0.0 Context Setting

It’s 8:30am on Wednesday, October 5, 2022 in Portland, Oregon.

I’ve been reading Ruthanna Emrys’ A Half-Built Garden – I’m about two thirds of the way through, and have been mostly enjoying, and in working on my own writing I’ve been paying a lot of attention over the last few years to what I like, what I don’t like, and what I’d change about what I’m reading. Meanwhile, I’m looking forward to Alan Rickman’s Diaries, Madly, Deeply coming out later this month – not just because they’re stick-my-fist-in-my-mouth tea-spilling and hilarious, but also because the excerpts¹ I’ve read have shown how he does so much with so few words.

Oh, also reading/read The Onion’s amicus curiae brief in support of Novak and taking notes about what for me was pretty sublime writing.

1.0 Some Things That Caught My Attention

Google Stadia

So let’s talk about Google Stadia.

Or, rather, I’m going to talk out loud about Google Stadia and reckon a lot of things about the state of the videogame industry.

First, the easy part: Stadia, Google’s videogame streaming service, has been sunset and will close barely three years after it launched.

There were boring parts of Stadia and there were interesting parts of Stadia. Some boring parts:

• streaming videogames was, I think, just an engineering issue in that a bunch of other people had tried it out and more-or-less got it working to a good-enough state (see: nVidia’s GeForce Now), in that there existed a bunch of people with good enough bandwidth and low-enough latency for you to stream AAA videogames to them. If Google wanted to do this, then “knowing how to YouTube” was a pretty good asset, and Google already has unrivaled capacity at the edge, or as us olds would say “regional points of presence”.
• business models for existing games before any transition. This, arguably, is one of the boring parts that Google got the most wrong, which is to say that you’d have to pay for Stadia and you would have to buy games to play on it and you could only play those games on Stadia. That felt… stupendously dumb? Like, the only people who would go for that would be incredibly credulous, it being perhaps one of the best examples of “when you buy something digital in the cloud that has DRM then you don’t actually own it”. Because now Stadia has gone and people who bought games on Stadia cannot play them, even though they are being refunded. It would be as if you had to buy every film you watched on Netflix. Weird.

Some of the boring stuff was going to go away. Not enough people had high-bandwidth, low-latency connections, but you could kind of just handwave that and mumble something about five gees. In fact, Google ended up doing that, white-labeling the infrastructure and technology and essentially folding it into Google Compute Cloud, a sort of turnkey “if you happen to want to play triple-A videogames without having a console” for people who might own scads of 5g base stations and want to sell value-adds on their mobile telco offerings oops did I give it away.

The more interesting stuff was like:

• what does it look like for non-triple-A games to run on Stadia, at Google Scale? Stadia, so far, was essentially porting from one platform to another (not even adapting, see previous newsletter). You want a live service game? What if you were making a live service game with the infrastructure and know-how of the one company that delivers most of the live-services?
• stuff like “click on this screenshot and go straight into the game”, or “go straight from video straight into a game” were all technically feasible, but hadn’t been designed into yet

So. All of that was just a ruse to use Stadia as an intro into well, what does PlayStation do now?

Sony is… well, they’re not fucked. You could probably say that they’re in a super interesting position. Here’s what videogames looks like, from a distance:

You’ve got games on mobile, which are their own genre, ish, but we’re getting to the point where mobile FLOPs are good enough to play games from say 3-4 years ago. It’s just the ergonomics are a bit shit, as if you’re an A-list director and someone said fuck it, we’re not even going to launch your film in cinemas anymore, we’re going to let people watch it on an iPhone SE, they won’t even have the chance to watch it on their cheapo 60in TV. All you have to do is buy the game, you’ve accidentally bought the hardware. The business model is freemium, so studios pump out a ton of shit at the wall and then use shitty tricks to keep you, essentially, addicted and playing. The lifetime value of a customer can be quite good. You are, though, at the whim of the gatekeepers. This is if you’re a developer or a studio

You’ve got consoles, where you’re Microsoft, Sony, Nintendo or, interestingly now, Valve. This is more complicated.

Consoles are kind of dead. I mean, that’s hyperbole, of course, but you can look at stuff like market penetration for videogame consoles and it’s not clear that, for example, the PS5 is going to sell substantially more than 117 million units (which is what the PS4 had sold over its lifetime through to March 2022). By that I mean, consoles are not a growth market. So if you are in our crapsack late capitalism world, you’re kind of under pressure (unless you’re weird and can afford to be weird) to figure out how to grow your business even more.

You might be thinking: wait, isn’t there a substantial rest-of-pie left for Sony to capture? The PS5 is winning this generation’s race (maybe at around 22 million to 16 million units), and the Nintendo Switch is stubbornly Nintendo’s We’re Over Here Doing Our Thing, with 111 million units sold over its lifetime.

These three businesses have been, essentially:

• make hardware, and hope the hardware makes money (if it does not, over its lifetime, you are so fucked)
• license software to run on the hardware (nobody gets to run software on the hardware without paying you) – ie, to press a disc or blow a cartridge, you need to pay the platform holder. This is also ostensibly (validly, I guess) to pay for stuff like QA and platform quality.
• own studios or make your own games that people pay for, that run on your hardware (first party games!)

Microsoft and Sony approach the hardware with a sort of “what’s the hottest shit, literally, in some cases” that we can sell for no more than $500 that will plug into a TV. Nintendo’s approach to the hardware is “what’s super interesting shit that’s a few years old that we can sell for no more than $300 that you can play games with”, with-or-without-a-TV.

And then the internet came along and blew everything up. Now, there are two more ways of making money!

• Have a digital storefront, and take a cut of sales there of games (making Gamestop unhappy and ultimately, in a way, leading to Matt Levine questioning his life choices)
• Have a digital storefront, and take a cut of microtransaction sales (which is a bit like the first one, but really took off what with mobile games showing how easily people could be parted with money)
• Have some sort of subscription, which brings in a holy accounting grail of sweet recurring revenue, which you first use to pay for networking infrastructure (Xbox Live, Playstation+, Nintendo Online), and you definitely can’t charge more than $9.99/month for that

There are some bits and pieces inbetween. Each player has its own content exclusives, its own first party games. Those are the anchors that would bring someone to a console, and in competition sense are non-substitutable. At least, that would be the argument: if you play COD, you’re not suddenly okay to play Halo instead. It’s not like they’re Coca-Cola and Pepsi, and even then, the joke for most people is if you ask for a Coke conglomerate drink at a restaurant and they say “oh honey no, is Pepsi okay?” you’re kind of like “well not really but I don’t really have a choice and I guess, but I’m not that happy about it because they’re not really the same?” but you’ll drink it anyway.

You probably wouldn’t if the Pepsi cost at least $400 though.

Platform exclusives are a Differentiator just the same way every single streaming service is raiding its back-catalogue of IP or paying through the nose to produce nostalgic content for the late millennials and Gen-Xers who actually pay for these services, which is why we’re getting a Community film so that Peacock can have it and why there’s suddenly a Frasier reboot so Paramount Plus can have it and, well, Disney’s just being Disney.

So, fine. If you want to win at being videogames boss then you start looking around and you say: well, we could own more studios. We could have more platform-exclusive content. We could be like Disney, and be the only home for Star Wars and Marvel and I guess all that other Disney vault stuff.

Microsoft has more money and is seen as a different kind of company than Sony, so Microsoft is able to go around and lay down literal billions of dollars to buy up games studios, Bethesday for $7.5 billion, and then Activision Blizzard (if they’re allowed), for $68.7 billion. Sony was forced to respond, buying Bungie ($3.6 billion) and presumably is going to buy more studios. This isn’t a new strategy for Sony: they bought Guerilla Games in 2005 (most known now for the Horizon: Zero Day Dinosaur USB Hack series), and Naughty Dog (The Last of Us, Uncharted) in 2001, and Insomniac (Rachet & Clank, Spiders Men) in 2019 for $229 million.

Phew. Okay, so there’s an arms race to buy up exclusive content and for a while it was with Reasonable Numbers of Dollars, but then Microsoft had to go and spoil it by paying Billions of Dollars, which meant that videogames were Definitely Art now.

Fine.

Now things started to get a bit interesting.

Since 2015, Sony has had this weird step-childed in their not entirely well blended family: PlayStation Now, which did videogame streaming before Google proved they could easily sunset even more products. PlayStation Now used to be an indie startup, OnLive (also, Gaiki), founded in 2009, which illustrates the problem of being ridiculously early to market but also right in the very long run, i.e. about ten years too early. Unlike dumb business decision Stadia where you subscribed to a service and bought games, Sony instead had a service where you, I think, paid for PlayStation Now and rented games, as if you were in some sort of fake Blockbuster. This is… not how people play games? Sony made a better business decision later, and PlayStation Now turned into a sort of Netflix but with a not-great catalogue.

Microsoft of course had their own streaming service, and that debuted in 2018 that would let you stream Xbox games.

Both of these streaming services, in their own way, let you stream to devices that aren’t their platform holder’s hardware: PlayStation Now eventually let you stream to a PC, Xbox Cloud Gaming (nee Project xCloud), well, duh, it’s Microsoft, and it also launched on iOS via Safari back in 2019.

Phew, again!

So to recap, this is how you make money now if you’re playing Win At Videogame Business at the hardware level:

• make hardware that you sell (a fair bit of money)
• require people to pay you to publish games on your platform (not that much money, really)
• have actual games that you sell, not third-party games (a bit of money? As much as licensing fees? I’d have to check)
• have a digital store to take a cut of game sales and other transactions (slightly more money)
• sell a subscription service for network services (PS Plus had ~47 million subscribers, call that $280 million, Microsoft doesn’t say how many pay for Xbox Live Gold, but Sony’s percentage of PS Plus subscribers to total MAU is 44%, Xbox Live’s MAU is within spitting distance of Sony’s, so also call that $280 million).

Wait, there’s an easier version, I should just look up their financial filings. Okay, Sony had cashflow of 247 billion Yen in 2021, and here’s how things have changed:

• “add-on content” – digital storefront transactions was 31% of sales
• Hardware and digital software were both 21% each
• Network services came in at 15%
• Then you’ve got “other” at 7% and then physical software at 5%

I will jump to an easier bit now there’s a bunch of context.

• Hardware is totally commoditized now, and absent a brand new iPhone-esque hardware platform launch, hardware isn’t going to make a lot more money. There just aren’t that many more people to sell consoles to. Also, the Xbox and PlayStation are essentially the same now from the hardware point of view – compute, they’re both AMD Custom jobs, they’re both x86, and the innovation such as it is, is around the edges, like controllers and input and some experiments with VR
• Revenue from digital transactions kind of exploded, accounting for 67% of Sony’s sales. Let’s assume the same for Microsoft.

So what now?

Microsoft’s strategy is clear: Xbox and PC games everywhere, for a monthly fee, any device you want, and building up a moat of exclusive content, a la Disney+, Apple TV+ and Netflix.

Nintendo is just going to Nintendo.

Valve is just figuring out more ways to get more people to play PC games, so accidentally on purpose started making hardware. They’d probably like to make PCs that can play games cheaper, so the Steam Deck is super interesting because it doesn’t run Windows and they kind of figured out how to get Windows games to run on Linux. This means videogame playing PCs will get cheaper, a bit, because no more Microsoft Tax.

But Sony?

What would Sony do? Are they at risk of being left behind and losing their leadership in console videogames because there’s a different game to play now, and it’s people who play videogames?

Well.

Okay, fine, you could:

• play catch-up on content: also have exclusive games that you can play anywhere. You can dip your toe into this by releasing formerly exclusive games onto PC (which, funnily enough, kind of solves your mobile problem because Valve just released a mobile gaming console that can play your formerly hardware-exclusive content). But this feels like… it’s small. You want something bigger.
• also have a subscription offering to compete with Microsoft’s Xbox Cloud Gaming… which effectively means bolstering your library of subscription content. But you don’t have as much money as Microsoft and can’t throw hundreds of billions of dollars around. Not without borrowing a shit-ton of money.
• or… something else.

Which means you have to figure out what PlayStation is, because it’s not going to be tied to hardware anymore.

That’s what’s caught my attention lately. And tomorrow I’m probably going to be thinking out loud about what choices might come next for PlayStation.

That’s it for today! I totally blew past the time I set to write! ~2700 words in 50 minutes, so a slow rate of only ~53wpm.

At the last minute, I changed this to season 13. I was going to wait and round out at the 60th episode (this one) before hitting season 13, but this feels as good a time as any given what I wrote about today and what I will probably write about tomorrow.

How are you doing?

Best,

Dan