Zynga office
Photo: Effie Yang/Flickr

Why the maker of Grand Theft Auto needs Zynga to grow

Protocol Entertainment

Hello, and welcome to Protocol Entertainment, your guide to the business of the gaming and media industries. This Tuesday, we’re discussing why Take-Two Interactive just bought Zynga, the ongoing debate over NFTs and Web3 in gaming, and the metaverse talent war breaking out among Big Tech players.

Take-Two takes the mobile plunge

Take-Two Interactive just made the biggest acquisition in the history of the video game industry, agreeing on Monday to buy arguably the most well-known name in social gaming, Zynga, for $12.7 billion.

That the publisher behind Grand Theft Auto would buy the creator of FarmVille, and for more money than Microsoft paid for all of Elder Scrolls- and Fallout-maker Bethesda, tells us everything we need to know about the future of gaming. Here’s why.

Mobile gaming is the only part of the industry that keeps growing. Sure, we’ve heard this countless times before, but the pivot to mobile is such a common theme in the game industry because it’s been attempted time and again for the last nearly 15 years. And mobile has only gotten bigger each and every year since the App Store launched in 2008, now accounting for more than half of the $180 billion game industry, Newzoo reports.

  • Like its peers in the major publishing market, Take-Two Interactive needs a mobile strategy, and its half-hearted attempts and building one in-house through small acquisitions of companies like Two Dots creator Playdots hasn't cut it.
  • We saw this with Activision Blizzard and EA, both of which needed to acquire major mobile game makers to make inroads in the market. Activision Blizzard bought Candy Crush maker King in 2016 for nearly $6 billion, while EA bought Glu Mobile and Playdemic last year for a combined $3.8 billion.
  • It’s telling that Tencent’s purchase of Supercell more than a half-decade ago for $8.6 billion is the second-largest ever acquisition in the game industry. Mobile firms are building the fastest-growing, most accessible games in the market these days, and they require a fraction of the development cost of a big-budget game.

The traditional console business model has gone out of style. Once upon a time, a publisher like Take-Two would foot the bill for one of its studios, like Rockstar for instance, to make a new hit game. This game, call it Grand Theft Auto, would sell tens of millions of copies for somewhere around $60 a pop.

  • This traditional model, while still active, is no longer the financial engine of the game industry. Most of the growth today is coming from mobile games, which grew 7.3% annually last year while console gaming actually declined 6.6%.
  • This growth is twofold. Mobile games are better at monetizing over their lifetime than console games, and can do so for a much, much larger audience of casual gamers. Everyone with a phone in their pocket is a potential customer, while it remains nearly impossible to even purchase a new PlayStation 5 due to constrained supply and pent-up demand.
  • The console gaming audience isn’t changing. It’s still the same core gaming demographic generating about $50 billion in annual revenue and consisting of somewhere in the low hundreds of millions of players.
  • Catering primarily to that audience, with ballooning blockbuster game budgets, is a more expensive and risky business model than diversifying the portfolio across all platforms and betting on a future where mobile phones, through chip upgrades and cloud gaming, become even more powerful portable gaming machines.

Take-Two wants to bring its games to mobile. It sounds like an obvious strategy: put Grand Theft Auto on the iPhone. But it’s harder in practice. GTA Online is Take-Two’s biggest moneymaker, generating millions per day, and figuring out a way to build a native mobile version of that is a far more complex task than porting classic GTA games to iOS.

  • To make a solid mobile game that can rival Tencent and Krafton’s PUBG, miHoYo’s Genshin Impact or Supercell’s Clash of Clans, Take-Two needs mobile expertise. Zynga is one of the few U.S.-based companies with experience in developing massive free-to-play games that can achieve the scale of Asia and Europe’s biggest live service games.
  • Zynga comes with a number of benefits beyond just its game properties and mobile talent. The company has a marketing, ad and analytics division through its purchase of Chartboost, and it just opened up a blockchain gaming division.
  • Zynga has also established a track record of handling sensitive IP, with Harry Potter: Puzzles & Spells. Disney has also entrusted Zynga to build a new Star Wars game, due out this year for mobile and Nintendo Switch. That makes the company an ideal candidate to develop Grand Theft Auto, Borderlands or BioShock spinoffs for mobile.

Take-Two’s stock has taken a hit since yesterday, dropping close to 15%. Zynga’s stock, on the other hand, shot up, of course, because its investors are getting bought out to change Zynga from a public company into a Take-Two subsidiary at a healthy premium.

But the trepidation around the deal might be short-lived. Take-Two is certainly getting serious about mobile years too late, and paying a hefty price to acquire Zynga in the process. But over the long arc of the game industry, investing in the only part of the industry that’s growing the overall pie sounds like a prudent move. And if the next version of GTA Online launches on mobile, we’ll certainly know who should get the credit.

— Nick Statt

This story first appeared on Protocol.com. Read it here.


“Ah! So here’s something people aren’t explaining: NFTs don’t have to be jpgs. Imagine taking your favorite skin from Valorant, and using it Fortnite. And not paying extra, because you own it. Then using it in CoD, Minecraft, even Twitter, IG. So many possibilities, no?” An alarming number of high-profile game industry figures spent this past weekend arguing with … Linkin Park member Mike Shinoda. About what? NFTs of course, and whether interoperability of virtual game items is a genuine possibility. Most say no, but Shinoda remains unconvinced.

“Once again, you cannot take a ‘skin’ from one game, drop it into another, and expect good results - even if they were made in the same engine. The scales won’t match. The rigs won’t match. The LODs won’t match. The hitboxes won’t match. The shader budgets won’t match.” If Mike Shinoda was the shot, Riot Games’ Jules Glegg is the chaser. In her tweet thread from Sunday, the Valorant engineer broke down why interoperability of video game skins is not as easy as it seems, even if some of us (me) want to come to Zoom meetings wearing a Fortnite Master Chief skin.


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In other news

The case against Roblox. Journalist Simon Parkin published a lengthy feature in The Guardian yesterday detailing the growing concern with Roblox’s creator economy, which is built on the backs of underage children and raises questions around the compensation and potential exploitation of young game makers.

GameStop wants in on crypto. The Wall Street Journal took the wraps off GameStop’s secret Web3 ambitions last week in a report detailing the retailer’s plans to launch an NFT marketplace and invest in blockchain gaming.

The metaverse talent war. Microsoft has lost roughly 100 employees, many from its HoloLens and other mixed-reality efforts, to Meta over the last year, according to a report from the WSJ. Apple, too, has lost talent to Meta of late, and competition is fiercer than ever for AI and AR/VR specialists.

The App Store keeps growing. Apple paid out about $60 billion to developers last year, the company announced on Monday in a rare disclosure of App Store revenue figures. That’s up from about $45 billion in 2020, and the figure represents somewhere between 70% and 85% of its total revenue after its variable commission.

The head of Roku’s media business is stepping down. Scott Rosenberg has been the force behind the Roku Channel, which is key to the company’s hugely successful advertising business. Now he’s leaving for “a new challenge.”

Why Disney keeps sending Pixar films straight to streaming. Turns out it’s been two years since a Pixar film has premiered in theaters.

Only 40,000 people went to CES, and a good number of them were probably manning booths — which would explain why those aisles always looked so empty.

VR headsets don’t have parental controls. Kids use them anyway. The Meta Quest is not supposed to be used by anyone under 13, but kids obviously don’t care about that. CNN is taking a look at how parents try to monitor and moderate VR.

The demystifying of Web3

Signal co-founder and famed cryptography expert Moxie Marlinspike published a rather thoughtful but still relatively damning takedown of the current state of the Web3 movement and its more visible components, primarily NFTs.

It’s well worth a read, not just for the salient points Marlinspike makes but also for the accessible and no-bullshit approach he takes to explaining the technical underpinnings of his argument. The general thrust is that Web3 is replicating many of the economic and infrastructure trappings of Web 2.0, with just a new cast of companies benefitting from the same old platform dynamics.

Though Marlinspike published it on Friday, it’s been making waves all weekend and into this week, prompting a fair amount of debate and some steadfast defenses from the crypto world’s most staunch proponents, including Ethereum co-founder Vitalik Buterin. Marlinspike didn’t touch on the ramifications here for gaming or the metaverse, but his points are still relevant, especially given the level of centralized control the game industry has over its customer base and the money people spend on the games Web3 evangelists say will be transformed by the blockchain.


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Thoughts, questions, tips? Send them to entertainment@protocol.com. Enjoy your day, see you Thursday.

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