The non-endemics trying to break into games | This Week In Business

This Week in Business is our weekly recap column, a collection of stats and quotes from recent stories presented with a dash of opinion (sometimes more than a dash) and intended to shed light on various trends. Check every Friday for a new entry.

During last week's GamesIndustry.biz Investment Summit in Seattle, former PlayStation boss Shawn Layden cited "the entry of non-endemics" as one of his three biggest concerns about the future of the video games industry, jokingly referring to them as the "barbarians at the gate."

The other two, if you're interested, were consolidation's impact on creativity and rising costs. But today, we'd like to dig a little deeper into the non-endemics. Who are they? What are they doing in the games space? And how might they disrupt the status quo?

To answer the first, we can hand that over to Layden, who named four prime candidates while on stage.

QUOTE | "Right now we see all the big players going, 'Oh, gaming? It's bringing in billions of dollars a year? I want a piece of that.' And so we have Google, Netflix, Apple and Amazon wanting to get a piece and trying to disrupt out industry" - Shawn Layden listing the companies he believes have the largest dollar signs in their metaphorical eyes.

So, two mobile platform holders, one retail giant that basically has its fingers in almost every other pie, and the second biggest video streaming service (dethroned last year by Disney). Let's dive into their video games efforts, shall we?

Google

The prime example of a non-endemic struggling to enter the traditional video games space, thanks to the failure of cloud gaming service Stadia.

Announced in 2019 with no small amount of pomp and circumstance (we still remember the GDC street display putting the Stadia controller alongside other hyped innovations that ultimately fell flat: the Dreamcast, Nintendo's Power Glove, and ET: The Extra-Terrestrial for Atari 2600), Google positioned its cloud gaming service as a platform in its own right.

QUOTE | "The next generation is not in a box" – Phil Harrison, former VP president and general manager at Google, hyping up Stadia to attendees at the grand unveiling.

QUOTE | "It's a fundamental and, I passionately believe, an inevitable and one-way direction that the industry is moving" – Harrison telling GamesIndustry.biz the very next day that this was the beginning of the end for consoles, a prediction we will never tire of hearing.

As we all know, it didn't work out that way.

STAT | 1,045 – Number of days between Stadia's launch on November 19, 2019 and Google's announcement on September 29, 2022 that the service would be shut down.

Not even three years after its debut, the writing was on the wall for Stadia and by extension Google's great console-less disruption of the games market. The company has instead taken the technology and is attempting to sell it as a white label service to games publishers under the brand Immersive Stream for Games. Almost a year later and it's not clear whether any companies have taken that offer.

Okay, so the service itself struggled but Google at least managed to gather some games talent for future endeavours, right? At the Stadia unveiling, Harrison also revealed EA and Ubisoft veteran Jade Raymond would be heading up the company's internal studio Stadia Games and Entertainment.

STAT | 440 – Number of days between Stadia's launch and the closure of Stadia Games and Entertainment, affecting 150 jobs (Raymond's included, although she has since set up the PlayStation-owned Haven Studio).

Google also acquired Journey to the Savage Planet developer Typhoon Studios back in 2019 to work on Stadia games. After this was shut down as part of the SGaE closure, the team reformed as Raccoon Logic and even convinced Google to sell back its IP – further suggesting the internet giant has no plans for internally developed video games in the near future.

It's hard to imagine Google as the non-endemic that will shake up the games space after the ambitious but short-lived efforts of Stadia. But who knows? Maybe Playables will really take off.

Apple

No, we haven't forgotten the Pippin. But if you look at the multitude of sectors Apple has concentrated on over the past two decades – computing, smart devices, music, and so on – the iPhone maker looks somewhat removed from the games industry. And Apple has already disrupted this business, thanks to both the iPhone and the App Store.

During his fireside chat with us in Seattle, Layden said that the music business was irreversibly disrupted when Apple "convinced everyone that 99 cents per song was a good idea." In similar fashion, Apple allowing developers to sell mobile games for 99 cents triggered a race to the bottom, resulting in a mobile market where free-to-play reigns and it's incredibly difficult to sell premium games on iOS.

The rise of smartphones and the lack of barriers to free-to-play games has led mobile to become the biggest sector of the industry, taking half of global gaming revenues every year. Prior to Apple and the App Store, the mobile market was worth a fraction of what it is today.

STAT | $5.6 billion – Value of the US mobile market in 2005, as predicted by a Juniper Research report in March that year

STAT | $10.5 billion – US games spending on console and PC in 2005, according to NPD, which was then a record year

Fast forward 17 years…

STAT | $92.9 billion – Global mobile games revenues in 2022, according to Newzoo

STAT | $90 billion - Global games revenues for PC and console in 2022, according to that same Newzoo report

Game makers have benefitted from this, naturally, with App Store earnings for developers across all categories now at well over $260 billion since the marketplace launched in 2008. And while that figure encompasses all apps, video games make up well over half of this. With Apple taking a 30% cut for every sale and in-app transaction, games have demonstrably helped it become the first company in the world to reach a $3 trillion market cap.

What's interesting here is that, despite the role games have played in growing the App Store and its revenues, Apple continues to be largely disinterested in games.

At this year's Apple Vision Pro unveiling, there was no word of games being made for the AR/VR device. It will support game controllers, with Apple showing off someone playing NBA 2K on a floating virtual display using a PS5 DualSense controller, but this was the extent of gaming's presence on the new device.

In 2018, Id Software co-founder John Carmack reflected on his relationship with Apple, claiming that "Steve [Jobs, Apple CEO] didn't think very highly of games, and always wished they weren’t as important to his platforms as they turned out to be."

The iPhone firm even had different rules for game content when compared to other forms of entertainment and art, as was demonstrated when Apple had Phone Story – a satirical game about the human and environmental cost of smartphone production - removed from the App Store.

QUOTE | "If you want to criticize a religion, write a book. If you want to describe sex, write a book or a song, or create a medical app. It can get complicated, but we have decided to not allow certain kinds of content in the App Store… We will reject Apps for any content or behavior that we believe is over the line. What line, you ask? Well, as a Supreme Court Justice once said, 'I'll know it when I see it'. And we think that you will also know it when you cross it" - An excerpt from the App Store developer guidelines published in 2010.

Meanwhile, the UK's competition regulator is currently investigating whether Apple's restrictions on cloud gaming services should be lifted, and the US government also has concerns that both Apple and Google are blocking innovation in the mobile space.

With all this in mind, it's hard to fathom why Apple would want to make an explicit and disruptive push into the video games space when it's already enjoyed so much success as a middleman in the current status quo.

Since Apple has already had a significant impact on the games space, let's turn our attention to a newer entrant…

Netflix

Streaming firm Netflix might be the dark horse of the companies Layden listed. While it's not on the scale of Amazon, Google or Apple, it does appear (so far) to be more directly focused on making its mark on the video games space.

STAT | 6 - Number of games development studios Netflix has acquired or formed since September 2021; namely Night School Studio, Next Games, Boss Fight Entertainment, Spry Fox and internal teams in Finland and Southern California.

And the company is keen to expand on this further with external developer partnerships, such as its recent deal with Liverpool-based Ripstone for a title based on Netflix IP The Queen's Gambit, an exclusive game from Vainglory developer Super Evil Megacorp (also based on a Netflix IP), a mobile spin-off of Assassin's Creed, and even a possible Monument Valley sequel.

So far, Netflix has been focused on adding mobile games to its existing subscription service – albeit in a slightly clunky way. Rather than accessing the games through the Netflix app, users are instead pushed out to the app store to download a Netflix-branded version of the game at no extra cost.

However, two reports last month suggest Netflix is gearing up to bring these titles to subscribers on other platforms; specifically, the firm released a game controller app for iOS and launched a limited cloud gaming beta test a few days later.

QUOTE | "We do believe cloud gaming will enable us to provide that easy access to games on any screen… But we do want to be super thoughtful about how we do that and how we bring it to our members, so just like we're doing for mobile games, we will take it slowly, take it from a learning perspective, but that is definitely underway" – Netflix's VP for external games Leanne Loombe telling GamesIndustry.biz earlier this year that, unlike Google, the company is being more cautious with its entry to games.

While Netflix's venture into the gaming space may be tentative for now, we know the company has ambitions beyond typical mobile games, having hired long-serving Halo developer Joseph Staten earlier this year to lead a new AAA multiplayer project.

So what impact could Netflix have on the industry?

STAT | 239.39 million - Number of subscribers Netflix had at the end of its most recent quarter, according to Statista.

With an audience this size, and the billions of devices they can access their subscription through, Netflix has everything it needs to become a significant player – if only in the mobile space. However, the fact that only 1% of those subscribers downloaded any of Netflix's games in the first year suggests this is going to be a slow and steady ascent for the company.

Additionally, of the four non-endemics we're exploring, Netflix arguably has the least stable core business. Google and Apple have hugely successful mobile ecosystems, in addition to myriad other businesses, that can support them if their gaming efforts fail. Even if Netflix's games business is successful, there are still questions about the long-term sustainability of video streaming, especially with the increased competition from the likes of Disney, Paramount and so on. If Netflix's core streaming business struggles, its gaming efforts would likely suffer as well.

Amazon

The least non-endemic of the non-endemics we're looking at today. Amazon has had some sort of presence in the games industry for years now, whether it's the ownership of games-centric streaming site Twitch, the internally-developed Lumberyard engine based on Crytek's tech, or the Amazon Web Services that power various online games.

These businesses have rumbled on nicely (although Amazon appears to be losing patience with Twitch given the pressure the streaming site is under to increase its profitability, and we'll discuss the issues with Lumberyard in a bit), but its games development and production offering has been much less consistent.

Amazon has actually been publishing games since 2010, initially for the Amazon Appstore on its own Fire devices. Since 2019's The Grand Tour (based on the Top Gear spiritual successor exclusive to Amazon Prime Video), the firm has been trying to branch out onto traditional platforms.

STAT | 4 - Number of development studios Amazon currently operates, including Relentless Studios (formerly Amazon Game Studios Seattle) and internal Amazon Games studios in Irvine, San Diego and Montreal.

While Amazon seemingly has the structure in place to produce multiple, high quality titles, it has struggled to get many over the finish line.

STAT | 5 - Number of games from Amazon Game Studios cancelled since 2017: Nova, Intensity, Breakaway, Crucible and an unnamed Lord of the Rings MMO.

STAT | 2 – Number of internally developed games Amazon has released since 2017: The Grand Tour and New World.

Perhaps it doesn't help that Amazon has been primarily focused on creating massively multiplayer experiences, which can be tricky enough for even veteran developers and a highly competitive space in the market. But so far, 2021's New World seems to be faring better than Amazon's previous efforts. There are more in the pipeline, of course, including a second stab at making a Lord of the Rings MMO.

The company has been bolstering its portfolio by publishing titles by other games firms, such as Smilegate's Lost Ark (which passed 20 million users back in March), Bandai Namco's Blue Protocol, NCSoft's Throne and Liberty and – perhaps most notably – the next Tomb Raider game from Crystal Dynamics.

And Amazon has certainly been bullish when talking about its games business. Ahead of becoming CEO, Andy Jassy dismissed talk of cancelled games and Lumberyard troubles. Following the successful launch of New World, he even suggested video games could become Amazon's biggest entertainment category, outperforming music and video-on-demand.

QUOTE | "Some businesses take off in the first year, and others take many years. Though we haven't consistently succeeded yet in AGS, I believe we will if we hang in there" - An internal email from Jassy to Amazon's internal games development teams.

QUOTE | "Eventually, we'll get judged by our successes" - Amazon games boss and 2K veteran Christoph Hartmann displaying much the same confidence in a 2021 interview with GamesIndustry.biz.

But there's only so much money, time and optimism any company can throw at such a challenge.

STAT | Nearly $500 million - The amount reportedly spent on Amazon's games divisions each year

According to these reports, this does not include Twitch or Luna, but does encompass Amazon's struggles with the Lumberyard engine. In fact, reports suggested that the limitations of the engine played a significant role in Amazon scrapping the likes of Breakaway.

Launched in 2016, the tech is based on Crytek's CryEngine and is designed for AAA PC and console games. Despite there being no subscription fees or royalties of any kind, and even going open source in 2021, Amazon has struggled to convince external developers to adopt the tech - so any hopes it had of muscling in on Unreal and Unity's territory are surely dashed by now.

It's always possible cloud gaming service Luna could take off, but given that Amazon is still rolling it out to key markets (it only launched in the UK, Germany and Canada this year), it will be a long time before we can truly judge the service's impact.

In the meantime, Amazon remains much where it has for the best part of a decade: on the 'wait and see' list.

The other barbarians at the gate

While Layden only mentioned the four companies above, there are a few other notable companies with a foot in the game whose long-term impact is yet to be seen.

China-based Tencent – with which Layden works as strategic advisor – has invested so much into video games, it's debatable whether it is non-endemic. The company outright owns Funcom, Riot Games, Sharkmob, Sumo Group and Leyou (which owns Splash Damage, Digital Extremes and Athlon Games), has majority stakes in Turtle Rock Studios, Inflexion Games, Techland, Tequila Works, Fulqrum Publishing, Klei Entertainment, Yager Development, Fatshark and Miniclip, and holds stakes ranging from 4% to 84% in 18 other games firms (including Epic Games, Ubisoft, and Elden Ring dev FromSoftware).

But in terms of internally producing video games and directly impacting the space, the company can perhaps be seen as a newcomer – although it's working to rectify this with the likes of Lightspeed Studios and the TiMi Studios Group (which has already produced hits like the mobile editions of Call of Duty and PUBG) picking up veteran talent and attempting to make AAA games that appeal more to a Western audience. Time will tell how well these fare.

ByteDance, another China-based tech firm and owner of TikTok, has also been branching into games in recent years with the creation of publishing business Nuverse, which has not only brought the popular Marvel Snap to the market but also been positioned as one of its parent's six key pillars.

Like YouTube, TikTok is also reportedly exploring how interactive games can become part of its platform. However, like Amazon, ByteDance has also suffered mass layoffs in recent years.

The inescapable argument about concerns around non-endemics irreversibly changing our industry is that the console market, the traditional home of video games, is technically dominated by companies that were once non-endemic. Sony was already a massive name in consumer electronics before it built the PlayStation. Microsoft was a major software corporation before it even conceived the name 'Xbox.' Heck, Nintendo was producing hanafuda cards decades before Mario ever crushed his first Goomba.

Layden acknowledged this when questioned about it onstage last week, and pointed to the fact Sony knew it had to bring in established talent - even via partnerships - for its games console to be a success.

QUOTE | "PlayStation knew that we couldn't do what Sega and Nintendo did and [provide the bulk of the software], we didn't know enough how to make it. We had to be the third-party platform, so we had to get Namco, Square, EA, Activision. Those Sony Music guys are the ones that got Square to move Final Fantasy 7 off of Nintendo and onto PlayStation, probably the biggest sea change move. So yeah, we weren't endemic, but I think we brought the entertainment piece in, which really helped accelerate the success of PlayStation" - Layden's response when our Chris Dring pointed out that Sony was originally non-endemic.

The non-endemics he named haven't exactly struggled to get recognisable names behind them. For all its faults, Stadia has a solid line-up when it launched and was even one of the only ways to play Cyberpunk 2077 at launch with minimal technical issues. Netflix has acclaimed indies like Oxenfree and Monument Valley, while Amazon has the next Tomb Raider and (another) Lord of the Rings MMO on the way. Lack of established and trustworthy brands is not the biggest hurdle they face; it's securing and retaining the right talent, and presenting the right business model.

Could one of these companies overcome this and significantly shake up the industry? Possibly, and whether that's a good or bad thing for the games business is a conversation for a column that isn't already well past its word limit. But in the meantime, Layden is confident that there's enough talent in the industry to keep endemic games companies ahead of richer newcomers.

QUOTE | "I'm hoping gaming will be the first industry where we disrupt ourselves. Where it doesn’t take a Google or an Amazon to completely flip the table. We should be smart enough to see these changes coming and prepare ourselves for that eventuality"

The rest of the week in review

STAT | 6 million – Total number of people who played Starfield by the second day after its official release (a week of early access was available to those who paid), making it the biggest Bethesda launch of all time

QUOTE | "Without the need to be a standard-bearer for Xbox, Starfield would be a far less contentious game" – In his column this week, contributing editor Rob Fahey reflects on the drama and unrealistic expectations that have surrounded Bethesda's latest at launch

STAT | 2025 – The earliest E3 will return to the Los Angeles Convention Center following the dissolution of the partnership between the ESA and ReedPop. The ESA may hold an E3 2024 in a different venue, but nothing has been confirmed

QUOTE | "We don't necessarily have a limiter on it that says 'there's only one [game per brand]' but we do focus on the quality of that experience..." - Hasbro Gaming president Cynthia Williams discusses the company's approach to partnering with games developers following the success of Baldur's Gate 3 and Monopoly Go

QUOTE | "When you start out as a game developer, you always want to create the perfect game with all features possible as your first product" - Team Reptile's Tim Remmers on the long journey to developing Bomb Rush Cyberfunk

QUOTE | "[EA Sports FC] could very well double in the next five years without too much work from us..." - Electronic Arts CEO Andrew Wilson is confident its football series is not going to suffer without the FIFA brand

QUOTE | "Equity, diversity, and inclusion is incompatible with knowingly keeping or hiring toxic people. If the marginalised people at your studio are telling you someone you're looking at hiring is going to be toxic, believe them" – On the GamesIndustry.biz Academy, Code Coven's Cinzia Musio offers advice on how to create a safe and diverse games studio

QUOTE | "We track wishlist velocity and follower health of every single Steam game, but we’ve learnt not to worship these numbers" - Playstack's VP of publishing Rob Crossley talks us through the success of Mortal Shell, a Dark Souls-like action game that has sold over one million copies

QUOTE | "This extension will serve a dual purpose: not only will it permit us to meticulously perfect the gaming experience, but it will also grant us the opportunity to fully immerse ourselves in the remarkable releases of October" - THQ Nordic on the (very sensible) decision to delay Alone in the Dark from October 25, 2023 to January 2024

QUOTE | "Bloodlines 2 is our most ambitious project to date. Fans of the franchise have been eagerly awaiting this game, and we are up to the challenge" – The Chinese Room director Ed Daly as the studio steps up to the plate as the new developer for Vampire: The Masquerade – Bloodlines 2

STAT | 17 – Days left until the SAG-AFTRA vote closes on a potential strike authorization for video game actors

STAT | 10 million – Total sales of the Spyro Reignited Trilogy, released in 2018

QUOTE | "By bringing AtariAge into the Atari family, we can ensure this important resource gets the support it needs to continue to fulfill its mission for years to come" - Atari CEO Wade Rosen welcomes the Atari-focused community and news site into the fold following its acquisition

STAT | $2.8 million - GameStop's net loss for the three months ended July 29, 2023, a significant improvement on the $108.7 million loss reported in the previous year

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