What Was Left Unsaid by Playtika’s Proposal and Jam City’s Exits? - Naavik Gaming Podcast

[Music] the important part about the character design over here is that the gorillas don't have legs so you basically have to just use your you have to use your hands to move like for a moment I thought you were talking about real life and my brain is like what gorillas don't have legs [Music] hi everyone welcome to the navig gaming Round Table this is a one podcast to stay off the day with all the latest game business news and today I'm joined by Emma Manu Kumar co-founder of navic and Matt Diane lead product manager at EA and also content contributor at navic hello hello hello man good to be back yes good to see you money yeah it's been been a bit

um after the after the Christmas episode um yeah this is uh I was telling you guys yeah my first more serious topic episode in a bit so let's see how it goes my your Corey are they how are they doing they're doing well so we have two corgis and they're both fresh out of the groomers so they are very floofy right now uh so yeah good times good times if I walk in the room can you show them uh I will I don't think they will this podcasting time so they're probably not going to come disturb us but I do have a cat in my lap also so there's that wow all the animals um yeah before we kick off into the episode I also want to wish everyone a happy belated Lunar New Year uh if you celebrate it over the weekend I hope you had a lot of good time and today we're going to be covering quite a lot of grounds we'll be discussing gem City's former leadership uh that's founding play Labs playtika's proposal to acquire Rovio gorilla tag VR

and much more including a spicy take on Esports so this is very quickly to Mark the occasion that uh blizzard games is no longer available in mainland China so earlier this week the publishing contract with netease expired and now the games are no longer available except the album mortal because that's covered by a separate contract with netease lizards share that they're in talks with another publisher but that deal is not finished even when it's finished they still have to wait for the licensing to be awarded and also to clear the air though my prediction was completely wrong that perhaps if the acquisition of Activision Blizzard went through with Microsoft that maybe they'd work again with netease for the publishing but considering the very public relationship breakdown breakdown between the two companies I don't see how that could happen um yeah just a quick question to the two of you do you think that the games now the not being available for an

indeterminate amount of time in mainland China do you think that's going to hurt Activision Blizzard's performance significantly uh significantly I don't know I mean it's certainly a meaningful chunk of Revenue but you have to think that this um this scenario was accounted for in the negotiations right in the breakup uh so I'm assuming that they plan for some downtime yeah I'd agree I mean I think um I mean China is definitely you know a big market for uh for uh activation blizzard so yeah it must be must have been accounted forum though um the other question that I have is what what was the whole um what was the whole thing with uh netizer's response to Activision Blizzard and you know all of that drama and I I didn't I didn't read that but what is the whole drama about I think we can just cover it we can

classify it as a public breakdown and a tip for TA in terms of public homes okay okay difference of opinion a difference of opinion so is is is is like the neti's response like what they read uh or um I think it is if you like spicy spicy I guess okay all right I wouldn't call it you know very business informative yeah um you have a business informative update for us Manu yeah um so yeah I guess a quick update from my side is uh Carey first so they just announced a pre-series b round of 27 million and there's a company that um you know they started back in 2018 uh three-person co-founding Team all from you know um more of the on the finance side of things so from Morgan Stanley and um one

other banking entity um and and yeah they kind of you know wanted to jump into uh games because they uh just saw Africa as a market that can be a pretty big growth Market uh for mobile gaming in the future so yeah over multiple rounds they've raised about like 57 million um and yeah like I said the most recent round was this 27 million pre-series B and and yeah we're I'm actually writing this big navic Pro uh essay about you know just kind of breaking down the African mobile gaming market and what kind of Tailwinds that market is actually seeing um you know is it is it fertile uh ground um including in you know the Sahara region uh for you know Mobile gaming and stuff um and and then yeah kind of breaking down further you know uh how carry first

has performed but in general like guy first guy first has like this multi-pronged strategy to you know approach the market um in like this one 2020 uh podcast episode with the CEO he can he mentioned the mission of the company um and you know how they want to execute on it which basically involves acquiring and developing developing and Publishing mobile games as one or one or two parts of it uh the third part is like licensing licensing third-party games and then the fourth part is um sometimes acquiring games to essentially like help them improve and relaunch and and they would relaunch it and kind of publish it at scale so the good news with Kai first is they've kind of you know since 2018 they've kind of made like um progress on each of these strategies simultaneously and along the way they've learned also probably the strategy that's working the best for them is the

licensing third-party game stuff so they're kind of taking this like C limited approach of becoming the local publishing partner for big titles so they um for example Call of Duty mobile like recently opened South African servers in collaboration with Gary first and you can immediately just see like the you know the downloads in the Au Spike uh after that point so they're like some interesting results and then in 2023 they're gonna like play out this um partnership with Riot games where they are um you know becoming their local payment partner and that's where like this pay First Technology comes uh comes into play it's probably that whole pay First Technology that's you know that gets me the most excited about this company and also kind of explains why you know someone like Convoy Ventures um was an early backer of this company but that paper is highly localized payment infrastructure that is mobile first in a country where you know a lot

of people are coming online through smartphones like something like 90 plus it makes a lot of sense and there are a lot of parallels to you know how India uh kind of saw its Mobile gaming Market flourish uh you know with the launch of Reliance jio in 2015 um and you know just like localized payment infrastructure that was mobile first so lots of parallels over there and and yeah in general a very interesting company um and yeah congratulations to them for you know the new race and yeah pretty excited to see uh what they'll what they'll be doing going head yeah and especially all the right games uh partnership plays out I'm looking forward to reading your article on mavic Pro because it's a Mark it's a gaming Market that doesn't get a lot of reporting and attention and so I'm I'm Keen to learn from it and you know oh generally the African continent was way ahead of way ahead in terms of Mobile

Banking as the primary way to make these transactions way before you know digital Banks were fought in in Europe and so yeah it's very interested to to learn more about that um I I think also a lot of the audience gets locked out because the platforms don't have like the payment options that are aligned with their I don't know most used local options and how their banking works and so yeah I think that payment that payment section is extremely interesting to the growth of mobile games yeah the the payment the pay for this technology is probably like their you know one of the strongest like scale vectors uh that they have which can not only be applied to Mobile gaming but even outside of that you know in general to apps uh they could kind of extend that business line too but yeah I would say that uh Gathering a lot of uh gaming data on Africa was actually pretty hard it was very surprising to see the lack of data on that

um it was I was quite lucky that okay you know Carrie first in collaboration with musu you know did like a study of some of the you know Market metrics and stuff um of course there would be like some vested interests over there so maybe the numbers look a little bit Rosy but but still it was it was a good Anchor Point yeah I think we're missing almost a company like Nico Partners does great covering in terms of data and Analysis of the Asian gaming market and we're missing a company that's doing that for the African Market yeah generally it's still like I would still say it's a pretty small Market you know relatively but moving in the right direction and so the last update of today before we dive into the discussion topics is The Last of Us uh Siri driving some game sales so in the last round table Aaron wanted to do a shout out to the the high quality of the debut episode of the series and um the level of Engagement that achieved

and I think looking at the evidence of the game so the impact that I had on the game sales of Last of Us is just yet another for yet another evidence of just a correlation between having a high quality transmedia strategy having a strong IP that people already have a connection with due to gaming and then how it impacts the the game sales it's almost as if it prolongs A Game's life cycle and we saw this with cyberpunk we saw this with The Witcher game as well so the numbers is that the last of us part one which is the PS5 version it had a 238 spike in sales week on week with that debut episode and the PS4 version of the game which is The Last of Us remastered had a 322 sales Spike Matt take us away what's happening in the city of jam the gym okay so um yeah quick update uh maybe not quick update but uh news from Jam City and a new Venture called play Labs so I'm

going to talk a little bit about the announcement of this new company and what it means for Jam City but before we get into it uh just a bit of disclosure in the interest of transparency I'm probably going to be a little bit critical and ask some questions but you should know I used to work at gym City for about a year um and it's been a while I was there 2019 to 2020 so it's been a long time since I've been there but just in the interest of full disclosure um that is sort of my bias coming into this um so we're gonna get some uh good Insider information I don't think I have any insight information actually you know as much as I would like to say that I do unfortunately I don't and what you know what minuscule um Equity that I have in Jam City is not going to be impacted by this one way or another so I really don't have a horse in this race but I do have some opinions which we'll get into um so the news there was kind of two two parts to this the first little bit that came out was that um the CEO and CTO of Jam City were

stepping aside and at first it wasn't announced why they were they're moving Josh iguato who is the CEO and co-founder of Jam City into the CEO position okay and then it later came out that the reason the CEO Krista wolf and CTO abrah Whitcomb left the company was to go start this new Venture called play labs and play Labs uh raised 32 million dollars in seed funding uh led by Andreessen Horowitz um and play Labs is I'm quoting here from the a16z piece they're focused on building the next generation of social platforms leveraging Ai and web3 and they are creating a new platform for users to play Talk battle trade and adventure together they're also building I'm still quoting here they're also building an AI protocol platform which will help with everything from user generated content to matchmaking to 2D

to 3D asset rendering so very ambitious very much of the moment with AI and web3 um and you know two very experienced Founders right so Chris and Aber they were also former Myspace Founders and of course they were founders of Jam City so two very successful Ventures for them two very successful entrepreneurs and completely understandable why they would attract such interest from a venture capital firm um so it's it's an interesting Venture um the connection to Jam City here outside of you know the people involved is that they are taking a game called Champions Ascension which was Jam City's first foray into web 3 gaming with them and the blockchain gaming division from Jam City which was about 50 people uh according to the uh Venture beat article that I was reading um now uh as for Jam City uh as I mentioned

Josh iguato is going to take over a CEO these are really experienced entertainment industry executive having worked um for major entertainment firms outside of gaming in the past uh I've met him I've spoken to his very nice guy and and very very experienced very competent so I'm sure he's going to do a great job um and uh also um on the board side of things uh uh sung Wan Lee who is the former chairman of Jam City is now moving into the executive chairman role he is also the president of net marble and why that's important is that net marble is the majority owner of Jam City so just some commentary from uh Josh iguato he said that GM city is not likely to continue investing in blockchain games in the coming year so it sort of made sense to spin out uh Champions Ascension but that they may revisit blockchain gaming in the future uh it's just that it's not the right time for them and when you look back at the last let's say 12 to 18 months of

Jam City uh we can sort of see why they arrived at that decision um so you know back in all the way back in September of 2021 Jam City uh had raised 350 million to acquire ludia this was following a failed attempt to go public via a SPAC um they ended up acquiring ludia which has Jurassic world alive and a couple of other games and sort of expanded their presence uh meaningfully there but then uh they also went through a round of layoffs around four to five months ago which I think is interesting given that in the vegetable article um they were quoted as saying that they'd been planning this move the play Labs move for the last six months and then the layoffs happened four to five months ago um which amounted to roughly 17 of the workforce and that was estimated around 150 to 200 people which is Meaningful it was across the organization I guess my

question would be like um what does that mean for gmcd moving forward like what are their prospects I know that they talked in the article about some games they have coming out they're doing a DC uh uh superheroes game um seems like they're moving away from web3 uh do we think that maybe let's just talk about Jam City first before you get to play Labs do we think that maybe net marble is going to step in here and and take a bigger role in Jam cities um Direction moving forward what do you all think about that aspect of the story I think uh probably like this person moving into the executive chairman position is more to um more to kind of like help support the new CEO as he kind of you know steps into his new shoes um I think usually like when at least in other companies what I've seen is you know if if there's a new CEO the old CEO does kind of move into this like chairman position to you know help uh train and like complete the transition

and things so maybe that's the case over here better net marble like plays a greater role and such um I don't know I personally haven't even looked into uh what Jam cities you know General revenues and general trajectory even is looking like these days um I don't know if you have Matt uh I haven't looked at the numbers in preparation for this article but my sort of General understanding is that um it hasn't they haven't you know had any major hits recently I think their last big hit would have been uh Harry Potter maybe uh which was several years ago at this point or maybe um Disney Emoji Blitz is a very successful game for them as well um but you know they had um they had a game called uh wild things which ended up um after uh a bit of back and forth ended up on the Netflix platform um and they had uh they had a I think they had a couple of other games that were sort of canceled or rejiggered in

some way um so yeah I think they're also like pretty like public about you know the whole idea phase stuff affecting that portfolio and like generally things being in Decline and then they had to like rebuild a lot of internal marketing Tech to kind of get things back on track and they're probably at that point right now um I don't know my gut says it's it's not going to uh change anything with net marble um I guess the old CEO and CTO just want to focus you know and um instead of like Chris uh you know mentoring um the new CEO Josh he just wants to like focus on the new startup maybe and that's where they're getting like support from that Marvel leadership um I'm I don't know but again I haven't like looked into Jam cities like performance as a company and whether they really need any extra guidance you know from from that Marvel I think it's a trend we've been seeing

just across the mobile the mobile space that you have to focus you have to find how to make it work with ATT and how that affects how you design the new games and especially with blockchain cooling down and before I think initially with a hype train it seemed yeah if you make web free games there's this whole new market and you can make these amazing games uh people want to come in and play and you know play to earn and I think there's just been a realization that actually making a web 3 game is extremely hard you need different talent in the company um think about games in a different way and so I I don't I can only assume that maybe there was also there's some kind of disagreement of the direction of the company that perhaps you have someone in leadership that is extremely passionate about being in the bleeding edge and exploring new markets whilst other parts of the company want to stay focused and I think overall it seems like everyone might be getting a good deal out of this you have people want to

be working Leading Edge on the bleeding edge pursuing that and Jam City gets to refocus and figure out okay how do you do mobile free to play Within the ATT space probably oh yeah sorry go ahead I have a competing theory on that um yeah I do as well okay yeah maybe maybe my maybe we have the same one um uh my feeling is um so Jam City did want to go public right at some point um and then that ended up like not going through but that doesn't mean they don't want to do that going ahead into the future maybe that is you know still on the cards but there's no reason like why Jam City could not have just incubated a blockchain gaming team with you know Chris and the CTO like really focusing on that team all internally in Jam City apart from the reason that you know if they have like these bigger plans of going public and stuff maybe

Jam City just did not want to get into any kind of regulatory hassle that will come with having like a blockchain you know department or you know just any kind of like crypto connect and stuff um and that Marvel nightmarvel is like based in South Korea which has a pretty you know active blockchain gaming scene maybe there was like advice from there that was um you know given to Jam City that if you have like you know bigger plans then maybe it's better you can like spin spin this hour well I I'll disagree with with a a couple of points that both of you made one is that like there's no reason money you said there's no reason they couldn't just incubate um uh I mean I think they tried that um With Champions Ascension um I don't know it's it's difficult to say how successful or not it was because the game isn't live yet but um it's sort of like a kind of an innovator's dilemma in a way like it's difficult for a company that's very focused on casual match three puzzle

games and narrative games and you know parlor casino games to go then do a web three game uh that's you know not only a new set of Technologies and a different audience but also it's like a from what I understand it's kind of like a fighting slash midcore hardcore game um so also a different like design space entirely let's say um so I think it's turning out to be a full-fledged MMORPG yeah yeah so very different right from um let's say uh cookie jams I think is better yeah um and and then the other other thing I would disagree with that you mentioned Maria was that it was a good outcome for everyone um I think if I was an employee of Jam City especially one that was laid off four months ago I would think that this is not a good outcome for everyone um and you know maybe I just don't have all the information here um this is where I'm going to be a little bit critical but like you know they they said that they've been working on this

spin-off this deal for about six months which means that the leadership of the company that went to go do this Venture have been working on this idea this this new platform whatever it is uh funded by GM City and the employees of Jam City are essentially supporting this endeavor which they now have no interest in right like if you know GMC is a private company um and they offer you know um share-based compensation as part of their compensation packages but if I have a bunch of Jam City shares I have no interest in play Labs now right um so I'm sure that there's there's lots of information that I don't have available that's you know maybe there was some uh compensation as part of the spin-off that Jam City gets some um share of play Labs or there's some funding that goes back to GM City or I don't know I'm speculating at this point but um to me I would think that if I was

sort of um working really hard on some casual puzzle games at Jam City and I see that the execs are working on some completely different project that will have no bearing on the future of Jam City I don't know I would feel a little bit conflicted about that to be clear like I'm not criticizing the founders of play Labs like go pursue it it seems like a really interesting opportunity I'm not going to begrudge anyone for you know being an entrepreneur and trying something new I think it's it's awesome I'm excited to see what they build I just think that the Optics are a little bit weird um and that if I was an employee of gym city which I am not but I if I was I would be a little bit um conflicted let's say yeah so there's there's like a there's a cultural uh angle that that's interesting I think I also agree with that um there could be like this potential you know regulatory angle something one third angle that I just thought of based on something you said like Jam City was actually funding everything right and right

and then I mean it is like a pretty experimental thing and you know if Chris um I mean basically now they had to raise like 32 million you know for this like experimental thing and they'll probably be like future funding rounds that are coming up you know was it in Jam City's best interest to continue funding all of that maybe yeah a spin-off would actually be like you know uh and they also laid off 150 plus employees yes during that time span that they were building up this new idea yeah I seem to remember that at least looking at LinkedIn some people during those layouts or working on Champions Ascension when when that happened and yeah I I want to apologize I was quite insensitive of me to say everyone got a good deal out of this I definitely didn't consider the the layoffs they definitely didn't get a good deal out of this change and so one thing that I get fully comprehend like 32 million seed round is this the economic downturn 2023

it's a big round right um I you know I mean yes we're in a bit of a downturn from a macro perspective but uh Andreessen Horowitz has you know plenty of dry powder right um that they need to deploy at some point I I didn't see I did not see in the play Labs announcement whether it came from a16z crypto or from the games fund it looked like the people who wrote the announcement were from both funds so I don't know if it was like a mix of funds or one or the other so I can't say one or another but both of them are very large funds let's let's say that but I mean this is this is exactly the kind of team that you know VCS are looking for in this market at least so um so yeah from that angle 32 million I don't know maybe even feels a little bit smaller maybe it could have been a little bit more yeah I mean AI web three it's they got all the they have it I mean those words all of it at

once yeah yeah you remember you remember uh pleco is a 100 million yeah was it was it a seat around 100 million or something yeah I'd have to check I think that's right when when was it that was crazy that was like yeah two three years back uh let me check yeah it was 100 100 million series a at a one zillion dollar evaluation okay so you say it gets still better that was 2020 by the way that was September of 2020. continuing on a very spicy topic today we have now play Tikka and Rovio well taitika's proposal to acquire Rovio so so yeah basically what happened is um I don't know maybe a couple of days back few days back um platika announced that an acquisition offer to roview um at a 60 premium of what their market

cap was at that point so yeah feels like like a 750 to 800 million uh deal um they did make um so this offer basically happened at uh 9.05 euro per share price but they did make one offer also back in November to review which happened at the 8.50 Euro price so this was like a 6.5 increase on that initial offer of course this was like huge news everyone you know uh I I guess the fire emoji on you know the share link of this across different slacks I mean yeah the fire Emoji was there everywhere so everyone is uh you know quite quite excited shocked at the same time and kind of trying to make sense of it but yeah I don't know where where should we start um tell me your spicy take I want to hear your spiciness okay I guess

um I guess my overall take on this deal is playtika really needs it bad and Rovio probably doesn't so and I try to like you know just uh like through this analysis or you know through this talk and trying to basically trying to like explain okay why that might be the case so yeah so just kind of starting off with you know a little bit of how platika has reached this position um so they went public in Jan 2021 um file for IPO then you know raised 1.9 billion um and had like an opening price of like 33 USD versus their Target price of 22. IPO went super well two years later that happened in Jan 2021 so now we're in Jan 2023 two years later the stock is down uh you know about 50 from the 52-week high basically

you know things are tanking pretty bad uh at playpica um and then and then in Feb 2022 uh they also I mean this was they kind of saw this coming right so in Feb 2022 they also kind of announced you know they're exploring strategic um Alternatives or options which includes like getting acquired or merging with another entity and that's when this private Equity company called um Joffrey Capital uh wanted to end up purchasing uh you know I think about 25 of a stake in playthika I recently learned that whole deal actually fell through in December 2022 and um Joffrey capitals you know one of their founding Partners uh James Liu he stepped down from the board of playthika and he wrote this letter uh to them saying basically saying that it it's uh you know Play Because organization has deficient

corporate management capabilities um you know uh various conflicts of of Interest across the board and you know just general communication failures and yeah yeah you know in a nutshell he wasn't really impressed during his time there and essentially Joffrey Capital also is kind of out basically platika really needs to re-strategize and they desperately need a turnaround strategy very high level like you know I I won't like code too many numbers over here but maybe just like talk about the reason the more like trending stuff um very high level Revenue growth for playtika is slowing um that ebitda is also dropping um they do have like about like 30 to 35 margins which is which is quite good but but still it is it is kind of uh you know flat boot dropping do you use on top of that all are also like you know continuing to drop

um and you know if you read their monetizing metrics uh in in um in the in the earning reports you'll see like all the monetization metrics are going up but everyone also kind of knows like when your Deus are dropping on a portfolio that is majorly dominated by like very old Casino titles and very old casual titles it just means like your payer Community is becoming more concentrated right so generally not not a great sign all of that kind of means that is really kind of surviving on a very very aging portfolio which will only like move closer and closer towards sun setting over time and therefore organic growth for platika which is essentially new game development is really really important and they're they're Acquisitions have not been performing as expected with Rita coherent yep so was it seriously the studio that close yep seriously close they did the redecor

acquisition or reworks they also acquired buga um but I mean they did all these Acquisitions in hopes of you know uh these Studios once they get acquired they will play Tikka will kind of plug those Studios games into playtika's code loop of the business uh and you know and then it would like start generating more profits and then they would reinvest those profits into new game development through the newly acquired Studios none of that none of that ended up happening so I mean basically the whole of playthika across all the required Studios and internal uh game development houses haven't been able to release a hit since 2017. it's it's just been way too long so yeah and it's so so hard to untangle because you know it might not be the acquired Studios issue and this in this process seems like a complicated relationship with playtika I've I'm not too aware of that but from the outside

looking in that that's the pattern that seems to be going on yeah potentially it could be like for whatever reason but ultimately needs to like move towards a younger portfolio you know uh just kind of being in this old portfolio of slots games uh primarily like making a 50 of their revenue and other casual games like and it's basically two games solitaire Grand Harvest and June's Journey which makes up most of the other 50 it's it's in a pretty precarious position um so money any of that point about uh moving to a younger portfolio has playtika said anything about why they're targeting Rovio because that seems like the opposite of young they were like one of the earliest games earliest companies to Mobile gaming you know they started out with like premium mobile games so Angry Birds is like you know quite an old franchise um have they said anything about why Rovio specifically so platika hasn't like specifically said anything about Rovio but I think one can

kind of infer it just looking at you know row viewers current performance and also like future plans basically um platika kind of has like three I'll get back to the Rovio point but platika just has like three parts uh in my mind um they also had like a fourth part path with the whole Joffrey Capital thing but that's you know out you know so the first part is you know just active portfolio diversification and organic growth which means um you know that current portfolio like really juicing that in terms of live Ops and such and then you know continue to grow revenues from that it is working for a portion of the portfolio which might be their older titles but you know the reworks acquisition 600 million that game has been tanking ever since that acquisition happened so something is off in you know playthika's um I don't know what they I forgot what the name of their platform or the playdica Boost platform I think it's called um

and that kind of you know uh is is their live Ops engine so there's some cracks in that whole core Loop of playthika the other second path path is new game development and organic growth but yeah like I mentioned no new games from you know platika's ecosystem since 2017 switchcraft from Google you know maybe it was like one of the big bets but that's also not really performed well and I don't know I really don't know what's happening to it now but yeah also in like you know playtika's presentations and stuff they just never mention how many new games they're working on so it maybe just communicates a little bit like how important they find that you know a little bit so the new games pipeline is just not mentioned anywhere and then part three is m a right um which they have been doing ever you know for like the past few years but

even even in the m a um even in the M A Part first of all playthika has some pretty heavy depth so they have about 2.5 billion uh in that 20 25 to about 30 of their operating profits are actually paid back as interest to this debt so that's that that's like a pretty like meaningful chunk of going uh of operating profits going back into interest payments they currently have about like 1.2 billion in cash um and just compare that with like the all cash deal to Rovio that's 67 of that you know cash and cash equivalence uh so if they if they get Rovio they're basically left at like 33 percent of their you know cash and cash equivalents so in general like even the whole m a path for uh for a Target as big as Rubio also feels a little bit um off yeah on the cash run because I

think Rovio is famously known to have a really good cash cash balance when you acquire the company you also get the I don't know like the cash percentage of the company right yeah so perhaps that's their assumption is they'll plug the hole because Rovio has really Health cash balance yeah I think Rovio is like at about uh 200 million um so it it will yeah a little bit it might plug it but not really make it up in whole um but oh yeah one one other point about the whole m a path plate so this was like an all-cash deal right to review and I I guess the reason it's an all-cash deal is because like nobody wants platypus talk at the moment yeah so uh so it's it's kind of like I mean I guess play these guys kind of like backed itself into a little bit of a corner

over here where you know their stock is uh kind of down the drain they can't really use that as you know a financial lever they do have the cash but they can't I mean if they spend 67 percent of their cash on a review acquisition that's like you know not even shooting yourself into the you know into the foot but you're cutting off your leg entirely uh and uh and yeah they have like this heavy depth and they it wouldn't make sense to raise more debt to fuel any acquisition uh because they're paying a lot of their operating profits as interest anyway so platika is in a corner can I ask a question yeah or just one comment is it is it like relatively clear to you guys like why they need why they need this well this is why I want to put it across because I'm not sure if I'm understanding understanding it correctly so from everything you said well I'm concluding is that platika has a lot of debt and they're struggling to find the next hit game

from what we've seen in the mobile gaming ecosystem companies not relied on centralizing their games with like this live Ops um UA platform they're struggling because ATT really created some chaos in how it was operating now we look at Rovio and Rovio is a profitable company it has shown stability it has great great cash flow undervalued company an IP like essentially acquiring Rovio is almost just a secure cash flow that you get into your company Romeo has like all the cards in its hand like if Rojo is not like seeing this like they can they can kind of like Define the price I feel to play Tikka for all of them because of all the points that you said right now so I'm understanding correctly that this this proposal to acquire Rovio is to get their stable cash flow to keep funding playtika trying to rejuvenate their portfolio and move away from

underperforming genres I think I think I think it's maybe less the cash flow is definitely a part of it I think it's more about just acquiring a stable business that has shown consistent stability and growth over time even though that consists even though that growth is not like you know exponential or anything like that it's just it's stable and it's consistent and it's a healthy business even and and yeah there are a few caveats you know okay like 80 82 percent I think or 80 percent of their entire revenue is only Angry Birds games okay fine but um it is still a healthy business that maybe is getting a little bit undervalued in the market right now but the other thing that um that um Rovio has is um a new games Pipeline and that's what that's what also playthika really really means so you know Rovio keeps mentioning

that you know they they have like 10 new games in Development A lot of them are like various Angry Bird IP spin-offs uh but also you know they have this Ruby game Studio that's kind of also shifting from hyper casual to you know these hybrid casual games um and yeah they they also did small town murders which you know saw some early success um even though now it's not really there but um but yeah Rovio does have like some proven ability to kind of you know put out new games um even though most of them were taking like The Angry Birds IP but it does have like that proven ability and we've seen um Rovio perform well with UA when a lot of companies were struggling to scale uh their UA operations and I believe in one of their recent games is it is it Angry Birds dream something dream Journey what's it called dream dream blast Maybe dream blast yeah looking at their data

it seems like they've managed to crack live Ops so they're also improving their portfolio and how they operate with the the live free-to-play model yeah I think like yeah probably like um rovio's more active portfolio and the portfolio that contributes to like 82 percent of their revenue it would still be like the Aging on that track of an aging portfolio so like if if the deal goes through then play tika's portfolio it just becomes a little bit more old uh but but again Rovio has like some proven track record in kind of creating new games they also have a healthy new game Pipeline and those are two things that playtika really really needs and it seems like you know platika needs it to an extent where they want to like basically give away like 67 67 of their you know cash balance uh um to kind of make it happen so

so overall um yeah so yeah you know why would Rovio um a writers play Tikka want Rovio um yeah the new game pie plan but it is you know uh it may be a little bit unproven uh then Rovio has these like stable profits you know slow and steady um and but at the same time they have like an aging portfolio of games Ruby also has like very very low debt about 6 6.3 million in that that so it's yeah insignificant versus you know uh their cash balance which is also like really good for playthika and uh Romeo has a constantly growing cash pool um you know again slow and steady um but yeah it will not make up uh for you know 800 million of acquisition full cash acquisition um so yeah I think my my prediction is that this

deal is not going through and I feel like that's our general prediction here and the prediction of of the industry well the question I keep coming back to is does Rovio even have a price tag to which they would sell to play Tikka because from what I've heard the the culture of studios in Finland is extremely different to play tica's culture of leadership and and operations and also I think Rovio absorbs Kuala Talent when when seriously um when playtika closes the seriously Studio um yeah I I culturally would Rovio accept his acquisition even if the price was I don't know all of the cash for all that play ticket has I don't know I'll probably like trust uh Mika's opinion on this and what he wrote like in navic digest where he was saying that you know the Finnish Gaming Community is very very tight-knit so yeah I I I'd have I'd probably like trust um you know Mika's opinion on the cultural aspect of things

um he did mention in his navic digest piece that um that you know the Finnish Gaming Community is a very tight-knit one and um just looking at the way things went but seriously um and that developer Community now getting also spread across Rovio um looking at how you know reworks and read the course performance has kind of gone after the acquisition um yeah the general mood uh towards platika in in Finland uh maybe isn't really in the best place so yeah that was his take and uh you know because Mika is usually right about things so it is interesting that they decided to go back to The Well of Finnish gaming companies given sort of the public criticism that has come out about the cultural differences between platika and seriously um I wonder if uh maybe playtoka doesn't really care maybe they just want the IP

and the business and they don't care so much about the employees per se um you know to your point Maria about like is there a price that Rovio would accept this I think there has to be because Rovio is a publicly traded company and so at a certain point they have a you know fiduciary responsibility to their shareholders to accept the best deal um but um I don't know it'll be interesting to see what that price is if they can find it yeah yeah and I yeah just given like all the numbers and you know all this background I feel Rovio can kind of set the price to a really good extent they have like really strong negotiation leverage uh so but yeah it was at least good to see that um and this was like an opinion from the in my skin newsletter which I found quite smart that it was good to see that um even though this um you know that uh Enterprise Value to revenue multiple um pre-announcement was you know 0.8

um after the announcement rovio's talk did shoot up and um and also the value that platika is putting on this brings that EV to revenue multiple more than the 1.5 1.6 change which is actually closer to you know the still fronts uh of the world so in a way uh is actually um bringing like rovio's valuation more in line with the market um with with this um so yeah just just another perspective to kind of uh you know measure that offer web but yeah but yeah overall um sorry sorry one last command overall um yeah my prediction is also yeah it's not not looking too great for for playpika I'd be pretty skeptical of FroYo kind of goes ahead with this but I

don't know maybe maybe Rovio makes a counter offer um that playthika cannot refuse so but or are yeah have to wait and see then hopefully someone will figure it out AKA Matt yeah we don't talk about VR that much on the podcast but we're gonna delve into it a little bit here so specifically we're going to talk about gorilla tag VR so you may have heard about this um it's kind of the latest sort of VR sensation um it's sort of overtaken beat saber as the V title in VR recently this coverage I think is from uh early January or or December it had accrued more than 26 million in IAP Revenue which I think is pretty impressive for a VR game um and if you haven't seen this game or played it basically it's the classic children's game of tag but everyone is a gorilla and you kind of swing around the map with um your arms as the way to move

around so that's how you kind of like swing from Branch to Branch or you Propel yourself around the map and uh well I'm probably not doing a good job of describing the motion apparently it's like really simple and intuitive to pick up this was like this was discussed in the uh the Venture beat article about it um where they sort of prototyped this movement um system first and then they added the gorilla part of it later because it just it made so much sense to the early play testers and and the developers um I I guess they have now added a tutorial but initially there was no instructions and it was just that intuitive that you could just pick it up and go um so you know why has Grill tag VR been successful there's only four modes right and three of them are variations of tag the fourth mode is just a it's like a just chat mode it's a social mode and so this social aspect has been really key I think um for the success of gorilla tag VR and

you see that in some of the other successful um applications on VR like like rec room or VR chat it's very heavily social um and let's see they just a couple of Statistics here a peak Mau of 2.3 million and they had 760 000 playing on Christmas day alone um and Christmas Day tends to be a pretty big day for VR um usually a bunch of people get VR headsets and try it out for the first time and so you see a spike in in activity and engagement on that day uh this particular Game Gorilla tag is available on metaquest and steam but it is not available on psvr yet um let's see so I covered the strong social element it also benefited from virality on tick tock uh I am taking the media coverage for their word here because I am not on Tick Tock so I don't know this firsthand but uh apparently it's sort of caught on with Tick Tock they've not really done any formal direct marketing um themselves the developers so

um you know really impressive outsized success for a small team um and then I thought this was kind of fun one article even recommended it as an interesting way to work out in VR with upper body workout get some cardio in um so I guess you can adjust um the uh how do I describe this like the the the motion the motion kind of yeah so like it's it's um the distance that you travel based on the uh force that you put into the arm motion can be adjusted so that it's more or less so you can get like a more or less of a workout let's say like if you have here a little harder you have your arms up in the air because you're swinging from the branches is it you can you know so if you're just like traversing straight ahead you kind of like do like a skiing motion where you're like you have your arms forward and you push back and you sort of propel yourself with your arms the bridge the important part about the character design over here is that the gorillas

don't have legs so you basically have to just use your you have to use your hands to move on everything like for a moment I thought you were talking about real life and my brain is like what gorillas don't have legs mind blown yeah I mean like visually it's it's very simple let's say it's not like um this really like HD experience you know it's it's closer to like Minecraft style Graphics it's very kind of you know pixelated it's all gorillas all the um monetization is um like cosmetic uh IAP so you see a bunch of gorillas and silly hats and shirts and stuff uh jumping around and you can you can easily understand why it's like a very social kind of silly game um and so maybe very dramatic yeah yeah maybe Matt know is this a little tidbit but I don't know Maria if you do but one of the other reasons that it kind of became quite viral is uh it's also like the whole Tick Tock thing right but basically what was happening on Tick

Tock and like you know twitch streams and YouTube videos is because you kind of have to like move around in this game using your arms and because you're in VR you also have you kind of have the uh you know feeling to maybe move your legs a bit people who are basically you know just bashing into Furniture in their house and breaking fingers and legs and they broke Furniture pieces and whatnot and uh you know a lot of I was watching like YouTube videos before this recording and there were just a bunch of videos of people just screaming like ah dude oh man I broke my arm oh do it I broke my leg and it that's just the video like you forget about the game and just you know kind of enjoy the pain I guess enjoy the pain Yeah by hearing the pain but uh anyway sorry Matt no that's okay I mean we've kind of covered like what is Gorilla tag VR I would encourage you to watch the videos if you've not seen

any footage of this game it does look pretty fun I have to admit I don't have a VR heads set but it looks pretty fun um so you know we talked about like what makes it successful and kind of the segue I want to make here is what does this tell us about the VR Gaming Market generally in VR as a gaming platform um and so I'll just give you a quote from the CEO of the developer they're called another Axiom and I'll turn it over to you um for a bit of discussion here so contrary to a lot of public discourse this is the CEO VR is in a really really good place right now and things are getting better a message we want to share for the VR industry is that it's possible for developers to have a meaningful hit in VR and the audience wants content what do you guys think about that do you think it's uh do you think that this is an outlier do you think that VR is a viable platform to develop on uh what do you think I I disagree with his last comment about people want to condense I

mean I guess like the the simplest ad anyone can like look up is how many so like steam has like steam VR also right and you can look up game launches in Steam VR over time and that number peaked in 2017 after like the 2016 hype and ever since it's been going down the number of VR game launches has actually like dropped quite a bit I think and in 2022 it was like closer to 500 versus you know 1000 in 2017. so that's definitely a function of just like General you know Market sentiment around both from the consumer and maybe even the developer side I guess developers from the developer angle if I don't like summarize it in one sentence they a lot of developers need to be convinced about building content for a platform that maybe has a little unknown future in a little in in some way and that's a that's a hard you know thing to convince

developers of who you know have limited budgets and limited time and they want to you know maximize returns so yeah I just want to jump in on the it's already hard to build a cross-platform game where you build it for console and then you need to Port it I don't know it's a switch or and then mobile that's difficult already and we we have we actually seen with uh Playstation VR2 it's not compatible it's not backwards compatible with the first edition and so now the developers are essentially having to um reprogram the inputs there's quite a lot of Investments to keep up with how the platforms change in VR and so it's not only the future that's uncertain of the platform in and of itself but it has a very short life cycle for how long your game can also bring in the revenue as you both rightly point out there's a bit of a chicken and an egg problem right um the the audience will not come if there are hit games and developers will not develop it games if there is no audience

um there is uh this stat that um that VR Advocates like to point to which is that VR headset shipments are on track to surpass console shipments um over time and while that is impressive um shipments is not the same thing as engagement and audience um so you know like when you ship a PS5 or an Xbox gamers are going to get hundreds of hours out of that because there's a whole ecosystem of games and apps for them to use on that platform and they uh hang on to it for multiple years whereas VR headsets are still developing there's not that ecosystem of games and you're not gonna uh I I would think you're not gonna play VR games for two three hours in a session um because it's it's just like physically it's it's difficult right there's all sorts of issues with that um so it's it's not quite Apples to Apples I'd also say like it's not just

it's not just like you know the audience wouldn't come if they don't want if the content doesn't exist but I also have a feeling like the difference between an Xbox and a VR headset is that you don't need to put the Xbox on your head right it's it's there and you have a controller in your hand and you can like you know survive for like two three hours of gameplay Elden ring getting your ass kicked you know get your ass kicked for six hours no problem but you know you don't want to like end up puking while playing a game right um and so I feel there's also just like a general form factor issue so even though like you know units are kind of going up um and that is true it when you ask the question about do people want it and really like Mass Market do people want it I feel it's also just like a general form factor issue with this thing but um AR glasses I mean if these glasses of

mine were you know AR glasses and they solve like the you know uh two three hours no dizziness issue uh why not you know I just don't want like this huge ass headset on my head you know so yeah Matthew ball released was it I think it was to yesterday wait we're recording when are we earlier this week recently recently um a very interesting deep dive into VR and the technology and what are the issues I have to solve and even if it is possible to solve the issues that it requires to build games that are I don't know AAA immersive experiences like that on on VR and I think the market is just in the early adopter phase there's a lot of rotation in terms of Hardware you quick you invest a significant amount of money there's not a lot of content and a few years later you have to keep replacing it to keep up with the with the best

Improvement on it um and also my experience with VR games is it was it was interesting but also disappointing because even though there's already limited content and I had to play many games to find a game that didn't make me motion sick for me to play so then it's an even tiny sliver you know depending on how how much your body can take with the you know without with how it works um yeah I think Mass Market is still a way and I honestly don't see how it's going to be possible to reach that level of AAA in a VR headset for another decade they're still like maybe put some numbers to the conversation so you know um uh one question that we can also ask is is the tech really selling and this is like to match point about the whole VR shipment stack versus console so since um since 2019 up until the end of 2022

there have been about 10 million plus units of the quest uh quest Quest 2 that have been sold um another question too but um in general like VR Tech but um 80 to 90 of that market share is the quest anyway so it's basically that um in the same or like over the same time period if you were to just compare that to Xbox you know series X that's about like 20 million units and PS5 is 30 million units and I guess maybe that that's why I like a lot of the you know um VR Maxis are kind of saying that yeah that are kind of bringing that stat up but um I kind of went into a little bit of a rabbit hole to maybe like you know is there a way to kind of prove numerically that the VR is not gonna be a thing so um something so this was kind of looking at um

what meta is doing and like this massive 36 billion dollar investment that they're kind of putting into reality Labs I guess it's called right um so yeah the question I try to ask is we are kind of generating revenue for meta the answer is a big no uh but here's how it kind of breaks down um by recently um meta started like showcasing a different Revenue line item and cost line items for reality Labs so you can kind of like back calculate a lot of stuff so since 2019 until like Q3 of 22 um the total revenue has been 6 billion 75 of that is Hardware so that's about 4.5 billion and 25 of that is software which is 1.5 billion and software is basically Revenue coming in from the quest store you know iaps and like game purchases and stuff 6 billion in Revenue total cost 36

billion so they're negative 30 billion in the whole is to basically break even um let's assume that today meta gets that gets any further cost down to zero let's say that the total cost continues at 30 billion to essentially break even um and you know assuming that same 25 uh 75 to 25 uh percentage split on Hardware to software meta would need to make 22.5 billion on Hardware which at a 400 price equates to 55 to 60 million units of that Hardware a lot of market research firms itself are estimating that the VR Market is going to be like a 15 billion dollar market in 2027 and you know meta needs to like make up 30 billion costs so of course like that I don't think that's going to happen like 55 to 60 million units getting sold

I I don't know I it just doesn't feel uh possible and that's why like the pressure is really on meta to kind of juice the software side of it right that's why they would like make really scalable profits through their store and and yeah then it basically comes down to games like where do the where does matter actually get the content and then it goes back to you know what Matt was saying that whole chicken egg uh issue with with the content and we already know like you know um through the steam VR stats the number of games are actually going down people developers are just not convinced about building uh for for this technology and over and above there's yeah there's the form factor issue that we kind of um you know discussed so yeah I know even from the numbers angle it it just didn't add up you know there's reason to be skeptical of some of the numbers too um you know one of the the points I found interesting from the Matthew ball

piece was that some of the the hit titles on VR rec room VR chat they don't even require VR anymore like you can play it on you know quote unquote 2D devices and so I you know I wouldn't be surprised if gorilla tag went uh um uh you know 2D uh platform of some sort twin sticks you know kind of makes sense with the arm movement uh things I don't know maybe I'm oversimplifying but the point is like when you see numbers around like you know user counts for these VR apps like it's it's important to look at the split of how many are actually doing it in VR versus on a console or a mobile device or something uh because it's a guarantee it's not like an even split yeah I just wanted to say um maybe just make one comment on the content uh in VR game so yeah gorilla tag really really looks like a fun game um you know when I just have YouTube videos to access the experience but

um but yeah a lot of the VR games like like Matt also mentioned they um just have also short life cycles they aren't really built from a live operations aspect you know so further attack even through the videos I was watching you've watched like a 15 minute video and you can already see like the gameplay has a super high novelty Factor but then as you know the session continues these are streamers so you know they're trying to like keep things entertaining but you can also start to see okay when it kind of gets a little bit fake entertaining so the novelty Factor like kind of just wears off quite quickly also but either way super interesting game and quite quite Innovative and definitely look fun yeah when you're talking about meta being able to recover the investment that they've been making I almost feel it's the race we'll see who doesn't give up and doesn't mind keeping on sinking in the r d and they're

essentially carving out a new market and leading it and what can they ever hope to recover the the costs of that r d I think we've seen Microsoft they've they've bowed out of the race I believe a lot of their layoffs was from the mixed reality also the hololens they were getting the funding from a U.S deal with the defense I think they were struggling with the performance of what they were delivering so yeah Microsoft's bowed out we still see apple continuing to pursue this I guess magically even in the game anymore they were acquired or mostly acquired by a Saudi company I believe the Saudi Investment like um Enterprise applications right so my meta might win from by default we'll have to see why Apple releases um yeah I just I just hope like yeah at the end of the day like if you know

the revenues actually come out of the software side of things and they're able to like build a great store experience that has a lot of great content and you know VR games get to a point of you know becoming live operated you know experiences and all of those transactions are kind of going through the store my desk would face or would um meta would have a really great shot at making up a lot of this you know investment and all the future investment that you know they would do but but yeah it's a lot of ifs until that point and also I really hope like meta is just thinking about the form factor of things you know and they're just not stuck on this idea of a big headset on your head so um so yeah I just hope they're also thinking about that and evolving the form factor in a way that fits for Mass Market much better yeah I think we need to touch this topic

again in two years see where we're at or five or five well I'll still be together and happy right yes watching OverWatch league and VR in the metabolous if you enjoyed today's episode you can help us reach others by subscribing on your before platform we always enjoy hearing from you so leave us a comment on on YouTube you can also sign up to the free navic digest newsletter and listen to other podcast content because we have industry leader interviews and our crypto corn on top about web3 gaming Matt Manus thank you so much for joining today as usual and we'll see you next week foreign [Music]