Earnings Analysis: Nintendo, Krafton, Unity, AppLovin & Roblox - The Metacast by Naavik

[Music] Alyssa will Pat and Alakazam Maria will dance with Anna the virtual web 3 human Tammy I'm curious what we come up with but those are going to be hard to the top [Music] hi everyone welcome to the metacast round table by navic uh you should listen to US Weekly to stay up to date with all the latest game business news and how they impact the future of games and if you enjoy this content you know it I'm going to say like And subscribe so that we can reach a broader audience today I'm joined by Aaron Bush co-founder of navic Tammy Levy Chief games officer at Captain TV and Alyssa Goldberg head of growth at powder hi everyone hello hey there

Aaron where's your enthusiastic hello this week I gave a howdy this week was that not not good enough my my hellos are getting critiqued left and right man it was pretty good um yeah Alyssa thanks for joining us for the first time and anytime someone joined us for the first time I like to ask a question and that's what's been on my mind is to understand what people like to pet in game so if there's one animal any animal can be a fantasy animal or a real animal which animal would you pick to pet in a game okay so I gave this one a lot of thought and I realized that I had never actually played a game in which I was able to pet a pet inside of the game but I will say that I know but my love of games was first cultivated uh with many many years and many generations of Pokemon uh and I think that for me uh if I I think I'm sure there's something to unpack here in therapy about wanting to

pet an Abra and a Kadabra and an Alakazam over time just because they were my most loyal uh my most loyal teammates but I should probably pick something cuddlier uh maybe like an Eevee or something like that um I just I like things that are round and fluffy like everyone else uh but I also like loyalty wow that's such a good answer that's a deep that's a deep answer I love it there's a lot to unpack here [Laughter] heading in Alakazam man that yeah I was not expecting that I don't know if I survive but I would try I mean if it's all about loyalty I think I think you're good I think you're good the Loyalty test a hug all right well we're going to dive into some updates before going into the discussion topics the meteors topics will be diving into are Nintendo's earnings and some predictions about their strategy and also discussing with

Elissa leading the topic what's the evolution of community play so if everyone's good I think I'll just kick up the updates because I'm the first one okay so very quickly I looked into unity's earnings it has been earnings season the past two episodes are about earnings and this episode is also about earnings so Unity landed very close to expectations which was supported by lowering the fiscal year guidance last quarter and that has led to Growing confidence that unity's rate of growth is expected to accelerate the revenue increased 13 year over year however their operations solutions that includes their ad Tech declined seven percent this is mainly from the ongoing ad algorithm issues that they've been suffering so Unity has a history of struggling to rein in their expenses but with the recession and post-pandemic decline is going to be harder to get away with this I think Aaron has some thoughts on this earnings update yeah I

mean I think the bottom line in my opinion really for any company is that when Revenue growth slows your losses heighten and dilution accelerates all at once it doesn't matter how incredible your Tech is you're still getting whacked and destroyed in the market right and and maybe that'll improve um from here for Unity it kind of has to and the hope of that promise is what turbocharged the stock this past we gave us up like 50 this past week um but you know even with the the merger with iron source which also just closed you know that deals coming from a position of weakness on on both sides for macro and micro issues so you know the company will probably get more profitable in the near future from unity's lens and yeah the operate Solutions weirdness will largely dissipate but I mean the fact of the matter is that there's a lot more work to do for this combined company to really level up its execution streamline its costs because uh yeah having um 74

of Revenue being losses and half of Revenue would just be like you know taken back by stock based comp that's ridiculous and um you know they just largely need to to reset and be better and more streamlined coming out of this bear market so hopefully they can they can do that but the numbers were pretty darn ugly in my opinion I think that will tie nicely into Tammy's update about New Zoo uh yeah so a quick update nizu uh updated our forecast uh this year for I believe it's the third time uh and you know with all these um earnings reports coming out they've had a lot of data to dig into as we all have in the forecasted down year um for the gaming market for the first time um so as I mentioned they uh release their annual kind of forecast for the whole gaming market in terms of players

Revenue Etc um and in may they lowered they they had estimated over uh 200 billion in revenue for the gaming segment um sector this year they lowered that in July and they just lowered it again to a decline of for a little bit over four percent year over year um so a couple of notes behind this downward uh revision because it might sound like gloomy's like oh now the gaming Market might be might be shrinking um it's actually uh kind of like a very interesting story to to unfold because it comes from a lot of different little pieces here and there uh where a piece of games are relatively flat uh right now uh it's a definitely a slower year for console games so they're contributing to this decline uh and that's combined between uh game releases delayed and hardwood uh Hardware

shortages so there's less consoles being sold on the mobile side we kind of have gone in depth in at length on on all the Trends in the market but the market has changed significantly including the ID changes which uh also impacts the expected revenue for mobile games and how game mobile games are performing um region wise China has also been cracking down on mobile games being one of the the biggest uh sector that is also contributing to the decline uh and we see North America and uh Europe also with a smaller decline being forecasted so it kind of just adds all of the the different pieces in you know resulting in this forecast of a Down year for uh the gaming industry uh but when you kind of take a step back and zoom out uh the correction uh it looks more of a correction in in the industry tragic

trajectory um so we had really really good years in 2020 and 2021 we had booms with uh the pandemic and just um you know the market like the segment of really growing um so if you look at what new zoo was forecasting before the pandemic uh 2022 is actually going to end up right around what they had forecasted before the pandemic so it feels much more of a correction not saying that you know we don't have all of these other external factors and you know recession and all these other pieces um that are going into it but it's uh it's more you know it's it's a story to unpack and it's not just that the the industry is um shrinking yeah do you do you think the correction came in too late though like third quarter of the year I I yeah yeah it does and I think that there was

still a lot of optimism go ahead Terry I cut you off uh I think there was still a lot of optimism from a bunch of companies putting their uh guidances for the year right from you know companies on the mobile space feeling like they were not going to get hit as hard um you know companies in the PC and console space uh expecting to launch their games and getting delayed uh I don't know just thinking through are there any other factors but I think I think it's coming late uh kind of from that point of view in terms of like companies expectations uh plus the you know the recession really starting to stress test um this idea of our games Recession Proof or not which I think their recession resilient but not Recession Proof yeah I think the the main takeaway I think your analysis is right but the

main takeaway from new Zeus revised forecast in my opinion is less about the market which has been this way all year and more that that nuzu just did a horrible job forecasting um you know in their their previous revised 2022 forecast from July they were still forecasting that mid single digit growth and mobile when in q1 and Q2 though the mobile results from those quarters they were already out and very very much down for obvious reasons so you know that Not only was NEW Zoo wrong and their forecast initially but it took them 11 out of the 12 months this year to figure it out and change so to me that's crazy it's kind of a joke um yeah what was surprising for me is like the the quake revision right of like May July and then November it's and they're like big revisions they're not like small tweaks here and there um so yeah I definitely agree with with your take of like hey it's it's ridiculous that it took them this long

to figure out like the the trend yeah maybe we should stop listening to New Zoo it's sort of my my take on all of this yeah I was really impressed I didn't realize when Call of Duty released Modern Warfare that they were going to release an entirely new war zone I thought they were going to update war zone with new content but I didn't realize it's a complete 2.0 on a new engine um it's just very impressive and I'm Keen to see the results of how much impact it has on Warzone in keeping up with the technology and the improvements that the other part the other titles in the franchise are doing it feels like a like a franchise approach right and sorry I'll cut you off yeah it feels like a franchise approach uh where they're going all in on it they've built this common engine for uh Call of Duty Modern Warfare uh Warzone is powered by the same engine that released uh today I believe and

then Warzone mobile is coming up next year and it's also built on that same engine um so it's definitely like very bold and all in yeah we can all look forward to the 100 gigabyte download to get them to later on tonight um Alyssa sorry you had a question yeah I I wanted to ask everyone I mean do you think that it's that the forecast was poorly done and not done soon enough or do you think that it's just getting more difficult to accurately predict the where the trajectory of the gaming industry if it's increasingly more hit driven the way that you know TV and film is or music is where there's a huge Gulf between huge successes and big Blockbusters and kind of more uh you know everything else I think that they were nuzu was generally right with everything except for mobile and on mobile they were just like I don't know I don't know how they were so wrong but

um yeah I mean forecasting growth when for at least two quarters all you see is declines that makes no sense I mean I do think it gets tougher when um more like structural changes happen like you know Apple changing the rules and it gets harder when you know covid Whiplash happens and you're figuring out what is what is a you know an acceleration like a long-term acceleration versus like a pull forward from the future and those things are hard to forecast around but but yeah for the sake of this it was just news it was really bad with mobile it's sort of my bottom line fair enough um yeah we'll jump into then Apple ovens earnings so they reported a revenue of a decline of two percent uh that apps Revenue declined 24 as they continued to optimize the portfolio of apps to drive drive higher cash flow this is a quote from their earnings and this is mainly due to a decline in consumer revenue

from Project makeover and matching 10 Mansion their first and second highest revenue generating games so I use data AI to go and look at their other portfolio games that drive key revenue and they're also in Decline The Only Exception I saw is Cash Tornado slots that managed to maintain a relatively stable Revenue this year we can also see that project makeovers Revenue decline on iOS is sharper than Android which matches the game's much sharper to coin and downloads on iOS so I'm assuming that considering a percentage of the revenue is driven from IOS the impacts of ATT are being exacerbated for applevin so I think Apple oven is facing a challenge of developing and scaling new hit mobile games um because their top performers are starting to reach product maturity and they have to renew their portfolio I think trying to do that in an environment where there are exacerbated impacts of ATT on iOS additionally App 11 is reducing UA budgets so that they can focus on

profitability over revenue and that affects the downloads that you can get so I'll be really Keen to follow if they're r d investment of entering the connected TV market for their advertising solution if they can cover out a new market there as we start to see some subscription and streaming Services offering ads for lower price tiers where we'll have to keep an eye on and the new hit games that they can produce all right Roblox earnings so the Roblox earnings were analyzed by navx free newsletter navic digest so if you find this valuable you can sign up to the free newsletter I'll just quickly run through the high level takeaways from David Taylor's analysis so they were higher than expected losses due to operating costs primarily head counts being higher than expected as roadblocks hired around 600 new employees in the last year so navic's conclusion from the third quarter earnings call is that Roblox is executing honest Focus areas despite the sub-automal macroeconomic

environment because they're still trying to capture the Strategic opportunities that we've laid out in previous episodes such as the audience aging up and also investing in new opportunities for monetization I don't know if um yeah you saw that now they have these wearables so I can adapt to any kind of character forms yeah pretty cool so the 13 sorry 13 the 13 plus cohort grew by 34 from a year ago compared to the overall Dau growth of 24 year over year so their investment in trying to cater to an older audience is paying off there are also Brands who commission Roblox developers to implement their experiences which ends up funding and investing and trying to get more games and other experiences onto the platform and the bookings growth has slowed but we've seen slowdown across the games industry but looking at roblox's Dau of the audience growth the monetization opportunities I think we should expect bookings to take off when the

macroeconomic environment improves and it will also come in as Their audience is aging even further so if they're they're able to retain their their core audience and their core demographic it feels like they're they're setting up themselves for really really strong growth yeah that's a really good point yeah which I think is important because I guess um I mean obviously it's good to see the user growth aging up I kind of wish it would translate to better business but they're obviously still held back by you know App Store take rates and just the structure of that but you know if you look big picture I think the the main thing to emphasize is that like it's really critical that Roblox makes the most of the moment it's currently in meaning that there's a window between all the acceleration benefits covid gave them and the inevitable rise of competition and right now they're kind of in this sweet spot where they don't really have big competitors that do what

they do and you know roblox's largest competitive Advantage besides its Network effect of users and developers right now is its r d budget which is about to tip a one billion dollar run rate and at that level of scale of reinvesting is something very very few companies can match so you know I think it's hyper critical that they reinvest appropriately to best age up capture ground and future proof themselves from from what others probably mainly epic eventually spin up in the next couple of years I don't really know how well they're reinvesting but you know if in a couple years the The Narrative you know it might change to being one of renewed competition which will then be more expensive to compete on in other ways and so what they do right now ultimately has the largest impact on what happens then so I don't know I'm curious to see how that narrative plays out but for now you know I think it's mainly important just to look at their speed and quality

of execution and being able to level up the platform and you know what that means for capturing and retaining users while doing so and so far that seems to be pretty good but I guess we'll see how that translates to business and the fact that they've been hiring so much when other companies have you know been kind of leaning the opposite I'm curious if that'll continue to be the case um but I guess I guess we'll see over the next probably a couple quarters yeah and I don't think there are signs of them slowing down on on hiring and Staffing uh as opposed to other you know just the broader Tech uh industry slowing down or even shrinking so yeah it'll be it'll be interesting to see how how they execute in the next couple of quarters and where they're at yeah yeah I just like because I think they're they're people expenses they Rose like 50 over the past year but their their bookings you know for this last quarter were only at 10 so there's

a little bit of a disconnect there so yeah I'm curious to see how that goes but yeah ultimately if that's what it takes to build a platform that can compete for a very long time I think that's probably the right decision okay Alyssa yeah on to ftx's impacts on gaming uh okay to start I think that that sound that groan is exactly what we've all been following like tabloid drama over the last couple of days it feels like uh FTX is a big black hole that's been sucking uh everything in its orbit into it um but the just just for how uh it's been interacting with gaming so first um of course there was the FTX gaming division unit that had about 100 million to deploy but that was operated through its U.S affiliate FTX us and that's not really implicated well partially implicated in uh all of the the drama going down but the rest of the operations

um and in particular FTX Ventures and FDX the The Exchange were very tightly tied to several game studios the Esports teams and to various blockchains um so just for ballpark uh FTX Venture since the beginning of the year had made 47 investments into games and and like web3x gaming projects like axi infinity and mythical games and far away and star Atlas and had also purchased good luck games and at as soon as the news dropped a couple days ago star Atlas kind of one of the most hotly anticipated AAA uh web 3 games that that should be pretty exciting and full disclosure is one of our our partners at powder is one of the most affected uh among among the studios they announced that their Runway was reduced by one half in a statement put

out by their CEO Michael Wagner who was saying that they had material cast exposure in particular because they had put some of their treasury into low-risk yield accounts that's their words on the hope that it would generate four to five percent uh immediately their their own token Atlas was down over 98 on the weekend um star allies had been you know very very transparent but really very wild to see as they kind of scramble go into a strategic fundraising round and it's easy to imagine that there are other startups and games in the same position but it's really not clear who yet because maybe everyone is kind of like counting you know doing their own accounting and uh chatting internally about what the next steps might be um in the Esports World they FTX had made obviously a very public deal with TSM it was a 10-year and 210 million

dollar deal um to date they have 168 or FTX has 168 million left to pay out that TSM will likely never get um and you know I think that it was already hard enough in a lot of ways for Esports Community for gamers to align with web3 in the first place and I I can imagine that it would be tough to get these kinds of sponsors on board uh into the future also in Esports uh FTX had sponsored the biggest North American League of Legends League LCS it was the premier crypto sponsor it was on the scoreboard of every LCS game and it was that sponsorship was supposed to last until the end of the 2028 wall season um FTX was also involved in Furia and nurture Street Gamers they had a lot of money in Solana which is a Super Active gaming blockchain which is all to say that while you know FTX wasn't you know

it wasn't a gaming company it wasn't necessarily uh explicitly interested in gaming it was interested in gaming as a way to onboard people to crypto who would then keep their money on FTX and do God knows what with it so uh as far as what does this all mean you know companies that were directly in business with FTX have to all put out statements of how exposed they were and what damage was done and this is gaming developers this is investors this is and this includes ones who you know are haven't been focal yet maybe um the market has of course recoiled and is spooked uh this probably means that any web 3 gaming project will have a harder time of fundraising in the next few months and will also you know as the fundraising climate is becomes more and more difficult for projects like that uh we'll see the death of many companies who raised in 2020 and it's you know it's not clear whether they'll go out

with a whimper or a bang we'll see and then uh you know I think it's a real sink or swim moment in the kind of investors versus gamers in you know cryptocurrencies versus blockchain it kind of encourages people to take a stance on um what could be potentially interesting for gaming long term versus what's kind of a passing fad what's about what's for speculators and what's like the underlying technology about digital ownership and transfer of assets and all of that kind of stuff yeah I think it's really unfortunate to everyone who has losses due to what happened at the end of the day I'm still quite positive about what it means to the environment well to the space of web3 gaming because it's just so bleeding edge that when we have challenges when we have deep deep rooted problems it helps shift into a better Direction in the long in the long game so I'm expecting that actually you know once we get over all the consequences I

think the impacts are still not fully known like you described I think at the end of it we'll just be in a better place and we'll have more Direction into what makes a sustainable web 3 gaming economy I'm not just gaming but just crypto in general yeah the for me I think it's just that the process of rebuilding trust with consumers is going to take a long time and that has a bigger impact than you know whatever games FTX as an investor um had or you know what companies stored money on FTX so I mean yeah the the rebuilding of trust point is you know the major thing to to kind of work through I sort of doubt it'll have an oversized impact on blockchain gaming as a whole mainly because you know for the most part blockchain gaming already imploded before FTX did um and that that sector's all like it's already going through a soul-searching reset and at the end of the day you know 95 of what matters there is just can

these web3 games teams build awesome and entertaining games that people want to play at scale and and that's a factor that teams are much more fully in control of and shouldn't be overly as influenced by or affected by outside events like exchanges and you know whatever else goes on but to the to the extent that it impacts trust and just kind of tarnishes the The Branding of web3 and what people feel comfortable doing with their money it could have some type of impact to work through I I would challenge that a little bit because I think that there's people who who have put money into web free or people who are not the consumers that don't understand quite web free just yet um so I think that there's like some Optics to manage uh in like some trust to rebuild but I don't think it's going to be like a deep rooted like trust building with the the consumer space I think it's uh

think it's like a big shake up especially around just like funds that teams have available at like at their fingertips of course like you know teams that uh and companies that had made deals with uh FTX and you know were expecting that that funding to come through and materialize and it's not going to happen it's I feel like we're we're seeing some um kind of just extra damage across the web 3 ecosystem is teams that might have had good uh products and could have delivered really good games and really good products um you know if they had partner if they partner with the wrong partner uh you know they're in the lung for the the right of not being able to execute uh but ultimately it's kind of like shaking shaking the tree and see who had like the the secure funding and the right ideas uh we're starting to see that already with games and the broader uh

web3 ecosystem I feel like we're at that place where it's like just shaking all over and see who who can withstand um the storm and then talking about storms last but not least I'll dive into the crafton's earnings so I cut this in half because I got really excited doing this research um I was doing a bunch of earnings analysis and I went into a rabbit hole and I fell in love with Crafton so I didn't expect that in my night so just as a reminder I know statements of love right here live on the metacast so yeah reminder the PC and console version of pubg Battlegrounds it went free to play in January and the switch landed an impressive Mau and sales growth they're still living on that tail off and trying to dig into it further in terms of the earnings results so Revenue unfortunately declined 17 year-over-year as pubg's Mobile's revenue is down 26

year over year due to Battlegrounds mobile India ban and also the general Mobile gaming headwinds so you can see that there's just a common theme across all of the earnings this quarter the impacts of pubg mobile are extremely significant for the overall performance because if we go back to q1 that game was responsible for 75 percent of crafton's record high Revenue they continue their efforts in trying to repeal the India ban um or the d-list but there are some key hires from there um India operations that have left so people are getting more and more skeptic and uncertain if they will ever be able to be real estate and reportedly 55 of pubg Mobile's Revenue in h122 came from China so we'll have to we spoke a little bit about China's microenvironment and we'll have to keep an eye out to see if it affects crofton's performance in the following quarters unfortunately as well I looked into the

results of pubg's a mobile first new State game and yeah unfortunately it's just not it's just not performing well there's a decline combined monthly Revenue that's about 500k nowadays and looking at a company like Crafton and the other titles that they have in pubg it's just very low but yeah hopefully the devs sorry which one was New State what was that game for uh it's for mobile it's imagine pubg mobile but actually built mobile first where the core Loop is is shorter the maps are smaller yeah it's trying to reinvent it from the ground and replace pubg mobile or I don't think so interesting I think it's too yeah I found it a little bit confusing as well maybe that's why it didn't find a market um it's not different enough to pull the players then they also be cannibalizing pubg mobiles game

um I'm not too sure I have to look into it more lastly their operating profit it declined significantly year over year also due to Personnel costs growing to deliver crafton's Ambitions and also increase spend of overall for the new Global launches that they have mainly the Callisto protocol it's a PC console game that's releasing in December this year I did follow up with the games I'm so excited that they're developing does anyone have anything to say on the earnings before I go in hype mode I I want to hear the hype mode yeah that's that's the part I'm waiting for what are you excited for that's not pubg mobile um so they have a new major studio in Canada that's going to do an adaptation of the bird that drinks tears fantasy novels it's inspired by Korean mythology it looks like Dark Fantasy it's going to be a transmedia project and if you look at the concept trailer it looks so cool

I love epic Dark Fantasy so I'm definitely going to keep an eye out for that um Additionally the unknown worlds who are developers of the subnautica series they announced Moon breaker that is officially entering um Early Access and it is a turn-based competitive tabletop tactics designed with digital Miniatures and the best thing that gets me excited is that the Sci-Fi Universe was crafted by Brandon Sanderson I don't know him he's a really popular fantasy book author and he wrote my favorite fantasy series of stormline archive so imagine that with Miniatures with the amazing studio the art looks so red I love it I'm so excited and I also know what book series I'm going to be reading all winter so if you like fantasy Stormlight Archive is superb highly recommended to everyone's Christmas periods and

holidays and then lastly we talked about games but then crofton's also developing a hyper humanistic virtual human called Anna and Anna is I think just an experimental test bed where they're trying to create this digital person who has a band I think looking at how crafting has been approaching collaborations they had a whole blackpink music video that was filmed within pubg I think it's really impressive to see a company that is diving into these avatars and trying to create digital people really but then it really dives into their core strengths that can be applied to their games and further leveling up these experiences yeah if you haven't seen the music video I also recommend it it just looks so cool so is is Anna actually like it doesn't it's not creepy looking uh no virtual human she looks so cool I really want to

be your friend and go dance with her like she really looks dumb it's so is she more of like a V tuber or is she more of like an avatar I'm trying to I'm also trying to understand like what the whip three tie it is where Anna lives where she's gonna be I think we're creating this is this has become a tabletop RPG podcast and we're going to create a backstory okay we're getting some good stuff though yeah Alyssa well Pat and Alakazam Maria will dance with Anna the virtual web 3 human Tammy I'm curious what we come up with but those are gonna be hard to to top well maybe the Nintendo earnings will take you somewhere well go give us some inspiration yeah oh man well yes the final earnings of the day earning season is always a tsunami so there's always so much to talk about but yeah let's talk about Nintendo so in short sales are up five percent net profits are up even more but that's actually pretty overstating

things because the Yen has weakened first versus the dollar so the cleaner view to understand the business is just to look at unit sales of the hardware and software and from that lens Hardware unit sales of the switch were down 19 over the past year and um software the game unit sales they were basically flat up like a percent and a half and you know that's normal just as the install base of the switches grows which is now over 100 million and similar to other consoles these days the story is really just the same their supply chain issues mainly semiconductor shortages and that spurred the majority of that decline in switch sales and because of those shortages Nintendo lowered its fiscal 2023 revenue forecast downward but like we have said elsewhere all of these supply chain issues are short-term in nature and what's more interesting than you know figuring out the little details of that is determining whether Nintendo's broader trajectory has

changed at all so we'll we'll discuss that in a minute and I'm curious what everyone thinks about that but first let me just walk through some other informative tidbits um from everything that happened and the the earnings announcements and one thing to call out is um you know now that the the switch is six years old 30 of switch purchases recently are now additional systems meaning that there's a growing trend of multi-switch households and that's something that we saw historically with handhelds like the Game Boy and DS but but not consoles so that's that's very much a positive for Nintendo's strategy today and it's good to see um you know that that little extra growth Catalyst get unlocked there and obviously on the hardware side Nintendo continues to drive different skus there's the original switch the switch light now the OLED model and an aggregate those are attractive to a wider range of people than if they just have add one model and all of that you

know has built up to a couple notable things one uh the number of active switch users continues to grow it just hit 106 million over the past 12 months which is up 15 from the last year and second at least in my view it's pretty obvious that um Nintendo's Hardware strategy today is basically what it's going to be going forward for many more years it's just going to be more of the same and there will be more upgrades and Variety in order to draw more first time purchases replacement purchases and additional units for household but it'll still you know just be more of the same and you know compared to the past there are software benefits from this too because now Nintendo can build around one consistent device platform instead of splitting games among different consoles versus handhelds and that isn't new but it's working well with their their top IPS and they've gotten better at add-on content related to that too and it also helps building on one platform when when

creating a singular Online subscription service and Nintendo online now has 36 million members and so that has been a Tailwind for them as well and lastly Nintendo this isn't new but they continue to invest in their IP outside of games Super Nintendo World is open has been open in Japan for a while it's the the version in the US at Universal Studios is opening in 2023 they have a ton of branded merchandise like always um the the Mario movies coming out next year so that'll be interesting to see how that does and none of that really moves the needle financially in like a long-term kind of way but it does reinforce the brand and Nintendo's goal with all of these things is just to drive people to the switch we want to engage with these Brands even more so the bottom line looking at this then I'll hand it over is that you know temporary weak switch sales aside Nintendo is in a solid position and in a time when mobile and many other

businesses are fundamentally struggling that has appeal and elements like getting better at digital add-ons and Nintendo online plus doing uh more with IP all of that is good to see and it adds some growth around the edges for Nintendo but that said I don't think there actually is that much in terms of interesting stuff business-wise Nintendo isn't really leading the future of games as I said the strategy is just going to be more of the same more great games and more types of switches which is fine but this isn't a business that really seeks out big new growth opportunities and it doesn't really use its eight billion dollars in cash super effectively other than paying a dividend so my my prediction is that in the same way that Nintendo has gotten more Niche over the past 10 to 15 years because it sticks to the same approach while the rest of the industry expands and kind of builds around it I think that's going to continue to be the case um and Nintendo will just be a good

business but more and more Niche over time so I'm curious what you all think um and I guess to start do you think my my bottom line is right do you agree that Nintendo's strategy will probably just be more of the same and is that good or bad can't wait to disagree with you okay hit me I looking back at the start of the history of Nintendo and how they've evolved themselves over time and conquered like the US market post Atari and just finding fun and building out their their Niche business I'm always very impressed at how Nintendo they carve out their own path um and it's special you know like the games of Nintendo are way more expensive than the second hand games Market even in the other consoles and yet people buy a switch a household has more than one switch people want to play Nintendo's

games and if we look at the history of r d in the company is is solid all of the developments and evolution of their hardware and releasing the switch completely Reinventing the handheld model of combining hardware and software I think more is to come so some evidence of that is looking at I believe last year they invest around five percent um into r d and if we look at their earnings they increased uh the amount that they're spending this year up to September compared to last year they just made a purchase in Kyoto for a 12-story r d Center to continue building out their research and development team that's only due to be ready in 2027 and in all the analysis that I've seen there is an acceptance that the switch is entering product maturity and that they have to start investing and what will come next so I do completely agree with you that what we'll see over the

next maybe three four years will be a continuous strategy of the switch and games and maybe even a new model for people to buy but I do think that they will impress us with what will come next and just some yeah additional evidence to that is looking at the other game Sorry not games but add-ons to the switch that they've been developing so they did this Mario Kart game where you build um a track in your own house and then you're basically playing with your switch and you can see Mario driving through your house in a different perspective and you can buy multiples of those and then you can play together with your friends through the tracks that you build and then additionally they're also making VR somewhat more accessible with these toycom products that they have where it's all about getting people Hands-On with the cardboard building out the experience and then actually experience playing

with it and there's one about this robot do you remember that movie where there's a robot that goes boxing with the human boxing I don't know no it's with Hugh Jackman it's a great great movie as well and it's I think seeing the other Tech investment in r d being more digital you're more immersed you're more closed off within this digital world I like seeing Nintendo exploring how can we make how can we combine real life fun and interact ability with the digital and that's why I'm hopeful that we will see something exciting from Nintendo in three four years my take on this is that um it's a little bit somewhere somewhere in between of like Nintendo is going to be Nintendo and Nintendo's gonna do what Nintendo's gonna do um I think it is they're going to continue in that strategy so kind of like broad broad Strokes of like more of the same I think it it is part of their strategy it's

just they play it very safe until they have like a big like something they can really bet on like kind of like how we saw it with the switch right so it's like they they continue to really be very good executors on what they're doing at the moment while they're investing in the future I am curious when you know what that feature is going to be uh especially coming from you know the success that they've had with the switch um and you know really find it kind of like that sweet spot of like a hybrid console and handheld device uh so in terms of just like their Hardware strategy I think that it is going to be kind of they're going to keep going as they are on the same until you know their they have high confidence on the next thing and it's not just like a small at least my hope is is that Nintendo continues to deliver like it's not just like a small incremental update on their Hardware but

it's like it's it's an evolution which is what they've you know done in the past so in terms of Hardware strategy um I think it's kind of like a combination of both in terms of uh games in inches or IP I think like they're just really good at sir continue to surface their IP and continue to leverage their IP and that's what something like the switch has been able to like they've been really doubling down and just getting more out of all of their IP so I'm I'm curious to see you know what what else can we can we see from from Nintendo I think that the more they put their IP in front of uh players and consumers the more we want as consumers and I don't know if they can move at that speed because they're also kind of slow they move a Nintendo speed I would say um so that's the flip side I I I'm not sure they can keep up with uh Demand on

the on the content side even as they've gone better at incremental updates yeah and I think just my one thing that I'm thinking about is I I feel like Nintendo is the hyper-conservative version of Disney in a lot of ways um and I think that you know with with a business like Nintendo or a business like Disney right you have your endemic IP or you could then like acquire lots of other IP to then you know funnel into whatever your distribution is or you can find kind of more creative ways to distribute what you already have and it feels like switch is a good bet as a way to uh to distribute in the long term but I kind of I tend to agree with Aaron and that it it's not clear to me what what if anything uh new will come out of Nintendo in the next couple of years because they're not very acquisitive they um you know maybe they will keep finding new distribution channels for for the

Mario franchise or for something else um but at some point it's like it can't all be funneled into switch forever so either they'll need some other way to distribute it or something else to distribute yeah that's all interesting I think that the switch form factor is just so good like being able to have the like the hybrid handheld and controller it just works so well for um for Nintendo as a business that the the company's largest like long-term risk it always has been it always will be is them basically taking something that works and then launching something new that just flops and you see like this is the history of Nintendo it's like it's a very volatile company where I I forget like the Nintendo 64 did well but then the GameCube underperformed then the Wii outperformed then the Wii U flopped then the the switch did well and it's just like even if you look at like the stock chart of something like Nintendo it's just up and down you know with the flows of like the the

generations that worked and succeeded and even today like the uh I think like the stock is below where it was at like the highs of the the Wii just to give some perspective and so the worst thing they could do is is mess with what's working really well right now and that could be iterated on for a long period of time um and so that like I would be worried about that but yeah at some point they'll probably make some type of change I just uh yeah I would just be concerned that they that they screw it up again but they have new management than compared to like the past and the you know the GameCube Wii Wii U eras and so I'm more optimistic that the current generation of Nintendo leadership gets it but but we'll see and obviously like Maria you mentioned like they do a lot of r d around like just random Nintendo things and it's just so Nintendo to do that but it actually like the funny thing about Nintendo is like

you know they don't really seem to care about creating like value they just care about creating you know like fun experiences and you know all power to them for for doing that but those those things don't matter like they don't move the needle for the company at all and um if anything they're probably distracting from other elements that could add much more value like taking additional steps to improve their online services or like higher subscription tiers or create Esports around you know Smash Bros or or whatever they you know they just make little racing games and life and like toothbrush games things like that so so as a gamer I appreciate all that Nintendo does to kind of push the boundaries but as uh you know a business Observer that's the thing that makes me the most the most nervous but anyways I don't think we have anything to worry about there anytime soon I have a feeling there's there's more switch to come um for for a while but yeah at some

point whatever that next thing looks like that's when I will start to get a little a little nervous but um you know besides that Nintendo also has you know it has a solid business but it has always under invested in and never cared about many emerging Trends you know mobile probably most notably and as I mentioned that mindset has made Nintendo more Niche and just a smaller part of the game's Market than it used to be um and it seems like that's still their mentality going going forward and I'm curious what you all think about that do you like the fact that Nintendo is so focused and that it's holding them back from being bigger than maybe they could otherwise like when we see Xbox and Playstation try to expand in new ways or um yeah I'm just curious what you where you fall on that it also comes down a lot to organizational structure because it could be that they're not jumping they're not jumping on the emerging

Trends but Mobile isn't really an emerging Trend it's just a it's a defined a well-defined market the whole leadership has to be bought in and the organizational structure has to be there to take on an additional platform because it has different needs it has its own Productions its own bets to make and so I I don't I haven't fully made my mind as to whether this is a good or a bad thing from Nintendo I do think it is wise it is a wise business decision if they don't want to split their focus and if they're passionate about the path that they're taking to not jump into another Market yeah I think from from my point of being and I agree with with a good chunk of what you just said Maria I think that from the the business perspective you're like you'll want to see more out of Nintendo at the same time they're not they don't have the orientational structure to move fast like they they've almost always

played in a close ecosystem their ecosystem at their timelines at their Pace because they control the the platform and the content and they've you know basically end to end from from Hardware to software um so them you know having this organizational history of of just playing in their own timeline on their own at their own speed in their own terms uh I don't think it it would be a very deep organizational change to get them to it's not only split Focus but it's like changing the culture from within to get them to play in a different way in additional markets yeah yeah it's just questioning like what it means to be Nintendo right like and like what you stand for in your games because it seems like with free to

play they just sort of refuse to to play that free to play game and do what it takes to succeed because it came at a cost of how they wanted to expose their IP I kind of wish they would figure it out they're not going to um and yeah I have mixed views as a gamer I like it as a business Observer I doubt but that's just it just sort of is what it is um I noticed we probably should switch over to the other topics soon but any final thoughts about Nintendo before we move to the last topic yeah my last thought was just gonna be that I I think that if there was tremendous consumer demand from millions and millions and millions of mobile players uh who wanted to play any number of uh Nintendo games on their phones I'm sure they would hire some people to do it uh I'm just not convinced that the like intersection of the demographic who loves Nintendo games the regions in which mobile is super popular the kinds of games that lend themselves well to mobile and the and

then the development cycle for building and maintaining those kinds of games are all aligned so I I think it's something that I'm sure Nintendo has like given a lot of thought to and has decided against for reasons that like maybe we just don't know very well cool all right go Alyssa okay so uh part of what I was tasked with looking into partially because of what we do at powder is community play and I know in the last the last episode of the Round Table said from viccraft mentioned that the trends that are bubbling up going into 2023 include generative AI of course but then also creative distribution relying on community um one thing that you know we the word Community is bandied about again and again uh in gaming uh both inside of the games themselves in the platforms that support the industry but Community can mean a whole bunch of things it could mean literally banding together to help

solve problems it can mean playing together for a common goal in you know multiplayer games uh can also mean playing against each other but I wanted to kind of pose the question to everybody you know what do you think the future of community building in gaming looks like and you know how can a community play together what does that even mean I have I have strong thoughts and opinions because because that's uh that's what I think of uh every day pretty much um and very much on the nature of what we do at Captain TV um you know Woodward billing is is games to play as a community so it's games for streamers to play live with their Community a lot of what we think about is how do we enable streamers to build their community so it is it is very much a question of like what does it mean to be a community what does it mean to play

as a community um in what you know what is that interaction within the community in this case we do have kind of the streamers so there's also kind of like a different Dynamic from you know just like the community of of folks coming together we have that as well but it's it's also kind of like this Dynamic of like streamer and the rest of their community um I think that one one of the things that really is very powerful for you know from what I've seen in how streamers and their communities interact and you know when we think about like this community play a lot of it you know in the past we've really relied in the gaming industry on compare on our competitive nature right so it's like Banning together against you know someone or against each other even right within the community um what we tend to see more is people wanting to play together and like you

know get coming together towards like just achieving a common goal in in general and that could be you know being being a buzz in a in a dungeon it could be um you know exploring uh a map or you know whatever it may be but I think that the the collaborative portion of like hey together we we make more than than if we were playing on our own that is really really powerful from you know what what we see is is how players come and interact with our games and on a you know daily basis and just like this this need and this desire of like we want to like support each other and kind of build each other uh and connect with each other so for me like just like Community it it really means kind of like this coming together this this elevating each other uh and it can look in like many different ways depending on like the platforms that we're talking about like

games that we're talking about and like how do you express it um I think that's what's fascinating of of the space and exploring the space further uh is how how do we then kind of enable um players because players are going to be way more creative than when they get together then then any any of us in any one team so it's like how do we enable them to to just like come together and like surprises as well yeah I I think the future of community play is digging deeper into allowing players to create their own game experience game makers becoming more like dungeon Masters or instead of setting all of the details penciling in the whole world coloring it you create the rules and then you allow the community as they're playing either to build on top of what has been um yeah set as the rules or

creating this world that they have to discover together through lore through tidbits through hidden Maps through hidden experiences I think we've gone from linear games to open world games and I think the next evolution in that open world is the dungeon master games now I think that was really excites me about blockchain technology is maybe some tech that allows us to do that maybe there are other solutions to go forward but like with Fondest Memories I have are playing DND whereas a Homebrew campaign and for about a year and a half now discovering all of the different elements of the world and building up my character that I really love and I think being able to like slip into that character for three hours every Fortnight is just such a mind relief from I guess the world and general life and reality I think more and more people want to build their own character that

is personalized that they created in a world that they help build through their storytelling I love I love the analogy of like the the dungeon master like because I think about it like how do we enable communities to like Express themselves and I think that's that's a very beautiful way of putting it is like you know we're creating the world and like now now go at it uh and they'll you know explore it in in very different ways that maybe we and probably we would have never thought of yeah yeah I sort of struggle to answer this question because the the future of commit Community is just going to mean so many different things to different people and in different circumstances you know whether it's a community like in a game or around a streamer or around an Esports team um so I I sort of struggle to have like a pithy take but I guess to I'm just excited for like a wide range of things

like we mentioned web3 like that brings people together because of shared incentives and that's something new you know nft has unlocked some type of exclusivity tier in community and that's something new to experiment with I'm pretty excited about you know massively interactive live events miles you know just as another way for fans to come together around some type of event and have fun together at scale and a new in a new way I've you know been looking at you know Esports and Team Liquid they have like a platform called Liquid Plus which they basically built their own software platform for fans that connect to Discord and other platforms and kind of like tracks fan activity and gives rewards and you know I think across more you know more organization something like building your own platform that's cross ecosystem that kind of reflects what you want your fans to be and who they are that's interesting um and then obviously

ugc you know enabling enabling greater Creation in the past and greater rewards in the past for building things for people to share uh you know those experiences together and better embedding that that has a lot of potential to you know increase the community in new ways too so my head's sort of all over the place but um I guess in general though like the the the bereth and pace of kind of the The Innovation is what makes me excited to be a part of community because all these things sound fun and exciting and in different ways and level up the experience of just being part of something yeah and I think I think for for me even in the last week I feel like I've seen so many interesting and varied examples of community like it's a community meaning people like giving part of their time and energy in order to contribute to a greater whole um whether that's you know we mentioned

the star Atlas example in FTX where where their Gaming Community in Discord was giving them ideas for how to extend their Runway uh and that's you know being very transparent with everybody about the financial situation you're in it's you know like when a streamer says I need to drive 100 downloads to the to my sponsor and there's a Ticker on the side so that the the viewers know that they need to help the streamer even if they're not opening their wallets themselves and then I think you know on on Powder where we have uh ugc Clips where we are able to give people rewards for winning quests and challenges across many different kinds of games we saw uh you know a kind of creative use of the platform this week where uh one of our super users was when it was grinding for hours and hours winning rewards and then redistributing them to his growing YouTube following uh and it was such an

interesting use case also because um then a lot of his followers were then trying to to get rewards to then get back to him anyway it's it it's just a kind of a glimmer as you had mentioned Aaron and also Tammy about how how many different iterations there are on community and the ways in which people like band together or you know try to find some symbiosis between these relationships uh in in gaming communities in ways that we kind of don't know where it goes yet yeah and I I think what would really just just made too close close it up what I really like about where as a whole the industries think about Community is that you know it we've kind of gone through these cycles of like trying to distance ourselves from like the community that is building around your game and kind of having kind of this wall between the

community and the game developer uh and that is you know in in some cases like that that was very much what was happening uh I feel like there's there's kind of this Resurgence maybe it's it's because of um the communities that I am seeing more these days but I feel like there's a Resurgence of like a much more positive uh interaction between the community the players uh how those communities are building up and you know the the game developers and not kind of creating these walls uh between the two because at the end of the day it's it's it's a relationship like you you can't exist as a gaming industry or game developer without the community that builds around your game whatever that looks like and whatever that means uh advisors like the community like you know it's it's a two-way relationship they they need the the team to be in a good spot so that they can continue to uh you know put out you know new games

for new content or whatever it may be so um I think what's really exciting to me is also the the much more positive um kind of messaging and discourse around community and kind of bringing down those walls uh all right well I think we'll wrap up the episode here thank you everyone for joining that was yeah so many topics lots of interesting discussions and you can find us on the navic Discord sign up to the free navic newsletter and again if you enjoyed the content if you can subscribe and help it share with other people thanks and we'll see you next week [Music]