Episode Transcript
[00:00:00] Speaker A: So you guys know ski jumping? You know, ski jumping. Like, you put your feet out like this, and you got your skis, and you're. You're trying to go as far as possible. You want as much surface area. You want surface area, and you want to be light. So you want to be like a skinny person with wide. Like, you want to be like a bird. I guess having, like, a large crotch region helps with going far. And they inject themselves. They inject their crotches with. It's like something hydroxide or it's some, like, some lightweight material that. That enlarges their stuff, and apparently it. It makes them go farther, like a statistical improvement.
[00:00:37] Speaker B: Why don't they just wear, like, pants that are thicker? So if you can't wear a wingsuit, you make your body the wing.
[00:00:43] Speaker A: Yeah, that's exactly. Well, I mean, they're. They're wearing the wingsuit, but, like, if you found out as the regulation. As the regulating body of the wingsuit, you know, wingsuits for ski jumping. If you found out that these guys were injecting their, you know, their parts with these materials, like, surely you'd say, hey, look, guys, you don't have to inject your nuts with, like, hydrogen peroxide or whatever it is anymore.
[00:01:06] Speaker C: I remember the infograph. They have about, like, how small the increase in the dick size does to the suit, which gives you so much more lift.
[00:01:17] Speaker B: Wait, it's the dick specifically?
[00:01:19] Speaker A: I think it's the whole situation.
[00:01:21] Speaker B: Well, you were saying crotch. I thought you were talking about, like, the inner thigh. You're talking about, like, the genitals.
[00:01:26] Speaker A: Yeah, yeah, your genitals.
[00:01:28] Speaker B: Why the genitals?
[00:01:29] Speaker C: It lets you. It lets you order a. A bigger. When you go in for the. For the fitting, if you have a bigger dick, they'll give you more crotch. A bigger crotch, a bigger bicycle.
[00:01:39] Speaker B: And then that bigger crotch room is like a bigger, you know, get more lift for the gliding.
[00:01:45] Speaker A: Wow.
[00:01:45] Speaker B: This is literally big dick privilege. And, like, people are faking the size of their dicks to get access to the big dick privilege.
[00:01:52] Speaker C: Let's start with utility. I don't understand what it even means.
[00:01:57] Speaker B: Everybody has some kind of utils in their head that they're calibrated.
[00:02:01] Speaker C: There's hardly anything that hasn't been used for money. In fact, there may be a fundamental.
[00:02:06] Speaker A: Problem in modeling when I want to model.
[00:02:11] Speaker C: Game economists cast episode 48. That's accurate because I looked up the last episode number for the first time. We are. Here we are super bowl hangover for the two of us. That watched it 60.
[00:02:27] Speaker A: Right? VX.
[00:02:28] Speaker B: Is it good?
[00:02:30] Speaker A: No, not VX LX.
[00:02:32] Speaker C: This many episodes without a. Yeah, this many episodes without a numbering problem. Exciting episode, like, riveting episode coming at you. We are going to be talking about super bowl ads. I think there's some implementations for games with weight loss. Ooh, that's an interesting take. What could that be? I think there's some interesting conversation to be had about Digi Dieq.
Remember our little. Little friend from Machine Zone ran Digi Gaigoku? Thank you. Just rolls right off the tongue. Remember they blew a ton of money a couple super levels ago. And we will, of course, be having some wonderful articles. We'll be talking about Genie 3 from Google. If anyone did not catch this, this was the incredible AI model that basically spins up virtual worlds in seconds. I guess we're all fucked. But before we do, let's talk about what we're shilling.
[00:03:17] Speaker B: Got a selection of good things on sale, stranger. So, yeah, so all three of us are going to be at.
In a month or so, in March. So, yeah, if you're in town, please, you know, come on, check it out. If. Even if you're not at gdc, you know, like, we'll be around town and all of us are giving Phil has a talk. Phil, what's your talk called?
[00:03:36] Speaker C: I am doing a talk called the Economics of a Billion Dollar Cosmetic Economy. Ooh, Very interesting insight to come out.
[00:03:44] Speaker B: Of that billion dollars.
[00:03:46] Speaker A: I'm going to be adjusting my flights that I make that talk, Phil, because I realized that I was coming in too late, so I wanted to just.
[00:03:53] Speaker C: Break down what I.
So I think what you see in economics is there's these foundational papers. There's this one paper that has this very simple model that kind of spawns a whole diversion or a whole branch of economics. I think about Gary Becker's paper on crime, which I think about religiously. I think it's one of the most brilliant papers in economics. Or you think about the paper on property rights or the Lighthouse paper by Coase, and those things end up spawning this whole legion of sub disciplines. And I think that, of course, game economics in and of itself is a sub discipline, but I don't think there's been a lot of, like, fundamental papers about how certain parts of game economies work. And I think one of them that are very interesting is cosmetic economies, which I. Which is kind of like my. My first problem set in games was really thinking about cosmetic economies. And I think someone should do a fundamental breakdown of what those economics are and that's what this talk is. And of course you can leverage what's in here to make, to make your cosmetic economies better and more profitable. But I wouldn't call it just like a monetization talk. This is like, this is an econ talk. Without a doubt there will be Greek, there will be Greek symbols, I can promise you that. And hopefully you're going to, you will walk away understanding, I would argue, the fundamental economics of cosmetic economies.
[00:05:04] Speaker A: Nice.
[00:05:05] Speaker B: That's dope. I'm looking forward to it. Yeah, I think early in the era of cosmetic monetization there are a lot of misunderstandings and a lot of like sort of misplays and yeah, I think the billion dollar point, right. Really hits the point home where it's real, it's scale matters a lot here.
[00:05:19] Speaker C: I just needed some cheese on it to get people in. I wanted to talk about the economics of cosmetic.
[00:05:24] Speaker A: Catchy title.
[00:05:25] Speaker C: Well, I, I think, you know, I, I wanted to go, I think that you could go even more clickbaity. Like there was this great talk about Mr. Beast about like how he optimizes things. You know, if I, if you really wanted to drive more traffic, I think you would have said like the secrets of a billion dollar cosmetic economy. I think there's something about, you know, Newton just called it like Prince Princica Mathematica. There's something, there's something like definitive about a simpler title and I think that's important here. Like I wanted something more definitive.
[00:05:51] Speaker A: This is like the theory of gravity but for video games. Mobile. Mobile games.
[00:05:57] Speaker C: Well, I would, I wouldn't put that much gravity on it. But yeah, like it is trying to be, it is trying to be something like Gary Becker's paper. Like this is the foundational model, I guess is one way to put it. Yeah, we'll see, we'll see if it works.
[00:06:07] Speaker A: Like yeah, fully developed big giant businesses know how to do this stuff. But small companies are always asking questions about how to monetize this in different ways. And with cosmetics. So I think it'd be, it'd be like you said, seminal for establishing this theory, but also practical and applicable for somebody who's just trying to figure out how to monetize. We've got a pretty cool, I think a unique talk. I think a lot of people think about economists as these boring Greek symbols. Like Phil's talk is going to be full of Greek symbols. Eric, me are myself and Dario, the other co chair of the Economics Special Interest Group. IGDA is a big organization. International Game Developers Association. They run these special interest groups for different, you know, particular. It could be subject matter, it could be, you know, a group of people. But anyway we do the economics special interest group and we're going to have a talk and it's going to be a roundtable discussion. So there will be a small lecture portion if you want to call it that, maybe 20 minutes and then about 40 minutes of actually playing a board game. So we're not going to play a video game but we are going to play a board game and this is actually an early version of. And I won't. I'll show my, my board game that is, that is imminent, that is forthcoming market makers. But this will be an early version of that where it's going to be a trading game. We're going to explore different topics in both game economy design as well as principles of trade and price discovery. So should be a really interesting talk. That's also on Wednesday. So hopefully hopeful to God. It's after Phil's talk. Ours is going to be around 3 o' clock in the afternoon. So you know, get your.
[00:07:46] Speaker C: Definitely not. I'm in the morning.
[00:07:47] Speaker A: Oh thank God. Okay, for sure.
[00:07:49] Speaker C: I remember that.
[00:07:49] Speaker A: I think I'm go to phil's talk at 10. Have a long lunch, get a beer. Come to our talk.
[00:07:56] Speaker B: Get a beer before come to our talk.
[00:07:59] Speaker A: It's going to be fun. We're going to play games. We're going to play a board game and then after we play that board game it's going to be 4 o'. Clock. It'll be perfect time for a little pre dinner coffee or beer or drink or whatever you want. So we're thinking about doing something afterwards with all the game economists in San Francisco.
[00:08:16] Speaker B: Yeah, it'll be a good time.
[00:08:18] Speaker C: I'm really excited to go to your talk. I'm really excited that like we, we've built something.
[00:08:22] Speaker A: Yeah. Hopefully there's a bunch of people there.
We'll take, we'll take a victory lap once, once we, we get like more than I remember the first time we did the, the talk there was like one other person there because we didn't advertise it at all.
[00:08:36] Speaker C: Let's talk about what we've been playing, Eric. It's fighter time.
[00:08:41] Speaker B: Yeah, I mean I'm actually have, I actually have not been playing 2xko but I have been following the drama. In case you haven't heard, the game is a month after their quote unquote launch. But realistically it was a year out because they had early access for a year the team downsized. They cut their 160 devs team in half, to much shock and dismay. And you know, a lot of the fighting game community was very confused because they were like, wait, you guys said you just launched. This was the quote unquote launch a month ago. And now you're already cutting down the size of the team, but you're still committing to supporting esports and content. Like, what's going on? Yeah, I think inside baseball is like, actually it was probably a financial flop and they're basically just trying to cut, burn and try to see what they can do with what they have. But yeah, it's kind of sad. The game was really cool, really fun. But at the end of the day, I think it was a pretty niche fighting game. And for a lot of fighting game fans, it was just another fighting game, myself included. I did find myself waning in engagement.
[00:09:42] Speaker A: So you said it's a niche within a niche. I know you've described the game. I haven't played it. But how is it. It's niche, I mean.
[00:09:49] Speaker B: Good question. So. So fighting games, most people think about Street Fighter, right? Most people think either Smash Bros. Or Street Fighter.
You know, Street Fighter, it's kind of like two guys shuffling back and forth and punching each other.
Now 2xko is an anime tag fighter, which means that one is. The anime part means that the, the characters are running around jumping all over the place. They're. They can like dash around in the air. It's just like a much faster paced, frenetic game. And then the Tag part, the 2x part is where it really kind of goes nuts, is that you actually control two characters at the same time and you can somewhat freely switch between them. So you, you get in Ekko and he's, he's punching up his opponent and then you tag in your teammate Darius, and Darius does a couple hits and then you tag back to Ekko and Echo does a couple hits. And it's just, it's crazy. It's fast. If you ever tried to play a game where you had to control more than one character at a time, it's like very difficult. And your opponent also has two characters, so there's all this like shit flying on the screen.
It's like, it's. It's a game for crackheads basically.
And you know, even a lot of fighting game people are like, this game is too fast paced and too chaotic for me. Um, so yeah, a niche within a niche.
[00:10:55] Speaker A: Interesting. So I'm assuming they balanced it such that it's not advantageous to just use the same character. Like if it were me, I would not use my second character.
[00:11:05] Speaker B: Yeah, yeah. And you would get absolutely stomped by like some sweaty guy who's got this setup where you know, he tag one person in to make you think you have to block left, but then they switch up. So you block right, but then they tag back to the other characters. You have to block left. It's, it's, it is chaos and very brutal for new players, I would say. There was an interesting thing that the game tried to do and I think failed is they tried to be accessible in certain ways where they got rid of like motion inputs. You know, you think like quarter circle to throw the fireball. In Street Fighter they got rid of motion inputs, but as a result the actually the combos got way crazier because they were like, oh well, you don't have to do motion inputs. So the sequences are just much longer. It's like learning a piano concerto. They tried to make it accessible by saying like, oh, we'll allow for two on two play. Right, because team games are more social. You know, you got to play with your friends, you know, like social ties, blah, blah, blah. You know, a lot of the biggest Esports are team games like League and Counter Strike. But the fact that one person could be controlling two characters at once is much more powerful than two people controlling their characters individually because the one person is coordinated and has a plan and as everything synchronizes stuff. And so there are these like overtures to accessibility. But the core gameplay was incredibly hardcore.
And yeah, it was this weird paradox that I think failed to, to. To reach a mass market.
[00:12:23] Speaker C: So here's the thing. Right now, the chart I pulled up in front of us is the top fighting games by average dau. Now this is just a cut for the last week, but this is covering Steam, PlayStation and Xbox. And the game that's in first place is Brawhallhalla, which is the platform fighter from Ubisoft, which has actually been around for like almost 10 years now.
[00:12:43] Speaker B: Yeah, I would say they were acquired by Ubisoft.
[00:12:46] Speaker C: They were independent acquired by Ubisoft. They actually have a mobile SKU as Well that's at 350,000 average DAU. And then we go down to about 200,000 and we get Street Fighter. And then there's a bunch of other.
[00:12:57] Speaker B: I don't want to so meaningless this chart.
I'll throw a few things out first. This is Steam only.
[00:13:06] Speaker C: No, no, no, no. This is PlayStation Steam and Xbox.
[00:13:09] Speaker B: PlayStation Steam, okay.
[00:13:10] Speaker A: Sorry.
[00:13:11] Speaker C: Oh, wow.
[00:13:12] Speaker A: Okay.
[00:13:13] Speaker B: It's a little weird because some of these, I think fighting gameplay wouldn't consider fighting games. So Brawlhalla for Honor Spark, Dragon Ball Sparking Zero, Dragon Ball Xenoverse. They have fighting game elements, but like, it's a very different audience from what 2xK was shooting for.
Uh, with that in mind. Oh, sorry. With that in mind. Street Fighter 6 is like the biggest one. And it's not even that big. It's like 200k dao.
[00:13:37] Speaker C: So it is a paid game. But I think the point that I'm interested in is if you are Riot and you're interested in a hundred billion dollar games and you're looking at what the top end is for fighters, to your point, it's a niche genre. How can you not sit there and be like, okay, our best case scenario is We3X, We4X, the top platform fighter. I mean, in what world, even on like an entry level thought does that make sense? Like what is the.
[00:14:04] Speaker A: Did they have like a crazy monetization plan where they like planning on getting insane like 6x ltvs compared to the industry standard?
[00:14:15] Speaker B: So the monetization was free to play with cosmetics, which Phil has plenty to say about. This is very unusual for fighting games. Most fighting games are box price with dlc. Yeah. And I think, yeah, I think all the financial forecasts, even internally at Riot were just like this. There's no way this thing makes money. Like the team had been working on for so long, they didn't want to just like kill it in the crib, you know, I think they wanted to let it breathe.
[00:14:39] Speaker C: Song cost fallacy.
[00:14:40] Speaker B: Well, I don't know. Is it worse to have this failed project that gets squashed and no one ever hears from it again than to like let it out and let, let. Let people know what it was? And you know, there is a small moonshot chance that it actually does become a gigantic game. Like, why not give it that chance.
[00:14:57] Speaker C: You know, because you're gonna, you're gonna burn. You're gonna burn more on Santa Monica employees, you're gonna burn more on marketing.
And that's all opportunity costs. You could have used in League or Valorant, which by the way, Valorant's almost about to eclipse League just in terms of straight revenue, which is driving.
[00:15:12] Speaker B: Yeah, you know, they had the cushion. It's not like it. It's not like Valorant and League are cash constrained. The budget for Valorant is not being affected by 2x Ko. Let me just put it that way.
[00:15:22] Speaker A: Yeah. I don't know, if I buy the like, marginal, the, the opportunity costs there, I mean, surely that was 80% of the, of the cost marketing. I agree.
[00:15:33] Speaker B: There's also like a morale thing, like internally, like if you squash things in the crib, at least you let it breathe and let everyone see that it was a failure rather than people constantly griping about like, oh, they killed this thing and it could have been huge, but they killed it and it could have been.
[00:15:45] Speaker A: Did they spend a lot on the marketing for this game, do we know?
[00:15:48] Speaker B: I don't think it was that much. It was a lot of like fighting game influencer stuff and like tournament promotion.
[00:15:53] Speaker A: But what's this, what's this chart you have here, this matrix?
[00:15:57] Speaker C: This to me is something that I've used for both Highguard, which we haven't talked a lot about, and for 2Kx Go, 2K X Go, when you're just like sizing things up. So one thing we were talking about is like, okay, 350,000 D for Brawlhalla. Okay, let's say you triple that. And then let's now layer in an ARPDAO assumption. So what is the average revenue per daily active user? And so if you multiply those two things together and then you multiply that by 365, you get your run rate per year. And so you can really do, I think, some really powerful if, then analysis with this very simple model. What do we think a reasonable ARPDAO is? Well, I can tell you, very few cosmetic economies, by the way, are pushing 15 cents a day. And so even if you assume a buck fifty a day, that's like a fucking crazy ARPDAO to have that every single day. No game is doing that except maybe FIFA Ultimate Team and maybe some like Asian RPGs. And then you assume 350,000 DAU. That's a $200 million run rate. That's not even that exciting, right? I don't even know if that covers burn for a game. Like. And so I, I've used this matricy over and over and over again because I think it really is very simple. It drives home the whole point about where do we think we're going to land? Where do we think that means in terms of a final number? And is that something we're excited about? And it's just hard for me to understand how this got past development gates with, with something like this probably sitting in the background.
[00:17:12] Speaker B: Also, the dev costs were exceptionally high, even for a fighting game, like 160 people. That is an enormous team for A fighting game. I heard that the Street Fighter team is also 160, but they're Japanese developers, so they get paid half as much. The Tekken team is also one dude, dude, a third.
[00:17:28] Speaker C: Maybe even less than that. Yeah, the average Japanese wage is like 50,000 for game developers in Bandai Namco, Even lower than that. 40,000 USD.
[00:17:35] Speaker A: Goddamn.
[00:17:35] Speaker B: So like, basically there was triple the cost of the two biggest fighting games, Street Fighter and Tekken. Guilty Gear, which is a similar style game, has 50 devs or something like that. So like, basically they were like 3 to 6x more expensive than any of the top fighting games to produce.
Um, yeah. So you know, they had to make a shitload more money, which it didn't. And. Well, I will say they. They did follow their promise of they made the game that they wanted to play. And it is a fun game if you're a crackhead.
[00:18:04] Speaker A: I mean, it doesn't cost them much to just keep it up and running. Right. Like, is there a lot of live service?
[00:18:09] Speaker B: The hope is that it'll be pretty cheap to maintain. I think maybe like a few characters and then they finalize the roster and then it's just keep the servers up, update security patches. Yeah, it'll be interesting to see whether they might try to do a dramatic pivot. Legends of runeterra, which was the leak card game, kind of failed as a PvP card game and they pivoted to like more of a roguelike, which apparently has been pretty successful, relatively speaking. And yeah, we'll see what they do with two xko.
[00:18:32] Speaker A: Interesting. So you think it becomes a little more.
More casual if they make it PvE versus P?
[00:18:38] Speaker B: Unclear. They might just keep it on as it is, I think. I don't know how you adapt the systems, but I'm sure their top brass are saying like, oh, like pivot, pivot, pivot.
[00:18:46] Speaker A: Yeah, everybody loves a pivot Philippines. What have you been playing? Have you been finding the love of gaming? Have you found your joy?
[00:18:53] Speaker B: Phil, you said you fell out of love and you were dispirited.
[00:18:57] Speaker C: I would just say it's hard to play games now where it doesn't feel like I'm trying to extract something. Your brain is not on trying to like criticize or to figure out what works or what doesn't work. And so I have struggled to find enjoyment in games and it does suck. Like, I don't play games to relax anymore. The only two games I can play to relax anymore are Clash Royale and Magic the Gathering, which, by the way, every economist that plays Games. The problem, the likelihood of a economist who plays games preconditioning on them playing games playing Match of the gathering must be 80%. All three of us play Magic the Gathering. And I think it's just because the puzzles are very intricate and they're very interesting.
And the reason I'm playing Clash Royale is not only has the game had a huge revival and they've added a lot of fantastic mechanics like card evolutions, which is one of the most clever designs I've ever seen in my life. It just threads this needle between monetization and gameplay where. And I'm going to explain it where every time you summon a card, the next time you summon it, you get the evolution state of it. And so some cards need to have been summoned twice within a round to have their evolution state. And other times they might need to have been summoned once. And so that just adds a whole new layer of strategic planning in depth for how quickly you can cycle through them whether or not they're one or two stage evolution. And so that's basically all I can play because I enjoy the core gameplay and the puzzle solving, but other than that, I just thought it's.
[00:20:17] Speaker A: It's all that's interesting. So they've figured out how to. Obviously you can spend on a larger arsenal of cards, but you can also spend deeper into a specific card. Something that other, other mobile card games are struggling with, I think in terms of like.
[00:20:31] Speaker C: And they can go through their entire library of cards and basically just make evolutions for the next card, the next card, the next card. So that gives them a content treadmill for like the next year.
[00:20:40] Speaker A: How many, how many evolutions are there per card? Like two.
[00:20:43] Speaker C: There's just, there's just one state. There's just one state they can be in. But exactly to your point, like if you have a two stage evolution, like you cycle the card twice very, very soon. I wouldn't say very soon, but you know, there's your Runway. For the next year we got Super Saiyan 1. Oh, let's do Super Saiyan 2 for all the characters, why not?
[00:20:59] Speaker A: So on this topic of, of joy, you feel like every minute played. Do you feel like every minute played playing video games could be used to either be consulting or improving your skillset to become a better consultant? Is that kind of the idea?
[00:21:17] Speaker C: It's even. I wouldn't distill it down to like consulting, although that's a part of it. It's really like, what can I extract from this game? Or what could I learn? And if it's not giving me that. Then I immediately feel like it's opportunity cost. Like this is the crushing, this is the crushing anxiety that economics gives you is that you're constantly thinking about opportunity cost. And so if I sit down and play Turmeric for like fucking eight hours, I'll be like, am I going to learn anything about this game? Could I have learned more if I played Arknight Enfield? And the answer is usually yes. And so that's basically just destroyed the gaming as a pleasure center for me.
[00:21:49] Speaker B: Has that affected your other media consumption or other entertainment choices? Like, do you pick a TV show based on what you can learn most about.
[00:21:56] Speaker C: I am consuming more TV at the margin nowadays.
[00:21:59] Speaker A: So do you think that there's a way for you to get the joy back? Cause I feel this pain, like this. I feel that way in my daily life. It's like any moment I have spare time, it's like, okay, I could be reading a book, I could be reading a textbook, I could be reading a paper, I could be working out, I could be practicing an instrument. There's so many different things that I could be doing. Heaven forbid I sit down for 30 minutes and like do nothing. It's a tough life, but you gotta.
[00:22:22] Speaker C: I think, I think there is, I think I need like a detox. I don't know, maybe, maybe I'll go to Oman or something.
[00:22:29] Speaker A: Well, what happens if you just like, you know, staycation? What happens if you just play Tunic? Tunic.
[00:22:35] Speaker B: Let's, yeah, play Tunic.
[00:22:37] Speaker A: Tunic is a masterclass in my opinion. It is a masterclass in game design. I mean it's, it distills all of the best principles of game design that we know into a single game and it makes you go, damn, whoever made this, it's like a textbook. It's like a lesson in game design. And it's enjoyable, it's fun, it's beautiful.
[00:22:55] Speaker B: Really selling it to your audience. It's like a textbook. You'll learn so much by playing it.
[00:22:59] Speaker A: Well, no, no, but you know, it's like to me it's, it's this perfect example of like, where have we gotten with games over the last 25 years? Still paying homage to those games from 25 years ago. Because it is, you know, very poly esque and very, you know, it's isometric. It has these kind of OG game design principles, like a manual within the game. But I think if you return to something like this where it's like more about the joy of playing a game than it is about the joy of monetizing. You know, 22 year olds. I don't know.
[00:23:29] Speaker C: Hey, I monetize six year old women too. Don't put me. Don't put me in a box.
[00:23:33] Speaker A: Sorry, sorry. Yes, for 26 year old women or whatever it is.
[00:23:36] Speaker C: 60. 60 for one of them.
[00:23:38] Speaker A: 66. Oh yeah, that's your. That's the target demo.
[00:23:41] Speaker C: So I worked, I worked on June's Journey and the median players, a 60 year old woman. And that is the most. June's Journey is the most complicated game I've ever worked on. Without a doubt exceeds all 4x games.
[00:23:50] Speaker A: June's Journey, I've never even heard of that. Is it mobile?
[00:23:53] Speaker C: Yes, it's a hidden object game, but it has like an incredibly deep economy. And also it has builder base builder elements.
[00:24:00] Speaker A: That's pretty cool.
[00:24:01] Speaker B: She's like a flapper detective.
[00:24:03] Speaker C: She is.
[00:24:03] Speaker A: It looks cool, dude. Their lives just got so much easier with AI. They can generate infinite scenes.
[00:24:09] Speaker C: I should show you the fucking spreadsheets and the economy flowcharts I needed to make for this game. It was unreal. I couldn't even believe this.
[00:24:18] Speaker A: Yeah. Is it because of hidden object games or is it because of how complex their economy was that they built?
[00:24:23] Speaker C: Well, we could talk about. Jesus. So. So the issue, or I would say the challenge with June's Journey is that there's the hidden object side of the game, which is the core gameplay, which is that you have these scenes, you're trying to find objects in them and you're repeating them 30 times, by the way. So they're adding new objects to the pool every time you're going and playing the game. So there's some sort of element of speed of like, I know where the object is and then the new objects are getting thrown into the pool. So there's so much repetition. And that's also how the story unfolds. You kind of complete a scene, but the other piece is that you go back to your home base and you have objects that you can place on your home base. They're decorations, but there's an entire economy that's associated with those decorations. And so there's particular decorations and gating mechanics on the home base versus the story. And so it's become this parallel economy of the hidden object side and then the home base side. And the home base side of course has all of those economy flows that we would expect about. Okay. There's this thing that generates these resources which feeds into these other things. So that's developed into just like this. This just kind of whole hairy situation because they're also zip tied by these things called flowers which connect the two economies. But they were develop in isolation of one another. And that was really the challenge for June's journey is like trying to align these things.
[00:25:31] Speaker A: It does seem like a very pleasant theme. Like it's, it sounds interesting. I like this idea. You know, it's not like I'm managing my base against zombies. I'm managing my base to like display a vase with a flower in it. Like that's much more chill.
[00:25:45] Speaker C: But yeah, it's a very particular genre. And the thing that's fascinating about it is that they've failed to launch another hidden object theme that's successful. Like they've tried over and over again and none of them seem to stick. Like they tried to do a detective one, which you think would be obvious, like a crime one that didn't work. A bunch of other companies have tried to do hidden objects games. This is the only one that's really worked well.
[00:26:03] Speaker A: It's because their demo is the only. They've. They've captured the whole demo. Every 60 year old woman plays this game.
[00:26:10] Speaker C: Honestly Chris, I don't think that's far from the truth.
[00:26:12] Speaker B: Is there like a Pokemon Go situation? There's only space for one game in the genre really. Or one superstar.
[00:26:17] Speaker C: Yep, I think that's the case. Suck up the whole market.
[00:26:20] Speaker A: Before you became a game economist Phil, what were your, what were like the games that you would enjoy playing?
[00:26:24] Speaker C: Dude, I was just like in. I was like an average American male man. I was playing shooters with my friends. I was playing FPS shooters, my friends playing Halo 2.
[00:26:31] Speaker A: Go back and do it. Fire up the Xbox 360 and turn Modern Warfare 2 on.
[00:26:36] Speaker B: No one to play with. Was he gonna play the campaign?
[00:26:38] Speaker C: You could play with the thing. The thing that's fucked up up my, my gaming cooperation habits is that I'm in a different time zone than a lot of my gamer friends. And the thing that's crazy is like no one is in the games industry plays games together.
It's wild to me. I don't think I've played.
I've maybe had 10 gaming sessions over the 10 years I've been in the game industry with co workers outside of work hours.
[00:27:01] Speaker B: Why do you think that is?
[00:27:02] Speaker A: I know why it is for me because I spend eight hours a day with these people. I don't want to see them after work. I want to go hang out with my wife and play video games with my actual friends.
[00:27:11] Speaker C: I think some people, yeah, it's Work.
They don't always love the games they work on. And I don't think you need to either. By the way, you said that when you were talking about 2K XO. I actually really hate when people think they need to love the game or they're trying to make. Make the game that they want to be made. Like, to me, it's about player empathy and about mastering the player that you're trying to serve. That, to me, is the fun part about doing game design is trying to have that empathy. But that doesn't mean you want to play, you know, the horse game you're working on when you log off of work. But it's weird we have other games together. Yeah, it is strange. It is strange. I don't have a good answer for you, Eric. What do you think? What do you think?
[00:27:48] Speaker B: At second dinner, not that many people play games with each other after work. At Riot, it was quite common, but it was like, you know, a bunch of young, early 20s people co located in a place and it seemed to die off. And frankly, one of the reasons it died off was because some people are ragers, some people are fucking ragers and will say the craziest, most toxic shit when they're mad. And you can never look at that person the same way in a work meeting again because you're like, oh, that guy just like started flaming, absolutely flaming this teammate because they died a couple times and just threw. Had a tantrum and slammed their keyboard. And like, how can I trust this person to make good decisions?
[00:28:20] Speaker A: You know?
[00:28:21] Speaker B: So I, I think that might be contributing to it somewhat.
[00:28:24] Speaker A: People learn their gaming habits as, you know, as children. If your reaction when you first started playing games when you were 10 years old is to, like, flip out. I used to have pretty when I was a young kid and I play like Monster Hunter on my psp and I had a temper when I was a little kid, but I went through a couple of PSPs after dying to the Tigrex one too many times.
[00:28:45] Speaker B: Like, you actually destroyed the device, cracked the screen.
[00:28:49] Speaker A: Nowadays, like, I don't have that issue anymore. But, like, if you kind of, if you grew up doing that, it's like, it's almost like this spot, this one thing where it's like, when I'm playing games, I'm a crazy person. And then outside of games, I'm allowed.
[00:29:02] Speaker B: To, like, let my emotions free and like, act on it.
[00:29:04] Speaker A: But then I got married and my wife was like, that's not acceptable behavior. Like, you can't get upset about, like, the virtual fucking shapes on the TV screen. And I was like, that's fair.
[00:29:13] Speaker C: Chris, what have you been playing?
[00:29:15] Speaker A: I've been playing a couple of things. I've been going back to old, you know, you guys know me. I have my comfort games and I just, I just play those like crazy. I'm like the opposite of Phil. Like, I actually don't enjoy heavy monetization games. I play games purely for. For enjoyment. And I think part of that is like, I don't work on a lot of the games that I enjoy playing. Like, you know, Star Atlas's UE5 product is like, you know, you can play it and then it's like, it's not really a complete product.
Our economy game, it's super heavy, you know, economy super heavy. Web3, like, I'm actually, that's not my favorite type of game to play. I prefer Elden Ring. I prefer single player games. So I have like the opposite issue as Phil. So I've been playing Elden Ring again. It's just a gorgeous, beautiful game. My wife has been playing Tunic for the first time. That's been awesome to watch. She's enjoying the hell out of it. And as I watch it, it's just like every single thing in that game, I'm like, this is exactly how, how do you, you know, how do you display to someone? How do you communicate to the player with no words that they need to go through that door? Oh, you make it glow. Oh, how do you. How do you communicate to the player that, you know, they need to use this thing in order to level up?
You know, you like have a. Literally like a picture on the wall showing the character. I don't know, it's just a very unique way to communicate to the player in a very classic game design sense. But the game that I've been playing a ton of is a board game that I've been trying to design. And I've realized how difficult and fucking pitiful it is to design a board game. There's no money in board games. I've been running the math. I'm trying to figure out how I can print this thing and sell it without losing a ton of money. But I've named the game market makers. It's based off the trading game that Eric and I put together for the GDC talk. Basically, players have currency that they're allowed to trade with one another and they have these cards that are worth different amounts. So it's a modified. It's very similar to like a traditional card deck, but it Only goes up to eight and there's five of each number. And so you're trading these cards back and forth with your currency. And the really cool thing is like, given the state of everyone's hands, all the cards have a true price. Like there's a, there's a, there's a exact price you could calculate if you knew everybody's hands and what was going to come up. There's a little bit of randomness as well. So it's just been a really cool experience to like play test that with friends, play test that with, with, with a bunch of different people. Write out the manual, do my own designs for it, and then research how to actually print this thing. I've gotten to the point where I've printed, I've got some prototypes in the mail, but there's no way I could print this thing at scale using US based companies. Cost $20 to print it and I think the most I could sell it for is 15.
I need a publisher.
[00:31:44] Speaker B: Let me ask you a question. Why do you want to print and sell it?
Are you trying to like just get you like it and you want more people to see it or because he.
[00:31:51] Speaker C: Works in goddamn monetization. He's a fucking economist.
[00:31:54] Speaker A: There are a couple of reasons. I think the first thing is like, I think it'd just be super cool to be able to say, I designed a board game. Here it is. You can go, go here and buy it.
[00:32:02] Speaker B: It's like that creative spirit of like.
[00:32:04] Speaker A: I want to make something. Why do you write a book? Like, I don't know, it's just something I fucking wanted to do.
I think it's cool. It's a game that I've always kind of wished existed. So I have that creative spirit. I also think, like, I'm a big proponent of doing stuff. Like I've always thought, you know, how do you even do, how do you even sell a video, a board game, and kind of just going through all the steps to try to get to a point where, you know, maybe I sell a hundred copies or something. That would be a really enlightening experience. I can't really tell other than just the pure obsess obsession that it has been over the past month or two of spending time testing it, writing the rule book and stuff like that.
It's just pure unfettered enjoyment on my part just doing so. I'm sure I will eventually end up hating it, but right now I'm enjoying it. Cool.
[00:32:50] Speaker B: I mean, I think that's dope. I've always Wanted to make a board game, but I never had the initiative.
[00:32:54] Speaker A: So I'll keep this group up to date on the progress. Right now I've got a prototype. I can either try to do a Kickstarter or I can try to go to a publisher. Both options sound horrible.
[00:33:05] Speaker B: I love the name Market makers.
[00:33:07] Speaker A: Yeah, it made for a really cool logo, like two M's, a little slash. But that's what I've been playing a bunch of.
[00:33:16] Speaker B: What have you been watching? You've been watching any good sports games lately?
[00:33:27] Speaker A: I watched the Super Bowl. I'm not a sports guy either. I don't watch football either, but you got to watch the Super Bowl. Sucks. Have. Have slain the Patriots. They have. They have.
[00:33:36] Speaker B: Stay with gusto. Say it with gusto.
[00:33:37] Speaker A: Bred their guts all over the place.
Millions and millions of lucky bettors have won millions and millions of dollars by betting on the Seahawks to crush the Patriots. All the gambling apps and draft kings and whatever have you are basking in the glory of such a terrible one sided game. Three important lessons. First of all, the super bowl halftime show gets more and more high production every single year. Second of all, AI Wagovi and surveillance. Big, big themes in the advertisements this year. And third of all, I forget what the third point was. It's over here. Yeah. Sports betting, gambling, digital Gaigaku, Gambling, Digi gambling, Digiguigaku. Digigig.
[00:34:17] Speaker B: What happened to digigaku?
[00:34:19] Speaker A: They did a bunch of games. They did a bunch of cool ethereum like protocol stuff. But there's no money in web 3. They're not making any money. Nobody else is making any money.
[00:34:28] Speaker C: Yeah.
[00:34:29] Speaker B: Tell me about the weight loss. Was there a lot of like wegovy ads or like there were.
[00:34:33] Speaker A: So the big, the big thing is that there were like three types of ads that were played during the Super Bowl. Weight loss, you know, Wegovy, Manjaro, all these different ones. AI Literally, like I think a third of the ads were AI and then the third one was gambling DraftKings. All these different ones.
[00:34:50] Speaker C: Exactly what we'd expect.
[00:34:50] Speaker A: Betting markets. Yeah.
[00:34:52] Speaker C: High LTV or very, very broad TAM for all three of these things.
[00:34:56] Speaker B: Chris made a really good point though, that weight loss and gambling are very profitable right now. And the AI seems very speculative, you know, much more in line with like crypto ads from a few years ago where it was like there's all these ads and then they all disappear.
[00:35:08] Speaker A: Yeah. But I think that these AI companies are more, well, they're more well capitalized than crypto.
[00:35:15] Speaker C: Yeah. There's Real demand too.
[00:35:17] Speaker A: There's, there's evidence, but there's, there's debate there, right? There's debate on like, what is, you know, what is the true demand of AI. Everybody wants to use it, sure. But like what's, we can pull up.
[00:35:27] Speaker C: Sensor tower right now and look at Chat GDP's weekly active users and see how it's growing.
[00:35:32] Speaker B: Do they profit?
Do they profit?
[00:35:34] Speaker C: No, of course, no, of course. It depends what you mean by profit. No, they're, they're, they're burning cash, they're burning huge amounts of cash. But it depends, it depends on what you mean by profitable. Are they profitable after the model's been released and are they profitable on a marginal cost basis? Yeah, it looks like there's some evidence for that. But they're spending so much in capex on building these models that makes them unprofitable and they're burning cash. There's supply chain problems, there's a million things that are going on. This is exactly where venture capital really shines. It's taking on huge amounts of losses for a number of years to eventually get into a profitable domain. This is an amazing part of capitalism that everyone shits on. It's all about short term quarterly earnings, yada, yada, yada. Not fucking true with AI. Suck it critics. This is something that's been completely funded by American capital, been funded by gamers, been subsidizing Nvidia for 20 years, 30 years. We don't get enough credit for this.
[00:36:24] Speaker A: Say what you what you will about their inability to monetize or, or their lack of profitability. My fucking cursor. Like I'm pretty sure I, I don't know what the finances of our company look like, but we've gotta be burning quite a bit of cash on tokens. It is expensive to run the top models. I accidentally spent $5 in like three minutes the other day because I switched to one of the latest models.
[00:36:47] Speaker C: I want to spring this on you guys, all right?
[00:36:49] Speaker A: You give us this weight loss. What's the big weight loss reveal?
[00:36:52] Speaker C: So something also incredible happened. It's almost a miracle. Like if you were to go back and tell someone that we invented a pill that you can take that helps you lose weight and people will be shit faced. And it's real. And not only that, it's having all these incredible, you know, incredible positive externalities that we didn't expect. It's helping people who have addiction, control their addiction, it's helping alcoholics, I mean they, the benefits are enormous to having something like this and of course as the game economist cast I've been thinking about what this means for games, what does this mean for games. And so I've been trying to think about how you think of that fundamental model. And so I think this is positive for games because one of the things that games are entertainment and there's only 24 hours in the day and fundamentally entertainment is about competing for your time. That's, that's constantly what you're doing, you're thinking about, I've got certain amount of leisure time and I want to find the highest marginal value thing to fill my leisure time. That's always the competition we have against Netflix which is why Netflix's co CEO sometimes comes out and says hey, we're competing with games, we're competing with Fortnite is that you're constantly having to make these allocation decisions about your time. It's not, you know, it's not like something like chat GDP where you're maximizing efficiency and these, all these other benefits. It's strictly time value based calculation. And so how do weight loss drugs change this? Well, previously there would have been more opportunity cost when you didn't have weight loss drugs because you might want to go to the gym, you might want to do other things to enhance your well being. And I think because these pills essentially reduce the benefits at the margin of engaging those activities, activities that I think that opens up more relative time to do games. So I think in the long run we're going to have more healthy gamers, we're going to have more healthy gamers who are spending more time playing games. And the thing that I think is important about this, this seems like a crazy fucking moonshot take, but I don't think people understand how much obesity there is in America. And the thing I've been trying to get data on is how many people are taking these zempic or zempic like pills. And I guarantee you that probably 30 to 40% of the country is going to be on this. So when we talk about effect size, the surface area of this is going to be crazy. So I do, I do think there's actually a real impact in games. It will never be explicit, it'll be rarely talked about, but I do think this is something that could potentially enhance the consumption of games. And honestly because the surface area is so big, we're looking at increases in gaming GDP because of these pills or these injections.
[00:39:04] Speaker A: Spending less time working out, spending less time eating, you spend more time playing games.
[00:39:10] Speaker C: The question is how do they Affect the behavior of loops. Right. I think that's the thing it's been interesting to see is okay, there's less alcoholism, there's less things, the short circuit dopamine hits that these pills can affect. And I think we need to understand that relationship more and what that means in terms of gaming consumption. Like, are you going to play Candy Crush less because you're on WeGovy? That's, that's a legitimate question that we're going to need to answer.
[00:39:33] Speaker A: Anecdotally, I have a. I have a buddy who just hit Mythic for the first time in arena and I know that he is on one of these things. I'm curious if somebody will. Do we need like a behavioral economist, Phil's worst enemy, to go in and study a bunch of these, create a control group and treatment groups, see what the, you know, what does loss aversion look like? What do you know? What are the responses to incentives look like? Is there a difference in the loss or the appetites of people for content? That's not just food content, that is digital consumption. I think it's really interesting, but it. But on the other hand, like, what would you replace, let's say you lost your appetite for the loops like you're talking about Phil. What would you replace those loops with? Like, you got to replace it with something.
Sleeping, napping?
[00:40:18] Speaker B: Well, I think one of them games are such like a malleable medium that like, so, you know, to your point, right, Ozempic seems to reduce addictive behavior. It seems to make people less hungry in a metaphorical sense in general. But games are such a flexible medium that like, okay, maybe there's certain games they'll be less into, but there's, I'm sure their new psychology mindset, there's some other game that caters to that, that can, you know, will grow as a result.
[00:40:42] Speaker C: No, I think, I think that's fair. I think that's actually a really great point, Eric. We're basically like cockroaches. I mean, shit, there are games on fucking Apple watches. They're games on ti83s. Can it play Doom? Remember that meme that went around like a couple years ago? Like, people are putting Doom in Excel. Like, that is one of the most remarkable features of games of how malleable they are. So I think it would change potentially the type of experiences that people have on games. I think you're designing for a different psychology.
[00:41:10] Speaker A: Potentially, people might increase their consumption of games. The time they play will increase. But it's possible monetization of that time goes down, is it possible that we see a decrease in marginal revenue, increase in marginal time because people are less monetizable?
[00:41:25] Speaker C: I think that's fair.
[00:41:26] Speaker A: But I do think it's a really interesting point. I like it.
[00:41:29] Speaker C: Okay, cool. Okay, okay, we're baking on some of this. I think the most crucial piece is understanding the brain psychology of these drugs and how they, they, they interact with those other pieces. Because I don't think any researchers asked that question. Again, like it's not a fucking random thing like if, if 40% of the country is on this or precondition this on Candy Crush's target audience, which is 40 year old women.
[00:41:52] Speaker B: So on the other side, like how much extra leisure time are people really getting from this? Right? You mentioned like, okay, they'll spend less time, diet like eating and exercising. But like that can't be more than like 10 minutes of savings per day on average.
[00:42:03] Speaker A: You know, on average, maybe. But for the people who, that is a good point. Like the people who are selecting into this are probably the people who aren't spending the most time working out. They're probably not the least likely to be working out. Like, but they're, they're certainly not saving an hour a day.
[00:42:18] Speaker B: So you get, let's say you got, let's say you had 30 minutes of savings on average a day and let's say a third of that goes to games as entertainment, which again I think is, those are both high assumptions. You know, you get 10 minutes more, you know, game hours per per dao.
[00:42:31] Speaker C: Like okay, again, I think I agree with you that the effect size on an per user basis isn't large. But I think that substitution of that is just the incredible service area that this is operating on.
[00:42:44] Speaker A: I mean if it impacts 40% of date. So, so I would say two things. First, gamers are probably disproportionately more likely to be on these weight loss drugs.
Second, high value gamers are probably disproportionately more likely to be on these weight loss drugs. So you think about maybe of the player population is impacted by these drugs and yeah, 10 minutes a day per player on average, that's actually quite a lot. That's a 10, 10 minute increase per, you know, that that is equivalent of five to six minutes per user increase. You know, in aggregate when you consider that, you know, the, the US gamer population is what, like 60 million or something like that? 50 million.
It's a lot of hours.
[00:43:24] Speaker B: Do you think there's a correlation between being a whale in A game and being a whale in real life.
[00:43:29] Speaker C: Jesus, Eric.
No, no, I actually, I actually think there's an inverse relationship because. Because weight. Weight declines with income. Weight declines with income and whales are higher income, I think. Sorry, sorry. It's all organic for the whales.
[00:43:43] Speaker A: Probably. It's probably in shape.
[00:43:45] Speaker C: Yeah.
[00:43:46] Speaker A: As you, you know, as you kind of like move once, you move to the highest end of the distribution. Yeah, sure, maybe, you know, you've got these super fit people, but. But you've got like the no life.
[00:43:57] Speaker C: True fatties are between $200, $400 worth of spender.
[00:44:00] Speaker A: That's right.
[00:44:01] Speaker C: All right, we gotta get out of this topic. All right, all right.
[00:44:04] Speaker A: Done. Done.
[00:44:05] Speaker B: With weight loss gambling, should everything just be gambling? Is that the way to maximize LTV for your Dude?
[00:44:11] Speaker A: I. Every single per. I would say 50% of the guys I know are have gambling apps on their phone for betting or I should say betting game apps. They, you know, two bucks here, three bucks, four bucks, five bucks. Oh, it's free money. It's nothing. You know, five bucks is no big deal. I mean, imagine that a mentality being used for Candy Crush. You imagine somebody saying, oh, what's four bucks, dude, I don't even care if I lose four bucks. Who gives a shit? Four dollars in Candy Crush to me is like an infinite amount of money. Now that's because I'm a cheapskate. But you know, it's like I see people spending 5, 10, 15, without even thinking about it because of the chance that they get something back. And I think that's a really powerful. I've talked about this in the context of open economies, open market economies where you can spend $10 on in game items and then resell them for $9. Something very powerful economically about being able to, you know, to sell back. Phil's talking about how his car is going to, you know, it's not going to depreciate. It's going to depreciate. He's going to be able to sell it for at least something later on down the road. He accounts for that in his economics when he's thinking about purchasing a car.
So I think the fact that there's some probability, no matter how small, Think about, think about the lottery. Like if you told people, hey, you can go to the gas station, you can give the gas station $10, they would say, absolutely, I'm not, not giving the gas station $10. But if you said there is a 0.0000000001% chance that you get a trillion dollars. All of a sudden calculation, just everything you just, their, their psychology is not capable of comprehending those probabilities.
Right. And you, you can apply that same principle to gambling psychology. Our brains are not designed to be able to process probabilities. So when we're betting on a game and we see, oh, 60%, that seems I've got a better than, better than, you know, 50% chance of winning, you know, 10 bucks on this. I'm going to bet $10. I'll get $11.
This is, this is free money. I just think it's an incredible, it's an incredible monetization model. I don't see how games can possibly compete with gambling apps. And when you see how many ads gambling apps have at the super bowl and how few ads video companies have at the super bowl, it makes you make. Why was there no Nintendo ad?
[00:46:21] Speaker B: You think those gambling apps are hitting a $50 ARPDO?
[00:46:24] Speaker C: They're exceeding it, man. But you gotta, you gotta remember like, you, you gotta remember like the economics of gambling are so much different than traditional games because you gotta remember like, you're paying out real money. And so to make the system work, you actually have to kick off people from the platform. Like, that is real. Like, if there are people who are, you know, edge betters, especially in sports betting, to make sure that you have positive margins, you, you do have to eliminate them from the platform. And then of course, there's a whole beer problem of like, people are signing up other people. Like, it's, it's not as clear as you might expect. Um, there's a lot of sophistication for gambling apps underneath, underneath the surface, the spend velocity is very high. But remember, like, we still have web three. Web three is still gambling. NBA top shot. I don't know what to tell you, man. Like opening up loot boxes of NBA moments and being able to list them on a secondary market. I don't know. Tell me, tell me the difference.
[00:47:15] Speaker A: There's a difference between opening something that has some implicit value compared to opening up something that has $10 in it, you know, and, and it's like, it's. Robinhood has gambling now. Like, you can gamble on games, on sports games in Robinhood that is linked to your fucking bank account.
[00:47:34] Speaker C: Wow.
[00:47:34] Speaker A: It's like, you know, you, you, you put in a bet for $10. Oh, I don't have $10 in my account. Okay, transfer the $10 to my ch.
Deal happens in an instant. Speaking of AI, so the other big ad at the Super Bowl AI ads. Huge news story. About two weeks ago, Genie 3 came out. Google's big like, I don't know, video game killer, basically. Video game company killer, in particular Unity, Roblox, companies that are, you know, engines for building games took a huge hit when genie was announced January 30th. I think unity is down like 60%.
Roblox down 20%.
Now some of that's just because of an overall market downturn, but they were pretty huge plummets or they took huge plummet in their prices when G&E3 was announced. Now this is not like a miracle technology. You can play in the game environment. It's an AI. Everybody knows what AI is at this stage. You type in, I want a pretty world with sparkles and I want to play as a cat and I wander around. It generates a playable version of that environment for you. You can control asdw, you can jump spacebar. That's pretty much it. It's creating this little tiny environment you can interact with for 90 seconds. So we're not talking about video game killers, but it is a very interesting progression. So anyway, all these big gaming companies took huge hits to their stock prices because of this new technology. I think there's tons of interesting stuff to talk about. The implications, what does it do to the gaming industry? Is it actually a threat? What is it? How can we take advantage of it? Or is gaming completely doomed because Google figured out how to make 90 seconds playable demos?
[00:49:12] Speaker B: I think Juiced Juiced had a really good article on this and his take was basically like, it's a really cool tech demo, but at the end of the day games, most digital media are a superstar market where the very best cream of the crop. Because of the way distribution dynamics work, the very best games can sell to everybody. And then the like B tier games, nobody wants them because there's a superior version already out there. And so these AI models currently seem to be pretty good at producing something that's like, is a thing but it's never going to be the best version of it. And for the foreseeable future, human made stuff is like just way better. And you know you only buy one Hades, right? Like you don't need like, oh, knockoff Hades generated with an AI prompt that costs $5 instead of 30. He mentioned Ubisoft has like an army of French, you know, master of fine arts artists to like make 3D assets. Like they're not bottlenecked by asset or content production.
[00:50:09] Speaker A: I liked Used piece too, but I do think it's a little bit stuck in the kind of our version of gaming. It's, it doesn't really appreciate the Roblox, you know, universe that we now live in where the vast majority of young gamers are playing in Roblox worlds where like, does quality, does attention to detail really matter? It's more about how do, how do I uniquely, how do I create a unique social engagement rather than like this, this building looks just like the one in Rome. So I do think that there's something to be said there. I think it makes a lot of sense that Roblox would have suffered a little bit of a stock hit though. I think that they're going to take advantage of AI better than anybody else. You think about what's the product where people are trying to generate games and experiences as quickly as possible and have users engage with those experiences as quickly as possible and cycle through where quality doesn't necessarily matter.
[00:51:00] Speaker C: I am, I just think this, this is a really bad take. I think this is a really bad take everyone keeps trying to find. So first of all, the fact that everyone is coming out with these defensive takes about what AI can do, I think tells you that everyone's on the back heel because every single six months it seems like we go through this period of like holy shit, we didn't think this was possible. And just, just fucking today. I don't know if you guys have seen C Dance, which is a model that is creating almost one to one video AI of things like Seinfeld One piece. I mean it's indistinguishable from the original product. And we first said, oh well, AI will never be able to generate this. AI will never be able to generate that. And again, every six months it feels like something crazy is happening. I'm seeing it happening in my own workflow. And so any take that says this is what AI can't do is something that's going to be outdated in a year. So I think there's a humbleness to it and the fact that everyone's being defensive about it means that they feel the pressure of it. So the idea that I think it's totally fair to say Google is not going to be the next game developer, next platform with this. But that's an irrelevant point. The point is look at how far these models are already coming. You can interact in these worlds that are generated in near real time in a 3D environment. That was something that you weren't able to do a couple years ago, right? And not only that, they're, they're very realistic. Like you can go to, you can go into Naruto's world, you can go into a powerwash simulator if you want to. Like there is going to be places this gets injected in the pipeline. Now even if it's not determining an entire game by itself, it will start to take up more and more of the supply chain of how we make games.
And Tencent's already doing this. Tencent is already building their own engine. So imagine if someone who actually knows how to make games is able to apply this technology to one part of the supply chain.
[00:52:42] Speaker A: Well, I don't think that was used point.
I don't think that was his point. His point wasn't necessarily this isn't going to be transformative. This isn't going to change the way that developers build games. I mean he quotes Matthew Bomberg who's the CEO of Unity who says video games, video based generation is exactly the type of input our agentic AI workflows are designed to leverage. Translating rich visual output into initial game scenes that can then be refined with deterministic tools like Unity. So you think about like I don't think that Yoost is saying that this isn't going to be transformative. I don't think he's on the back foot. I think he's more so acknowledging that maybe there's some, some time before we get to a point. I mean I hear your points on the visual generation of AI. AI can create incredibly visually stunning things, interactive environments. And that said like we're still a long way away from creating an entire environment. I, I still think that where AI shines and the thing that it has grown or that it's the productivity gain that we have seen the, the most is like in coding, I'm coding stuff that I never could have two years ago.
[00:53:44] Speaker C: I think, look, look at a more abstract, abstract notion, right? Don't think about like necessarily Genie 3. Just think about AI and what it does for games decreases the cost of production. You can go from an idea to actually crafting something with far less people and far less marginal cost than you ever could in human history. And not only that, it's only going to get better. This is the worst it's ever going to be. And so what are the comparables for other forms of entertainment where we've had dramatic decreases in cost? So I think you could go back to the invention of the printing press but I think a more relevant recent example is YouTube.
[00:54:16] Speaker A: Right?
[00:54:16] Speaker C: What has YouTube done for entertainment? Because YouTube was a significant decrease in people being able to distribute content. And it was also something that followed with a decrease in the cost of production. Right, because now every phone had a camera on it. And not only that, all of those things got increasingly better over time. And right now YouTube is rivaling Netflix in terms of hours. And so you start to think about what does this mean for games. And I don't think it necessarily means that we're going to have a ton of UGC platforms, but I think you just have to take the broad economic point that the cost of production is being driven down to much and much lower lows and now it's not going to happen overnight. But these durable moats he talks about, this whole idea of, hey, if you just flood the market with crap, nothing's going to change. I think all that's fair, but you have to look at it on a broader time horizon, how things are starting to bend. And I think it'd be silly not to see this. Like this is not web3people. The hype train is real. Maybe it's over invested relative to its capabilities right now, but this is real and this is happening. I think people need to buckle in for what the next 10 years is going to look like. I know I sound like I'm drinking the Kool Aid, but like it's every six months something crazy happens.
[00:55:21] Speaker B: Here's a question, right? So these game 90 second demos, they're not built in a game engine, right? It's like it's the whole thing is AI video feed streaming generator correct?
Do you think that the end state is like what the Unity guy described, which is you use the prompt, it generates, let's say assets in Unity that someone goes in and polishes up and makes into the final game. Or do you think it'll actually they go around the game engines themselves and basically cut the game engines out? I think that's a really important question. Are they going to operate within the game engines or they circumvent the game engines?
[00:55:56] Speaker C: I think you need the game engine because the game engine determines rules. The game engine determines things like physics. It determines a lot of the things that I think these probabilistic models suffer. So I think that the game engine is the governance of the AI models. And I think that is something that has been lost in the genie discussion is like, oh, they're probabilistic models. They can never do all these systems that games need predictable rules, they need all these different.
I totally concede on that. But again people are hyper focusing on the specific end product rather than thinking about what it looks like in the next year or two, what happens when you integrate it with a game engine. So I think you're always going to need the game engine because again, the engine is a predictable institution and you need predictable institution for games. So the idea of that happening, I think is going to be very fruitful. But to your more specific point, of course it's going to be generating assets within the engine and it's going to be generating completely new experiences underneath the engine. Both of those tracks are going to be thrown into the pile and let's see what happens. But, but it's, it won't be either or it's going to be everything. Right? Because this is so cheap, right? You're going to, this is already happening, right. I can tell you I've seen decks from Tencent where they are claiming 80% of assets in games like PUBG are being AI generated. I'm seeing, I'm seeing these crazy claims.
[00:57:03] Speaker B: But I think that the implication, right, of the stock price drop on Unity or whatever is like, basically, is this going to affect the content producers more or is this going to.
[00:57:13] Speaker A: I mean, assuming that Unity and Epic are heavily, heavily investing in AI within their platforms, those two business have such a strong foothold in the industry. There's a high switching cost from moving away from Unity and moving away from UE5. Even if the other thing can, let's say you've got a pre, an existing game, especially a live service game that could greatly benefit by being able to create AI generated assets, AI generated events. You want to just be able to do that within UE5. You want to be able to use the editor that you're familiar with, the assets you're familiar with, the physics system you're familiar with. The game is already built within that engine.
So, you know, I, I think that these companies actually have a really strong, you know, incumbent advantage that I don't think Google is going to be able to just remove by releasing an app that can, you know, create game environments. And I, and I don't think that personalized, you know, play experiences are going to be. That'll be novel. That'd be really cool. It'll be. When everybody started making, you know, studio Ghibli versions of themselves and then they stopped. It was like, oh my God, I can make a really cool, it's like I can only walk around my house as my dog in a video game environment so many times before. It's like, okay, I get, get it. Like, this is cool. It's novel. But that's all that it is. So the stock market drop makes no sense to me at all. Assuming Epic and Unity are heavily, heavily investing in creating some sort of. If I could get open the UE5 editor and say, I want a fantasy themed game, I want to have these assets, I want it to look like this, generate all of the basic building blocks of this game for me and then start to slowly build it from there in a deterministic way. I mean that's, that's basically what coding looks like for me now. It's like, oh, I want to make a new. I want to make an app that runs in my browser, on my computer. Like make the app for me and then it builds everything and then I go in and I can edit things as I see fit. That's I think, the innovation. Not preaching Genie, making a cat walking through a field.
[00:59:02] Speaker C: Preach, preach.
[00:59:05] Speaker A: I do worry about this supply and demand thing though.
[00:59:07] Speaker C: What's the supply and demand thing?
[00:59:09] Speaker A: There's this argument like, so we've seen massive gains in supply. I recently like, just the quality and the quantity of AI that is available in our lives has skyrocketed. There's more stuff that I can use, AI that there's more things that AI applies to and the quality of those of those improvements just gets better and better. But the question is like, how much appetite? Well, like me for example, as a personal, you know, as a user, you Talked about the $200 subscription that you don't have to pay per token. You pay just a flat fee. As an individual, I'm not, not going to spend $200 a month on, you know, that's like as much as all of my different subscriptions are worth for everything. You know, it's like, it seems weird that I would spend $200 on a single product.
You know, my Spotify subscription is 15 bucks, my Netflix subscription is 10 bucks.
So to me the question is like, what's the appetite of the consumer? Because all these apps thus far have really, really been like kind of consumer facing. Obviously they impact businesses, they allow you to code faster. But I'm more curious about how we can make this scale for B2B. Because like, yeah, sure. Even if you have every single person who's, who has some, who's paying for some sort of AI service, it's like 10 bucks a month. It's just, it's basically like a new app. It's like, is that that interesting? That to me is not that interesting in terms of the demand. So the suppliers.
[01:00:26] Speaker B: I agree. It seems like B2B is the current main money source because you know the company will pay several hundred per head.
[01:00:33] Speaker A: Yeah, exactly. 500 bucks a month per employee to double their output. No brainer.
[01:00:37] Speaker C: Edward Krasnova we are. Next time we will cover on virtual economies. It's been way too long since we've covered the found foundational papers and game economics. It is time for us to do the gauntlet. So buckle in.
[01:00:49] Speaker A: Your Boston accent really came out there.
[01:00:52] Speaker C: There's a. There's a Dick's commercial where they make fun of Tom Brady. And you guys are really.
I'll send you the link afterwards.
[01:00:58] Speaker A: Tom Brady Onions.
[01:00:59] Speaker C: Favorite game of cos cast episode 48. 48 in the can.
We should teach this to our children. Economics is major.
Everyone has to major in economics number one for personal survival. Economics is major.
