TWIG #337 Supercell's AI Ruse and Microsoft’s Muddled Xbox Strategy

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deconstructorof fun.com. [Music] Hello everyone and welcome to Deconstructor Fun. This week in games twig. What number are we? 337. We're getting up there. Hi, I'm Jen Dano. I fill the marketing and publishing role on the podcast. Today we have Eric Crest strategy and investing and talking about spinouts about Xbox Phil Black Monetizations are Michigan Katkov amigo delos fondados I'm back in Spain so friend of the founders how long are you there a month and a half oh so you'll be there wait yeah oh where in Spain are you uh andalia this is a place where they don't pronounce Yes. Yes. Yes. Yes. I'm in Barcelona next week, so I'll wave at you. Okay. Yes. Yeah. And so you have hosting duty next week, everybody. Oh, get ready. Get ready for a concert. It's gonna That episode is going to be a

riot. Oh my god. Oh my god. Not the company, but Yeah. Not Los Angeles. Yeah. So, last time I listened, I wanted to yell at all of you. Do not talk about marketing topics without me because you get it all wrong, Mr. I'm a marketing cosplayer. Okay, here's what we have going on today. Will Apple start opening up in Europe? Supercell wants to take bigger risks. It's a Supercell article, so Mishka can't help himself, so he has to talk about it. It's a time warp back to 2023 and 24 as we talk about tons of game industry layoffs. What's going on with a few of the Riot games and companies? YouTube turns 20 and it's basically on the back of the game industry. Crest writes the Xbox eulogy. I can't wait for everyone to hear this one. His LinkedIn post is blowing up. So, we'll talk about it. Phil reports on games and a lot of them. Thank you, Phil, for doing all of the work of bringing the games in. What's going on,

Mishka? You tell me about your marketing cosplay at Meta. I Yeah, so I was invited to once again do a keynote at a marketing summit. Thank you for Meta for invitation to the Meta Marketing Summit. The NDA is such a long one that I I don't know if I can even talk about this event. Like when when you sign in, you basically get sued. They will take my child if I tell you while we talk. You clearly don't read it. You know, you could you could put it through Chad GBT and tell them what they're restricting. It's the one they send you in advance. I just talked to a couple of people as we're waiting for the event to start like in the in the lounge area. They were like that NBA is crazy. Yeah. You're like docuigning your your second child, you know? Yes. Yes. Exactly. So, like normally I would like to take a photo at the event and maybe at the audience. I'm like I wasn't even afraid to do that. I'm like I don't know what I'm allowed to do once I signed in here. So, it's like you just agreed that their AI can crawl all of the deconstructor of fun content and they can recreate our

digital versions of this. Well done. Well done. It's like llama of everything. But yeah, so it it was interesting there. There was a lot of good people. Again, I don't even know if I can say who was there, but there were big companies, small companies, mid-size companies, Turkish from Cyprus and so forth so forth. I gave my normal talk, but what I want to say about that is first of all, I'm not jetlacked, but I ended up taking a redeye because I was supposed to leave in the evening from London, but it got delayed twice. So, I arrived at 3:00 a.m. So, I'm going to be a little bit slow today. So, that was uh that was not fun. Oh, so normal. Okay, got it. Yeah. Yeah. So, normal. So, normal normal baby brain. But the one thing is like I have one of the portion of my of my keynote is always I kind of like talk about AI and the promises of AI and like what we have right now and I put in some stats and some surveys from CEO questionnaires etc etc maybe quotes from Strauss. It's very good efficiency tool and very good at iteration. It's speeding up but it's not revolutionary. It's more like evolutionary at this point. And then every speaker who

follows me and they're usually from either Meta or Google, whoever. They basically say, "Yeah, like this guy was against AI." So I always have to defend myself. I'm not against AI. We literally launched an AI product just a while back. We're launching more. I'm using AI. I'm just saying it doesn't give competitive advantage at this point. We know only few AI first companies like what's the Finnish one? Cosmic Lounge. Cosmic Lounge. Like that's one of the few companies that I know that that has AI at the center. They're like they're making games with AI, puzzle games. I've dug into that, by the way, a little bit more. And I will say that there's also a lot of AI that plugs into their tool. So they're they're operating on other AI tools, too. Like they're inserting themselves into the stack. It isn't always like homegrown stuff. Like they're coalesing a lot of tools into a development engine. I think that's maybe what we've misunderstood about them. Sorry. Go ahead, Mitch. Yeah. You know, my my point was more like like there's only very few companies that are sort of AI native and we haven't seen them to break

on top of the charts. So at this point it's not revolutionary could be in the future. And I kind of make this case of a dot bubble like we had the.com bubble but everything that was projected or most of it kind of came through but it wasn't at the same time span as we're thinking like tomorrow. No, it took a decade. So maybe this will take few years. So, all I want to just say, I'm not anti-AII. I'm very pro AI despite being labeled so by the biggest tech companies in the world. Can your son use AI to play basketball? Yeah, exactly. I quick update on basketball. We were at section 7, which is a huge basketball tournament for high schools in the West Coast. So, it's Arizona, Utah, California, and West Coast. So, it is unbelievable. These kids, these are the some of the kids that Jacob played with in sixth, seventh, and eighth grade, and they've all kind of grown up and now are just just destroying it out there. And like every time I go to these events and it's like 160 teams of the

top teams from all the states, there's just different levels to this. Like it's like, you know, like you see someone like Coop Cooper Flag who is just unbelievable guy. Like he's at a different level than even most of the D1 college kids. So these kids are like, you know, sophomore, juniors, and seniors, and they all like many of them have D1 offers already as a sophomore. And so it was amazing to see. Unfortunately, Jacob was hurt, so he can't play, but we're just we going just to support the team. We we did really well in our division. Like we won our division, but our division was not one of the premier divisions with these like insane players. Some great players, like D1 players that we played, but there's just teams that are just well and above, you know, everyone else. So anyway, really amazing tournament to watch. Oh, cool. All right, so quick shill. I did a podcast with a very small upand cominging company. The product is called Playlap. The reason why I did the podcast is I just thought the trend of trying to get genpha and teens up off

your ass combined with, you know, mobile gaming combined with like location-based gaming could be something kind of interesting to look at as we think about what's the future of gaming on mobile. So check out that podcast if you just want to hear a little bit more from a tech perspective. They had some interesting kind of geoloccation services in the way that they were tapping into Bluetooth. That was kind of interesting. Anyway, Gamescom, yeah, this is not even a a show. I want people to encourage Jen and Crest and Phil to come to Gamescom. So, if you put enough social pressure, they might cave and come because we are doing a couple of events. doing one with Heroic and their huge event and then we're doing our own whiskey and water tasting event once again and some other ones. So, please pressure Jen Crest and Black to come. I only can convince my wife of going out to [ __ ] Germany for a week and and extracting myself from life. If

I'm sponsored and someone pays my ass my way, then I can justify it. Otherwise, it's just like no. Sponsor Crest. sponsor Crest to come. Like he needs all of us. Yeah. Like why does he get special treatment? Yeah. Yeah. Well, he he requested it. I just want the Zamboni ride. That's it. Zimon, man. They have Zimon. They play hockey in Germany. Yeah. Yeah. Germany's pretty good. Oh, okay. Pretty good. On to corrections. It's not a correction. Someone made a believer out of you. Yeah. It's not a correction yet because we actually don't even know yet. But the uh word from the grapevine is that I jumped the gun on believer. Evidently, they may at the last minute have found funding to pay $750 to million dollar salaries for for a startup. So that we will see what the new round of financing is and if at all these VCs can get their house in

order. So just to recap last week you said believer which is founded by some ex-Rot people is a startup that had raised likeund5 millions 55. You had said that they shut down and so what you're saying is that may be too early to call. I feel like it's a political podcast. No, but I have to say like I've heard that people had already left because they ran out of money and they couldn't pay their salaries. So Crest wasn't actually like jumping the gun. All the signs were there like the cross was already put on the ground. The the grave was there and something might have happened. An undertaker moment. Light speed like unearthed money from their like underneath their mattress and [ __ ] shelved it out so that they could pay salaries for another year. Whatever. That's Lightseed and A16Z, right? Yeah, there are a lot of them. Yeah. Yeah. Yeah. So, okay. What's going on with Minds Eye? Minds Eye. I mean my

this is this is more on the news side. So Minds Eye the Crest talked about it in the last podcast with the Minds Eye from Build a Rocket Boy. They canceled the sponsor streams and they began pretty big layoffs. So I what we heard down the grape line was 100 people is getting laid off and I think the whole company is about 300. So that's third of the company. So not looking good but hopefully they will of course correct with the second game or maybe just release a bunch of patches. That's Mind's eye. All right. Few things going on high level. One is this is for mobile gamer.biz and the FT. Apple could open up the EU app store a little more this week in order to avoid paying a ton of money to the EU. That fee is coming up. So, as a reminder, the iPhone maker was fined half a million euros in April for breaching their digital markets act. And you know, obviously with the runtime fee that they set up, that was seen as not enough to satisfy the EU regulators.

So yesterday, the FT reported that the tech giant is negotiating with EU regulators to make those charges go away. So we don't know yet. As of today, when I checked, nothing has been decided, but you know, what happened in the US could be coming to Europe soon. And then Chris, I put this in here for you. I thought you would love this. Netflix is removing 20 mobile games this summer. This is I'm cancing my subscription. This can't be. I know. Uh, so this is coming I think they said in July. It includes the Monument Valley trilogy. They just released Monument Valley 3 not too long ago. That was a big game back in the day. Hades is on the list. Plus a ton of branded games. Carmen San Diego, a Lego game, Rainbow Six game, Spongebob, Bubble Pop. So, you know, IP that isn't on Netflix is also getting a little bit booted. So, there you go. Netflix continuing to shed. I I I I I I keep getting actually feedback from

folks on what Netflix is up to right now. And I don't really have a full picture, but like the partial picture is basically that they are focusing on like kids and like you know engagement things like trivia and really kind of lower brow like interactive experiences that work on their platform. And honestly, I can't hate it because I think that might make sense for what they're trying to solve for which is basically engagement and retention of their user base. But it feels like they're moving down a direction where this is not going to be some revolutionary like you know big change to the gaming environment. And if anything it's going to be extractive of like you know the people that don't matter you know from the industry and the they'll play chachki games on Netflix. It it's actually more now that I think about it it's more like Apple Arcade now. Like this is the they're going down the Apple Arcade path. But it was always Apple Arcade. Like it was always on the path. They go even the same. No no Mishka. That's the whole Come on, man. Haven't

you been paying attention? Like, I have They had a AAA game in development. They [ __ ] paid GTA a gajillion dollars. They had like they they were they were all over the [ __ ] party, third party. Actually, in some ways, even though I agree with what Netflix is trying to do with what in in context of what their strategy is, it's actually not worth covering because all it is is extractive. It's not really additive to the industry in general from what I'm hearing anyway. That may change. We'll see. Yeah, I'm hearing some more positive things about Netflix games in terms of them making games for TV that you could pay play directly from the app. So that could be something that is quite interesting and quite original. But the solve, dude, the solve for that is [ __ ] impossible. Impossible because I've heard the tech stack is absolute [ __ ] at Netflix for interactive just from the get-go, right? Anyway, these are the things I'm hearing. They are going for like really casual chachki type of experiences which I think may work for them but doesn't work for me or the industry. It doesn't really it's not

I just want to understand like how long this continues because the real estate that they give games is very precious. It's like the first or second line when you go to Netflix it's like these app icons and like you know my wife would be seeing like hey girl you want to play GTA. It's like, "No, I want to watch a mindless show about handsome SWAT guys, like whatever they do." I don't know what show she watches. Like, there's some SWAT guys that look like models. That's awesome. I think it's called SWAT or something. Oh, the thing that's weird is they've come out and said it's party, kids, narrative, and IP might be the other one. I think that was like Squid Game kind of things. And then what they said is we're not going to develop for other device. We're going to develop for the TV is the main thing. And then the controller is your phone. And so I was like, okay, so you know, if everyone has a phone, then mobile games don't make sense. Like that that was what Jackbox games. They're making they're making Jackbox games.

They should have bought Jackbox games. No [ __ ] Yeah. Why are they not doing this? I wrote a whole piece on this. Buy Jackbox games. It's so easy. You have everything in place for this. Agree. Seamless. You can integrate IP into it. This can be a trans media vehicle. It would be too easy. It would be too easy. The slides write themselves. Did you just like say trans media in a positive light still? Yes. Oh my god. This is This is amazing. You're going to integrate all this IP into trivia questions. God, Dom needs to add a sound effect that's like this is being clipped right now. Yeah. Like Phil and Trans Media. All right. So, that's Netflix. I didn't I didn't mean to like take up too much time because Mishka I want to hear you go another topic that we've beaten down the bush so Netflix just jumps in up. So I don't know like cuz every time we prepare these episodes we look at the news that that jumps up and then the supercell news was on BBC. So I was like okay let me take a read and basically BBC.com Supercell Boss we

need to take bigger risks. So I read the article and I is on this I don't know why he's on BBC talking about this very interesting audience choice and channel but he is talking IPO IPO exactly so he's you know cited competition against games and apps like that's good so apps are competition for games they have to compete against the entertainment value of the Tik Toks and the YouTubes talked about costs of games rapidly increasing so this is of course very high level for audience that has that probably plays Netflix games and um talks about the time to market and how the bar is higher for games and then he talks more about what's happening at Supercell. So they have 10 games in development at various stages and that the teams are asking themselves this question why would people play this game in five or 10 years. cell. Okay. Uh like this is BBC stuff. And then he reiterated what

Supercell's basically ethos is in making games, which is taking a quite complex game ideas and making them really easy and accessible to play and sort of a cartoony and fun. I think that's a very well put. That's what they do. He talked about AI. Again, Ilka is all about AI. He talked about AI innovation lab in Helsinki. I'm quoting, "We basically gave them free hand to do whatever they wanted in order to spark innovation." Decided that that's a massive success and they are opening an AI lab in San Francisco. I wonder how much the person who runs AI lab in San Francisco is getting paid. I want to know that one. That that must be the insane package cuz like AI guys in San Francisco and gals make make a ton. But anyways, that kind of sparked me to look at Tensor Tower and Supercell's numbers. So the first half of 2024 to first half of 2025 since it's roughly comparable and we can see that the portfolio is a little bit struggling because last year was record

year. So Boom Beach is the only game that is up and it's up by 6%. So good job guys. It's their smallest game I think. Brawl Stars down by 20%. Clash Mini Dead Clash of Clans down by third. Oh, hold on. We got to pause on Brawl Stars because that has been such an important narrative of like end of 2024. I feel like all I was getting on LinkedIn was Brawl Stars coverage. They were doing a GDC tour on their turnaround. All of that legitimate flowers to them. But I would say this is now a period of silence and the game is down almost what half from where it was in May 24 where it was doing 80 million a month. It's now down to 40 million a month. Again, still very impressive. The narrative is still the same, but I would just say like that is a radical change. They were not able to sustain this monetization level. Monopoly Go, which I hope we'll cover in future episodes. Also, by the way, a little bit of slippage on those top grossing charts. Yes. I don't know if it's worth mentioning, but now they've changed the leader of Brawl Star. So, Frank let it

he made that insane pivot when the game was basically looking like dead on arrival in soft launch. And Frank was the person who took it over as a lead and I think he came from customer support side or something. It wasn't like directly in game development and so he has done a truly heroic job basically pulling it out of what two to three nose dives. So he's on his welldeserved sabbatical. I don't know if he left but it was just on LinkedIn he was basically taking a sbatical. So that usually indicates that he's taking a break before moving on to next project. So all the kudos to him. He did a fantastic job. Since I don't want to get too far away from the point that both of you just made about the numbers being dramatically down, both Monopoly Go and Supercell and Brawl Stars have web shops. And one thing that I want us to be super careful about, like we love Sensor Tower and they said themselves, Shurog said that they are trying to add in a tool that will help estimate web

payments. I just want to be careful to say that anytime I talk to these people about web shops, they are over the moon and saying that the percentage of revenue coming from web shops if we're just talking about revenue is very very high like 30 40 50%. That gets you a level explanation that doesn't necessarily get you a change explanation. Like here the change the movement is important and you would have to assume some crazy changes in web store adoption over the same period to compensate but the changes are from a number. There's one data point that is missing here. So what Phil is showing is revenue by app but there's another thing that we need to look at and that is download. So I don't have that that graph there but I looked at it and Brawl Stars downloads have gone to a third to what they were when when it started climbing. Okay. We talked about this a lot when Brawl Stars Yeah. did their rethink. It was a combination of actually adjusting the game, but they also did an insane marketing push, something they hadn't done in the in and

so it was short-term revenue. It wasn't the same type of audience that they've had they've captured, you know, so they just didn't stick around. Right. Exactly. And but they also talked about that that that was organic downloads. Like they was I think Frank came out on LinkedIn saying like I'm just paraphrasing, but it was giving something like 80% of the downloads are organic. and you're like, "Excuse me?" So, you're just basically not attributing. But anyways, like that's semantics. Overall, I would say the the overall portfolio is down by about 20%. If we're comparing first half to the second half, of course, not looking at web shop revenue, so the actual amount can be smaller, but there's positive signs. Clash Royale is is showing some positive growth right now with with some good updates. Brawl Stars came down from the heights as we talked about. Heyday, Clash of Clans, what are those like 12 year old games? They're pretty stable. Squadbusters is looking dicey. Diceier than ever. Like dicey dicey. No, it's not dicey. Michigan, it's been dead. It's been dead for over a year. No, no, no, no. There's a team in London that is

working hard on it. So, until until they give up, we're giving it a fighting chance. This is this is it's in hospice right now. That's what it's But, but but the overall story of Supercell, like I'm just tying down the article, like this is insanely profitable company. They're making like what 121 million in net revenue a month on inapp purchases alone. That's insane. And I think just reading through this article, even though it's high level, I think Kilka is doing absolutely the right thing. So the company is to some extent kind of living off dividends because these games they're generating revenue are old and he's definitely pushing towards the these new new hungry elements like the AI lab. So bringing people outside the organization to come something new Spark Labs which nobody talks about anymore. It was last I think the new cohort is starting after the summer after the brief and short 3-day long summer of Finland. Then the Spark Lab starts with a with a new set of people. That's also

a way to bring in hungry folks who are new to Supercell, new to process who just just focus on building something new. It was interesting because I read this article after I left the uh the I don't know if I can talk about the event but anyways around the event there were many people from various different companies who work or have worked or affiliated with Supercell in somehow and this was before I read the article and some of the folks were talking about the Supercell work life balance and this is again hearsay I do not know this so don't attack me but folks were talking about this that that supercell you know, very work life balance focused. It's 10:00 a.m. to 400 pm. You got the long holidays. The office is basically shut down for June. They have a lot of offsites. We're talking about two per quarter usually per person. A lot of the leadership is working remotely. Like you got the CFO in Austin, you got the live ops head in Stockholm, you got marketing in London, you got people head in in San

Francisco. So you talk to people from Supercell and they're absolutely loving it because it's a great company to work for. And then you talk to somebody who's coming from Dream or Hoyoverse, they might have like a PTSD, especially people from Hoyo War, which is like 997 culture. It's like hardcore even for Chinese. So what I'm trying to get at is it's a super profitable company which games that are producing most of the revenue are shipped 10 years or more ago. And I think they're doing absolutely the right thing by shaking up the organization by bringing people from like not even from outside but almost like creating these cells inside the company whether it's the AI cells or the spark cells to bring that hunger because it feels like life is excellent and I would definitely treat Supercell as a place to work anybody else. What the [ __ ] is this thing? Wait, is this is this sarcasm? No. No. What? Well, well, think about it. Like I think about it from the culture perspective. They're getting more chill

and they're about to IPO and the revenue's down. Where are we cheering Ilka for this? He's getting distracted by these stupid little experiments rather than optimizing the high prof. Here's what I'm trying to say. It's like really hard to change the culture that they have right now. And so they're bringing sort of like these auxiliary teams how it feels like the Spark Labs and the AI lab. Yes. That is running away from your culture problems. That is not dealing with your culture problems. to give you an example. So at GDC there was a lot of supercellians that were there. And normally you could just go to supercell, you could go to GDC whenever you want, just put on the company bill. But now that the company has grown to such a big size, they have to make choices cuz resources are limited. So then how are you going to choose who goes to GDC and who doesn't? Well, now you need rules, right? And now you got to pick and choose. Now who gets to go, who doesn't get to go? And now who's going to have resources and who isn't going to have resources, right? I want a hundred more million dollars for my Brawl Stars marketing budget. Well, we can't really do that anymore, right? Cuz all these other people. So, now you start to get into the classic hierarchy of resource control and management. And

the thing we haven't seen from Ilka is how he's going to evolve Supercell to deal with the challenges of a modern corporation. We've heard nothing. And so, he runs away to Spark Labs into AI. No. No. He was out there talking about this [ __ ] two years ago, right? Like he had this huge thing where we're changing the culture, we're doing everything. He had they haven't done [ __ ] It's a cute internship program. Yeah. At the end of the day, at the end of the day, when you're this big, you actually wrote it very well. Scaling is not a risk-loving environment, right? Like when you're at this level of success, like to get you to the next level of success is a completely different calculus, you know? Like you can't be doing this kind of [ __ ] flippy floppy nonsense, right? And then this is a big debate that I had with Catela and Alexander, which him and I completely disagree on this point. When you're at this scale, innovation is tough, right? What they should be doing is leveraging their brand and bringing games to the masses that are already successful. So do the World of Warcraft type thing like like incrementally improve things. You know, Clash Royale

was kind of similar to that as well. Like that's what they should be focusing on. Forget innovation and just starting from scratch. Like leverage what is successful and make it better. You know, like at this scale, you can't do this [ __ ] Okay? I'm just saying like it's just not going to work, right? But I think they have been doing it on a product sense. It's like we haven't talked about it, but Clash of Clans and Clash Royale got like rid of timers. Those are huge economy changes that I want to revisit. And those are storyried franchises that are radically changing fundamental mechanics, right? He's not talking about that. He's not celebrating that. Let me just break this down. I don't mean to be a dick, but Ila is the wrong guy right now, right? They need someone new that actually can change the way they work, right? if they want to continue to grow and beyond that. If they want to continue to do what they're doing, Ilka is fine. Like they're just not going to grow. They're just going to be basically flatline, right? Like forever. I disagree. I disagree on that. I don't I mean everything, you know, I was joking with you like what different

are you going to say? I feel like every time we talk about Supercell, we're saying exactly the same thing. Like what is new about their approach? Over the last two years that I've been on this podcast, every time you pull up a blog of his or an article, it's the same [ __ ] Now it's like there's an AI company in San Fr. Of course there is because everyone has to say that because you have to. You need a leader that actually can drive quote unquote innovation, but innovation in a way that scales for such a big company, right? I mean, there's zero to one, there's one to 100, and then there's 100 to a billion. And and I think Crest is trying to say perhaps ILA is not the best fit for that stage of the company and where it is. He was awesome at the, you know, one to 100 or maybe one to a few thousand. And this goes back to the Roblox thing too, like the leader is still there, right? And I I was actually wrong about that in some sense. He's basically allowing Manuel to like manage the revenue generation of the platform

more aggressively, right? So they're like doing it together. So, I was a little bit wrong on that, but the but the fact of the matter is they needed someone like Manuel to take them to the next stage of growth and level. Like, he's not the right guy, right? And so, bring in advertising, bring in merch, bring in all this other [ __ ] It's like if you want to continue to scale and grow and go IPO, that's what you need, right? If that's not what you need, then I can keep doing what he's doing, right? But they brought the CFO. CFOs are [ __ ] dude. CFOs are [ __ ] tails wagging the dog, dude. Okay. I mean, there certain instances with CFOs make a material difference. No, I mean the CFO is going to do what Phil said, right? Which is, I'm going to put constraints. I'm going to start to look at a budget. Like when I was at Riot, Riot didn't used to have a budget. And when I started in 2018, they were like, "All right, we got to put our big boy pants on and we have to have a budget and we have to have P&L." And everyone freaked out. They were like, "Oh my god, I we just spend millions and millions on trailers cuz it's cool." And now people were had to

justify their life. So that's what a CFO does. They come in and they turn it into a real company. I have to actually I have I have to pull back a little bit because I know Mike Williams is going to kick my ass next time he sees me. CFOs are not [ __ ] Blake Jorgensson, for instance, saved EA. Immediate correction. Yeah. Yeah. So Blake, there's instances in which you need a CFO to get keep people accountable and pulled things together. You know, the at EA, it was basically the Canadian mafia that just spent them into oblivion, building up all these [ __ ] teams. It It wasn't until Blake came along and [ __ ] just decimated that whole big org and got rid of all this [ __ ] marketing spend on TV. And look, Blake was a [ __ ] genius in terms of that. But generally speaking, CFOs are the tail wag of the dog, dude. Like the leadership strategy. Yeah. Yeah. COO, CEO, they're the ones that are really driving actual strategy, product strategy. Well, I I want to ask one question. Why is this article on BBC? IPO. IPO. Supercell comm seems to love

not going to gaming. Well, actually, that's not fair. They've gone to our our friend at Mobile Gaming Biz. I don't know. They just they have weird coms, right? No, they now do only Pocket Gamer, which they advertise on, and so they do only that. Crest, come on. Right. like the the strategy is they want to start getting out in front of the business environment. That's why they hired that CEO. That's for a comm strategy. So comm strategy 101 is comms is only for a few things. One is if you need to raise money. Two is if you need to do recruiting to get more people in. Three is if you need to do some sort of like crisis management. Four is you're laying the groundwork for an IPO. Press is not for players. It is not for consumers. It is for the business environment. I'm going to get [ __ ] from comm's folks. But that is your comm strategy. So whenever people come to us at Deconstructor of Fun, I'm like here's our audience. You know, what are you trying to accomplish? And sometimes I tell people no, like that's not why you come to us. We cannot help you with that

goal. So Crest, I wanted to ask, am I crazy by chanting IPO as as like the reason why they did this? Yeah. When you're going that broad, I mean, you're trying to build up interest from investors, right? And equity investors that may or may not be familiar with the story, but when they see it on BBC, they go like, "Well, [ __ ] What the hell is this?" You know, it's named dropping, right? Like you, it's like now I have to pay attention because somebody at the BBC is talking about this. I'll tell you though, one thing like this growth profile like it is a tough cell, right? I mean, it is a tough cell, dude. Cuz again, I've said this a million times on the podcast. The problem with gaming in general is it is a hit-driven business and that makes people very nervous on the investment side because that creates volatility that they don't [ __ ] want, right? That's when you scale over time and build and build and build is is a better story for going public. This looks like they got one [ __ ] huge uptick from Brawl Stars and now it's going through the toilet again, right?

Not really through the toilet. 40 45 million a month still. I know, but we're comparing it to what 120 million. And it wasn't for a short period of time. It was for 6 months this thing was like driving that kind of thing. That's like it's a huge drop, man. That's like huge. Like that's not what people want to see, you know? Game devs. Here at Heroic Labs, we know that great gameplay is what players love, but integrating metagame features like challenges, progression, and rewards is crucial for retention and monetization. But coding them is a tedious and timeconuming process. That's why top studios have turned to Hero from Heroic Clabs. Hero provides a complete suite of battle tested metagame features that are quick to implement, letting you spend more time on the core gameplay experience. Ready to ship fully featured engaging games. Check out hero today at heroiclabs.com. Web stores, you've seen what good looks like, but have you experience great? AppCharge is the direct to consumer

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flying smart. Apps flyer because your data is your best co-op partner. [Music] All right, so this is a a quick one. Phil, thank you for surfacing in this. Also, Game Discover Co., I love that newsletter. They have a lot of great stuff. It is YouTube's 20th anniversary. First of all, I'm old. Can you believe that YouTube is 20? Let's play trivia. What was the first video that was ever uploaded? And anyone anyone know? All right, I'll just tell you. So, I just watched it because I had no idea what it was. It's a very boring video called Me at the Zoo. It's this guy in 2005 who just is standing in front of an elephant is like, I'm at the zoo. Look, it's cool. It's like the most uninspiring video to ever go up. Happy 20th anniversary. It's a beautiful first video. It's super mundane. It's the exact type of [ __ ] that you'd have on your phone, like concert videos, just you at a zoo introducing animals. It's

beautiful. It is. Yeah. No, I This poor guy. So, the video I don't, if you can see there, has 356 million views or something like that, which is crazy knowing now that like any K-pop video gets like a billion views. It's like insane. All right, so the the things I wanted to cover just really quickly were gaming highlights because I don't think we all know as a game industry how much we prop up YouTube. So Minecraft videos passed 1 trillion views in 2021 and four years later it's now two trillion. So oh my god, how YouTube is growing. 60% of YouTube's 1,000 current most subscribed channels have uploaded at least one game video. So 60% of the top subscription channels have gaming content. In fact, Mr. Beast started as a Minecraft content creator. So my big takeaway is gaming doesn't just thrive on YouTube. It built the

platform's cultural blueprint. So think about a little house. It's all built off of your backs. Everyone listening to the podcast, well done. YouTube should send us a a check or a trophy or something. Us, especially us. Yeah. So, sadly, something that isn't writing on the coattails of YouTube and Minecraft is uh Hightail. So, Hightail, I saw this article and I I dove in. So, Hightail was a promising Minecraft like game and it was in development. Some articles said 10 years, others say seven years. It's a sandbox RPG, and the developer is called Hypixel Studios, and it was closed by the parent company, Riot Games. So, Riot acquired Hypixel Studios back in 2020, but its anticipated sandbox RPG never materialized. Just to reiterate, 5 years under Riot, nothing to show for it. Cancelled. I think Riot

has a bunch of these things. And and when I was reading this, I was like, what's going on with 2x KO? You remember that fighting game that Riot has been I remember living in the US. That's how far along when they acquired that fighting game studio out of somewhere in the Bay Area. And this game must be in development for 10 years. So 10 years in development under Riot. It must have cost like GTA half of GTA 2 budget. Like um yeah, Riot definitely needs a CFO to look at this. So I was at Riot for both these. And so for Project L, which was the code name of it back when I was there, it was announced during what we called L10, which was League's 10th anniversary. And so this was like 2019. And this was the moment, I was thinking about it the other day that Riot put the S in Riot Games. And so it was the moment where the founders came out and said, "Hey, we're not just League anymore. You know, we have TFT. We have Project L. We're going to launch on mobile." So, this is when we announced

the prerege for all of the mobile games. And so, I looked up just to see where 2X KO was. You know, sadly, I I love you Riot friends, but that is the worst name on the planet that I've ever heard of. I I struggle with the naming choice on that. And so just where the game is, they've shifted to this like 2v2 approach where you do mainly play as a single player, but you kind of tap in your AI companion to help you with assists and things like that. The character art, and we're looking at a a screenshot, it seems to have evolved to be a little bit more comicish, comic inspired, like painterly than what I remember. The game is scheduled for a 2025 release, but no dates been announced. The few articles I looked up said that there have been a series of alpha and beta tests that have had a mixed reaction. I'm not a fighting game ninja or afficionado. Anyone else hear anything about it? We covered this a couple weeks ago that they're splitting off the Marvel part of Marvel v Capcom

into its own fighting game. I don't know. It's just it's a bunch of people going after a really small pie. We've covered the fighting market before. It's just like the racing market sells the same amount of copies every single year. People try to get out of the genre constraints. Oh, maybe we'll build an MMO into it or we'll build I don't know. It just doesn't happen. It is what it is. Does doesn't mean they're not great games, but the TAM is just not there. Yeah. I I'm just showing a video here of Marvel. Again, horrible name. Talking about bad name con name names. What is this? Jen Marvel what's what's like? Yeah. Again, like public service announcement. If you cannot say the name of your game, that means that people can't benefit from word of mouth. They certainly can't spell it in their search box to look for it. Stop it. Stop it. Yeah. Yeah. Seems like Marvel basically just launched Marvel Tokon, which it seems to be the Riot game, but just with Riot with Marvel characters and it's Yeah. I don't know. It seems like Riot taken a long time to launch games except

TFT that came out in like Oh my god. I the story of that is amazing. The quick super story is one day we're all sitting there. So this was when I was on like league growth and my some of my team members come in and they're like I noticed that no one was doing work and all they were doing was playing auto chess from Dota Auto Chess. And I was like what are you guys doing? And they're I'm like this auto battler thing. It's amazing. And then one of the guys was like why don't we do that with League characters? And literally like weeks later, they were prototyped and built auto chess with League characters. Like it it was the most it it just shows you that great gameplay and passion can really move things along. I think we launched it on PC a few months later and then about 5 months after the launch of the PC version, we launched on mobile. Like how come Riot doesn't do this more? Like I thought that the whole shipping of TFT was amazing. They were almost like like Sneak shipped a whole new game

that was actually successful. So how come it takes them so long to do anything else? Making games is hard. Yeah. Yeah. But but this is the same company that can ship in 6 months or it has taken 10 years to make a fighting game. Yeah. It wasn't Riot like that was a different studio that they acquired. But and in any event, yeah, go for it, Crest. So Xbox. All right. The big news of the week was that Jason Shrier wrote an article basically suggesting that Microsoft plans another major cut at the Xbox division of Microsoft that's supposedly going to happen next week. And so it just got me motivated to actually finally write the article that I've been trying to write for a while and publish it. And actually, unfortunately, Joseph Kim like beat me to it. But anyway, nonetheless, as I've said a million times on this podcast, and I've been talking about this way too much, is that Microsoft whole strategy has been a [ __ ] train wreck from the get-go, right? And so,

what I wanted to articulate in this article is why they have failed succinctly. And I wish I write more on LinkedIn because it actually got has like 30,000 views already in like less than 24 hours. All right. So why is Microsoft failing is most important and what they can do in order to improve it. Right? One, Game Pass is missing the mark. They are less than 40 million subs and that's nowhere near their 100 million people target. And the whole point of a subscription is to scale it so that you can justify like giving away [ __ ] content, right? So this is not happening. Their hardware share is absolutely cratered. Like they are just not competitive anymore. or they're less than 30% of the console market versus Sony. And then if you add Nintendo in there, devastating loss for them. But software is the biggest red flag cuz software is where they make all their money. Like this is a razor razor blade business. And all the margin that they get from third party software that's cratering, right? So they are less than 14% share against Sony and even worse

against Nintendo. Cloud gaming feature on the box, right? That is not expanding the market. It is not removing friction at all. That is a complete loss leader for them. That is a [ __ ] [ __ ] product that that doesn't even make sense. And then the cross-platform promise is broken as well. Like all the [ __ ] PR about bringing [ __ ] to mobile that is not [ __ ] working, right? People are not playing Xbox on a [ __ ] iPhone, right? That's not happening. That will never happen. That is a stupid idea that was all PR [ __ ] to get this deal done. It would have nothing to do with like the reality of what consumers want, right? And then finally, AI is actually bad for Xbox, right? Because AI is what Microsoft is focused on. They don't give a [ __ ] about Xbox, right? It is not part of their core strategy, as I've said a million times, and it doesn't make sense to have this as part of it. The only push back I keep getting on this is that the player data that they gain from Xbox could help them build out their LLMs, which may be true, but they're not [ __ ] doing that

now, as far as I can tell. And also, it's a privacy nightmare for them. So what my solution is [ __ ] spin out Xbox now, right? Do it now before we have a death of a thousand cuts of this [ __ ] that you guys are doing. Layoff after layoff after layoff destroying the Halo teams, cutting all these other teams like this. It's got to stop. And if you do this now, you might might save like the business holistically. Having said that, there are a lot of challenges again with this. So become an independent company to keep compete headto-head with Sony. Sunset Game Pass. Get rid of Game Pass altogether and just create a normal sub for like catalog and other [ __ ] Maybe some exclusives over time or timed exclusives, but none of this like day and date like release exclusive thing. That's not going to work. And then bring back exclusives, right? Everything will be exclusive to Xbox. Obviously, they can't do that with Call of Duty because it's contractual and they have all these legal issues, but make a very specific experience on Xbox that differentiates it from other platforms for Call of Duty. Kill the

Series S. The Series S was a [ __ ] dumb idea from the get- go. That is like kept them in the dark ages of game development for since [ __ ] the launch. Almost half of their units have been Series S, which are not a capable device. And then then license it to third parties, right? And then go public, right? This would be a huge publicly traded company. This would be Activision 2.0 with hardware, right? A pure play gaming company, right? And giving them the flexibility to do crazy things like Joseph suggested of buying Epic, which will never happen because it will never sell. But nonetheless, that gives them the much more flexibility to do what they need to do as a standalone gaming entity. The alternative, keep it [ __ ] at Microsoft, right? It avoids like the short-term pain of a major reorg and lots of like changes and big strategy pivot, but it also guarantees like this quiet decline of the destruction of teams and franchises and it trades disruption for complacency and

that path leads straight to death by a thousand cuts. That is the end of my article. So, yes. Yes. Well, so one thing I wanted to ask you that we you didn't talk about was kind of the AMD and the new console announcement. So basically, I think the last week they came out and said, you know, they're basically continuing the partnership with AMD. So nothing new here. Nvidia stopped making console chips for the PS3, I think, was the last time they really did it. And AMD has been the leader since then. So let me read Sarah Bond's quote from the announcement. This is all about building you a gaming platform that's always with you so you can play the games you want across devices anywhere you want. Delivering you an Xbox experience not locked to a single store or tied to one device. Bon said at the AMD partnership, "That's why we are working closely with the Windows team to ensure that Windows is the

number one platform for gaming." I think they're actually doubling down on staying at Microsoft, going more vertically integrated and not listening to you whatsoever, which is not No, actually this this doesn't necessarily not align with what I'm saying. Okay. I think they could execute on this strategy as a standalone operator much better than they can under the Microsoft umbrella. Right. The AMD partnership is actually good, but the AMD partnership has been going on since the PS3 days. Like the only time Nvidia was yeah a factor was back then. So the subscription is the problem. They need a hardware strategy and this is actually a decent hardware strategy. They partner with AMD to bring the capability to different multiple devices. But then also the integration with Windows is the other thing that's really interesting as well. But I am not objecting to the PC strategy at all. Like I think the PC strategy makes sense. Like bring Xbox to PC, right? Windows 11, all that stuff. They don't need the subscription. the subscriptions are what's killing them right now, right? In terms of

profitability. So, so I think they are making the right moves. This is the right strategy and even like creating third parties like licensing the tech for handheld devices with ROG alloy. Yeah. Right. Like that makes sense too, right? It's small potatoes, but that could make sense in terms of bringing the pricing down from the hardware perspective potentially over time, but that's what they need to be focused on, not like subscription cloud, all this other crap that they've been doing. It's been an absolute like train wreck, right? Okay. All right. So, this is an Xbox strategy. Crest is approving subscription cloud. Yes. And on mobile like and mobile. Yeah. Apple and Google. Yeah. No, that's not happening. Got it. Okay. This is a stupid idea to spin off. There's no value there. Your hardware business is negative margins. your uh giant publisher with really no cohesive core with mobile king just sits around like this is just waiting to be diced and sliced and sold to different places.

They are not stronger together than they are separately. That instantly is what happens if there's even a sniffle of this actually being done. There's no way they're going to be held together as a public health company. You know that too. This is why I keep pressing you on what does the P&L look like? It looks like dog [ __ ] It doesn't have to be public. It could be private equity. I mean, sure, it can be private, but it's not going to be as one entity, cuz that entity sucks under one P&L. It's going to be sold and diced up for its most profitable parts. This is the thing is when I write this article, I am saying what they should do, not what they will do and not what's easy, right? Like it's much easier to stay within Microsoft and just die a slow death as they, you know, destroy all value and all teams within the company, right? Which is basically what's happening right now as we speak, like real time, right? And they have the enough money, Microsoft clearly has enough money to keep this thing going for basically forever, right? In order to actually help the gaming business and create more of a dynamic market and to really innovate on the gaming side, they need to be standalone. And you're right, it's [ __ ] messy, dude. And it ain't

easy and it ain't going to happen, right? Probably. But I just want it to happen so that we have a legitimate competitor against Sony and Nintendo and and just basically try to bring it back to the competitor that it used to be before they [ __ ] up that Xbox 360 generation. Xbox One generation, sorry. Nintendo and Sony are not even like competitors. Like they're kind of like it's normal to have both of the devices, right? Which one? Switch and PlayStation. Like they're not substitutes. No. Correct. Yeah, I agree with you. Actually, Philip, I don't I can't say I disagree with you, dude. But but the fact like having new leadership and I suggest like someone like Frank Jiabau or Owen Mahoney would be the type of person that maybe could lead this as a publicly traded company. They could actually, I think, make the changes needed, but it's going to be messy. Really messy to your point, right? Like,

all right, games. Let's hit some game updates, Bill. All right, I'm going to go pretty fast through this. So, to give some hype, next week we'll be covering Uma Musme: Pretty Derby, June 26. This is the Japanese girl horse racing game. I think it holds the record for the highest revenue per download of all time amongst any game that has any sort of scale at $118 per download in Japan though, right? like 95% of the revenue is Japanese. So keep that in mind. It is at over $1.8 billion according to Sensor Tower, but unfortunately the revenue has basically been on the linear decline since the game came out, which I think goes back to a piece that we heard from Lilith, if you remember, when they were doing AFK Journey trying to talk about the struggles of running RPG based games for long periods of time, particularly meta collector games. But this is finally coming to the west. So I'd say buckle in. Let's see if this has any pickup here. This will also be on Steam

which I think is particularly interesting. I have no idea if this is going to be left to die like Eggy Party if you remember that. That was the Fall Guys like game in China which is doing Monster Number Still. It came to the west with basically a dud no marketing support. And there's another one I wanted to cover which was I would argue another big release which was Crystal of Atlan. I don't know if anyone has heard about this. It's a magapunk RPG. So, you know, think kind of genchan style graphics with a steampunk sci-fi aesthetic. It had been out in China for a couple years and finally got released in the west. I thought I had a chance to do something interesting and it has also landed like a dud. So, rest in peace Crystal Vatland. And when we're on the topic, I think we need to talk about one other action RPG in this vein which has struggled which is Zen Zone Zero. And so when I was talking to some people at Netis, one of the things that they mentioned is that these version 2.0's for Chinese games are becoming more and more important for just how the

publishers end up viewing the overall project and are becoming a really natural lighting post for the development process. And so Zeno Zone Zero had a 2.0 launch. It's about a year after it's gone live. And if you remember the narrative behind this game, we finally were starting to see potentially an ability for Mihoyo not to cannibalize itself. But the problem with the game itself is that it first of all hasn't grown and it's a very small part of Mihoyo's portfolio. And so all we've seen so far is a small revenue bump. I wouldn't even say small. It's a pretty substantial revenue bump from the 2.0 update. And it does look like baseline is potentially around 40% higher than it was before the update. But at the end of the day, when we look at the portfolio for this company, Zenless Zone Zero for Mihoyo is still looking at maybe 10% of the portfolio. And on an active user basis, it's only around 1 to 2% of active users. So this thing is still just in material to Mihoyo. Which brings

us to the job posting they recently had for a Unreal 5 urban openw world game. It was originally known as Project SH. It became development in 2020. It got rebooted at the end of 2022. It's in production for a while that couldn't meet expectations. It has maybe GTA like themes in some of its description. Let's see where they go with this. But I am starting to wonder if Mihoyo is almost like becoming the Ubisoft of the West or excuse me of the East where they're just doing these super high budget open world games that don't really stack on top of each other in the way in the way that you might expect. So let's see what this one becomes. UEe 5 too. That's interesting, right? That's unrun engine. Yeah. I mean like I think that just fits in naturally with their crossplay strategy though of having it both on mobile and on desktop and having you know high quality 3D worlds. Okay. And open world. Open

world. Yeah. Yeah. All right. What else you got? One other small update I wanted to mention from our segment on Kingshot, and this is something Yakob had pointed out from Two and a Half Gamers, is that a lot of the Kingdom early action RPG gameplay actually comes from a Steam game called Thronefall, which was released in October 2024. In fact, the screenshots when you look at them are uncanny. They basically riff this off one to one. It's pretty clear that this was the inspiration. and maybe there was some other lineage there. But if this is really what came before Kingshot, it's pretty obvious where they went. And if you remember, we've covered earlier that Voodoo has a team where they're just monitoring Steam games and mining them for insights. So Bagfight was one of the games that came out of this. It was based on Backpack Battles, which was on Steam. And we also had Hole.io, which came from Voodoo that was based on Doughnut County. And of course, we have Alenhole, which we've been following as well, which by the way is doing crazy business. Oh. We haven't covered this,

but Allen Hole is doing about 7 million a month in AP revenue. And I think when you combine it with ad revenue, this game is probably doing over 9 figures a year, which is massively, massively impressive for Homa. And all they've done is basically add the mobile monetization casual core over these Steam titles. And in Haby's case, remember they actually had Survivor.io, which had a lot of influence from Vampire Survivors, just adding in kind of the power square meta when it came to mobile. And when we start to look in the future, I would say there's a lot of interesting things that I think Steam continues to deliver. There's a game that'll be coming out soon called Ship Inc., which is a lot of tidying, and that is also something that's doing very well on the App Store. We're seeing Cooking Dumb, which is a hyper casual title, but the studio behind it is Vietnamese. They have a bunch of titles around tidying things, assembling things. I think they're doing really well right now. And let's also see how the Steam release of Ship Inc. generates ideas potentially for the idol category. But I continue to believe like Steam is now the new forefront for a lot of mobile developers to mind ideas and then

wrap them around proven monetization models like Habby has done with their meta. And I think with a lot of what the casual match meta has done, I think it's just a question of finding that right core gameplay. Interesting. What a weird transition to start on Steam as a in a sense hyper casual or hybrid casual gameplay opportunity and then go to mobile. You would think it would be reverse, but that's cool. I like that insight, Phil. Well done. Good job. So, I think there's there's one more really important franchise which I've wanted to cover and we haven't had the opportunity yet to do so, which is Rematch, which is doing absolute gang busters on Steam. This is what's being called Rocket League meets football. So it plays much more like a arcade style football match than let's say traditional FIFA which is top down. There's a lot of different players or switching between the different players. This is you controlling one soccer player and having a lot more autonomy over its momentto

moment action of the character. It's only three versus three, so there's a lot less going on and each player is controlling a real soccer player. The gameplay looks very tight and the results so far are incredible. We're looking at daily active users for Rematch on Steam. And yes, your eyes do not deceive you. That is an upward sloping graph on Steam for DAOU. It is hitting around 600,000 daily active users on Steam. And I think from what we last heard from the unit sales, it had crossed what what a million copies in 5 days, which is very impressive. And I think is like another shot across the bow for FIFA. And I think if your goals, if you know goals, which is a Swedish team here, which has a lot of VC backing, they've been trying to go after FIFA as well. And there's question about whether or not you could do this without the license. And I think this is a good vote in the category that you can you can build a soccer game without the license. Yeah. And they also have like 2 and a half million players, which includes their part of the uh box subscription. So it is scaling very nicely. But again, I don't know if this

really competes against something like FIFA, you know, cuz EAC everybody EFC compete. Yeah. Without the license, it's going to be really tough to compete on what makes FIFA unique. And FIFA is a sim. It's not a arcade game. That's fair. I think people have been trying to find whether or not you can build sports games outside of licensing. And I think also trying to build a more arcade style experience in sports has been a challenge. I think this is finally a good use case for this or at least a proof of concept for finally executing at a high quality against this. I agree it's not going to go after FIFA, but I do think like this can be a challenger for Rocket League. Like no one's going after that Rocket League type gameplay in a long time. Yeah. Yeah. Plenty of startups do go after Rocket League, but they just haven't been able to get the same traction. Yeah. Well, in football there are segments, you know, you ranges from arcade to hypers sim, there's management. There's some opportunities. You know, the work that I've done in the

space tells me that it is very difficult to get players, especially from an acquisition standpoint, if you don't have teams and licenses and, you know, the actual characters. Now, you just have to work harder at the acquisition stage. Once they get in and they're interested and that's the kind of experience you want, then you know there there's opportunity. Okay, everyone. Sorry we didn't Mishka we didn't get to your article again. May do it next week when I'm not here. I can't wait. All right, everyone. See you soon. Bye. [Music]