For this week's edition of "Game On," The Fly spoke with Berenberg analyst Edward James on a number of topics in the mobile gaming space, such as the potential impacts from the COVID-19 crisis as well as streaming.
DOWNLOAD RATE: SensorTower recently said that Q1 marked the largest quarter for mobile game downloads ever, likely due to more people staying at home as a result of COVID-19-related restrictions. When asked how the rate of downloads might change as such restrictions are lifted, James noted that the pandemic only really affected the industry late in calendar Q1. "So what we’re actually seeing, when talking to some of the mobile game developers that we cover, and this is also [true] for some console and PC developers as well, is that the tailwind of downloads and player engagement actually accelerated in Q2," he told The Fly. "I think we’ll actually see that accelerate in terms of the actual financial results we see from these companies.”
“Beyond the lockdowns, and looking towards today and going into the summer, I think you’ll see the level of downloads and engagement come down off the peak," the analyst added. "What I think is really interesting is that these companies are going to have a larger userbase than we will have anticipated regardless of how much that falls by once we get out of the other side of COVID-19. The reason why I say that is because a lot of the growth has come from new players coming into the market as well as old players engaging a bit more. These companies will keep at least some percentage of some of these new players. It’s difficult to say how much, but in aggregate this will be a net positive effect on the baseline user level that these companies will have on an ongoing basis into the medium-term. Short-term, it may not remain at peak level. It will come down, though it’s difficult to say by how much.”
AAA ENTRANTS: Recently, more large video game publishers, such as Nintendo (NTDOY) and Activision Blizzard (ATVI), have entered the mobile gaming sector with mobile versions of popular AAA gaming franchises. When asked if such entries into the space will hurt more mobile-focused companies, such as Zynga (ZNGA) and Glu Mobile (GLUU), James said the threat of user migration from one style to another is "reasonably limited," and if there's any migration at all it will likely be small and "mostly a wash."
"What we’ve seen so far is that it hasn’t impacted these companies financially and hasn’t impacted their user profiles, and when we look at storefronts...the experience between a casual mobile game is so different from the AAA franchises, in particular the first person shooters, and therefore attracts a different audience," the analyst said, adding that even though he can play "Call of Duty" on his phone now, that won't substitute time away from other mobile games he plays since he plays those games for different reasons.
STREAMING: As companies such as Microsoft (MSFT), Google (GOOG), and even Bethesda invest time and money into cloud gaming services, the Berenberg analyst said that there will be a "relatively limited" migration, if any, of mobile game users to streaming console games on their phones. “Ultimately, being able to cross-play "Assassin's Creed" (UBSFY) or "Call of Duty" [from your console] onto your mobile...I’m not sure how attractive that really is," James said. "Playing "Call of Duty" on my mobile is not really that great an experience. Yes, it will become better, and being able to connect a controller to my phone with a holder can make the experience better. It will attract some players, but I don’t think that is the real upside in terms of streaming. I think it’s more the digital storefront where you don’t have to download games for ages in order to play them.”
APPLE ARCADE: When asked if he expects more companies to look into mobile game subscription services given the success of Apple Arcade (AAPL), James said he does "to a degree." "It’ll be interesting to see how it finds its place because Apple Arcade has a specific, curated purpose of having a family-oriented type of service," he told The Fly. "It’s there to service a player or a family that wants to jump around to different family-oriented games. If you have a game that maybe doesn’t fit that suit, or you think it’s going to be very successful in its own right, you’re unlikely to go down that route. You’ll probably just have it on the normal App Store because ultimately you’ll reap more [profits] by having it on the App Store than having it on Apple Arcade.”
“All that said, I do think there will be more subscription/streaming services," the analyst added. "We’ve seen Google is doing a similar idea just for large AAA type games. You’ve seen Ubisoft with UPlay. I think we’ll see both the actual publishers and tech platforms trying to do the same thing. I don’t think, if we fast forward in ten years, they’ll all survive. Not because they’re going to go bankrupt, but by choice, because ultimately you can’t have 35 different platforms.”
SECOND WAVE: Should there be a "second wave" of COVID-19 infections, which would result in people once again being forced to stay home, Edward James doesn't believe mobile game development will be affected much, noting that such an impact would be "near on nil," as mobile game development tends to be more streamlined and less complex than AAA game development. “If there was a second wave, I don’t think we’d see any outside material delays to new releases or updates," he said. "However, I think the risk is most certainly greater for larger AAA publishers.”
"Game On" is The Fly's weekly recap of the stories powering up or beating down video game stocks.
