Embracer’s Deal Collapse / Take-Two & Ubisoft Earnings / Mortal Kombat 1

foreign [Music] gaming podcast where it is our mission to explore the business and future of video games we bring together the industry's brightest Builders investors and thinkers to keep a full sun current events dissect emerging Trends and games share Lessons Learned and have a great time this podcast is also part of novik's growing ecosystem which ranges from free and premium research to Consulting and advisory services for more information visit www.navic.com now let's jump into the episode hello everyone welcome to another Novak Roundtable I'm your host Devin Becker and today we have a fantastic panel as usual including the the always Lively Aaron Bush co-founder of NovaCare we've got Matt Dion a Nova contributor and a founder of always scheming and Philip Mata ahead of Studio at fun plus uh how you doing Matt especially you got some

stuff going on at always scheming which appropriately named yeah hi I'm doing well thanks um uh yeah always scheming is just kind of my um the home for all my writing um if you've been following me on LinkedIn or Twitter you know I've been really into sort of uh web 3 topics and uh particularly like um fully on-chain gaming is a real area of interest of mine but really it's just a home for all my writing so if you are interested to follow along uh it's always Dash scheming dot FYI sweet FYI indeed yes cool well we've got some good topics today lots of fun things happening especially during this kind of earnings season a lot of stuff to talk about around that we've got a new studio coming from a former dice head quite a few of those popping up these days uh some issues coming out of embracer kind of a Hot Topic at the moment axi Infinity also finally releasing on mobile sort of uh Mortal Kombat coming out swinging into a bit of a crowded ring here and then take two

and ubisoft's earning data which should be fun to dive into those numbers uh first we want to get started on the old uh steadfast topic of Microsoft and their forever merger here yeah exactly so we have one more uh episode on this series so now and this time we have China that has approved the deal of Activision blither and so it joins Japan and European Union that they approve lately so there is a total of 37 countries that have already approved the deal so far but yeah this is not enough so as a mean of recap there are three main ingredients that have to prove the DM one is the the US the other is the UK and the third one is the European Union so out of these three only the European Union has approved it it was after some discussions with Microsoft where they

agreed to let players stream their Activision blither game some competitive services for free so preserving the competition in the club gaming service um but we still have uh like the what the U.S uh the Federal Trade commissions that fill the legal challenge back in December so this is still to be still pending and the CMA in the UK which uh banged the the deal in April 26 but also has made a reply to the a European Union approval that meaning that this is not enough uh for them so it stands by its decision and it's not willing to to make a change so yeah one one more step in in this uh soap opera but I still like not

getting close to an ending what do you think do you think this is going to change or it won't go out I'm just so tired of this like good on the EU in China for making the obvious decision to approve the deal and bad on the CMA for just being bad at its job still and doubling down on on their stance for whatever reason uh which is hard to discern whether it's from lobbyists or some other political push that's keeping them you know just clinging onto the cloud gaming thread is the reason to block the whole thing the you know and specifically the UK's cloud gaming Market uh it's just it's just wild and I probably shouldn't go on and on about that I don't know I mean I suspect the us will you know turn a corner I would guess and eventually come around to approving the deal the CMA maybe not and so it's just a question of whether they can come to

some term to kind of carve out you know some deal that will allow Xbox to do what it wants around the world but have modified rules for operating in the UK that's my best guess on the outcome here but it's hard to be rational when there are irrational you know decision making going on so we'll have to see what can we add here that hasn't already been been said about this deal right like it's been covered to death and I don't know it's it's weird that we find something that Europe and China agree on but um you know somehow the UK is the the odd country out here I don't know it's just a strange State of Affairs yeah I I find myself in the opposition of rooting for Microsoft to finish an acquisition for once instead of you know coming from the 90s where it was the bad thing but uh hopefully they'll close all that sooner or later so we can move on to talking about what they actually do

after that merger but I guess we've also got the the opposite of a merger uh sort of thing here with uh an X dice employee going on starting a new studio which one among many I think we've seen kind of coming from Battlefield what a transition um yeah so the news uh just the other day that um a new studio was announced called ttk games which is time to kill games um those of you that are big shooter fans will recognize that acronym um this was founded by Lars Gustafson um who goes by the nickname Mr Battlefield so he came from Dice he was the creative director at dice for many many years um and also you know several members of the founding team also coming from Dice the design director of the CTO the art director also ex-dice folks um and uh you know no surprises here they're working on a Next Generation online shooter uh none of the uh backers for the studio were announced I don't know if they have any uh formal backers I didn't see anything on crunchbase but

um you know uh interesting development um I was at the uh the All Hands meeting when uh when Lars announced that he was leaving EA this would have been five six months ago or more at this point and um it was a big deal you know like he was emotional the others in the studio were emotional like he was a big part of the culture there at Dice and you know if you look at um you know a lot of these startups they have a section where it's like oh our Founders worked on these games if you go to their website and look at the games they've worked on it's like battlefields one Battlefield 4 Battlefield 3 Battlefield 2042 Battlefront it's like it's all dice games um and so you know obviously a pedigree there right like um very impressive background very impressive founding team and I'll be interested to see what they do um you know as Devin alluded to this is not the first Studio to spin out of um dice a couple noteworthy ones that I stumbled Acro across in my research here

uh Embark Studios was the big one they're founded by Patrick soderland and they make a game called the finals which had a bunch of Buzz around it not too long ago it's like a shooter a competitive shooter with a lot of destructible environment uh elements to it and then there's another one called wayfinder games which is backed by dreamhaven and makers fund and they're doing RPGs interestingly enough not Shooters at all um they had a little bit in their founding story about like they were playing games outside of work and they were like what would we do if we had our own Studio it's like what do we make Shooters no we want to make RPGs and so they're making RPGs um so anyways um just you know the latest in a number of X dice um startups and um certainly a good pedigree Strong pedigree for making a new shooter so I'll be interested to see what happens there so we've had the blizzard Mafia everyone's been talking about the riot Mafia should we be throwing the dice Mafia into the same conversation

I'm glad you brought that up Aaron I meant to mention that and I'm curious to hear you guys thoughts on this as well um I have spoken to in the past I've spoken to a couple of folks who work in in Venture Capital at games and and they raised this topic that like oh you know we see X Riot X blizzard they have this like pedigree where you know they're they're the founders that come out of these companies are more likely to be successful at least in their view but they don't necessarily see that coming out of EA and I wonder if you all agree with that um if you have thoughts on why that might be if it is true if you take it to be true um maybe it's just dice Studio specifically or EA broadly I don't know I'm curious to hear your all thoughts I think it's kind of interesting they're they're sort of um averse of what we have kind of going on inside EA where um you originally had someone coming from Call of Duty that spun off into respawn Studios then get folded into EA then take over Battlefield as people leave Battlefield so you get this kind

of weird Shuffle going around uh from all the shooter people right like the people that are that no shooters that do Shooters well like you talk about like the pedigree that kind of comes from that thing I mean obviously some are going off and doing RPGs but it's it it's difficult to do a really good shooter I think personally just like to to diversify from the typical kind of FPS stuff so I think it's interesting that these people kind of move around and and maybe we'll see some of these Studios that spin off then also get reacquired by an Activision Blizzard kind of company or an EA uh and kind of get reabsorbed into a bigger company once again like responded it's an interesting thought um I wonder like I'm not sure how to articulate this like they're it's such a top heavy genre that maybe you see this like the sort of uh cycle of like you know from hopping from franchise to franchise to Startup to franchise like maybe it's just work we keep going back to the same

talent that has proven themselves uh and we're not seeing as much Innovation or diverse voices I don't know I'm speculating here but it is a very like it's Call of Duty and it's Battlefield and there's you know a bunch of others in the like next year pubg what have you um but it's very top heavy right it's tough to break through in that genre I guess we'll have to see what Ubisoft can try and do with their their Tom Clancy one that is kind of somewhere in that I think well the the complete opposite of Shooters here uh axi infinity uh finally launching somewhat onto mobile yeah so exactly Everybody Knows X Infinity by SK maybes so it was like this game that popularized the play Turn uh back in the day and then like kind of like took a bit hit after some hackers uh stole a lot of money from from the chain

so the same company has really actually Infinity Origins and now on the Apple's App Store in selected country so it's kind of a soft launch so this comes after the game was live in for PC and also in Google Play at the end of last year but in this case it's very more interesting because Apple has been like less permissive with games that relate to nfts and has like more rules against any nfcs or restrictions related to nfds so but despite of that they've managed to to launch the game there and did the company's hopeful for a future in-app nft transactions have been a load inside the game so this this has been

was well received by I would say people speculating because the the games launch boost x infinity is a cryptocurrency a lot uh like six to ten percent but then it went back to the normal Trend so I feel like it was more like a speculative move rather than something like really speaking the interest in the market and also interestingly it meets the Philippines which has been the the most the country where where the original game was much more popular so it's been quite quite interesting to see that this game is not it's not launching there so uh what what do you think is this setting like a president in in the App Store and do you think that apple is going to be more permissive with nft and transactions in in games I mean I think that's a big topic um I mean I I don't think this is necessarily like the ideal outcome for

the game to launch an estate where what it's most known for it can't really put front and center um like that's incredibly crippling and I mean I think this launch was on iOS specifically and they have been on Android for a while and it hasn't Origins hasn't performed that well there either I think they have like a cumulative 150k downloads since they launched basically at the start of the year um and that's tailed off quite a bit and so um you know whatever we have seen so far hasn't been the cure to to actually Infinity's woes obviously the team has gotten smarter about managing the economy to at least to some extent but when you go the hard part is just like when you go from your core user base expecting to make money to needing your core user base to just be something else entirely that's a really hard transition um to make and there have always been

questions along the way like of course here specifically is just like with mobile restrictions how can upselling work or even just you know they sold a lot of land like and that was they're always always High Hopes from like that unlocking new types of their business model and I don't think they've quite figured that out yet and that also is probably pretty restricted when it comes to what is workable on on mobile so I don't think I think there still is a lot more work to do from what I can tell for the the axi team and we've talked in a previous episode maybe a month or ago about how Philip law the um the the lead game designer for actually Infinity has left the company had gone elsewhere and you know it's speculation about what that really means about the state of the game um and you know how optimistic he was or the team was or whether there's agreement or disagreement on kind of the trajectory of where things wanted to go but uh but yeah I don't think it's a super positive note but

Devin I'm also curious to hear your take on this because I know through all of our week to week coverage um and and novik pro you've had a much Keener pulse on like the actual game design and economy design changes of all things axi so I'm also just curious to get your take on like even mobile like this launch aside like is Origins good or are there like still major things that like need to be done for it to succeed anywhere that it is operating the the big problem that with trying to make this kind of mobile transition is like it as you mentioned before it had kind of its core audience and they can't really Port that core audience over even if you take the earning out of it and just focus on the web three aspects uh Apple doesn't really want like gated uh content by nfts which is what actually was kind of famous for right you needed to buy the nfts to play the game which is part of what made it so successful during like its time period uh because

you know you got an axis going for thousand plus dollars and that was a big deal you needed those to play all that hype now that they had to move in An Origin to a sort of Premium model where there's like some free axes you could get but unless they've changed the game around a lot for this mobile release you're going to be kind of stunted at like a few initial axes and then you can't get any more so unless they add in-app purchases for axes and kind of break away from the nft model for them or just like hope people want to like find some way to go you know go get axes on their own I can't imagine players sticking around in this game that aren't familiar with the web 3 aspect and comfortable going around iOS and you know Apple's not gonna be super happy if everyone's just doing that and then like no money's actually flowing through them it just doesn't seem like with the state of a way apple is running things and with the way axi is designed there's not really like a success path here for the game I don't think like I I can't see like people just going like oh I've been so excited to play axi Forever like and I

just never had the money to buy an nft before I'll totally play it now it's just there's a million other games on the App Store that are I I'd say it better uh I mean like actually is not the worst game but it's also not the best uh in terms of fun so I mean good luck but it doesn't seem like uh a path to success at all like it's just like this transitional thing while other stuff is going on on Ronin they have other games you're gonna be adding to Ronin like some of them are actually starting to trickle out uh even onto mobile there was the the the heroes Bears win I can't remember the exact name uh they're starting to kind of come out onto mobile as well you know they're trying to diversify because they know that that that's you know that's not going to be the winner anymore can I ask um uh like a maybe a slightly step removed question for you all that I've been thinking about so one Trend that we've seen with web 3 games is that because of the restrictions that platforms are putting on what is possible with nfts tokens

um that um many many companies have been launching versions of the game without the the token elements with the hope that it then upsells or like moves convinces to move people to other versions of the game with it or like just somewhere else on the internet like that has more functionality that you can plug into um have we seen an example of that working yet um I I don't from what I've seen I don't know if we have I know there exists examples like this on mobile there are examples on Steam um but I don't know do any of you know like has has that worked yet or like is this a strategy that probably will never work that way do you think maybe with the some of the South Korean like like MMO arpg games I would say it might be working to an extent it's hard to say uh because we don't have like a lot of sometimes transparency into like how well the web 3 site is doing uh but they

usually pull off decent numbers just by being you know pretty good games on the web 2 side so I would say that there's probably a good chance I know like oatha Peak for example has been doing pretty good uh it seems like on the web 2 and the web 3 side so maybe that's an example one it's a little bit lighter on the web 3 than some of the other ones that came after but that might be maybe one of the examples that we have potentially in that area the problem is too like you're split business model if you're making most of your money your Revenue through IAP do you really want to shove everyone over to web 3 and like forego that and hope royalty payments are going to be enough or vice versa if you're making all your money through web 3 then it's like it's going to be kind of hard to try and uh make enough Revenue without uh constantly finding end arounds around apple and things like that so it just it seems like it's kind of a rock and a hard place uh for most of these and then you've you know even mentioned the South Korean developers they can't even release it in their own country so like not just not just App Store restrictions worldwide but also even their own country so it's it's just it's a tough place to be in for that business I'll just say a bit of conflict

right in the the business proposition right so one is like in-app purchases you buy something like it's more like a consumable or something that you already have in the game and you leave the game you want be getting back and the NF this is something that you really own that is outside of the game and then you can transfer and get money back so it's kind of like two opposite things so it says Stephen is saying right like if you manage to make one working like if you manage to make any purchase working how can you like get rid of that and lose that money and try to sell nfts right for something that you are selling over and over again and the opposite the players are there for having things that are forever there for them how they are going to then now pay yes for using them for some time and not owning them yeah I think Gabe said it uh Gabe Laden just to be clear I had a gamesby just yesterday the day before uh one line that kind of stood out with him saying that he doesn't think maybe even nfts or tokens

will be the way for necessarily for Revenue but maybe more for marketing which I thought was kind of an interesting take on it like maybe that's the way that you make money off is pulling people into the game and then making money off it at purchases so I mean I guess I guess we'll wait and see right we're kind of in the middle of the the whole business model shifting uh but speaking of business models shifting not always well uh we had some some fresh news coming in over the last 24 48 hours around embracer yeah so embracers just released its full year preliminary results and this this literally just came out like right before we we started recording so we haven't had much time to go through everything but um the stock is down 45 um today so far which which you know caught our attention and is worth a look at what the heck is going on here um and so I took a quick look at the results and in a lot of ways it's more of the same the company as we all know went on an m a frenzy over the past few

years and now organic growth and the timelines of various projects are struggling and it's become um evident that embracer was somewhat value destructive in in that strategy that it aggressively pursued um however the the big thing that's popping out this quarter and what's sending the stock down 45 is that an unnamed partnership that management thought it landed um fell through and and that deal would have brought two billion dollars in contracted development Revenue um over the next six years and for context embracer earned 3.5 billion in Revenue this year so that's basically assuming that 10 of the total revenue that they thought that they would get um is basically vanished from from their guidance and so again we don't know who that partner is there aren't many companies that can pay 2 billion dollars in contracted development fees so it's

very likely one of the the biggest of the big companies out there maybe Amazon maybe Disney maybe some big co-development partnership with a tencent or who knows uh it's it's speculation until they make clear if they ever do um but um obviously this change lowers revenue forecast but the contracted development is also guaranteed profit for a company like this that is more you get paid to do the work and you don't just earn the revenue when when the game sells um and so it actually also has a bigger impact on earnings and paired with you know the broader industry softening pipeline struggles and efficiency was that embracer has seen the company revised down its adjusted earnings for the next 12 months by 30 percent and that's adjusted earnings so that's the the generous view of how they want you to see um their their earnings as a company um so you know off the bat this is not a

great look but when you zoom out um it's it's even worse than than just this deal right so embracers stock price is now back to its early 2018 level so where it was a bit over five years ago and what's wrong remarkable about that fact and what blows my mind is that's before all of the Crazy M A picked up and so revenue for like full year 2017 was 0.25 billion SDK um and over the past 12 months it's 37.7 billion sck and so uh in short despite growing their revenue over 150 times in that five-year period they actually created no value um for anyone who was an owner of the business and that's just like like honestly like that's kind of as like you

know having studied businesses been an investor you know thought a lot about Capital allocation like did this is bad um and it really shows that like the capital allocation strategy that was the backbone of why embracer was hyped and what their their core like means of growing and thinking about their long-term strategy it didn't work um and so so here we are especially on a day like this double feeling the pain when a few things are kind of going wrong at once um and so embracer has a lot to work through if it wants to re-earn the trust of investors and perhaps even Partners too which we don't really know what's going on behind the scenes there but it's it's not a good look um and obviously a better focus like many companies on efficiency and more focused on Roi of internal projects um is is one way that they they can and and will continue to to improve

um but it also just needs to ship more awesome stuff you know it's the kit at the core games businesses just needed to deliver great games and they need to work out their pipeline issues and just start shipping bigger and better things um and so yeah I guess long story short you know they always release these like 100 page like earnings documents where you can go and read all the details that you want um so that's that's there for you but in short that's kind of my view of what what happened lately we haven't had much time to digest this but I'll open it up if anyone else has any other thoughts on what's going on here or what what they should do next would be curious to hear more than thoughts and just feeling sorry because you mentioned like people that had invested like five years ago like are equal right but like maybe there are people that invested like two months ago right and they they so they want to help him so well that's that's something that like I feel really sorry for them and like I feel like when

you think of this big conglomerate you think like okay they have a lot of potential for creating synergies internally right so the to be able to to be more stable but yeah it's I mean it's kind of an indictment on the roll-up model um certainly there haven't been a lot of successes to point to um and uh we just saw what was it eg7 the other day also like their shareholders were saying we're recommending that they sell the company or sell off parts of the company something like that um that was another smaller roll-up company um certainly embracer has a lot of one would think valuable IPS and Studios that other Publishers might you know might also value so maybe we'll start to see um with especially with the stock down so much like we'll start to see some interest in selling off some of those properties or maybe someone taking over the entire operation I don't know I'm

obviously speculating here but um you know we haven't seen a lot of successes coming out of embracer I couldn't point to a game that was like a flagship success for them um maybe I'm just not aware of their many IPS but um I don't know it's not a great look as others have said yeah I think it is um telling of the the roll-up model in general it seems like we we kind of quickly went through and ended an era there that probably was a byproduct of the zero interest rate phenomena where it was easy to raise money through debt and equity and then Chase deals and at a time when valuations were were all high including the valuation of these companies themselves that were extra hyped up because people thought that they could continue growing by buying and it was this feedback loop um that they really they just overpaid for a bunch of deals and it really I really think it's just the discipline of the price uh that these companies paid

across the spectrum that was the biggest issue at stake um but also just sort of the double whammy of like this happening then you know post covid slowdowns and then uh post idfa you know impacts and you know and then it's just like managing the complexity of all these entities and trying to find synergies that aren't obvious um uh that's that's hard to do so it's really a mix of those things but really at the end of the day it really I I think it the biggest piece is just um uh diligence on the price that companies are willing to pay for the deals that they make and we're announcing that to change engine across the Spectrum with both embracer still fraud other companies there is a much more of a focus on Roi and internally for all the things that they do which I think is healthy and in in measuring these these these synergies to really

see what they have and where they can where they can lean um and yeah I mean I think the roll-up strategy is it's not dead there's always going to be M A but this type of business um uh not to say it can't work I think it it can but it really takes maybe another level of capital allocation um you know skills and and my view but the other thing the last thing is that just like with embracer it's not it's not all terrible you know it's a big company with some good things going on right like their tabletop business in particular like actually is a very good business that has pretty dominant market share and good competitive advantages and now that this is a a business that also owns gaming Studios and like has access to lots of Ip like there's much more that they can do there than than in the past to continue building that's not enough to move the needle for the entire business but um it's worth worth calling out some of some of the good if we're gonna also

talk about some of the bad here I guess I wonder with that is it like might there also be a a release schedule Factor here like where you know a lot of the companies that they acquired still have something in the pipe that hasn't come out yet that could be like this next big huge hit blows up their their revenue and then like then it's like wow this was a genius move because now they they acquired you know a bunch of companies and some of them did amazing and some of them just did okay and that was enough like I I mean I don't know what the pipeline looks like for the stuff that they have like coming out and I know a lot of stuff got really kind of delayed from covid and even just the kind of work from home sort of like transfer where people had to kind of move back to the studios really kind of just everything was slow like is there some potential there that like maybe stuff's just delayed even now you really sound like a crypto guy it's like don't worry it's coming the game is coming the big one's coming it's just wait just wait I mean um you know the I guess the counter argument would be like every other company has also been operating

under those conditions as well and they've managed to ship games that have been successful or somewhat successful so you know we're all kind of operating on the same playing field not every company has you know 50 70 Studios whatever it is that embracer has but um that's the strategy that they chose to pursue and you just gotta deliver you know hopefully they will I guess I guess we'll see right uh I I've it's gonna be probably rough this week for for the stock at least uh as people kind of digest and then as Aaron mentioned they may not ever mention what that deal was that didn't end up going through so I guess we'll just have to probably speculate for quite a while on that but um speaking of bloodbaths uh Mortal Kombat trying to make a comeback here yeah so um you know there's a big announcement uh not too long ago that uh uh this new Mortal Kombat title coming and um I thought it'd be a good opportunity for us to kind of look at fighting games uh more broadly there's there's a number

of big fighting games kind of on the horizon and I'm just kind of an interesting opportunity to look at the genre uh as a whole so I I saw a chart recently that that showed the highest selling fighting game franchises of all time and Mortal Kombat is number one um it's um surprisingly um Street Fighter is not even in the top three um which would surprise me but so number two is uh the smash franchise actually um just behind Mortal Kombat and then Tekken is number three Street Fighter number four um and by the way number three and number four are like way behind Smash and Mortal Kombat it's like it's it's um kind of surprising but um anyways we're talking about the new Mortal Kombat announcement here um this is being called Mortal Kombat one uh so a bit of a reset if you remember the last title which came out in 2019 that was Mortal Kombat 11. um so they're going for a bit of a reset

here um either gonna do reboot the story for whatever that's worth um they have a they're introducing what they're calling a cameo fighter system Cameo with a K of course um and um you know maybe hinting at some DLC or live service there if you look back at the last Moral Combat they had some DLC uh Fighters that were like not endemic to Mortal Kombat so they had spawn RoboCop the Joker Rambo um and so I'm sure that they're gonna run that back you know we see these sort of collabs in other games too and I would not at all be surprised to see Mortal Kombat do something similar with their Cameo fighter system um as a means to just kind of like extend the the runway for a game that's uh you know it's it's a actually a 70 box this time not a 60 box so they're they're also jumping on that 70 skew uh Trend uh worth noting it's not the first reboot that Moral Combat has done either

um back in 2011 they released Mortal Kombat um after Mortal Kombat Armageddon uh so they've done this before um and and so as I mentioned earlier there are some other big games on the horizon right so Street Fighter 6 comes out in just a couple of weeks here June 6th this is um injecting some some new life into the genre it's like a quasi-open world uh which is kind of interesting for a fighting game right and they have a whole character creator um system where you can customize your fighter and and and if you if you do some Googling you'll see some truly uh terrifying Creations out there on the internet uh of custom Street Fighter characters uh and then we also have Tekken 8 which is uh scheduled for maybe later this year early next year and of course on the horizon there is always the project L from Riot games their fighter uh which I'm very excited for um there are a number of other fighting

franchises out there that um probably most listeners are not on their radar but if you're a fighting Enthusiast there there are several others that are coming out this year as well and then finally worth noting that there's also another Moral Combat movie in the works so if you saw the last Mortal Kombat movie uh it wasn't exactly High Cinema but it was like a great action flick if you like action movies and it was true to the franchise very nostalgic if you're like me and you grew up playing those games uh so the the Mortal Kombat 2 movie is in the works that's expected to come out sometime next year and it's um for those of you that watch the boys Carl Urban is uh supposedly going to be playing Johnny Cage so not not hard-hitting business analysis there but for the fans I you know personally I'm excited about that um so anyways like this is the setup right for Mortal Kombat one um coming into the market by the way the only uh it's coming out in September they've only given themselves about four months of a marketing window I don't

know if that's good or bad maybe we can speculate about that but um you know kind of surprising and as I said they're going up against pretty tough competition it looks like so you know what do you all think should we be worried about this short marketing window do we think that Mortal Kombat one is going to meaningfully improve on 11. uh is it going to are they going to be able to hold their top spot uh in the fighting genre uh against some of these strong Challengers that are coming down the pipe particularly Street Fighter six I think that one will be really interesting what do you all think I don't know I used to be a fighter game but uh if out of the of the business for for a long so I can ready I can't really think like what's what's the I mean I feel like they should generate that missing some innovation in the last lead years so looking forward for for Street Fighter 6 uh what they are going to bring maybe that makes me revive my attention to the to

the genre uh but I don't know if it's just a remake and trying to to make uh The Nostalgia feeling uh of players with better graphics I'm not sure if that's going to be competitive yeah I don't I don't entirely know what to make of the brand reset but you know putting into the context of just how the games around it are changing to Street Fighter Riot coming out with what will probably be a fresh take it makes sense that if you're the top dog that you need to put your best foot forward to stay fresh as well in order to to maintain that status as best you can so at you know a high level view I I sort of get it um I also was looking at um some of the the numbers too and I I didn't know that the tier list of the unit sales of these franchises before um before looking into this topic too but on top of you know obviously seeing

Mortal Kombat be number one I also noticed that just the sales trajectory of this franchise has been pretty solid as well so Mortal Kombat 10 I think which launched in 2015 sold roughly 11 million units in Mortal Kombat 11 which launched in 2019 sold somewhere between 13 and 15 million units and I think those are probably the biggest games of the series and steady succession and you know the last two games were four years apart it's been four years since that last game so even though the marketing window is maybe not the the biggest um it's still probably timeline wise fits what makes sense for the fans of the franchise so I I mean I would expect it to do pretty well if they do a good job of putting kind of the fresh spend on on things again it also wouldn't surprise me too depending on what what Riot does that a year from now we're just thinking about this genre

differently about who we should consider you know the future you know biggest players here and so it's kind of hard to give a perfect assessment without knowing what everyone is up to especially when you got a looming giant like riot in the room and also you never know too with um I mean smash is always going to be Nintendo only but with rumors of switch 2 probably coming out sooner than later and it a new Smash there um could also make make sense and start you know Making Waves so um so yeah I mean I think it's an exciting time for this genre and it's good to see that kind of alongside the new console Generations that these games are all trying to stay um fresh here and even as someone who hasn't been a big fighting game player like seeing you know Riot come out with a game or Street Fighter taking a new even more like open world stance like it it makes it more compelling to someone who hasn't

who maybe doesn't want to jump into number 12 to like find like another like new fresh starting point to to you know put their toes in the water which I think um could could be beneficial but we'll see let me just assure you that you're not missing anything plot wise if you come in at 12 versus 10 versus five it like you know I I like fighting games I'm not like a super fan but there's you know the core Loop is the same even if the story changes you know don't worry about missing anything there I guess throwing a different angle on on the topic then is the the in terms of platform and technology and like arcade scenes so like uh for example in in Japan the arcade scene got weakened like really hard by covet right so like that should definitely I would think impact for example Street Fighters success over there which might be doing and I don't know what the distribution is like but might be like maybe more successful in Japan because the arcade scene versus like the Home console play and then you

have the history of like especially Street Fighter games and just fighting games in general really struggling with like PC ports that have good net code and things like that and you and you look at the top two as you mentioned uh Smash Brothers isn't really well known for for like internet play either whereas Mortal Kombat might a little bit more uh lean towards like console internet-based play and stuff like that like how do you guys think that sort of factor plays into this competition when you've got like the net code the arcades uh the the people doing smash Brothers tournaments as like you know these in-person Evo kind of things like how does all that play into into going into 2024 with these games all kind of vying for that same attention it's an interesting thought I wonder how big of the pie the arcade aspect is really because to me the the more interesting not to change the subject necessarily but the more interesting aspect to me is like how do they incorporate live service into these games because I

suspect that's where they make a lot of money of course they all charge up front right so it's a premium game um now going to 70 bucks for Mortal Kombat I'm sure Street Fighter will do the same thing Tekken will probably do the same thing um but they like you know smash was a good example they they had their like character packs that they were releasing every so often you had to like sign up for that I think like um there's uh Mortal Kombat does something similar where they had DLC Packs where they're releasing new Fighters like these are these are the sort of Beats that they uh the the big content drops but they're all also like very labor intensive to make new Fighters and balance them and get their move sets right and everything so there are other features um Mortal Kombat is the one I know best but I don't know if Street Fighter has done something like this where Mortal Kombat has like an in-game currency that you can buy also and you can use it on like different modes like they have this they had this mode I think it's called the Crypt with a K where you can like go around this little map in first person and you're like unlocking different

um sort of like Easter eggs it's like concept art and like different cosmetics and things like that it's like you know just little fun little things for the hardcore fans but you get that currency either by purchasing it or by earning it in the game so it's like another lever for them to pull from a live service perspective so to me that's the aspect that's more interesting because I suspect I have no evidence here but I suspect that that's where they bring more ongoing Revenue than say like arcade sales or you Esports tournaments or something like that that stuff is all important for like marketing and and like growing a community and things like that but I don't know how big of the pie it is from a business perspective yeah yeah it's and it sometimes can be hard to get all that info right like from these uh the numbers that they give like I'd even be curious to see how much um the the DLC characters brought people to buying the game so like I I admit I I bought the game because I could play as Rebel cop in Terminator um although I probably don't count as a

sale because I bought it on stadia and then of course you know the stadium refunded me at some point when they shut it down but it's uh you know it's interesting because it's like I was elapsed Mortal Kombat I played since like three but I was like oh I could jump in this time not because I'm familiar with the characters but because I could play as Rebel cop or Joker or uh Terminator and I I wonder if like that sort of thing as well can help them bring in lapsed players uh maybe they don't care about the story or maybe that feel outclassed by just really not knowing the characters at this point and like hey you know I don't know any of the characters but I know Rebel cop I could I can figure RoboCop out you know like I don't I don't feel out of place 100 that that like mashup aspect is so important and like smashed did an amazing job with that right like you know I was um super into smash because I could play as cloud from Final Fantasy 7 that's my favorite game um but same as you like I thought it was really interesting what they do with Mortal Kombat bringing in like the Joker and like they have the whole like Injustice franchise also that they can like Leverage if they want the one that I really want to see come back is Marvel

versus Capcom like bring that back I will buy it I will get all the characters like the mashup aspect is so important because people have this affinity for all these IPS maybe that's something they could do as part of uh that new Street Fighter so something you know I mean is Capcom that maybe they could get Marvel because Disney's been doing a lot with their branding into these days and trying to to do stuff with Marvel so I I mean I'm not saying they will but that would certainly be an interesting idea uh to try and bring it back that way because as you said there's a lot of fans of that franchise whether or not it's sold a lot it's definitely a I think a missed franchise here versus some of these other ones that they're dragging on a little bit in age at this point but as you mentioned there's also a movie coming out uh you know that will help I imagine Market you know the short marketing window for the game but then also getting remarketed next year uh for the movie potentially yes I mean it releases on time yeah you know that uh movie exclusive character is going to appear in the game at some point but he has to right as

long as it's actually Carl Urban then I'll be interested uh but anyways speaking of uh earnings and and making money here uh take two and Ubisoft have uh have put out their earnings statements yeah we can start with take two um which you know at a high level the financial numbers honestly are kind of useless if you if you look at it right now from the standpoint of uh their Q4 Revenue was up 56 I think um but you know Zynga being here this year but and not last year is skewing that there's different comps due to game release timing um Etc and so the the current quarterly results as a whole are not actually that interesting and not that much has really changed with take two over the last quarter or two um um but there are a couple interesting um tidbits from little uh Financial details here that I think are are worth

pointing out so um first the the company had two impairment charges um you know buried in their financial results this quarter one of them was a 54 million dollar impairment charge related to unannounced projects that were canceled and right now um I count 52 projects and the company's pipeline um through fiscal 24 through 26 down from what their goal of it was 69 in fiscal 23 through 25 so um in my mind that's just a sign that they're focusing on fewer but higher impact projects as a company and that has shifted a little bit over the past couple years which lines up with a lot of the discussion that CEO Strauss Sonic has said about how the biggest IPS really are taking share and consumers want to spend time with the brands that they they know most especially as these Brands build bigger ecosystems with more engagement opportunities for for players

so so that was one little thing that I noticed the other the bigger impairment charge of 465 million dollars related to Zynga assets and we've been saying for a long time that takes two overpaid for that deal and this is them finally admitting that for the first time maybe not in words but in numbers um and so um they said it's a one-time charge but you know it was a multi-billion dollar purchase I think we all know that if the deal were done today it probably would have been half the price that they paid so an impairment charge of 400 and 65 million dollars is maybe actually kind of low um but of course how accounting Works versus how we view it you know in in the market like you sort of need to read between the lines so who knows maybe there's other impairment charges down the road but um I guess this is them also feeling more confident and Zynga being able to to kind of uh study the ship and turn

around from here although of course it still is a major anchor on the business for now and probably for the for the near term um so so those are two kind of small interesting tidbits that I think are worth pointing out the other one and in our Pro coverage Mario um our great writer there he pointed out that even though management is guiding for low growth next year quote CEO Strauss elnick's comments that the period from April 2024 to March 2025 would be marked by several groundbreaking titles that would push the company toward eight billion dollars in bookings one billion dollars in adjusted cash flow these bookings was rep present a 45 increase over guidance for 2024 such an ambitious forecast would uh would not be issued for new AAA IP in Mustangs to be due to the new planned installment of the GTA franchise so again they haven't announced GTA 6. we all know it's there but they're sort of announcing it in the numbers um for for that fiscal

um time period of between April 2024 and March 2025 when they expect the numbers to really start picking up um so we all know how these games go it could get delayed one or two or multiple times so it might not actually be that that time period but now we have an actual window at least financially to to look forward to and so you can backtrack from there and probably assume that like yeah if that's the window they're aiming for then probably pretty soon we'll start to hear more uh about this game um and so um anyways that was kind of the main like new points I I pulled out of this earnings report otherwise this is a company that still has great franchises that are doing well the GTA isn't selling as well as it used to but engagement on GTA Online has picked up a little bit bit from where it was NBA 2K is doing really well

um and of course they're gearing up for new games and their biggest franchises um like Bioshock Borderlands Etc down down the road and these just all take time to get to um but nothing new has really changed there other than these little details so um so that's that um I I mean we could take this conversation a few different paths on you know you know whether when Zynga will stop being an anchor for the business whether take two has other catalysts um Etc um but I'll let you guys maybe comment on like where you want to take this if you have other thoughts we've of course talked about this business quite a bit but if there's something new or something on your mind related to take two I'd be really curious to to know what you think of all this well it's interesting how you put thing out right like as an anchor for me I feel like yeah I agree that I think a thing acquisition was like quite

maybe overpriced and they're still like seeing the impact of that they feel like they're restructuring a lot internally and they they they haven't seen any big games coming out or nothing that has created hype maybe they have many things in development but like nothing that really uh is creating any hype so it feels like they they want to use thing to get into Mobile but it's not really making a Synergy maybe this needs more more time to to to happen uh so I don't know if for instance like that they have any plans to to have anything related to mobile with the new GTA 6 uh that could be something like quite interesting that you could do so much stuff in the Marvel that complements your game playing in the console but yes then I'm also wondering Zynga was talking around web3 quite a bit uh like around that time and

with everything kind of cooling down around web3 I also wonder if like they're shifting around within the company as well like you know do you think they're like oh maybe we shouldn't do that maybe that's not the direction to go like like you know a lot of web 2 companies that you know were dabbling into web three kind of like pumped the brakes pretty fast when things started slowing down like I imagine if if that's the direction zinc was going that could really slow down their ability to like help take to grow maybe I think there's probably something to that in the sense that um you know the take two as an overall business appears um pretty um pretty uh like they have pretty heavy diligence to making sure that they have good Roi on the projects that they work on for the most part doesn't mean they're always right but they try to keep that focused and so if there are the lower hanging fruit of web 3 projects that they foresee like pretty

obvious struggles um you know getting scale and getting Roi on I could totally see that being something that they dropped and it fits with what I said with just how like the number of projects in the pipeline if you count today compared to what they said in the past is down it wouldn't surprise me if web3 is a small component um of that difference but I mean beyond that I mean it really is just the mobile environment has been tough as a whole and they bought Zynga basically with expectations for growth and then it did the opposite and it I think it's you know actually if anything more like shrunk as a business and it's you know Finding its footing to get back to growth again at some point and all all the while too like continuing to to streamline how mobile is run within the business both shutting down certain Studios folding games into like the broader umbrella operation of of Zynga conducting you know layoffs here here and there partly related to to the

acquisition and partly just cost cutting measures in general and I'm sure that has an impact also related to the project Pipeline on mobile and elsewhere so I think all those things um enter into relate quite a bit um so it's not all great news from the sense of like that means that the growth prospects maybe are less in the past but being as focused as they are on The Highest Potential projects still bodes well for them at the end of the day GTA 6 is what's going to move the needle most for this business not really any anything else I mean everything else adds up but as like one project like that determines whether this company outperforms or not um over the next three years or so um you could call it um but yeah all the the other inner workings are super interesting to track too well so much writing on that then I would hope they would not try and Rush GTA 6 out the door you know I mean they they gave kind of a potential window for it but I would imagine if that gets delayed I mean

obviously companies you know make the wrong decision all the time but it seems like it would be worth letting that cook the fruition uh if if you're betting that much on that that franchise yeah Rockstar is typically pretty good at putting out quality products at the end so um not not too worried but I guess I should probably switch gears to Ubisoft since we're um entering our final moments maybe we can keep this one a bit briefer um and I mean long story short Ubisoft continues to struggle with chronicled the struggles of this business over the past couple of years on this podcast and it really is just a continuation of what we've talked about over an extended period of time at this point bookings are now down two years in a row and are actually lower today than they were five years ago earnings are not great um you know more if you compare over the past year debt has risen while cash has fallen um and the stock price is now where it was 15 years ago 15

which you know it's gone through ups and downs since then but even so um that's a pretty striking fact in my opinion um and uh Ubisoft recently has been the go-to example of a company that needs to get financially fit and more efficient but it hasn't at least at the same rate as other Publishers out there and they are starting to headcount is slightly down over previous periods and they have a 200 million euro cost plan but I don't think it's enough yet and so we'll probably see more uh to come and of course they're dealing with their own jurisdictions and the countries they operate that have an impact on what they can do but even so I expect them to get try to get more um efficient even if it is challenging most of the backlog and pipeline is still struggling and questionable there are some interesting there are some interesting games out there like X defiant has you know sort

of been making waves in the community although we talked before about how the shooter Market is very top heavy and so it's hard to break through with with something new and so it's still probably a lot of questions about the true potential of a game um like that there is growth in certain areas with Tom Clancy games but um interestingly the the Main Place Ubisoft is doubling down on is Assassin's Creed um they're increasing head count on Assassin's Creed actually quite a lot right now at a time when they're trying to cut headcount most everywhere else um in the in the business and um you know also the next game uh Assassin's Creed game Mirage it's going to be less live Ops focused and they're still teasing their Infinity platform so I kind of view it as like this company is putting more eggs into the Assassin's Creed basket and I think that makes sense for the same reasons we talked about with all these other companies that the biggest and best IPS continue to gain share and really you

need to work hard to make the most of that I am a little curious about the different types of Assassin's Creed games how that's going to go and really how it's all going to come together on one platform I don't want to judge it too soon but um I think it's fair to be have questions and so proven otherwise um and in this case uh but also I guess uh the lastly I'll say ubisoft's quotes expect strong Top Line growth and non-ifrs operating income at approximately 400 million euros end quote um and so they're trying to Target growth from here which is very much needed because it's been falling as I mentioned for two years in a row but I also might not fully trust those targets given how things can be delayed at any time like they have been in the past so um maybe the the theme throughout all I'm saying is that it's just been a long time of

uh Ubisoft underperforming and not hitting the expectations that they set and so when they throw all these new things out the the honest typical reaction now is just to have questions and be a little skeptical and to kind of wait and see if they can actually pull it off which is unfortunate but that's seems to be the pervasive view in the market given given how this company is now trading so that was sort of my view on what's new with ubisoft's um and so I guess my my question for the group as we probably get closer to wrapping up is whether you think Ubisoft is making tangible progress to really turn things around or is it still not enough based on what we're seeing right now and if it isn't still enough then what are the other things that that they need to do to really make the next call it like three years more of a real turnaround for for them as a business I mean

personally I think they've just been delaying and dragging their feet on too many projects that either need to be cut or need to be like get out the door like say for example Rainbow Six uh siege for mobile has been dragged on forever and they just keep doing these beta periods uh and I mean the game looks like it's close to done and has been for a while and I gotta imagine they're just having you know trouble figuring out how to make it the right Market fit or to try and like expand the audience enough you know because it's a difficult game to Port but that's an example one like they probably should just put out but then you've got ones like school and bro Skull and Bones should have been cut a long time ago and they just keep dragging that on and it's I don't I I mean I haven't seen like the earliest versions but I don't imagine from what I've seen over the last year or so that it's that it's really gotten that much better uh it's still just open Word World formula stuff that they keep putting out that people are kind of sick of at this point and they they also started Burning Bridges in that territory with like the Ghost Recon franchises so it's like they've just like kind of not really left a lot of

good options for themselves that's why they go to Assassin's Creed whereas like I and I don't think X Defiance Really Gonna Move the needle all that much for them either so it's like they're kind of not left with a lot of options I don't think we're gonna see like a new Rayman come out of the works or something and like blow everyone away so like they they just have so few franchises that they aren't either just like letting languish or needing to put like like a new Splinter Cell I think everyone's like well why don't they just do that right those kinds of things where you wonder how they're managing these franchises that seem like that is probably where they could be a lot more efficient yeah do you think the doubling down on Assassin's Creed is going to work as much as they hope it will I mean my personal guess is is part partially like that that some of it'll work and some of it won't they they don't have a perfect track record with Assassin's Creed games and I think being overly ambitious with them uh that's not usually it doesn't usually work out well for Ubisoft I think when they're overly ambitious you know they they tend to

bite off more than they could chew and they release some very buggy Assassin's Creed games in the past and and run into a lot of problems there so I don't know I think again I feel like they're playing out their open world formula too much and like and maybe I didn't see the numbers for Far Cry 6 uh but they're still just kind of just dragging that formula through the mud with all of their franchises and kind of bringing people out even though the last Watchdogs I don't even see them potentially continuing that franchise anytime soon because that last one just didn't really make enough of an impact and I I don't see them also introducing like new IP all that much like the X Define you could call it a new IB but it's basically just a hodgepodge of their other franchises they're even trying to inject like Far Cry 6 characters into it almost to try and give relevance to their either existing games at the time just to try and like bolster those up but it's like if x Define doesn't even get released anytime soon how relevant is that right like is it gonna have to have all Assassin's Creed characters to get people interested I mean it's it's a weird fit

uh for everything and I think like I said I think they're just in a really weird spot they need to maybe just cut some things out and just be like you know we're not going to work on those let's do like like what they're doing Assassin's Creed let's focus let's also like not let some of these franchises fall apart that we know we can do well and we just kind of lost Direction like Ghost Recon they can do those well they just got on some tangent uh with the last two that just was the wrong direction they could fix it and they've got these division games ready to be kicked out into Mobile and on a you know desktop and uh and console as well if they can get those out and do well with those I I think there's areas of potential success for them there and they are doing to their credit they are doing so that they have cut a bunch of projects they are trying to get more efficient um and they are trying to even break from the same open world formula like this next Assassin's Creed game um but yeah the the ambition uh makes me a little nervous with the whole Infinity Project and how much of the company is really riding on the future of

Assassin's Creed being successful but yeah it'll be interesting to see I just kind of wish that they didn't um as a company put themselves in a corner with um tencent coming in and basically reinforcing the the family control um and definitely which makes just the Strategic options much more um challenging so really the same management team is going to have to that got Ubisoft into this position is going to be the ones to have to figure out largely how to get them out which will be interesting to to see how how that goes but anyways yeah I think it'll be probably a hit and miss I'm hoping that there's just too much pessimism baked in at this point with like how much Ubisoft has fallen and that some of these things can work to just bring them back to a steadier state but um time will tell and I guess we'll keep on tracking quarter to quarter hopefully it won't be as it will feel a little better in the the times to come

definitely I I think uh you know there a lot of us I think have you know franchises from Ubisoft we'd like to see survive uh so hopefully they can manage to make it through right and those don't just get sold off piecemail or something like that over time but anyways I want to thank you guys all for fantastic conversation as always and also remind everyone about the the yell mailbag uh if you guys want to make sure to uh to shoot us emails at podcastnavic.com we're definitely listening feedback questions things like that and we'll definitely try and make sure to follow up on those some of those May uh require a different group of people to follow up on depending on the type question you ask so we want to make sure to get those to the Right audience and and do a good job uh with data and things like that for you guys so definitely keep asking away I know some of you've sent some already so keep at that and we will respond to those but thank you all for listening uh thank you guys for being here today and of course we'll see you all next week if you enjoyed today's episode whether on YouTube or your favorite podcast app

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