Emerging Technology and Media Newsletter (June 11 — June 17)
Curated and written by Brian Guenther
The fifth edition of this newsletter contains the following…
- Fun and Games: three important themes from E3, other interesting E3 stories, and a hit esports event.
- The Feed: Instagram commerce and backlash against influencers; virtual influencers; Snap’s developer platform launches; and cyberbullying.
- Media Channel: AT&T-Time Warner decision; publicity stunts for views; and Facebook invests in Facebook Watch.
- Alternate Reality: musicians and games using Snapchat lenses; more virtual reality games; a new HoloLens leaks.
- Words on the Blockchain: Ethereum is not a security and bitcoin price manipulation.
- Other Stuff: online education company MasterClass gains a poker star and scooter company Bird raises big money.
- Recommended Media: an examination of Netflix’s original content department and a look at how Alexa learned French.
Before getting into the meat of the newsletter, I wanted to promote that I will be experimenting with (and perhaps moving to) an email newsletter format. Sign up below!
Fun and Games
E3 happened this week, producing a number of announcements by major developers and publishers primarily for gaming consoles and PC gaming. As a result this section is going to be a bit longer than usual and if gaming isn’t why you’re here, I suggest just skipping past it entirely. While glitzy trailers, gameplay reveals, and surprise announcements garner most of the attention, I found that the conference highlighted a few, noteworthy themes.
The first theme was a renewed push by AAA studios into the mobile gaming market, as seen in the announcements of Elder Scrolls: Blades and Command and Conquer Rivals. Both of these games feature gameplay highly reminiscent of the gameplay found in their forebears on consoles and computers. These are not mere cash-grabs leveraging existing brand equity like many early attempts were, but rather are serious attempts to translate what made these franchises compelling to mobile gaming platforms. The announcements of these games didn’t seem to draw nearly the same hype as the more traditional games at E3. However, Bethesda admitted that its Fallout Shelter mobile game had gained more downloads than all of its previously titles combined. The size of the mobile market is such that console and PC publishers and developers are taking it seriously and are trying to use their strengths to tap into the market.
The second theme was that the Nintendo Switch has become a major platform for third-party development, something previous Nintendo console releases failed to accomplish. Fortnite, the surprise phenomenon of the six months, came out on Switch during E3 and gained over 2 million downloads in a single day. Bethesda announced plans to release Elder Scrolls: Legends and Fallout Shelter on the Switch. Many crowd-funded games such as Bloodstained: Ritual of the Night and Wizard of Legend added the Switch to their supported release consoles. The install base of the Switch will continue to lag far behind either the PlayStation or the Xbox, but it is substantial enough to drive significant amounts of purchases and is drawing third-party support as a result. Combined with Nintendo’s stellar first-party catalog, the Switch is well-positioned for continued growth.
The third theme was that publishers are experimenting with a number of different business models and that the industry won’t be normalizing for some time. Fortnite has demonstrated that free-to-play models can achieve significant scale and that other such games that have succeeded are not a fluke. Limited free-to-play events are being used to drive awareness and trial of games that were not meant to be free-to-play, such as For Honor. Following the Battlefront 2 debacle, the Battlefield franchise is rejecting conventional loot boxes. Subscription plans such as Xbox One Game Pass and EA Origin Access are getting beefed up, mirroring the growing popularity of subscription products in tech. As mentioned previously, established franchises are being translated to mobile platforms. Franchise crossovers are being used to attract larger audiences as seen in the Final Fantasy-Monster Hunter, Starlink-Star Fox, and the Rabbids-Donkey Kong collaborations (not to mention Kingdom Hearts). The old strategy of releasing $60 premium games and tacking on DLC between sequels is dead.
Beyond these themes, there were two smaller stories that I found interesting. Microsoft tacitly admitted that it is working on a cloud streaming service that will take the Xbox platform beyond Xbox consoles. This is a technology that has a long history of underdelivering in gaming and skepticism is warranted. Many technologies have moved to an on-demand or streaming format, but gaming demands extremely low latency and high fidelity. However, I cannot easily discount Microsoft when it claims that this is going to work and I believe this will happen in the next few years.
The other story that caught my interest was the self-aware joke that was the simultaneous announcement and release of Skyrim on Amazon’s Alexa platform. Many people thought it was just a joke but it is a real game and as of the time of this writing it has garnered over 200 reviews on Amazon. While many people don’t regard the Alexa as a gaming platform, games are some of Alexa’s most successful skills. Skyrim as an audio game is a surprisingly fun experience and I expect we’ll see many more role-playing games coming to Alexa soon enough, though not from AAA franchises.
The final E3 story worth discussing is the Fortnite Pro-Am and esports. During E3 the Fortnite Pro-Am teamed up fifty popular streamers with fifty celebrities in a series of games with millions of dollars in charity donations at stake. In an ending that couldn’t have been any better, the game’s most popular streamer (and the most popular streamer on Twitch) won the final game and a $1 million charity prize. At its peak, over 1.5 million people watched the event concurrently across a number of streaming platforms and channels. This figure is comparable to major sporting events and dwarfs many other esports events. It is difficult to separate how much of the success of this event is due to the popularity of Fortnite and the more prominent streamers involved, the social media clout of the celebrities, and the attraction of esports. My opinion is that the success of this event and Fortnite events/content in general is driven by the popularity of the game and its streamers, not by its potential as an esport. The esports term is being used rather vaguely in the industry to drive hype and sell a narrative to the media that has some roots in fact but is also tied to the popularity of livestreaming personalities and the cyclical nature of gaming hits.
The Feed
This week Instagram allowed some retailers to add links that allow users to shop directly from Instagram stories, without leaving the app. This feature enhances the attractiveness of Instagram for brands and marketers by directly facilitating commerce. As Instagram adds new expressive formats and new ways to monetize, it primes a virtuous cycle where influencers and brands invest in content production that attracts and engages their audiences, resulting in additional monetization to power more cycles. However, there is likely a limit to how far the commercial engine of a social media product can be expanded before it starts to turn off users.
Closely related is how social media influencers themselves are starting to push boundaries. It is becoming increasingly common for influencers to seek preferential treatment from businesses in exchange for social media publicity. Many influencers, brands and businesses don’t have intermediaries facilitating these deals, which causes friction on both sides. The commercial potential for a given influencer is hard to ascertain because follower counts can be (and in many cases have been) artificially boosted. The nature of influencer status doesn’t require professionalism, leading to immature indirect, or inconsiderate pitches. Add it all up and you have frustrated businesses inundated with pitches by influencers looking for freebies or outright payments. This problem is only going to grow larger as social media platforms spawn more and more content creators with large followings.
Brud is an interesting start-up that gained some attention for a social media PR stunt involving a “virtual influencer” called Lil Miquela. The company orchestrated social media drama between various fake online personalities it created. It is unfortunate it worked but drama is a kind of entertainment people naturally gravitate towards. What is interesting about the story is that the company was able to successfully pass off these online personalities as real people, and this is only going to become more prevalent. Many successful influencers already portray themselves in a false light using rented mansions and cars or contrived scenarios. What is novel about this story is that a company can create fake people to do this. With machine-learning producing techniques to fake yet convincing voices and video, this will become significantly easier and more realistic over time.
Snap’s developer platform opened up this week, enabling developers to use Snap log-ins and Bitmoji as well as interact with Snapchat’s stories. The platform is dubbed Snap Kit and it is much more limited than Facebook’s, which powered the growth of many developers such as Zynga. The limitations are sensible given the current mood around privacy issues, but the limitations directly impact the value of the platform to third-party developers. I expect that the capabilities of the developer platform will expand over time to help Snap compete with Facebook’s various social products.
An unfortunate consequence of the rise of social media is the corresponding rise of cyberbullying. Celebrities are a frequent target due to their fame. Millie Bobby Brown (known for her role in Stranger Things) quit Twitter and Kelly Marie Tran (known for her role in The Last Jedi) quit Instagram after coordinated cyberbullying campaigns. Social media works because it removes the barriers between people but the platforms have not been successful at curbing the negative interactions that result. It is hard for normal people to empathize with social media celebrities, but a casual perusal of comments on posts reveals the dark side of social media. Manual reporting tools can’t deal with this problem, which is why celebrities hire social media managers. South Park even had an episode about this. Automated tools using sentiment analysis might be able to address the problem though.
Media Channel
A major case for media companies played out this week as AT&T was allowed to acquire Time Warner without any conditions, defeating the Department of Justice’s case against it. The fate of this acquisition was critical for the media industry given the rise of competition from streaming companies including Netflix and Amazon. Conditions or an outright rejection of the acquisition would have signaled that increased consolidation within the media industry and tie ups between content and distribution companies would not be tolerated. However, with the allowance of the acquisition, the media industry is likely to undergo a period of increased M&A that will reconfigure the competitive landscape.
Ambitious content creators on YouTube and Twitch are resorting to ever-escalating publicity stunts to grow their audiences or gain attention. For example, a livestreamer was arrested after he walked into a meeting at a university while his phone played a bomb threat message triggered by his viewers in exchange for virtual tips. In a different incident YouTube star Logan Paul filmed a suicide victim during a trip to Japan. These incidents highlight an unfortunate trend where success on YouTube and Twitch can result from immoral or dangerous stunts. These platforms incentivize these behaviors by rewarding them with attention, fame, and monetization opportunities. Even the platforms face skewed incentives, as they can accrue benefits from publicity and controversy as well.
Facebook is investing in its Facebook Watch video destination, with some analysts estimating that the company will spend between $1 to $2 billion over the next year. Exclusive news programs from a number of partners are going live this summer. Celebrity-driven programming and sports are also coming. Many consumer tech companies are competing in this area, signing deals with talent and driving up the value of these deals. Apple just signed a multi-year deal with Oprah. Consumers and creators benefit from this competition, but it is unclear how sustainable this environment is in the long term for the tech companies writing the checks.
Alternate Reality
Musicians are finding success on Snapchat by creating augmented reality lenses for their songs. Viewing snaps with these lenses unlocks them for users, who in turn spread them to their friends by creating their own snaps. As a result of this success, Snap is working more closely with record companies to help artists use lenses and Snapchat. AR lenses are an emerging format for content which are inherently viral and I expect the advertising use case of lenses will have significant legs. But like any form of advertising, the novelty and effectiveness will likely diminish over time and eventually stabilize. Snap can forestall that trend by expanding the capabilities of lenses and on-boarding new partners. This is most likely the motivation that led to Snappables which are AR games built on top of lenses. The first sponsored Snappables debuted this week. Launch partners for Snappables included King (developers of Candy Crush), Bud Light, and Dunkin’ Donuts.
As befits a technology that is currently oriented towards consumers with high-end desktops and PlayStations, a number of games were announced for virtual reality platforms this week. Bethesda announced that it would be bringing two more of its franchises to VR: Prey and Wolfenstein. According to SuperData, Bethesda dominated the top-selling charts for VR games last year. The most recent hit game for Vive and Oculus, Beat Saber, is also coming to PlayStation VR which should boost the game significantly due to PSVR’s relatively large install base. One of the creators behind cult phenomenon Rick and Morty will be developing a new IP for the PSVR titled Trover Saves the Universe. Games will continue to be the most successful apps for virtual reality as long as these platforms are closely associated with PCs and gaming consoles. Enterprise adoption of VR would change this, but VR has not yet demonstrated the ability to produce the requisite cost savings or productivity gains that would attract businesses.
Internal documents regarding future Microsoft hardware leaked this week which indicate that a new version of the HoloLens will come out in 2019. Details are limited but apparently this newer version will be much cheaper, lighter, and more comfortable than the current version. While the HoloLens is available for purchase, it carries a steep price tag that makes it inaccessible to the consumer segment of the market. This new version might be the one meant to open up the HoloLens to consumer adoption.
Words on the Blockchain
A representative of the SEC gave statements this week that indicate that Ethereum is not a security and will not be regulated in the same way as stocks and bonds. Further commentary shed some light on the thought process — largely revolving around how Ethereum was fully decentralized at this point in its development. This does not mean that tokens built on top of Ethereum will not be regulated as securities. Rather this is significant because it provides more clarity on the thought process around the regulation of cryptocurrencies.
A research paper was released by a University of Texas professor that investigates whether or not Tether influenced bitcoin prices, which was interpreted by many as proof that bitcoin prices were manipulated last year. Not everyone is convinced by this take on the research paper and its conclusions.
Other Stuff
Daniel Negreanu is joining the ranks of celebrities, athletes, and experts who have created courses for the education start-up MasterClass. Negreanu is a six-time World Series of Poker bracelet winner with over $39 million in tournament winnings during his career. MasterClass has been very successful at drawing big names, offering courses by luminaries such as Gordon Ramsey, Steph Curry, Ron Howard and Garry Kasparov. Online education has progressed a long way from Khan Academy, with a host of professional and high-end educational content now available.
Bird and other scooter companies are drawing a lot of attention after Bird raised $300 million in funding at a lofty $2 billion valuation. The young company has been on a tear, completing three rounds of funding this year alone. Scooters draw critics for a variety of perceived reasons: lack of regulatory approval, misuse of public spaces, negligent behavior by users, etc. Regardless of how people feel about scooters, it is clear investors see something rare happening here. I believe there are two big factors in play here: the early adoption metrics look great and that lower-cost transportation solutions such as bike shares and scooters are eating into the ride sharing market, which will drive defensive acquisitions by Uber and Lyft.
Recommended Media
Inside the Binge Factory is a lengthy piece that explores how Netflix’s original content arm operates. The success of Netflix and its original content make this a worthy read, as it illuminates what is different about the company’s approach and what strategy it is actually pursuing. The piece includes details about the role data plays in determining which shows to back and how the company segments its massive audience.
Wired ran an interesting article outlining the complex challenge of teaching a voice assistant a new language, namely French. The short piece is a worthy read as it provides insight into the challenges faced in productizing artificial intelligence and bringing machine learning capabilities to bear on consumer services.
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If you’d like to read more of my writing, I’ve included links below to recently published essays and the last edition of this newsletter.
Essay: Esports is not esports, esports is gaming
Essay: Virtual Reality in 2018 and where it is going
Newsletter: Emerging Technology and Media Newsletter (June 4 — June 10)
