'APEX LEGENDS': In an exclusive interview with The Fly, SunTrust analyst Matthew Thornton said that it's "not a stretch by any means" that Electronic Arts' (EA) battle royale shooter "Apex Legends" achieves low- to mid-hundreds of millions in revenue, since there is a precedent for shooter games to achieve that milestone. " Obviously, ‘Apex’ has had a very good start," the analyst said. "The game’s not even available yet on mobile, so it’s still early. But to think that this game could be a mid-hundreds of millions in revenue type of a game is not a stretch by any means.”
When asked if "Apex" could reach Epic's "Fortnite" in terms of popularity and ability to create value, Thornton said that there are several things that make that comparison more challenging, as "Fortnite" did "north of $2B in revenue last year." "‘Fortnite’ tends to skew a little younger, it’s not quite as violent of a game as ‘Apex’ is," he said. "It’s been on mobile for quite some time, but you’ve also got the fact that it’s a third person shooter as opposed to a first person shooter, so you get to see your character. In terms of getting people to pay for cosmetics, it’s a little easier to do so with a third-person instead of a first-person shooter.”
'ANTHEM': Meanwhile, The Fly also asked the SunTrust analyst about EA's online live services game "Anthem," whose launch was marked by technical issues and lukewarm reviews from players and critics. When asked whether the game could recover from its shaky start, Thornton said he's suspect on the title ever being material. "I have effectively nothing in my model for ‘Anthem’ beyond the March quarter," he said. "So, any resurrection there would be a surprise.”
In addition, Thornton said recent reporting by Kotaku about BioWare's mismanagement and difficult labor conditions during the development of "Anthem" "probably begs a bigger question" as to whether EA and other game companies are "just running things too hot." “Are they trying to do too much on too tight of a budget to meet numbers that they’re turning off talent?” Thornton said, noting that morale and turnover can become an issue in such an environment.
STADIA: On the topic of Google's (GOOG) upcoming video game streaming service Stadia, Matthew Thornton said that many people in the industry believe that the future of the medium is streaming, and that first streaming service providers need to find a way to "get publishers on board based on the vision." “I think a lot of publishers will work with Stadia and other emerging streaming platforms, but as a test case you’ll commit certain resources to it," the SunTrust analyst said. "And obviously if the consumers are there, you’ll do more and more. But obviously you can’t overcommit and keep building for too many platforms because it will eat into your profitability and your capacity. But just like you’ve seen with Switch (NTDOY), you’ve seen guys like EA entertain a few titles here and there, and as the Switch gets bigger it’s easier and easier to defend and support building for the platform.”
SINGLE PLAYER GAMES: Activision (ATVI) announced recently that its single-player action role-playing game "Sekiro: Shadows Die Twice," which has no multiplayer component or live services offerings, sold over 2M copies in under 10 days. When asked if this was a positive sign for single-player focused games going forward, including EA's upcoming "Star Wars Jedi: Fallen Order," Thornton said that the success of "Sekior" shows that there's a market for "different modes and for different revenue models." "It is a positive that you don’t necessarily have to build a multi-mode, open world, heavily microtransaction-drive type of game. That doesn’t have to be the only way to serve the consumer,” he said, noting that he believes Respawn's "Jedi: Fallen Order" for EA is "going in a similar direction."
“My view is that content is the king. So if you build a really compelling game, you’re going to find a market for it," said the SunTrust analyst. "We can all debate on the sizing of that end-market, depending on the type of game, the genre, the modes, what have you. 'Sekiro' was obviously an extremely well-reviewed game. It’s a great user experience and it probably outperformed some expectations.” Thornton added that Respawn is a "very credible studio."
EPIC GAMES STORE: On the topic of the Epic Games store, a recently launched digital storefront for PC games, Thornton said that Epic "clearly" is a "credible entrant" in the PC distribution space, where Valve's Steam has dominated for some time. When asked whether or not added storefronts and possible exclusivity is a good or bad thing, the analyst noted that PC gaming is "already a fragmented marketplace," as multiple large publishers already have their own online stores where they exclusively sell their games.
“Epic’s credible and they’re coming in with a compelling price point," he said. "So, they should take some share in the market. And from a publisher side, the more distributors, the better. More distribution isn’t likely to put upward pressure on their cuts, it’s likely to put downward pressure on their cuts that distributors take, so that benefits the publishers.” Investors in Epic include Tencent (TCEHY), Disney (DIS), and KKR (KKR).
"Game On" is The Fly's weekly recap of the stories powering up or beating down video game stocks.