Hot Takes | February 2023

Many studios will pivot their RPG games towards the gameplay of Dark and Darker, and multiple fast-follows will launch this year. The competition to claim the "mass-market extraction" genre will be one of the most important themes of 2023.

Despite the poor performance of publicly traded esports and esports-adjacent companies (some down 90%+), the economic infeasibility of a handful of existing companies does not reflect on the overall viability of an industry. There will continue to be an acceleration of layoffs that will cause healthy churn to get business to profitability and help focus game companies on their core businesses. However, the counter-cyclical nature of esports set up the industry to provide a necessary catalyst to reach its long-promised potential in the coming years.

- The Western mobile market declines another 5-10% in 2023. Downloads were declining in late 2022 and we are not out of the woods. Apple will remove fingerprinting and Google will also further obstruct targeting/attribution. The highest revenue genres (Strategy, RPG, Casino, Puzzle) have been hit the hardest and retreating to more casual genres (Arcade, Action, Simulation, etc.) means lower yields. The groundhog will be looking for higher downloads, higher core revenue, and new releases that scale – until then, it hibernates.

To great pain, China had isolated itself from the rest of the world for the past few years. But the market is finally looking somewhat viable again with zero-Covid ended and regulatory crackdown easing. The number of game approvals remains low but one should pay attention to how now there is a new way for Chinese games to gain approval. Now Beijing appears to regularly announce a separate list of 'information changes' alongside the monthly list of game approvals. What it includes is the following:  1) additional approval that applies to gaming platforms not approved in the initial approval (e.g. a PC game obtained additional approval for mobile/console versions), 2) change of operator, and 3) change of name.

The first bit is particularly important because it effectively grants licenses to some new games. It was how one of NetEase's most important games Justice Mobile, the mobile version of its MMO game Justice, got approved recently. Rules as to how identical Justice and Justice Mobile have to be remain vague. But mobile games now have a bigger chance at getting licenses in China if their original PC versions were already approved.

As such, all eyes are on DNF Mobile and many suspect its approval may come through 'information changes'. Signs show that Tencent has been tweaking its PC version of the game to meet censorship requirements.

Most importantly, Beijing has recently granted approvals to a bunch of Korean games including Lost Ark, signaling its restrictions on Korean games may have ended. The geopolitical shadow has been lifted for DNF Mobile to get approved.

(Beyond DNF Mobile, we may see some desperate companies trying to force-port their games from PC to mobile given this new mechanism.)

Full disclosure, I don't have the whole picture. If you guys have any information, I'd love to talk.

343 layoffs are indicative of a long term shift in overall budgets for first party titles that are launching on GamePass. With less focus on high quality single player titles, the service either shifts towards long tail multiplayer games (which is ongoing) or slashes budgets on all titles with single player experiences. Definitely a combination of both in the future, but the latter seems more plausible in a subscription model.