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Protocol Gaming
Your essential guide to the business of gaming with Seth Schiesel and Shakeel Hashim.

Amazon’s multibillion-dollar gaming experiment? It’s just getting started

Crucible

Hello! This week in Protocol Gaming, your weekly guide to the business of video games: What Amazon can learn from the failure of Crucible, why Roblox might be justified in shooting for an $8 billion valuation, and Phil Spencer tells us what he's playing right now.

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The Big Story

What next for Amazon Games?

The first, troubled era of Amazon's foray into the video game business finally ended Friday night.

That's when the company pulled the plug on Crucible, the multiplayer shooter that was supposed to carry Amazon to the highest echelons of the game industry. Instead, Crucible was announced, delayed, released to widespread yawns, yanked off the open market, returned to "closed beta" and then completely canceled.

  • After spending hundreds of millions of dollars and close to a decade trying to build a world-class game development operation, Amazon has yet to release a single successful title.

Until now, Amazon has been trying to make games that show off its technology, rather than see its technology as a tool to make great games.

  • The Amazon Games operation under Vice President Mike Frazzini lives within the broader Amazon Web Services cloud computing division run by Andy Jassy. The overall mission for Amazon Games has appeared to be to make games that will help sell more AWS services to other clients.
  • That's akin to a record label being controlled by a company that makes guitars and amplifiers and being told, "Go make hit music that will get people to buy more audio equipment." And as any successful entertainment executive could tell you, that's just never going to work. The entertainment has to come first. The most amazing technology is relevant only as it serves that unquantifiable creative spark of life called fun.

So it's time for something to change, and I believe that Amazon will figure this out.

  • As Bezos himself put it in his 2018 letter to shareholders: "As a company grows, everything needs to scale, including the size of your failed experiments. If the size of your failures isn't growing, you're not going to be inventing at a size that can actually move the needle. Amazon will be experimenting at the right scale for a company of our size if we occasionally have multibillion-dollar failures."

It is far too early to call Amazon Games a multibillion-dollar failure. Nothing in the Crucible cancellation announcement mentioned layoffs. Instead, the company said the Crucible team would move to help with New World — a promising massively-multiplayer fantasy game being developed by Amazon's Irvine studio — and other projects. The experiment is still in progress, but it clearly needs to move to Phase 2.

But what about AWS? What about showing off all the amazing futuristic experiences that only the power of cloud computing can enable?

  • Well that can and should happen, too, but not (just) by making new games as tech demos. For Amazon, perhaps the best way to show off the power of AWS for gaming would be to radically improve and revamp an online game that's already popular.
  • And I'd argue there's no better candidate for that than Eve Online — a game that sometimes attracts so many players that its servers slow to a mind-numbing state known as time dilation to save themselves from crashing altogether.

In last week's Protocol Gaming, we advised you to keep an eye on the huge online spaceship battles brewing in Eve.

  • The players delivered with the biggest fights in online gaming history, with thousands of battleships, supercarriers, dreadnaughts and assault cruisers shooting each other in a molasses-like approximation of real time. No other game in the world even tries to allow so many players to duke it out.
  • As an Eve developer for CCP said on Reddit last week: "[T]he processing power truly required to solve this would be on the Wall Street stock trading supercomputer level which we just fall a few billion dollars short of."

If Amazon wants to show the world what AWS can do for games, the company could buy one-third of CCP from Pearl Abyss for $200 million. (Pearl Abyss bought the company two years ago for $425 million.)

  • $50 million in cash and at least $150 million to deploy Amazon's developers and technical wizards to rebuild Eve's code from the ground up for AWS. And then let 10,000 Eve nerds fight gargantuan virtual space battles without time dilation.
  • Transforming an existing game experience (Eve) that is fundamentally constrained by some of the world's most difficult networking and computing challenges would be the best advertisement AWS ever had, at least for gaming. (Amazon is already making its first moves into publishing games developed by third parties, with a different South Korean company, no less.)

And if Amazon doesn't do it, Microsoft should, because the top end of gaming won't always be just about Sony vs. Microsoft. When it comes to sheer technical power and financial resources, Sony won't be able to keep up with Xbox.

  • That's why Phil Spencer, head of Xbox, told me back in January: "When you talk about Nintendo and Sony, we have a ton of respect for them, but we see Amazon and Google as the main competitors going forward." That wasn't shade. It's just the truth.

So even as Amazon shuts down Crucible, the strategic opportunity that gaming represents for the company remains clear. From its new cloud gaming service Luna to AWS to the next era for Amazon Games, expect the House of Bezos to learn from its failure — and move on quickly.

— Seth Schiesel

Overheard

  • "A final decision should be better informed regarding the impact of the walled garden model given the potential for significant and serious ramifications for Sony, Nintendo and Microsoft and their video game platforms." — Judge Yvonne Gonzalez Rogers, in her decision allowing Apple to keep Fortnite off the App Store, said the stakes are high for Epic and Apple's upcoming trial.
  • "You get all our games at launch with Game Pass. So does the price of a game even matter, if it's included in your Game Pass subscription?" — Xbox's Aaron Greenberg dodged a question about higher next-gen game prices.
  • "Twitch repeatedly swept accounts of harassment and abuse under the rug: sexual, verbal, physical abuse, and racism … It was rampant and unavoidable … It was overt and part of the job." — An anonymous former Twitch employee was one of many to tell GamesIndustry.biz of alleged harassment and assault at the company.
  • "Our goal is that by helping developers to make an initial game profitable, they will graduate from the program with both the financial resources and know-how to make their next endeavor a success without Unity." — Unity's Julie Shumaker told Protocol that the company's new Game Growth Program, which gives developers cash and expertise to boost user acquisition, should help expand the mobile ecosystem.

A MESSAGE FROM MICROSOFT AZURE

Azure

Make next level games with Microsoft's own AAA-grade development toolbox, including the battle-tested solutions of Azure and PlayFab, powering some of the world's biggest games.

Learn more.

Level Two

Roblox gears up for a listing

Back in June, Roblox Chief Business Officer Craig Donato told Protocol that an IPO probably wasn't in the company's "immediate future." Cut to four months later, against the backdrop of a booming public listing market, and minds have changed: The company announced yesterday that it's confidentially filed for a listing.

The change of heart isn't too surprising. Back in June, people still weren't sure how lively the public markets would be, even for stay-at-home beneficiaries like Roblox. Since, we've seen a torrent of successful listings. In particular, Unity might have inspired Roblox with confidence: The game engine's stock has almost doubled from its IPO price.

  • By the sounds of it, Roblox has had an extremely successful year, too, as bored kids spend increasing amounts of time socializing online. In July, Roblox said it had 150 million monthly active users, and SensorTower estimates that the mobile version alone brought in over $100 million of revenue in May. That's likely why Roblox reportedly thinks it can double its most recent private market valuation, achieved in February, to $8 billion.

Investors tend to love businesses like Roblox. More than a game, Roblox is a platform for other developers — similar to the App Store or Steam, but with a whole game engine bundled in. But while Apple and Valve take a roughly 30% cut, Roblox keeps over 50% of money spent on its platform (something developers aren't always happy about). Given the company has said it expects to pay out over $250 million this year, that means it might have revenue of over $500 million. Suddenly that $8 billion valuation looks pretty reasonable.

  • Oh, and it ticks the buzzword box. Roblox is one of many companies trying to make a "metaverse": A virtual social platform that some think may be the future of the internet. Epic Games' Fortnite is arguably furthest along in that mission, but it's still privately owned. For metaverse-inclined investors, Roblox's IPO is an obvious opportunity.

Still, the devil's in the (financial) details, and those are still under wraps. If Roblox decides to pursue its listing, we'll see its full financials in the coming months. But there's no guarantee: Roblox may yet decide to pull the plug, especially if a tumultuous election upsets markets.

— Shakeel Hashim

Lootbox

  • Microsoft is going the browser route for Game Pass on iOS, Business Insider reports. Phil Spencer reportedly told employees that the company is aiming to release it next year.
  • Relatedly, Microsoft published a list of app store principles to "promote choice, fairness and innovation." The company said the principles applied to Windows but not Xbox because it sells consoles at very low margins and gaming is a different use case.
  • It's been a busy year for deals, with over $20 billion in acquisitions, investments and listings so far. In the past week, My.Games bought Deus Craft for $14 million, which could rise to $49 million; Tilting Point acquired Edgeworks' TerraGenesis for "multiple millions"; and TGS Esports bought Volcanic Media. Meanwhile, Embracer Group raised almost $650 million from a new share issuance, with Canada Pension Plan Investment Board contributing almost $240 million worth of that.
  • Niantic is making a big ad-sales push. It appointed Brian Benedik, Spotify's former chief revenue officer, as VP of global revenue, to grow location-based ads. Former YouTube exec Erin Schaefer is also joining the company as VP of operations.
  • Huya and DouYu are merging, in a deal that values DouYu at $6 billion. Combined, the two Tencent-backed game-streaming platforms, plus Tencent's Penguin business, will have over 300 million monthly active users, around 80% of the Chinese market.
  • Newzoo downgraded its esports revenue forecast once again. It now thinks global revenue will be $950 million, down from an initial forecast of $974 million. In other esports news, G-Loot raised $56 million, RektGlobal raised $35M, and Gfinity started a formal sales process.
  • Riot closed its Sydney office as part of an esports scaleback in the region. Activision Blizzard closed its office in Versailles after previously closing its office in The Hague earlier this year.
  • GameStop announced a partnership with Microsoft. It will shift its business to Microsoft software, use Surface devices in store, and offer Xbox All Access. A cushy deal for Microsoft — but GameStop's stock soared on the news anyway.

Five Questions For...

Phil Spencer, Head of Xbox

Every week we'll ask a leading industry figure five big questions. Phil Spencer, Microsoft's game chief, is getting ready to release new versions of the Xbox next month, even as the company begins to digest its acquisition of ZeniMax Media and Bethesda Softworks.

What was your first gaming system?

Pong. And if that doesn't count, Atari 2600.

What is the most important trend in the game business in 2020?

Focusing on players and a future that centers on them, where gaming transitions seamlessly across devices and delivers the best fidelity experience for each, whether that be console gaming in the living room or mobile game streaming. Going forward we expect our games, our in-game progress and our friends follow us across screens – including consoles, PCs, phones, tablets, and more.

What has been the most overlooked aspect or development in the game business over the last year?

Maybe not overlooked, but certainly remarkable, is the many ways people have turned to games this year. Games have kept people connected, they've helped raise awareness around important causes and charities, and they've provided familiar places for people to escape to. People have been using games in creative ways due to the circumstances we find ourselves in, and I love that. Minecraft being used for graduations, or Gary Whitta's talk show Animal Talking are great examples of that.

What new technology or technical development are you most looking forward to?

I continue to be inspired by how the accessibility of creation tools, distribution and platforms has allowed so many new voices to tell their stories through video games. We have more games in development now, as an industry, than any time in our history. And that development comes from places that even 10 years ago had no game developers. So, the technological advancements that leads to the democratization of creation and distribution would be my answer.

What games are you playing recently that don't come from your company?

I play a ton of Destiny 2. I've been playing Elder Scrolls Online again; I'm amazed at the amount of content in that game. I played some Marvel Avengers, Drake's Hollow etc. I play a ton of different things.

Power Up

Games are at film festivals, now

My Oculus Quest 2 just arrived this morning, and by the time you're reading this I will be firmly strapped into the virtual world. I'm looking forward to the London Film Festival's "Expanded" strand, which has a whole range of interactive VR experiences available to try. It's all free, and you've got until Sunday to try it out.

Shakeel Hashim

A MESSAGE FROM MICROSOFT AZURE

Azure

Make next level games with Microsoft's own AAA-grade development toolbox, including the battle-tested solutions of Azure and PlayFab, powering some of the world's biggest games.

Learn more.

Thanks for reading. Tell your friends and colleagues to subscribe here, and send tips, feedback and ideas to sschiesel@protocol.com and shakeel@protocol.com. See you next week.

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