Good morning! This week in Protocol Gaming, your weekly guide to the business of video games: a dive into the debate around Ubisoft's earnings report, new updates in Epic v. Apple as Phil Schiller takes the stand, and the rise of Robloxcore.
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The Big Story
Free-to-play is the future. Not everyone is on board.
The game industry had a collective freak-out last week over the free-to-play business model. It was just the latest example of the long-simmering tension between what in the industry makes the most money and what gaming fans consider to be high-water marks of the art form.
- The catalyst was the latest earnings report from Ubisoft, and what the obvious trends in the company's financials spell for the future of the games business. (Side note: I love that earnings reports are pored over like a new game trailer these days.)
- The French publisher first made waves when its chief financial officer, Frédérick Duguet, said on an earnings call that the company would put increased focus on free-to-play and as a result would be "moving on" from its strategy of releasing three to four "premium AAA'' games per year — in other words, titles like Assassin's Creed and Watch Dogs — that sell for $60 or more.
The embrace of free-to-play caused a firestorm of debate about the health of big-budget single-player games of the type Ubisoft has built its business on. But the numbers don't lie: Free-to-play games generate more revenue more consistently, and the model now dominates the industry, from Fortnite and Roblox to Genshin Impact and Honor of Kings.
- An internal industry study conducted by Microsoft and revealed as evidence in the Epic v. Apple trial concluded that "free-to-play remains the industry's primary business model (70% of total revenue), is the largest driver of profit (74% of total), and sees the healthiest profit margins (32%)." That was in 2019; game analytics firm Newzoo estimates that mobile — where free-to-pay dominates — will surpass console and PC combined this year at $90.7 billion.
- Electronic Arts's earnings report, also released last week, revealed that 74% of its net bookings came from live services and other digital-only content, including its big moneymaker FIFA Ultimate Team. Free-to-play shooter Apex Legends also surpassed $1 billion in lifetime revenue. On the horizon: mobile, free-to-play versions of both Apex Legends and Battlefield.
Ubisoft was quick to try and calm the storm by clarifying some key points around Duguet's commentary, specifically that Ubisoft did not intend to signal it was moving away from the premium model but rather upping its investment in free-to-play.
- Duguet explained on the earnings call that some of Ubisoft's free-to-play games, like Just Dance, had performance "consistent with some of the industry's AAA performers." But he also made sure to point out that Ubisoft plans to keep delivering a "high cadence of content" across all business models.
- As his comments began bouncing around Twitter, Ubisoft released a statement, saying, "We are excited to be investing more in free-to-play experiences, however we want to clarify that this does not mean reducing our AAA offering."
- "[Duguet's comment was] in reference to free-to-play becoming a larger share of the revenue pie, not an indication that there will be less traditional paid games like Assassin's Creed," explained Ubisoft senior analyst Sean Lama on Twitter. "The content mix is expanding, not changing. A good [comparison] is the evolution of Call of Duty since Warzone."
Call of Duty represents the most likely path forward for giant publishers, as Lama pointed out. The franchise has an annual release sold as a premium, big-budget game. It also has a free-to-play console and PC battle royale alongside a fast-growing mobile app. All of this expands Call of Duty as a business, instead of one part siphoning away resources to prop up another. This is likely the future of gaming's biggest brands, but it certainly doesn't mean premium titles will disappear.
- Sony has invested heavily in its own studios and third-party developers to create a cadence of big-budget single-player games, like the newly released Returnal from Finnish studio Housemarque, sequels to its God of War reboot and Horizon Zero Dawn both in the works, and its purchase of Insomniac Games to build out the Spider-Man universe.
- Microsoft's purchase of Bethesda last fall signaled high confidence in the publisher's portfolio of single-player hits, including Elder Scrolls and Fallout, id Software's Doom, and the stealth action titles of Arkane Studios. There are also numerous mobile variants of Elder Scrolls, a free-to-play version of Fallout and a wildly successful Minecraft app, meaning Microsoft can and often does have it all with its biggest franchises.
One clear takeaway from Ubisoft's earnings controversy is that those in the game industry care less about any real distinction between free-to-play and premium and more about investing in a diverse array of business models that cover all the bases, especially as that distinction starts to disappear.
Microsoft is building its cloud gaming service with a big focus on bringing what we think of as premium games to a mobile screen, Nintendo has put Mario and Animal Crossing on the iPhone and Sony has finally relented and brought some of its titles to PC. Meanwhile, the big third-party publishers are everywhere at once, with an obvious and inevitable focus on free-to-play as the future no matter the platform. No amount of hand-wringing about the glory days of gaming is going to change this formula going forward.
- "A game is what three lawyers agree on what a game is." —Tobias Kopka, head of developer relations at Reboot Develop, offered his opinion on the definition of a video game for a great roundup on the issue at Gamesindustry.biz. The question has become a silly, borderline absurd exercise in the ongoing Epic v. Apple antitrust trial, though it may have serious ramifications for Fortnite.
- "Obviously not clear yet what specifically happened behind closed doors there, but if corporate unilaterally pulled the story, I cannot think of a more hostile breach of editorial independence in our corner of the industry within the last decade." —Podcast host and journalist Austin Walker weighs in on IGN removing an article that linked to charities supporting humanitarian efforts in Palestine. Vice reports the move was made by the organization's corporate owners and IGN staff have since widely condemned the censorship in an open letter.
- "I've got an Xbox, a PlayStation, a Nintendo Switch, of course my Mac, my iPhone, my iPad, an Apple TV and also a dedicated VR auto racing simulator rig." —Apple's Phil Schiller, a longtime executive and key witness in the Fortnite trial, is apparently quite the gamer, as he rattled off all the platforms he owns at home while testifying on Monday.
A MESSAGE FROM DATASTAX
Protocol sat down with DataStax CEO Chet Kapoor to discuss how a modern, open data stack can help companies drive high growth and the role open-source Apache Cassandra plays in reliably delivering data at scale.
- Roblox has its own music genre. The New York Times reported on the burgeoning music scene within Roblox, including the explosion of a hip-hop subgenre players call "Robloxcore" and the techniques players use to bypass the game's copyright filters.
- PlayStation Studios has more than 25 exclusives in the works, according to Hermen Hulst, the head of PlayStation Studios. Close to half the lineup is attached to new IP, he told Wired.
- Amazon's gaming unit has a new leader. Jeff Blackburn, a longtime Amazon veteran who left the company only a few months ago, is back in a new SVP role overseeing Amazon Games, Twitch, Prime Video and other media units, according to Variety.
- The gaming NFT market got its own unicorn. Hong Kong-based Animoca Brands raised $88 million at a $1 billion valuation to become a leader in non-fungible tokens for digital in-game items, VentureBeat reported.
- Epic v. Apple isn't looking so good for Epic so far. Now in its third week, the Fortnite antitrust trial has drawn a lot of attention, but The Information reports the consensus among developers and industry insiders is that it looks mostly like a financial dispute between two well-off corporations.
- Google Stadia is "alive and well." Though the division has lost talent of late, Stadia's Nate Ahearn told Gamesindustry.biz that more than 100 games are coming to the platform in 2021 and the team is "focused on delivering value for our partners and on behalf of our players."
- Gucci has reentered the metaverse. The luxury Italian fashion house teamed up yet again with Roblox to promote its Gucci Garden Archetypes, an immersive experience promoting the brand's creative director Alessandro Michele. The virtual exhibit will open on the Roblox platform for two weeks starting May 17.
- Lightforge Games is a new studio from Epic and Blizzard alumni. The all-remote studio has raised $5 million from investors including NetEase and Galaxy Interactive with the goal of developing a new online role-playing game.
LOOK OUT FOR
Next-gen consoles coming to China
Sony's PlayStation 5 debuted in mainland China over the weekend to great success, with the console selling out in a matter of minutes after pre-orders opened last week. Microsoft is planning to launch its pair of next-gen consoles, the Xbox Series X and S, in the country next month, with pre-orders opening later this week. The success of both platforms will hinge on their ability to meet demand amid ongoing shortages and compete with the Nintendo Switch, the current market leader in China.
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