The first time I felt REALLY old

Technically, I am classified as a “millennial” according to the unofficial date range of “early 1980s through the late 1990s, however, I just turned thirty and I don’t actually identify myself as a “millennial”. To me, millennials are younger and have a far better grasp on current trends, something you seem too loose after a few years out. That being said, I ran a creative business and worked in a creative field where I caught wind of these millennial trends. I made an effort to keep up with the “cool kids” and as a result had didn’t usually miss cultural references. That all changed one day when I observed someone doing the “fortnight looser dance”, confused I asked a friend of mine what it was. He replied, “that’s the dance from Fortnight, it’s the biggest most popular video games ever”. That evening, I found myself Googling “fork knife” and was schooled yet again. Feeling extremely old and stupid, went to bed thinking I wouldn’t hear of Fortnight again, after all, it’s a video game and these things have a short lifespan these days.

 

Fast forward a year, Fortnight has been all over my radar, but this time it’s because of the business and finance section of the Wall Street Journal. It turns out this game has an incredible business model, from the countdown clock that creates a sense of urgency to the social pressure to purchase non-game enhancing add-ons, Fortnight is disrupting the gaming industry in a big way and the usual suspects don’t know how to react.

 

Fortnight is produced by a small private company called Epic Games based out of North Carolina. They have around 700 employees and were founded in 1991. They don’t have any huge prior hits, however, they have been a consistent performer of typical shooter style games. In 2012, Epic was valued at $825 Million. Many called this extremely overvalued given they lacked core IP and only had one franchise game to date. From an acquisition standpoint, Epic seemed like a poor choice however Tencent saw things differently. In 2012, Tencent acquired 40% of Epic for $330 million including stock options. As of October this year, Epic games were valued at $15 billion dollars.

 

While other people are enjoying the gameplay aspect of Fortnight, I have enjoyed the business and financial implications of the game and the industry. Earlier this week. Activision Blizzard, the creators of “Call of Duty” recently announced they would be cutting around 8% of their workforce in an effort to restructure and compete with games like Fortnight. As a part of this restructuring, Activision Blizzard is planning on increasing the number of its developers by around 20%, allowing it to provide more content at speed and scale in an effort to capture more users. In conjunction with these announcements, Activision’s quarterly earnings were softer than predicted. Both of these issues causing the stock price to slide early this week to lowest since February 2017. To make things even worse for Activision, Electronic Arts recently released Apex Legends which has been deemed the fastest growing video game in history. Apex Legends capitalizes on everything good in Fortnight, plus adds in an additional social networking aspect to the game which has created a huge network effect. While Apex Legends has yet to prove itself over time, it is currently the only game coming close to competing with Fortnight.

 

So where is the opportunity and how can I make money.

 

There is no doubt that the video game industry will continue to grow globally for the foreseeable future. The Asian Games in 2020 will recognize e-sports as an event for the first time in history and will hand out medals for video game play. Over 50% of households in the US currently own one gaming device, a statistic that has continually increased since the early 2000s. Tencent is the frontrunner in the space, however, due to recent trade tensions with China, plus limits and restrictions on Tencent’s games by the Chinese government, the stock has plummeted by $18 per share in the past year. This has created an incredible opportunity for investors looking to buy into the next Facebook or Apple. Furthermore, Electronic Arts stock has rebounded since its release of Apex Legends proving that the freemium game model is the future of gaming. Currently, they are priced at $50 less per share than they were at their peak this past July, this is sure to increase as Apex continues to grow along with the space. Lastly, I wouldn’t count out Activision Blizzard as they have been an innovator and a fighter for decades. This recent news is good but will require investors to be patient and do their diligence. I predict Activision’s stock will slide into the 30s before the company’s restructuring has time to take effect, after which I would expect to see them produce several competitive offerings.

5 comments

  1. Awesome post! As a late 90’s baby I’ve been told I’m not technically in the “millennial” generation either, but seemed to be lumped into it by parents and all other accusatory adults. I understand this ambiguity, I’m just feeling it on the other end. I might be closer to the generation of snapchat streaks, and that’s a little scary. Fortnight has become a mainstay in my life at this point. All of my friends play it, and I do often as well. I don’t usually spend money on free games, it’s almost a principal issue for me at this point, but this game brought me so close to swiping my credit card it was scary. The game is so big that there are literally social pressures on getting the newest and coolest skins, emotes, dances. This combined with a target audience with a low end of 10 years old and as high as 30, they are singlehandedly proving the viability of the micro-transaction model. I absolutely agree that this freemium model is the future of the gaming industry. It’s no surprise similar companies like Activision are augmenting their developers and trying to keep up with the constant iterations and updates that fortnight can provide. It will be interesting to see if a traditional gaming company can successfully reposition themselves to compete against a firm like Epic who is fundamentally set up for this kind of quick action and versatility.

  2. Honestly, I felt “old” in social media age when I was 25 and Yik Yak came and went on college campuses. The only reason I even found out much about it was because my office (where I employed dozens of college students annually) had many active and thriving Yak threads(?) circa 2015.

    Viewing popular apps from the business lens is definitely where I’m at now. I heard of Fortnite because my coworkers kids are always playing the game. I asked the question about increasing public concern around gambling via in-game “loot boxes” in response to Conor’s presentation last week because that was the only pre-existing knowledge/context I had around the game. (Just saw that there’s an upcoming update on the app to eliminate randomized loot boxes, which were at the center of these complaints.)

  3. You may think of yourself as old, but are there any games that really spark your fancy today? Video games, card games, board games? Also, I’m very curious if you tried playing Fortnite yourself. For me, I gave it a shot one night and realized that I was so terrible at the ‘building’ mechanic of the game that I wasn’t able to hold my own against 7th graders who had the game nailed down to a science. However, there are strategy games that I find myself much better at. My point is that while Fornite may not be for you, you still have a chance to get into the e-sports frenzy, just gotta find your game!

  4. Great post! As the oldest brother of 4 boys, Fortnite has slowly creep its way into our house as my youngest brother, James, has become quite the pro at the game. I find myself feeling old as I have struggled to play the game on the same level as kids just 6 years younger than me. Your blog brings up a funny point. I also feel old as I have looked at this video game craze with a different eye. Maybe it has been the last 4 years of CSOM education or just my new interest in business, but one of the first thoughts that comes to mind about these new trends is “Wow, these guys must be making a killing and where is the opportunity?”. It will be interesting to see how long this trend will continue and how Fortnite will eventually pivot to anticipate the changing public interests.

  5. I’m slowly waiting for Activision to let go of Blizzard, if only for the sake of letting Blizzard make worthwhile, entertaining games and hang on to their reputation.

    Fornite is a really interesting game to me; not because the gameplay is that good (I don’t think it is) but because of the social forces baked in that made it huge. With any online game there are certainly network effects, but Fortnite does this on steroids. At this point, they’re so inside the mainstream that every gamer has at least heard of it, if not tried it. With that kind of publicity, it’s hard to not have a giant user base.

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