the bankers uh all the sources of capital you know building up a relationship and this is a lesson that I think can be taken for for any business of any size regard you know whether it's talking with your community or talking with investors or or whatever just that communication keeping an open

dialogue um beginning that dialogue early not just when you need something um but building up a rapport and at least this the way that I had heard it is Jr was able to go out and do these raises because he had already established a rapport he was a known quantity the business was known to all of these people all of these investors before he asked for for you know a raise and then when the time came to to uh raise money he was able to pick up a phone and people already knew him they knew the business they knew what had been happening for the past x amount of time you know months or years with the business so he didn't have to go out and sort of introduce himself and Pitch you know arrays at the same time so I think that was a really he's really smart about that and that's something you see a lot of successful companies doing where they just take the time to build that report before they actually need anything and it makes it a lot easier yeah it's it's it's good that you're rais it because it's quite often undervalued by general public the role

of a CEO in ability to raise funds because with funds you have nothing and it's always underplayed a lot like whether it's SC scopely for example they've done multiple multiple rounds before they exit to Savvy games group and you could say well Walter driver he doesn't know much about games and this it's like it doesn't matter he gives the fuel for the company to continue growing round after round and each round becomes much more difficult and operating or running the company becomes also more difficult because your board is expanding with so many stakeholders at at Bay I think towards the end they must have had like 100 funds at SC scof but it's a yeah but it is a testament to people like Jr and Walter uh and and many others whether it's you know CEOs of Ubers and lyts in their ability to to convince the market by show by having both the social capital as well as the performance Capital uh that builds the trust with the market all owing these companies to grow faster

than they would if they would be simply profitable and fueling it with with uh with with their own you know Bank rolling their own growth uh and there's different ways to do things interest rate exposed this at some point and it just allows the like forces the companies to shift their focus from growth of Revenue of Topline to growth of of profitability of f so that's that's the case of it so yeah just wanted to give like another side where people are always downplaying well it's all depth money it's like try to get 10 million try to get a 100 million try to get a billion from the market like you have to be pretty good at selling if you can get those type of numbers exactly so see there is justification to go out and play golf so it's a yeah and and all these boond doggles all these events where you meet people and have dinners and so forth and it's it's like the uh the relationships that these these CEOs and these Executives have built over decades as uh is you know honestly like value in in uh in

their weight of gold uh in that sense because yeah just companies it really is and and you touched on the boond doogal and I know that's a running sort of you know joke right um but but you know translate this into something that's really I think actionable for a lot of a lot of the game developers out there who are running businesses who might be listening to this and saying that's great you know but I'm not looking to raise a billion dollars right now someday but not right now but but what you know this is still actionable now in the sense of you know going to events uh you know getting your just becoming a known quantity within the industry uh because you may you know it may then make it easier to work with an ad service or you may be able to get across promotion or there may be something else out there right that um allows you to pick up a phone or send an email and when you meet it and know that that person's going to respond back and help you out so it doesn't have to just be about raising money it really is is anything that can help you do do your

business and and the takeaway is you know if you're a known quantity and people know your know your business or know your game um and they know that you've been around for a little while they're much more likely to help out than if it's a cold call we've all been there right you send out this just a cold email or cold LinkedIn message and it's like yeah I'm not gonna get a response so yeah it's a it's it's fascinating to me I'm I'm a big fight fan so it to me it brings the the element of promotion uh that goes into in the fight business whether we're talking about boxing or UFC these days it's like there are two types of successful Fighters there are those who quote unquote let the other fists do their talking aka the martial artists uh and then there's those who are good at promoting themselves uh AKA talking and then the best ones are both so they can talk the talk and they can walk the walk and of course we're not talking about only being able to sell you need to be also to deliver and when those two things combined that uh

those type of people can can truly spin up great businesses um because of their connections and because their uh performance Capital that has shown that they can deliver upon upon what they say they will so in in that sense like you can you can take both paths but I'm I'm just very from a lot of game developers they they want to focus just on making that great game that's important as important as raising what I'm trying to say and oftentimes it's not even up to you if that game will be great things can shift in the market platforms can come and go uh there can be shift in PE in people's preferences or Pokemon go can launch on the same week as you do or Diablo 4 stuff like that and those will have significant impact on years of your work um and so not everything is in your hands and and I would encourage people to do both and just find their perfect medium in how much they want to do the promotion and how much they want to

focus on on the work but but I think both are important for any type of a leader yeah you're you're absolutely right and um gosh now now I'm going to be you know thinking about Muhammad Ali and uh like a butterfly sting like a bee right he was great great both dating myself yeah yeah exact oh nobody's dating themselves when they when they quote Mohammad Ali but uh but that's that's a great example he was a great but he was also a like great talker and when those two things combined he became magnitude larger than his opponents that were great Fighters absolutely yeah um so let's let's switch gears back I have a question about something that you had on your LinkedIn uh it was about behavioral economics and and gaming I think you wrote a quite of an interesting uh post about it on medium and for folks that uh that are maybe not not that familiar with behavioral economics it's the field of Economics that combines the insights

from psychology and the economic study to uh and economics to really study how people make decisions in the real world situation because when we talk about economics in a very traditional sense it always assume that individuals are very rational they always maximize the utility uh as an example if I go in and buy a soft drink uh let's say I want to buy a Coke tasting soft drink I would probably take the cheapest with the with a flavor that I like but in real life the decision is is deriven by such a multitude of factors and this was actually a simple example but factors like bounded rationality meaning that I haven't like people just don't have enough time to investigate every single thing to make the right decision uh and we use a lot of mental shortcuts to make those decisions there's cognitive biases you know with with whatever de decisions we make we can have overconfidence uh we can seek certain arguments that support our existing mental models and then there's of course the social and mental Factor s that we all have uh and they play a huge role

because these are things that set certain Norms they set up peer pressure they can cause emotions like excitement or fear and and all these things are not actually covered by traditional economics uh so so but you had a very interesting thing how behavioral economics and games fit together yeah absolutely you know this is something that that I really believe in I think when you're looking at at your games business looking at other Industries and other um just areas of expertise right of what you can draw in and behavioral economics is is a big one and I know a lot of the product managers and monetization experts out there are already all over this but it is something that a lot of game developers um should always be aware of even if you're not an expert in it but this idea that um the way your players behave the psychology of how they interact with your game how you are building your monetization when you're presenting offers to them there is a psychology to all of that and it really it really can benefit your business if you understand

it um and and you're referencing a thought story article that I wrote called Hey Big Spender and and this one was really around some of the tools that you can use with behavioral economics um you know it was really triggered by when I was thinking about this a friend of mine you know air quotes a friend back in the day playing an MMO uh who never really hadn't paid for anything in a game um I remember that uh they were presented with a mited time offer for a unique Mount and after after achieving something big in the game and the offer combined and they went ahead and purchased and it converted them to uh from a player to a payer and this offer combined uh Rarity with a sense of achievement and it played on something called the scarcity principle of Behavioral economics and this is a principle where uh things are kind of a scarce resource they're only available at a certain time and uh I mean I'm butchering the principle but gener that was the the key takeaway and it was used in sort of the the design and and when

to present this offer and uh resulted in an actual purchase so you know behavioral triggers uh can really influence uh a lot of in-game spending and there's a lot of research around this um there's actually a a number of studies and reports around personalized reward systems uh bonuses based on gameplay Styles uh engagement all of that in particular I I was referencing the state of personalization 2020 three report and they had some great data points in there where 56% of consumers are players will become repeat buyers after a personalized experience which is amazing that's a very powerful thing um McKenzie did some research um they found that some of the fastest growing companies Drive 40% more of their revenue from personalized offers than slower growing competitors and um additionally uh businesses report an average of a 38% increase in spending when an experience is personalized so

personalized experiences are another thing around behavioral economics of whether it's uh personalized at the timing or personalized to the players's um play style right or or things like that so really really good stuff to keep in mind um and then you know finally a good business case or real world example uh our friends over at um tilting point with uh Star Trek timelines they use limited time offers to create a sense of urgency uh in in really effective ways and then of course our friends at Epic with fortnite they're always rotating the items in their shop uh and that really leans into the fomo principle the fear of missing out uh which is a real thing right where people really can get caught up in fearing they're going to miss out on something and that'll drive a sense of urgency to go ahead and and make a purchase so a lot of different uh psychological tools that that are proven um we see a lot of this in general e-commerce uh outside of games and uh

it's I think it's really powerful to to pull in um to your games business yeah yeah I I would definitely agree I mean this has been on in in product management craft since I started like in 2010 back in Facebook games but um what we had and what was what I found was more useful than let's say bringing a behavioral economic expert uh into the company because they don't understand that business that much and they're not that interested in your business they're interested in their own craft uh what we did um we you know we we read the books and by read I mean skim uh and we created the other ta tables of all these factors that that that are at play with within the behavioral economics like the cognitive bioses and bounded rationalities and social emotional factors and then we would answer ourselves in our games and use examples from others like like what what type of a feature or you know work around

whether it's a sale or a feature either way or a popup like how can we tap in these emotions and what are the examples of it and then try to come in and I think that was a that was a great way to build a sort of a model of your um monetization and engagement features rather than looking at you know fortnite and be like oh I really like this this rotating store but you really you don't understand the the theory behind it and it was kind of like more helpful to understand a theory present an example like we would go and find out examples or just have that in mind when we're playing different games and come up with that example and then go with the team just go in like hey look at what they're doing this is the theory behind it what would be our version of this and that resulted in a much more um Innovative responses rather than than copies and and I felt like it uh increased the understanding of the whole team in this aspect of of app development to be honest but uh my question question to you is more like is there any specific books that you would recommend or

podcasts or um some shows that people can get into to understand better behavioral economics oh man uh I mean there's there's certainly a ton of material out there um you know there was a good article on ux rev.com that that I looked at recently where they talked about five incredible game monetization uh sort of techniques based off uh behavioral economics uh there was also a good um article by a person a gentleman named Lloyd Melnick um talking about behavioral economics for gaming companies uh and this was maybe related a little bit more to social games and casino games things like that but the principles I think still apply um so there's I mean there's a ton of material out there for for people to dive into and I love your point which I think is really Salient around not just Co looking at other games and copying what they do but having uh a bit of an understanding of what is is the principle that's being put into practice here and figuring out what is the best

application for your your game right and it may not be just a if you're looking at a rotating store in fortnite you know that that comes with a whole host of other things that you may not be able to actually put into play in with regards to the volume of content or uh maybe the timing of those offers is appealing more to their demographic than your demographic so it gets pretty gets pretty nuanced and and I think that was a great point that you made uh around just understanding those behaviors and those principles and then crafting them around your game and what makes sense for your audience yeah it's it's more about my prior mistakes and in terms of like my own understanding of things and not understanding that the team doesn't understand what I understand and so I got into into a point of like let's just level our understanding so that so we can work together because otherwise there's like a disparity where I'm showing something and they don't get the theory behind it uh and I think that they should understand the theory Etc so

uh as much as possible give people context and it'll get much better results through through that so yep exactly learning learning um all right uh ux ux reviewer that's actually by omtown Don he's been writing for deconstructor of fund sometimes he's he's uh great stuff from him and Lloyd Melnick he's also written to deconstructor fund and I'm a big fan of his content he's more in the Social Casino side of things and if if something is deep in to human behavior and exploiting that that has to be Casino so so Lloyd is is uh is very much his blog is uh is fantastic so Lloyd Melnick yeah uh fantastic stuff okay those are sorry yeah no go ahead go ahead I was gonna say I think you know another yeah those are fantastic um I think another thing that people can do is just simply look around uh for real life examples I mean uh you know previously i' had written about the some of the lessons that could be learned from the coner service like when you look at uh hotels or restaurants um they

they employ a lot of Behavioral uh economics as well and how they run their businesses also a lot of things that apply to running sort of a live service uh oriented business so you know if you if you don't want to get out there and read a lot of stuff you can still see this in practice in a lot of other Industries and just keep an eye open for you know how other other businesses treat their customers how they present offers to them or how they make you know their customers feel special and uh that's a whole another side of Behavioral economics that that people can pull from real life day-to-day experiences yes yes that that that reminded me of my first year as a PM and the senior PM shout out to timore Hilla who's been at superale for a decade now but he took me into a supermarket and and explained like this is like look at these things and these are all Behavior I was just floored I was like no I just thought that we were just you know supermarkets are supermarkets but then you start viewing things in a totally different way where things are placed how they're communicated the packaging

all that type of stuff so so uh that kind of opens up the door but I would still suggest that you should read uh it's not enough to take it then you're at superficial level if you just start copying things or or stuff like when you read you'll start seeing all of this around you and then you will notice that the conier service is this this service is like that and then you start noticing mistakes in the behavioral economics that they're not doing that they should be whether what kind of service you you whether you're at a massu parlor or you name it it's like you'll see the world in a different way afterwards so that's also a dangerous thing it is it is yes I have have the curtain pulled back y yes yeah everything is Theory after that and it's it's uh problematic um okay so jumping then to another topic like we're all over the place let's talk about trans media and this is also one of those hot topics that have been as of late due to the Fantastic success of Mario Mario the movie we got days gone we got Arcane uh we got success on the game

side with some of the Marvel games some of the Star Wars games and and it kind of erases the not so fantastic success of things like the World of Warcraft movie uh the Halo show that was on Amazon Prime like we don't talk about that and my own personal experience of working on two IP based game so I worked on a game called Angry Birds Rio so in conjunction to that that Rio game the only Angry Birds without the pigs and the uh the the cruise game so both definitely not tier one IPS by by you know by any magnitude uh but the approval process and and working with IPS is is a whole different ballg game like you have to be in touch with Hollywood all the time about every update you do about all the ads that you run and even about the business model that you employ and so my kind of take on this and I'm curious to hear your opinion is like uh the correlation between the success of a

show and success of a of a game there's seems to be that type of a correlation that is communicated uh but is is that success you know justify the investment you have to make both in terms of the development part as well as um just the live operations and the uh and and and the ongoing relationship and and the uh the payments that that sometimes you need to do to the uh to the IP older so kind of curious to to hear how you view Trend media and what it is now and what is the future sure so I mean this has been a big part of my career I've worked worked on both sides both as a lensee and a Lor uh within this business and gonna dive into all of that in a moment and I'm going to come back to that crudes part um but but I did run a recent game poll about this and you know it was really this was triggered earlier in the Year by the the announcement of the Twisted Metal streaming series and uh you know at the time there was a lot of

excitement uh around you know just the different different IPS that had been really successfully brought over uh to linear content and I was really surprised that 75% of the respondents on late then were expressed excitement for more game-based you know linear content more games being turned into shows and um I think that marks kind of a big shift because as you pointed out in previous years we've we are in the past we definitely remember a lot of failed attempts at bringing games over to linear IP media and the other way around right translating uh shows or movies in into games and you know that really highlights I think uh there's not just a business model where uh yeah there's you know I remember back in the day at Activision when we were licensing IPS for ridiculous amounts of money um and and then when I was at DreamWorks do on the other side of it getting these licensing deals I believe uh one of the first deals I did was had a minimum guarantee of of around $30 million wow

for um for a brand new animated uh movie right not even a franchise it was just unbelievable um and you know the problem is that that has a real impact that that licensing fee up front has an impact on the money that goes into development it comes straight out of you know what you're going to use to to develop the game uh Market the game uh because still working with a p&l at the end of the day that has to make sense um so that that expense is is often viewed as a marketing expense and somewhat a development expense and that can really impact the overall quality fortunately I think we moved past that quite quite a bit and you see a lot of deals these days that are more Revenue share based um which is great and and kind of bring us to the second part of it where going either way whether you're making a game or making a show it really is all about understanding what is the core sort of uh fantasy or Val value proposition coming out of that IP if you're going to take a a movie or show and turn it into

a game what's the core play Fantasy that that players have um that's something I've long been an advocate of we actually did a a game uh called turbo I worked with a company called ppok back in the day and uh when I was in DreamWorks we took our Turbo movie which was about a it's an animated movie about a snay all that races right and um turned it into a really successful mobile game uh which this is back I believe in 2011 or so and maybe 2013 no 2011 and uh this game ended up getting over 100 million downloads really popular great engagement uh we didn't really monetize it all that well because it was coming from from a from a media company which is more concerned about reach uh but it did well because we leaned into the core play Fantasy that came out of the film right it wasn't we we didn't even touch the whole story of this snail trying to get to to race at uh like the Indianapolis 500 or anything like that it was uh let's just get this

idea of snails that are tricked out on Hot Wheels type tracks right and that was fun and then that worked um but uh but when it doesn't work I think uh we've all seen that as well and I I'll loop back to our cruds uh I didn't realize you worked on cruds we I was on the other side I was on the other side at dream marks and um you know I was I was not thrilled with how that H came about either I think um you know from from the DreamWork side of it uh I had to do a ton of Education within you know with the directors and with the creative Executives around what are what are games uh what what is free to play because that was the first game that uh robio did that was free to play right if I remember right yes fully free to play yes and I I I created this big thick binder and I went around the whole company giving presentation uh so that they could understand like okay there's this whole freet to-play

thing we need to create an economy and they're going to create a lot of additional assets and things that you know the players can can that that we can use to sell to players and all of this uh because you know they were coming from a film standpoint which was oh just tell the story right recreate the story everyone loves the characters and it's like well you know maybe in in linear content it's kind of the the characters and the story and then the setting right in that kind of priority um but it's it's turned around in games right where it's often about the setting uh more than anything and then what's happening within the setting and then the characters maybe is is a third priority um so you know I think there's a lot of lessons learned and if people do lean into what is core to the fantasy of that property uh and and bring it over to games if it's a play thing or bring the characters maybe and the interactions within the game to more of a story element on linear than it can work um but too often both sides just have no idea what's going on with the other

and yeah it's you mentioned a lot of thing the deal structure that how that affects the development the uh the understanding of the core fantasy and being able to design around what the um the movie or the show or that that part of creators have created uh and then there's the uh the different goals with the media it is the reach with the studio it is the revenue and neither of might understand each other's business model that well and going back to that crude example like I quit just before that game launched because it was just uh it was such a horrific project we didn't have really I think we had six months of time to make and launch the game not like soft launch or anything just and first freet toplay game out of the studio I it was uh it was one of those things where there's just a miscommunication between the studio and the executives and it was promised to DreamWorks by the CEO roio like yeah we're gonna you know at that time roio was really pushing into entertainment so it was it made strategically sense to

promise that but clearly the message didn't get through to the CEO in what stage uh that development was and how feasible it was to do to deliver upon the promises that were being made and you know the quality of the team back then there was not a lot of senior people uh so that was uh that was pretty crazy of a project and a lot of people ended up leaving after that that game launched I I I I'm with you that I don't think anybody was happy at the end of the day on that and and it was certainly driven by more I think strategic uh initiatives I you know the pitch I always had was you know and and I understand at the time there had already been like Angry Birds Rio and and whatnot but for me it was like why not Angry Birds cruds go back to where it began do a prehistoric you know sort of Angry Birds type of thing um just from a from a player perspective because I I loved Angry Birds uh and yeah but uh but yeah it you know I think and you highlight another uh Pitfall that

happens a lot of times is just a m mismatch in strategic sort of priorities and often IP can be viewed as a you know I think wrongly people view it as a way to kick start a new strategy or a new line of business because the IP itself will be such a big name that it can draw more people in um but that overlooks the the just the simple fact that you need a solid team and game uh before anything else yeah yeah exactly and you need a solid like it it doubles the risk because you need a great show or a great movie and you need a great game it can't be that one is great and the other isn't and so that's why it's always um it it's always just like a just like a huge risk when you're doing both because you can make a pretty good game but if the uh if the media really or if the the movie or the TV show doesn't really break or isn't that good that's not going to be that's not going going to be good for the game and vice versa if you make a you know great movie or a great TV show and

people are really into it and they open up the game and it doesn't deliver deliver at all against the core fantasy then it's going to be a huge disappointment for the movie as well because now that's going to backtrack to them it's like why did you did why did you do such a stinker of a game and so that's uh it's just the doubly the risk and I can only imagine how difficult it is to work at Bad Robot or Sky Dan or any of these U Top tier um what are they called publishing houses or you know the Hollywood Studios yeah yeah exactly the content Studios yeah yeah to to uh to have this third party developing and that's why many of them are kind of tethering always between like are we going to do it ourselves are we going to have a second party or we going to first party or we going to Outsource and it's uh it's always a always a challenge because the aspirations are so high for for both of the products it is you know and I think for anybody out there that is working with IP you know a couple of things to always keep in mind you know I always like to advise teams to sort of set

aside about 20% of of their budget and their time uh and earmark that simply for the approval process for change requests right um you know that there's more time because you have to get things approved uh and then there's going to be requests that come back to change things and that's going to cost more money uh and then the other part is and this trips people up I've seen a lot of times is you know make sure that if you're creating a game based on an IP that you know who's actually seeing and approving your game uh on the other side because what what sometimes happens is the licensing person might be the only person at the company who's you know doing the approvals looking at the game until some big milestone right maybe till you get to your Alpha of the game and then they'll take it to the IP holder right the the director or the the studio head or whomever um and that might be the first time those people see the game and you could get massive

changes that come back from that so that's something that is is always worth trying to drisk make sure that the de the real decision makers not just the the licensing person but the people who really own and control the IP are aware early on of what kind of game you're making uh take some time to educate them because at the end of the day that's the final approval and you don't want to get near your halfway through development only to find out that someone doesn't even want you to make that kind of game um yeah that's that's quite disruptive to say the least definitely all right great advice on that um second to last question the impact of generative AI on Creative workflows do you think it's a disruption do you think it's um incremental Innovation what do you think are the uh the implications of this because when you hear Executives talk about this due to very obvious and understandable reasons they have have kind of like two scenarios that they talk about it's one is it allows the same amount of people

to do more so basically this is a new tool that we're going to add and we can build bigger worlds we can uh develop a little bit faster we can get rid of uh certain processes that that have been eating out our time and then there's um maybe startups that are saying we can do more with um or not startups but but we can yeah Stardust we can do more with less people uh and sorry I need to do this again three two one so there's kind of two narratives with this or actually three narratives one is it allows the same amount of people to do more and this is especially larger Studios with the larger workforces are are telling this type of a story that what when they want to build bigger games in the future and every generation always builds a bigger game uh with these added tools they can keep roughly the same amount of people and produce bigger games and then there's uh there's the sort of a startup story where less people can do the same as bigger Studios and that allows them

to raise more Capital uh because their aspiration level is higher but the cost structure is a little bit of a lower than their competitors and then there's uh a narrative that a lot of people are not talking about but for sure Executives have to talk about especially in the current environment where the costs uh have been going up so significantly and that is it AI can allow less people to do more and that I think is the one why we're seeing the Hollywood strike or I'm not sure what the situation with that it seems like they they agreed on something already but we were probably seeing some other strikes in in the industry or in other Industries uh because the direct implication of this is do you just need less people to do what you were doing before or even more and naturally Executives don't want to talk about this because well it's stressful they don't know the exact answer to it and it it can cause a lot lot of uh a lot of issues in terms of adaptation of AI because if people know or have a hunch

that this is going to have them or their colleagues let go then why would they start using this tool and um and kind of like as an as an executive like what is your perception of the uh of the AI going forward yeah I mean this certainly is is sort of a Hot Topic um at the moment and and this was another thing that I ran on on the game poll and 66% of the people who responded said they were using AI um in in their workflows now uh which is pretty amazing it's a lot higher than I thought uh obviously that that stat means a lot of different things um but before really diving into all of that just from from my perspective I think you know I think AI at the moment a lot of people look at it as an efficiency play when you're thinking of Executives and you know obviously we're always looking at ways to improve margins and that ties back to the macroeconomic environment that we talked about and you know I think if if people see AI as a way to uh sort of

rein in some of the out- ofc control costs uh that are going into these big big games right Triple A game budgets you mentioned when we were talking prior to this that these budgets when you develop and Market are getting close to the the billion dollar Mark to bring something to Market and you know of course if you're sitting there at a at a big company and you're you're looking at having to put that kind of cash on the table to bring something to Market if AI can help sort of save even 20% of your costs that's that's pretty significant right um so you know I think there's there's a a promise there but uh you know for my own personal belief you know looking back historically at every time a new quote unquote efficiency product came to Market uh you know whether it was computers or you know even the Industrial Revolution right everybody at one point or another thought oh this technology is going to make so many jobs go away and we're going to work four or five hours a day and live a life of

leisure right and and the machines are going to do everything for us but the re the reality is it just meant more work for everybody and the products got bigger and more refined right and you know for me my my personal belief is that AI is is probably more aligned with that of okay we can you know on the one hand it's going to uh allow a lot of I think it'll really help support this forever game kind of shift where uh okay now we can start to produce content on a ongoing basis more more cost effective but the overall effect is more content right around around big games um but then on the flip side I think for for smaller developers this is where I'm really excited I think it continues it's just another tool that'll help level the playing field or democratize right the business of games where uh we've already seen it with with unity and unreal where smaller teams of of 15 20 people can make you know these triple ey games that

have really big right impact and and do extremely well and I think AI just can help that even more right and potentially uh around the liveops side of it where I think it will really be able to help a lot of these smaller teams uh just make games that they can then support basically forever and you know the way the way that I look at it is you know you still need a core team that's going to create those hero assets and that core gameplay those core systems uh but then AI is a great way to take that and really scale it so for me it's more scaling increasing the content increasing the power of of smaller teams to do great things and uh that's where I'm really excited about it and um you know I think obviously there's some dangers right you mentioned the writer strike and the actor strike that that is the actors one is still going on the writers they did they did reach an agreement you know what's crazy for the actors you know they they were looking at um obviously writers we get it a a AI writing scripts writing stories totally

understand why writers would be concerned but what was really interesting to me is actors were concerned because they were losing their digital likenesses and you know now they could do a great performance a few times and then be out of work because a digital version of them could be used forever for for whatever the you know shows or movies were going to be made so I wonder if there's a a parallel on the game development side where you know if if Studios start to trade their own in-house AI uh you know models on the work that the employees have done like I'm thinking of like blizzard right with really unique art style or Riot you know what if you know they started to train AI on the in-house art style uh that could really impact the need going forward for you know the the art teams right because the AI is like well we already have our style that's set and established and now we can create new stuff without the need of as many artists so that's concerning right that that kind of sucks and you know I think

that that kind of that kind of is the dark side that I'm curious about within the games industry yeah definitely that that was a perfect example and and oftentimes it's um it's like we we talk a lot in terms of Executives talk naturally a lot about the positives because it's unlikely that the the AI is going to impact their jobs negatively most likely positively because um the profitability of the company will increase if if their costs decrease and then the uh and and the output stays the same or even if the output increases they're no everything just is better for for the executives but but I think you know we touched upon the the capcom's president saying that that $70 is still not enough for a AAA game uh and kind of like overall in the industry the prices of developing games have been increasing while the uh the revenues at large haven't been increasing at the same space ac across all the all the vectors and um and yeah

it's uh it's interesting how much especially console game console side of games will lean into AI because when when kind of looking from afar or at the at the console business it is you know it is growing significantly I think it was over s 7% a year over here but that growth is is really fueled by by the fact that they the games were delayed in the prior years and so all the great games are launching right now and there's no supply chain issues where people are not being able to get the ps5s or or other devices and so when when looking at the console games overall like like it seems like they're they're kind of like targeting all kinds of business models like they they have paid games they have paid plus microtransactions there's subscription services that are definitely not growing at the pace that they expected we saw that with the uh with the latest uh Microsoft um uh leaks and so so they uh the growth has tapered uh and not at the level that it needs to be to uh to pay

such an egregious amount of what they paid for Content uh and then you also have games as a service with the with the Destinies and and other type of titles that are in development I think Microsoft said that they had 10 games of a service titles in development those are huge T time syncs because they focus on engagement over over um over the initial price you know the the paid price so what is going to be the future kind of there and how much they will lean in into AI because they're already leaning into accessibility in terms of cloud gaming in terms of handheld devices so kind of like the next step if they can't continue increasing the price if they if the user base is not growing as fast as it needs to to hold all these expensive games then the next step is going to be reduction of the costs and the cost reduction can come in either through um you know reducing the uh the size of the teams or just increasing the efficiency of the existing teams or quite often

both yeah I mean gosh you know it talking about I well there's the console Market side of it and there's also what you just talked about with the impact on on team sizes but yeah I mean the console Market that that's an interesting one where um as you said it's it's still been growing but there's it finally is I feel like catching up in a variety of business models that we've seen on on obviously PC but also in in Mobile um you know console has has been a little slow definitely impacted a lot by the pandemic big big games have been coming out recently which is great uh but I think one of the you know to come back to what you had asked in a moment but I I I think it's also informed by uh what some research has shown recently with uh just the the way the macro economy is impacting households and the disposable income that they have to spend uh there's a there's a shift in the hardware mix where and this I think could be really impactful on the next round the next cycle that's coming out

it's already having an impact but the fact that a lot of lower income households um are really sort of backing away from the console expenditures because it is so expensive and um households that are bringing in over 100,000 or more a year uh have shifted more towards the console and and households spending 50k or less a year have been shifting away uh and that was a recent report that that I was reading about that um and and that really means like okay when the next Generation systems come in and they're more expensive and like you mentioned if games go up to $100 each for uh for a game on Console that's going to really squeeze further squeeze out the lower income households um and and that's really concerning because it you know that I think disproportionately impacts younger people college kids you know a lot of the folks that are kind of maybe earlier uh in their gaming life um and that's going to be be a huge impact for console uh and then that comes to the

business models right so not only do the costs of making games impact the business models but do the shifting in the demographics impact them as well and um I I'm really curious you know I think personally and from what we look at over over at exolo we really look at liveop live Ops and and free toplay games uh as as the ones that have a lot of growth potential um you know premium paid content paid games those really nicely curated crafted uh you know kind of PlayStation single player experiences um you know that's questionable like how are those going to survive as the costs go up and yeah perhaps the user base shrinks um you know and and the the shift focuses more to maximizing the revenue you can get out of every launch so I think that's you know it's going to have a I I don't know what the answer is but I'm really curious what the impact is going to be on the types of games made uh based on these business models and then yeah I think we all subscription you know I

think it has a place in the market uh and and perhaps as we see this divide where uh there's a certain segment of the audience that that is more price sensitive maybe subscriptions you know will become more appealing right to to a growing number of players but I'm not sure it really is the realm of of the AAA content which is really looking at maximizing all of you know you have to recoup a billion dollars just to break even right so a Game Pass subscription is just not going to do that for you even with those big numbers that were being paid um so I think a lot of lot of unknowns for console yeah yeah 100% um of course we've talked almost about everything from from behavioral economics to real economics to console to AI uh to IPS uh let's end it on a positive note and talk about your latest release uh from exola which is the exola mall uh it's a traffic generating platform which is um

very nice thing in the post at era uh and then the uh the I I was going through the site so you have a tra traffic generation platform you have access to influencers to actually Drive traffic to the exolo mall you have your custom landing page for your game uh which allows you to run campaigns not only the influencer campaigns but traditional Performance Marketing campaigns and most importantly you offer the web store where you can reduce the platform fees and that is very important in nowadays especially with ATT that has reduced our ability to do very efficient user acquisition as well as all these Tech Stacks Unity included that are increasing the costs and killing a lot of developers with thousand paper cuts not Unity specifically but you know you have to pay for your attribution you have to pay for everything that your data analytics Etc and those are eating away the margins that the web store helps to to improve but uh what is exola

M like haven't used it just read about it looks like a really cool release yeah thank you so uh exola Mo it is a online destination for video games it really opens a new distribution Channel and you know to step away from the marketing speak for a moment it you know it's a mall think about a mall which is a place that you can go and you can sample everything and you get a whole variety of different uh options whether it's games you get a variety of different uh offerings all of this stuff under one roof and for us EXA Mo uh it's xla is is the landing page and it's it's kind of a combination of a distribution platform where you can go there and and go to specific game pages to to buy a game or download it directly uh you can also go there it combines also drw s or special offers so think of kind of a combination of a of a digital store combined with a

sort of a a prime gaming drops environment and then combined with uh a place where influencers uh can set up their own pages and promote things themselves um also a marketplace where you can top up your game accounts so it really brings all the different ways that uh you know game companies are sort of bringing their their products to Market Under One Roof under this mall and creates a single destination for players to go to it is a um business to Consumer facing product it's our first B Toc product that we've offered um so we're really excited around that and you know you touched on it there's M there's the landing pages exclusive in-game items game discounts premium experiences all from developers and influencers uh through through these campaigns so for developers um they can showcase and monetize their content with these specific branded landing pages so you don't have to come in through the front door of the mall you can if you're have

a game you can have your own dedicated landing page that you can direct Fleet M straight to and you start to get the analytic not only the business but the analytics around what's going on there which often we dealt get when we go through third- party platforms um and it allows you to customize it and and run that yourself um but then also for influencers it allows them to create their own branded p pages so if you had an influencer uh and they they had their own skin in your game uh they could actually create a page and tell their Their audience to go to that page to get that skin and then get your game and we handle all of that attribution and the payouts on the money that's generated from it on the back end so it really combines everything all in one place it builds upon a lot of our Tech that we already have for going direct to Consumer also combines our partner Network which is a influencer platform that we've been running for for a while and it really aligns with our our mission to to help the game Community uh and bring everybody together so cool new

way to reach new audiences you know get more data about how your game's doing uh and and work with influencers and yeah just a lot of fun awesome release from from exola there's a lot of lot of lot of services that we need to pay as developers and this is actually one of those services that increases our margins so so so in that sense 5% by the way it's only 5% yeah so so uh in that sense a very very valuable service um thank you Chris for for coming on a podcast at 5:00 am And discussing all these complicated topics I wouldn't be able to do this uh at at that time of the of the day but uh but you're sharp at all times of the day so I always appreciate to have you on the podcast likewise visha thank you very much I appreciate being here it's been fun thanks for everybody for listening and um check out the new mall in town so so goodbye everybody byebye