Gaming dichotomies: Disney x Epic vs Palworld
Two lessons from the last month's biggest news
Two realities of the games industry played out over the past couple months: 1) you can’t fight the big guys and 2) big games can come from anywhere. Gaming is at an impasse: user acquisition is costlier than ever, more games are launching and fighting for the same size of the pie, and F2P and live services have maxed out their exponential growth (for now). It’s not a mystery to me what things will restart progress, but in the current business-as-usual spot we’re in right now there are two notable pieces of news that are worthy of a second look, both as examples of how gaming has always been, but also harbingers of where it’s headed.
Let’s dive in.
Don’t bet against incumbents: Disney x Epic
Disney invested $1.5B in Epic two weeks ago. That’s a big move for a company who has had a love-hate relationship with being in the games business. The company last shuttered its games publishing division in 2016 after poor performance. It decided to double down on what it did best: being an IP holder and licensing out content to folks like EA to take on the risk and then handsomely reward Disney when it all went well. That model works pretty well.
Disney’s investment in Epic, however, is a reflection of how gaming has evolved over the past eight years and shows how Disney sees the future playing out. When Disney Interactive Studios shut down, the idea of Disney’s IP mingling with non-canonical riffraff in the same game landscape was absurd (with the exception of Kingdom Hearts). The company has famously guarded where and how its characters showed up, but all of that changed in 2018 when Iron Man debuted in Fortnite. Followed by Tron, Star Wars, DC Comics, Stranger Things, and a whole host of Disney and non-Disney IP, gallivanting and shooting their way across a cartoon landscape owned by a third party. Walt’s rolling in his cryogenic chamber.
Only Epic could have pulled this off. Why? Power and size. With Fortnite, Epic has proven some key things that Disney can’t ignore:
It’s created a playground for discovery as much as it is for engaging with old favorites.
Though a lot of kids won’t be new to something as ubiquitous as Star Wars, Tron is lesser known and Disney recognizes that younger generations are spending more time learning about new artists and content inside of games. Relying solely on games crafted specifically around their IP after years of mainstream recognition is no longer a sure bet, so it’s time to flip the script. Disney has to reach fresh eyes where they are, as the means of discovery shifts from theaters and TV to TikTok and gaming.
Few games have shown themselves to be bastions of cultural exports as rich as Fortnite, which made Epic perhaps the only choice for deeper investment. Which is to say, Fortnite has become as much of a global cultural touchstone as Toy Story, and Disney needs to be wherever imaginations are sparked. It’s banking on Epic’s worlds being that.
It’s brand safe across all ages.
Despite the fact that Mars candy once told me Fortnite was too violent for them to consider a collaboration, the game has consistently shown itself to be a safe space for brands. Reese’s Cups and Kit Kit both entered Fortnite without the world collapsing, and plenty of other brands have done the same. The game has young but also increasingly aging audiences, showcasing how the title works for innocent and jaded gamers alike without ruffling the feathers of parents or verging into cringy territory for the older set. It’s a delicate balance that Roblox, for example, has not been able to pull off.
That’s great news for Disney, whose properties’ appeal likewise span from the teeny tiny to the kids-at-heart.
The metaverse is coming, and Disney wants in.
Despite the above indicators of Fortnite’s unique ability to satisfy a range of players and companies, Epic’s Unreal Editor for Fortnite (UEFN) provides even more flexibility to Disney. There’s always the vanilla Fortnite game where Disney characters coexist happily and lucratively with other content, but there’s also the ability to leverage the same tech and audience and spin up UEFN islands, which lets Disney peel off for IP-specific worlds and games without needing to set up new licensing contracts or wait for lengthy game development timelines.
This is the best of both worlds for a company that doesn’t want to make games, but likes the idea of an ecosystem that can be winnowed down to just a single movie or franchise. To do this effectively and shift users around without much friction requires a quorum of players, and Epic has that in spades.
But there’s also the broader promise of the metaverse, one that Tim Sweeney believes in in theory. For Disney, across all of its movies, merch, parks, etc., a landscape that is malleable and can be made in the image of whatever it wants is powerful, and only Epic has delivered on that at scale. This is super meaningful for Disney as it faces changing consumer behaviors. What happens, for example, if younger generations increasingly prefer to experience Disney parks virtually? As of 2022, the company has not recovered to pre-pandemic parks attendance, and word on the street is that 2023 wasn’t much better, if at all.
A virtual Disney World is just the tip of the iceberg for how Disney can (and should) think about an interconnected metaverse of digital and physical-connected content, goods, and experiences.
Epic has demonstrated how powerfully positioned it is—and how conceptually open it is—to being the nexus of these kinds of branded experiences. Disney’s investment here reminds us all that even companies as massive as Disney realize it’s better to join ‘em than try to beat ‘em when it comes to established players in gaming.
Don’t sleep on the underdogs: Palworld
While the rich keep getting richer, Palworld recently reminded us that staggering successes can come from anywhere. The game, built by a team of about two dozen, came out just a month ago and has 19 million downloads. The title has been shorthanded “Pokemon with guns,” and its relative success shows that you don’t necessarily need to be one of the big guys to compete with the big guys: Pokemon Scarlet has 23 million lifetime downloads, in comparison.
Unfortunately we don’t have the data (RIP SuperData once again) to show us whose lunch Palworld ate, but suffice to say that it didn’t grow the pie but rather took significant market share away from others. I can’t say that Epic is in a situation to worry about Palworld itself, but the game does exemplify the kind of scenario that gaming is famous for: a no-name studio busts out an industry-shaking juggernaut seemingly overnight. Seven years ago, that was Fortnite. Even though Epic was older and established through its engine, the game itself launched as a relative flop of a team-based survival game, then reconfigured itself to become the battle royale we know and love. The title changed the games industry nearly overnight, with incumbents like EA and Activision scrambling to catch up with their own free-to-play battle royales (Apex and Warzone).
The staying power of Palworld will be the real deciding factor in how disruptive it is over the long term. At the end of the day, the title itself hasn’t brought major innovation to gaming, but again it’s demonstrated that mega games can arise out of nothing from a mixture of good gameplay, a genre mashup that isn’t satisfied by others, and a hefty dose of game streamer luck, all without existing users or leveraging third party IP.
This kind of smash indie hit is relatively unique to gaming. The last major independent film success aside from 2019’s Parasite ($262M box office) was 14 years ago with The King’s Speech ($423M). Despite the barriers presented by the major game companies and the costs of game development and user acquisition, gaming is a more democratized ecosystem in which almost anyone can reach mass audiences with the right game. Palworld is the most recent example of this. This kind of disruption is likely to increase as genAI reduces barriers around speed and sophistication of game development for all.
And there you have it, the dichotomous nature of gaming laid out in two major moments over the last month. Epic and Palworld reinforce both ends of the spectrum of gaming, one in which there’s increasing concentration around a handful of major players, and the other in which no new title can be discounted as the future leader in the space.