E08: Voluptuous Consumer Surplus

<cite>Phil:</cite> <time>0:00</time> Are your PhDs <cite>Eric:</cite> <time>0:02</time> Yeah Biology There there's like Chinese exchange program where they sent like academics to get PhDs in the US <cite>Phil:</cite> <time>0:09</time> You were telling me about bit when we met up interesting <cite>Christopher Kaczmarczyk-Smith:</cite> <time>0:13</time> your parents are biology and you decided <cite>Eric:</cite> <time>0:16</time> in high school they they were really pushing the science angle And my older sister took the brunt of it and they were like be a doctor And she was like all right fine I'll be a doctor remember in high school for a science fair project they were like all right go and do some pcr do a bunch of science biology stuff And it's all just lab work which is honestly just labor And I hated it and it sucked And I was like I'm not touching this <cite>Christopher Kaczmarczyk-Smith:</cite> <time>0:35</time> You can't write code that repeats uh experiment unfortunately <time>0:39</time> Let's start with utility. I don't understand what it even means. Everybody has some kinds in their head that they're calibrate. There's hardly anything that hasn't been used for money. In fact, there may be a fundamental problem in modeling the wanna model. <cite>Phil:</cite> <time>0:57</time> Here we are The boys are back It is episode eight game Economist Cast I am joined today Philip Black host of Game and Economist cast with my two other wonderful hosts Chris how are you <cite>Christopher Kaczmarczyk-Smith:</cite> <time>1:10</time> Star Atlas we just launched a test of movement on blockchain which is very exciting So been busy with that <cite>Phil:</cite> <time>1:16</time> You're up in Purdue University sweatshirt <cite>Christopher Kaczmarczyk-Smith:</cite> <time>1:19</time> is funny cuz I was actually this weekend I was at my alma mater for my undergraduate UW Oshkosh and they gave me some merch but it was all medium and I'm not a medium size person <cite>Eric:</cite> <time>1:29</time> Wait they didn't let pick the size <cite>Christopher Kaczmarczyk-Smith:</cite> <time>1:31</time> No they did But I was like in a rush as I was leaving they were like you can go return this And I was like I don't have time So I just gave it to my wife and now it's like an oversized hoodie for <cite>Eric:</cite> <time>1:39</time> Nice <cite>Phil:</cite> <time>1:40</time> hand me down <cite>Eric:</cite> <time>1:42</time> I'm doing right Can't complain <cite>Phil:</cite> <time>1:44</time> The first topic we'll be discussing is the announcement that Eve online the infamous four x space game is going into crypto It's going into web three does it mean for Eve to be on the blockchain What are they cooking up Why does it make sense or not make sense for Eve to be on the blockchain And then we are also gonna be talking about the economics of streaming and subscriptions In the wake of the Activision Microsoft Fallouts the Cmma out of the uk the regulatory authority has blocked the merger we don't have anything interesting to say about the legal prospects we of course have a lot to say about the economic process but before we do talk about what we've been playing <cite>Eric:</cite> <time>2:33</time> I play a lot of dominion You know that card game it's classic from I think 2008 or something but yeah I met up with some old friends from Chicago and we played a bunch of dominion in person and been lately the online interface is great They've really improved it but yeah for those of you don't know this is like the deck builder this is the one that really kind of broke the mold and inspired know everyone knows probably slay the Spire and all these deck builder rogue likes that are out these But this was the OG inspiration I think for lot of them <cite>Christopher Kaczmarczyk-Smith:</cite> <time>2:58</time> I disagree that it still holds up but I'm curious so I totally agree I think it's like the first deck builder I played it in college too I was okay with it I didn't mind it but then I started to play a lot more of the or some of the more elegance kinda refined card games deck builders like physical deck builders you should play it It's a one deck two player deck builder So you've got this like kind of this Deck that essentially you could think of the shop coming from it So you lay out I think it's five or six cards into the shop and you select cards from there you've got your currency you've got your attack you've got your like four or five core mechanics but it's like literally you know slap the deck on the board And that was always my problem with Dominion was that you've got 10 piles of different cards and you're always fucking shuffling your anyway I love how just you slap this thing out put the the shop there and you're ready to go one of the things I love about Deck builders is just how equal the footing is at the beginning it's not like magic of the gathering where you have this awkward meta playing and every single match It's oh he's got like a slow blue deck he's about to lose to this fast red burn deck it's like everybody's got the same exact odds starting off <cite>Eric:</cite> <time>4:06</time> Yeah I mean that's why I love Magic Draft I know you guys like draft you know the problem with <cite>Phil:</cite> <time>4:10</time> Have you played any of Clash Royal's drafting or even now Clash I've <cite>Eric:</cite> <time>4:16</time> but I mean about setup and shuffling you know the beautiful of online Right And that's that's a lot of why deck building works so well on computer games is cuz you know you don't have to shuffle anything <cite>Christopher Kaczmarczyk-Smith:</cite> <time>4:26</time> Yeah there's one there's one deck builder I've played that doesn't have any shuffling and I think it's really an interesting game Like the whole idea is that you're like actually putting the cards in the right order that the order that you want so that when they come back up you just flip your grave your graveyard upside down and make deck it's called I completely forgot what it was called I'm just talking about it it's a bigger one It's more involved but yeah I totally agree I <cite>Phil:</cite> <time>4:50</time> name a bunch of games I'll edit it in <cite>Christopher Kaczmarczyk-Smith:</cite> <time>4:52</time> oh it's shit I'm just gonna I'm I'll later in the episode when I remember it I'll just say it out loud and then we can <cite>Phil:</cite> <time>4:58</time> Chris what have you been playing <cite>Christopher Kaczmarczyk-Smith:</cite> <time>5:00</time> So <cite>Phil:</cite> <time>5:00</time> Another indie thriller <cite>Christopher Kaczmarczyk-Smith:</cite> <time>5:02</time> No I tell I think I said one weird game once and now I get it every single time <cite>Phil:</cite> <time>5:07</time> what was it What was the <cite>Eric:</cite> <time>5:11</time> Dude tunics Tunics Yeah con contender for Game the <cite>Christopher Kaczmarczyk-Smith:</cite> <time>5:15</time> yeah as <cite>Phil:</cite> <time>5:17</time> Anytime I see one of those like isometric like high fidelity <cite>Eric:</cite> <time>5:23</time> Dude I it if Le Legend highly recommend tune I've been playing <cite>Christopher Kaczmarczyk-Smith:</cite> <time>5:27</time> See I think that I think the isometric is important especially if we're gonna be talking about streaming games reduce the quality of the game The stream is easier You don't have to have some crazy two like gigabit connection speed in order to get like the high quality I am pro double A like game qual like I'm pro isometric propo low poly game design I think all these aaa super high fidelity game environments are just so difficult to build and it slows down innovation But that's a different topic <cite>Phil:</cite> <time>5:59</time> Mr Star Atlas himself worry I'll all this shit out <cite>Christopher Kaczmarczyk-Smith:</cite> <time>6:02</time> I know so I have been playing again of course monster Hunter Rise sun Break came out two days ago on the Xbox I've been playing that a little bit but I also I don't know if I could say I'm playing it because it's not really a game but I have been play testing the Star Atlas work internally we call it the movement test but it's the Star Atlas I think it's called Escape Velocity It's basically just testing movement realtime massively multiplayer online movement on the blockchain So of players have their little fleets and you can have multiple fleets and you direct them warp them around the galaxy and to make things more interesting my team designed a loot table for the galaxy So it's a universal loot table spread across across all the different players it's a it's a fun challenge because a lot of game design is like intra player or like within the player So the player goes and they get their shards and then they get their sword and then they so this was a little tougher to balance because we've got 10,000 players and we've got I don't know a hundred thousand prizes or 50,000 prizes We need to make sure that those are like spread out appropriately so it's been really cool to to test it out it's like from a web three point of view it's a big deal because we're we I think we put within the first 24 hours we put well over a million transactions on the salon Blockchain just in movement So It's think it was a game but then the players started playing it and they were getting all excited and like they were posting the loot they were finding I was like the loot was just supposed to be kinda like an incentive to move because it was really just a test We wanted to test the technology make sure that it's working so we were like we'll add in prizes I was And like it's been a hit I can't believe how much everybody is enjoying it <cite>Phil:</cite> <time>7:37</time> I saw a tweet that it was something like was it two to 5% of all Solana transactions <cite>Christopher Kaczmarczyk-Smith:</cite> <time>7:42</time> and <cite>Phil:</cite> <time>7:42</time> the last week <cite>Christopher Kaczmarczyk-Smith:</cite> <time>7:44</time> Two and a half percent which we're typically we're at like I think 0.7% So it's a pretty big jump for us for one very simple program it's been a shock to me like just how much people have enjoyed it but also how exciting it is to start finally gathering some of this data A lot of the data we have is from what our product which is called score which is load your ship up with fuel and then you get a reward and it's not it's not that interesting So this is pretty fun to to see like locational movement and see how the loot distribution works I think I did a pretty good job on the loot table if I do say so myself But I'll let somebody else pat me on the back <cite>Phil:</cite> <time>8:17</time> Can I ask what you actually do what is the moment to moment of player experiences gonna <cite>Christopher Kaczmarczyk-Smith:</cite> <time>8:23</time> Very simple like that Why I said I don't even know if I would say I've been playing a game is because we don't really consider it a game We consider it a test a mechanical test but you have three options You can scan an area that you're in which will allow you to get your little loot so if you scan and there's a loot in that the area then you get a piece of loot and the loot drops according to a probability distribution and it lo drops in a fixed number of spaces So basically at any given time the map is populated with prizes and that's hard capped at a per minute pri like number of prizes So we don't end up like draining the pool in two seconds you go you move to a space using the warp action so you can warp within three or four spaces of your ship you go there you scan If there's nothing there maybe you scan again or maybe you move to another spot we show the density of players on the map so you from a strategic point of view you probably want to be on empty space because if there are 20 other people scanning in your location you got a one in 20 chance when it drops <cite>Phil:</cite> <time>9:18</time> Wouldn't equilibrium be that the map is completely equally distributed assuming that the rewards are randomly distributed in the <cite>Christopher Kaczmarczyk-Smith:</cite> <time>9:25</time> It should be and we do see a really a very consistent spread I think one of the one of the guys saw that there's like a left on the map like people are tending to the left side of the map instead of the right side or something like that But the problem is like when people leave their ships they sometimes they don't de spawn them so you have to de spawn your ship in order to get it out of the environment So if you don't do that it just sits there because it's on a blockchain so it's like it'll show up So that also causes it to get a little weird But and other people have different strategies and I think it's really funny cuz we'll have people who are like oh this is my strategy I like keep a hundred ships on the same space and I just scan every second it's wow I like didn't I didn't know that was a strategy but so it's cool It's like very cool to finally see this working And it's like a of the it's a fraction of the actual game <cite>Phil:</cite> <time>10:12</time> Why are they not acting in a way that we'd expect from a just a traditional neoclassical model where they're equally distributed if there are gains to moving to a space that's less populated and it seems there are why would they be clumping on the left Why would they not be equally distributed <cite>Christopher Kaczmarczyk-Smith:</cite> <time>10:29</time> cost of time So it takes time to travel I think each each warp action is like 30 seconds or something like that So if you're moving five spaces 30 seconds you might just like circle within a little thing And if every once in I get intersected by somebody I think this it's a lot more coordination than you might expect the second somebody comes into my area oh gosh am I gonna move I'm probably gonna stick around so I think it's I think it all has to do with like costs like marginal costs of of moving or changing my strategy It's just not worth it I think there I think it is still neoclassical though <cite>Phil:</cite> <time>11:01</time> By and large is following the traditional homo model <cite>Christopher Kaczmarczyk-Smith:</cite> <time>11:05</time> I did a whole bunch of different simulations to try and predict different outcomes that I could I Properly value the the loot table cause I don't want it to be too big I don't want it to be too small so I ran a bunch of different simulations so I could see what does this distribution look like over time and I'm really happy because like it's all within my like bandwidth <cite>Phil:</cite> <time>11:26</time> on my side I have been stuffing my face in a buffet what has been called squad RPGs on mobile So think of games like Strikeforce AFK Arena been playing a new one that's come out called Eternal Evolution I've been going back and playing a game I used to play at a long time ago don't judge me called Girls X Battle It was for work was studying it and don't know what to make of this genre I've always been confused what to make of this genre But the basic core loop is that you have a squad of characters characters have a deep roster of stats they have things like sheer shield armor attack speed critical strike chance So they just have a litany of stats and you're assembling a team of these different characters There's usually a campaign mode But what happens as you continue to play is that you are unlocking more and more modes what you're doing is that you're upgrading your characters you're expanding your roster The thing that's about it is that there's almost zero real time input So when you start a battle against an enemy squad or against the computer there's no input By and large Some games allow you to have an a tap that you can use to activate like a character's ultimate ability But by and large the outcome is determined before the match even starts And in many cases you can actually skip the battle loop So rather than going in and watching the units attack one another you just click one button you're collecting your rewards you're moving on So it's very much a question of vertical progression and managing power score and upgrading your characters just making them better off And of course they'll do is that each of the modes that you continue to unlock as you're playing these squad RPGs require or incentivize you to have different characters to be able to progress in that mode and then ultimately get the rewards that are locked within that mode for instance you might get into a particular mode that takes advantage of what almost all the games have which is ro shambo or rock paper scissor shoot And so if you are playing this particular mode it might be all leaf types that you're going against And if you want to do well in this mode you are best off when you field five fire types And so they're gonna do all these things that are going to require you to collect an ever-growing roster of characters And of course like each character represents Amount of content if I need one additional character at the margin that one additional character may require 30 hours of gameplay They have started to on a lot of different modes in these squad RPGs ones that weren't there five or 10 years ago The thing that I've really seen emerge and we were talking about the top of the hour is there's a lot of roguelike elements there's a number of modes in almost every one of these games have them now where you're taking your squad of characters you're going into session in this roguelike mode and you're getting upgrades for your squad within the context of the mode So you might get to let's say the 30th floor in <cite>Eric:</cite> <time>14:38</time> 1 2 3 4 5 6 7 8 9 10 4 <cite>Phil:</cite> <time>14:51</time> is why this why this experience is compelling at all And I would say that's one thing I would say the second Is when you reach end game <cite>Eric:</cite> <time>14:59</time> Is she <cite>Phil:</cite> <time>15:00</time> I've seen all of these games really struggle with is that okay I have a bunch of characters I've I've maxed'em out I've gotten to ascension you almost run out of vertical progression runway almost all of these games really struggle with what to do when you've run out of vertical progression runway So one one of the games mobile Legends Adventure will they have a gear system So each of the characters have five slots You attach armor and chess piece and swords you'll have these gems which is like a basically another five set of five units of gear And then they have this other thing which are cards which is another five units of gear So it just looks like excuses to add numbers and to make the numbers bigger And so at that point I basically churn and I see Marvel Strikeforce Struggle with the same thing which is that you have this ISO eight thing So you have your characters have these stars Stars are related to power level Okay I get to five stars and then I can go back and I earn a six star Okay I can go up to 10 stars So they just they just struggle with what to do with the vertical progression it's a content treadmill and it starts to become uninteresting I don't know what to do with this genre <cite>Eric:</cite> <time>16:00</time> Isn't a super common like progression you know everything from Puzzle and Dragons to Gotcha games is the same amount right It's numbers go up numbers keep going up you roll the collect a bunch of heroes know is strong yeah I I'm curious what's you you mentioned that it's like puzzling to you but I feel like this is a pretty common thing in mobile games right <cite>Phil:</cite> <time>16:18</time> The layer of choice that you're making is really what to invest in that's really the key here is do I want to invest in let's say light type characters I have to have an intuition that light type characters are gonna give me a lot of roi And so I'm min maxing right So each unit of labor I put into the game I wanna maximize the amount of progression that unit of labor gets me And so that's where go at these games is trying to figure out what that answer is And a lot of it when you get to the end game is based on pvp so what is the PVP meta How do I build a roster that is competitive in pvp The struggle I've seen is that the game designers usually don't lock as many rewards as you would like them to behind P V P So why do I wanna maximize the me Because you need that p v P to get that e interesting equilibrium right You to say okay this the meta right now is all leaf type characters I need fire type that is content and I don't think they're leaning enough on that PVP thing on on the other hand Eric I think it's just because collecting rewards and just powering up it it's like fucking fun It's just to hit a dopamine <cite>Christopher Kaczmarczyk-Smith:</cite> <time>17:19</time> so What's the difference between this genre and like auto battlers auto chess <cite>Eric:</cite> <time>17:23</time> different When people say auto battler it means a few different things I think the progression auto it's you take know fire and bloom heroes or your puzzle and dragons just turn the puzzle into an auto battler I think auto chess I would call it a drafting auto battler It's you know more like a roguelike or a drafting game where everyone starts on the same level E it's session based And so you start with nothing and you accumulate your team over the course of the play session it resets at the end <cite>Christopher Kaczmarczyk-Smith:</cite> <time>17:47</time> The whole time you were talking Phil I was just like PV P V P especially with this like whole vertical progression issue and then they start to go horizontal It's like I PVP is a really great opportunity to do that and not have people churn because instead of the dopamine hit and vertical progression is getting better the dopamine hit for PVP is winning like that's how you keep it going It's really fascinating that haven't I'm like the obviously I'm thinking about magic gathering arena right now once you hit that level you're right Like you constantly are updating the meta you're coming out with new cards you're making things people are constantly given excuses to spend money and you don't really need this constant need You don't have this constant need for vertical pro progression So somebody needs to build it <cite>Phil:</cite> <time>18:27</time> Eve blockchain it's happening someone at a 16 Z came with a pile of money and flew over to Iceland and dropped it somewhere in Renov <cite>Christopher Kaczmarczyk-Smith:</cite> <time>18:35</time> 40 million <cite>Phil:</cite> <time>18:37</time> $40 million <cite>Christopher Kaczmarczyk-Smith:</cite> <time>18:38</time> It's huge news for the blockchain gaming industry That's to me that's my main takeaway right what's gonna happen to C P What's gonna happen to Yvon online Is this gonna be a product that actually gets released Is a 16 z gonna get a return on their investment Those are all questions we can speculate about and I think it's really interesting you think about but to me at the end of the day no matter what this was overall good for the blockchain industry or the web three industry it shows that a highly veteran highly qualified studio or yeah studio was willing to take this on and try to implement this and that there's still money in blockchain or new money in blockchain Uh you know that kind of sticks out is the fact that Hill Omar was pretty ambiguous about the implementation so I'm trying to look for a quote I he said a couple of things together we share the belief that player ownership and governance within an open platform could be a key source fun that serves to amplify great gameplay captivating game design so is oh no that was the Anderson Horowitz announcement but basically hill Mart now with advancements made with blockchain we can forge a new universe deeply imbued with our expertise in player agencies and autonomy empowering players to engage in new ways empowering players to engage in new ways What does that mean like profit-seeking behavior like this secondary marketplace open economy thing that everybody's talking about Presumably that is what they're talking about They're talking about opening up the Yon line environment turning Isk into a cryptocurrency turning those assets in Yvon online into NFTs most likely I think it'll be a really interesting project to watch I wish I hope they have a lot more progress than most other blockchain games When they announce funding have mainly because I want to see how this business model plays out I think there's a lot of ambiguity right now about whether the transaction fee revenue model is feasible know like we know the premium model is feasible We know the free to play model is feasible the transaction fee Revenue model feasible We don't I don't think we really know that quite yet I've always looked at it you can think of like players having this each player having a willingness to spend on the product this is essentially their marginal utility for the item or for the game And they're gonna spend that no matter what as long as you allow them to So with premium games you miss out a lot on some of the consumer surplus because have a fixed price and you don't let people spend 120$200 if they want to The free-to-play model fixes this by allowing people to spend whatever they want The question is then with the transaction model do we still let those people who wanna spend more money Or are we leaving consumer surplus on the table I think that's a big question that we have to ask ourselves and to me this whole announcement this whole yon line thing is an exciting foray into answering that question We could talk about C P and Yvon online and their community and some of the the community is having over the fact that Eve is moving into blockchain the I don't know how worthwhile that is I will say I will comment one one thing I found hilarious on the Twitter announcement in there was an Eon online veteran saying am infuriated by this announcement I'm going into Eve right now and I'm gonna sell all my assets on the secondary gray market Which I'm not saying that blockchain is going to make us make you a millionaire if you're an eve millionaire But that's the point buddy the whole point of this is hey you can take those assets and you go on the marketplace and you can trade them which I think it's gonna it is gonna be a value add for the players it's really interesting because to me it it also emphasized just the depth of this divide between blockchain non blockchain you say blockchain and people get pissed off even if even if the there's no reason for them to be pissed off Hey dude you could go sell your assets for a much in in a much easier way with far fewer transaction costs than you would have to if you're gonna go sell your assets on Facebook marketplace or something I don't know how people trade Actually <cite>Eric:</cite> <time>22:40</time> if If I recall correctly this isn't they're turning existing Yon line onto blockchain they're making a new game that will be on <cite>Christopher Kaczmarczyk-Smith:</cite> <time>22:47</time> I don't know if that's a hundred percent clear yet I think it's almost I think it's 99% implied that it will be a different product it doesn't seem feasible It I don't think it's tenable for them to transfer eon online to the blockchain It's that's virtually impossible <cite>Phil:</cite> <time>23:02</time> That's what has confused me about this if you want to get something up and running as quick as possible why not take Eve as it is all the assets you already have and then just create a new shard So Eve online is now one shard Why not just create a new blockchain chart like the cheap and cheapest way to to land on the peaches in Normy <cite>Christopher Kaczmarczyk-Smith:</cite> <time>23:21</time> as long as the players still have the opportunity to do both to stay still play on the old shard and the neward I think that's fine I think if you make it exclusive you kill Old Eve online and now you can just play on the blockchain shard Then you cannibalize your player base which would not be good But yeah I could definitely see them doing something like that the reason I see them doing something like that I guess the reason I see that being beneficial to them is that it's no sup It's like it's no secret that they've had trouble getting products that are not Yvon online out and that's kinda what this PC ma so PC Gamer put an article out You just Google PC gamer Yvonne online blockchain You'll find the article Online Studio CCP games is making a blockchain game They emphasize this this studio struggles to get anything that's not Yvon online out so I believe they've had a couple of canceled projects in the last five years I couldn't name them off the top of my head they were pretty minor never ended up actually obviously being published but not being successful do think it would behoove them to just make a shard make Yvonne line 2.0 I think there are a lot of people that are not that like very loud minority that would be interested in something like that <cite>Phil:</cite> <time>24:26</time> There's some context here that I think is interesting to go through One thing that I would recommend reading is a great book called Internet Spaceships are Serious Business It's a collection of published academic papers diving into the world of Yvon Online and what Eve is and why people Play Eve And the number one thing I got out of reading book and I read it while it was on a four x game on mobile this canceled game called Breaking Bad Empire Business was that people play Eve like it's a job Which sounds familiar right It sounds like Play to earn but they play it like it's a job and they have a deep sense of commitment to the community So it's a lot of the cliches you normally hear The other thing that I think is also interesting about Eve is that they've been Ambitious and forward thinking when it's come to how it monetizes Eve is a subscription based service but the thing that it allows you to do is earn the points that you can use towards your subscription in a free way It's something I believe what's called Plex Points I believe World of Warcraft adopted something similar but the subscription itself is a tradable asset So that's the other thing that Eve has is that it has assets that are tradable inside of the context of the game So they have floating prices in some sense You can't mtx into those floating prices so you can't just go and purchase heart currency like you would in any other game and then mtx into a$10,000 spaceship So there's a lot of hierarchy that's been determined in Eve as a function of labor So people have invested quite a large amount of labor into Eve to get a certain reward And when you start to introduce real world money into that there are going to be ramifications And it can change the social hierarchy can move it it can flip it upside down And I think really interesting ways in ways that if I were a member of the community and I were a laborer and I was sitting on top of the social hierarchy and you started to introduce prices that puts me at a disadvantage Like they're gonna be winners and losers when you introduce real prices And so when we think about like why communities have these reactions not everyone's a winner a in a zero sum game The other thing I would point out is that Eve despite the fact that it has subscriptions has introduced mtx but they've mostly been cosmetic the reaction to those cosmetic items let's say has not been calm there was a monocle that they introduced a while back that almost had an entire community riot against them they removed that monocle but they still have done really low-key items within the game but they're non-game play affecting they haven't really had the experience that you might expect because when blockchain started to gain steam everyone immediately pointed to Eve oh man Yeah of course it makes sense for Eve Eve has a really complex economy and I think we continue to misunderstand what the blockchain is about and what when we think about the blockchain what is the blockchain To me it's just floating prices it's floating prices it's peer-to-peer exchange it's buying and selling it's auction houses to me that's an effective way to monetize I don't think it's more than that And so when people just say oh deep economies that must mean blockchain Oh Eve has a deep economy Those things totally make sense I don't see the connection I don't see the connection It is true like they publish these really cool interesting reports every single month You can still look them up They are probably deeper than the Federal Reserve will ever p ever publish on like how many resources are being mined but none of that has to do with mtx None of that has to do with the blockchain None of that is an open floating marketplace is a separate environment with a particular set of incentives in a particular type of institution So I am just very skeptical that this is the natural fit that everyone thinks it is <cite>Christopher Kaczmarczyk-Smith:</cite> <time>28:13</time> I really like the point about floating prices because I that's exactly how I've always seen this and I think even earlier in this conversation I was talking about how this I keeps calling it micro transaction but this transaction fee environment like this open economy where you've got these millions of transactions I've always had this mental model and I'm even trying to formalize this into an actual model that the value of the economy Think about Yvon online people have valued that economy many times and I think it's worth in the tens of millions if I'm not mistaken if you do that conversion between the in in game currency and plex which has a an actual real world value so I always picture like this economy having some value and that value is In free to play games and in premium games that you can just measure that by how much money people have spent on it So how much money did the how much revenue did the game bring in but with these open economies that's probably gonna be represented by transactions and the volume traded on the marketplace on a daily basis so maybe we think about that on an annual scale or maybe we think about it on a monthly scale now the volume is gonna be some percentage of that it's gonna go to the publisher And that to me is that's how I view this monetization I think of this marketplace as producing some amount of volume and a subs or a fraction of that volume is the revenue that the firm gets now as the game becomes less popular as we enter year How long has he been out 20 years They came out they published in 2003 I think <cite>Phil:</cite> <time>29:35</time> Wow 20 years Whew <cite>Christopher Kaczmarczyk-Smith:</cite> <time>29:37</time> old And it's still a pretty vibrant economy highly concentrated right We have like super devoted people but that doesn't mean they're not willing to spend money on it take a game what's a dead M O R P G <cite>Phil:</cite> <time>29:48</time> Where to start Going online <cite>Christopher Kaczmarczyk-Smith:</cite> <time>29:50</time> But take one of these it's like how much money are they getting I assume that the drop in the revenue that you get from these from this market from this volume share of the marketplace the firm is getting it's gonna be pretty equivalent or at least proportional to the drop in revenue that you would get from a game like any other M O R P G that uses a traditional method to to me it's like Is CCP gonna be better off implementing from the purely from the monetization standpoint Are they gonna be better off because for them only makes sense if they're gonna make more money if History has told us anything they're not gonna make more money just by releasing a new product Okay So there must be some sort of technological improvement that they believe they're implementing Hey Yvon online I want you guys we want you guys to put out a free-to-play version which they did I think you can play up to a certain level You can level your characters up for free in Eve that's going to improve our monetization and it's gonna grow our player base what is the angle here Are they going for increasing their their market Are they going for just diversification of their products I'm really like I'd love to get into their heads and know what it is or are they <cite>Phil:</cite> <time>30:55</time> 16 Z probably mark Andreesen is just up there It's just in Iceland always in in their minds One of the things you mentioned is this idea of taking kind of the transactions fee being some sort of revenue model I don't see it I don't see it at all when you run these numbers first of all no one's done it So there's an empirical point here is that no one is actually making good money off transactions fees And then you just do the simple matrix of Hey what is my monthly trading volume And then let's think about different rates of transaction taxes and let's not even assume that there's gonna be decline in trading volume due to the transaction tax Which of course we know there's going to be but let's assume that away for a second if you had 10 million monthly trading volume and you had a 10% tax so you're making a million dollars a month That's 12 million run rate a year Which is nothing Which is nothing So to get to something that anyone cares about let's just just for the sake of assumption let's say you wanna make 50 million a year as a live service game that is a pretty good outcome Now that's still small potatoes That probably puts you just I would say at the entry point of steam's top 20 list probably 19th 18th is probably doing around 50 million a year So you're telling me if you wanna make 50 million a year and we can do this math right here but if you wanna make 50 million a year and you're gonna do a 10% transaction which would be absolutely batt crazy And if I had my calculator I could actually figure out what these numbers are <cite>Christopher Kaczmarczyk-Smith:</cite> <time>32:16</time> Here's where I push back a little bit here's the one problem I would say with your argument Phil is that you can't use let's look at the revenue for Kinson impact each month that is not the equivalent to the trading volume that would happen if Kinson impact were a blockchain game with an open economy presumably under this model and I actually maybe I'm actually arguing in favor of your your idea here But in this model transaction fee let's take a game right now that's making that's pulling in 10 million in revenue a month that game if it were a blockchain game with a 10% fee would have to be making would have to have a volume of a hundred million month order to like reach that same revenue Now from a marginal benefit point of view mar a cost benefit analysis willingness to pay from the consumer blah blah blah Like a very micro model you could write of this you could say the players are spending 10 million a month they're gonna spend 10 million a month in net whether it's open or not So yeah there's a hundred million worth of revenue but 10 million or a hundred million worth of trade volume but 10 million of that is actually extracted as revenue and is the cost of the customer So to me I think that's the bigger question is like what is the and I don't think it's a behavioral question but it is like what is the mental cost if I know that at the end of the month in net I spent$10 but I know my transaction history I I just spent a hundred dollars and then I get$90 back That's a very different economic decision than spending$10 I have to spend it There's uncertainty about what I get back so this isn't do you want give me$10 It's do you want to give me a hundred dollars and then I'll give you$90 back maybe in the future so to me there's That is where the friction is It's this uncertainty of the transaction from the consumer's point of view There's a whole bunch of uncertainty put into their their calculation So when we think about uncertainty we think about discounting How much do you discount the future How what are your risk preferences if you're very risk neutral or you're very or risk hating this could not work So it ultimately comes down to from a micro point of view it ultimately comes down to the pre the risk preferences of the customers Because if they are risk hating then they are naturally going to not participate in that 100 to 90 to 10 transaction They're more likely to participate in the$10 transaction which would in theory mean that your revenue a open economy would be worse than from a closed economy if your risk preferences of your customers is relatively hating <cite>Phil:</cite> <time>34:45</time> I did the math You would need to do 41.6 million in trading volume per month at a 10% transaction fee And again 10% is batshit crazy No one is doing 10% Let's just assume that you're high end though gonna need to do 41.6 million in trading volume month at a 10% transaction fee to make 50 million a year And again 50 million an okay outcome is unbelievable in terms of trading volume Very few people are doing that I think Axi may have hit that their height So that is a an incredible hill to climb I still don't understand how you see that happening under the model you just described though <cite>Christopher Kaczmarczyk-Smith:</cite> <time>35:28</time> How would it how would an open economy be revenue improving on a closed economy And it would involve your customers to have it would depend on their risk preferences But I don't know if this 70,000 70 million in trading volume a month is out of the question I think it all has to do with your player base if you're Fortnite that's a lot more realistic than if you're Yvon online has far fewer players than <cite>Eric:</cite> <time>35:52</time> Y'all are fixated on this transaction fee model they don't have to monetize that way they can you know they could do a corporate income tax or a land value tax or like other kind tax to to earn their Right It <cite>Christopher Kaczmarczyk-Smith:</cite> <time>36:02</time> Do you not see I've always looked at this transaction fee as a sales tax do <cite>Eric:</cite> <time>36:08</time> uh Yeah it is but like could tack else <cite>Christopher Kaczmarczyk-Smith:</cite> <time>36:10</time> Oh I see what you're saying <cite>Phil:</cite> <time>36:11</time> But see that's still G like everything is just it It's just okay what slice of the GDP equation do you wanna apply a small percentage on And for any of those things to work you need that G number as an absolute value to be something batch it crazy and like where that still depends on the game having some insane G D P and none of these games have insane G D P to the rate at which you can make decent money Like we're focusing on transaction tax and transaction volume But what is where is that corporate income how would you imagine A different GDP tax being implemented How would you do that <cite>Eric:</cite> <time>36:45</time> Yeah I guess sales is probably the most direct cuz everything every is a sale But I don't know let's say like I my loose understanding is Eve they have got corporations right self-organized groups and there's like a hierarchy in them And these corporations have their own bank accounts and warehouses and stuff And if somehow you could all corporations to the central government know everything's on chains or you can track exactly how much they're making and how much it's getting but yeah I that would be a lot bigger headache And to point right it's all proportional to GDP anyway And that's <cite>Christopher Kaczmarczyk-Smith:</cite> <time>37:14</time> I think like having some sort of corporate tax is actually really clever because it also doesn't impact the low earners or the low intensity players so you have less churn for them maybe you just shift the distribution or shift the tax to tax the higher end of the distribution More But to me that's more of a methodological okay once this game is up and running we get a data science team to evaluate this question okay what's better tax the corporations or tax the little guys <cite>Phil:</cite> <time>37:40</time> I think it has to be it has to be first party sales and like having a marketplace Just the expectation I think we talked about this at some point but just having the expectation of a marketplace I can flip an item means that even if wizards of the coast charges$3 per pack if the average value of a pack opening is more than$3 people are gonna continue to buy packs until they've introduced enough supply the magic gathering marketplace such that each pack is worth$3 there's an equilibrium there So just the expectation of a marketplace and the idea can flip these items means that Wizards of the Coast is gonna experience all of these sales where people just bid it down to whatever the price is So it here's another brain teaser Does it even fucking matter what Wizards of the Coast sets The price of a pack is PR Cat <cite>Eric:</cite> <time>38:30</time> it does I think it reduces the amount of supply in the player base <cite>Christopher Kaczmarczyk-Smith:</cite> <time>38:34</time> Once they're fixed supply it matters But when they're unlimited supply I don't think it has as much of an impact <cite>Phil:</cite> <time>38:38</time> But if you said it as a penny and let's say there were a million magic at the Gathering players and you said and Wizard of the Coat said okay it's gonna be a penny Then you would buy a shit ton You'd buy a shit ton There'd be supply side problems Basically you're setting how much supply is gonna be in the marketplace then if you're Wizard to the coast by setting the price of the pack Because if you set it at a penny that means and there's a ton of ma like the amount of magic the gathering players is fixed in the short run They're gonna buy a shit ton of packs There's gonna be a ton of supply And they're gonna bid it they're gonna bid it down to a penny Then the average the average pack and that means your supply your supply curve is gonna out <cite>Eric:</cite> <time>39:13</time> that the number of magic gathering players is short run I think that's the key assumption if they're price sensitive right If you quadruple the price of constructed all constructed decks <cite>Christopher Kaczmarczyk-Smith:</cite> <time>39:21</time> I mean it what's really interesting is like they're even even magic's economy is moving away from like the pack economy with magic arena <cite>Phil:</cite> <time>39:28</time> That to me is then the puzzle for Web three is that you have two products are digital for magic The Gathering one is Magic Gathering Online which has a marketplace and has been a disaster Now it's a the UX has been an absolute shit show for 10 years But that being said they didn't introduce a marketplace in Magic the Gathering Arena It is very similar to the Hearthstone model They decided they didn't want to deal with any of that and I think that calls into question some of the value of having a marketplace if they're not gonna go ahead and do it And they seem to be doing great <cite>Christopher Kaczmarczyk-Smith:</cite> <time>39:59</time> so this primary market idea I think a lot of I'm trying to think of a video of a crypto game that hasn't done that hasn't had primary sales of NFTs I think all the major ones have primary sales up until market value is so the market value is super low So instead of going through the packs you go on the secondary so you start buying up the secondary and the secondary starts to the price goes up because you're buying up one of the difficulties with this model is This model's okay When you're seeing player growth it's hard to get player growth when you don't have a game you have kind of this push and pull and it's hard once you've once you've put a lot of supply out it's hard to put take it back I always use like a salt and like cooking and salt or you add too much salt to the dish like you can't take that back it's too salty whereas you can always add a little salt in So that's how I look at these markets like the primary market it's once those are out there that's great If your players are your player base is growing there will be sufficient demand to soak up the secondary until the secondary price increases past the primary price Okay People start buying primary again and we have this nice balance assuming that there's a healthy player base <cite>Phil:</cite> <time>41:05</time> See this is where I think you're wrong though I think you can take back the salt I think you can take the salt and I think Magic Gathering does it right Magic Gathering does it by introducing new sets That is how they take off the salt Because what happens is that the set that's irrelevant to the player is always shifting And so in some sense that's almost a reduction in supply It's a reduction in the supply of cards that are relevant <cite>Eric:</cite> <time>41:30</time> This is a depreciation <cite>Phil:</cite> <time>41:31</time> introduce Yep The capital depreciation they're able to introduce repair costs There's durability <cite>Christopher Kaczmarczyk-Smith:</cite> <time>41:36</time> yeah No you're right I you're right It can be done <cite>Phil:</cite> <time>41:39</time> But no one in crypto is really doing it just fucked <cite>Christopher Kaczmarczyk-Smith:</cite> <time>41:43</time> This is why like the econ department my my econ department we always joke I want ship destruction so bad Like the moment we can destroy ships that's what I want to bring these bring this supply in in check and and give consequences to these things But <cite>Phil:</cite> <time>41:56</time> All right Speaking of consequences we have news last week that the competition authority from the United Kingdom has decided to not move forward with the Activision Microsoft merger They have cited cloud gaming or potentially domination of cloud gaming through the acquisition of Activision as the reason to prohibit the merger that in some sense if Microsoft were able to own Activision they could potentially some of Activision Game Activision's games exclusive to streaming I guess to X Cloud it's really confusing In the article they seem to confuse X Xbox game Pass which is their subscription service their streaming opportunity and those things are tied together Microsoft offers you the opportunity on Xbox game pass stream games but you don't necessarily need to you can download'em as full price products and of course they also have this on pc So I think we know that this is you just absolutely bullshit in terms of reasoning from the C M A I think what's interesting here and I got into this a little bit on another podcast that shall not be named but what is Microsoft's strategy when it comes to streaming and it when it comes to platforms So a while back I wrote two pieces one of which is called the Economics of Game Pass Demand a PlayStation Launch And so what I would argue here is that when you are in a subscription business You have I think a you've in some sense capped yourself in the sense that you cannot maximize the total willingness to pay for a given good or service And Chris you were just mentioning this and this is something that I think games have done really well which is to correlate the price of a good with is which the utility that you get from it which is what mtx does it's an ongoing ability for you to express that purchase So we can get to those kind of high marginal utility curves but you're on a subscription When you're in a subscription world the only thing you want to do is you want to retain people are on the subscription That's goal number one And goal number two is you want to increase the n or the number of subscribers as much as possible And the reason that you want to do both of those things is that you can distribute all of your costs amongst those customers to the larger your customer base on a monthly basis more that you can distribute those costs And so when you think about it as early as 2010 Netflix only had 20 million subscribers suggesting a user cost of$5 for a 100 million production So$5 per month for a 100 million production so that's pretty incredible just to think about oh shit something that's a hundred million dollars when you think about Amazon which just spent a shit ton of money on Citadel I think it was around 300 million This is a TV streaming show they did with the Russo Brothers out of adventures fame when you amortize the cost of 300 million across the batt crazy number of prime subscribers it's cents it's peanuts it might be 10 cents 20 cents And so if you're Microsoft and you're really into streaming you're really into the subscription me you're really into subscription The next thing you want to do is that you want to increase n And so what is the thing that's preventing you from increasing N it's a box called the Xbox Being in the console business sucks It totally reduces your addressable market And so what is the solution to that it's streaming Streaming is something that lets you be platform irrelevant You can be anywhere You can be on mobile you can be on desktop you can be anywhere you need to be Streaming opens up the total addressable market potentially to anyone who exists on the planet without any$500 piece of hardware Now the problem with this is that of course you need the internet connection to be able to do streaming the second benefit to this is that it's an 11 foot pole to apple's 10 foot wall Because the thing you can do with streaming is that you can totally bypass all of these app stores So if you can trigger streaming in the browser which is what Microsoft has done on mobile that means you can avoid all of the app store restrictions And if Apple chooses to somehow prevent the browser from letting you stream that's when I think you'd have antitrust activists in the United States even on the right side of the political aisle going batch it Crazy If they were to disable something on the web that would be viewed as completely anti-competitive but that's kind of Ben their 11 foot ladder to the 10 foot pole is Hey we're gonna take streaming and we're gonna bypass all this apple bullshit And so not only can you get your total addressable market to nearly anyone which means that you can amortize all of the costs of games But the other thing you do is you can get past all of the bullshit that comes with app stores So anyways this is what I think Microsoft strategy has been for a really long time is that if they can get the streaming piece right and again they have the tools they have Azure that's been Satya's main play has been to get cloud and Azure up there and that is Microsoft's that is their business right now If you look at their p and l what is the thing that makes everyone super excited on Wall Street It's Azure Azure makes a shit ton of money their cloud business is absolutely killing it right now And so it feels like you have all these natural synergies You have Azure you have a cloud business that's killing it We have Xbox we have all these problems with Xbox right now It's in a distant third place Like this is the big bet is that we're gonna get a shit ton of subscribers We're gonna amortize costs we're gonna put it on streaming and we're gonna get past the app stores And this is our strategy to win This is how we beat Microsoft Or excuse me this is how we beat Apple This is how we beat Sony This is how we beat Nintendo <cite>Christopher Kaczmarczyk-Smith:</cite> <time>47:15</time> You really love or and are addicted to the free to play model and you're like I just really need those mic maybe multiple tiers Xbox not with their streaming platform but with their their subscription service They already have multiple tiers Lots of subscriptions are starting to have multiple tiers Netflix just I think Netflix has three tiers four tiers have an ad-based tier now so I think there's also a way to still cut into that consumer surplus like we were talking about with a little bit of variability there providing different services uh but <cite>Phil:</cite> <time>47:43</time> You remember when you remember consumer surplus right it's the point above P the difference between P and wherever you're sitting on your demand curve right And so when you introduce a new tier into the subscription it's a square right Visually it's a square and so you're trying to it's almost like you're doing Tetris and so you're trying to fit enough squares underneath there so you can capture that consumer surplus doing this with subscriptions it's still a fixed price So the shapes that you can introduce into that consumer surplus to do Tetris are not as sexy or as voluptuous as mtx as something that has a marginal pricing as something that has an auction house So it's always gonna be always gonna be fudged You're always gonna leave shit on the table that I think gaming can capture <cite>Christopher Kaczmarczyk-Smith:</cite> <time>48:28</time> know correct me if I'm wrong but If we think about the consumer surplus and extracting some of that you can almost look up like it's like a step function if you look at if you were to graph it out econ 1 0 1 you're saying even with the subscription tiers you have these big triangles that you're be that are basically the gaps between tier one tier two tier three and the micro transactions Literally it's a perfect line It's smooth because you have every single you have the ability to I wanna spend$13 and 25 cents not just$13 <cite>Phil:</cite> <time>48:56</time> pricing at marginal benefit <cite>Christopher Kaczmarczyk-Smith:</cite> <time>48:58</time> exactly Yeah That and then that's a really great point that said 30% gain in revenue because you're avoiding fucking app store fees is I guarantee it's bigger than that that lost <cite>Eric:</cite> <time>49:11</time> I've never heard a price discrimination described as voluptuous before <cite>Christopher Kaczmarczyk-Smith:</cite> <time>49:15</time> We <cite>Phil:</cite> <time>49:16</time> Oh is that what we wanna call this one the voluptuous episode <cite>Christopher Kaczmarczyk-Smith:</cite> <time>49:19</time> The voluptuous consumer surplus <cite>Phil:</cite> <time>49:21</time> Oh my God that's it right there Chris <cite>Christopher Kaczmarczyk-Smith:</cite> <time>49:23</time> Yeah man Yeah no that was elegantly said you well said I had a couple but <cite>Eric:</cite> <time>49:28</time> So I think the consumption model for games also quite a bit different you know video streaming mentioned in this in your article as well know I think for box games especially for these kind of single session indie games like it it works But for these highly replayable games whether it be rogue likes or live service games right People tend to go super hard on an extended period of time the mega bundle of Netflix doesn't really work for that model right like I feel like even if it does take off they're only capturing the sort of I'm gonna call it box price single player narrative games They're all narrative but you know the the Single linear experience than when you're done you're done Um yeah that's only a fraction of the market <cite>Christopher Kaczmarczyk-Smith:</cite> <time>50:06</time> I mean do you think that that it gives incentives to produce these live service like infinitely replayable <cite>Eric:</cite> <time>50:12</time> yeah <cite>Christopher Kaczmarczyk-Smith:</cite> <time>50:13</time> Do you think that it gives incentives to produce these live service like infinitely replayable <cite>Eric:</cite> <time>50:19</time> I I mean I think it might help out cuz there's a the flood of these indie games right And so this is the thing I actually looked at Xbox Game Pass and I was oh actually maybe I wanna buy this cuz I wanna play High-Fi is like an indie game Um and other indie games on here you know I play for a couple hours and then I turn it off and switch to the next one And thi this actually works great for me in that realm but for like live service and all my eSports you know this doesn't make any sense for those <cite>Phil:</cite> <time>50:41</time> What if you think about a subscription as an internal free-to-play network so of course like you have an upfront fee but once you're into the subscription network everything's your marginal cost So if I want to play High-Fi rush or I want to play fuck what's another game that's on the subs If I wanna play Fallout for once I'm in the network it's free to play Is there anything to that <cite>Eric:</cite> <time>51:07</time> Yeah It just it seems a lot more expensive to produce a new indie game as opposed to producing an additional Um like the live service once you've got people in there like the amount of extra gameplay you get from a incremental piece of content is like much more efficient than producing a whole world a whole visual style a whole set of game mechanics you know but so I I wanna talk a little bit about like why Microsoft wants to acquire Activision Blizzard in the first place Like they getting out of this deal Um so obviously Activision has a you right It's massive blockbuster and on the Blizzard side Like it doesn't I don't know if they would pull all the Blizzard into their subscription the the Warcraft IP Blizzard is sitting on a whole bunch of ips that frankly been squandering And kind of it almost seems like Disney Star Wars situation to me like they're like Hey this IP is super valuable and you guys completely to out games about Like we you know to go into Metaverse and all that like a huge opportunity you know that's what I've been hearing a blizzard and then the the king part kind of just like a random Like I don't think they actually care that much about Candy Crush I think that's <cite>Phil:</cite> <time>52:05</time> Oh man always the king slander in this The king <cite>Eric:</cite> <time>52:09</time> Yeah like the Candy Crush are they Like pull that into <cite>Phil:</cite> <time>52:11</time> Eric Seifert I think has a pretty interesting piece which basically argues that you get an you can do an A network you can like shit into an ad network just because is so many different users Maybe you can do some pro promo stuff know there might be something <cite>Eric:</cite> <time>52:23</time> hmm I mean it's not like taking advantage of that right I mean what advertise your military but yeah maybe Microsoft could make that but <cite>Christopher Kaczmarczyk-Smith:</cite> <time>52:31</time> compliments We talked about this episode one compliments It's the <cite>Eric:</cite> <time>52:36</time> scuttlebutt is the blizzard part of the acquisition is of like a metaverse like acquisition play whereas the the activism part is more like know getting for their game pass or you know their platform exclusives or what have you <cite>Phil:</cite> <time>52:48</time> If I were to summarize though what do you think the acquisition's about you think it's just like getting more exclusive content <cite>Eric:</cite> <time>52:54</time> I think the Activision part of it is content for Game Pass I think the blizzard part of is the ip Uh and they'll probably take it and farm it out to their other studios the way they did with Halo I mean I don't know been all right but yeah it it's <cite>Christopher Kaczmarczyk-Smith:</cite> <time>53:08</time> do I've this is gonna make me sound really naive which I am on this on this topic but This is a huge deal the this is one of the biggest deals this is the biggest deal It's the vid the biggest in video game history One of the biggest in tech industry in general it is huge even in tech so I guess how is Activision Blizzard worth that much money I think about the Scopely acquisition which was like 4.5 billion or something like that I don't understand like what's the infrastructure do they have infrastructure Do they have what are they buying here It's a mind boggling number <cite>Phil:</cite> <time>53:41</time> Hey man it's Overwatch Overwatch League is worth a lot of money these days don't slander <cite>Eric:</cite> <time>53:48</time> Now I'll I'll I happily slander yeah I I mean you know I I don't know much about valuing companies or acquisitions it it definitely seems high There must <cite>Christopher Kaczmarczyk-Smith:</cite> <time>53:55</time> Yeah I mean I if the fir like I it does really it could potentially bolster game pass quite a bit and maybe it does go into this streaming service <cite>Eric:</cite> <time>54:07</time> Yeah Uh oh Yeah And I heard as part of the antitrust thing like one of the stipulations that Microsoft W was not allowed to reduce the pass of their game pass too much Like they were required to keep the price sufficiently high to be competitive um <cite>Phil:</cite> <time>54:21</time> So they can't so they've had dollar price promos for Game Pass for quite some time So this is another interesting point So they Microsoft has been reporting Game Pass numbers game pass M au numbers over quarter for quite some time They stopped doing that a year ago which I thought was interesting And it also somewhat coincided with the ending of their dollar price promo Game Pass So if you could spend a it was like four <cite>Eric:</cite> <time>54:46</time> it's over I missed it <cite>Phil:</cite> <time>54:49</time> Yeah it was something else and I do wonder since they've gotten rid of that price promo if m a u is still growing at the rate they think it's growing cuz they also started to push a lot more about Xbox Game Pass pc which is interesting as well where they did this price promo but it's I don't think it's looking great the numbers don't I don't think they're grown anymore If they if there ain't if they ain't talking about it I don't think I don't think it's grown anymore <cite>Christopher Kaczmarczyk-Smith:</cite> <time>55:12</time> mu how many are on games pass compared to live Is it like 10 million on games Pass 90 million on live or something <cite>Eric:</cite> <time>55:20</time> I wanna say 60 million but that might have been in article <cite>Phil:</cite> <time>55:25</time> Ah man this is gonna be a lot of editing All right hold up hold so I have 2022 I have 25 million m au on Game <cite>Eric:</cite> <time>55:35</time> that's higher than I thought <cite>Christopher Kaczmarczyk-Smith:</cite> <time>55:36</time> shit Yeah <cite>Phil:</cite> <time>55:37</time> and have 120 million M A U total So you're seeing around 20 around 15 to 25% of people that use Xbox on a monthly basis are subscribers to Game Pass which is actually quite higher than I expected <cite>Christopher Kaczmarczyk-Smith:</cite> <time>55:57</time> I always thought the marginal cost was pretty low compared to the marginal benefit I think isn't game passes 15 and live is 10 <cite>Eric:</cite> <time>56:05</time> Game Plus includes PC too I imagine <cite>Christopher Kaczmarczyk-Smith:</cite> <time>56:07</time> Oh okay gives you a whole bunch of other content because I always just do the calculation I'm like okay how much money did I spend on games last year how much is Game Pass am I getting most of the games that I would play I've been lucky so far to be getting most of those if they add more to their game pass through Activision Blizzard like that's the type of scale that makes these types of deals in my opinion very difficult to understand and quantify that when you combine these two things that weren't combined before all of a sudden you're extracting a lot more money you combine add a bunch of Activision Blizzard's content into the game pass deal you're talking about a lot more money than like Activision Blizzard in a box you combine those two things and you get scale That was not Isn't really measurable and it's what makes me so confused about antitrust any in the like in the beginning to begin with <cite>Phil:</cite> <time>56:58</time> So just to run through the Xbox pricing strategy right now or the game pass pricing strategy So for$10 a month on console you can get your base level Game Pass subscription And so what that's gonna allow you to do is it's gonna allow you to play any of the catalog of games that are on Game Pass at no additional fee The other thing it's going to do is it's going to get you this is interesting they have this across all tiers as they give you benefits for riot games So they're starting to give you some benefits Even if you are a player of a free-to-play game you're gonna get some sort of dividend payment you can pay$10 a month on console for that They have a separate PC subscription which is also$10 It's about the same thing The only thing that the PC is going to give you Over the console is that it also gives you ea play by default which is interesting And so EA play is the EA subscription that is equivalent to Game Pass It gives you day in and day one access to all of S games You can pay$15 a month which is gonna get you both PC and console Game Pass subscription And here's the other thing that you get with Ultimate This is where you're gonna get the cloud Not only are you gonna get the cloud but you're also gonna get Xbox Live Gold which is what you need to be able to play console games on Xbox that are not free to play if you wanted to play Call of Duty which is not a free to play game would need to have Xbox Live That's$15 a month So to me this looks like they really just wanna throw numbers at this They want to get N as high as possible <cite>Christopher Kaczmarczyk-Smith:</cite> <time>58:24</time> Yeah and it might work I realized I just realized I'm paying for the wrong plan I don't need also PCs I just went into my account I was like what the fuck Anyway <cite>Eric:</cite> <time>58:40</time> Console's you wanna talk about consoles Are dead dying they're not they're not dead but I they're trending down and I think they'll continue trending down <cite>Phil:</cite> <time>58:49</time> What We've never sold more <cite>Eric:</cite> <time>58:52</time> really maybe maybe I'm just super out of the loop <cite>Christopher Kaczmarczyk-Smith:</cite> <time>58:55</time> Really <cite>Eric:</cite> <time>58:56</time> oh oh don't count the switch right own weirdo <cite>Phil:</cite> <time>58:59</time> if you track sales on a cohorted basis so like day sense release kidding me this generation has completely <cite>Eric:</cite> <time>59:08</time> E <cite>Phil:</cite> <time>59:09</time> Yes We can just do it on a per firm level So we can just look at PlayStation five versus any other PlayStation on a court order basis This thing has It has absolutely wrecked everyone every other PlayStation and only that issues too So there's unmet demand here Let we we can search I actually I'm speaking very confident right now and I'm very confident but I don't have the numbers off the top of my head <cite>Christopher Kaczmarczyk-Smith:</cite> <time>59:31</time> No believe it but okay so I see where Eric's coming from gen Z is not really into hardware they like their phones and they like to play on their phones They like to interact with short very like content consoles don't really provide that So is that the line of thinking Eric like eventually most gaming will be mobile gaming and that's why streaming is so much better because you can't really actually have a huge rig on your phone that's my line of thinking but and would explain away the increase in sales right now to the fact that all of the millennials and older Gen Zers who have played console for their entire lives their kids are starting to get old enough to play with them And so they're buying those for the kids And because our gener at least my parents' generation definitely give a shit about video games or consoles not nearly <cite>Eric:</cite> <time>1:00:22</time> my thought is You know the console is a specialized computer designed specifically for playing games And it was from an era where computers sucked and nobody were expensive And home compu high and home computers were rare And over as people get more and more you know better general computing that kind of absorbs the specialized computing market And I think we saw the same handheld games where know game boys and PS Vitas or whatever the fuck like over just got absorbed by mobile know n Nintendo saw the writing on that's that's what the switch is right It's a hybrid Handheld Um and you know my prediction is that we'll see the same trend with consoles is that they'll gradually get absorbed you know between mobile and PC gaming that the general computing hardware will surpass the specialized computing hardware <cite>Christopher Kaczmarczyk-Smith:</cite> <time>1:01:02</time> the prices are decreasing they're not increasing so that kind of explains that Eric your like kind of substitute for PC I don't know I don't know what you would call that but they were an answer to a problem and now they're not necessarily an answer to a problem although I would argue they are I prefer playing on my couch in front of my tv So I have a console a computer that could play video games I don't play a lot of video games on my console or on my computer At least it's not my preferred version but streaming a really interesting like we all of our apps we don't need a Roku anymore We don't need like an extra box to get our TVs to work Our TVs have all these smart apps built into them and we just stream everything Why not for video games <cite>Phil:</cite> <time>1:01:47</time> Tim Sweeney had a really great response to this about something to do with latency and how computers work and like the rate because here's the thing here was the reason right So when you think about movies the of data that you have to stream from a movie is fairly constant there's a very easy switch on streaming movies which is the quality of the picture So even though the Avengers so much more CGI than let's say it's a wonderful life if they are both in 4k they are going to be the same amount of data to transfer Whereas when you think about a video game that's not always the case So those 2D games we were talking about the top of the hour what is it turmeric <cite>Christopher Kaczmarczyk-Smith:</cite> <time>1:02:33</time> My you've been cooking too much Eastern middle It's not turmeric it's tunic Oh my God <cite>Phil:</cite> <time>1:02:42</time> Tunic All right All right so Tunic is gonna require less of a data transfer than let's say call of Duty And so there's so you are going to have this race where internet speeds are gonna need to constantly increase at a rate that is consistent with the growth and the graphical fidelity of games like Ray Tracing came out recently you're gonna need an increase in speed in terms of your internet connection to be able to render that Whereas when it comes to the quality of films like we've gotten ahead of that race like technology has gotten ahead internet speeds the increase in internet speeds have outpaced the increase in graphical fidelity Of film whereas in gaming internet speeds are not on a growth path that lets them overtake the increase in graphical fidelity from games And it doesn't appear that those growth rates will ever supersede one another And so game streaming to Tim <cite>Eric:</cite> <time>1:03:37</time> So on top of that top of that there's the latency issue right you know most people TVs are on wifi and know if you have a quarter second know movies can So you can buffer ahead 15 You know if you have a quarter second delay in magic arena that's fine but if you have a quarter second delay on your Dodge Elton Ring you die And don't get <cite>Phil:</cite> <time>1:03:54</time> And you got the speed of light problem right So you can you you literally can't solve the lag input problem because the speed of light is always going to be the maxim rate at can transfer input <cite>Christopher Kaczmarczyk-Smith:</cite> <time>1:04:06</time> on really an issue Like I <cite>Eric:</cite> <time>1:04:08</time> I I will say for the majority of market and for most of the single player narrative in these bundles you know these subscription bundles it's probably fine Like for God of war If you have a quarter second delay it's not a huge deal know for these high intensity high action like I could place Celeste on you know inconsistent <cite>Phil:</cite> <time>1:04:25</time> Did either of you guys ever get a chance Stadi and OS out <cite>Eric:</cite> <time>1:04:28</time> No <cite>Phil:</cite> <time>1:04:28</time> or on live No one No one talks about on Live anymore out of its time <cite>Eric:</cite> <time>1:04:36</time> Alright <cite>Christopher Kaczmarczyk-Smith:</cite> <time>1:04:37</time> think I've I think I've played two or three streaming games and they were single player racing games <cite>Eric:</cite> <time>1:04:46</time> r racing games it's pretty Like if you look at dunno if you played Mario Kart we but the we had terrible net code but Mario Kart we played fine because they had really good like interpolation for predicting other drivers' paths and stuff Yeah <cite>Christopher Kaczmarczyk-Smith:</cite> <time>1:05:00</time> Interesting So like from my limited experience the only issue that I had was with was with the graphical component where it was just like I was like getting three 20 p the whole time It was terrible but yeah the latency issue I just but the like for league you don't really need that much graphical computing power to <cite>Eric:</cite> <time>1:05:26</time> it's the packet loss and input that <cite>Christopher Kaczmarczyk-Smith:</cite> <time>1:05:28</time> yeah exactly <cite>Phil:</cite> <time>1:05:29</time> Do we wanna call <cite>Eric:</cite> <time>1:05:32</time> gotta soon <cite>Phil:</cite> <time>1:05:33</time> Economist Cast episode eight voluptuous consumption <cite>Eric:</cite> <time>1:05:39</time> remind me to tell you about our super layers only fans <cite>Christopher Kaczmarczyk-Smith:</cite> <time>1:05:42</time> oh <cite>Phil:</cite> <time>1:05:43</time> oh man That would be an amazing cold open man <cite>Christopher Kaczmarczyk-Smith:</cite> <time>1:05:46</time> whole episode on that <cite>Phil:</cite> <time>1:05:47</time> All right Eric Eric tell us what is

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