TWIG #391: Xbox's 4,800 Cuts, Apex Predator Playbook, and the 6% Problem Killing New Games

[music] Hello everyone and welcome to Deconstructor of Fun. This week in games 391. I'm Jen Dano. I fill the marketing and publishing role on the pod and today it's two for twig. It's me and
Eric Crest strategy investing. Clearly the core two all that matters are in the house. Clearly uh apparently in Europe everyone takes vacation in for the entire month of July and August
and that's why Europe's Europe and that's why the US [laughter] is the US right you know
except in football which we'll talk about [laughter] in a second. Uh here's what we have on today's podcast. So in two for twig uh anything but Xbox actually just kidding. It's going to be all about Xbox. And so this is going to be how the previous administration, I will call them, was just unwound by a 1,000word memo from Asha Sharma. The

other topic we're going to really dig into was really interesting. It was a new auzu article, one of their latest reports. So the challenge for new games to unseat forever games. Crest is going to bring some data. We're going to talk about that topic. Other news we're probably not going to get to, but I wanted to give a happy birthday to Pokémon Go. It's their 10th anniversary and they're doing like all kinds of fun marketing stuff. For fun, I've been looking into anniversaries for games and those are actually really big revenue and DAU drivers. It's interesting. It is something that works more than other things. Crash, you'll probably love this more than movies or TV content. Anniversaries are the thing that drive KPIs in games. Are you shocked?
Shocked. Absolutely shocked. [clears throat]
All right. So, first, as I mentioned, it's football season or soccer as the Americans say, World Cup news. I would like to thank all the keepers for putting on a show and reminding people that we matter. I was a keeper. I guess

I still am a keeper, which means I'm crazy in my mindset. But holy in watching all of these amazing amazing games, I am blown away by the saves that are being made, especially now that I can't watch the US go forward.
Yeah, the USA game was a kind of a show. They just they just got dominated. But more importantly, Canada got destroyed. So, [laughter] f you, Adam. But I I the g the game that was the best I've watched so far, and I I can't say that I've watched that many, is that Argentina game. Absolutely insane. And I know there's some controversy around the calls and some like, you know, thumb on the scale type things. But,
you know, being down two-0, I think they had like 15 minutes to go and they came back and won it 32, right? It was crazy. It was crazy. and Messi missed a penalty
earlier in the game. It was saved by the keeper and then, you know, they go down 200 and then they just they just come roaring back. It was it was probably one of the best games of the tournament so far. Oh,

okay. Well, I'm glad I got to watch it because I was I was blown away at, you know, them coming not getting down because they were down two zero like with I mean that usually can't come back after that. So anyway,
no. Yeah, it was a lot
was pissed, man. and they was like losing their goddamn minds.
Cards were flying at the end of that game. Holy And then the penalty kicks for the Switzerland Colombia game. I hadn't seen PK's in a while, so that was pretty crazy. And then Crest, I would like to comment for those watching on your new background and mood lighting and everything.
Oh yes.
Yeah. You got like Yeah. Going.
I got rid of the exercise equipment. Not that I'm not exercising, but I'm going to the gym and not doing it at home anymore. And my kids insisted that we do some kind of like Pokemon station and some like whatever that presentation thing [laughter] is with the neon lights. And then we moved in um the arcade machine to make it more gy. And my son wants to put neon everywhere, but I'm a little bit has neon strips like on

the ceilings. I'm like, come on, man. Let's let's not go too crazy. So, we're we're easing it in now.
What's going on with Jacob in basketball? I I was thinking about that the other day. It's like as an OG listener to the podcast, I'm like, "What's up with Jason Jacob's basketball that nobody cares about?"
So, he got hurt in he broke one ankle, broke a bone in one ankle, and then he tore a ligament in another. And he was just kind of out for last year. So, he really just had a rough year last year
and finally after PT and a bunch of other stuff, he is back and he is playing extremely well. He had an amazing summer, you know, spring and summer league with the university team. scored like 10 to 15 points every game and he's actually back to form and so he's going to be a junior so basically he has two more years to show his stuff and so yeah it's really good
fun and and your do daughter is in the industry [laughter]
my daughter is freaking in Lisbon right now Portugal with her Albanian boyfriend

oh okay
some Albanian prince going to Portugal on my dime feel really great about it But she looks like she's having fun. And my son is actually in DC right now doing some kind of a political science program. So yes, we have an empty nest for the first time in our lives. And my wife and I have no idea what to do with each other. [laughter] We're just like looking at each other. What now? You know.
Oh, cool. All right. Yeah, we adopted kittens, so we actually have kids in the house now. [laughter] So I'll have to post more cat pictures, which I know you love.
Oh, please don't. Yes, please don't. Okay, so um I had a very fun and insightful chat with Zoe Bell. She's a executive producer for New York Times games. I did a deep dive into how she and the team developed games. How she brought a lot of her prior game industry experience. She was at Congregate. She was at Zingga. So how do you take that experience into a 175year-old newspaper institution and think about game development? You know, they kill 96% of

the concepts that they come up with. But the way that they do it, they they do it quickly. Ideas can come from anyone. They have like a little bit of a templated flow and a process. So really interesting. Uh she was just a badass. So uh it was fun to hear what they were up to. And then the next deconstructor of fund roundtable. So this is an event that I run that crest you came to in LA. So we're going to do that in Seattle. That's on August 6th. It's a Thursday. It'll be at Amazon AWS headquarters which is South Lake Union. If there's anywhere you want to be in August, it is Seattle. It's like one of the most beautiful times of year there. So, if you're in Vancouver, Seattle, come to that. The link to sign up is either in our Slack, in the newsletter, or on the website.
Of course, you're stepping over the homeless in Seattle. [laughter] It's it'sing horrific, you know, third world man.
Seattle.
Yeah. Oh, yeah. It's brutal.
I don't know about in South Lake Union.

I don't think
they say they they say SF is bad, but dude, Seattle and [clears throat] Portland are far.
That's Pioneer Square, which I used to live in Seattle for a year. So, I think that issue is a little bit more downtown. This is in the Amazon AWS bubble of like apparently there's a dome.
You think Google headquarters is nice? I think this one is actually we'll have to have a vote which one you like better once we do this. So for corrections, I wanted to talk a little bit about what we talked about last week about Xbox. One that we're doing the whole show on it. Basically, a few things that were rumors just, you know, right off the bat was we said that the five studios face closure for the sale. Actually, zero studios were closed so far. All five continue operating. Two are independent now, two are under new owners, and one is pending review. So, we'll get into this, but just noting that last week we covered rumors. So, now it's all real. So, let me just start this section also by saying for the both of us, our hearts go out to those that are impacted by all of the news that happened on July 6th,

which is Monday. We recorded on Wednesday, July 8th. Many of my friends are okay, but many are not. Many of my friends were impacted. It's awful because these people are great. I mean, you know, it was really sad when Asha talks about that 14 management layer. A lot of my friends are in that management layer and, you know, they're now going to be looking for something new. So, we're going to, you know, obviously do this from a business side in a business discussion. So, this is always hard when we are talking about people's livelihoods. I don't want people to think that we're being dismissive as we talk about this. We we just have to talk about this as a business implication and the strategy implication. So before we do all of that news, then let me just tell you a little bit about a service that I think is great for those that are impacted. Amir Sautbbot, who I call the saint of the game industry, has a website and a LinkedIn page. The website is ASGC, which stands for always supporting the game community. So go there. He has job

resources, job postings. You can sign up to be a mentor reference for people. The other thing you can do is apply to join our Slack channel. So go to deconstructorfund.com, join the channel. We have a jobs channel. So please go there if you want to see any open positions.
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All right, Chris, uh, let's go through the news. Bum us.
Let's do this. Okay, so Microsoft is cutting 4,800 jobs total from their company sent of their global workforce. 1,600 of those jobs are from the games division or Xbox division. And then they

have another additional 1,600 jobs over the next fiscal year. So the next 6 to 12 months, I would imagine. So it's basically 20% of Xbox's global workforce has been eliminated on top of what they did last year. Right. Compulsion Games and Double Find will become independent studios. Undat Labs and Ninja Theory potentially have buyers. They will be they will be shopped. Yes.
Yeah.
And Xbox will also look to sell or spin out Arcane Leon, the Arcane French studio.
Chararma basically framed this as the biggest restructuring in Xbox history. She called the division's economics unhealthy, saying it's been operating at margins three to 10 times lower than competing platforms and publishing businesses and the studios, which I think she's describing the studios above, will losing 64 cents for every dollar invested. Not quite sure how that stat works, and it sounds a little
weighted, but whatever. I don't really

understand that. When I dug into that point, it was only for those specific studios. It wasn't for like the smaller studios. It wasn't for the whole business. And so it yes, it is a very specific stat on a very specific part of the business.
Okay. She said that Xbox content services fell 5% in the quarter ended March. Chararma also noted the platform teams are 40% larger than when the current consoles launched in 2020. So even though the player base is shrinking, they have a 40% larger platform team. Game Pass and Studio Deals that were meant to fuel growth did not really grow the pace as expected, which we've talked about a gajillion times on the podcast is that they could not grow subscriptions beyond
that like 40 million mark or 30 million mark. And also in context like the stock itself has gotten a lot of pressure these days. It's down like I think almost 20% this year versus all this for this AI infrastructure investing. So there's there's a more macro concerns with Microsoft in terms of how it's performing versus peers on the AI side.

Obviously, this gets really complicated. I think all I really want to try to do is talk about the incremental stuff, but then we'll also get into kind of why we're here. It kind of confirms what we already knew. And actually, it's almost better than what we thought last week because they are actually doing kind of like the nice thing with some of these studios. But some of the stats that were out there that were different that we didn't know was that Game Pass has not grown beyond the 30 million. Now, I have suspected that and have said that many times, but we didn't really know for sure that they just basically are stuck at this 30 million mark because subscription businesses make no sense in this business. Like, as I've said a gajillion times,
it went down too. It was at 33, I think. It went down. But it went down to 30 when they introduced the price increases. That's why one of the first things she did was lower the price because they screwed themselves.
Yeah. The other thing we found out was that Compulsion and Double Fine will become independent and they will

maintain their own IP, which is a really really thoughtful way of spitting out studios, allowing them to take their own IP. Like
that's the best outcome you could hope for in this situation, right? You get a chance to buy yourself back, you get your IP. I think in some cases they're not required to be a part of Game Pass. I think that was in there somewhere for some of them, which was also, you know, super great because then you're not locked into that system.
Yeah. The other big news in this particular press release was that King and Minecraft are reporting directly to Chararma, which really illustrates her focus. And I don't want to try to read too much into this, but this is a bigger deal, I think, than some people are suggesting. But anyway, but the problem with this is that mobile is still a huge blind slob for Microsoft. Like no one knows about mobile in the entire organization. You know what I mean? Like it's kind of a joke, right? That like these tech bros are taking over mobile, which is like much

more challenging and difficult to understand than even the console and PC business. And so they don't really understand how hard it is to monetize these audiences. They don't understand the concentration of spend. So they talk about the MAUs and the DAUs and all this other fluffy but at the end of the day, they don't know all what they're doing, you know, and that a little bit scares me. And then on top of it, if advertising is really the core strategy of, you know, long-term strategy for Xbox, Xbox is done. Like it's over. RIP. You know, that won't do it. Um, as for like what the long-term thing here is, like whether it gets spun out or held is still up in the air, right? I think it's not necessarily a binary choice. I think what they're doing is structuring it in a way in which they can actually do either or both. Frankly, the fact that Chararma's taking control of King and
Minecraft is a bit disturbing from that perspective. like this could be a signs of things that they want to keep while

like structuring the rest to get spot out, right? And this would still fit their 1 billion MAU and would be more aligned with Microsoft corporate, right? And so yeah, keep the two biggest like MAU drivers, which I just it hurts me just to say these words really, but that would be more aligned with Microsoft's overall strategy and then spinning out the rest as an independent publisher, basically Activision Blizzard 2.0. 0, which I've talked about for years,
could make sense now with the core teams still in place. Like they've got rid of the smaller teams that weren't contributing as much
to the profitability. Now they have Call of Duty, Fallout, Elder Scrolls, Halo, etc. Turn 10, Forza, all that They have all that as a what independent studio. So if this is the case, what we should see the next 6 to 12 months is they would probably eliminate the hardware business or decouple the hardware business in some way like outsource it, find third party and hire senior leadership for Activision Blizzard people that like sit above

Booty. That would be an indication of a potential spin out. But again, I think this structure gives them more options because it's a more profitable business. But of course, none of this really solves the bigger issues, right? You can cut costs all you want, but their share loss on hardware is still a huge problem. The Series S is a disaster of epic proportions and that's still out there them up. Management of studios is still disastrous under Booty, under all those guys, frankly. And they don't have any creative management anymore. Like they're just getting jettisoning everybody, right? And so
they basically have a creative organization without any leadership, you know? And that's that's bad news bears, you know, like that doesn't work. And what the are these tech bros doing? They hire like five executives. We haven't heard from them. What what are they doing? Just sitting in [laughter] a room like circle jerking? What are they doing, right? Like these guys are getting paid get jillions of dollars. They haven't done all right now. What are they going to do? Revitalizeing King with more advertising or like throw

advertising into Minecraft? This is Where are these tech bros? Yeah, they're going to take more chips out of the potato chip bag. Uh, you know, one of the things when I was at Hasbro, you know, so games and toys are a very fad driven fashionoriented business. I know it sounds weird to say that, but it's not filling a bag of potato chips and taking out 10% to cut costs and save money and all of a sudden it's the same product. Games and toys don't work that way. And when you start to change the leadership of an organization that doesn't have any of that spirit or come from that organization, you lose focus on what are the right things to do. But but Chris, Mr. Matthew Ball has probably started in his job as head of strategy. So I'm sure we're going to be fine. Anyway, so I want to get into before we do the tech bro performance evaluation report. I wanted to cover some additional info before we deep dive into maybe we deep dive in a couple areas. So, a few things that we didn't get to. I you you mentioned the pain of 24 and 25. Just I

wanted to bring those numbers up because it 1,900 jobs were lost in in early 2024. 650 more than that September. There was another round in July of 25 that killed Perfect Dark and Ever Wild. And then, you know, I talked a little bit about the 14 layers of management. If you've ever worked inside of a big company, I think you all know that this is hor just horrific. Like I've dealt with this is like how many more people do I have to talk to to get this marketing plan approved? It's been 2 months and I'm doing nothing for players. So I I do think that that is a reality and and probably something that should have been fixed. By the way, it's not MAU. She wants a billion DAU. That's the goal that she has said. Right now they're at 500 million MAU. And remember that they're probably cheating and counting all those old lady candy crushers in the tween mcrafter. To me, that is not like you can't add those into a PC console business and be like all mau or dau are traded equal. And I

actually shouldn't it be like ARPD? Shouldn't that be the metric? Like I
can we can we just pause on this point because this is what's driving me insane. Like these highlevel like
like vanity metrics of going after 500 million MAU,
that's actually the wrong strategy. She basically does not have that platform. She just period does not have it. So it's like
this is not the goal and and this is what consultants say. This is what tech bros would say and that having the ma this is the arpoo business right and this is it's all about like revenue producer
and prepayers right and this is you know a converted small group of niche people that spend a ton of money right this is not an MAU business and
converting it to such is not core to Xbox it's like the minute they start going after advertising this is no longer Xbox this is something different right so you know it's a different business altogether together.
It's not to say that that's not the wrong strategy, but they just don't have

the assets to do that with the exception of Minecraft
and King. Yeah. And ironically, those are not really Xbox console driven experiences.
It's not It's not Xbox.
I know. That's that's the irony of this whole thing, right? So, I feel like you should be chasing ARPD or Arpoo or Arpoo Poo if you wanted to pick that kind of a metric. Like you have to worry about who are the people that are paying you money. Who are those, you know, one to five percent of people in your audience that are paying you money to keep the lights on? Because yes, I love the other 95% and they make it an wonderful experience to engage in, but if you're not truly going after your payers, then you don't have a business. Okay, so let me continue on here. So Helen Chang is Xbox's first ever COO with endtoend P&L across content, hardware, platform, and services. I think the whole spinout structure theory gets even stronger with this. Crash to your earlier point, a single consolidated P&L is exactly what you build before you like divest everything. I can't believe they did not

have this before. Like it doesn't this blow your mind?
Yeah. Not really in the sense that like these things were acquired at different eras you know and so like
you know Bethesda
Activision
Activision Blizzard King all were had their own like leadership structure and silos type some to some degree.
I've run into this at big companies I've been at too where you're like where's the P&L and even the game leader was like I don't own the P&L. I was like
yeah I mean a lot of but see a lot of these structures are inherited based upon the transaction itself. So, they want to be fiercely independent. And so, anyway, I don't really know the ins and outs of this. You know, as I've said million times, and I keep throwing our investment banking friends under the bus, like Morgan Stanley and Goldman, they don't give a about how this is executed and how it's managed going forward. They just want the deal to get done, right? They'll move heaven and earth to get the deal done. They don't care about what happens after the fact. I mean, look, I've been talking about this since the very beginning. I said

the Activision Blizzard deal was going to be the worst deal for this industry and this is exactly what's happening. It's because Goldman Sachs does these deals. JP Morgan Morgan said they don't give a right and they throw these things in there. There's no strategy. There's no understanding of the business. It's just more like get this deal done whatever it takes. And that's what exactly what happened with this Activision deal after like what 18 months ofing regulatory you know, and Goldman got its check, you know? And I said before, they're going to get their check when they spin this thing out, right? So, let's just go. Let's just get it done already, you know? Like, what are we around for?
Let me give you this stat. With Activision, Blizzard, and Bethesda, and all of the the buying spree the previous administration went on, Xbox inverted the platform model at the worst moment. It went 61% first party while Sony stayed at 29% and let third parties absorb the risk. I mean I think that says a lot of it right there which is you say this every week

the model is like develop a platform that is fantastic for third party that's what Apple and Google have done that's what a platform should be I think they completely over invested in first party because of game pass [laughter] sadly all right so let me do this last point and king previously reported to Matt Booty the move chararma strips Booty's portfolio down which is direct evidence for your hiring leadership above beauty's speculation. So, that was kind of an interesting thing. All right, so we were talking a little bit about this. I Let's do a couple topics. Having Helen Chang be Xbox COO seems like a move towards the spinout. Did you know she was actually like leading a lot of the Minecraft stuff? So, it sounds like anyone who is touching good things seems to have been promoted. So, many of the Xbox Central people seem to be out. I don't know if you've been on LinkedIn, but it's like a it's like an Xbox job graveyard. It's really awful to see

these people with 10, 15 years of Xbox experience being, you know, impacted. So, let's talk a little bit more about that. Blizzard and Activision, you know, going to be spun out. You think any first party content that isn't needed anymore? because all this content is basically feeding the overweight and diabetic and Ozmpic needing game pass business, right?
I think the game pass business is over. Was a stupid idea from the get-go and I think they just jettison that and just make it back to the Sony way, you know, but I don't know. It seems like the only solution at this point, right? But I guess we'll get more information as we move forward. But the Game Pass is stupid. It's dumb idea. I wonder if anyone's done the research that shows that Game Pass has devalued. We're almost at $80 game experience. I guess Mario and now GTA are going to set the bar for some games at at that $80 mark. Has Game Pass completely devalued

what a premium HD experience. This will lead into our conversation later about how hard it is for a new game to succeed. Is it because Game Pass screwed that for everyone? like you just jump in because you pay whatever a month and you pay a couple hours of a game and then you're like I'm going to move on. I don't know like it feels completely antithetical to how the business used to be.
There's two conflating parts here, right? So the game pass kind of like appeals to a certain type of audience, right? So people that are buying Xbox or a portion of the people that are buying Xbox are interested in the discounted game pass as a means to get into gaming as cheap as possible, right? So in some senses they're attracting that audience. And so that audience by its definition is not very interesting to the rest of the publishing groups. So what I've been hearing very specifically is that some of the publishing groups are just like

we don't need to publish on Xbox anymore, right? Some of the bigger teams are just like this is no longer a viable platform for us. We we're just going to focus on Sony, right? That is disaster area.
I saw that at the Game Awards in December. I'm sitting there through all these trailers and what I noticed is the lack of Xbox on the end of the trailers. So many of them were PC and PlayStation. It was crazy. I think this is a direct result of one the fact that they've attracted the lower-end audience and two their game pass subscription is does reduce the value perception of games itself right and so it becomes that kind of platform right in pursuit of MAU and DAU theying
cheapen their own product right and their own brand now the problem with that whole concept though is that the the core Xbox fans that are actually paying $240 $250 a year for the subscription there is contingent of people like that that are still super

loyal and super high-end consumers. There just far less of them and the majority of them have been moved over to Sony. 15% share on third party software is kind of where they're sitting at versus 30% share 35% share last generation. That's like end that's end of days type thing. And so this is why the only real solution is to either spin out as a their own company or spin out as a publisher.
Yeah.
The Activision 2.0 seems to be the most likely option at this stage and then they maintain without King.
Yeah. Yeah. And what you just mentioned leads me into this question which is you know Yosen Junan talks about this in his newsletter all the time and in in Mitch Laski on their GameCraft podcast. It's the idea of content versus distribution or distribution like and platform. And it looks like Chararma has picked that they want to invest in their platform or ecosystem. If you think of I don't know that they're trying to say Minecraft and

King or ecosystems, which I don't necessarily believe that's the case. So, at this stage in the life cycle of where we are in the game industry, we need distribution or platform innovation because right now we're all kind of stuck and and the next content innovation doesn't seem to be getting us there. So, it feels like her she's picking platform, which I think we actually agree isn't necessarily like a bad thing. I just don't think picking king and Microsoft really say that, right? I hate to be the guy that like, you know, she'sing apex predator, man. She's no joke, dude. She is just basically going nuclear on this right? And she's keeping the two things that are actually super viable from the perception and perspective of Microsoft. So, I do believe that Minecraft is probably the lowest invested opportunity

that Microsoft has. the fact that they haven't been throwing money at this and there's all kinds of reporting around how Minecraft and King are have been supporting the rest of the organization from a profitability perspective, from an investment perspective by using those profits to basically fund these studios that are not generating profit, right? Which is totally true. And why that's a big surprise to people is just mindboggling because we know that King is a money-making machine. I mean, they must be sitting at like 40 45% margins at this point on like billions in revenue, right? So, so anyway, pulling these two things out, Minecraft and King, which are probably the most profitable parts of the business with the exception of maybe Call of Duty, makes sense, right? And then they could build on those platforms and actually build a bigger business. So, in essence, it is exactly what I would do in some ways because I do think that Minecraft there's huge opportunities with Minecraft. What I don't agree with is like I don't think there's any opportunities with King. Dude, they they've been sitting on the same
games for like forever and making

tons of money, which is great. But that money could then
ironically be funneled into investing in Minecraft, right? Like which is, you know, like the same idea but just different types of investment, I guess. So anyway, I think if between those two groups, I think they could start building a business. Now again, it comes back to the tech bro thing. It's like, look, these guys have no idea what to do with Minecraft, right? Like these guys will it up so bad. Like that's the only problem is they have no idea what they're doing, right? So yeah, fine. You know, throwing, you know, Mr. Metverse and and the tech bros and try to make Minecraft better. Off. You're not doing that. You're going to it up like badly.
Yeah. I think the thing that was interesting is if if she's chasing a billion DAU is her goal, which is crazy. You know, pulling the two divisions that number one are highly profitable, number two are the ones actually pumping that out is probably a good way to go about it. And thinking about the spin-off, but

she's pulling things closer that Xbox has no experience in. Like King's been off on its island because nobody knows how to deal with mobile to your point. Minecraft is often an island, you know, obviously, I mean, I used to make toys for Minecraft. And so, the culture of that game has always been antithetical to what Xbox actually is. And so now, I mean, I can't wait to see the culture clash that's about to happen, trying to bring that in a little bit closer with how they have thought about making that game experience. But one of the things I wanted to get your take on is thinking back to Embracer. Do you remember when Embracer and Xbox actually did the same thing? They gobbled up a bunch of studios for this idea of first party and then they're like, "Oh we can't afford all of this." The economy tanked and then they went into spin-off spree and so they started to get rid of everything. So is Embracer actually a good story to learn from in this case? Is she following that playbook?
Yeah, Microsoft did exactly the same thing as Embracer. They bought a bunch of double A single AA studios

to build games that don't have a broad market that can't that are hard to be profitable. And that's in this sense, like I said this last week, I did not agree with this strategy back then. I certainly don't agree with it now. So they're jettisoning that, keeping the most profitable studios that have the high revenue potential, the 10 to 25 million, you know, unit target type things. And now she's spinning out the king and the mojang, which is going to be part of Microsoft. So I think I think all of it makes sense to me like in terms of how where the focuses are. But again, I don't think they understand mobile and they don't understand free-to-play monetization. And so they're going to be really hamstrung. And the problem with the strategy of King and Mojang is that we already know what that comp looks like. It looks like roadblocks. And I know everyone loves Roblox, but it is a shitty business, right? It's not a great business, you know? And the only reason they maintain their employees is because they have hundreds and hundreds and hundreds of millions of stockbased comp that they're giving out. They're not being cash bonus. It's all stockbased comp. And so

like it's going to be hard to replicate that because it's just not a great business yet.
Yeah. And I I'm not going to go in that rabbit hole either right now. So we already have a comp. They have huge MAUs, right?
Roblox's DAU is like I don't know 112 one between 112 and 130 or something like that last time I checked.
That's as good as it gets and it doesn't look that great is what I'm saying. So and this is what they're after.
When you look at how she approached this, I think there's a learning from it as a leader. She came in and is like, "Listen, I I'm going to learn really quick." She did, you know, in the first basically 100 days, she dealt with players first, right? She reduced the cost. She talked about like, "Hey, we're not going to make AI games." She focused on the players and then now while she was doing that, she got a handle on the business. And so she basically went and unwound everything that Phil Spencer had spent time doing since I think it was

like 2011 is when they started this the buying spree of the studios. And so in the matter of like a 100 days, she basically unwound you know everything that you've been complaining about with Xbox with the exception a little bit of of Game Pass I which I think is going to be the core problem going forward. And I think you're right that like from a pure business perspective, she looked at everything as like this over here makes lots of money and margin. These things don't. Like let's swap them. I think the thing we're going to both need to evaluate and keep an eye on like we said is they don't know mobile. So the things that they picked are things that they don't actually have expertise in. They don't necessarily have expertise in Minecraft that's been running with somebody else and they don't have expertise in mobile. So I think that's one of the challenges in the the strategy that they've put forth is a lack of expertise and then you know what happens with what Xbox is like project helix seems to be on track but you've got ramp apocalypse happening so I think the components are going to be 5x more

expensive next year than previous year and so we we kind of have all that going into it. What one last point I'll make is I want to be clear on this too is that when you do these kind of strategies, these highle like cut strategies and stuff like that, that's the easy part, right? Because anybody can put this stuff in a spreadsheet and come up with an idea of how to make things more profitable and and streamline things. The far more challenging part is what to do moving forward. Like managing creatives, as I said a million times, like this is where she will fall, right? she will not be able to handle this and likely will like and that's the reason they'll end up being a spin out is like she's losing all these layers of creative management and that is a bad news right and so I don't think the tech bros and chararma and and Mr. metaverse are going to be able to manage these things. Like the notion of increasing the the frequency of games coming out of Bethesda is so absurd that like that that statement

alone shows you don't know what the you're talking about.
Can't you just ship it quicker? You just make it faster.
Why not? Why not be on a quicker cadence? Yeah. Yeah. Off. Like you don't know what the you're talking about, right? So, and by the way, if they were to do that, the quality would suffer like dramatically. So, and the team would revolt, right? for obvious reasons. So anyway, this is the easy part and I she's doing good in the easy part, but I don't know about the hard part. Like I don't think she's going to do well in the hard part, right? And we'll see. We'll see what happens.
You encapsulated my point, which is, you know, they did the easy part, which is like, ah, let's get, you know, burning it down is so much easier than building it up. And then getting rid of all of those people who have done it for years by saying, "Hey, we don't need that middle layer of managers. Now we're just going to have juniors, which by the way, we're struggling to hire juniors in the world. Like, they don't know enough. They don't have the institutional knowledge. Like, perhaps it would have been worth even talking to some of the the mid-level managers to say, "Hey, we want you to be more of a player coach."

I I mean, that's kind of the role that I live in today is being a player coach. Being a consultant, by the way, is how you have to operate. I talked to a lot of my friends in the industry who are now, you know, we're all a bit more senior and I'm like, "Well, what do you do anymore?" and they're like, "I don't know how to do anything cuz I've been managing people." And so, my heart goes out to people because if you truly have been in those management layers, I get it. But you got to that management layer because at one point you did know how to do it. And I hate that no one's giving those people a shot anymore.
Saturi, it's the Japanese Zen Buddhist term for sudden enlightenment. That [snorts] flash where everything clicks. We're told that Heroic Labs team had theirs when they realized that most studios run live ops like a horoscope. Vague, kind of generic, same advice for everyone. So, they built Sattorii, realtime experimentation, player level personalization, events that actually

respond to player behavior, save to your old live op stack, and Konichiwa to Sattorii from heroic labs. Unless you've been living under a rock, you know this is web store rumbringer. 70% of top apps are using a web store. And the best ones, they're doing it with app charge. Do you want a $20,000 inapp purchase? Yeah, app charge does that. How about using web-based Apple Paycheckout? Yeah, Appch charge does that. Do you want to pretend that subscriptions are still a viable monetization strategy for games? Yeah, Appcharge even lets you do that. Look, these guys are backed by Supercell, Moon Active, and Play Tika. They get what high average revenue per paying customer means. And they're already doing over half a billion dollars in transactions a year. So, are you going to be the first to do a $20,000 AP? Don't accept microtransactions. Embrace macrotransactions. Learn more on appcharge.com.
In sickness and in health, in soft launch and in live ops, through every meta shift and every platform policy

change. That's the kind of loyalty vibes built between your game and your players. AI powered targeting, [music] a real metal layer rorowass optimization that actually compounds. That's what makes Vibes the fastest growing loyalty platform in mobile games. Till churn do us a part. Vibes vybs.co. All of this goes into our next point in our next topic which is a Substack post from Ronan Patrick based off of some new zoo information. I'll share some slides while you take it away. what we've been seeing in this market and part of the reason that we're seeing all these changes is one of the big things along with you know obviously higher cost of development is that there is not much market for new games in this business right and this has been a problem not

for the last two years not for the last three years but almost for the last 10 years both mobile and console is that the concentration up top has gotten dramatically more challenging for everybody Right. And again when these companies were acquiring these small studios like Embracer, Stillfront, Microsoft, this was why that strategy never made sense. And this was a problem like 5 years ago. So what I asked Ronin to do is put together an analysis of what percentage of the market is actually new games or new IPs that are in the marketplace. And for the last three years on the console beside of it, it has been pretty consistent at 6 to 7%. Which is nothing, right? That is a very very small TAM for new games on console, right? That's a really bad bad business to try to penetrate with nonlicensed IPs or nonrecurring franchises. And when we we talk about this stuff, we're talking about Madden,

FIFA, Call of Duty, Battlefield, all these games that everyone knows like Assassin's Creed, etc. are all established IPs and and and recurring franchises. So, we can see right pretty obviously that consoles are pretty bad now. PC does look a little bit better honestly at like 70% particularly in 2025 which I think part of what people have been seeing and reporting on is the fact that we saw a big boon for new stuff in 2025. Having said that, [laughter] having said that, even in the PC business, he he further looked at the market and said, "Look, of this 15%, 60%, we're talking about things like Hogwarts Legacy, POW World, Arc Raiders, right? Like these huge games that cost insane amounts of money to develop, right? And so, like the concentration, like 40% of them are AAA games that have AAA budgets, you know, like Marvel Rivals and Blackth Wukon, etc. And so if you actually couple it that take a step

back he said like almost 6% of game of games that are coming out like the same kind of percentage for consoles are games that are not you know AAA or like high budget games or I licensed IP or whatever. So anyway, so the whole point of this analysis is that the market for new games is very very very very small, right? The TAM for new IP and new experiences is very small. And that is what I think we're feeling right now, right? We're feeling that in an extreme way. And and that's why we're seeing the jettison of a lot of these smaller studios to go off on their own. So and mobile is not any better. It's actually a lot worse in a lot of ways. For a long time, and this is like the last decade. I'm not we're not talking the last 3 years. This is since I mean at least the last 6 years. New IP is like like 6% of the business forever. 60% of the revenue is being driven by games that are 5 years or older, right? That's been consistent for years and years and years, right? And then not only that, that the other hindrance is that UA

costs are soing insane that like only the big can survive in this kind of environment. So actually again mobile is even worse from that perspective of breaking out on that. So, so there's just a lot of commentary on LinkedIn about this Microsoft stuff is like, you know, people saying, "Oh, this is gross negligence from, you know, the studio managers or whatever." But it's it's not only that. I mean, I do believe there's been gross negligence like at Ubisoft [laughter] and Microsoft. I think that the way they manage those studios, ridiculous, right? But the customer demand has been moving this direction for years. Actually, for the last 15 years, I've been tracking this. You know, it's like they're all focusing on the new the IP that exists that they they they've already established what they want. They don't want anything new. They're not looking for anything new. And it's only the vocal minority that's out there talking about this stuff that that make people think that people want something new, but they don't. They keep going to the same goddamn IP over and over and over again. And it's a feature, not a bug, of a mature entertainment

industry. And so I think that's a lot of what we're feeling right now, you know, along with like game development costs are really expensive, etc. And you know, these stupid management decisions, etc. But for that purpose, like I think that's why Chararma is actually doing the right thing of rightsizing this business and and jettisoning some of these studios so that they can focus on the things that the customer wants.
Yeah. And I wanted to reiterate one of the points that you made around a lot of the titles that have had success that are classified as new are maybe it's a rebirth of an IP or an expansion of the IP with Hogwarts Legacy, Marvel Rivals, you know, all of those things are IP. And so when you think about a new game, it's kind of like, you know, a kid trying to aspire to be a football player in the World Cup or a American football player. like the chance of your new IP succeeding, especially when there are 20,000 games now launching on Steam every year, 200,000 or something on the app stores. I don't know what the number

is on console, but it's still quite quite a lot. But so I wanted to take this angle cuz I don't disagree, right? Like what you just said, 6 to 7% of total revenue every year from 23 to 25 comes from new games. Like it just it's so heartbreaking, but where's the pipeline come from? And so, you know, when you think about, but how do we get something new like a CLA obscure? Every company is now coming out and saying, I want to go for the grand slam strategies, but you know, I'm only taking bets on big IP, newer, bigger, better. And, you know, I agree with your player demand point that, you know, Xbox is running a 3% margin against Microsoft's 30% bar. So, concentrating on like six big franchises makes sense for them. and it's where they need to get back to. But my worry is the pipeline and you know where do you find the next big new thing? You know Halo was a launch in in 2001. Fortnite was a pivot in 2017. Ginchin

was actually new IP in 2020. If the whole industry is just harvesting or doing the cash cow business, the 2035 slate like what are people even thinking about? And you know, when you think about the movie studios and like is there a better way to fund this? You've got indies, you got, you know, like think of movies, you got A24 and and I know we didn't talk about horror last week, but you've got these kind of hits coming out of nowhere in certain places where people are taking creative risks, but how do you balance that with a proven success? Like, isn't it portfolio management? Isn't it like here's some money over here to gamble and play with? But I worry about if everyone out there with money is only doing a sequel, a franchise, an expansion, where does the next thing come from? I don't know. What do you think?

[laughter] You're like, not on my dime. Let let some like college kid come up with it. I mean, that that game we talked about last week, you know, was kind of an example. the two, you know, Japanese developers coming up with the Mecca Chameleon, which I know you're like, h, but who who's going to spend money on figuring out what's cool in the content world? And I know I just came from preaching preaching platform, but we do have to take some bets, don't we?
No. I mean, [laughter] no.
No, we don't.
That's not where this business is right now. It's it's it's hard to say, you know. It's really hard to say. like but that's just the truth you know and you look at some of these like exceptional return games like Pow World and Arc Raiders is that those are not replicable right I mean Arc Raiders had a 300 person team in Sweden that were building tools and tech on top of Unreal in order to build Arc Raiders right after a failed game of the finals
the finals yeah
how can you replicate that right

after that team had built Battlefield for years too right
no yeah it was a well established Swedish team and players that played work with each for decades, decades, you know, like that's a that's unreplicable, right? Power World, same idea. They created games together forever, right? They they built a Zelda game and now they built a Pokemon game, you know? Like they even copied popular IP, right, in order to build their experiences. is I think Pal World is probably one of the big successes that I can't it's hard to hard to
I don't know but you're right because it you know what what was everyone saying it's Pokemon with guns.
Yeah.
So you're right in in a sense that it was IP adjacent. It was IP ripoff. I think Nintendo would even say
the exceptions are not the rules here. So 6% that's the number you have to think about. 6% of the market is open for new IP on on a regular basis. So, across mobile and console, period. End of sentence.

Well, and then you get into a couple other slides. You know, they were talking about for PC console, freeto play just doesn't work.
Yeah,
freeto play captures less than 15% of this market for new titles. We've talked about this, launching live service for new games is really difficult. Marvel Rivals was one of the few to do that. And then I think this last slide got a little bit to where we were talking about with Xbox where growth is an arpoo story and and so I thought this was really interesting and this shows that growth is coming more from arpoo from existing games versus a growth from players in both the west and in China. And so you talk about this a lot which is it is very difficult to increase the TAM in terms of players and audience. The growth is coming from harvesting or milking your cash cows. How do you grow your arpoo within your existing audiences? And so that's why I think this for me circles back to the Xbox conversation of they should be using a

different KPI than the one that they are using cuz it's very difficult to get more players into this gaming ecosystem, especially for hardcore games like on Xbox. It seems as though you need to be focusing on how you get more out of your existing businesses, which again probably goes to the Minecraft and King, you know, pulling them in for the bear hug, so to speak. I don't know. What do you think? I mean th yeah this is the next chapter at a high level for the industry and and the pundits hate this stuff like IGN and and you know all those guys just hate this stuff but at a high level you need to monetize the audience better right you know it's either higher price software like we saw with GTA better live services which we likely will see with GTA more live content release again GTA and more frequent content releases GTA right [laughter] like so all these strategies are going to be implemented by GTA which is basically going to kind of like set the bar from a monetization

perspective of the console business and this should carry over to the PC business.
Now I want to be clear here. I don't believe that the like indie markets going away anytime soon. I think there'll always be an opportunity for indie markets but like for anything that's going to scale beyond hund00 million like it's going to be almost near to impossible, right? So the best way of actually yeah digging yourself out and I think if you know when you talk to EA or Activision or Blizzard or you know like their their strategy has got to be monetizes their audience is better. And then the last thing I will throw out there is ad revenue. But I want to throw open my mouth a little bit by saying that because I don't like that idea for these type of products. But that's also possible. But when you talk about Minecraft and and King, of course, you have to throw in advertising.
Monetize per user revenue per player, whatever KPI you want to come up with, that's what's going to be key.
I know the story didn't go too much into mobile, so I pulled a couple things just

to bring up. And what's winning in mobile with new IP is all from China and [laughter] all in 4x right
60%.
And is all the Arpoo story. So the two highest grossing mobile games of 25 launched in 23. Last war survival did 2.2 billion in 25 alone and crossed two billion lifetime by February. White out survival did 1.9 billion in 25 and 2.5 billion lifetime. Kingshot launched in early 25 and finished as the third biggest forex game launch in the year. The winners, you know, it's this is why mobile sometimes breaks my heart. It's like a capital markets game. Like I just see you with like this app and this spreadsheet just, you know, geeking out. This is why I think all that that those UA financing people love it because it just becomes like like arbitrage of moving this money around to pay back your install cost. player demand on mobile seems to follow profitable marketing spend more than pure the pure taste story admits. And I think we had

this argument back in the day is like what actually is driving mobile? Is it people just spending money on UA or is it having a great game that people love? You know, it's that chicken and the egg. You know, obviously it looks like you have to have both. A great game that has deep monetization that pays out so that you can afford to go get these people. I know that you're more on the UA side on the game side, but you know, it feels like we're building like like everything feels like an addiction system. Like I know that feels awful to say as somebody in the game industry, but like isn't that what's driving the success of these ARPO numbers?
Yeah. I mean, it's UA spend pure and simple. It's UA arbitrage. You know, I spend a certain amount of dollars and I get a certain amount of back and building the right mouse trap to make that happen. Like that's all this business is, particularly on mobile. That is the business unfortunately. And it's it's sad. And I I I want to actually before I like, you know, super negative Nelly about the maturess of this industry, the one comparison that was given to me a while back and I probably have said this in the podcast,

but I'm going to say it again is when the movie industry before we saw Netflix, right? It was basically blockbuster movies, action flicks,
Marvel, whatever the indie, dude. There was nothing in between, right? Nothing in between, dude. It was absolutely massive like things that was that was the entire business for movies for years and years and years until Netflix came around. And so again, what we need to see in order for this dynamic to change are new platforms that introduce new monetization that introduce new type of content that expands the audience that gets people that aren't paying to pay. Like that's what we need to see to quote unquote save this industry from iteration after iteration. you know, it's like that is kind of the reality that we're in. And so this is the business and it sucks, but that's where we're at in my opinion.
Well, and that feels like a good place to end it for Twig for two or two for Twig. Uh, thanks for the deep dive chats. Hope everyone enjoyed it and see

you next week.
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