Aug 13, 2020 9 min read EGD News

Matthew Ball on Invest Like The Best (Aug 2020)

@ballmatthew was on Invest Like The Best in July 2020. Here are my takeaways from this interesting podcast episode.

Matthew Ball is the former head of strategy at Amazon Studios, an investor, and a great business essayist. Here are his essays matthewball.vc

Takeaways from the podcast

Here I focus on the topics of the discussion, on IP in gaming, TV and movies. Then how gaming is becoming bigger. How the metaverse and cloud gaming are coming but not there yet. And then on how Matt sees investing into games.

Before quoting Matt, I try to reflect on what he’s saying and figure out how it relates to people in the games industry.

On big IP
- Immersion takes hold, and storytelling has changed into an all-encompassing cinematic universe, like with Marvel.
- “How are those stories going to change in the next 10 years, and in some instances that is unlocking what you might call a narrative primitive? That’s perhaps some of the reasons why the Marvel Cinematic Universe or the tales of Star Wars are so expansive today, so immersive. And then in other instances, it’s just about what we depart from. There’s a reason why procedural cop shows have declined over the past few years.“
- IP is just getting bigger
  - Lord of the Rings, Star Wars, Marvel, Star Trek, Stranger Things, Game of Thrones, Alien, Terminator. All are big worlds, and there will more of these. HBO is building up Watchmen, Hulu, Amazon, Netflix have dozens of superhero shows. CBS is Star Trek crazy.
    - “And I think the first is the most obvious which is the supremacy of intellectual property.“
    - “But what we’ve seen over the past 150 years is a massive concentration of our attention, or at least our obsession, to massive immersive fantasy worlds.“
  - But it’s hard for others to follow Disney and repeat the success. Lionsgate tried it with Gods of Egypt, with Power Rangers. DC had the horror IPs. WB has monsters.
    - “What’s so fascinating to me about the Marvel Cinematic Universe is its success is so unprecedented, and no one has become close to a power-law differential actually downplays how much bigger and more successful that franchise is.”
    - “Try launching A Space Odyssey television show based on new IP in a post-Mandalorian world, you used to have television off from Star Wars, you used to have television off from Marvel. You don’t anymore. And that big lesson basically means that these positive feedback loops are getting stronger.”
    - “Marvel Cinematic Universe’s big innovation was instead of having a sequel every three years sequels being a big business model innovation, let’s have one sequel every six months or one sequel every year.”
  - Consumers expect great IP to continue. First there’s one book, then several. Then it’s a TV show to the movie. The world, narrative, and canon continues.
    - “In the case of The Witcher. Its people who were saying I’ve done it in one medium, I want to do it in another and then I want to do it a third time with small variations.
    - “Game of Thrones sold 15 million copies before the television show came out, it sold 65 million copies in eight years after the show came out.“
- To achieve the best immersion, you need a video game
  - “it’s no surprise that the most successful games today are those that really hand over as much of the experience as possible to the audience are those that say, let’s take the imagination in your head, let’s translate it into something you can experience more, personally with more visual acuity. Let’s share it and let’s enable it.“
- Netflix has staying power. People consume TV shows by watching a streaming service, or buying something on iTunes. It’s much easier to stick around and consume something on Netflix if you’re already on the platform.
  - “It’s clear that intellectual property has a disproportionate impact on customer retention.“
  - “Another way to think about this is, if we highly valued every minute of leisure, most of us would buy a 499 rental rather than watch something that looks just okay on a service that we already have. Understanding that behaviour is important to understanding the resiliency of these market leaders.“
  - “The fact that Netflix has that reach means that they can actually produce hits and franchises at a greater degree on an equivalent quality or kilos basis of other services. That advantage is enormous in a content business.“
- Competition for TV is in other places
  - “Television is giving way to other formats. And that can be as magnetic as Tiktok as short form as Tiktok, or as immersive as and experiential as Fortnite.“

Gaming is becoming bigger
- Being in a game isn’t only about playing a shooter. The experience of spectating some other playing a shooter is even bigger. It’s all about participation. In example, this is why concerts and movies have a place in Fortnite.
  - “just chatting, allows you to listen into the game. So there might be five of us playing or four of us playing in the case of Fortnite. You’re still participating. You’re part of it. There’s a huge investment right now, of the major developers on the mobile“
- Monetizing games is ridiculously low, when looking at ARPU per hour. Subscription MMORPGs are at the high end, hyper-casual mobile games at the low end.
  - “on an hour basis, video games are still monetizing at fractions of what even standard cable television is on an hourly basis, which makes very little sense when you actually compare the degree of immersion in focus, and distractibility of the audience.“

What is interesting about the Metaverse, and what can we learn?
- Every aspect of the metaverse is still out there. If you’d ask why would someone want to build one right now, would be hard to answer.
  - “The technology required to do that is very far away in the business case to realise it isn’t quite there yet. Either.“
- Epic Games CEO Tim Sweeney is pushing things towards a place where they’ve enabled the technology and the business model to exist
  - “Tim is particularly fascinating because he very much Seems like in some way, a reversion to the early 1980s 1970s ideals of a technologist, while also seem mean like a more evolved version of the long term thinkers of a Jeff Bezos, by that I mean, he is the dead set on creating the underlying infrastructure that will allow for enormous, enormous TAM (total addressable market) creation.“
- While other parties are taking 15-30% of revenue share, Epic only takes 12% for distribution. Tim Sweeney believes that keeping more money with the developers will increase the TAM.
  - “Let’s keep our margins down. Let’s grow our reach. Let’s build a better SAS infrastructure to grow the market. Yes, but secure our position. I’ve never seen one that is so focused on TAM lift.“
  - “The core of all of this is not just taking value out of the middle of the gaming industry to push it to developers or to increase the quality of experience for the audience. But it drives that interoperability. This is Tim trying to bring the metaverse together by driving either margins to creation or commonalities between experience access entitlement.“

Thoughts around gaming and media
- Tech allows new business models. For gaming, as tech got better, distribution costs for games went to zero. That allowed for new business models to emerge like in-game purchases and in-game advertising.
  - “All media industries are a product of content, business model and technology. The technology usually comes first that informs the business model, and that drives content to use this quick diversion.“
  - “Gaming is unique in that more so than any other category. The reliance on technology is extraordinary.“
- New categories in gaming emerge, without replacing older ones. Mobile didn’t kill handheld consoles, as the sales of Nintendo Switch has shown. These are different categories.
  - “Take a look at the industry over the past 50 years, every time a technology platform changes, something unique in media happens, which is we do not have cannibalism.“
  - “This reflects how unique and different the gaming category is not just in the sense that you don’t need to replace existing leaders to grow. But that when you see new platforms emerge, that value allows companies no matter how late they are to the sector, build multibillion-dollar businesses.“
- Gaming is coming to a state where everything that can be tracked and understood through data. More than any other industry.
  - “Gaming is actually not like the media industry. It has become more of an outcome driven. It’s not based on creative, it’s about what you can track and see. And by that, I mean optimising monetization, optimising certain gameplay behaviors, what you want people to be doing as opposed to just how much you do it.“
- Hollywood is trying to understand gaming. What are Hollywood execs not getting about gaming?
  - “And I think everyone in Hollywood is now trying to think of what’s the interactive element that allows us to tap into more enthusiasm that drives a sense of urgency.“

Thoughts on cloud gaming
- Similar to the metaverse, there’s not a lot of evidence that cloud gaming will be viable any time soon. The tech is read, but the business model doesn’t make sense.
  - “Strauss Zelnick (Take-Two CEO) has come out and said, Google over promised under-delivered and the proposition of cloud gaming is years away. And on top of that, Phil Spencer, the head of Xbox, has said that cloud gaming adoption is years and years and years verbatim quote away“
  - “You’ve already got free to play once you can play 400 hours of Fortnite every month for free. Cloud gaming doesn’t make Fortnite cheaper. And because we already have a world in which anyone who wants to play Fortnite can play, just having cloud-based delivery to Fortnite, like games like Call of Duty doesn’t actually expand the TAM.“

Investing in gaming
- Matt’s investment thesis in gaming is that tech enables new business models, which then allow for new content
  - “My general thesis is, if you are trying to squeeze opportunity here, you can certainly invest around the hope that the content is truly so good that it stands out. But I would argue that the massive learning of the past 50 years is the content matters. And we can circumnavigate the idea of whether or not it’s distributional content, but massive innovation on business model, or on the technology is what drives that disruptive opportunity.“
  - “Minecraft, Grand Theft Auto and Fortnite are great examples of that newly executed content with either a new business model or technology that fundamentally disrupts that ethos. And even when it comes to filmmaking, which has existed for 110 years has not changed that much. He’s actually purely a business model innovation that drove to content.“
  - “I look for big theses around unlocking content formats or user behaviours, using new technologies or theses for interaction that are new.“
  - “I think you get into the classic problem where the product actually could fit the market but never finds it. And so I prefer to take the bigger swing on a different thesis.“
- Early-stage investing in gaming is hard. It gets so much easier when you have numbers at the Series A and B stage.
  - “To provide considerable capital at the pre-seed and seed stage, even to some extent at the series a stage, but there’s an incredible appetite to overpay for metrics at the series A and Series B level.“

Transmedia storytelling, experience, IP
- Matt’s thoughts around the concept of transmedia storytelling and experience are interesting. The idea is that the IP becomes alive all around us. It’s persistent and it involves the audience.
  - “Pokemon Go, which basically says, Let’s actually have your fantasy world everywhere, it’s around you. There’s a Pokemon in your living room. I think that we are eventually going to hit into a world in which transmedia storytelling says that there is some cohesive narrative that goes everywhere with you.“
  - “Imagine paying Robert Downey Jr. For his likeness for his audio. And then you have a performer that is doing motion cap that is remapped to Tony Stark such that you and I could go on login to this game tonight, actually interact one to one with a Robert Downey Jr, a Tony Stark go on a live adventure to save the world. And that would all be part of this expansive universe.“

Disney
- Disney owns the top IP in entertainment. In gaming, only Tencent comes close.
  - “[Disney] had eight of the 10 biggest films of the year, there have been about 36 or 38 films in the past 15 years across the billion. Disney has 65% of them, most of which have been in the past three years. And so you can tell there’s clear IP ownership. But the execution is profound.“
- It’s so much about execution, not about owning the Marvel or other IP.
  - “They have an enormous storytelling skill set that nobody else can do. Even though you can understand that Hercules that Peter Pan have the atomic elements of a good story. That’s why others have tried for it. And I think the second point is, Disney is not just best at telling stories. They are best at extracting value from those stories. Disney has things that are not in vogue today, which is strong distribution agreements with theatres and large consumer products, distribution agreements, and certainly its theme parks. That means that not only is Disney more effective Building hit content, but they are more effective at monetizing that more so than any other player.“
  - “We actually forget how many other companies tried to emulate the Marvel Cinematic Universe model, in part because most of them never even got off the ground half were cancelled in pre production. We look at the struggles of the DC Cinematic Universe as the primary counterpoint. But every studio tried this I’ll use one example in 2014, universal reshot half of the movie Dracula Untold to try and turn it into a universal monsters universe that was going to be Wolf Man, it was going to be the invisible man it was going to be zombies and so forth. The movie barely hit the black.“

You should also check out the full transcript on the Invest Like The Best website by going here.