What is happening in video games right now?
Thoughts from GDC
In between visiting Serpent Mound in Ohio and avoiding Heathrow Airport’s transformer debacle, I spent most of last week at the Game Developer Conference (GDC) in SF. It’s always a pretty good snapshot for the general industry mood (investor, developer, publisher) and just how much attention non-games investors are paying to the sector (currently not much).
Simon Carless has a pretty good set of GDC takeaways but my more hybrid investor/operator observations are:
Good lord but everyone seems to hate Matthew Ball for his recent report. If it hadn’t been for those pesky kids analysts, we would have gotten away with everything etc. Okay maybe it was a little negative in places but broadly it seems to reflect the consumer behavior we’re seeing.
Somewhat related to the above, I am not convinced that demographics are unrelated to games industry slowdown. Overall market revenues are down ~13% since 2021 at approximately the same moment that Gen Alpha (expected to be a 10-20% smaller cohort than Gen Z in developed coountries) is becoming an economic force. I have not yet seen anyone talking about this.
Also somewhat related to the above: The teen audience is now the most active segment on Meta’s Quest 3 platform. That’s a massive shift in customer base and purchase preferences.
Lots of drinks discussions about how VCs are no longer a financial substitute for games publishers. This is absolutely correct and it’s painful for anyone who hasn’t adapted their thinking. But constraints (less capital, less risk appetite) drive results and I’m pretty bullish that it will push much more creativity in how games are built, distributed and monetized. Interesting things will emerge from this period.
I kind of wonder if all the talk of cloud gaming deployed into connected TVs will finally be the moment which unlocks the potential of ‘in-game ads’. For two decades I have seen (and built) investor presentations about this. Maybe CTV-cloud gaming will release that wall of money? Potentially significant upside for Netflix and (presumably) Disney.
Discord announced both their social SDK and their mobile video ad format. It’s intriguing to watch their emerging ad strategy in the context of what Roblox and Epic have and haven’t done. As someone who has been extremely close to the brand-engagement aspect of these spaces, I know the size of the revenue opportunity lurking there.
In the wake of the Voldex/Brookhaven deal, there was a lot of investment banker chatter about Roblox developer roll-ups. Anecdotally it seems like outside capital is underestimating the degree to which community acceptance is important and developers are underestimating the ‘professional’ requirements of many acquirers. Nonetheless, this ecosystem is only going to grow.
Reading/Watching
Jessica Riedl, independent economist, deconstructing US tax myths. I’d love to see a version of this for the UK.
Has China already beaten the west in robotics?
I’m working my way through Bob Caro’s The Power Broker (no joke, I was stopped by airport security twice last week because of how suspiciously large the book is) and took a break to watch Turn Every Page, the excellent documentary on him and his long-time editor, Bob Gottlieb.
Re: Discord and Roblox emerging ad strategy...
I'm reminded of a slide from Joost van Dreunen's SXSW "State of Play" presentation. He notes that social media accounts for 18.7% of total media time spend but captures 41.6% of ad spend. Games capture nearly as much media time spend -- 13.3% -- but claim only 3.7% of total ad spend. I wonder if we'll look back on Discord's GDC announcement as the point when the rebalance finally began.
(SuperJoost at SXSW: https://superjoost.substack.com/p/the-state-of-play-at-sxsw)