TWIG 119 : EA Buys Glu, AppLovin Buys Adjust, Embracer Buys Gearbox, and Predictions (Shooter, Mktg)

hello everybody and welcome to twig number 119. you have myself joe kim aka deep gaming value calling those stocks we have eric kress adam telfer and mishka catkoff and today we are going to be talking about four different articles first why did applovin buy adjust by mobile dev memo second ea buys glue which has been basically covered by every single public gaming publication out there third embrace embracer group acquires borderlands maker gearbox entertainment for 1.3 billion from venturebeat and finally our own deconstructor of fun podcast has released predictions shooters and marketing how you guys doing all good man there's so much news going out there so it's almost like overwhelming crazy thanks um yes it's a very crazy week it seems like every week is crazier than the next it seems yeah we thought 2020 was a crazy year but actually 2021 is another popcorn

year guys it's it's nuts dude what's left what's left out there dude it's bottom of the barrel type time right now nothing just a moment ago cyberpunk developer cd project got cyberpunked right they got like cyber attacked or something like that oh really did you see that i actually tweeted about that all right yeah well in any other things going on or should we just jump right into uh updates with adam i don't know i have a quick update oh good uh we have some feedback not a lot of feedback but i listened to the podcast last week and i have to admit my uh the level of cursing was just out of control i think i i dropped so many f-bombs and i have an excuse of course because i always have excuses is that i was in excruciating pain sitting here with my knee was just completely jacked and so i was feeling a little bit of a lot of pain the whole time so maybe that

got me a little frothy but i will uh i will keep the cursing to a minimum uh even though i don't i promise i i can't promise that i won't curse but i certainly won't curse as much as i did last week so i apologize for those that were offended i was offended about myself frankly that's it i take that apology let's go into the updates um so first one leaf mobile has acquired eastside games for nearly 160 million dollars so eastside games a great studio actually like an amazing story of their focus on idol um especially the the trailer park boys game and i think overall really great for the vancouver scene so uh leaf mobile is also another mobile game studio they also what they call create counter culture idols games which is basically a whole bunch of drug inspired idol games so what is it like cheech and chong's idol games these types of things

i don't really see a lot of success from them from censor tower um but overall it looks like leaf is you know doing some sort of a merger almost with these side games because eastside games just seems like a lot better of a business right now so the overall deal looks like about 19 million actually in cash and the rest of it is in leaf shares and of course contingent on performance but then jason bailey who was the chief product officer of eastside has now been appointed as the chief revenue officer of leaf and is now director to leafs board to least board overall so it looks like it's less of an acquisition but actually more of say a merger to buy expertise and offer leafs scale to eastside games because i think eastside games is you know clearly operating some very successful idle games um with a very similar target demo yeah i think i was reading a little bit of slack chatter around that it seemed like it's almost like a mini spack in canada where that was like created just to acquire eastside but in terms of their games as far as i know

i thought trailer park boys was doing pretty well and for those who are interested i know east side hosts like a zoom like a monthly zoom hangout so if anyone's interested in that i think you you can you can ask me to get the contact info of the person who runs that and adam you should join that it's all canadians yeah yeah the problem is that it's west coast on east coast so that the time ends up being right in the middle of baby hour so it's not great all of canada is the same what are you talking about it's like the great white north san francisco new york same thing same thing no no no no we're we're talking about canada right there is a distinction between san francisco and new york but for canada it's just canada right yeah for sure yeah absolutely uh gamestop thank god gamestop is coming back down to earth so all is right in the world when this stock is back to five to ten dollars but it is uh getting absolutely decimated down back below 50 now uh right coming back down to where it

belongs because this thing was ridiculous from the get-go so feeling good about that um uh how about you jk what do you got uh so first i think one is a rumor going around about epic games going public and this was based on a tweet from a former jeffries employee jefferies is a investment bank and this guy has taken in investor relations position at epoch so word on the street is that this definitely means according to some folks that epic is planning on going public and so we'll have to according to our our buddy matthew conterman if this is the case then most likely they'll have to wait until the lawsuits are cleared up before they do so but i think we should expect for epec to try and go public maybe at the end of the year or again after the lawsuits are cleared up second update from me and this was sent in via an anonymous tip and i don't want it and just to be clear i i don't want to

like throw like unnecessary shade on unity by the way my studio uses unity and we love unity but just to get this discussion out there so some i can do this update then from former tap joy ceo and now he's the ceo of a company called modimatic and he's been really calling out unity for you know basically [ __ ] accounting according to him in a number of linkedin posts and by the way these are just allegations right these are just some things that he's saying but over the past month he has been posting about unity not being forthcoming about how it reports its ad revenue where according to him they are not publishing their publisher payouts nor are they breaking out ad revenue more specifically and instead you know bundling the revenue as i forget what they call it like create revenue or something like that but i think the point he's making is that by by showing net rather than gross revenue not showing that publisher split out they're able to show higher

margins then which is a little bit misleading and he would he would basically like to see the specific ad revenue broken out from the from the bundle we were we were talking about this months ago what are you talking about no like big thing yeah they buried their advertising and services to make themselves look like they're we didn't mention that yeah go ahead so and all they're doing is growing rab revenue right it's a it's a total yeah almost ponzi scheme but the posts are like pretty crazy like criticizing john rickettel specifically and you know he basically says they will never be profitable and things like that so so the the the posts are a little bit over the top even for us they're over the top so no but john rickette is a freaking genius dude don't get me wrong the guy is a ice to eskimos man and so i think he he sold a bill of goods and he's gonna have to live up to that and we'll see what happens when idfa crushes them and then when they can't

grow their revenue top line anymore because no one wants to use unity anyways this stock is on a team i've never heard of ice desks let's move on let's move on to uh to happier topics so chris petrowick who was on this podcast um great interview by cress and kim former head of zynga's corp dev joins fun plus in their new switzerland hq so this kind of leads to probably fun plus doing a lot of acquisitions probably in eu and middle east in 2021 so that would be very interesting it was a nice blog post because chris just posted a long blog post when he left zynga like you know a lot of work yada yada been a lot of traveling so we're gonna move to oregon's like wait another blog post i think i'm going to switzerland it's pretty nice out here but um but i think great move from from fun plus and as we've covered in the predictions fun plus is i think it's already bigger than supercell in terms of revenue so it's a big company and really

massive growth in 2020 and looking to grow this year so probably very interesting acquisitions that they're going to make yeah and i i have to say it all started with this game called king of avalon that was led by this really genius dude all right on to the next movie but by the way word on the street they're not done there's actually some other big names that are gonna be rolling over to fun plus but that that's the word on the street anyway moving on yeah yeah fun plus is fantastic i know i know that the guys listen to this podcast so um yeah great great great hire from them so the second update that i have uh hold on before dude we can't objectively though they're they they are living in the world of of user acquisition arbit arbitrage right and so like they're like staring down the barrel of a gun right now with their games and any type of probably the games that are in development so they have to expand outside of core uh 4x and so this makes total sense to hire someone like chris to you know

[ __ ] boil the ocean and open i use the curse word boil the ocean to like find find new opportunities for them to grow right because i think i think their current portfolio is going to have some challenges going forward so exactly 100 right so their current mobile portfolio is very much heavily on 4x especially state of survival being their biggest game that grew in 2020 the good part about those games the du is is relatively small and even after you cut off the user acquisition the revenues are quite stable we've seen this with machine zones legacy portfolio that is making ton of money still so what that means is they have a lot of time to do those acquisitions several years even if you cut all the user acquisition so it's not as fast with idfa with the 4x and the second part is fun plus already started with the like even before the 4x games they were browser heavy so they it's just a matter of time before we'll see pc skus out of those 4x titles which we're already seeing with all the rpgs title titles moving into uh to pc like plarium and i think even sculpey might have some

some some pc skews for their for their mobile titles anyway let's talk about um another update so supercell is looking for a game lead for clash royale so this is very unusual because leads typically come from inside in the company through almost like a like if you will a field promotion and in a way you can take this as a signal of change it's almost like a new ceo coming out from outside because this type of role is is even shown as this is a mini ceo that's how they see the game leads so but let's take a step back and look at the look at the game clash royale so the situation as we've reported is quite dire for clash royale the revenues have halved and are pretty much the same as heyday is today so and even on some of the weeks when i was looking in sensor tower week over week revenue on some weeks heyday actually had higher revenues than clash royale which is pretty crazy um i think you know talking about difficult

job this is it like you have to turn around a declining game you have a lead a team of absolute monsters you know really really great developers of which half of them have probably been working on this game since it launched so they know it extremely well and most importantly you have to take this leadership probably over the zoom because you can't really meet with anybody on site um and and i don't i don't know there's there there are always goals to victory and i was kind of trying to to think what would make sense for a game like clash royale and if i would you know mark three three opinions of what could could turn this game around one is definitely bringing marketing to helsinki for this game because downloads have been declining and if they would have a marketing person on hand in the team i don't know if they do but i assume that they don't like in a typical supercell matter if they would have a marketing person inside the team that would help them to to start stop the decline of downloads the second part is is of course boosting the liveops we've been talking about this a lot but

they need more content for their battle pass and they need more game modes and those two together you need to have a bigger team either internally or an outsourced team that can help them to churn out way more content and through that improved monetization and as well as retention and third thing is probably looking at geographical excellence with perhaps dedicated server servers and even local growth teams we've seen this working for for a company for companies like gorina uh i think netmarble is the one that publishes lineage so these companies have have found a lot of success in bric countries by having these smaller kind of like a small product team growth team that helps to to really monetize and and work well in a certain region i think game with such a live such a giant audience like clash royale could also benefit by having a little bit different pricing and different approach of monetization in um in other than than the sort of like western countries so those are kind of like my three points i don't know what do you guys think

yeah i don't think they're going to be starving for applicants here like i think this is actually like a perfect job for somebody who's been head of live um big product mind from an existing kind of successful uh ccrpg game right um you have a lot of fertile ground in terms of clash royale and bringing in some expertise outside from supercell i think makes a lot of sense like it's humble but you know supercell does have things to learn and i think getting somebody who's you know driven live on some of these cc rpg games could actually you know change the fortunes here and overall supercell has a great team willing to make bold moves right to change the economy to speed up live ops invest in in-game events right so uh you know all the power to them it's not going to be though no i'm not smart enough it's not even four of us combined i i just want to make sure that was not self-serving for me that was like someone who has done ccrb yeah yeah yeah that's that's uh yeah

that's putting your feet to the fire right there man such a big deal game and so high profile yeah that's scary so all the power to them i think this is a great move that they're taking somebody from outside and i think really shows that they're looking to to change uh but um but yeah awesome it's my favorite game so so hopefully somebody who takes it over can can put it back on the on the growth track so do we want to talk about why did app love and buy adjust all right guys starting the news why did app love and buy adjust so in really big news this week applovin announced that acquired adjust which has a number of potentially pretty big industry implications and for those in the audience who aren't aware an mmp which adjust is or mobile measurement partner they basically enable game studios to tell where a mobile game install come from comes from so say you're running a bunch of ad campaigns and mmp will assign a source to two installs that come into the game

so app 11 as most of the industry is already aware is both a very major ad network and a collection of content game studios including its hyper casual company line studios and even including mz the hardcore 4x game studio so in this article from eric suefert from mobile dev memo eric suggests that one first that the one billion acquisition price floating around is likely too high and could be quote substantially less and this is despite the 227 million dollar raise in june of 2019 and a total of 250 million dollars in investment to date so in the post uh eric super suggests three theories why applovin acquired adjust so first eric notes that adjust likely has about 150 million dollars of arr or annual recurring revenue hence this first theory is basically just multiples arbitrage so in short financial engineering meaning that you know taking the just revenue but then applying app 11's likely higher multiple against

the revenue his second theory is more around building an internal cross promo infrastructure so he's suggesting that if applovin can probabilistically attribute installs across their own games network so basically he's suggesting you can do better cross promo in network without having to do everything under let's say a single app store account via idfv because you're basically doing that probabilistic attribution across games and data that you have in your own in your in your own data and so eric then clarifies that fingerprinting for using probabilistic matching if done entirely within your first party data will likely be compliant with apple's policy and further probably not even detectable by apple in either case so and and finally eric's third theory is that mmp's even post idfa will remain valuable as ios attribution moves to what's basically known as the conversion

value game meaning that in the new post idf world for for with apple a just will still get info about conversion behavior from adjust customers so basically what this means is that you can get some data about conversion associated and attribution associated with users it's it's basically what's called sk ad network has this has this postback parameter called conversion update value where you can assign like a six bit value to a user but it's it's only very early data like within the first 24 hours so my take on this is that app 11 has not had the best history or reputation in terms of customer data and i'll i'll let i won't dive too much more deeply into that but i would say that there are a lot of people nervous about applovin's access to all of the adjust data and i think the full implications of

this combination we'll probably have to basically talk about in a separate podcast there's a lot to it but my own take as far as eric's theories is that there's a lot of truth to his theories but i'd probably differ a little bit in a few areas though first i do think it it is a major pain in the ass to switch attribution providers but i do think app 11 will lose some future attribution business all else being equal just because there is at risk and i do think even some current customers not i mean i don't know how much maybe not a huge number but certainly some of their existing companies will likely jump because they will be afraid that applovin will use their data to compete against them oddly some companies that they have already competed against like playwrx the the word on the street is that in some cases they don't even care anymore because once they have your data it's like you know at that point they've they already have it so i so the rumor is that playwrights would would you know wants to actually

get applovin ad inventory but they just can't uh but also the other thing to watch out for is the potential new capabilities that will be enabled if this combination comes to pass so there are some thoughts about auto roast and other capabilities that will come online if this combination happens and we'll talk about that in the second podcast uh secondly i think that i'm not a huge believer in the cross promo advantage i'm not saying that eric suffered isn't right about the motivation but i'm just skeptical skeptical about how effective it'll be and then i think finally my perspective on the conversion value management i agree that uh that's that's likely to be valuable but i think there's going to be a gap between the kinds of games that are able to take advantage of this data so i think the the games that are more casual where early data actually has a more meaningful and significant impact

those are the kinds of genres of games that this data will be useful for but deeper games more mid-core hardcore games where you actually need a longer set of data and data over time that those games i think they're going to continue to struggle in games like 4x and other more hardcore games where the data that they're going to get does not provide them a meaningful advantage against those genres what do you guys think i fell asleep sorry i don't understand this stuff and i i don't really want to understand this so i'll take eric seifert's viewpoint and and move on i think these guys are [ __ ] brilliant operators and let them let them do what they do and hopefully they can manage it and work it through sorry just kidding not that you're not that your description wasn't mesmerizing but i just every time i start hearing all this like brigamarole and poppycock and all this other stuff i just fall asleep soon

let's move on let's talk about something we know okay let me show you because honestly i think that that story got the most chatter on the deconstructor fun slash you know a long time right yeah yeah nobody nobody cares about ea acquiring glue but man you know vertical integration in this industry okay ea buying glue um so blue mobile has been acquired by ea and is targeting the end of q2 so june 31st uh glue was valued at 2.1 billion so that's roughly 1250 a share which is at 36 premium from last friday's closing so note that it's technically 2.4 billion if you include the cash in hand include so looking at glue 1.32 billion in bookings in the last 12 months and on a percentage-wise breakdown we're looking at design home on top 36 percent mlb tap roughly 16 percent covered

fashion 14 kim kardashian 11 disney sorcerers roughly about 10 and a dander dash combined around eight percent um so really at first blush at this deal right this is really like a pretty good match for ea so like in terms of ip fits right like you've got sims on the ea side struggling to capture the lifestyle business versus design home tough fashion kim kardashian all these games and all these developers have built up expertise that will work very well for sims and you've got fifa and madden of course struggling to grow versus mlb tap sports right overall ea mobile publishing has been overall very stagnant we've covered this a lot and ideally glue user acquisition and growth talent can actually reinvigorate their overall mobile business right um so jeff carp who's now the head of mobile for yay right this is also a good match with nick earl who's the current ceo of glue who actually was the

ex-head of ea's mobile division these guys worked together in the past um so obviously it's it's as we called it on the slack channel bringing the band back together again a bit so from andrew wilson the quote is we did this deal because we believe mobile is the fastest growing platform on the planet when i read this [ __ ] okay excuse my language andrew wilson who has ignored mobile for six freaking years and now he's out there perpetrating this nonsense are you kidding me shut up andrew let jeff harp talk or laura ellie you've done nothing in mobile nothing mobile andrew andrew did this specifically to target eric just this trick let's see if we get the the square total over last week okay so uh so specifically this creates a market leader in life earth glue is a market leader in lifestyle in

sports they want to bring that over um and glue will be able to build games based on ea's ip using glue's marketing expertise to grow so from his quotes if he's correct um i think this will be a good match overall this also doubles the bookings for ea's mobile division roughly so you're looking at about 15 blue games at 544 million uh compared to ea mobile's current 779. uh misco want to go through some stats so so i'm gonna go through some objective look before we we get the uh the jk's hot on the street take and and eric's uh opinionated take so when you look at 2020 for glue it was a good year they grew by 35 the five games adam that you mentioned design home mlb covet fashion kim k as well as sources arena they all make 94 of all the revenues of glue and when we look at these top top five games top six games we're talking about design home growing eighteen percent and that game is making as you said adam makes 37 percent of all the revenue

mlb i don't know how they do it but every year they launch a new mlb game just a new new sku and again this year they made over 100 million with with the latest 100 mil in net revenue with the latest mlb while pretty much all of ea franchises sports franchises declined so that was fantastic i don't know if it's because of baseball was somehow coveted proof but i know that nba declined i know that madden declined but somehow mlb did really great covet fashion really really old title like this is before design home they were up by 28 kim k i don't even remember how old kim k is but we have a deconstruction by on on the block by joe traverso i don't remember when he wrote this but i remember being really young when he wrote this that game is up by 116 percent and like and and then sources arena they're doing exactly as well as we've predicted so that's about 30 million in net revenue a year so that was no surprising so what i want

to just mention by this is we can clearly see that they are able to grow really really old games or their forever franchises if you will now when it comes to new games that's a little bit of a different picture so we got wwe the tanked and there's a really crazy competition around wwe there's all kinds of games even the card game by take two is doing really well actually they got deer hunter which used to be their kind of forever franchise i think that one is kind of tanked i know that they talked about how much revenue that game can make i think nick earl mentioned it in some kind of a investor release i don't want to misquote but i think they were talking about something like 70 percent uh 70 million in revenue for for deer hunter the the next version but anyways uh that game is not looking to to do that great because we have 10 square games which is the publisher behind fishing clash they've released hunting flash and it's it's looking pretty well and fishing classes is just pretty much the same size of game as fifa to be honest

there's no new games from from crowdstar not since design home which was pop which was published before uh glue bought crowdstar and we see that the whole customization genre is actually under tremendous attack we got applovin and everybody just making it all kind of match three versions of customization we got finish reworks making exactly the same game and so forth so not exactly the same game but exactly for the same audience the question is will they do more rpgs i think sure uh the sorcerer's arena is not a it's not a bad take and it really shows they can work with an ip the team behind i don't know if that's exactly the same team behind sources in sorcerer's arena that made star wars galaxy of heroes but those are the uh the capital games guys okay hold on hold on hold on what come on there is no effing way they do another rpg that what a train wreck that game has been but moving on it's it's done exactly what it could be do like it's it's exactly what we think it could have done but not what they thought it could have done and the amount of money they spent they

spent like four or five years developing that mother trucker and it it barely eked out 30 million right eric it it's done exactly as well as looney tunes by scopely it's done exactly the same as any disney rpg so anyways let's move on to the next one um and then sports games i know that mlb is doing great um i think they did a football game back in the days uh it's it's interesting to see if they will add more sort of a tap sports title to it maybe hockey or something like that and then cooking games that used to be a glues forte they bought the the studio that makes those diner dashes it's it's an okay genre it's not a it's not groundbreaking but it kind of fits that big fish where jeff carp is is coming from to to uh to to ea they've done they've had a lot of success with cooking games and and it could be a very profitable sort of a smaller genre so my kind of a verdict is that in order to be a great publisher you have to know liveops you have to know how to grow a game you have to have the resources to grow games

you have to have a genre mastery in the genres that you are focusing on and you also have a have to have a diversified portfolio so that you're safe when the market is changing and the audience is moving based on these four things glue is actually very good publisher they can grow they can launch they can operate come on they have they have the genre mastery in the in the sports they have it in customization and they have a very diversified portfolio of forever franchises if you will they know how to work with an ip they know how to run multiple studios and they know how to ship games so you know it's a it's a good publisher and and it's good that ea bought them but as a fun fact i kind of went back to our podcast about glue way way back like a couple years ago what he's talking about when we're running the the verdict on on um on glue and back then i think it was uh nick earl and akkaman they were talking about their new strategy which is like forming these cells

in san francisco that they didn't name it cells but basically they were talking about supercell strategy and we kind of reviewed it and said that that wouldn't work well it didn't work but it doesn't matter they uh they they still won the game so congrats to glue i think they did a lot of right things and that's the uh that's the result so now you guys you can go and dunk but i think it's a it's a good company mishka you got to start paying attention dude i mean i don't know where you've been for the last year like we've been talking about this ad nauseam dude and you're like talking nonsense but go ahead jk i'll get my mine in in a moment yeah i think well i you know i do think that well first congrats to those guys i think for anyone who's been following the podcast we've kind of dropped hints that this is coming uh folks on the game makers newsletter note what's happening in the slacks new what what's going on but i think eric could forget we might want to do i don't know if you're still up for it but if we want to do a deep dive on that uh as a separate podcast we can talk

about how this was more predictable and kind of what the potential implications are but yeah go go ahead eric i'll hand it to you you know i i honestly i think everyone who listens to me is gonna be very very disappointed in my take on this because at the end of the day i think this was an actually a really good deal for both ea and glue right i hate to say it now you have to ignore evaluation completely because if you go down that route you will go insane right but hashtag ignore valuation is my kind of new mantra right now but this deal makes sense right because why is it good for ea because it almost doubles the revenue in mobile in one shot jeff carp shows that he has muster with this bold acquisition of a bunch of franchises it adds baseball to soccer and football and a couple forever franchises including design home which are maybe in decline but nonetheless you know it just adds some hoot spa to

the overall business for ea and then it makes andrew who's freaking ignored mobile for like 20 years finally feel like they're actually doing something in mobile right so good for ea in in that sense um now it's obviously good for glue because glue is like staring down the barrel with a freaking gun right they have nothing in the pipeline that matters they have a declining franchise and design home they had idfa which they are totally not prepared for because nick's comments like it could go up it could go down it could stay the same you know we don't know what's going to happen with idfa that kind of sums up his potential position um and then at the end of the day when your future is filled with risk what you do is you try to sell right so the reason i've been saying on and on and on is things like zynga and ea and take two and activision are never gonna be for sale is because the future looks bright without getting sold they can they can drive more shareholder value

by staying independent than they could if they got sold for a 20 premium today right that's basically the calculation that boards make all the time right and i'm and glue was not in this situation they could not increase shareholder value from where they are they were fully valued at this at this rate they gets a premium and everyone's freaking happy right and then the other thing you have to keep in mind with all this stuff is because this transaction was evidently contemplated late last year zynga was involved most likely other publishers were involved all these guys know each other right these guys are all like fraternity brothers from ea that grew up together nick frank jabo jeff carp to somewhat andrew but he was kind of in europe so no one cared but like fundamentally like all these guys know each other really well so it's like these deals are happening because of these relationships right so i think what happens if you would completely ignore evaluation because then again my head will explode um i think this deal makes sense right it's

it's it i have to say it's not very good use of capital for ea like they've had four billion dollars on the on the balance sheet for a long time and shoveling out 2.1 billion dollars okay sorry i'm supposed to hashtag ignore evaluation but shoveling out two billion dollars for this cash seems insane but and investors are not going to feel are feeling that a little bit but from strategic perspective if they want to get involved in the fastest growing segment of the of the of interactive finally i can i can get behind this to some degree yeah i do think what one of the things we've seen from ea is they don't have good ideas so like what else are they going to do with their capital right right so and we're going to talk this about in a in a bit with embracer uh on the next thing but like yeah exactly it's like what else can they do and what and the irony behind this whole thing not the irony but what's going to happen though is they're going to have an amazing year in mobile this year right and and jeff carp is going to be doing his job

of growing this business and it's going to be buried within these acquisitions that you know that aren't accretive necessarily particularly early stages um and it won't matter like how they perform going forward it's just something a point time type thing so anyway we'll see uh my my clients are not so enthused with this idea of acquiring this thing but um i think again strategically it makes sense all right any other comments on that nope all right another story embracer group my favorite acquires borderlands maker uh gearbox enter enter entertainment for 1.3 billion um so i guess where should we start so they're basically 550 developers at gearbox um and they're also buying oh sorry they also announced that they were buying easybrain which i don't know anything about so i'm not going to even comment on that one

um but under the deal with this this is what this is very very important to understand that 1.3 billion dollars is is is based on our earn out right so basically the amount of consideration they're doing is around 360 million initially for the company and then they get an earn out of almost a billion dollars over the next six years so so that's a completely different structure than just acquiring it outright for like two billion like like glue um so about your gearbox gearbox has been around for like 30 years right they have uh borderlands brothers in arms homeworld and duke nukem those are the big ips borderlands being obviously the biggest and the thing is that you have to understand 2k owns the distribution rights to borderlands so anything the borderlands franchise is still owned by ea going forward as far as i understand it um and then any other products that are in development um related to borderlands franchises are 2ks and so about embracer embracer obviously we've talked about embracer before but they're like a parent company that owns a ton of games businesses they started off with

um thq nordic uh they have like franchises like saints row goat simulator dead island etc mxatv um and basically they bought this company and it has about 123 million dollars in sales right for the last nine months which i think includes borderlands but i'm not 100 sure but nonetheless uh because of their deal with 2k they don't really retain much as much revenue as you would think for a borderlands game which did about 10 million units um so where to start here uh first of all these venture beat guys are journalists like they actually covered this thing relatively completely they kind of had all angles covered so i have to appreciate that um a lot except for the misleading headline about 1.3 billion it was not 1.3 billion like i think the herculean task of what they have to do in order to earn that 1.3 billion is pretty onerous but nonetheless um let's try to get more articles from venturebeat and less about tweak town mr

joseph kim um so anyway i know i say this a lot but randy pitchford the head of gearbox is a [ __ ] lunatic and i'm using the f word appropriately at that point he is a lunatic he is kind of a bit of like evil genius type person right as far as i understand it he is known as one of the biggest over promisers in the business right aliens borderlands his general operation strategy is this is to create the most amazing freaking vertical slice you've ever seen in your life five to ten minutes of gameplay that becomes the centerpiece of all things in terms of expectations for these games and then after that the title is perpetually delayed and then it comes out and it looks so far below the the vertical slice that everyone's super disappointed and rips into new one right this happens this happened time and time again right with the three major franchises aliens uh brothers in arms and i would say

battleborn as well as borderlands to some degree um so anyway by the time the dust settles and three years later when he comes out with another game everyone seems to have forgotten that this is what he does right he does it over and over again so they they are not a prolific developer they have 550 people but they make about a game every two years or something um and basically the over the last 10 years the only thing really significant that they've delivered is borderlands battleborn was an absolute bomb aliens was the biggest profound disappointment i think in a long long time expectations were so high based on the visible fidelity and the expectations of gameplay even like the story based gameplay just was not there and frankly borderlands 3 disappointed in a lot of ways too because it was such or sorry the last borderlands yeah borderlands 3 right anyway it was basically the same as borderlands 2 and it just didn't feel much different they didn't add all these things it's like and i think we talked about this in the podcast it was like division and and destiny never happened

because nothing had changed with the borderlands formula so so anyway the deal so i think the deal this is a really testimony to the risks associated with dealings with someone like um randy at at this at the company right the earn outs are relatively common but a billion dollars of earn outs over six years i've never heard that before that's insane right and and i guess the issue here though is like how in the hell are they going to drive that much value from this asset over a six year period without like owning the the major comp main major game that they have which is borderlands which is going to be owned by take two so where's their incentives their incentives are to build new ips that embracer is publishing because they would make more money from that in theory right so this is going to be a real challenge for them um exactly what they're going to be working on going forward so i you know i guess the assumption is the sku plan is strong enough to generate that much money that giving an earn out

of a billion dollars but they've never but as far as i can tell there's no way that that that the company's ever done that in the past so your expectations are pretty high for what they're working on um so yeah this deal will make sense if they can execute but since his his history is delay delay delay over promise undeliver over promise under the liberal i i think this is a very very risky risky risky deal for embracer um so i guess what i would say for embracer i still get more and more concerned with these guys every day but i evidently we're going to be talking to them i don't know if they're going to want to talk to me frankly but this is like a again it's a collection of questionable assets that may or may not deliver going forward and dealing with people like randy is freaking impossible i've heard horror stories from ubisoft from take two from everybody that's worked with brandy it's like really really hard to deal with them so the notion that they can get like a skew plan out of this guy in the next six years to generate that much money just seems

impossible to me but maybe i'm not thinking straight on this one um and then also is what if he misses these these these milestones right what if he misses like the milestone for the first game and then part of that billion dollars is off the table and then he misses the next one and then the next one and then it's like where what's the opportunity there nothing right so he's like i'm out i'm done right i can't make any more money with this earn out why am i going to stick around right i'm over so anyway it could go off the rails really really fast so we will see um but again i guess the last thing i'm going to say about this is that uh you know i think everyone needs to kind of ask themselves like these assets like codemasters have been around since 1986. glue has been around since 2005. gearboxes have been around since 1999. so why are these assets haven't been acquired until now right have things materially changed in their businesses to justify these valuations or the acquisitions just in general

so i think there's just basically this is the whole industry is in this in this spot where deals make sense no matter what the valuation is so that's why hashtag ignore valuations is my my new mantra and just think on the strategy side uh for all these companies all right jk what do you think so i actually really like this deal a lot now i would probably take the flip side of the view in terms of the deal structure in that that actually will then better align the acquisition in terms of sure if you know if gearbox performs then then they get that billion dollar earn out but if they don't then it becomes a good synergist potentially synergistic deal with the rest of embracer group so you know we do have a talk schedule with these guys so we'll be able to hear their first-hand account in terms of their strategy and how they are thinking about the business and i will also publish i i realized that i didn't publish this uh podcast that we had recorded with sean haran from gearbox it's about the future of pc

games but sean also talks about gearbox's business in that in that panel discussion and in terms of embracer studios overall i don't know a lot of the studios part of that group but i do know some of the folks that are thinking ape and i do have to say that some of the folks at ata are some of the deepest thinkers in the industry and honestly like just honestly speaking any most of the studios any of the most sophisticated studios that i meet with i rarely hear anything that i haven't already heard before anything new but i will say some of the ata guys are really really deep thinkers and very very smart guys and i so i do think it'll be great to hear from them and how they are kind of aligning you know incentives in the future in terms of deal structure and things like that and and i do think that if you think about strategically where the world is headed and you know the world is increasingly going across platforms so in my view gearbox

you know as a platform for hd is super valuable and so if there's potential yeah all right sorry i want to agree with you on one thing and i think i don't i didn't mention it but i they are a mutual pass right like i think this deal structure is really smart in the sense that they are working on they they are they are 100 percent aligned in terms of what needs to happen right right so i agree with you on that the fundamental problem with these assets codemasters uh gearbox and others that have been acquired recently is that they don't have the capability of executing against their mutual you know benefited path right to some degree and on top of that software as a service and building out these tools and things that are all like the rave or what's whatever these assets have never done that like borderlands missed the mark completely in terms of this they have a download strategy a content strategy which is like super old school right but they don't really have as much live services going on as other games now i

think they've improved it a little bit but my fundamental problem with this is is that these companies are not the where the market's going these are where the markets have been and so they're so everyone's applying these valuations based upon the expectation is that that they can deliver where the market is going right but i think you you could see a path in terms of because if you look at the overall embracer group like some of the folks that they have whether it's you know can go with deca the ata guys these are guys who really deeply understand live ops very very well all right final two articles from deconstructor fun we got a prediction on shooters and we got the predictions for marketing so the shooter prediction was written by myself adam alex mcmillan and iona de garo uh so shooters is the fifth largest genre mobile with 2.1 billion in net revenues during 2020 and it's so interesting because both the installs as well as downloads are going up i know in the beginning we talked actually about idle games and the idle game acquisition i remember which one leaf group or something like that i

actually checked i don't get i'm jumping to another topic but i checked idle games idle games had zero growth in downloads so you know kind of comparison anyways during 2020 the revenues boomed up by 38 year over years while the install is clocked at 2.7 billion growing 31 compared to 2019 and this 38 of revenue growth happened despite the massive hole created by fortnite and not calculating pubg china as well as not calculating the revenues from japan knives out and so forth so calculating out all the uh the asian games still massive growth and the growth also kind of created some entry barriers so we know that the entry barriers are that it these this genre has some of the heaviest live content operations in the industry an insane amount of cosmetic content tons of new game modes pop pub g ro pubg's battle metro royale is a good example of that uh they and through the cosmetic content as well as the new game modes they drive retention

and that drives also monetization and the problem is that that requires an army of developer so when we were writing this we were kind of thinking about like how to find the blue spot in the red ocean of shooters so we know that there's a strong demand because on average shooters get 20 million installs we understand that there's a big under pricing strategy going on that has created these entry barriers because the overall revenue is up by 38 percent nevertheless top four shooters which is call of duty pubg green a free fire and fortnite they their slice of the revenue grew from 75 percent of all revenue to actually 90 percent of this growing pie and and as the revenue is concentrated the installs are up so you can't compete with the existing but it's clear that the more installs because there's more installs and the share of installs of the top four is smaller it means that there's more demand but at the same time as these new games come out they're trying to compete with the

same monetization model so that led us to thinking about what would be the blue spot that uses a different monetization model so a part of sniper games all shooter genres are mobile pit players in direct competition and while they incentivize players to collaborate only few of them offer actually character classes and ways of players to specialize so most importantly the lack of any form of power progression puts all emphasis on skills and thus can become off-putting for more mature audience that can't keep up with the young guns you know we've talked about um playing playing apex legends in other games how difficult it is to get in so the art conclusion this is a long 26 pages you can go and read it our conclusion was basically that you need to think more like tarkov or warframe to compete in this genre and that allows you to pick up the blue spots in this very red ocean of shooters so any comments jk no no comments i i've heard a lot of great feedback about the shooter predictions i i need to go i don't know i don't know if you're

if you're really interested in shooters so but if you are this might be an article that you that you want to dive in it kind of so it was hard to summarize it because it took us a while writing this uh naturally we were all very interested in the whole genre and adam is a long writer so it took us a month to to write it to write it but um it was it was interesting uh mental exercise what makes sense in the shooters yeah the feedback's been excellent though yeah i know some people talking about it i got nothing on this one all right last one so last one is the prediction on on marketing and this is the last prediction i'm going to talk about this year i'm so happy to be done with them anyways so summary so this is from eric suffered so summary of idfa deprecation leads to a few things one is as in jk's last podcast cpms are down dramatically number two decline of cpis due to decline of cpm benefits some but hurts those who need targeting and this means basically hurting

companies that that's portfolio is very high on dau and very high on ad monetization as well as companies that have a low dau games with a very high monetization retargeting will become more difficult there's no workaround such as finger fingerprinting or emails that makes any sense this also doesn't mean that free to play games is at risk but profile centric acquirers are at risk and finally google will follow suit and revoke access to the android advertising identifier sometime in the future we don't know quite when but this is the prediction so eric kind of underlined three key strategies for for gaming companies and not not strategies but three key trends that to keep in mind so number one prediction is that ips are back and of course this leads to this because it's harder to target but if you know an ip you know a certain audience and it makes it easier to target that the number two reason for this is that entertainment companies are desperate right now they haven't been

able to push their entertainment content for a while because of all the lockdowns there's no movie theaters and so forth it's they really want to offer all their ips and number three is entertainment companies look for added engagement so we see a lot of streaming platforms doing extremely well and i know i talked about mandalorian in one of these podcasts you guys went crazy when i suggested a mandalorian or a star wars fighting game but what i mean by that is that these these entertainment companies they're looking for other avenues to engage with players and because games have been such on such an insane growth during the lockdowns it makes sense for them now to to look at games in a different manner number second prediction was that product marketing managers are back in business so you can't rely on creative performance to understand audiences anymore you have to actually analyze your own audience and not leave it to facebook or google and you also have to pursue broader audiences so marketing managers kind of there between advertising and product and and the role of these

these people will become more and more important in order to to analyze in order to make the right decisions as you're growing your games and number three is mixed media channels so because of the broader audience that the games will be targeting you'll be also using much broader targeting a much broader set of channels and this will lead to greater demand for measuring incrementality because there are so many channels and and um yeah so those are those are the three key predictions from from eric and i read through this couple of times and i think it makes all the sense it'll be interesting to see this all this unfolding in 2021 yes big questions are be answered in theory so yeah we'll see what happens all right cool cool cool i think it's done all right guys new platform squad cast was uh a disaster but the first time is always the hardest we locked video a couple of times we lost adam we lost recording we had to

restart but it was a good episode a lot of good news covered all right catch you later everybody all right bye [Applause] [Music] bye [Music]