YouSaid · the spoken record

Joost van Dreunen

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61
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2021-01-26
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2021-01-26
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1
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  1. “If I told you earlier that the industry crashed in the early 80s, that same year that the video games industry fell on its face is when these two, I think they went to Harvard, these two guys, they started GameStop. They wanted to sell software. They thought, well, the computers is going to be a big thing. So let's just go and only sell software. They did that for a while until ultimately they started acquiring competitors, but it became a business based on economies of scale. And of course, as it gets bigger, it gets attention from larger entertainment retailers like Barnes& Noble, they acquire the whole thing. And then eventually spin it off again. But so their success in the very early stages was really dependent on just basic economics. They just could have been selling frozen yogurt for that matter. It was really just about having retail space and presence. What made GameStop successful after its spin-off from Barnes& Noble was its incredible focus.”

    2021-01-26 · Invest Like the Best · Joost van Dreunen – Unlocking Value in Gaming – [Invest Like the Best, EP.210] · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “Which is one of their big titles, and Red Dead Redemption, but they also have 2K, which is a big label for, for instance, NBA 2K. So here is then an example of a publisher that has multiple studios and they each have different labels. And just like a music or a film business would have different flavors and categories and genres under one flag. Naturally, because they have access to the market and access to the platform relationships, they are in a position to just capture more of the value than the developers can. The developers are really forfeiting their ability to invest, make their access to capital dependent on working with the publisher. And they, of course, don't have a direct relationship in a traditional product model to the platform holders. Basically, the publisher can charge the fee for that. And so they can charge double the developer ultimately receives. Does that make sense so far?”

    2021-01-26 · Invest Like the Best · Joost van Dreunen – Unlocking Value in Gaming – [Invest Like the Best, EP.210] · IDENTIFIED FROM THE TRANSCRIPT · source

  3. “Developers are really the makers of the game. So this is the people that have all the creative talent. This is the arts designers. This is the programmers, the engineers, this is people wearing the full bodysuits with ping-pong balls for stop motion recording. That's really where all of that sort of Hollywood style stuff happens. And then the publisher is really the corporate component to a lot of this. And so they manage all the relationships with sales channels. They put up the capital. will have legal department HR department that will run across different labels and across different development studios they build scale that way so just like a movie label they will have different studios working on projects at the same time and they just have an efficiency by way of running the corporate component as a single unit if you think of a take to interactive they will have rock star which is the studio behind grant”

    2021-01-26 · Invest Like the Best · Joost van Dreunen – Unlocking Value in Gaming – [Invest Like the Best, EP.210] · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “These titles. And then, of course, ultimately, because it's that way, it tends to be very much dependent on the holiday cycles. So November, December, the two months out of the year when they have 40 to 50% of annual sales in a traditional product model. And so that means, of course, that in June, July, you have all the conventions like E3, where they showcase the new wares for the holiday season. So it gets very crowded and very, very expensive very quickly because now you have EA and Activision all spinning lots of money to get the new shooter game out on time and marketing the thing. The retail model and the product-based business worked really well in terms of scale and volume, but eventually, of course, becomes really cumbersome and expensive. And it leads to this consolidation across the value chain. And it makes it easier to invest. There's only a few winners, but the overall value is limited.”

    2021-01-26 · Invest Like the Best · Joost van Dreunen – Unlocking Value in Gaming – [Invest Like the Best, EP.210] · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “Sting in my house. What else can I play on this? And so you see this boom in terms of content creators starting to make games for it. And that's where the retailers start to play really important role in terms of getting cartridges to people, but also just marketing and solving the discovery issue. So you imagine your mother walking into a retailer in the 80s and 90s going, well, he wants to play a game, it's his birthday. What should I get him? So that was where the retailers really had still a very significant role in terms of marketing and discovery and really just guiding consumers to this universe. Over time, that started to erode, of course, but it was initially VD economies of skills. So you see a GameStop acquiring lots of its competitors. Eventually, of course, this is after it spun off from Barnes& Noble's because they felt that that was the same business, which wasn't the same as the book business so much. But if it was really about economies of scale, volume, and then driving margins.”

    2021-01-26 · Invest Like the Best · Joost van Dreunen – Unlocking Value in Gaming – [Invest Like the Best, EP.210] · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “You have to subsidize, you have to spend billions of dollars developing this cool technology with lots of chips and bits and bytes. And then hopefully you'll have cool enough content that people will want to buy, not just one, but most of your games. And that's where you really make the margin. And so in a product model, then you're really talking about scale, volume, economies of scale. And for the retail business, of course, that's where you just want to pump out as many of these things as possible. And in the beginning, life was, I think, still pretty good. In the early 80s, you have Nintendo subsidizing the retailer saying, take all these units. You don't pay us anything until you actually sell one of them. Retailers are like, fine, we'll put it in the store somewhere. We'll see if it works. They had no faith in it at the time. But they very aggressively subsidized that effort. And then over time, they start to see like, okay, actually, people want this. People like this. They enjoy this. They like Super Mario. They like Zelda. And then it's a matter of just selling more copies.”

    2021-01-26 · Invest Like the Best · Joost van Dreunen – Unlocking Value in Gaming – [Invest Like the Best, EP.210] · IDENTIFIED FROM THE TRANSCRIPT · source

  7. “A similar experience that I had, too. I'd have remember we got this Nintendo Entertainment System. And then, of course, promptly took a week off to play. It was awesome to play Super Mario and Zelda. It was really a significant entertainment experience for a lot of people. In that conventional model, you'd have effectively a Razorblade business model. So you sell the hardware, but then you make money on the”

    2021-01-26 · Invest Like the Best · Joost van Dreunen – Unlocking Value in Gaming – [Invest Like the Best, EP.210] · IDENTIFIED FROM THE TRANSCRIPT · source

  8. “Escaped Atari and just went out on their own. They realized that they had been on a salary job building these hit titles that would make millions. And they said, well, you know, that's not fair. So they just went out on their own and just disintermediated from that whole business and then start selling the content to other manufacturers and just made a lot more money for themselves. So in that universe, the idea that you would all pool resources and pay a platform some license fee so that they could collectively market the devices and create an install base against which you could then sell content nobody thought of that and Nintendo came up with this idea and it immediately turned the fortunes of the industry around. So that's really the first chapter for me to think about.”

    2021-01-26 · Invest Like the Best · Joost van Dreunen – Unlocking Value in Gaming – [Invest Like the Best, EP.210] · IDENTIFIED FROM THE TRANSCRIPT · source

  9. “To show something worth their time to show, and so from the beginning because such a segment that was under pressure from just the economics that they had before that, you have very high standards in terms of production, development, marketing, and so on. And so that then becomes the blueprint for how everything else is done. Nintendo really wrote that blueprint, they really drafted it in the 80s. And some of the aspects of it, for instance, were that as a content creator, you would only be allowed to have five titles on their platform. It would have to be a two-year exclusive to their platform. You would have to buy 30,000 copies of your own game to send around from marketing. And you'd have to give Nintendo a license fee. And so publishers at the time had just disintermediated from the manufacturers. So the origin, for instance, of Activision, it's not the Activision that you know today, but back then, Activision was basically eight people that is...”

    2021-01-26 · Invest Like the Best · Joost van Dreunen – Unlocking Value in Gaming – [Invest Like the Best, EP.210] · IDENTIFIED FROM THE TRANSCRIPT · source

  10. “So it's everybody at the time thought was a fad. So the games industry emerges from the toy aisle at retail. That's really where it started. Video games in their early iteration were basically toys with chips built into them and a lot of people regarded them as such. Basically, it's a hula hoop with a TV screen. So for all those reasons, people thought, well, this is not going to amount to much. another toy makes it big and then disappears next holiday season in 84 then in 85 nintendo comes in and they start to really put some terms around what it's like to be a platform what it's like to be a manufacturer of hardware and what it's like to be a company that hosts third party content and so the very first thing about the games industry that has led all the way to its success today has been this aggressive way of curating content of building third party relationships of keeping this promise to consumers like having something new”

    2021-01-26 · Invest Like the Best · Joost van Dreunen – Unlocking Value in Gaming – [Invest Like the Best, EP.210] · IDENTIFIED FROM THE TRANSCRIPT · source

  11. “The first thing to really cover is really the moment Nintendo came into the scene. I guess the short recap of the 70s and early 80s goes as follows. You had Atari and Pong and Pac-Man and all that, and which led to huge undifferentiated market that ultimately turned off and alienated its customer base. So it grew explosively to $2 billion in value in only a few years as the console moved out of the arcade and into the living room. And very quickly after that, you had too many manufacturers and too little content. There was just no reason for people to care, to give a crap. So the market then collapsed and quite literally became decimated to like a tenth of its value to about $200 million in 83. And then in 84, 85, you see the Japanese firm by the name of Nintendo roll in. And everybody thought they were crazy. So you have this phenomenon of video games.”

    2021-01-26 · Invest Like the Best · Joost van Dreunen – Unlocking Value in Gaming – [Invest Like the Best, EP.210] · IDENTIFIED FROM THE TRANSCRIPT · source