In the face of growing wrath, Unity is looking to revise its runtime charge. Whilst these have not been confirmed, Bloomberg announced that it believes the changes will include 1) a total cap on revenues at 4% for those earning over $1m in sales, and 2) will no longer count sales retrospectively. Last week we quoted a figure for Unity’s market share of 48%, but this week we noted that the UK video games trade association TIGA believes that it is actually over 60%! This is a big deal for the industry, a tangible example of the impact is that the developers of Devolver Digitals hit ‘Cult of the Lamb’ are looking at pulling their title from Jan 2024, despite only releasing it in 2022.
The gaming sector was also given a unique insight into the inner workings of one of the industry’s biggest players. Xbox accidentally shared a treasure trove of confidential material it had collated as part of its legal battle with the federal trade commission. This give us a great insight into the numbers behind game pass subscription deals and what the Xbox’s CEO views as “THE prime asset”.
Finally, the CMA has given preliminary approval to the adjusted deal presented by Microsoft for its acquisition of Activision Blizzard. As the sole regulatory body blocking the deal, we can now expect this handbrake to be taken off the industry and hopefully this will catalyse other activity in the sector.
News of the week
Microsoft leaks: key takeaways
Perhaps the most important piece of information these leaks gave research analysts, like ourselves, was a number of price points around platform deals. Until now the quantum of these deals has been a bit of a black box, adding increased uncertainty when forecasting a particular games expected performance. A summary of the expected costs for bringing some of the industries biggest names onto game pass can be found here. It’s funny to see Baldur’s Gate 3, one of the year’s most successful games, priced at just $5m. However, of interest to us was the fee of $5m quoted for Return to Monkey Island, published by the UK’s Devolver Digital. With Devolver having signed a deal with Netflix for Terra Nil, we expect it was likely close to a similar value. It also provides us with an understanding of one of the triggers of Devolver’s recent profit warning as the company was baking in subscription deals into its financial guidance before those deals were signed. If the company was baking in several millions per title for subscription deals, when the platform offers for these games were below that, it had a material adverse impact on the financial performance.
The leaks also revealed that Nintendo is Phil Spencer's dream acquisition. He also feels that Microsoft is the best positioned out of any US firm to complete such a deal but, given Nintendo’s pile of cash, that any transaction will happen a long time in the future. It’s well worth having a read of some of these documents which outline plans for consoles, release schedules for its biggest studios, the monetisation of Game Pass subscribers, and perhaps most interestingly, candid emails from senior management openly discussing strategic goals.
"We expect that the bulk of bankruptcies in gaming is still ahead of us”
This depressing prophecy came from Matt Bilbey of London Venture Partners when discussing video game investment at Gamesindustry's investment summit in Seattle. The general themes will not be unfamiliar to those who follow the industry: a more cautious approach, a focus on reliable earnings, less first time releases etc. One trend, which of course flies in the face of the cautious approach we have just outlined, is that AI firms are one area that aren’t struggling for funding; Bilbey points to Mistral AI's seed round of $113 million and Poolside AI's of $126 million as examples. We note that this week provided another layer of contention for the use of AI, with Game of Thrones writer George RR Martin suing OpenAI. Maybe chat GPT can help him finally finish the series… Source: gamesindustry.biz
In other news...
Chinese mobile game operator ZX has been 103 times oversubscribed, the highest subscribed IPO in Hong Kong this year.
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