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A significant bump in inflation and overall concerns about a coming recession have Americans spending less on just about everything. Last week, we talked about the impact the Great Belt Tightening has had on the streaming industry, but it’s also creating headaches for video game manufacturers and publishers. According to the market research firm NPD, overall US consumer spending on video games and related products fell by $1.78 billion in the second quarter of this year, a 13% drop compared to the same period last year.
Sony’s software business plummeted by 26% in Q2 vs. 2021, which the company blamed on both a lack of new releases and Americans simply spending less time playing video games than they did a year ago. Microsoft likewise reported that its hardware sales slumped by 11% year-over-year in Q2, along a 6% dive in Xbox content and a 7% decline in overall gaming revenue. (Nintendo won’t publish its Q2 numbers until next week, but it’s expected to sell slightly fewer Switch consoles than it did last year.)
A report from Ampere Analysis forecasts the entire gaming industry could shrink as much as 1.2% in 2022, down about $188 billion globally. Recession fears, supply chain problems and inflation woes certainly played a role in this, but it’s also notable that the industry is coming off of two years of significant growth, as a lot more people stayed indoors and spent more money on home entertainment. Nielsen reported that 82% of global consumers either played video games or watched video game-related content during COVID lockdowns.
Some of this massive growth was always going to prove unsustainable. Once it was safer (or at least presumed safer) to re-enter the world, some of those console dollars were going to back to restaurants, movie theaters, Dave & Busters, laser tag and whatever else people do when they actually go out places.
But that didn’t stop a lot of companies from expanding over the last few years, only to now find themselves overextended. Game developers Niantic and Unity have both started cancelling projects and laying off staff to control costs and other companies – including Electronic Arts, Meta, Microsoft and Nvidia – have frozen or downscaled their hiring plans.
And though 2022 opened with the arrival of a string of hotly-anticipated new games – including “Elden Ring” and “Horizon Forbidden West” – pandemic-era delays have impacted the remainder of the year’s release calendar, creating something of a drought of must-have new titles.
Still, it’s probably too soon to entirely lose hope and gaming has proved largely resilient over the past decade or so. Microsoft and Sony both seem to feel that their hardware and supply chain issues are behind them and 2023 should the return of a stacked new release calendar.
Los Angeles-based publisher Riot Games shows no signs of slowing down, despite the wider industry trends. (The company announced today that its latest “League of Legends” spinoff – the 2D fighting game “Project L” – will be free to play, with only “respectful monetization.”) As well, Activision Blizzard reported lower year-over-year earnings and revenue for the second quarter this week, but nonetheless expanded its work force, converting close to 1,100 temporary and contingent employees into full-time workers. The company also acquired “Spellbreak” studio Proletariat and the artificial intelligence company Peltarion over the past quarter, integrating in a number of new staffers from those teams.
While blaming its underwhelming Q2 performance on lower engagement from “Call of Duty” and “World of Warcraft” fans, the company looked ahead to new releases in the coming months from both franchises – including “Call of Duty: Modern Warfare II,” “World of Warcraft: Wrath of the Lich King Classic”–along with the high-profile sequel “Overwatch 2.”
Activision Blizzard, of course, is also preparing more generally for a potential merger with Microsoft, initially announced back in January, while also fending off a string of lawsuits relating to alleged sexual harassment and toxic workplace culture. Which just reinforces how multi-faceted these situations can become and how difficult it can be to make predictions about this particular wing of the technology business, regardless of the current economic climate.. — Lon Harris
Blockchain-Powered Museum Arkive Comes Out of Stealth
Historical documents, art and artifacts are often locked away in vaults until a museum or library chooses to showcase them. Santa Monica-based Arkive—the first decentralized, physical museum—hopes to make them available anytime.
This Startup Uses AI to Track Fashion Counterfeiters
MarqVision raised $20 million to develop its software that scans for counterfeit items in a bid to prevent fraud. It will also use the funding to expand its operations, with plans to open its first European outpost in Paris.
Jadu Launches NFT Avatars for Upcoming Gaming Platform
At the end of August, the Los Angeles-based company will sell 11,111 avatars which can be used as playable characters on Jadu’s upcoming mobile app. The NFTs, will also come with commercial rights, meaning holders could—hypothetically—slap a character’s likeness on a t-shirt and sell it.
Last Chance to Join Us at LA Tech Week
Our LA Tech Week event on Tuesday 8/16 is heavily oversubscribed, but we want to give you, newsletter reader, one last opportunity to register to attend before we close the application tonight at midnight. Interested? Apply here!
What We’re Reading ...
- The "Los Angeles Times" looks at upstart entertainment industry newsletters The Ankler and Puck.
- Hardware manufacturer Eco Wave Power will deploy its first U.S. energy conversion unit in the Port of Los Angeles this September.
- L.A.-based WeeCare partners with JCPenney to provide children’s health benefits to its 50,000 U.S. employees.
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How Are We Doing? We're working to make the newsletter more informative, with deeper analysis and more news about L.A.'s tech and startup scene. Let us know what you think in our survey or email us!
This is the web version of dot.LA’s daily newsletter. Sign up to get the latest news on Southern California’s tech, startup and venture capital scene.
Riot Games, the West Los Angeles-based group behind “League of Legends,” saw a key change in a harassment lawsuit of its own earlier this week, and its response differed greatly from Activision Blizzard’s, which is fighting its own discrimination cases.
The lawsuit against Riot was filed back in 2018 by two former female workers who claimed Riot violated several state acts that are supposed to protect workers from sex-based discrimination.
The women are represented by workplace litigator and women’s rights attorney Genie Harrison, a legal powerhouse who’s taken on Hollywood’s most prominent sex offenders, Harvey Weinstein. She’s arguing her clients were paid less for the same work as male colleagues based on their gender.
Riot originally agreed to a $10 million settlement, but back in 2020, I reported for TheWrap that others thought that number should be much higher, maybe as much as $400 million. The DFEH –aka the Department of Fair Employment and Housing, the same agency that’s breathing down Activision’s neck – also objected, saying that settlement was too low.
Riot disagreed with the bigger payout but didn’t dig its heels in. In December the $100 million figure was determined, pending court approval, which Axios reported happened this week. Any woman who worked at the company between November 2014 and December 2021 would be entitled to a portion of that settlement.
(If you’re reading this and a woman who worked for Riot during that time, you might want to contact the attorneys).
Riot declined to add a new comment, instead pointing to the December statement made by CEO Nicolo Laurent:
“We had to face the fact that despite our best intentions, we hadn’t always lived up to our values. As a company we stood at a crossroads; we could deny the shortcomings of our culture, or we could apologize, correct course, and build a better Riot. We chose the latter.”
This mea culpa is certainly not the tone we’ve heard from Activision in recent months. But it should be.
Discrimination still runs rampant at largely male-dominated video game companies, especially those that make their home in L.A. The original report about misconduct at Riot prompted a litany of similar stories to surface at other developers such as “Assassin’s Creed” maker Ubisoft and, of course, Activision.
Activision is also caught in an avalanche of lawsuits from former employees and state watchdogs that are all looking to hold its leadership — in particular CEO Bobby Kotick — accountable. There are numerous reports that Kotick ran a company where women were the brunt of egregious sexual harassment and a “frat boy” culture.
Both local gaming firms had beef with the same government agency but each chose a pretty different tack when it came to negotiating with it. While Riot decided to cop to its mistakes, pay the fines and rethink its corporate culture, Activision doubled down and got petty. It asked for the case to be dismissed and feuded with both the state DFEH and the federal Equal Employment Opportunity Commission (EEOC). It settled an $18 million discrimination case with the EEOC in February.
The “Call of Duty” publisher fired shots at the DFEH for objecting to that settlement, and claimed the DFEH’s requests to see police records on Kotick and the company had “no legitimate purpose.” Every step of the way, Activision’s refused to accept responsibility, wasting the time of courts and victims…to say nothing of financial reparations.
Laurent said this January instead of spending “tens of millions” on lawyers to fight what was probably an inevitable verdict, he’d rather use the funds to pay out women in the class and “invest in Riot’s future.”
If Activision had taken that position, it might already be on to rectifying some of the damage caused to its workers and making its way out of the labyrinth of lawsuits. That way it could focus on more pressing events, like employees pushing to unionize while it works to complete its $69 billion sale to Microsoft. – Samson Amore
Upfront Ventures Raises $650M for Three New Funds
The capital will be spread across funds targeted at various points in the startup lifecycle, and at a slew of industries that span health care, defense, agtech and sustainability, among others.
Here’s Why Meta Is Recreating TikTok’s Algorithm
What's behind Instagram and Facebook's pivot from family, friends and photos toward an entertainment model based on creator content? Ad dollars, says one expert.
LA-Based Crypto CEO Pleads Guilty to $21M Fraud
In a 2018 initial offering of his company’s BAR cryptocurrency, Titanium Blockchain CEO Michael Alan Stollery raised $21 million. The 54-year-old Reseda resident could now face decades in prison.
Listen Up: How Anjula Acharia 'Accidentally' Came To Investing
On this episode of the Behind Her Empire podcast, A-Series Management and Investments founder and CEO Anjula Acharia talks about her unique journey to entrepreneurship.
What We’re Reading Elsewhere...
- Former employees at TikTok's parent company accuse it of pushing pro-China content to consumers.
- The Washington Post looks at the birth of Riot Games' "Valorant" esports league.
- Robots are picking strawberries in Central California.
- The NFL gets into the streaming wars with its NFL-Plus channel.
- L.A.-based Resecurity acquires an Emirati cybersecurity startup.
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How Are We Doing? We're working to make the newsletter more informative, with deeper analysis and more news about L.A.'s tech and startup scene. Let us know what you think in our survey, or email us!
- Riot Games Investigating Esports Team Founder Andy Dinh - dot.LA ›
- Why Riot Games Is Suing Rival Chinese Game Developer Moonton ... ›
Riot Games Breaks Up Exclusive Deal With PlayVS For High School ‘League of Legends’ Tournaments
This is the web version of dot.LA’s daily newsletter. Sign up to get the latest news on Southern California’s tech, startup and venture capital scene.
Riot Games just flipped the script on high school esports in a way that could disrupt one local company’s lucrative tournament organizing gig.
Until recently, the only way a high school student could play the popular multiplayer online esport “League of Legends” in school-sanctioned championships was through a Santa Monica-based company called PlayVS, which enjoyed an exclusive contract with “League of Legends” publisher Riot Games that allowed it to act as the sole provider of high school esports events for the title.
But this week, Riot made an unexpected decision to open the “League of Legends” universe up to other esports event organizers, including several nonprofits who want to run tournaments of their own. “After significant discussion, we’ve determined that the best way to set up high school esports for success is to further open, rather than narrow, avenues for competition and organic growth,” Riot said in a statement Wednesday.
This puts PlayVS in a difficult position as it struggles to ward off accusations that it has a monopoly over the amateur esports ecosystem. The company, which has raised more than $100 million in funding since launching in 2018, inked a multi-year deal with Riot Games in 2020 to be the exclusive operator of high school “League of Legends” competitions. It has struck exclusive agreements with schools in at least 23 states to run various esports tournaments, though “League of Legends” remains one of its biggest draws.
Since being officially recognized as a sport by the National Federation of State High School Associations (NFHS) in 2018, a whopping 43% of NFHS-sanctioned high schools across the country have launched esports teams on PlayVS’s platform—with company CEO Delane Parnell vocal about his goal to expand further into all 50 states. Being virtually the only game in town has allowed PlayVS to set its own pricing, charging each student player $64 per season. But with Riot’s decision likely to eat away at its market share, PlayVS could be forced to adjust its fees.
When I first spoke to Parnell back in 2018, he wasn’t focused on expanding into college esports since he thought there was more value in cornering the truly amateur high school market first. But at a dot.LA summit last April, Parnell said he was open to creating a “digital playground” where people in college or older could play. If Riot allows more competitors to flood the high school esports market, PlayVS could look to expand into college esports sooner rather than later.
PlayVS, for its part, responded to Riot’s decision by describing it as “an agreement that allows us to continue to operate the title while supporting their new goals.” Diplomatic, to say the least. — Samson Amore
A New $64M Fund for Health Care Startups
Wavemaker 360 Health, the Pasadena-based early-stage health care VC firm, has closed its $64 million second fund which will look to invest in 40 to 50 early-stage startups across the U.S. health care spectrum.
LA Ecommerce Startup Gander Raises $4M
Black female-led Gander collects user-generated videos to give online shoppers a better idea of what a product looks like in real life.
Faraday Future Is Planning a New Factory in China
The new plant in China will produce Faraday’s second and third vehicle models, and could help the automaker cut costs and lead times and deal with supply chain issues.
TikTok Will Tell You To Take a Break With New Screen Time Tools
TikTok is rolling out new tools to help users limit how much time they spend on the video-sharing app—including one aimed at teens who may be addicted to social media.
Listen Up! Casa Verde's Karan Wadhera on Cannabis Investing
On this episode of the LA Venture podcast, Casa Verde Capital’s Karan Wadhera talks about the cannabis industry, emerging markets and working with music legend Snoop Dogg.
Sponsored: Recurring Revenue Conference Returns to Culver City
Join 500-plus entrepreneurs, executives and investors on June 23 at the Culver City Hilton for the Recurring Revenue Conference hosted by Sutton Capital Partners. Whether you are a SaaS or subscription business, or if customer retention is critical for your success, this is the premier Southern California event to learn from tech pioneers.
Discount: dot.LA readers can register with this link using promo code DOTLA229 to save over $200 on in-person attendance.
What We’re Reading Elsewhere...
- Celebrity chef Curtis Stone launches Gathar, a platform for booking private chefs.
- Azolla Hydrogen partners with Cal State LA on a hydrogen production unit demonstration.
- Kevin Lynch’s iconic Kobe Bryant photos are set to debut as an NFT series.
- Santa Monica-based Autonomy brings its EV subscription service to California's high desert.
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How Are We Doing? We're working to make the newsletter more informative, with deeper analysis and more news about L.A.'s tech and startup scene. Let us know what you think in our survey, or email us!
- Riot Games Acquires Gaming Studio Hypixel - dot.LA ›
- PlayVS Raises $10.5M Making ESports Varsity Sports - dot.LA ›