This week, AT&T announced that they are looking to sell Warner Interactive (their video gaming division) for ~$4B (4x revenue). The target buyers (according to CNBC) are video gaming companies like Activision Blizzard, Electronic Arts, and Take-Two Interactive. AT&T has ~$165B in debt and did ~$182B in revenue in 2019. Warner Interactive does just over $1B in revenue, which is a small part of WarnerMedia’s $33.5B in revenue last year, but this is likely being driven by their goal of paying down the debt load.
“Warner Interactive, which owns the best-selling Mortal Kombat franchise and develops games based on Warner IP, was the last gaming division standing amid Hollywood giants. Disney closed its interactive studio in 2016 to focus on licensing its IP. NBCUniversal shut down its game studio last year, and, in January, Disney sold the FoxNext game studio, which it acquired in the 21st Century Fox merger.” - Hollywood Reporter
Takeaway: developing and publishing video games is extremely challenging work, and media companies have been actively divesting out of that side of the gaming business. In gaming, media companies are going to pursue the licensing option going forward for their most valuable pieces of IP, which will create a more competitive bidding process from the game developers and publishers.
According to VentureBeat, the new investors in this latest round are groups like T. Rowe Price Group, Baillie Gifford (UK investment firm). Evidently KKR is also going to participate and re-invest. If you’re not familiar with Epic Games, they own Fortnite (350M players), Unreal Engine, and the Epic Store (distribution for games).
“In 2019, Epic Games reported $4.2 billion in revenue and $730 million in EBITDA. Revenue for 2020 is forecast to be $5 billion, with EBITDA of $1 billion. In April alone, thanks to the pandemic, Fortnite revenue was $400 million…” - VentureBeat
Takeaway: I believe it’s likely the Epic Games will be pursuing an IPO over the coming 24 months. These larger asset managers (with public markets expertise) entering the cap table for Epic Games is an additional indicator that an IPO is on the roadmap. Unreal Engine’s biggest competitor is Unity, who may IPO in 2020/2021.
The pricing of the Unity IPO (and first 6 months of trading) is likely going to be a key part of Epic Games’ decision of when/if to IPO. I personally expect the Unity IPO to do extremely well, paving the way for a very successful Epic Games IPO.
EndeavorRX is the first video game that can be legally marketed and prescribed as medicine in the United States. This can be done by simply prescribing the game via iPhone/iPad to kids ages 8-12 years old who have ADHD. It went through 7 years of clinical trials and performed studies on over 600 children before being approved. There’s a waitlist and you can watch a trailer of the game here.
“According to the company’s favorite of the five studios, the answer is yes: one-third of kids treated “no longer had a measurable attention deficit on at least one measure of objective attention” after playing the obstacle-dodging, target-collecting game for 25 minutes a day, five days a week for four weeks.” - The Verge
In case of interest, there have been quite a few TED Talks on the benefits of video gaming for topics like mental health, cognition, vision, education, society, and more. Here’s a link to the top 7 most successful TED Talks on gaming.