TWIG #405: Gears of War E-Day Flops, EU Comes for Virtual Currency and Turkey Wins the Puzzle Race

[music]
Welcome, welcome, welcome everybody to this week in games episode 405. I'm Mishka Katkoff, friend of the founders and bankers and investors and you name it, friend of everybody. Filling in today for wonderful Jen Donahoe, who's out sick today, so send hugs and kisses her way. In the first chair, we have
Aircraft strategy and investing.
Phil Black monetization Tsar.
Ah, the good old Tsar is back and the Tsar is back from Turkey. But before we start talking about Turkey, we need to talk about the episode summary today. So we have another phenomenal market report. This one is from Areem, the Q3 report. We will check out what they wrote with a critical eye. So if you want the puffed vest back, call Eric Kress after this analysis. We will be

looking at the US console market and why it hasn't been in a more precarious positions since the early '80s. Eric Kress will call on this, I can see it from his eyes. Uh, EU, everybody's favorite governmental organization is taking action against 10 10 selected gaming companies. They have carefully selected these ones. We will talk about what these bad gaming companies have done and what EU is planning to do. We talk about Sony selling their or PlayStation selling their VR patents to Meta. Animoca Mobile It sounds like a game with anime. We will talk about that. Gears of War, we will definitely talk about Gears of War E-Day. The launch was last week. Xbox introduced XP. What the is that? But we'll dive into that. I mean, whatever Xbox is doing right now is is just pure entertainment, So, we will take it. And before we jump in into

these highly interesting topics, Philip Black, how was Istanbul?
I had a wonderful time at Moby Dicktum. I have two takeaways for you, Mishka.
Mhm.
So, every time I did a lap around the conference floor and like looked at all of the Turks eager to make the next puzzle hit, I couldn't help but think that Sweden really this up. They just like royally like royally Swedish this up. Why was Moby Dicktum not happening in Stockholm? And the reason I would pin is King has built a culture of secrecy. They have a 3-month notice period in Europe on top of a 3-month garden leave that they imposed on their employees in Sweden. So, it takes 6 months to hire a King employee. They were neurotic about leaks or employees leaving. And not only that, but their founders have not reinvested in the puzzle ecosystem inside of Stockholm.

There is no legacy like we have for Peak. There is no lineage that comes out of King games. They were never a part of the ecosystem it felt like here. Just very disappointing, right? We we like to on Finland, but I think Sweden
What do you mean? [laughter] There's so much misinformation here. First of all, I will defend Sweden. But before all that, who said we like to on Finland? Like we don't.
you on [laughter] Finland all the time.
No, I don't. I just say the weather is bad, but No, it's not. [laughter] It's totally not. What did I say? I didn't say And you're the one who speaks bad about Supercell again. Like I'm being misconstrued for this.
So, that's one takeaway. One takeaway. The other I would say is that the Turks are like a serious puzzle people. Like I don't know how else to put it, but they take this thing seriously, right? And all the top graduates in Turkey know that like making puzzle games is the way to wealth and fortune. Again, you talked to Mishka about like Loom Games, their quick jump to success. All their founders are really incredible. Like it definitely has this Silicon Valley energy vibe

that like success is right around the corner and I think that's a very cool.
Turkish tea is also good.
Love it.
Apple tea, yeah. It's It's all right.
What is that? Bordec? [laughter] Bordec is good.
Yeah. It's fine. Turkey is definitely worth of it. So let's let's start off. Let's start breaking this down. So first of all, Sweden, I'm here to defend you. I I'll borrow this from Ali Farhan who actually just posted on LinkedIn about Sweden, but it's the same thing that you would say about Finland, so I'll just borrow some of the stuff. First of all, Sweden has phenomenal regional cluster of gaming. Yes, it's focused mainly on PC, but what has been coming out last year, Arc Raiders and Battlefield 6 came out of Sweden. So not to mention all the other other comp- They are They are from Sweden. You can go to Steam and says home country Sweden. It's Sweden. We'll give it to them. And it is a strong regional cluster of studios. Sure, some of them have been going down as of late because of the tough market position, but in terms of PC and some extent console,

they have been very good. Maybe not mobile always that, but you know, Mojang and so forth. Education system, fantastic. You can't knock Sweden for that. What Sweden also has is the safety net of any socialist country, which you know, many European countries are, meaning that they can take risks, they can start companies, and there's no risk of you ending up homeless without health care, unlike in some wonderful countries. And also, Sweden has horrific weather, just like Finland. It makes you excited to sit at home and code for for long periods of time because there's nothing to do outside. So Sweden has a lot of good things going for it, but especially their gaming industry, I would say, has been more resilient even than the Finnish one that has been significantly tied to mobile. But let me get back to the Turks, which I also respect greatly. You mentioned a few things. You mentioned that there's a lot of secrecy between the uh Swedish developers. There's no reinvestments between them, and the best of the talent

kind of doesn't go to gaming. So, let's talk about Turkish founders. Unhealthy rivalry. I would call it toxic. There's definitely no knowledge sharing. There's definitely [laughter] no helping. They will give you wrong information to the other founder just for them to be doing worse. It's it's the contrary of the Swedish model. The other challenge is that the Turkish ecosystem has its has a very limited talent pool because unlike Swedes or most of the countries, they only hire Turks. Turks only hire Turks. Their company speak only Turkish. So, it's impossible. Most of the companies, if not almost every one of them work on site. So, you have to be in Izmir or Ankara to some extent, but really in Istanbul to be working in games. For sure, they hone in the craft. They're best in the world at it, but I've not noticed that the Turks particularly love games. They love business, and this is the business that they're in, and they're really good in the business side of it. But, compared to the people who work at King, they seem to really love puzzle games and defend and kind of like

really think about players first. Turks think business first first and foremost. And, their working cultures is problematic. I don't know how else to put it. I've talked to Turks who work at Turkish companies who talk about crying at work, men crying at work because it's so brutal.
[laughter and gasps]
It is not on the on the healthy standings. But, what's working for them is they are incredibly business and product focused. They work super super super hard. They have phenomenal subsidies that de-risk new game development. This unhealthy rivalry that they have creates that chip on the on their shoulder where they really work super hard to dunk on each other. And, when it comes to top talent, they go to the games because there's been the exits and most importantly because of the exits, they have an abundance of capital as we see in the market report. They've been able to get all this capital to Turkey to start these new puzzle companies and good on them, but I wouldn't, you know, I wouldn't on Sweden.
Okay, sure.

All right, fine. All right, let's move on to shill. Shills, end of the month, where you're going to Cyprus, meet Phil Black in flesh at the paddle court in the dinner. Links in our newsletter and then we're going to
country is ripping. None of those None of those Swedish problems. They are just cooking right now.
Yeah, so Cyprus is booming. There's events literally we tried to arrange an event in Cyprus. They're like, "Guys, we are booked for like 58 weeks out of the year." So everybody's going to Cyprus. Naturally, the people there are not going to many places, but um we're coming to them. And then the uh we're going to Israeli Mobile Gaming Summit from Cyprus directly because you are living in Middle East. Apparently, it is very near all the Middle Eastern cities, much further away from Athens, so why not make the uh the hub. So that's the shill section. Let's jump in on the main topics.
Eiffel Tower, [music] iconic. Tower of London, historic. The two towers, simply epic. But none of them tell you anything

about mobile [music] app intelligence. Downloads, revenue, active users, and my personal favorite, weekly cohort [music] retention. Get the real story, get the real data, get Sensor Tower today.
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 builds between your game and your players. AI power [music] targeting, a real meta layer, ROAS optimization that actually compounds. That's what makes VIBES the fastest growing loyalty platform in mobile games. Till churn do us part. Vibs, v y b s .co.
In today's hyper-competitive digital landscape, understanding your app's journey from discovery to download isn't just insightful, it's the difference between scaling and [music] stagnating. Enter AppsFlyer, the undisputed leader in mobile attribution [music] and marketing analytics. They've mastered

the science of making every ad dollar work harder by revealing exactly where your players come from and how they interact with your app. Their platform transform mountains of complex data into clear, [music] actionable intelligence that separates winning campaigns from budget-draining experiments. And I know that many of the top game companies leverage AppsFlyer and are a key partner in their success. AppsFlyer, where your app's potential meets performance.
Topic number one is US console market. This is the headline. US console market hasn't been in more precarious position since the early '80s, analyst says, as PlayStation 5 and Xbox Series X prices soar to all-time high. The analyst in this case is Matt Piscatella from Circana. He was pointing out that the Xbox hardware sales are down 33% this year through August, an all-time low. PlayStation is down 25% during the same

period, which is the lowest since 2013. The average price paid rose by 26% to $530 plus taxes for Xbox and 20% to $600 for PlayStation. Meanwhile, Nintendo says it has no plans to ditch physical games on Switch 2, while Sony moves away from discs. So, I was thinking about is this RAM shortage pushing the prices up? There's economic uncertainties, geopolitical turmoil, tariffs, everything is pushing the prices. Eric, does GT6 on November 19th rescue the hardware year or prove the console audience has stopped growing? What do you think?
I am profoundly disappointed in Mr. Piskatella Piskatella because I think he's a very very smart analyst and in order to like make such claims that we are approaching an apocalypse of epic

proportions not since we've seen since the '80s, he should build some context around that. The fact of the matter is that the install base of hardware is only 10% lower than the last cycle at this time, right? Which is nothing because Xbox completely screwed the pooch this cycle and on top of that, the prices are probably like 40% to 50% higher than last cycle, right? In terms of hardware. I'm not including Switch. No, yeah, the Switch is [clears throat] actually up relative to last cycle for Switch. So, anyway, net net, like we are in a really good position from a console install base perspective, which is all that matters for the purposes of selling software and particularly GTA. I am a little bit disappointed that the hardware units have not gone up. I expected them to be a little bit stronger going into the launch of GTA, but nonetheless, like I think we are relatively in a decent position despite the fact the prices are so high. Now, we could Can we sustain this? Can we see growth in the back half of the cycle for install base to the mass market? Probably not when prices are $600. So,

we're going to have to maintain the established core in order to keep this business afloat. Having said that, the context that need to be said is that we have not grown hardware install base for decades. Like this is the way it's been forever, right? So, this is there's no difference in the install base it was like 15 years ago, right? Each generation has been about the same forever. It's always been growth about per user revenue, right? This is the audience. We have not expanded this audience forever. And that's again why Microsoft's strategy was so dumb to try to do subscriptions and all that advertising, all this other So anyway, I think he needs to provide that context cuz I know he knows the context cuz he's he's really really smart guy. All right, moving on.
Well, let's move on to some more So, EU is once [clears throat] again attacking game companies. So, they announced that they will be taking action against 10 10 specific companies over some of the oldest grievances in gaming, which is platform-specific

currencies that rarely align to the price you're looking to pay. In other words, virtual currencies is what they're looking to ban and the most specifically currency bundles, inadequate parental controls, a lack of assistance when accounts are blocked, and I quote, "Use of dark patterns." So, this is all from there They [laughter] put in They really put in the kitchen sink behind this. Of course, number one, Activision Blizzard, the good old king and then [laughter] the other companies inside of that. Let's talk about them. Crytek is the other company. I didn't even know that that Crytek makes games anymore. InnoGames got to the top 10. Yes, from Hamburg. King is specifically mentioned actually. Activision Blizzard and King specifically as the second one. So, this is how well aware EU is what's going on. Mojang, so Microsoft. Plarium, okay, Raid Shadow Legends. Playrix, of course. Riot Games, good old Supercell, and naturally Ubisoft. So, these are the

10 companies. I was looking at this list and I was like, "Who's missing? Who's really like doing predatory monetization?" Oh, all the Chinese companies. Ah, EU doesn't care about that. Let's Let's attack Crytek. Poor old Crytek. Epic was also taken out of this list because they allow to buy the exact amount of currencies on every other platform except PlayStation. You can buy the exact amount of currencies that you need in order to get the item or the skin that you're trying to get instead of them selling you up on a bundle and that leaves you with currency. They did an example of like what if you need 2,999 and somebody sells you the bundle of 3,000 and how unfair it is because you have that one left and that is probably one of their dark patterns thing. Then there was the attack on digital ownership type of approach where essentially you have to keep your games live forever after you put them out. You can't close them down. And now they're

coming up with new stuff with virtual currencies and you know, for the of it let's put in parental controls, lack of assistance when blocked and use of dark patterns. So, any opinions on good old EU versus gaming?
Even from developers inside of the industry, they always like to refer to like this company town like virtual currency is to obscure the true prices of items to make them more opaque. And that is not why we have virtual currency. Virtual currency is because having everything be a first-party skew in real-world currency, first of all, takes a first-party cert process on many platforms and also incurs a fixed credit card fee. And so, remember sometimes virtual currency may be for a very small amount. It may be for pennies if you were to back it out into hard currency. And so, what you do by having hard currency is you make that a frictionless experience rather than also going through like the first-party process for doing a purchase. Remember, you got to

do Face ID or if you're on a controller you might have to enter password. Like that is why virtual currency exists. And if you look at the design of much virtual currencies, we try to peg it at 101 is like the base price and then we're always offering value discounts as you move up and purchase more hard currency, which is something that normally people would be celebrated for. We love people like Costco who sell things in bulk. We're literally just offering you better value if you're willing to pay more money up front. That's a very fair, transparent exchange that EU bureaucrats don't seem to have the ability to grasp.
My key takeaway from this was I should have I mean, we should set up a company consulting company called dark patterns consulting. That is great name.
[laughter]
The limited research I did on this is like the likely outcome of this is some conciliatory like self-regulation or like they come up with ways of like dealing with this from a publisher perspective. And it probably won't get litigated is

basically I think what they suggest, which kind of makes sense.
Maybe, but you'd remember the attacks on free-to-play when Illco wrote the letter and then there's some other ones and so forth. Like it was taken pretty seriously.
Well, I mean, I think a lot of people would argue that there is a lot of predatory monetization going on out there. So like
Crytek specifically. It's Crytek I would say it's the
Roblox is not on this, but I maybe this is not
See, this is [laughter] what I always tell you. They they always seem to escape this It's unbelievable to me.
Because because they I don't know how they dodge this.
Because it's a double whammy with them. It's because they have real predatory monetization and they target kids. And I've always kind of been on the mind that they're just trying to protect children, you know, from this like grotesque monetization. So
They're going after Crytek Mojang?
[laughter]
Mojang as a predatory predatory monetization. Because it's dark because it's dark it's dark patterns. It's dark patterns, Phil.
Sounds like a like a EU rock band. Okay.
[clears throat and laughter]

So, let's talk about the other market. So, this landed early this week. Shoutout to Reem for sending it earlier for us to read through. It shows what's going happening in the market from bankers and especially founders, perspective. Five things. So, let's kick it off. M&A. Nearly $58 billion over 54 deals. And it looks like this massive growth and and things are, you know, getting back together, but Q3 M&A was not $58 billion. It was actually closer to 3 billion because the 55 billion came as a bolted on from EA deal closing. That deal was announced in September 2025 and booked here because of the closing date. And so, if you calculate the 2.8 or close to 3 billion across the 53 deals versus about 4 billion across 51 deals a year ago, it's roughly 30% lower year over year. And that kind of speaks of the valuation going down by a third.

No, actually it doesn't. It's not valuation, it's value. There's a difference between those two.
[laughter]
Well, value It doesn't mean it's the valuation essentially going later down. So, I was jumping the gun because it's what you pay.
What you paid.
Yes. You're correct. Correct as always. Another interesting point is that the public market are mispricing gaming. EA went at about 21 times EBITDA, Blue Tile at 11 times, and Just Play at 15 times EBITDA. Versus the diversified public index was about 9% and then if you look at the other index I was looking it's about 4.4 typically for public gaming company is the EBITDA. So, it essentially shows that the private market is pricing these companies at a much higher level. And I was just left wondering because what is

the private market? The private market is Saudis who are buying and Tencent that is mostly selling. So, like what happens when the Saudi money dries up?
Wait a minute. Wait a minute. Wait a minute. What are you talking about? Like you're saying 21 times EBITDA for EA
Blue Tile was 11 times, and these are private deals. And then when looking at the public deals, so if we look at the market as a whole, it's about nine times diversified public index is the 9X EBITDA. And then when we look at the gaming company EBITDA multiple supplier public company, it is about 4X.
Okay, I don't know what the you're talking about. The fact is that EA went for 21 times EBIT, right? Which is basically a pretty healthy valuation. These private companies, these rinky-dink companies that go for a lower multiple because EA's a valuable asset. And the other companies are not as valuable of an asset. Right? You You pay what it's worth.

So, I'm not really too clear as what you're saying, but whatever. Okay, moving on.
All right, moving on. Let me let me explain it through the public offerings, then maybe it makes sense. It kind of shows that there's opening it's kind of, you know, getting back there, but I don't think there's IPO window. I think the IPO window is shut down. It's full stop. What it shows is we're in a debt market plus SPAC, and whenever there's SPAC coming back, I don't think it's a healthy signal. The other number was saying that the public offerings are up 122% to 1.3 billion. That's debatable. The public offerings are mainly debt because 0.9 out of the 1.3 billion was coming in through debt, and the ones that are announcing their IPO, it was really small. There was a Skyfall, I believe, for 22 million, and then there was a company called PlaySimple. So, that was a 350 million IPO that went down quite poorly. So, essentially, Eric, what I'm trying to ask is like who's the buyer for gaming IPO today? Because it feels like

these buyers have been burned by COVID years.
First of all, there's been no real IPO market for gaming for a long, long time. And there's certainly no market for gaming IPOs now, right? The valuations are horrible and
Yeah.
I mean, [clears throat] the established players like Take-Two, you know, are doing reasonably well, but there's not much left out there. So, that window's got to be closed, you know, once bitten, twice shy.
Those investors are not stupid. So, yeah, no, there is no IPO market.
The IPO market is being dominated by these big AI companies. Like once those go public, we'll see how they do. Maybe it'll open up for other industries, you know, all the unicorns that are out there, but not gaming companies.
Yeah, and and a lot of these smaller markets like Poland was the most active gaming IPO market. I believe they had 18 IPOs in gaming or something like that. Yes, Warsaw Stock Exchange. And also that market is not doing too well. And the companies that IPO'd under those jurisdictions are in a tough position

because it's very hard to delist from those specific stock exchanges and they're kind of held hostage there. So, IPO is not always good as Eric you've been saying multiple times, don't IPO if you're so small. But then again, multiples were crazy, so why not? There's [snorts] a private investment part of this. So, this was public investments and most of that is again, SPACs are coming in, but also debt financing. The private investment part was three times larger and grew to nearly 3 billion. It doesn't say that gaming VCs are back because they're not. The AI infrastructure money is being counted as gaming money. For example, Vast, Meshy, General Intuition, those took 1.2 billion and 2 billion out of the total late stage. Meanwhile, the content rounds are relatively small. I think the largest one was 100 million. The median is about 330 million. And then four of the nine largest content investments went to Turkey. Seed at meantime, so seed is investment into a very early stage

company. Usually they don't have a product. It was a five-year low and UA financing that has been pumped up loudly is shrinking even though it's being called mainstream. It fell for actually from 155 million the first quarter of the year to 63 million in the third quarter and one provider, shout out to PVX, did 15 of the deals, so majority of them and shout out to Jeff Cohen for for pumping up PVX nonstop on LinkedIn. So Phil, if AI tools make games cheaper to build while seed collapses, who builds the next generation of studios?
Um I'm not a VC, dude. I don't know. Eric, you.
[snorts]
You tell me.
Yeah, so if studios are not getting funded and anybody who gets funded is the the content creation picks and shovels type of companies.
Dude, if you're building picks and shovels for gaming, like good luck, right? That's just
[laughter]
That's not a big market, right? General intuitions has nothing to do with gaming at this point, really. They're going

after bigger fish, right? So good luck.
Yeah. Good luck. [laughter] We'll we'll count them in gaming because they have metal, so that's kind of like a gaming streaming platform.
no. But they're But they're not raising money because of metal. They're raising money because they're trying to build like tools to feed AI models.
Yeah, world models, but they're using metal for it and so forth.
I keep saying this and I know every time I say it Alex is like losing her mind, but like they are literally building technology to feed LLMs so robots can kill people in bunkers, right? Like that that's what they're trying to do. Like that is the ultimate way to build technology. I'm not I'm not sure that was the pitch. Because I don't understand exactly where else this is going, right? And so it's like, you know, bunker busters, like drones, like that like could kill people, right? That is the only way that this makes sense because it's the defense department, the ones that are going to be spending all this

money, right?
So
Yeah.
you know
Yeah.
Give me a use case, please. Please share me with a use case that makes [laughter] sense. Like I get it, robotics, but it's going to be like killer robots on the battlefield. This is not like, you know, someone like doing laundry, right? Why would you need all this technology
I mean, I I like I like my laundry robot to be aware of its surroundings, for sure, but
[laughter]
Yeah, you don't need a gazillions of dollars to like figure out how to fold socks, you know?
Eric, hold on. Give me Give me Give me a long-term forecast on this, right? Cuz when I see Google come out with a new studio tools, right? They announced that in the last week.
Yeah, playground.
The advancements over last month in Opus and Claude have really been in 3D animation, like all those multimedia improvements. Everyone just doesn't want to be reduced to an API call because of AI, right? It's just basically gobbling up all these businesses, right? Like when they What is it? The S1 for

Anthropic says like our TAM is like a bajillion dollars.
[laughter]
3 trillion.
Yeah, it's like 80% of GDP. I I I I almost believe them cuz like they can just suck anything into a black hole. Doesn't that mean they can own distribution? Shouldn't we be building in Like where is the AI look forward in any of these deals, right? Like all of these deals should be saying, "Okay, if we're looking at a 5 to 10-year time horizon for investment or dollars we put in now, you have to factor in AI into those forecasts, right?" Does this make our GDP higher?
For games, specifically.
Yes, specifically games.
I mean, I think it reduces the cost of building games, potentially.
It does.
But I really honestly don't think, unless we have a new platforms of distribution, that it will really enable new creators to come onto the market, right? Because if you're building games for the same platforms, which is mobile, and console, and PC, like that market is saturated. Like

we're we're done, right? It is completely saturated right now. And so, all the slop that we're seeing out there does not is not going to help grow our industry, right? Or democratize development, right? The best stuff is going to rise to the top because it is the best stuff, like GTA or Madden or FIFA or whatever. And so, at the end of the day, these tools are irrelevant, right? Unless there are new platforms for distribution, like new ways of actually discovering content, or new types of content that are discoverable, right? And so, this is the thesis, right? That I've been talking about for like last 3 years, you know, since I did that, you know, talk at the London Summit. New platforms have to be coupled with these tools. It's not just the tools that are going to enable it.
Quickly, talking about platforms, Steam is up 14%. Steam is continuously growing, but decelerating, and the deck kind of mislabeled what's driving it. So, concurrent users is stable, the

revenue is going down, the growth is monetization per users, not more users, because the revenue went down while the concurrent players stayed the same. There's also a point that co-op games are leading. Meanwhile, the co-op games, when compared year over year, went up 7%, which is half the market rate. So, they're losing the share because Indies were up 20% during the same segment of time. Again, it's hard to say what is co-op, what is Indie, but, you know, just breaking down the market based on the time that I have here. Sweden was highlighted in this report by growing 32%, but that's essentially two games. Battlefield did 400 $80 million in Steam and Arc Raiders $346 million. And most interesting part was that new IP were winning on PC. War Dogs, which recently just launched, I think they launched last week or two weeks ago, they did $103 million and topped Twitch.

They did $103 million in just the first 10 days of launch. And how to fish, which we I think streamed last episode or the episode before that, sold 11 million units at about $5 each. So, just an interesting thing of how these new IPs are doing so well on Steam. But, it could also be just this quarter. I don't know. What What say you, Eric?
Okay, first of all, what the are they allocating What is this Sweden call out, right? Battlefield 6 was not made by Sweden, right? DICE is like it's like one of like eight different studios, right? So, they don't get credit for that.
DICE HQ is in Sweden.
Only in name. I think it was built out of LA.
Feel the new move to Sweden.
No, no, no, dude. Okay, first of all, I I hate when people like misconstrue this all right? All right, whatever. Okay. [laughter] War Dogs has been a really good successful game. I'll give I'll give it

that for a new IP. Just not a big quarter, right? Wait Wait till the full year numbers and then we'll see what's what, right? Yeah, and we'll see continued pressure on PC because we don't have GTA on PC this holiday. What's really interesting is that there are some rumors or speculation or people familiar with the good that say that the PC skew of GTA is coming out in Q1 of '27. Now, that is hugely departure from history, right? Which means two things. One, they feel like they need to be in on PC in order to get as many people playing as possible, which is is is definitely possible. Also, that means that the I can't imagine that the online would come out before the PC version, right? So, they would have to get the PC version out and then the online comes out later. So, the online might be delayed and that's I think why the stock market stock took a hit, right? Recently. So, anyway, that's really really good news for the PC industry come Q1, but I find it really hard to believe that they would do that.

But, maybe. We'll see if that actually happens. The company never said it.
How will GTA 5 6 be distributed? Is would it be through Steam?
Yes, and Rockstar's own platform. They're probably everywhere, frankly.
Yeah, okay. Cuz it's like weird weird that they would give a slice to Steam.
No, no, they have to.
Last part, mobile in-app purchases down 7% to just 20 billion dollars and less than 20 billion dollars. But then again, part of the decline is that they don't show web shop or in-app ad revenue. So, we know that both are growing.
for inflation. Not adjusted for inflation.
Not not adjusted for inflation, got it. That That would actually bring it down. Yeah.
[laughter]
But let's not talk about inflation for this one. So, that would bring the top line number as being misleading. But, what is not misleading is the installs because there is a real decline. It's declined by a fifth since 2023 and the spent per install since the installs are

declining is is rising. So, that means there's fewer deeper payers with user acquisition economics getting harder and that is a real structural problem that we can see in the top charts and then in the new game launches. Only three out of the top 20 games are under two years old and the in-app purchases top is closed to pretty much new entrants. Turkey is the real outlier here. Their revenue in Turkey is up in-app purchase revenue is up by 17%. They lead in early stage VC deal counts and Rotate Lab actually, which is coming on the podcast, appears among top growing US publishers at this moment. So, another rockstar rocket ship publisher out of Turkey emerging. Chris, what say you on the frozen top charts?
Not much change here. You know, UA's kind of broken. New games are really struggling to get traction except for the Chinese and the Turkish. So, the same old thing.
And the Turks.
Yeah.
What's not same old is Gears of War

E-Day.
Okay, we have the launch of a long-storied franchise, Gears of War. If you guys are familiar with the Gears of War franchise, remember this started with Epic Games. Cliff Bleszinski got his start. Remember they were talking about the chainsaw. They had Unreal Engine as basically a tech demo for this. And then I think it was What was it? Gears of War 3? They transitioned They sold the franchise, the IP to Microsoft. Remember, I think the focus was on Fortnite. And so, the Coalition, which is Microsoft's studio that they specifically set up to build Gears of War, has done what? This is their second entry into the franchise. They have not been producing at the same rate that Epic Games was. This really put a lot of like top-down or 3D shooters on the map. Remember, active reload was one of their key innovation where we would reload with the shoulder buttons, and then if you timed it properly, you would get a boost and it would go quicker. Remember, they had the original simplified cover system where you click A and you go into

a different part of the cover, and then you press A again with your thumbstick or analog stick and you would move to different parts of the cover system. Uh amazing franchise, lots of violence. E-Day is the prequel to the main line franchise, and Microsoft really this one up in terms of just how to mismanage a franchise. Like when we talk about the mismanagement of Microsoft, this is one of the things that goes to the top of the list. And so, this franchise has done well in the latest entry from a Metacritic perspective. I think Eric, you can talk about that a little bit more. From a sales perspective, I don't know how you recover from this. I don't know where you go from here. The Steam numbers are not great. Remember they pulled this off of PlayStation last minute. The Steam PSU or active users based on video game insights estimates was around 100,000 where they had Xbox at around 900,000. And so that gives you a total acquisition of units around 2 million. And so if you sell 2 million units, let's say at an ASP around $45, that's

90 million dollars. That's not nearly enough to make this franchise a success. And so you have to remember when you lose the console war, when you lose install base and you have platform exclusives, you pay a tax twice, right? Because you you lose all the foregone sales from your first-party software, too, if you have a small install platform. And so exclusives become more and more expensive because the opportunity cost is higher and higher. Like they would have I don't know what you think Eric, they would have pushed in terms of unit sales on PlayStation, but like yeah, there's more PlayStations that are active than there are Xboxes. They've just lost the ability to speak to this audience. I actually think there's a lot of things that generate here. I'd love for her to examine the corpse of this franchise and how the coalition just has failed to basically nurture this. I don't know how much more Gears of War we're going to see. I just don't think Microsoft wants to take a swing at whatever the coalition costs to manage this. I don't know Eric, what you think the cost is and what the break even is, but I can't imagine, you know, even 2 million units and maybe it

goes what, eight by its lifetime? Is that is that a success?
This is not good, right? I mean, it was almost an 88 Metacritic game, so it's not like the quality is bad from the perspective of the audience. Perhaps the gameplay is archaic, but I think it's more of a sign that how broken Xbox is, right? It's so bad in terms of the active install base playing this game. You know, if they only can get 2 million units like max, maybe even with Game Pass. I mean, it's unbelievably bad, right? The rumor is it cost almost 400 million dollars to make. Now, that seems freaking high. That seems high.
400 million dollars?
I think it's probably more like 200 to 300 and even there that there just no way close to break even on this game, right? Cuz it's going to be a discount bin in like 2 months, you know.
The inability of Microsoft specifically is to nurture these franchises into the live service era. Like Halo is an arena shooter that they were never able to

evolve or to be able to maintain and make a serious competitor to Call of Duty. And Gears had the horde mode, right? They had a PvE mode that Cliff was starting to around with in Epic Games that was you facing endless hordes of PvE enemies. Remember Star Wars actually had an early version of this? And then they they just have not known what to do with it. They've always had arena-based PvP, which by the way is not enabled right now in the game. You you cannot do PvP in the game right now. They're holding it off. You can only play with four other players against AI enemies. It is ridiculous that you have a launch title that's a premium entry and doesn't have a basic PvP arena. Like what a step back from the franchise. And so they haven't been able to take horde mode and make it what it should, which is the live service extension. You were just talking about co-op, Mishka. Helldivers has given co-op shooters the blueprint to go out and execute on how to get this done and it's time to enlist, right? Gears of War should have enlisted to the Helldivers model and I think again, this is a huge problem Microsoft

needs to solve. They need to hook Master Chief and Marcus up to life support right now.
Yeah, just to be clear. Obviously, this is not on Sharma, right? At all, right? This is like prior leadership that have that have like managed these franchises into the ground. But it's just more of an indication of where Xbox is. I mean, not only are they losing the hardware war dramatically, they basically have lost all their IP that they have. Their biggest IP is no longer valuable, right? This is the biggest challenge that they have in front of them.
Yeah, I just wanted to ask about the Metacritic score because I was reading Bing Gordon, so he's he was a co-founder of EA, and he had a he launched a book recently. So, I was reading the book as he's coming on the podcast, but here's the quote from the book regarding Metacritic. What was more surprising was that for games that scored 80 or higher, which is this game in here, every five points on average would increase unit sales by about 50%. A game with 90 Metacritic score usually sold twice as

many copies as a game in the same category with an 80 Metacritic score. Chris, is this still the formula, or is this an old formula that that Bing is talking about?
very old formula. I can't even really give it any merit anymore because games just don't sell that way anymore. Yeah, I mean, you're always shooting for the highest quality possible, but like Madden and NBA 2K and FIFA have been trading at like the worst Metacritics they've seen in a while. They're very low. It's It's irrelevant for those games, like majority of the games, or Call of Duty even. This is why the the fundamentals are so broken on Xbox is when they announce these things like XP, which by the way, I'm going to talk about this. Like I actually 100% agree with what they're doing. And actually, the leadership they put in there makes total sense. They're not building production studios. They're just basically a licensing house for their IP, and they're centralizing it. So, anyway, XP was announced as a division in Microsoft basically to af- go after film, television, consumer products, strategic partnerships, and

live experiences. Basically, the four pillars, XP Xbox Pictures, Xbox Products, Xbox Places, Xbox Partnerships. Now, it's clear that the consultants got a hold of the word processor, right? Like this is like the most sickening press release I've seen in a in a while, right? Having said that, like I said, this is makes total sense. Like you should have centralized control over this rather than having individual silos managing this right? Because that doesn't work, right? And so this is again part of her whole idea of consolidating operations within Microsoft, and I wholeheartedly agree this. And Karyn Walters is super quality, you know, she's the one that managed the Minecraft movie. Like this makes total sense on paper, right? But the reality of it here is they're just reshuffling the decks on the Titanic right now. Like the problem is that their IP is so broken. What do they actually have to leverage here, right? The Minecraft movie sequel, Fallout series, sure. They have Call of Duty, Warcraft, Gears of War, Candy Crush,

Diablo, Forza, Elder Scrolls, and Halo. Like none of these franchises really extend beyond the core market, right? There's There's no mass market IPs that they can leverage here as a movie or a television or theme park.
Candy Crush Mario Lopez TV show.
Yeah, whatever, right? And again, [snorts] Microsoft has tried this and failed, right? They had the Xbox One TV push, you know, they have the defunct Xbox Entertainment Studios that they closed again in 2014 to cut costs, right? It's like Xbox gamers and gamers in general want you to focus on games, not entertainment. Like this has been a folly of of the industry forever, right? And again, this is not a new strategy. This is a strategy that's been around. This is like a rebrand, right? And you know, the new leadership actually gives it some gravitas, cuz I do think she's a very, very good leader on this. But like they're working on the same projects

they were working on 6 months ago. There was nothing new announced at all, right? And bringing it back to Gears, it's like how can you leverage broken franchises, right? Like how Transmedia can't help with Gears or Halo right now cuz those franchises are irrelevant to the overall market. So, again, they should be fixing franchises, they should be fixing the Xbox platform, which you have not seen jack about. Instead, they're working on step four instead of step one, right? Through three. And this is what's driving me insane about this, right? They're just basically creating Activision 2.0 and that we should see some kind of spin-out of this in the next 6 to 12 months because that's the only thing that makes sense at this point because they are so lost on the hardware and that's why one more data point of that is the fact that this Gears of War games have been a train wreck.
Do you feel that the subscription model that they have, the Xbox Pass, do you feel that that has a significant effect on the sales of their games?
Well, yeah, I mean, it's certainly cannibalizing games and there there was

a way I read that there was a way of like subscribing for a small amount of money and getting access to Gears and then canceling. Like that's been going on for a long time, so that you may see some of that, which is a huge loss leader as well. It is less cannibalization than it used to be. When it was at $10 or $12, that was super cannibalizing, right? But at this level, it's probably not cannibalizing as much.
What do you think it would be like the most important thing for them to do to start fixing the core? Cuz you're saying that they're focusing too much on the fourth step and not the first step. If Matthew Ball, who is a very nice person, chief strategy officer of Xbox, he would say, "Hey Chris, what do you think I should be focusing on right now?" What would you say?
I'm team Sharma right now. I think she's done everything right. I'm just saying that this is like a sign of how bad Xbox is right now in terms of in the marketplace. What Sharma is doing makes total sense if they're spinning this thing out, right? I think they should shut down Xbox, the Xbox platforms, Game Pass, and all that stuff and just become

a publisher, right? And maybe keep the things that they want. I think that's the only step the only way they have. I don't see any way for them to regain share on the console or platform side. So, yes, that's what I want to see. I want to see like a real coherent platform strategy, which is either doubling down or pulling the rip cord, you know, and moving on to be a publisher again.
This episode is sponsored by Moloco. More than 2 billion daily active users, over 2.8 million independent apps globally. That's the reach Moloco ads unlock for performance marketers who don't want to stop at the usual walled gardens. It's all powered by Kara. Moloco's compound AI system continuously learning from billions of events and getting [music] smarter with every campaign. Hop over the walled garden. Check out moloco.com. That's m o l o c o dot com.

Unless you've been living under a rock, you know this is web store rumspringa. 70% of top apps are using a web store, and the best ones, they're doing it with AppCharge. Do you want a $20,000 in-app purchase? Yeah, [music] AppCharge does that. Do you want to pretend that subscriptions are still a viable monetization strategy for games? Yeah, AppCharge even lets you do that. They get what high average revenue per paying customer means, and [music] 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 IAP? Don't accept the microtransactions, embrace macrotransactions. Learn more at appcharge.com.
[music]
Satori. It's the Japanese Zen Buddhist [music] term for sudden enlightenment. That 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 Satori. Real-time experimentation, player-level personalization, events that [music] actually respond to player behavior. Say sayonara to your old live op stack and konnichiwa to Satori from Heroic Labs. Gentlemen, gentlemen, [laughter] the time the time has come to talk about Anitoon. My dear Anitoon who has potentially suffered a fate greater than Ensoi. So, it is out. Remember, this is the game from FunPlus. FunPlus, as you know, mobile developer Asian model making games for the West. They mostly have missed the boat on 4X, but there is some life. So, this is one of two really interesting bets they have right now. They have announced a studio in Portugal, and then this is a studio in China, but this game is dual skew Anitoon. This is for iOS and Android as well as PC Steam. In

the wake of Palworld, is there room for another creature collector like this? There's one more that's come out called Rocko Kingdom, which is just available in China, which is the Tencent equivalent. The art is nowhere near as good as it is in Anitoon. And just to give you like a general idea of what the core loop is like, you are playing a trainer, and as a trainer, you will capture Anitoons, which are the Pokémon-like characters. And one of the things you can do is you can twine with your Anitoon, and you become that character, and then you do some light action RPG mechanics. The game has you venture to different regions. Different regions have different Anitoons. There's loops in each of the regions. And one of the things that really drives a lot of the game, particularly when we have the conversation about monetization, is that you have the certain amount of energy cap that you get and the energy cap is basically your ability to defeat the bosses at each of the regions and defeating those bosses repeatedly gives you really rare drops

to Anemos that have specific stat profiles. The game is incredibly Asian. There's no doubt about it. I mean, we can talk about all of the loops. I mean, the economy is incredibly deep. It's exactly what you'd expect. It is not your traditional squad RPG gotcha. I want to make that very clear. The way they do monetization is far But before we do, let's at least talk about some early numbers for this game to see whether or not we should give a because the performance has been rather confusing.
The launch was impressive. I remember that.
The confusing part about the launch right now is remember it was live on Steam. You have a PlayStation launch and then you have mobile. Mobile's in a very strange place in that it's doing maybe half or less of the total platform share.
Mhm.
I'm not quite sure what's going on with downloads. Remember this game had some closed betas, but they never really did a soft launch period. So I'm sure it's hard to figure out what your LTV is. So

really what are you buying traffic against? I think becomes a very strange proposition whereas Steam and PlayStation is almost all organic, right? And so we see some decent numbers for DAU. You take Steam, let's say it's around 300,000 DAU and you do PlayStation around 300,000 DAU and I give it a very very generous, let's say 75 cent although I think you want to get this closer to 30 cent ARPDAU. That gets you around 100 to 200 million dollar run rate before you factor in mobile. I still don't think that's enough and I don't think that's where they want to be. The thing that they've had going for them is that DAU has not come off a cliff. Like this is not your traditional pop and drop game and so there's seems to be some life. The question really is just like what's going to happen to mobile? Is mobile going to be a platform that they can rely on and will generate, you know, half or more of revenue or is this just going to be like a Steam darling? The thing I will say that they have going for them is they've attracted more than just an Asian audience despite the mechanics. Mobile on the United States is 12% of downloads which I think is is something. France and Brazil, remember those are the anime countries,

they also do 5 and 7% each. These steam players also the most dominant country right now is the United States. I think that's not irrelevant. Let's see how this game performs. It's not certainly over for it. I think this is a decent base to grow. Mobile needs to be figured out ASAP. Steam looks like it's going to hold. $200 run rate sounds pretty good. Like of course it's not that's a very generous estimate. That's a very generous. I mean I would say we're closer to 100. That's a number. Completely based on what the data shows. Under 100 under 100 we know it's my snuts. Chris is going to put an X on it. Look, the monetization seems very very low. 300.3 million downloads and only 4 million in revenue. And then revenue continues to decline so the golden cohorts aren't sticking around, right? And so it's not stacking. That's always a bad bad juju. So as downloads continue to deteriorate revenue is is falling as well. So that does not look good. It's a beautiful game. I'm just like

I'm not sure this really has the monetization hooks that Genshin has or other games like it. So have you anyone played it longer than a few days? Cuz I only played a couple days. I'm I'm a week in and intermediate immediately over the last week. There's no there's no direct gotcha, right? It's not like you have your traditional gotcha pulls like you do with Genshin. You have this prime energy that refills on a schedule. And remember that is what's going to give you potentially the ability to get perfect catches. You can use the energy to to buy things and they also are going to squeeze you on your promotions for the different characters. So they have your traditional limit break system where you have soft currency and then you have some expeditious stones that you need to be able to level up and then once you get enough stones you need at the latter stages you need these specific currencies. So like they have your general array of currencies you need to continue to level up your Nemos, right? And you want to continue to level up your Nemos cuz they get better stats

which means they can evolve they have all these different forms. Like they have some monetization around the Nemo life cycle like raising that that Nemo has a monetization element but there's no direct gacha except for cosmetics which no one gives a about. And so I'm just I I am I'm with you Eric. I'm confused on what you want to do with this game to monetize it because I don't think you can do direct creature gacha which I think undercuts the loop. Like it's about Pokémon, right? You're going out and you're throwing Poké Balls. They do monetize some of the Poké Balls but like there has to be a better monetization answer than just
Why would FunPlus why would FunPlus of all companies shy away from the obvious model on this? Like why don't they just do gacha upgrade Evo? I mean they're like
They got spooked by EU.
I do wonder if there is some tremblings of some changes in Chinese monetization expectations. Now if you could start to read some of that.
What do you mean by that?
Just like less aggressive less relationship between payment and progression versus straight power.

What you talking about dude? All the all the four all the four X games are worse than ever dude.
Yeah but yeah but on the HD side on the HD side.
Oh I don't know dude. Like Marvel Rivals?
Yes.
First of all and why wouldn't they have a beta for mobile? Like that's the easiest test in the world to figure out if your monetization is good.
soft launch.
Oh. Why would they do that? I got to talk to Chris. They're not doing the obvious things like they really want to innovate on ways things that you shouldn't be even innovating on at this stage of the game, you know?
Uh so where are the dark patterns? That's what you're really asking.
Yeah, well
[laughter]
I think Eric, I think that's one thing. The other thing that's important is like, what are the two countries that dominate 70% of Pokémon revenue for basically every Pokémon product?
Japan and US?
Yes. It is like, besides baseball, it is what unites us. Is our love for these damn creatures. Same thing with Palworld, remember that came out of

Japan, that didn't come out of China. To not build this in such a way that it was extremely approachable for the West confuses me. Like, I feel like there's something here that could appeal to the West. When you play this economy, I mean, it looks like a Black Desert Online. It looks It's a hardcore Eastern MMO.
I've been playing Aion 2 and dude, the complexity on that game in terms of your upgrade It's like, you have to learn You have to like study the game and get a PhD in Aion 2 to understand how to progress in the game. It's like crazy, you know? And so, anyway, I This seems more complex, particularly for a mobile game, than is necessary.
Do you know what the real challenge is going to be, Eric? Is what the next month looks like for this game, because those 3D worlds are expensive, right? And they have 3D puzzles like Genshin has in the world map. Like, a new world, which they've already announced, I think, dropping this month, like a new section, a new region. I can only imagine the cost profile.
We need to like express this. I mean, this thing cost at least even though it

was made in China and would probably relatively cheap to
compared to US standards.
I mean, it's easy 100 million, 150 million. Like, that's the type of minimum. Like, so like, the the bar is high, right? And they're not even close to it, you know? And this is mobile. Well, I guess it's mobile and PC, but it is beautiful game. Like, I mean, it is
it's the creature design is incredible. And I just want to The whole thing. I guess the Sorry, the rant here is like, why would you with monetization when you're building such a beautiful game? Like you're building a contemporary huge game that is like I just don't I don't know why you wouldn't do upgrade Evo gotcha.
you have to get through the core loop of the game, right? So what happens in an Anemo? You battle Anemos and you throw Anemo pods or Poké Balls to capture them. If you have direct gotcha, you're shortcutting that loop in a way that I think is meaningful. And again, they do try to sell you some of the Anem Anema pods.
I think that is a distraction just to

say, "Oh, you didn't have direct gotcha, you it up. Therefore, monetization's fucked."
I I think the up is not building this in a more approachable way for the West to basically capture the Pokémon inside of Japan and the United States.
Basically because of the nature of this Pokémon style game, you can't replicate what Genshin does.
If you're talking about trying to reach Genshin average revenue per monetization numbers, no, I don't think that's possible, man. That's like a once-in-a-lifetime. Come on, man. That's not realistic.
[snorts]
Come on.
Get Get Genshin's like a a meteorite. Like that that that thing that thing like reshaped the market. I just don't think that's realistic to benchmark against.
And even the games from Hoyoverse after Genshin did not repeat the success. Like we we saw a lot about a bunch of cannibalization.
Look, let's let's see what the content treadmill is like. There's some really cool innovation in this game that I want to talk about at some point. Like they have alternate forms, they have branching Anemo evolutions. If you catch Anemos at certain times, you get certain variants.

Like if it's thundering out, you might get like a thundering sheep. Like a lot of that is really cool systems design. Twining? I don't know, Eric, if you played this. Like the action RPG works really well. Oh, that was the one thing I didn't mention. There's a whole home automation loop. I don't know if you got into that, where your Anemos can be assigned to complete idle tasks.
Yeah, yeah, yeah.
Maybe I'm going to play this game a few more but I'm just so knee-deep in these MMOs and I got to
[laughter]
pull my head out of my ass. I got to take my head out of my ass.
Folks, the darkest hour is just before the dawn. So, I think on that notion, we can end this episode. See you at the events in Cyprus in a couple of weeks. We're out.
Later.
You did it. You made it to the end of the episode. As a fan of the show, it would help us out if you'd subscribe and leave us a review on the podcast service of your choice. Those stars and likes, while a small

action your part, mean a lot to us and help to grow the show. More importantly, are you a member of the Deconstructor of Fun Slack group? If you have 5 years or more of games industry experience, go to deconstructoroffun.com/slack and apply to join. Join the games industry's best professional community filled with peers always willing to lend a hand, or subscribe to our newsletter to get all the latest insights from the Deconstructor of Fun content creators. Thanks for listening.