In this Special Edition of the GameCraft podcast, Mitch and Blake discuss the $55 billion leveraged buy-out of Electronic Arts by the Private Investment Fund of Saudi Arabia, Siliver Lake Partners, and Affinity Partners -- the largest LBO in US history, and the second largest transaction in the history of the video game business after Microsoft's $69 billion acquisition of Activision.

They discuss the deal itself (and how to properly characterize it), some of its immediate implications, and why Mitch's take on the possibilities created by EA going private went from excitement to disappointment in the two weeks following the deal's announcement.

Mitch and Blake explore the role of consolidation -- primarily through mergers and acquistions -- in building some of the biggest and most durable companies in gaming.

They begin with a discussion of the four major strategic uses of mergers and acquisitions: economies of scale, entry into new markets, control of talent and intellectual property, and new technologies. They provide many examples along the way.

Mitch argues that M&A is so important to the business that it's actually difficult to avoid ending up on either side of that equation, as an acquirer or as a target of aquisition. Mitch and Blake map that idea onto their dictum that venture backed companies need to decide whether they are building a product or a company.

They talk briefly about the financial engineering side of M&A, particularly in the form of the "roll-up" -- where companies are entirely build from acquisitions with a (usually mistaken) hope that the value of the whole will exceed the sum of the parts. They discuss why this rarely works, and try to explain why Embracer is in such trouble as a result.

They close the episode with a closer look at EA, Activision, Sony, Microsoft and other companies and show how their acquisitions map clearly onto the four main consolidation strategies. They argue that leverage is the key component of M&A success -- that buying companies against some pre-existing competitive advantage (rather than just buying randomly) results in a much higher likelihood of success.

Last season, Mitch and Blake discussed the implications of new Large Language Model Artificial Intelligence in games. In this episode, they return to the topic, this time focusing on games that are using AI as a platform -- meaning, the games are predicated on the use of LLMs to manage gameplay in some way.

After introducing the central ideas, they list a series of games they have encountered that make use of these new technologies, from relatively modest text-based adventure and role playing games, to more sophisticated games involving dialog with digital characters, dynamic narratives, and adaptive game systems.

They briefly discuss the vibe coding phenomenon, and offer some encouraging comparisons to the early PC modding communities as well as the vibrant Nordic "demo scene" they discussed in GameCraft S1:E3.

Finally, they take a sidebar to discuss the labor implications of AI in gaming, and argue that the business is at a crossroads -- and that the choice of the path forward has massive implications for future growth and relevance. They end with a discussion of the highly relevant exchange on this issue between the great John Carmack and a Quake fanboi over the use of AI in game production.

Mitch and Blake look at two of the largest toy companies in the world, Hasbro and Lego, and discuss their divergent but ultimately very successful forays into the games business as licensors of intellectual property.

Your hosts discuss how both Hasbro and Lego tried to enter the games business directly as developers and publishers of digital games in the late 1990s, how they had very different experiences of success and failure, and how both decided to exit the business in the early 2000s only to return as licensors rather than publishers later in that decade. Mitch tells the story about why he went to Hasbro's private pre-Toy Fair meeting in Florida in the late 90s.

They then explore the licensing stategies of both companies in depth. They discuss the transformative partnership between Lego and Traveller's Tales, and the complexities of using IP licensed by Lego for toy sets, like Star Wars, as the narrative universes for Lego's video games. They discuss the rise of Wizards of the Coast inside Hasbro after the 1998 acquisition (culminating in the accession of Chris Cox, head of WoTC, to the CEO position of Hasbro), resulting in two defining license deals: Baldur's Gate 3 to Larian, and Monopoly Go to Scopely.

Mitch and Blake close the episode with a look at how a huge market for block-based sandbox play -- that should have been in Lego's wheelhouse -- was captured by new entrants like Minecraft and Roblox. They also speculate about Hasbro's challenges replicating their recent licensing success in the near future.

Mitch and Blake address the unpleasant topic of how and why venture-backed games companies fail.

They look first at the nature of venture financing and the inherent differences between venture and publisher money. This leads to a conversation about how developers who were used to working with publishers treated venture capital like production financing as opposed to company financing, and why that distinction matters.

They then turn to the flawed strategies and tactics of gaming funds and investors, who tried to make up for their lack of judgment and taste by placing many bets on startup studios. They address several other factors that made games investing tricky for venture capitalists who often had little experience managing creative businesses and lack a basic understanding of the peculiarities of game production.

Mitch and Blake look at reasons why venture backed companies fail, and why catastrophic failure appears to be more common among venture-backed games companies than other software companies. They discuss the concept of the "naked B," why growth rounds are rare in games companies, and why games companies are uniquely difficult for conventional venture capitalists to evaluate.

They conclude with a look at some examples of companies that failed to return capital to investors -- in some cases very significant amounts of capital -- and discuss a few companies that appear to be in danger of following suit. They explain why the cumulative effect of these failures is one of the factors behind the current difficulties game companies experience raising money from venture capitalists.

[Ed.: since recording this episode, one of the companies in the deadpool, Elodie Games, has shut down.]

Mitch and Blake look at the current state of the vitally important Chinese gaming market, on the precipice of a bitter trade war resulting from the Trump tariffs.

They review the history of the games business in China, discuss the reasons China is so competitive in the global gaming market, and look at how some of the ways the Chinese market diverged from other markets influenced the strategies of Chinese game companies.

In particular, they look at how China's relatively late entry into the games business proved to be a benefit, by allowing them to skip the packaged goods era and therefore avoid all the ways that the packaged goods legacy has burdened incumbent US and European publishers. They discuss how the restrictions that the Chinese Communist Party places on the games business have influenced the development of the market, for better or worse.

They analyze how this unique domestic situation pushed the top Chinese companies to look outside China to deploy capital to secure various strategic content and distribution advantages (e.g., Riot, Epic, Garena). They discuss the strategies of top Chinese publishers TenCent and Netease in this light. They talk about how US national security interests affect Chinese publishers' ability to invest in and potentially acquire US game companies.

They discuss how, over time, homegrown content has come to dominate the Chinese market, and the way that pattern is similar to what happened in the film business, where China migrated from importing Western content to creating its own.

Mitch and Blake marvel at how China has gone well beyond replacing Western game imports, with Chinese products such as Genshin Impact and Black Myth: Wukong emerging as viable AAA games suitable for successful export to the US and European markets. They also look at the success of Chinese mobile games such as Last War and Block Blast! and how good these companies are at distribution arbitrages.

They conclude the episode with a look ahead and discuss how the current global political situation may affect the future of both Chinese and Western game businesses.

Show Notes:

Mitch and Blake take an in-depth look at one of the most important companies in the global gaming business: Valve. They trace the company's origin as the developer of first-person shooter Half Life, their use of the Quake engine and the benefits Valve derived from their relationship with id, and their development and deployment of the Steam platform.

They explain how Valve used content like Half Life, Counter-Strike, Team Fortress, and other games to aggregate audiences on Steam, and how they used those audiences as the bedrock of their move to platform-based publishing on Steam. They discuss the evolution of Steam and its competitive advantages as an internet business, and how Valve used those advantages to become the publisher/distributor of choice for independent PC games, and later a key distributor of games from incumbent publishers -- including the rumored launch of the PC version of the much-anticipated new Grand Theft Auto VI.

Finally, they look at the Steam's success in China, how the increasing market power of Steam could pose a problem for the PC gaming business, and how Valve is attempting to leverage Steam into a hardware platform.

Show Notes:

GameCraft S1E2: The Fall and Rise of Publishing

Aggregation Theory

Valve 25th Anniversary Documentary

Michael Abrash

"The Fragile State of Steam in Mainland China" - gamesindustry.biz

Steam Anti-Trust Litigation

Mitch and Blake discuss the mobile duopoly in which Apple and Google exert extraordinary power by tying their app stores to hardware and software platforms. They warn that the inflexible and expensive distribution systems on iOS and Android could be models for future PC and console distribution systems.

They briefly review the history of mobile distribution and mobile technology innovation from the late 90's to the present, and what that development meant for content on the platforms. They discuss the similarities between the JAMDAT and Scopely content portfolio strategies as responses to their very different distribution situations.

They discuss in depth the often perverse incentives that are created by platform dynamics and distribution expenses, which lead to content and customer acquisition strategies that are designed to maximize return on invesment rather than quality entertainment. Blake explains the particularly dark advertising strategies of companies like Playrix that intentionally deceive users.

They make the case for government regulation as perhaps the only solution to the current mobile distribution cost gouging problems, given the market power of the two duopolists, and explain why sideloading isn't a simple solution to the distribution problem. Finally, they discuss the increasing similarities between the iOS App Store and Steam, and why that is a frightening development.

Show Notes:

Macworld 2007 iPhone Announcement

Do [Steam] Wishlists Matter Any More?

Mitch and Blake kick off Season 3 of the podcast with a high-level look at the current moment in the video game business, critiquing both the idea that the business is cyclical and we are in a downward phase of the cycle (and the naïve notion of "survive 'till '25"), as well as the idea that the business has simply matured, suggesting we are in a new phase of low growth and consolidation.

Instead, they propose a framework for thinking about the games business that argues for the continuous interplay of three innovation forces: content, distribution, and technology. They outline how each of the three forces have played out historically, and offer some examples of the discontinuous inflections that have occured along these three vectors of innovation. They also try to explain why innovation is currently stalled, and how that creates a downward spiral that affects valuations, risk-taking, and ultimately what kinds of games get made.

Show Notes:

Matthew Ball's state-of-the-games-business deck

Joost van Dreunen's newsletter

Live Service Games

The Demise of Mid-Budget Cinema

Sideloading apps on IOS

Discord's new ad units

In their final episode of Season 2, Mitch and Blake take on the complex and highly speculative topic of the impact of recent improvements in artificial intelligence on the games business. Your hosts acknowledge that the sector is moving so quickly that this episode could be obsolete by the time it airs, and warn that it's difficult at this early moment to look too far into the future.

Mitch offers a loose framework for thinking about AI in game production, mapping this framework to specific areas of game creation and publishing that could be effected by AI. They discuss in particular the disruption that could be caused by massively increased efficiencies in the creative pipeline, the impact on the game labor force, and how the incumbents may be more vulnerable in games than in other software spaces. Mitch tells the story of his first meeting with then-game developer Demis Hassabis (today the CEO of Google DeepMind). Mitch and Blake look at the unpleasant prospect of what behavioral analysis, population clustering, and dynamic ad personalization may mean for the dark arts of paid customer acquisition.

After a look at what AI-enabled game creation might augur for distribution platforms already choked with content, they look at the bull and bear cases for game AI, and its implications for the future of the games business.