Welcome to Master the Meta, a newsletter focused on the business of video games.

Hi everyone,

No matter what industry you’re in, the headlines are dominated by COVID, COVID, COVID. Video games are holding up quite well, but it’s still an exceptionally noisy time. Previous Weekly Metas covered the main stories (here, here, and here), but I figured it would be useful to take some time to write specifically about COVID-19’s effect on the video game industry.

The ripple effects will continue to play out, but hopefully this helps you think about the broader implications.

How is COVID-19 Impacting the Video Game Industry?

I put together a tweetstorm last night, and below is an expanded version for all of you. The italicized quotes are the original tweets.

.@ballmatthew’s writing sometimes makes me wonder why I even bother. Here’s his new piece about how COVID-19 is impacting the video game industry. https://matthewball.vc/all/covidgames Also, a short thread with some additional thoughts…

Matthew Ball beat me to it! Before moving on, make sure to read his article. It’s on the longer side but well worth the time spent, because it hits on things this post won’t. Plus, anytime he writes about the video game industry it’s pretty much automatically included in the Weekly Metas.

Physical distancing is the norm, but video games are a huge reason why *social* distancing is increasingly a misnomer for consumers. FaceTime and Zoom are great but basically the only way to actively DO something social with friends when remote is to play games.

It’s pedantic of me to nitpick the exact term we use, but there’s some truth in here. Even at a distance, humans will find ways to socialize, and video games — whether it’s Animal Crossing, Call of Duty: Warzone, League of Legends, etc. — are frankly the best options we have. Will these newfound habits stick once the world returns to normal? Maybe not entirely, but certainly some people or groups will continue playing more than in the past.

There’s still a mismatch between how much revenue games pull in and how much attention the industry receives. COVID-19 is closing gaming’s attention gap, but the gap remains wide, and we’ll need more catalysts — hopefully more positive ones — to close it further.

Closing the attention gap is inevitable. One other thing COVID-19 is accelerating is gaming’s infusion with pop culture; athletes, musicians, and more are streaming gameplay and engaging with the gaming community. We’ll see more of this over time. Plus, new games and esports will continue to attract larger and larger audiences.

If it's not obvious yet, one of Bob Chapek’s biggest long-term tasks as Disney's CEO will be to build/buy a meaningful video game business. Gaming is huge, stealing time share, and incredibly immersive & social. As Matthew notes, IP licensing isn’t a good enough strategy anymore. Importantly, Disney isn’t alone with this issue. AT&T (via Warner Bros) and Comcast (to a lesser degree) have taken relatively small steps into gaming, but as a whole the media behemoths are ill-equipped to adapt. Add in the tech titans who also want more gaming exposure, and it’s pretty obvious that we’ll see consolidation over the next several years. Expect major acquisitions. If anything, there's a decent chance this pandemic is accelerating that realization and trajectory.

Warner Bros’ gaming division has seen some moderate success, but all of Disney’s internal attempts haven’t lived up to expectations. Building an internal video game division from scratch that moves the needle for a $170 billion business is a mega undertaking — especially when previous attempts have failed — so acquisitions are almost definitely the way to go. Finding the right fit will be the hard part. If Disney were to make a meaningful video game acquisition, it would want to buy 1) a large team, 2) with valuable IP, 3) that’s positioned to succeed with Disney’s brands, 4) across all devices, 5) in a way that’s focused on where the gaming industry is moving, not where it’s been, and 6) at a reasonable price.

The same goes for the other entertainment giants. The tech titans, on the other hand, will care more about building out their tools, services, platforms, and games that reinforce their broader ecosystems. Still a catalyst for consolidation, though.

Many of us were warning of an upcoming esports winter; challenging economics + a need to raise money don’t usually justify ever-higher valuations. There still may be a shake-out but the accelerating legitimacy of esports will likely relieve short-term pain for many orgs.

Increased engagement doesn’t fundamentally change esports’ business models for the better, but it does make it easier for teams to either raise money or get better terms on things like sponsorships. I still believe that not all teams are positioned equally — many remain quite challenged — but the recent uptick will either lighten the blow or delay the inevitable. And the strongest orgs will wind up even stronger.

Sadly, the companies who run physical esports events are in a worse spot. The fact that esports are seeing higher engagement despite no physical events is a reminder that events mainly exist to juice the economics of something that could totally thrive in its native digital form.

Look, I’ll be the first to admit that esports events have a place. These events may never be as big as the traditional sport equivalents, but providing greater community for fans and interaction with players will always be important. That said, do you need more evidence that city-based leagues are nothing more than a means for the publishers who sell franchise slots to make more money? Sure, it can work at a large enough scale, but esports are digitally native and thrive because people love the games, not because fandom is geography-based. The biggest esports brands will end up the ones that embrace the placelessness of the internet and shun focusing on specific geographies.

COVID-19 isn’t a black swan but many ripple effects because of the unexpected timing are. If this were happening in 2025, we’d say things like: “wow, look at how many more games people are building in <insert low-code platform>” “wow, VR is growing as a hangout spot” Etc.

COVID-19 isn’t a black swan because several smart people publicly noted that the world is vulnerable to a pandemic (most famously, Bill Gates). However, the exact timing has huge implications for how the dominoes fall. If this happened 5 years ago, the shift to digital purchases would have accelerated sooner and certain esports might’ve garnered global audiences at a faster clip. And if this were to happen five years from now, we’d be talking about totally different topics, or at least totally different outcomes. Essentially, many of today’s buzzwords — VR/AR, user generated content, blockchains, etc. — would find scale sooner than they normally would’ve. It’s worth thinking about, because these events accelerate the inevitable, and there’s value in figuring out what the inevitable is as early as we can. Plus, even if there isn’t another pandemic, something else we don’t expect could catalyze further change.

Gaming remains popular in economically hard times because the biggest games are free to play. If player-owned economies actually take off over the next few years, then gaming may become the first entertainment option that financially *rewards* the most engaged people.

It’s tough to beat free, but blockchain-enabled player-owned economies may alter the dynamics of video game economics in an even more favorable way. Imagine if you could easily sell/trade your Hearthstone cards or sell your own skins in Fortnite for real money. The technology that makes this possible is increasingly being worked on. Most traditional publishers will likely avoid it, because they benefit from controlling every transaction, but start-ups who lean into a more player-friendly model will certainly benefit in new, disruptive ways. Of course, this may not play out at a meaningful scale for many more years, but it’s more of a “when” not “if” situation. When player-owned economies find their initial breakthrough, the most engaged players will finally have opportunities to make money instead of just spending.

Gaming is holding up well at the consumption layer, but it’s certainly being more challenged at the operating layer. Teams have to figure out how to ship while remote. Marketers need to make sense of this wild ad market. And there could be ripple effects on future launch dates.

This isn’t talked about nearly enough. Record engagement is awesome, but most companies in the industry are facing the same problems as everyone else: disrupted workflows, logistics issues, budgeting concerns, taking care of employees, and more. Most teams will learn to adapt, but it will likely mean delayed announcements, delayed launches, and slower updates.

A global pandemic is only possible because of how physically interconnected the world has become. Increasing digital interconnectivity provides a bunch of solutions but also will create new problems (hacks, scams, etc.) that we’ll have to solve for later... yes, even in games.

It’s easy to celebrate globalization and historic scaling efforts, but the tremendous benefits these concepts provide don’t come for free… and they never will. Increased interconnectedness will always breed problems that need to be solved. It’s just the way massive systems works.

"History doesn't crawl, it leaps." That quote applies at all levels: the world, countries, industries, businesses, and individuals. 2020's leap is more devastating than not, but in an industry of endless creativity, there will certainly be more positive leaps in the future.

The sooner we come to grips with the fact that our lives are mostly written by randomness and factors outside of our control, the sooner we can become zen about uncertainty. It may not make dealing with today’s hardships any easier, but uncertainty, unpredictability, and volatility aren’t inherently negative. History leaps in positive ways too, and it’s a matter of time before new games, technologies, or other breakthroughs make the lives of billions of gamers even better. There will always be a cost for those who fail to innovate and don’t adapt to where the future is leading us, but some things — like the human desire for connection, fun, and happiness — will never change. The world has a near-endless appetite for solutions that fulfill those desires, and the gaming industry has never been so well positioned to catalyze positive leaps that much of humanity can benefit from.

I’ll continue to share my thoughts on recent events over the coming weeks, and I sincerely hope you are all staying healthy and relatively stress-free. Take care!

Aaron Bush (@aaronbush100)

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