Source Code: Your daily look at what matters in tech.

gaminggamingauthorShakeel HashimGaming NewsletterWant to better understand the $150 billion gaming industry? Get our newsletter every Tuesday.03807ace1f
×

Get access to Protocol

Will be used in accordance with our Privacy Policy

I’m already a subscriber
Protocol Gaming
Your essential guide to the business of gaming.

Is 2021 the end of history for gaming?

Is 2021 the end of history for gaming?

Good morning! This week in Protocol Gaming, your weekly guide to the business of video games: Why this year might be all too familiar, regulators crack down on the industry and Stadia's coming to TVs.

(Was this email forwarded to you? Subscribe here.)

The Big Story

The end of history and the last gamer

As tech optimism faded in the early 2010s, Peter Thiel captured the zeitgeist with his remark, "We were promised flying cars, and instead what we got was 140 characters."

A similar observation could be made of the gaming industry as we enter 2021: We were promised the next great medium for storytelling, and instead we got microtransactions and the 18th installment of Call of Duty.

Though this characterization admittedly paints with a broad brush, it's worth asking whether we're nearing the end of gaming history: Perhaps gaming isn't a medium of cultural ascendency but one of decline. Video games once promised an escapism that would heighten our senses and enrich ordinary life, but today they act as a social palliative, better suited to numb and distract us. (Look no further than the slew of Reddit posts reporting bouts of depression after Cyberpunk 2077 failed to meet expectations.) Gaming will undoubtedly progress this year in terms of technology — Nvidia's graphics cards are as powerful and affordable as ever, Big Tech has invested heavily in cloud gaming and Facebook looks poised to push VR into the mainstream — but that could be besides the point.

The year ahead in gaming may instead be most remarkable in its familiarity. The next generation of consoles from Sony and Microsoft are set to gain widespread adoption, helped along by the latest installments of familiar titles. Cyberpunk 2077's spectacularly bad rollout could mean that similarly ambitious AAA titles will have a harder time getting funding. And though Apple is giving iOS users privacy protections that threaten ad-based mobile games, the end result will likely be more microtransactions.

Let's take a closer look.

Sony and Microsoft will meet pent-up demand for next-gen consoles by the summer, putting an end to die-hard console gamers buying them on the secondary market for double and triple their sticker price.

  • At a Jefferies conference in November, Xbox Finance general manager Tim Stuart said that even with supply chains at full speed, he expects supply shortages will last through to the "pre-summer months."
  • An unconfirmed DigiTimes report based on industry sources claimed that Sony expects additional capacity from TSMC foundries will allow it to ship up to 18 million units in 2021, up from the 3.4 million units shipped in the four weeks post-launch.
  • AAA exclusives arriving throughout 2021 could help Sony and Microsoft generate buzz despite the slow launch.

Innovative projects will struggle to get funding from gaming studios after the Cyberpunk 2077 debacle.

  • Halo, God of War, Fallout, Gran Turismo, Call of Duty, Battlefield, Grand Theft Auto — stop me if you've heard of these 2021 releases before. Gaming has gone the way of Hollywood: Studio execs increasingly fund established franchises rather than ambitious projects without an established audience.
  • Part of this has to do with the soaring technical cost of production, which raises the stakes of failure: AAA gaming titles such as Grand Theft Auto and Destiny cost hundreds of millions of dollars to produce.
  • Cyberpunk 2077 was somewhat anomalous in the gaming industry given its creative ambition and AAA budget. The title's launch struggles serve as a reminder of the risks associated with pushing the boundaries of gaming.

Copy-paste sports simulators face a reckoning, and it could result in the latest titles being made more widely available on subscription services.

  • Sports gaming franchises have been criticized for providing only minor changes to games every year. EA admitted that it launched FIFA 21 for Nintendo Switch "without any new development or significant enhancements."
  • It's a winning formula for developers, which enjoy exclusive licensing agreements that insulate franchises such as Madden and WWE 2K from competition. Limited annual development costs and loyal audiences turn the games into cash cows: EA generated an astounding $1.49 billion — 27% of net revenue — from FIFA Ultimate Team in its fiscal year 2020.
  • Relief for gamers may come in the form of subscription models: EA and Take-Two (2K) have already embraced this to some extent, making older versions of their sports titles available through Game Pass and PlayStation Now. In December, EA agreed to a $1.2 billion acquisition of Codemasters — the U.K. game studio behind subscription catalog mainstays F1 and Dirt — suggesting it is looking to double down on subscription services in 2021.
  • And given the profitability of the microtransaction game modes, EA and 2K could offer their latest sports titles through popular subscription services in 2021; doing so would certainly alleviate frustration with having to pay $60 or $70 for a game with incremental upgrades.

Apple's privacy tools will change how gamers pay for what they play, as mobile game developers will be forced to adopt new monetization tactics.

  • Through an iOS update, Apple is expected to give people the ability to limit the distribution of advertising ID, known as IDFA. This would significantly curtail developers' ability to monetize user data through targeted advertising.
  • Mobile ad firm InMobi's CEO, Abhay Singhal, told VentureBeat that he estimated the changes could reduce mobile game developers' revenue by 40%.
  • The changes will steer mobile developers to the two alternative monetization models: microtransactions and ... upfront payment (a novel idea, I know).

— Hirsh Chitkara

Overheard

  • "The Commission must closely scrutinize today's gaming gatekeepers, including app stores and advertising middlemen, to prevent harm to developers and gamers." —In a statement accusing Tapjoy of misconduct, FTC commissioners Rohit Chopra and Rebecca Kelly Slaughter said gaming needs to be more tightly regulated.
  • "I think maybe in the licence business there has been a bit too much emphasis on free-to-play and the premium model was not so popular ... But at THQ Nordic, we're not going for the super AAA stuff where we need millions and millions to be successful. We can do that with relatively low volumes." —THQ Nordic's Klemens Kreuzer said the company is going big on licensed content following its Purple Lamp Studios acquisition.
  • "Steve [Ballmer] made us go meet with Nintendo to see if they would consider being acquired. They just laughed their asses off. Like, imagine an hour of somebody just laughing at you. That was kind of how that meeting went." —In Bloomberg's excellent oral history of the Xbox, Kevin Bachus said Microsoft tried to buy Nintendo in the run-up to the Xbox launch.
  • "As Tencent faces increasing competition in the market ... the company appears to be taking a less conservative approach to mergers and acquisitions." —Niko Partners analyst Daniel Ahmad said ByteDance, Alibaba and miHoYo are putting pressure on Tencent's gaming business.

JOIN US NEXT WEEK

First 100 days

What will a Biden administration mean for the business of tech? Protocol's Issie Lapowsky and Emily Birnbaum will lead a conversation about how — and if — U.S. lawmakers will funnel political energy into tech policy change in 2021. Hear from Representative Cathy McMorris Rodgers, FTC's Commissioner Becca Kelly Slaughter, Colorado AG Phil Weiser, Brookings' Nicol Turner Lee and Former U.S. CTO Jen Pahlka. RSVP today.

Lootbox

  • Roblox raised $520 million at a $29.5 billion valuation. It announced the fundraising alongside plans to go public via a direct listing, rather than pursue its original IPO plans. Meanwhile, Playtika launched its IPO, aiming to raise $1.7 billion at an almost $10 billion valuation.
  • The U.S. may ban investors from owning Tencent shares, The Wall Street Journal reported.
  • Google Stadia and GeForce Now are coming to LG TVs. Stadia is expected to come first, with the app built into new LG TVs and available on older ones via a software update.
  • Niantic bought Mayhem, a Y Combinator startup that makes tools to organize competitive gaming leagues. Financial terms weren't disclosed.
  • Epic bought RAD Game Tools, which helped make Fortnite's compression technology. It plans to integrate its tools into the Unreal Engine.
  • Poland's consumer regulator is investigating CD Projekt Red. It's looking into how defects are being handled and how it's treated dissatisfied customers.
  • Microsoft killed Minecraft Earth, its AR game. It blamed the pandemic for disrupting the location-based title.
  • Tanya Watson stepped down as Squanch Games' CEO. Justin Roiland will replace her. In other moves, James Stanford is Tilt Five's new COO; Kamini Tiwari is Humble's VP of social impact; Adam Campbell set up Studio AC Games; and Will Stahl left Offworld Industries.

Look Out for

Games hit the silver screen

After suffering through way too many terrible movie adaptations of games, the tide might finally be turning. After years of speculation, filming's finally about to start on Eli Roth's Borderlands adaptation, starring Cate Blanchett. With Jim Ryan saying this week that the Uncharted movie and The Last of Us TV show are just the start of Sony's expansion "into new media," this might be gaming's big Hollywood moment.

Shakeel Hashim

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

Recent Issues