Why AI Won't Save AAA Gaming?

[music] Chris, take us to your AI topic.
All right. So, AI has been a topic dour obviously for the last what 12 18 months. So, Owen Aon, a friend of the podcast I would say, wrote a piece in AI and gaming called DSX Machina, which I think is a movie, right? I almost actually went and watched the movie again.
Is it Machina?
Oh, you're right. Machina. Sorry.
Yeah. [laughter] Yeah. Is that a Greek word?
Shut the [ __ ] up from the [laughter] movie. Shut the up, dude. Stop it. Okay.
Go get your hummus and like go off to the side.
Hummus is what they eat in the Middle East.
Yeah. Taziki of Godamn.
Don't miscure us. [laughter]
Yeah.
Us. I love it. Oh god.
All right. Let me get through this. Okay. So, I'm a big fan of Owen, dude. I think what Owen's done in this industry is quite phenomenal. in terms of bisdev at EA, you know, all the work that he

did at Nexon, etc., etc., etc. I even actually recommended him to take over Xbox in the eventual spin out, right? Because I think he'd be really good at figuring that [ __ ] out. But I think Owen in his early retirement has started to mistake the plot. And I think I know why because I think he's becoming a delusional venture capitalist, right? And all I could say to Owen is find the light, leave the darkness. Okay? because clearly you're going down the same path as other venture capitalists before you. Okay, so some of his conclusions regarding AI and gaming. What? It's going to cut AAA development by 90%. Absolute horseshit. Destroy competitive advantage of large publishers, triple the size of the game market, create a generalizational opportunity. All right, I could probably get around that maybe. Transform the medium itself, not just improve existing workflows. Look, I think AI is a very seductive thesis, right? I would agree, right? And I will

concede that is different than blockchain, streaming, VR, and the rest of the [ __ ] that was sold to us that never made any sense. Right? I agree. But the notion that the technology will transform the industry just doesn't make sense at all when you actually break it down and think about the challenges that we have in front of us as an industry. Right? First, cost reduction is a [ __ ] fantasy, right? Developers do not pocket efficiency gains, right? They build more [ __ ] right? It's the same story every time. You know, Excel didn't shrink finance teams. It exploded them, right? It just and raised expectations for the product, right? AI will not make games cheaper. They'll just make them bigger and more complex, if anything. Second, IP still [ __ ] matters, right? There are thousands of soccer games out there, but only FIFA FC that makes billions of dollars a year and has been growing at 10% annually for the last 20 years. Okay, so why is that the case?

They have IP relationships. They have [ __ ] athlete licensing, deep communities, network effects. AI doesn't do [ __ ] to that, right? And it won't actually impact that at all. Third, and this is actually probably the most important thing is that we do not have a [ __ ] content problem. We have an attention problem, right? We have too muching content. We are swimming in content. I was corrected on this. Steam did 20,000 games last year. 20,000 [ __ ] games. That's too many games. We don't need more [ __ ] Okay? We don't need millions of people making AI [ __ ] and throwing it out there. That just does not is not solved the [ __ ] fundamental problem. What I think he is fundamentally missing about this particular technology is that the biggest opportunities from these texts is not stuff that looks like the same. It's the stuff that's new that comes out of this technology, right? And early radio like for instance was just people reading newspapers and early TV was like film stage plays, right? What we need is actual new content that's created with

AI that is built with AI that is actually unique and attracts bigger audiences, broader audiences, and most importantly monetizes better than mobile and other platforms, right? Of course, that AI will improve workflows for a lot of different things. But the idea that it's going to 3x the market by making existing games cheaper, dude, that's not the way the [ __ ] world works. You know, again, the real opportunity is finding truly AI native experiences that we can't even imagine yet and not just making, you know, NPCs chattier, you know, like that's [ __ ] or I don't know. Anyway, all this ising I think this is like just absolutely completely overblown. So, anyway, I've been going down this rabbit hole for the last three or four weeks because people keep asking me this question, particularly after the [ __ ] Google fiasco, the [ __ ] about the Google thing. So,
the genie Yeah. Genie 3.
Yes. Apocalypse.
Yeah. And so this is why it's become topic to jour. He actually wrote this piece in October of 25 when I think we were in the absolute AI hype cycle

around gaming specifically. You know people like Morates are like waxing poetic about [ __ ] right? So at the end of the day like you know he probably may have changed his tune like the sober reality of what's actually happening out there and the companies that have been trying to do AI native [ __ ] for like the last two years and nothing is happening right. So maybe his change has happened and I also believe from my understanding is that to defend Owen is that Owen is actually looking at not being a venture capitalist or let's hope he isn't anyway and he wants to do more of a publishing thing. So in that capacity he could actually be more of an operator as well as a VC and rather than these pretend [ __ ] venture capitalists that think they're game publishers, right? These are actually real publishers that know [ __ ] gaming. So maybe he can bring these type of games to market. Last thing I'll say is that I think what we really need is a new platform. We need basically something like Roblox with that's AI native, right? That actually has tools that are AI native that can

build experiences again that monetize different audiences that attract bigger audiences and that grow the market and that are not trying to build the same [ __ ] for mobile and console, right? That doesn't even make sense anymore. So anyway, that's it. That's all I got.
Endorse. Endorse. endorse. You know, I got I actually got a piece coming out about this in a couple weeks.
Is it spicy?
It's always spicy.
We discussed this. We've discussed this.
Yeah. Phil's like spicy.
Yeah, it's like uh he's like hummus with chili. [laughter]
Moving to Cyprus has added a little spice. [laughter]
Dude, no moreing cultural references about Greece or [laughter] Cypress. Okay, enough.
Perpetrating the fraud, man.
Okay, enough. Um, [laughter] so I'm I I have seen decks that suggest the Chinese and major games are using AI to generate 60 to 80% of their content. Now, take it for what you will. It's a bunch of hearsay. And of course, like everyone's pumping their bag when it

comes to AI. Like when you see Anthropic CEO or Sam Alman talking about how AI is going to change everything, you got to remember they're raising capital. So, of course, they want to like, but but don't get me wrong, like I I agree with the sentiment. Like, it's changed my workflow. I mean, every day I sit in a Codeex window. I sit in chat GDP. I got I got an open cloud Mac mini that came today. So it certainly is real. I think what people are struggling to conceptualize is the supply side elasticity. I think people are trying to figure out okay what the cost of production goes down what happens. So first of all has anyone reached out to Cosmic Lounge. But putting putting that aside, [laughter] I I think the comparison here is YouTube, right? With YouTube, we dramatically decreased the cost of distributing videos and then that was also predicated by the fact we had the smartphone which made it much cheaper to film content. And so it's taken a very long time for YouTube to have liftoff. And right now, it's what Netflix is citing to the FDC as their true rival for time when it comes to TV. Watching YouTube is starting to rival Netflix. Where is that revolution for

games? And I think you hinted at it, Eric. It's going to come from new teams, right? It's not going to come from the existing incumbents. Like this is classic innovators dilemma. So where is that AI native platform that makes creation easier? Because just making more content just shifts the problems down the production line. So if you can make 20 new characters in League of Legends per year, now what you got to do is you've shifted the problems to how do we balance that? How do you release those characters? Like that's the next set of problems. Again, remember games are are a pipeline production. It's like swallowing a big piece of food. You got to digest it. You got to go through the rest of the the workings here. And I don't think we figured out what the next part of that pipeline is that can absorb all this content. But by and large, I thought this was a bad piece by Owen. I'm with you on this, Eric. I think it's kind of just this this VC glazing. AI is going to change everything without kind of critically examining it. I wanted to share a little bit of a insider info from DICE and some of the rumors I was hearing there as well is that keep an eye on a lot of the Chinese game companies major layoffs are coming and those layoffs are being attributed to AI

efficiencies. So while I agree with you guys that how we should be thinking about AI is for sure right now today it's looking like efficiencies doing things faster getting things done and I think there is a different perception of how AI is being used in the east versus the west in the east they're like we're going to lay people off in the west I think we have player leitites that are out there we've talked about this many many times which is players might have a backlash to games being made with AI in Hollywood. I don't know if you guys saw the 15-second clip of Tom Cruz versus Brad Pitt on a destructive rooftop building that was done with two lines of input in AI. I think there's a lot of players and creators who are starting to have the lite like reactionary to AI that might make a lot of people allergic. So, that's going to be something interesting I want to keep an eye on. But Chris, where I also wanted

to agree with you is you're right that we have a share of time problem and share of wallet problem. So share of time is everyone is paying attention to short form video and these other things and with the glut of content discoverability is a problem and spending time on things is a problem. And so without something a new platform, a new reinvention, you know, we're all taking share away from each other because there's only so much time in a day. So, Mishka, what else you know glow about CEO's ability to write blogs?
Yes. Yeah. I mean, CEOs can write gooding blog post. I do have to say that. This is the second one we're talking about in in this podcast. And, you know, just as a background, like this piece is written by a former public company CEO who is clearly very bullish on AI. And yes, it does have several hallmarks of the hypewriting. it the grand historical sweep that comes in kind of like really tells you that this is the big thing that is changing. There's the uh the quintessential Eric

Hoffer quote sort of a VC type of a call for beginners mind type of an aspect but overall I feel like it's more in intellectually honest than most in this genre because the subtitle is literally if you have a strong opinion about the future of AI in games you are probably wrong and Owen applies this humility somewhat consistently but since this is a pundit's podcast with some criticism I have some. So first of all, I want to start with what Jen said. The piece is very careful to say that AI replaces production labor and not creative labor. This is the common and sort of a comforting distinction that executives in the west feed the employees who they want to train the AI models and the AI tools that make each of them so much more efficient. And where that efficiency leads, well, we don't know, but we have to grow quarter over quarter. And yet Owen kind of cites the history himself with monks being replaced by printing presses, with

carriage makers being replaced by cars, and he doesn't really support the idea that the creative layer is actually safe in gaming. And just kind of going back to the printing press that he was talking about, it didn't get eliminated by copying it. It restructured who got to be the author. And AI is in same way restructuring who gets to be a programmer, who gets to be an art director, who gets to be a designer, who gets to be an analyst. So this kind of is taking that that layer away. There was also a claim that we as game developers have an unhealthy fixation Hollywood, its metaphors, the job titles, the production structures, the sort of a whole green light process. I don't know where this comes from.
We totally have an inferior inferiority complex. You kidding me? We were just talking about Dream Games blowing all this money so the CEO could go meet LeBron.
Was that the case? Like I don't I don't think and plus since when LeBron is Hollywood that's NBA.
What What is the number one fact we love to shove to the general populace when we talk about games? Jen, please do the

line for us.
The games industry is bigger than movies, music, and TV combined. [laughter]
Thank you, John.
Well, I think it's just an easy to understand as a business when you're comparing it to business. What should it be like? Oh, gaming is bigger than printers or like printer toner sales like what like people just understand that. So, it's a good reference and it's also entertainment. But again, this might be my bias because I grew up in this industry in Finland, which is as far away from Hollywood as you can really get. And I don't remember anybody talking about the way Hollywood movies are being made, and how we should copy that. So, I I don't know where this comes from. Maybe it's Owen's perspective as somebody of a generation older than myself and kind of living through the uh the heydays of Hollywood. Then there was the Ben Thommpson's unbundling framework which was interesting and genuinely very useful to understand the history of media and the

sort of a sequential value chain. You create, you duplicate, you distribute and how he was kind of showing how that changed throughout the history. But then again, let's unbundle that games are interactive systems. They're not content per se. So the unbundling metaphor maps cleanly into linear media, text, audio, video, because the value chain is very sequential. But with games, it doesn't work the same way, especially free-to-play games. And Mahoney actually acknowledges this briefly, but then kind of moves on to the next thing. Then there's a lot of sighting of Embark, which makes sense because Nexon funded Mbark and they're proving as like repeatedly as a proof that AI can deliver AAA quality in games at 10x lower cost. Th this whole narrative about Embark. I mean, this is basically DICE 2.0. These are like the most expensive developers in the [ __ ] planet that are working for one of the biggest gaming companies on the planet. Yeah, [laughter] there's

just there there's no AI achievements of efficiencies for a team like that. Like it cost him at least $200 or $300 million to make their game after the finals, right? Which was like a proof of concept of building out the engine and stuff like that. So it's like obviously he's far closer to this than I am, but I can't even imagine that they didn't make it for less than 200 million, right? and Mark's AI story, especially when it comes to cost cutting. First of all, I don't know if they've made any cost cutting claims, but there's a lot of smoking mirrors and how they've used AI in that game. [laughter]
It's just the way he positions it.
Yeah, it's all [ __ ] I Owen, I love you, man, but like Jesus, like stop that. Stop referring to Embark as any like proof of concept around efficiencies around AI or anything for that matter. There's no efficiency with that team. It's the same team that was at DICE, you know.
But it's great writing. It's great. He talks about like the how he played against the boss and then the boss kind of sat on him and he tried for the third time and now he's sat faster. Like even I remember that like it's it's a good writing. I'll give [clears throat] him

that.
Well, Patrick Soderland is Embark, right? Like Patrick was on the game business podcast and he did have this section that I heard intently which is he talked about how AI
was used to enhance their content pipelines, how it helped them to make content more quickly because they were having to compete against how do we make content to keep up with the Chinese developers and how do we be 10x better. He didn't talk about that going from 300 to 30 million or anything like that. You know how much money [ __ ] Sodderland blew on the goddamn engine from DICE that tried to like force it and want everything at EA. Dude, he was partially responsible for the [ __ ] disaster that was EA development for years, decades. Like before that, it was all the Canadians, right? Don Matrick and those crew. Nothing those guys say about cost efficiency and making the right investments has holds any water for me,

right? because they don't know sh they know so much but they did so much too right it's like it's [ __ ] it's absolutely [ __ ]
do you know how much he spent on just the jump sequence and anthem I mean Patrick Sutherland [laughter] was in so many design creeps about getting the jump sequence and anthem right I mean they probably blew 10 million just on that
no and every story I've heard about him is it's all about feature creep and coming in last minute and making all kinds of creative decisions that cost time and delayed products these guys do not have a leg to stand on when they start talking about this [ __ ] you know, like honestly they just don't, you know,
those are all true stories in the past. I I am telling you what I heard most recently and you know, him now doing a new studio and now learning what they learned from the finals and then seeing what they've learned and applying that to Arc Raiders. Could they have evolved their thinking? Could they have set up these pipelines? Because he had to because he doesn't have the power. I mean, he had Nex on, you know,
by Nexon. [laughter]

What are you talking about?
This is laughable. [laughter] Like, this is a PR spin. It's a total PR spin. [ __ ]
I would love to go deeper.
Dice, you know?
Yeah. [laughter]
How big is Nexon? Is it bigger than EA?
Well, didn't Nexon get their ass kicked in earnings, too, Crust? You'd probably know this.
Oh, I didn't I haven't looked. Sorry. I'm trying to stay away from the [laughter] stocks these days
cuz you're cuz you're like semi-retired. But I
that's what I wanted to get away from is the stress of the stocks going up and down all the time. But Jesus dude. Yeah. Have you seen Unity, man? Unity is on it ass, dude. You ask Josh motherucking Chanley about why the was he pushing Unity so hard? These guys are getting absolutely annihilated, right? Anyway, all right.
I don't know.
Sorry. I want to make two more points before we go. I did get some good feedback on the post. Generally speaking, some people are so like enamored with user acquisition. Like that's like the holy grail of all things

growth in this industry. I just don't think they understand like cost of user acquisition has gone up so dramatically that that is not aing driver of growth. That is like an absolute value for the rich, not like growing this business. Anyway, what what I want to say is this is that mobile was the last bastion of growth for this industry, right? 20% kagger for 10 12 15 years. We are no longer seeing that growth. What we need in order to see 3x growth from here as as Mr. Owen suggests is a new platform that opens up opportunities for geography, for demographic, and most importantly for monetization. And so for the UA people that are out there commenting on this stuff that don't know a all about this business besides UA mobile is [ __ ] right? Because it's a 3% conversion on most downloads that you're getting, right? Like that is a monetization disaster, a nightmare, right? We need to improve that, right? And so your UA funnel, all that you're

doing for UA is trying to attract this small percentage of people that are spending. We there's a huge audience of people that are playing mobile games on a regular basis that aren't monetizing. We need to figure out a platform that does that. If AI can unlock something there, that is absolutely huge, right? Absolutely massive for the potential of growth for interactive. That's what we need to look at. We don't want to create more mobile games. We don't want to create more AAA games. We don't even want to create more indie games. We got more indie games than we know what to do with, dude. We are like getting shoveled indie games constantly, right? That is not the answer. The answer is something new that captures the hearts and minds of different audiences and most importantly the wallets of these audiences.
Yeah. Share time and share of wallet. Like if you don't get both, then there there's not going to be
takes them away from [ __ ] Tik Tok, you know, like get get them off theing doom scrolling and start to play interactive, which is obviously far better entertainment than uh
and UGC is or isn't it or might be it part of it?
It could be. I think it could be. I

mean, I think if you built the right platform potentially,
but it can't be with high pipe.
Yeah. [laughter]
Stop it. Stop. I want to tie a bow on my point on Owen. Owen's post is like I think it it's a thoughtful bull case from very sophisticated insider. And I think the most honest sentence is in the subtitle, which he then spends 5,000 words walking back. So, [laughter]
that is a good point, right? And Owen, walk away from the dark. Go to the light. light. Stay [laughter] away from venture capital.
All right. Well, that wraps it up for this week. One plug I forgot to mention. I'm going to be at Appsfire's uh MAMA event next week. Exciting. I'm going to go talk to UA and be a marketer. I'm going to cosplay being a marketer.
I've done that event. It's a good event. [laughter]
It It'll be awesome. All right. See you guys next week.
See you guys.
[music]