Microsoft gains, Apple changes, D&D rumors, layoffs impact games industry – Games Growth with Upptic

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Have you seen the numbers of how hit just this week?

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Number go up.

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As of yesterday, it was 19 million players, 12 million on Steam.

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implies 7 million on Xbox.

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Wondering if this is going to be like the story of the moment or if this is going to be,

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a game that really sticks throughout the year.

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So are you still playing? I am still playing.

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I’ve played. Don’t we talk about over 20 hours so far? It’s out two weeks. So it’s

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The polish

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starts to come off

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further you get into the game, obviously.

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But it’s really good. I mean, they’ve done it playing on a PC or Xbox PC.

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Okay, gotcha. That’s yeah,

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the Xbox version is like a few builds behind and like

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not as great of an experience right now

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Awesome. Welcome to the show everybody.

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We got a lot to cover today.

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First off, we’re going to talk about some of the continued carnage for a game industry. Layoffs.

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Microsoft earnings and how Activision Blizzard fits into that.

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We have a couple of important stories to touch on with Apple, both the ongoing

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and next chapter of drama between Epic versus Apple as well. Is

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this wild new EU policy and how it’s going to affect game developers?

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and some breaking news.

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There is a rumor that

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Hasbro is in talks with Tencent to acquire the D and D brand.

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So

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why don’t we just start off on a big bummer note and talk for game industry layoffs? Fine.

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Yeah. So I think there’s two things that caught our attention this week.

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Sadly,

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there was layoffs announced at Sega of America.

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the rumors, two separate batches of layoffs of 49 and 12 staff.

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out of

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six staff of 440, this is about 13% of the staff.

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So

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obviously not as big as

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Activision Blizzard, but as far as a percentage to the company, very meaningful.

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It seems to be

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norm

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rather than the exception for layoffs in gaming, unfortunately, right now.

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the other thing is we want to give a little more clarity

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as the dust has settled. We knew about the Microsoft

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Activision Blizzard, basically the whole gaming segment, layoffs for Microsoft last week.

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Now the dust has settled. We know a little bit more about it. So 1900 employees total were laid off.

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Two really notable ones were Blizzard’s president, Mike Ybarra and Chief

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design officer

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Allen Adam

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of NOTE.

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I’ve been trying to get some clarity. If this was a resignation or if they were forced out. It seems like the language around that is still pretty vague. I don’t know, Zander, if

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you’ve heard anything otherwise

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yeah, I think Allen is like one of the initial designers he like did all the early games

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and one of their founders and we yeah these are like very

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heart and soul people company

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Another update since last week is most of the e-sports division

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was also

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added in

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another

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sub round of this round of layoffs.

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Zander, this a lot of doom and gloom in layoffs lately but like earnings are still going up and no we’re covering

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earnings more later. What’s your take on

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the continued trends that we see.

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first and foremost, I think this is just a continuation of the trend that

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been seeing. Right? That’s not really anything interesting to say. But the fourth thesis is smaller game teams produced

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better games and bigger outcomes. This is a continuation of that. And as we dig into the earnings later, spoiler alert Atvi is

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not net profitable.

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So it’s actually decreasing their operating margin.

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obviously they need layoffs. So talk about that one gets earnings.

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The other thing I have is more just personal

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anecdote, which is I went to an event in the city yesterday

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hire with a bunch of very

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senior games folks heavily mobile bent and of the

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it’s ten people I’ve talked to almost all of them were currently unemployed, which is.

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Yeah frickin wild Like I mean, we know how brutal it’s been, but like,

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I’d even like until I left

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event,

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talked to unemployed on between jobs. I’m hanging out. I’m doing consulting. And then I was like walking

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to the car, like, holy crap. Everyone I talked to except for like, one person is currently unemployed.

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So, I mean, it’s real.

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it’s brutal. These are like senior people who were,

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the top of their game firing on all cylinders. So it just. Yeah, see

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no, I definitely see the same thing. A lot of like really established growth marketers that are kind of hustling, doing gig based work

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consulting

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and a lot of those

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very secure jobs have running large in-house growth teams

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that was historically considered like one of the safer parts of the industry because you’re considered a growth driver, the business you’re doing your job well

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But yet it seems like no one is

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safe right now.

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Yeah. I mean, this is like a broken record here. But

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the thing that

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really was

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the through I’m to most the folks you talked to is they all focused on what were you way So if you recall a couple of years ago Apple did something to really hurt what we called the HD scan. We’ve talked about this ad nauseum and I believe

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this is a continued ripple effect of that impact.

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I mean, there’s also

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the downstream active like this is 12 years into an investment cycle in mobile where you saw huge growth sector is now not growing. You’re seeing consolidation.

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So I think it’s it’s a pretty typical cycle, but

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it’s

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brutal. And I’m like, what do we do with all the excess, you know, really smart people?

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You got to search for new companies or something.

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Yeah. I mean,

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did a upset recently with the game site guys, and we talked about like mobile, you

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know,

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shrinking slightly as a segment in recent years, which is like

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a

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definitely a new trend. And,

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skin is one big factor of that. Another thing I attribute is just sort of lack of innovation in traditional mobile replay game design.

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But that happens in a time of defensive needs for the industry. Raised more, doubling back on what works are you get diminishing returns on that. And the last thing that I think about a lot is just where

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market is overall.

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me, I’m a soapbox again, but I think we had an era of growth for mobile gaming where there was no profitability at the end of

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the rainbow, where it was a bunch of companies bringing users and growing,

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growing top line, but often without a solid foundation for actually delivering profit.

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And everyone was competing that way, outbidding each other

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and most were trying to achieve some kind of exit.

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A lot of acquisition happened in the space and now the dust has settled. It’s about economy and

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these companies need to be profitable. And so there’s a lot of panic

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of how to

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I don’t say cut the fact

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that’s demeaning to

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good people who lost their job.

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But like they’re

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trimming everywhere they can to try to

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take these businesses that either have been acquired or never got acquired. But if they want to survive, they have to turn into sustainable business. And I think there’s a lot of thrash around that. Yeah, I mean,

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I think it’s fair to say the majority of mobile game department companies

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at scale had upside down business models and we’re seeing that really play out now.

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Cool. So next I wanted to talk a bit about Microsoft’s earnings.

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there are really smart earnings analysts

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know, I want to talk about is sort

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the gaming perspective on this. And that’s what we do best.

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but

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you can’t talk about Microsoft out

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talking about the top line.

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And, you know, Microsoft just recently passed $3 trillion to be the most valuable company in the world. Craziest thing keeps growing. I mean, you could do way worse.

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Basically, anything you did besides by Microsoft stock has been way worse over the last couple of decades.

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But some top line numbers,

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Microsoft

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announced 18% revenue increase, reaching 62 billion this quarter,

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this top line, and then

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33% increase in net revenue totaling

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21.9 billion.

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that game is our third most lucrative product for

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Microsoft

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behind the Microsoft Cloud segment in office, which are obviously the giant, huge

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growers overall.

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The cloud business revenue was up

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to 33.7 billion, 24% year over year.

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Yes. Why?

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Yes. Yeah. And I had you know that.

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they’re selling,

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their air animal products, which everyone Sebastian

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I think this is the most interesting thing

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Xbox content and services revenue up 61%. And overall gaming revenue was up

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to $7.11 billion.

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But and this is the important part, 44% of that

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Activision Blizzard acquisition. So they’ve set all time records for Xbox, PC and Mobile in this quarter. But if you guys they bolted on Activision Blizzard and game right so it’s like you take the biggest key publisher for that it’s your business obviously you see it’s a tough guy Crow

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but here’s the important thing Since the deal closed in October

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they’ve added over 2.1 billion in revenue, but an operating loss of 430 million on Microsoft balance sheet.

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Okay. So it’s unprofitable growth, right? They’re buying growth at huge expense. And so like

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that happens, of course, they’re having layoffs. I mean, this was the plan. So these layoffs aren’t unexpected. But I mean,

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this is what happens whenever you see consolidation, especially when you’re getting acquired.

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man’s brutal.

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But

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I

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makes sense. Microsoft, was there a better company you’d want to hold going for the next two years?

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I know one, I just kind of spewed a lot and he thought, you need

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Yes. So we really see two competing narratives here. I mean, we covered in the segment earlier today

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this massive layoff from Microsoft’s gaming division. And then we see the earnings report hailing how much

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net new revenue is being driven from

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system, obviously,

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how much new revenue was being driven from the gaming segment. Obviously, there’s betting really huge on this for the future of the business. I think it’s going to be really messy

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figuring out what this new era looks like. But Microsoft has definitely proven to be an efficient long term operator, creating a lot of opportunities for cross-selling, cross-pollination, insert corporate buzzwords between the different parts of their ecosystem.

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And I’m sure that they’re going to continue to find this passion season gaming,

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but I don’t think it’s going to be a really fun time to work there. Honestly, in the early years of this merger and I’m sure there’s a lot of

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not super happy people reading about Microsoft,

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bragging about their earnings while their friends and colleagues are

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recently unemployed and gaming.

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Yeah, yeah. I mean, the other thing too interesting to think about for Microsoft is they’re really trying to redefine what the economics of gaming are with the impasse. And so

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I’m still very

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I wasn’t concerned, but I mean, yes, that is the right word. Concerned about what the economics for the gaming industry overall if you Netflix ified gaming.

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So I have a theory that

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gaming revenue is more resilient than television revenue or movie revenue, but I’m sure that’s what the fucking television executives said as well during this period. And so

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we’ll see what happens. But I am

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really cautious

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although

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not slowing down anytime soon.

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Cool.

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Next up we have the Zander Rails and Apple again segment

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two things this week

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the top line for this is there’s a new

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app policy

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in Europe in response to the digital markets Act,

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which is an EU policy meant to regulate how digital marketplaces work.

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Apple offered new policy, which is compliance.

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this is how it works.

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App companies can opt for new commission structure instead of the 3%.

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I feel great. That sounds great. I hate it. 30% IP fees the fees drop

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is much variables but basically dropping ten and 20%. However and this is really, really, really freaking important. Any

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company that has over 1 million users

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on iOS per year has to be 50% core technology fee on the entire user base, and they could never reverse its decision.

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have a calculator online and if you start using the calculator and play with any variables, this just blows the cost out of the water. It’s like multiplicative be more expensive for the majority of apps to go with

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This version was the other version, so it’s a pretty crazy policy. It like follows the letter of the law.

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They think in terms of

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following the digital

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Markets Act this the posturing

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it is, but this is obviously not following the spirit of the law, and I expect there to be more

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pushback from the regulators overall, because I think this is just like really, really disingenuous by Apple.

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was enter

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Apple estimates that less than 1% of developers will pay this fee. So it’s really not a big deal, right? Yeah, of course. Well, I mean,

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they’re smart because

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they have this small business program and that is part of how you get the 10% fee structure is like if you’re in the small business program under a million

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installs, you get 10%.

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But

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none of the revenue for that segment rate items from the high end and to be clear, I’m being sarcastic, but we all know that, like the wealth in games is extremely concentrated. So Apple, I think, often touts these

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somewhat

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misleading metrics about the number of developers

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that have to pay the fee rather than the percentage of the ecosystem revenue that they’re taking right

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most mobile games fail. Most mobile games generate like absolutely negligible revenue.

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And it’s a hit driven business. Absolutely. So it might be that 1%, but that 1% might represent,

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30%

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all revenue. Like it’s

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don’t actually know what that is and

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don’t quote me on that.

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And even though this is based on the EU rulings under this effects,

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all app developers.

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So it use specific policy. So the ecosystem is fragmenting.

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We kind of covered this last year in the podcast, but there’s specific rules around South Korea. There is now specific rules on the EU. The United States has other rulings and is just going to continue to fragment. And basically what this is, is they’re just how to get army of lawyers in every geo like hold the line.

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yeah. How like we get 30% commission for just milk and milk and milk and there’s a reason why they’re the number one caster business of all time or up there is because they have these types of really aggressive policies. Got it. Yeah. The wild thing about this that I really fixate on is how it

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affects player basis in different parts of the world really differently and actually prevents games from coming to certain markets.

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with this policy so

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say that you have a game that’s really popular in India and you’re a European developer,

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you’re no longer marketing that game in India.

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And in fact, you might want to delist it from the App Store because the average user value from that market compared to other markets

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is generally much lower.

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Yeah. And there’s tons of markets where the average LTV of players are below $0.50. Yeah, but when

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You could just pay the 30% IEP fee and that’s what you would to the new terms. Well why change it? So that’s the entire fucking point of this policy is to make you happy to pay 30%.

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Yeah. These guys what

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the goal it’s really for me.

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speaking of Apple and people fighting back

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epic it filed the new notice noncompliance saying they intend to pursue a motion of contempt of court against Apple in regards to the way that they’ve enacted their

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new after policy in the U.S. So

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they can step back a little bit.

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Supreme Court declined to hear the ruling about

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epic for Apple. What that meant is

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the lower court’s ruling went into effect and Apple said, okay, fine,

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you can link out of your apps to do web transactions, but you still have to pay 27% fee.

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and Epic said

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Crazy.

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This is nonsense

00:13:17:17 – 00:13:18:17

our taking it back to court and

00:13:18:17 – 00:13:29:04

hoping to hold them in contempt of court. I love it. Thank you. Epic sandwich. Kind of. I can do this and you got the money to do this. And you know, Tim, sweetie, you are our Lord and Savior. I mean, Warren, any thoughts here?

00:13:29:07 – 00:13:35:14

I mean, a little bit, but only once again, I will state Apple. You are a valued partner of Optic. We appreciate

00:13:35:14 – 00:13:40:06

you letting us launch all of our clients games on your platform and giving them lots of featuring support.

00:13:40:06 – 00:13:42:07

Yeah. We touched on this a little bit last week before

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this new chapter of Epic versus Apple.

00:13:44:02 – 00:13:44:15

But

00:13:44:15 – 00:13:52:11

we covered the news of this 27% fee. It really undercuts Apple’s thesis of why the fee exists in the first place,

00:13:52:11 – 00:13:53:23

which is we are

00:13:53:23 – 00:13:56:14

providing a bundle of services for this fee.

00:13:56:14 – 00:13:56:19

The

00:13:56:19 – 00:13:59:21

one of the big ones is smooth, safe payment processing

00:14:00:01 – 00:14:01:00

refunding.

00:14:01:02 – 00:14:01:20

And

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by applying what is essentially the same fee, I mean 27% versus 30%, come on

00:14:07:07 – 00:14:08:04

and saying like,

00:14:08:04 – 00:14:09:16

actually are going to give, you

00:14:09:16 – 00:14:12:03

none of those safeguards and we’re going to create

00:14:12:03 – 00:14:18:04

increased walls and fear in the consumer doing this transaction. But don’t worry, we’re going to still basically charge

00:14:18:04 – 00:14:19:13

the same rate for it.

00:14:19:13 – 00:14:28:01

I mean, there’s interest. So this is how they justify it. With a credit card fees, it’s like 2% rate. It’s like, well, our transaction fee is 3%. The other 27% is just the licensing fee for

00:14:28:01 – 00:14:30:01

our IP in this sanctity of our

00:14:30:01 – 00:14:31:09

walled garden. So

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I don’t buy it. I think it’s ridiculous. But

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that’s

00:14:34:05 – 00:14:34:19

that’s the market.

00:14:34:19 – 00:14:35:16

I guess

00:14:35:16 – 00:14:41:16

All right. Up next, today we had a juicy rumor that seems fairly legit that we wanted to cover.

00:14:41:16 – 00:14:48:00

This is a rumor that Hasbro is seeking to sell the Dungeons and Dragons brand

00:14:48:00 – 00:14:53:12

to Tencent. So we’re referencing here an article from Pan Daily.

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Supposedly,

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this was something

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that was brought about,

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oddly by the success of Boulder’s Gate three.

00:15:00:00 – 00:15:01:00

So

00:15:01:00 – 00:15:10:05

Larian Studios, the developers of all this Gate three, were able to do something that I think Hasbro had never been able to do with any of their first party game development efforts, which is

00:15:10:05 – 00:15:13:13

world dominating video game with the daddy

00:15:13:13 – 00:15:16:06

brand in it. Since their acquisition of that brand

00:15:16:06 – 00:15:16:15

and

00:15:16:15 – 00:15:20:02

but I’m not surprised Larian has significant investment from Tencent.

00:15:20:04 – 00:15:20:14

So

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story goes that supposedly with the success of Ballers Gate three,

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Larian had a real interest in

00:15:26:15 – 00:15:28:12

potentially acquiring the brand as

00:15:28:12 – 00:15:37:06

by some means, but they’re not of the size and financial status to be able to do so. So they basically approached Tencent, according to this article, and

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asked Tencent if they would consider acquiring

00:15:39:15 – 00:15:40:07

brand.

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So there’s a lot to unpack here.

00:15:42:00 – 00:15:43:01

One thing we haven’t

00:15:43:01 – 00:15:47:12

gotten Hasbro’s earnings for Q1 2024, but their last couple have been

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pretty dismal.

00:15:48:17 – 00:15:49:08

And, you

00:15:49:08 – 00:15:53:00

we’ve been talking about ongoing layoffs like Hasbro was one of the bigger layoffs

00:15:53:00 – 00:15:54:06

of recent period.

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So I think they

00:15:54:23 – 00:15:57:03

they have been cutting costs left and right,

00:15:57:03 – 00:15:58:04

looking for revenue

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But I

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think

00:15:58:12 – 00:15:58:16

this

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might be a case of like killing the

00:16:00:04 – 00:16:01:09

golden goose. I

00:16:01:09 – 00:16:03:04

they have one segment within

00:16:03:04 – 00:16:09:20

Hasbro that’s really profitable, which is twisters. The coast to the coast has two major APIs, Dungeons Dragons and Magic.

00:16:09:20 – 00:16:11:10

Historically, Wizards

00:16:11:12 – 00:16:20:02

has said in their earnings calls, we are under monetizing Dungeons and Dragons. A goal of ours is a better monetize that player base which the players love to hear, by the way.

00:16:20:02 – 00:16:32:12

So this is essentially them, I think admitting we haven’t figured out how to monetize DNA. And so we’re going to ring the register and see if we can just leverage this and, you know, back some cash

00:16:32:12 – 00:16:32:19

00:16:32:19 – 00:16:38:00

while we’re bleeding and sell off the brand. So there’s a lot to unpack here. I have thoughts by Zander.

00:16:38:00 – 00:16:39:14

do you think about this rumor?

00:16:39:16 – 00:16:42:15

So we’ll see how this breaks out. I think that

00:16:42:15 – 00:16:44:09

my reading of the article was

00:16:44:09 – 00:16:57:19

they’re like selling off long term IP rights to the digital license. So that was my understanding of how I read this. And, you know, I think that makes sense in regards to Hasbro, just because Hasbro is not a digital company.

00:16:57:20 – 00:17:02:13

I mean, like you to think about what a core areas of competency Hasbro accidentally

00:17:02:13 – 00:17:09:00

stumbled upon two of the most valuable digital apps ever in wizards of the Coast, which are, as you said, Dungeons Dragons and

00:17:09:00 – 00:17:17:07

Magic Gathering. And they both are now have wildly successful digital products. But Hasbro is a toy company, right? It’s like they make pieces of plastic.

00:17:17:09 – 00:17:18:12

That’s when they’re good at.

00:17:18:12 – 00:17:19:03

so

00:17:19:03 – 00:17:21:05

it’s not crazy that they would outsource this,

00:17:21:05 – 00:17:21:20

but make

00:17:21:20 – 00:17:28:07

question is like, what’s the long term sustainable path for Hasbro? It’s like there’s not a company I want to be buying stock in any time soon.

00:17:28:07 – 00:17:29:00

there’s a digital

00:17:29:00 – 00:17:32:21

core of excellence at that company and maybe some more buried deep in the Wizard of Oz organization.

00:17:32:21 – 00:17:33:12

But

00:17:33:12 – 00:17:38:04

that’s not where I’m placing my bets. Yeah, there was news last year of them shutting down some of their upstart

00:17:38:04 – 00:17:40:10

game development initiatives. Hasbro as well.

00:17:40:10 – 00:17:42:16

And yeah, I think they’re just really proving that

00:17:42:16 – 00:17:43:14

haven’t figured out how to

00:17:43:14 – 00:17:44:16

conquer digital.

00:17:44:16 – 00:17:46:12

I understand why they’re selling the brand. It’s

00:17:46:12 – 00:17:46:16

it’s

00:17:46:16 – 00:17:50:02

kind of sad. I mean, but at the same time, I think

00:17:50:02 – 00:17:55:07

knowing that Larian is a driving force behind this is a reason for some optimism.

00:17:55:07 – 00:18:02:19

anyone who’s ever worked on an IP based game with a big licensor before knows that there’s a lot of extra hurdles and

00:18:02:19 – 00:18:09:23

huge amount of margin that you have to give from your game revenue in order to do that. And Larian has proved

00:18:09:23 – 00:18:15:15

even working within those constraints, they can absolutely crush it. And so I’m cautiously optimistic for this.

00:18:15:15 – 00:18:19:21

I think in some ways that Larian might be better caretakers of the brand

00:18:20:02 – 00:18:21:07

as long as they have enough

00:18:21:07 – 00:18:24:08

autonomy to do their thing. Right. Under,

00:18:24:13 – 00:18:25:00

Tencent,

00:18:25:00 – 00:18:27:06

they become the official holder of the IP. But

00:18:27:06 – 00:18:29:21

actually kind of like this deal is sad as it is

00:18:29:21 – 00:18:31:10

to see the brand leave

00:18:31:10 – 00:18:33:19

potentially Hasbro and Wizards coast.

00:18:33:21 – 00:18:34:11

Yeah

00:18:34:11 – 00:18:36:23

we’ve witnessed Hasbro being a mediocre

00:18:36:23 – 00:18:38:10

shepherd of

00:18:38:10 – 00:18:40:06

some beloved brands. So

00:18:40:06 – 00:18:44:23

maybe it’s better living somewhere else. I hope we’re in who is a studio that I absolutely love gets

00:18:44:23 – 00:18:46:00

lot of say in it.

00:18:46:00 – 00:18:49:12

That being said, I’m always a little bit skeptical of selling off

00:18:49:12 – 00:18:51:19

beloved American brands, overseas corporations.

00:18:52:04 – 00:18:53:00

We’ll see. I

00:18:53:00 – 00:19:02:10

this Tencent have a good track record of shepherding historic American brands? I can’t think of any but well, what can be what could be wild? One thing I’m just thinking about now is,

00:19:02:10 – 00:19:07:14

where wizards of the coast and Hasbro’s expertise actually lies, which is with more physical products

00:19:07:14 – 00:19:17:13

traditional wargaming gaming, tabletop RPG, we might be entering the era where at least in the interim, wizards and Hasbro are licensing D&D from Tencent because like

00:19:17:13 – 00:19:20:12

dominant use case for the brand could become,

00:19:20:12 – 00:19:24:05

this new era of digital games driven by Larian and other developers

00:19:24:05 – 00:19:25:13

in Tencent family.

00:19:25:15 – 00:19:26:09

But

00:19:26:09 – 00:19:31:02

Tencent doesn’t have a center of excellence around, you know, paper gaming, board gaming, perhaps

00:19:31:02 – 00:19:31:07

basically

00:19:31:07 – 00:19:33:01

we just switch and now

00:19:33:01 – 00:19:41:03

wizards is sublicensing that and Tencent is going to be really interesting to watch. Well see, it’s going to be a new era for daddy. Don’t mess it up.

00:19:41:03 – 00:19:42:11

just want more of those daddy movies.

00:19:42:11 – 00:19:46:08

Did you see it? There were not. I did not not forget

00:19:46:08 – 00:19:46:20

other.

00:19:46:20 – 00:19:47:05

00:19:47:05 – 00:19:50:07

That’s a wrap. Lots of cover cut all over the place. But I hope you enjoyed it.

00:19:50:07 – 00:19:50:17

00:19:50:17 – 00:19:51:22

Takes.

00:19:51:22 – 00:19:52:17

Thanks,

00:19:52:17 – 00:19:52:23

00:19:52:23 – 00:19:59:21

everyone, for joining us, as always. The podcast was brought to you by our team here at Upptic. Upptic: We do all things to help games grow.

00:19:59:21 – 00:20:03:21

That includes the user acquisition and creative and analytics work around that.

00:20:03:21 – 00:20:06:19

But we also have a really awesome set of software

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the last year we started opening that up and licensing it to other in-house teams so your team can use the same tools that we’ve used here to drive

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So if you’re a team building a game and looking to increase

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the efficacy of your user acquisition process,

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come out with us. We’re happy to see how we can help. You can reach us at Upptic.com. That’s up to scale.

00:20:35:04 – 00:20:35:18

Soon,