How data can help you understand the game industry | Joost Van Dreunen interview

Joost Van Dreunen has made a career out of helping people understand the game industry. In his day job, he teaches gaming strategy at New York University’s Stern School of Business.

And he also the author of the 2020 business book, One Up: Creativity, Competition, and the Global Business of Video Games. Van Dreunen was also the founder of Superdata, a game industry research company that tracked the virtual reality segment and was sold to Nielsen in 2018.

Van Dreunen has been a big fan of using data to analyze gaming. And we’ve had a lot of it lately. Microsoft completed its acquisition of Activision Blizzard for $68.7 billion in October, then it laid off 1,900 people to cut costs. That was part of a larger 10,500 layoffs in game companies in 2023 and another 8,000 so far this year.

With Apple’s push into spatial computing, Disney’s $1.5 billion investment into Epic Games and the European Union enabling alternative app stores, 2024 promises to be another transformational year for interactive entertainment. Apple has also been fined by the EU and sued for antitrust by the U.S. Justice Department. How do we make sense of all this?

At the recent SXSW event, Van Dreunen gave a talk showing off his latest data. And last week at the Game Developers Conference he also said he is launching Aldora, which focuses on the transition from games as a service to games as a platform, and tracks consumer behavior beyond just playing time and spending (like SuperData did). He also publishes the weekly newsletter SuperJoost Playlist.

I caught up with Van Dreunen at SXSW in Austin, Texas. Van Dreunen also has a second book in the works, and we talked about that.

Here’s an edited transcript of our interview.

Joost Van Dreunen is author of One Up and head of the new firm Aldora.

GamesBeat: What are you up to?

Joost Van Dreunen: I have a few different projects in the works. One of them is the second book. It focuses on the transition. The first book was from product to service models. The next one is from service to games as a platform. I’m fascinated by these models like Roblox and Fortnite, how they propose not just gaming, but all these other behaviors. People watch movies with Mario, but you can also go online and build things with other people. There’s a variety of things around games that are now not just new, interesting things to do, but they’ve become necessary against the background of platforms dominating the space. It’s driving large publishers into new spaces. They have to recruit users elsewhere and retain them in different ways. I like Andrew Wilson from EA. He says “play, create, connect,” that type of behavior. I’m trying to map that out. Who is going to be able to do that well?

Of course, the book is where my thinking is, but it’s also the company that we’re starting. It’s soft-launching at GDC. It’s SuperData 2.0, simply put. SuperData, we would track playing time and spending. We’re adding all these other categories of activity. As a result, because game companies are now also expanding their range of things they offer, brands can play a role in that. You see cases like Disney investing in Epic, but also the New York Times reporting an increase in subscription revenue because of Wordle. They basically took a million bucks, bought this cool game, and it’s paying dividends.

I’m curious to see–my belief is that right now is a watershed moment where the games industry, for the first time, comes to terms and works more closely with non-endemics – brands, advertisers, and so on. That’s going to change a lot for the games industry, at least for part of it. It’s a fascinating topic. My time at Nielsen, after we sold the company, was just listening and talking to people. How do we do this? I couldn’t develop all of that inside a large corporation. I had to start a new company to do it. I needed the flexibility to build a data co-op with a bunch of other companies. How do we track users from one behavior to the next? Game companies and brands and everyone can get a 360 view.

Those are the two main projects. The book is to write it all down and make sense of it. The company is now seven people. We’re still very much in stealth mode. We barely have a website up. But we have a bunch of clients, Fortune 500 clients, that are coming to us with some of these questions. From that comes the product and the company itself. It’s been going well.

GamesBeat: How do they crawl, walk, run into games? Is that the advice they’re looking for?

[embedded content]

Van Dreunen: Some of them run into games. You’d be surprised how some of the large companies–it’s probably, if I’m honest, because I’ve done this before. People tend to believe in me. I get access to the C-suite very easily now. Much faster than I did before. It’s these multi-billion companies. They know they need to do more, but they’re not sure how to do it. The way to convince everyone internally, just to make the case or win over the skeptics, is you need data to prove it out, to show how we do this.

Anywhere from predictive analytics to just benchmarking performance, that’s what we’ve been doing. We work with toy companies. We work with consumer brands, media, electronics. They’re all circling it. They’re ready to jump in. But they need to have some data to back it up. It’s a different language. Essentially you’re translating. You’re explaining it to people.

GamesBeat: Did you ever hear Bob Iger’s analyst call where he explained going into the deal with Epic? Showing the demographics. “We don’t have these people, these gamers. They don’t start out with us. To get them, we have to get them through games.”

Van Dreunen: I did. It was fascinating. The math is very straightforward. What’s surprising is that–I feel like we already knew this five years ago. But only now does this giant legacy media industry lurch into activity, moving forward very slowly. It seems wise for large companies to move slow, because they stand to lose a lot, but it’s now clear that they have to get there earlier. Roblox is another one for brands. Entertainment as well with Epic. I like the Lego activations.

What Epic wants to do, of course, is be a clearing house for all these big brands in some ways. I think that they are very successful with their title, but they’re really a platform company with the Unreal engine. If they can push all these creators through there, all these large companies, that makes sense for them. And for Disney it makes sense because in fairness, Epic can do a better job than Disney can when it comes to building these virtual world experiences. The Lego one, like I said, was great. It was beautifully executed. It’s a very good proof point for large companies.

Disney Infinity was cool, but it just didn’t pass muster internally. It didn’t make as much as they thought it would. So, do you want to be the specialist on this? I don’t think so. Disney is great at these experiences that straddle–how do you marry the digital and physical experiences that you offer? Theme parks, of course, they have that figured out. It’s a huge part of their business. How do you create the digital equivalent? The same thing in reverse, you look at the Sphere in Vegas. How do we bring grander, more immersive experiences into the real world? That blurring of those two realms, that’s where all these entertainment companies are having an interesting time. You have to be brave enough to invest.

GamesBeat: What were the prime things happening that helped you finish all these examples?

One Up is by Joost Van Dreunen

Van Dreunen: For me it’s always–I like when companies do new things, but you always have to ask why. I was very critical, for instance, of Google Stadia from the beginning. I never believed that Stadia was going to be a success, because they were doing something very self-serving. There was no consumer need for this. It was just an industry participant looking to make more money off its existing infrastructure. They didn’t offer anything that was interesting enough for consumers. It wasn’t anything that people asked for.

The impetus for the third era in gaming, where games become platforms, in my mind has everything to do with the fact that platforms now dominate the top 10 list of game companies in the world. It’s insane to think that Apple is the fourth-largest game company by revenue, yet it makes no games. These landlord companies, these gatekeepers as the EU calls them–Cory Doctorow has this beautiful term, “enshittification.” It’s true. You have some nicer business terms for it, but it effectively means that over time, platforms start to reduce their subsidies for content creators. They start changing policies to just pass more value to themselves. The third parties get screwed in the process.

GamesBeat: I wrote a column recently about how it was time to more heavily regulate Apple around anti-trust, because the way they were slapping around Epic–

Van Dreunen: It was amazing. It was purely for the colorful language. You can’t say bad words now? You know that you’ve pissed somebody off when you can’t speak to power like that. Apple is struggling with the fact that they used to be the underdog, and now they’re the dominant incumbent. It’s a weird role for them. They want to be different. They want to be innovative. At the same time, they’re throwing up these stone walls everywhere. Not to pigeonhole Apple, of course. All the other platforms do it in their own way. You can say a lot of things about Sony and Microsoft that are similar.

What it leads to is content creators just being elbowed out of the top of the industry. There are only two independent game publishers now: Take-Two and Electronic Arts. They have a lot of leverage because they have strong IP, but that means everyone else is screwed. That’s a fascination we share. Game companies are going to get very creative around making cool experiences, but also new business models. “If I can’t figure it out on mobile, I’ll go somewhere else.” That’s what’s driving this transition. They realize that they can’t rely on these large companies to find users anymore. The targeting is off. The costs are astronomically high. They’re going to find other ways to do it.

GamesBeat: Has that inspired a lot of blockchain movement?

The layoff dominate the headlines.

Van Dreunen: That’s part of it. It’s part of that language. The idea that there are all these intermediaries between you and your customer, it’s totally nonsensical, except when they provide lots of value. It’s increasingly clear that the platforms don’t provide enough value. The value they create may be useful, but it’s not worth 30%. If I’m also paying for marketing, half of my budget goes to a platform. Just to talk to my customers? That’s insane. Things like blockchain and web3 are of course reactions to that circumstance, early ones. It’s that undercurrent that is driving all this change in the front. It is, of course, because people want to create cool new things, but it’s really because the economics are shifting. That’s why you see layoffs now. It explains a lot of these phenomena.

GamesBeat: People are still struggling for a good description of why there are so many layoffs now. A lot of people look at these companies and say, “They’re still making a lot of money, yet they lay off 8% of their staff. Why is that happening? What’s gone wrong?”

Van Dreunen: Why is it both the best and worst of times? For some of the pure publishers, it’s just the nature of the business. When we used to have crunch time–crunch time somehow disappeared as a topic of conversation. I’m sure it still happens, but you don’t hear about it anymore. These layoffs have taken the place of that topic. They just lay off 900 people wholesale. The cyclicality of the market is one piece. They just don’t need those people right now. After this period of zero interest rate policies, you end up with so much capital and consolidation. You have all this overhead now that you have to shed. They got the instruction in 2021, “Grow the business!” Now they turn it around and say, “Go be profitable!” Headcount is the easiest way to improve your margins. Off they go.

It’s an easy play, as a CEO or a decision-maker, to say, “Everybody’s doing it, so we’ll do it too.” It’s the market. In fact, if you look at buybacks and all these other self-enriching aspects of it, it doesn’t really make sense. Of course, I expect that in a year or so, all these companies will have to rehire many of the people they laid off now. The cost structure doesn’t change. But everyone is super conservative about risk.

GamesBeat: I’ve seen the idea of unions starting to get traction, at least around QA.

Van Dreunen: That’s the silver lining, right? I put this in my talk yesterday. You do see a share price increase in the two weeks following the announcement of layoffs for major publishers. Shareholders like that. A lot of investors don’t understand the economics, but they think it’s an improvement. That’s bad for talent. What’s long-term good for everyone making games is now we have a foundation to build a union.

Apparently workplace toxicity wasn’t bad enough. We also have to have layoffs and a huge void of job security for people to come together. But it’s happening now. It started in a trickle last year. I think we’ll see more of a flood in 2024. I’m excited about that. It’s insane that the game industry doesn’t have a union like every other form of entertainment. They should be protected.

GamesBeat: Since you look at other industries, did the movie industry somehow avoid some of the game industry’s mistakes this time around? They were in high demand during the pandemic as well. Streaming shows took off. They did cancel a lot of shows, but you don’t necessarily see the same kind of mass layoffs. Maybe because of the way projects are structured? If projects get cancelled, people just go find new ones.

Games as a service is leading to games as a platfrom. Think Roblox.

Van Dreunen: One way to explain it is that in the absence of film productions, a lot of people can still do things like commercials and other smaller jobs. There’s a continuity in their pipeline that we didn’t see elsewhere. If you’re working on triple-A, you can’t just switch up to making a mobile game on the side to get the bills paid.

GamesBeat: And Hollywood had its own trouble with the strikes. But they still didn’t seem to get slammed as hard as the games industry.

Van Dreunen: The games industry has been transitioning, experiencing all of this consolidation. The growth–it’s still stumbling in the spotlight. The games industry has taken on this global presence. It’s a cultural industry that everybody recognizes now. It’s destigmatized a lot. But a lot of the decision-makers and figureheads, they’re not quite the same caliber that you see at traditional legacy media. Who’s the Bob Iger? Is that Bobby Kotick? I don’t think so. He doesn’t bring the same calm to it. He has a very different sort of energy around him.

The games industry, from the senior level all the way down, still feels a need to be validated. When The Last of Us did so well on HBO, it was sort of like, “Hey, we’re here now!” Why do we need TV to prove we exist as an industry? That’s still a mindset that permeates a lot of thinking. It’s a hindrance. We could stand up a little taller, I think, and be a little prouder of ourselves. The game industry still feels like it’s in a transitional time.

GamesBeat: Is there anything else you want to call out from the book?

Van Dreunen: There’s a moment–I’ve been thinking about this chapter on the concentration of capital. What initiated it was Saudi Arabia of course, investing, what was it, $30 or $40 billion? The way money moves in the industry now has changed. Most of the games industry is publicly traded, particularly the big companies. That means all these companies want to have access to capital. To do that they have to speak to investors in a particular way. When Embracer takes a check from the Saudis it sets itself up, because now that becomes a lifeline. When the Saudis walk away and don’t give them the next billion-dollar check, suddenly there are layoffs. There’s this huge dependence on financing. That gives shareholders an increased amount of power.

If you look at the different trends, the Blackrocks and Vanguards have taken over huge swaths of the games industry. They have multiple holdings across the space in all of the major companies. They can move markets with their positions. They can dictate the flow of capital for some of these firms. That’s part of the industry that nobody looks at, but it’s exactly what’s on every shareholder’s mind and every C-suite person’s mind. When the tap runs out, what do we do? Who do we cut first? Embracer, unfortunately, is the poster child for how not to do it. This rapid accumulation of studios and talent is happening in reverse. Just a bloodbath. It’s the saddest thing. It’s because of their dependence on all this free-flowing capital that stopped flowing.

Joost Van Dreunen believes digital upstarts are on the rise in games.

I’ve been trying to map that out. Here’s two decades of who really owns the game industry. It’s not just “Who’s the biggest company?” The question is, “Who are the biggest companies that own the big publishers?” You see a lot of consolidation there too, a lot of concentration of capital. Long-term, that’s a serious strategic consideration, and it’s often overlooked. You have the Chinese and the Saudis, but you also have very conservative places here in the U.S., the Vanguards and the Blackrocks. They own so much. They have 52 positions across the industry in some cases. They can just pull that together.

It’s easy enough to say that countries like China or Saudi Arabia–there’s this political undertone there. It also means these other things. That’s true. But I would argue that South Korea–they invested heavily in the games industry for very positive reasons. Japan also usually circles the wagons and says, “We have to protect our industry.” By law you can’t fire people, so Nintendo goes on record saying, “We don’t do layoffs.” Yes, because you’re not allowed. There’s a lot to say about who gets to pull the strings. But it just seems like that games industry isn’t as free in its creative aspirations as it thinks it is, because of the structure of ownership.

GamesBeat: The whole planned revolution around blockchain games–it seemed like the users were the ones who wouldn’t come along. In the West they viewed it as another way to fleece them, not a way to give them ownership. How did this all go in the wrong direction?

Van Dreunen: They got too excited. There are a lot of different things that happened at the same time. Fundamentally there was just too much fraud, too much breach of trust. It was everywhere. It wasn’t just one game or one company. It was consistent, every day, more news of people getting screwed. Nobody wants to deal with that. No investor would touch that. No consumer wants to participate in that.

I still believe in a long-term ownership model, because that makes these things exciting. Being able to lay some claim, whether it’s virtual or physical. People like to collect things. People like to own their favorite things and build out their set or their Pokedex or whatever. That doesn’t change. Web3 still has an opportunity to do that on the consumer side, and I believe, against the background of unionization and more equitable compensation–if you’re a contributor on a project that blows up, you should get a piece of that. There should be some kind of cut for you. You can do that in a very easily distributed way.

Games are bigger than ever.

There are still ways to solve some of the problems in the industry on the supply side. But again, it’s all so early and so volatile. Nobody is going to touch it until they make it into a system. Unfortunately that probably means banks will have to back it. You’re going to have a few of these quasi-currencies that are kind of distributed, but kind of regulated. As a result they’ll become more steady and stable.

The first enthusiasm around making games around it was an interesting moment. It had a lot of promise. But it never delivered, just like VR continues to struggle in that sense. It’s not entirely clear to me that the Vision Pro, for instance, is going to drive very hard in that direction. It seems much more focused on large-scale industry applications. We were told 10 years ago that VR would stand and rise and become a gaming device. I don’t think that’s happening.

The logic of games being this new consumer application that would help with the adoption of new technologies and platforms has been tried a few too many times. Everybody sticks it on there, but it doesn’t answer the question. Does anybody give a shit about this? Is it meaningful for players? Or does it just serve the company that’s trying to sell it? It seems like we only answer that last question, and not the first one.