Free-To-Play Looks To Be The “Biggest Gaming Trend of 2019”

Fortnite

The success of Fortnite’s free-to-play business model ($2.4B in revenue to date) has begun to negatively impact legacy gaming businesses. Despite posting a “record-setting” $7.26 billion in 2018 revenue, Activision Blizzard (ATVI) announced that it would be laying off +/- 800 employees (8% of workforce) and lowering 2019 full year expectations by -20% to $6.03B; should the company experience a -16% YoY decline, it would be the largest in their history. COO “Coddy” Johnson cited “weaker than expected retail demand” and the “slowing sales of micro-transactions” for the revised guidance. Fortnite’s cannibalization of the gaming sector has also begun to spawn successful copycats. Electronic Arts introduced a free-to-download, battle royale game entitled ‘Apex Legends’ that attracted 25 million players within a week of its release; for comparison purposes, it took Fortnite nearly 2 months to clear that benchmark.

Howie Long-Short: There is a case to be made that free-to-play games help to grow the overall gamer pool, bring younger gamers into the esports ecosystem and promote diversity amongst the gaming population, but let’s be clear – companies are moving towards the freemium model because “the most effective way to generate billions of dollars is to not require a player to spend a single one.”

The problem for legacy game-makers is that the free-to-play model relies on a game’s ability to draw mass participation, to keep gamers engaged and to monetize in-game add-ons, and historically, “legacy gaming companies have a hard time introducing games that have substantial and sustainable development.” Jefferies analyst Timothy O’Shea described the industry shift towards game-as-a-service, multiplayer titles as “the biggest gaming trend of 2019.” That’s a scary proposition for companies like ATVI that rely on upfront/one-time payment sales of marquee titles. Once consumer behavior changes, good luck getting gamers to “pony up and pay $60 for ‘Call of Duty’, when [competing studios] are offering high-quality games for free.”

ATVI failed to reach its “full potential” in 2018, but plans to double-down on its most successful titles – increasing developmental resources by +20% on Call of Duty, Candy Crush, Overwatch, Warcraft, Hearthstone and Diablo. It’s a risky decision because gamers have a finite amount of time to play and a limited budget to spend on games. If they’re invested in free-to-download games – as the trend indicates, sales are sure to languish; of course, what’s the alternative? The company is heavily reliant on those 6 titles to deliver sustained revenues. ATVI shares are down -35% since November 1st.

Apex Legends used “prominent video game streamers” to raise the game’s profile out of the gate – and the strategy worked, but the initial hype has begun to wear off and there are indications that the game won’t have the staying power; not uncommon for games that require minimal up-front investment from the player. Investors are yet to pick up on the trend, Electronic Arts’ (EA) shares remain +33% since the company announced Apex Legends had surpassed the 25 million player benchmark; they had declined -37% in the 6 months prior.

Fun Fact: Avatar is the ONLY movie to have grossed more than the $2.4 billion ($2.7 billion) Fortnite has brought in.

Fan Marino: One point that Howie missed, is that Fortnite’s cross-platform functionality (i.e. same experience available across all major consoles/PC hardware + mobile) has contributed to its massive success. Just about anyone can play, on any device; and the game allows for a shared experience, enabling any player to play with/against another (think: Drake/JuJu/Travis Scott/Ninja) – uncommon within the gaming world. As of November, Epic Games’ Fortnite had over 200 million registered users.

Interested in Sports Business? Sign-up for our free daily email newsletter list, here!

WNBA Reports Double-Digit Viewership and Merchandise Sales Growth, Announces League-Wide Sponsorship Deal

WNBA

The WNBA held its 15th All-Star Game on Saturday June 28th (in Minnesota) and unlike the 2018 MLB (-6% YoY), NBA (-1% YoY) and NHL (-10% YoY) All-Star Games, viewership increased +17% YoY (to 709,000 viewers); making it the league’s 2nd most watched ASG since ’13. The viewership increase for the midsummer game follows the first half of a season that saw the number of viewers tuning in per game rise +35% YoY across ESPN2 & NBATV and +38% YoY (to 247,000) on ESPN. It’s not just increasing television viewership numbers that indicate the league is on an uptick though, merchandise sales on the league’s website are up 50% YoY and Puma recently announced a league-wide footwear partnership with the WNBA; the company’s first deal with a pro sports league. Atlanta Dream forward Angel McCoughtry took notice of all the progress, calling 2018 “the year of the woman.”

Howie Long-Short: While the partnership deal with Puma is significant and the merchandise sales growth has been impressive, WNBA bulls might want to temper their excitement surrounding the ASG. Even with a +17% YoY increase, the 709,000 viewers that tuned in represented just the 9th largest audience in WNBA ASG history.

As for Puma SE (PMMAF), the company reported a +42% YoY increase in profits (to +/- $36 million) on revenues that rose a currency adjusted +15% YoY (to $1.2 billion) during Q2 ’18, as all regions and product segments reported double digit growth. Quarterly financials would have looked best had the euro been stronger, the national teams they sponsor performed better and if they were seeing returns (not just marketing expenditures) on their basketball business. Shares dropped -5.5% on the news and have continued decline since, closing on Friday at $487.00.

Fan Marino: EA Sports (EA) has taken notice of the rising popularity of the WNBA and acted accordingly. The company announced that gamers will have the option to create female players, in career mode, in NBA Live ’19 (launches 9/7) and that female player “abilities and perks” will be modeled after WNBA stars like Candace Parker. The announcement comes just one year after all 12 WNBA teams were included in the game for the first time. This isn’t the first-time EA Sports has included female players in its games, the company’s hockey series first included women in “Be a Pro” mode back in ’11. In that game, females and males competed against each other; all EA Sports UFC and FIFA games since have featured single-sex matches.

Fun Fact: 68% of the WNBA audience on ESPN 2 is male.

Fun Fact 2.0: Just 7% of the WNBA’s audience on ESPN 2/NBA TV is female and under the age of 35.

Interested in Sports Business? Sign-up for our free daily email newsletter list, here!

Competitive Sports Gaming Hits Mainstream Cable Television

Brady

EA Sports (EA), the NFL and ESPN have partnered to bring exclusive broadcasts of the Madden ‘18 NFL Ultimate League to the ESPN App and Disney XD; a channel geared towards teen and pre-teen males. The deal is being marketed as ESPN’s first long-term multi-event competitive gaming partnership and the “first U.S. professional league for competitive sports gaming”. The e-sports competition will include 16 gamers (qualified from a circuit of events) competing head-to-head (starts Friday 2/2) for a chance to play for the Madden Bowl title, live from the ’18 NFL draft on ESPN2. ESPN2 will also be the home for a weekly episodic series (beginning in April) focused on the best players (and storylines) within the Ultimate League.

Howie Long-Short: Video game industry sales rose 11% in 2017 (to $14.6 billion), including $6.7 billion on video game software. The best-selling competitive sports game of 2017 was NBA 2K (2nd overall), with Madden NFL ’18 (4th overall) the only other sports game in the Top 10. EA will release their Q4 ’17 and full-year ’17 earnings report following today’s close. Look for growth in digital revenue; the category up 19% in Q3, helping EA set company records for profitability.

Fan Marino: This isn’t your daily “Pro Sports Launches eSports League” announcement; though, I have a few of those as well (MLS launches eMLS Fifa ’18, NHL to debut esports league by end of season). Competitive sports gaming coming to mainstream cable television is another milestone for the burgeoning industry, as is the $500,000 prize pool; the largest in Madden history. What kind of audience can ESPN expect? For reference purposes, the CW received 670,000 viewers for a one-hour Madden primetime special.

Want more JohnWallStreet? To join our free daily email newsletter list, sign-up here!

EA Sports Reports “Strong Quarter”, Kicks Off Qualifying for FIFA eWorld Cup 2018

Qualifying tournaments for EA Sports’ (EA) FIFA eWorld Cup 2018 are underway and will run through July ’18, narrowing the field down to 128 participants (64 PS4 (SNE), 64 Xbox One (MSFT)) who will compete in the FIFA ’18 Global Series Playoffs. The tournament will include both players signed to professional teams as well as amateur tournament winners. Those who advance will play in in the FIFA eWorld Cup Grand Final, with the winner of each playoff (PS4, Xbox One) receiving a $35,000 prize.

Howie Long-Short: EA Sports announced fiscal Q2 revenues rose 7.4% YOY on an adjusted basis (to $1.18 billion), reducing the company’s net loss to $22 million (from $38 million in ’16). CEO Andrew Wilson called it a “strong quarter”, writing that “the company benefited from the customer’s response to EA Sports games (Madden NFL, FIFA), and its mobile games”. CFO Blake Jorgensen said that the company had experienced notable growth in its high-margin digital business (+21.7% to $689 million) during the quarter. As of the close on Wednesday, the stock is up more than 45% on the year.

Fan Marino: More of an NBA 2K (TTWO) gamer than a FIFA one? 2K Sports has announced that the latest release of NBA 2K18 features verified users. That means gamers will know if they’re playing against NBA players, celebrities or members of the 2K development team. Fans are going to flip when they realize they’re playing as LeBron, against LeBron.

FIFA and EA announce the first eWorld Cup

For the balance of today’s newsletter, sign-up here!

NBA AND TAKE-TWO INTERACTIVE LAUNCHING NBA2K ESPORTS LEAGUE; PLAYERS WILL COMPETE FOR CONTRACTS AND ENDORSEMENT DEALS

The NBA and Take-Two Interactive (TTWO) will be launching an “NBA2K” esports league in the spring of 2018. Teams representing NBA organizations will be comprised of 5 digital athletes, each competing for contracts and endorsement deals in addition to the league championship. The idea is for the league to mirror the NBA as closely as possible, with players treating the season as a full-time job. 17 teams will compete in the inaugural season, though important details including; how to draft players, the set-up for broadcasting/streaming and the implementation of a salary cap are still to be worked out.

Howie Long-Short: Amazon (AMZN) owned Twitch publishes rankings reflecting esports games with the most viewers, hours watched etc. While “League of Legends” (HKG: 0700) drew 43 million viewers to their final, “NBA2K” drew less than 4,000 over the last week. The game also sits behind both “FIFA” (EA) and “Madden” (EA) in the viewership rankings. This partnership has a long way to go before it becomes a profitable venture.

Fan Marino: A big issue that is often overlooked when discussing a sports game as a viable esport, is that sports games are designed as a simulation. Since the games are meant to reflect real life as closely as possible, some players/teams are better than others. That causes a competitive balance problem. If you fix the stats to create parity, the game no longer provides a realistic simulation of the sport.

The NBA 2K League: What We Know So Far, And Can It Succeed As An Esport?

MADDEN ’18 HITS SHELVES; “LONG SHOT” MODE RECEIVING RAVE REVIEWS

Electronic Arts (EA) has released the newest edition of their Madden franchise (Madden ’18) and the football simulation game is receiving tremendous reviews. The most recent iteration of the game includes a story mode known as “long shot”, which puts the player in the shoes of a rookie as he embarks on a journey to become an NFL star. EA hopes that focusing on the more personal side of football (sacrifices, stress, celebrity) will increase immersion for players of the game. Other notable changes from Madden ‘17 include an improved graphics engine, updated stats and rosters and new broadcast commentary.

Latest ‘Madden’ video game rolls out some of its biggest changes ever

Howie Long-Short: Take-Two Interactive (TTWO) has the dominant NBA game (2K), so how come they no longer make an NFL version? EA smartly signed an exclusive licensing deal with the NFL and the NFLPA back in 2004. Without player and team names, 2K simply can’t compete.

Fan Marino: It’s remarkable the game has maintained its cultural relevance for over 25 years, but you must remember that 1994-2016 was a period of astronomical growth for the NFL. I believe the popularity of the game is a direct byproduct of the league’s success. Should league interest continue to wane, so too will interest in the Madden franchise.

ELECTRONIC ARTS OPENS REGISTRATION TO MADDEN NFL CLUB CHAMPIONSHIP; WINNERS TO REPRESENT FAVORITE TEAM AT SUPER BOWL

Electronic Arts (EA) has introduced the Madden NFL Club Championship, a new esports football competition that will enable players to compete on behalf of their favorite team. Through live and online elimination events, winners will qualify to represent each of the 32 NFL franchises in the finals during Super Bowl week in Minneapolis. EA is actively seeking corporate sponsors and broadcast TV partners for the event, while the NFL is funding the competition’s $400,000 prize pool. Registration is now open.

Armchair QBs Compete to Represent NFL Teams in Esports Tourney

Howie Long-Short: EA stock is up 500% over the last 5 years, but it has nothing to do with the success of the Madden or FIFA franchises. The transition from the physical sale of game discs to digital distribution has sent gross margins from 61.4% in 2012 to an expected 72.1% in 2017.

Fan Marino: The big innovation in Madden ’18 is “longshot” story mode, which places a college QB into a reality show with the end goal of making the NFL. Check out the trailer. Certainly looks intriguing enough to get me to buy the game for the 25th year in a row.