Hit Points
Independent games industry analysis and commentary by Nathan Brown (ex-Edge).
Documents
Network Down
The decision by ReedPop to seek a buyer for Gamer Network—the parent company of prominent UK gaming outlets including Eurogamer, Gamesindustry.biz, Rock Paper Shotgun, VG247, and Dicebreaker—serves as a critical case study in the volatility of the modern games media landscape.
- ReedPop is actively seeking a buyer for Gamer Network, which includes major gaming outlets Eurogamer, Gamesindustry.biz, Rock Paper Shotgun, VG247, and Dicebreaker.
- The sale of Gamer Network will exclude the events business, specifically the EGX gaming convention, which was the primary strategic asset ReedPop sought when it originally acquired the network.
- ReedPop’s decision to divest follows a shift in market conditions where the events industry has recovered post-pandemic while the online media sector faces a contracting advertising market.
Machine Killer
The rise of generative machine learning (GenML) poses an existential threat to the online games media industry by disrupting the traditional search-based revenue model.
- Gaming websites rely heavily on 'guides' content to drive search traffic and ad revenue, often serving as the financial engine that funds more expensive editorial projects like reviews and investigations.
- Google's new generative machine-learning search feature threatens the business model of gaming outlets by scraping content to provide direct answers, thereby depriving original publishers of the traffic and ad impressions required to sustain their operations.
- The current online games media business model is increasingly fragile, suffering from post-pandemic audience declines, contracting ad budgets, and a reliance on search-engine optimization that often results in user-hostile, ad-heavy web experiences.
Talking to the Monsters
The integration of generative machine learning into video game development, specifically through Microsoft’s partnership with Inworld AI, represents a significant shift toward automating narrative and character interactions.
- Microsoft has entered a multi-year partnership with Inworld AI to integrate generative machine-learning tools into Xbox development, aiming to automate the creation of dialogue trees, quest lines, and scripts.
- The Inworld AI technology functions similarly to LLMs like ChatGPT, allowing NPCs to generate unique, dynamic responses to player input in real-time.
- A hands-on evaluation of the 'Inworld Origins' tech demo revealed significant technical limitations, including noticeable latency, poor speech-to-text accuracy, and frequent conversational glitches.
Blood Sacrifice
The departure of Unity CEO John Riccitiello in October 2023 serves as the focal point for an analysis of corporate governance and instability within the video game industry.
- John Riccitiello has stepped down as CEO of Unity after nine years, following a tenure marked by declining share prices, staff layoffs, and significant backlash over the company's 'Runtime Fee' policy.
- James Whitehurst has been appointed as interim CEO of Unity, though the company has provided no indication of a strategic shift or departure from the policies established under Riccitiello.
- The game industry has experienced over 6,000 job cuts in 2023, with September being the most severe month as 17 studios implemented staff reductions.
After the Unboxing
The accidental public release of internal Microsoft documents during the FTC v. Microsoft legal proceedings in September 2023 serves as the primary focus of this analysis.
- The accidental leak of internal Microsoft documents during the FTC case revealed sensitive long-term strategy, including hardware plans through 2030, unannounced games, and internal assessments of competitors.
- Leaked internal communications disclosed specific Game Pass acquisition costs, such as $5 million for indie titles, $50 million for Dying Light 2, and a $300 million valuation for Star Wars Jedi: Survivor.
- Microsoft’s internal documents revealed a lack of industry awareness, including an underestimation of Baldur’s Gate 3's potential and a $250 million valuation for Suicide Squad that the author characterizes as unrealistic.
We Must Unite
The gaming industry faced significant turmoil in September 2023 following Unity’s announcement of a new "Runtime Fee" policy.
- Unity announced a new 'Runtime Fee' effective January 1, 2024, which charges developers for every new game install once they exceed $200,000 in annual revenue and 200,000 lifetime installs.
- The new fee structure applies retroactively to existing games and is permanent, creating significant financial uncertainty for developers who built projects under previous, more predictable licensing terms.
- Unity is discontinuing its $399 'Unity Plus' tier and significantly increasing the cost of its 'Unity Pro' subscription, while also requiring an internet connection for the free 'Unity Personal' tier.
#218: Get the Papers
This industry update provides a comprehensive overview of major developments in the gaming sector as of July 2023.
- Microsoft and Activision have extended their merger deadline to October 18, 2023, following the FTC's decision to drop its administrative challenge to the deal.
- Activision Blizzard reported a 34% revenue increase for the first half of 2023, driven by the success of Diablo IV, which helped Blizzard achieve its first billion-dollar quarter.
- Sony has signed a ten-year binding agreement to keep the Call of Duty franchise on PlayStation platforms.
Rise of the Robots
The rapid integration of generative machine learning into the gaming and media industries presents significant ethical and legal challenges, particularly regarding intellectual property and labor displacement.
- Valve is actively banning games from Steam that contain AI-generated assets, citing concerns over the unclear legal ownership of content potentially trained on copyrighted material.
- Unity introduced two machine-learning tools, Muse and Sentis, but faced immediate backlash and was forced to delist an Asset Store provider for failing to meet terms regarding copyright and training data.
- The Gamurs Group, which owns sites like Dot Esports and Destructoid, faced criticism for advertising an AI Editor role to oversee the production of up to 250 articles per week, shortly after laying off 40% of its workforce.
Overinflated
The gaming industry is currently navigating a period of significant price adjustments as major hardware manufacturers respond to persistent global inflation and rising operational costs.
- Microsoft is increasing the price of the Xbox Series X console in most global markets, excluding the US, Japan, Brazil, Colombia, and Chile.
- Xbox Game Pass and Game Pass Ultimate subscription fees are increasing across 40 countries, including the US, while PC Game Pass and the Xbox Series S pricing remain unchanged.
- Legal documents from a consumer-led court case reveal a 2019 internal email from Xbox Game Studios head Matt Booty suggesting an intent to drive Sony PlayStation out of the market.
Taking Flight
The June 2023 Xbox showcase is analyzed as a pivotal moment for Microsoft’s gaming division, serving as a successful effort to restore confidence in its first-party development strategy.
- Microsoft’s June 2023 Xbox showcase successfully improved the brand's narrative by highlighting a robust pipeline of first-party titles, including 'Forza Motorsport', 'Hellblade II', 'Fable', and 'Flight Simulator 2024'.
- The event featured a significant partnership with Japanese developers, highlighted by announcements for 'Yakuza', two 'Persona' games, 'Metaphor: ReFantazio', and Capcom’s 'Kunitsu-Gami: Path Of The Goddess'.
- Bethesda confirmed that 'Starfield' will run at 30fps on Xbox Series X and S consoles, with native 4K resolution on the Series X and 1440p on the Series S.
Sale of the Century
The Summer Game Fest, established as a successor to the E3 trade show, is criticized as a commercialized venture that prioritizes corporate monetization over industry curation and journalistic value.
- Summer Game Fest has transitioned into a heavily commercialized event, characterized by intrusive brand partnerships with companies like Samsung, Porsche, and DoorDash rather than a focus on game industry curation.
- The event's shift toward a pay-to-play model for developers and publishers has resulted in a showcase that prioritizes revenue over the quality and relevance of the games presented.
- Despite the decline of E3, Summer Game Fest failed to provide a cohesive industry showcase, with major platform holders like Nintendo being absent and others like Microsoft and Sony having minimal or ineffective presence.
Showtime: A Look Ahead to not-E3 2023
This analysis examines the industry landscape leading into the 2023 summer showcase season, commonly referred to as not-E3.
- Embracer Group's stock price plummeted by over 45% following the collapse of a $2 billion strategic partnership that had been in development for seven months.
- Ubisoft plans to increase the headcount of its Assassin’s Creed division by 40% over the next few years, building on an existing team of 2,000 employees.
- PlayStation Studios head Hermen Hulst has confirmed that Sony currently has a dozen live-service games in development.