Gavin Baker+ Your Authors @GavinSBaker Husband, Becky Painter. CIO, Atreides Management. Former PM, Fidelity OTC fund. investorfieldguide.com/baker/ No investment advice, views all my own. Jun. 15, 2019 3 min read + Your Authors

1) Thoughts post E3. Streaming is real, xCloud is the likely winner. Publishers are using Stadia, other potential new distributors and the threat of app store regulation to drive down platform take rates. “30% is over" - Prominent CEO. Console wars/cycles now semi-irrelevant.

2) The CFO of one of the two major consoles acknowledged take rate pressure and said that it “was heyday for the publishers.”

As an example – not a prediction - take rates declining from 30% to 20% would drive a 14% digital revenue increase at 100% incremental pretax margins.

3) And this would further incent publishers to drive higher revenue, higher margin digital distribution at the expense of physical distribution.

4) Streaming is real should drive TAM expansion by lowering the cost to play and increasing potential occasions (console player who is traveling, etc.), but unlikely to have any significant business impact until mid 2020/early 2021. Tech and business models need to mature.

5) Analogies between game streaming and traditional streaming media (Netflix) are strange in my ever humble opinion. The content “head” is dramatically more important in gaming vs. TV/movies where the “tail” is much more important

6) i.e. Movies from the 1970s and 1980s are likely viewed at over 10,000x the frequency at which games from the 1970s and 1980s are played. Older TV shows like the Office and Friends are top 10 streaming shows today.

7) I understand that League of Legends and CS:GO are “old” games relative to when they were launched, but they are being continuously updated unlike Friends and the Office.

8) Said another way, the top 10 videogames account for a *much* higher share of gaming engagement than the top 10 movies/TV shows. And the social aspect of almost all the top 10 games today only reinforces this – people want to play games with their friends.

9) Content owners have more leverage in videogames vs. TV/movies as distribution options increase given all of these dynamics and they are beginning to use this leverage to drive down take rates. "30% is over" is a significant statement.

10) Stadia is impressive technology, but most publishers seem to simply be using Stadia as leverage with the existing platforms.

Result is not enough “head” content today to succeed, IMHO. And value prop today is not obvs strong (price of a console every 2 years, no 1P content)

11) Streaming and subscriptions are linked only because of Netflix' success – one is a distribution method, the other is a business model.

Subscriptions could be a nice transition to hybrid F2P models for existing content owners – super curious to see how this evolves.

12) Console wars/cycles seem increasingly irrelevant. Last two console cycles saw share shift entirely based upon mistakes by Playstation/Xbox. PS3 lost share to Xbox360 because Sony tried to use the PS3 to drive blue-ray adoption, which led to worse value prop for gamers.

13) Funny that blu-ray was seen as so strategic - life happens fast! 😀

14) Xbox carefully studied the PS3 mistakes and repeated all of them with the Xbox One, which was initially more expensive and less powerful due to the Kinect focus – i.e. a worse value prop for gamers. Led to significant share shift to the PS4 from the Xbox platform.

15) No one is going to make a similar mistake this time, so share should be roughly stable. Sony had a significant 1P title edge with the PS4 but Xbox appears intent on closing this gap.

Would be so awesome if the new Halo was a great game.🤞and lots of ❤️ for the Master Chief.

16) Cross platform play also eroding the importance of the underlying platforms and social network aspects (game/platform intersection at clan level) that make switching difficult. Individual games arguably more important from a social network perspective with cross-platform.

17) Better streaming from Xbox/Xcloud and more seamless PC integration *might* be a differentiator for Xbox but Playstation will use the same underlying tech so emphasis on *might*

18) Cycles also slowly becoming less relevant with backwards compatibility, digital libraries and cross platform play (still more common within platforms than between). Mid cycle upgrades like Xbox One X and PS4 Pro are further smoothing the cycle.

19) I will admit to being excited for 8k HDR gaming at 120 FPS. Obviously monitor prices have to come down quite a bit for this to be a widespread reality. And the increase in occasions via streaming will be awesome (embarrassing, but have traveled with my Xbox 😀).


You can follow @GavinSBaker.



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