MediaTalk | Season 3 | Ep. 40 - Level Up or Game Over: Analyzing the Health of the Video Game Market After EA Deal

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Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with S&P Global Market Intelligence, Tech Media and Telecom News team. Welcome to “MediaTalk,” a podcast hosted by S&P Global, wherein the news and research staff explore issues in the ever-evolving media landscape. Today I am joined by S&P Global Market Intelligence Kagan analyst Neil Barbour, who is part of the consumer technology team and keeps a watchful eye on video games, connected devices, and streaming operating systems. He's been a regular guest on “MediaTalk.” How are you doing today, Neil? 

Neil Barbour: I'm doing well, Mike. Thanks for having me. 

Reynolds: Alright. Neil is always very kind with his time and thoughts when he joins us on “MediaTalk.” We're hoping today that proves to be no exception as we discuss video games, content revenue performance in the second quarter, video games' push into Tinseltown, some changing of the guard in the realm of Roblox experiences, and what could be a landmark event in the smart glasses arena. Ready, Neil? 

Barbour: Let's get at it. 

Reynolds: Alright. But before we go into those themes, there was some big news in the gaming space: Electronic Arts' second biggest deal ever, right? 

Barbour: So a group of investors is taking EA private after 25 years of being a publicly traded company. We have this deal valued at about $57 billion, which would make it the second largest video game deal on record, right behind Microsoft's purchase of Activision Blizzard that was announced in January 2021 and completed in October 2023. So a huge deal by any standard. 

Reynolds: Okay. Who's involved? Who's putting the money in? 

Barbour: Yeah. Looking at a three-way split between Silver Lake Technology Management, Saudi Arabia's Public Investment Fund, and Jared Kushner's Afin Management. It includes some of the stake that the Public Investment Fund already had in EA, but that only gets you to about $36 billion of the purchase price. The balance of roughly $20 billion is being financed through JP Morgan Chase. So big-time leverage is getting this deal to the table. It's interesting to note that this deal's multiples are in line with what Microsoft ended up paying for Activision: roughly 7x trailing revenue, 27x trailing EBITDA. So EA shareholders are definitely getting the prestige publisher valuation levels, but the Activision deal was put together when there was a lot more exuberance inside of the gaming industry. 

Reynolds: Okay, yeah, now a few years on from that, and there are not as many obvious signs of growth. That valuation might seem a little high. I think the multiples suggest that the investors see growth vectors specific to EA that they can harvest. 

Reynolds: Financial benefits aside, why does this work for EA? Why is going private the right thing to do? 

Barbour: I think it's a great question, and it could just be that management feels this is a good time to cash out, but I think there's something bigger at play here. So let me make a case in point. Think of Battlefield 6, which EA is set to put out in October. Okay? They're also going to have a free-to-play battle royale mode before the end of the month. So they're going to be going head-to-head with Call of Duty, basically for the first time in the lifetime of the franchise. They overlap in certain ways, but they're different flavors of military simulation. They're not the same thing. But now with this battle royale mode, they are. If this new battle royale mode comes out to a relatively cool reception, management would have been forced into kind of a fight or flight position and not necessarily have had the long-term potential of the game in mind. That's if they were still a publicly traded company. 

Reynolds: They would have had to disclose the sales, that's right. 

Barbour: Yeah, exactly. Or the revenue or what have you there. There definitely would be some sign in the public reporting of what was going on, and they'll still be publicly traded at that time, but with the deal shoring up the share price, they may have more room to let the game grow and evolve and stand a better chance at long-term survival and long-term revenue generation instead of having to make a knee-jerk reaction to what the street thinks, which we've seen kind of time and again with these big-time publicly traded gaming companies over the past few years. 

Reynolds: Okay. EA is a big player in the sports gaming world. The EA FC, formerly FIFA, and Madden have been staples for many moons. But revenue momentum slowed and actually declined in 2024 for the first time since 2015, I believe it was. Any rebound this year or any notes on performance thus far? 

Barbour: The sports games ebb and flow with little tweaks they make to the games or the prevailing popularity of the sport during a given year. But I also think we have to probably consider that we've seen most of the growth story we're going to see out of these franchises. They could eke out single-digit, maybe low double-digit growth stories for their lifetimes. But we're really looking at the ultimate team end game purchase model, which unlocked that new level of growth about a decade ago. But that story is now over 10 years old. It's worth considering that there just isn't a lot of juice left there. There's talk about adding more free-to-play touchpoints to the sports games, and I think there may be something to that strategy, but you have to remember that taking a premium retail game and making it a free-to-play game is different than launching a free-to-play game. By removing the upfront cost of successful retail games, you're essentially saying that the reason people aren't spending more money in this game is that it costs too much, which is paradoxical. In other words, if everyone who used to spend $70 for the full game is now going to spend $80 on card packs, or for every one former retail purchase you used to get, are you going to find two people willing to spend $35? Maybe, but it's a big risk. 

Reynolds: I gotcha. Let's go back to the Activision Blizzard deal. I think you and Kagan expected further consolidation, but there's only been a handful of deals and none have really approached that scale. Any sense for that, Neil? 

Barbour: So there were a few deals, right? Sony picked up a Destiny publisher, Bungie. There have been some mobile deals, but I confess at the time that I thought other publishers or stakeholders would want to play defense about Microsoft buying a huge chunk of market share. A couple of things happened, right? First, regulators really dragged that Microsoft deal out and got a lot of concessions in the process that may have turned off some would-be suitors. Then the market started to correct, and suddenly most of these companies had to appear austere instead of expansion-minded. So I think that's what kept some of these deals on the sidelines. It's interesting to see this one come up at this time. 

Reynolds: I gotcha. The EA deal doesn't involve as much market share as Microsoft, but what's the potential reaction to having Saudi Arabia, which has a lot of holdings throughout the interactive home entertainment space? Do you think that draws extra regulatory scrutiny? 

Barbour: Yeah, and in one sense, there's not a ton of overlap between the existing mobile-focused portfolio at the Public Investment Fund and the PC and console-focused portfolio they're getting from EA. But regulators in the past have elected to not make much of those platform distinctions, and they have some reason to interpret the market that way as handheld gaming further converges with PC and console through things like the Switch or the Steam Deck. Then cloud gaming flattens the entire ecosystem. Cloud gaming isn't really a major concern right now, but as they look toward the future of gaming and where gamers might go, in some cases they want to make sure that not one company gets to dominate that potential future revenue opportunity. 

Reynolds: Alright. The deal is expected to close in the first quarter of 2027. Having President Trump's son-in-law, Kushner's company involved, that should give it a leg up on passing regulatory muster here in the States and on the other side. What about your sense of other markets where EA does a lot of business? 

Barbour: I think regulators will have something to say, particularly the EU, but ultimately it goes through. I don't think there's enough in terms of anti-competitive behavior to stand in the way here. 

Reynolds: Okay. Alright. We're going to turn our attention now to global video content revenue in the second quarter. It was a really good one for the industry, right? Neil? One you didn't necessarily expect given Kagan's, how should I say, dour longtime outlook for the space. 

Barbour: It really looked like the industry was on the ropes a couple of quarters ago. The growth rates were slim. FIFA was in that slump, Grand Theft Auto moved to 2026, so we were surprised to see this really positive result in the second quarter, up 5.6% year over year. But as we note in our report to clients, you have to be careful about pulling this growth rate into the back half of the year. We sometimes see these Q2 surprises in part because it's typically when publishers are putting out their B-grade products. But then something overperforms, and that's, I think that's what we saw here. 

Reynolds: Alright. Just a bit of housekeeping before we go on. How does Kagan arrive at its gaming content revenue estimates? 

Barbour: Yeah, so we really drilled down to about 30 of the top publicly reporting companies, scouring those 10-Q's, 10-K's, earnings calls for guidance, having conversations with different stakeholders inside the industry. And then we size and sort out their content revenue, and there's a little bit of proprietary survey data and modeling in the mix as well. So we've really got our tentacles around. 

Reynolds: So better than a 5% video content revenue rise to just under $48 billion in a quarter. Microsoft was the big driver here? 

Barbour: So circling back to that concept of the Q2 surprise, the big mover here was Microsoft pushing content that was once exclusive to the Xbox over to the PlayStation. Now, in some cases, this content was a little stale, a few years old, right? But the big one was Forza, which is a racing game that had been a pillar of the Xbox exclusivity strategy. Going all the way back to the original Xbox, this was the first time the series had appeared on a Sony console, and PlayStation owners were happy to have it if the revenue trends are any indication. 

Reynolds: Okay. Looking ahead from Microsoft for the balance of the year, what do they have coming to the market? I think that you wrote the revenue won't be as robust in the second half of the year. 

Barbour: Yeah. To zoom out a little bit here, right? Microsoft did buy Activision Blizzard a few years ago, right? As part of this strategy to really become... it was two-pronged, right? The first was to shore up their cloud gaming platform, and the second was to make Xbox a more appealing platform. The cloud gaming thing hasn't really taken shape yet, and the Xbox has more or less conceded the generation to PlayStation. So they have gone on a campaign of putting more of their content onto PlayStation to make up for any of that lost revenue and justify the purchase, which wasn't really the plan initially. So we've mentioned Forza in the previous quarter, right? Also, the Indiana Jones game came out in the previous quarter, which was a big help. And in Q3, so far we've seen a Gears of War game and Hellblade II. They don't appear to have made as much of an impact. I don't know if it's because there's not as much pent-up demand as there might have been for Forza, but also we're getting closer to the time when consumers are starting to think more seriously about the next Madden, FIFA, Call of Duty, right? And if you want to put out a game that you think might not have a ton of impact, you put it out in Q2, and those games didn't make it. 

Reynolds: Alright. What other companies had strong second quarters? 

Barbour: Yeah. The big Chinese publishers are still having a lot of success on PC. Tencent's new Dune MMORPG had a good opening. NetEase is continuing to do well with Marvel Rivals. Some of those catalytic forces are going to be lapped in the coming quarters, so it'll be interesting to see what moves they can make to stay relevant. Roblox, of course, having an incredible run. They've been up basically every quarter since going public in 2021. 

Reynolds: It was a tough period for Nintendo though, right? 

Barbour: Yeah, weird one there. So Nintendo had a big hardware launch with the Switch 2 in this quarter, right? Q2. In fact, we've clocked it as the biggest hardware launch in the connected console era, pushing 5.8 million units out the door in the opening weeks. But there just wasn't a lot of compelling software to sell with it at this time, so the content revenue did not climb in step. We expect that software should follow. Nintendo had a new Donkey Kong out in Q3 that should help. That said, I would reiterate that we do not expect the Switch 2 era to be as rich as the Switch 1. Nintendo has a history of losing traction with consumers after a breakout console cycle. You can already start to feel that Switch 2 buzz dying down a little bit. I'm really interested to see what Nintendo has in store for Q4 and the year ahead. 

Reynolds: Alright, this one I'm particularly interested in. We're going to talk about movies arising from the gaming space. Not quite at the comic book level, but more video games are going Hollywood. Neil, take us through this moment, which I'm surprised goes back 30 years already. 

Barbour: So the idea of this analysis came out when Skydance said it was going to make a Call of Duty movie. Okay. And I think we've all heard about these big blockbuster movies based on video games, but what's the real opportunity there? And if you're just looking at recent history, it's pretty substantial, right? We counted seven video game movies released since the start of 2023, driving a combined $3.3 billion in box office. Mostly those are kids' movies, and Call of Duty probably won't be, but you can start to see the gears turning. As you say, this is a long history. We tracked it all the way back to, I think it was 1993 with the original Mario Brothers movie. Okay. Which was a bit of a dud, and they've been hit or miss. In that time period, it hasn't been until these past few years where it seems like studios and distributors have really zeroed in on this as a cultural flashpoint and pulling some of their resources over to take advantage of it. And maybe what's more interesting is that if you break these movies down by average box office per movie, video game movies are outpacing comic book movies so far in 2025. Yeah. Okay. So superheroes don't quite have the pool they did a decade ago, and studios and distributors, again, they're looking for the next big thing. Maybe this is it. Now, you said the original Mario Brothers movie was a dud. Certainly not the case for the Super Mario Brothers movie in 2023. Huge, as was in going back to that year, Five Nights at Freddy's. It's amazing, I think, that these movies had that kind of resonance. 

Barbour: Right? Yeah. So Universal has Five Nights at Freddy's 2 coming out for December, following up the previous century, which did $300 million in box office on a $20 million budget. And that's another aspect of some of these mid-level success stories as well, is that they don't take a lot of budget to get going. And maybe even they have some inborn marketing, so the marketing budget isn't blown up as well. Okay. But the main event's going to be next year. That's when Super Mario Brothers Galaxy is set for April, and that'll be following up on that $1.4 billion haul from the original. 

Reynolds: Yep. And we did pretty well with the Minecraft movie; it's up to about $955 million. Maybe by the time this publishes, this installment of “MediaTalk,” it'll be really close to a billion. Again, no shortage of big hits at this juncture. 

Barbour: And so in 2026 and into 2027, we'll be seeing Resident Evil, Mortal Kombat, Sonic, Silent Hill, all come back to the big screen. Some of those will give us more insight into how more mature audiences are responding to video game movies, right? In this era, which has, as I said, been an uneven proposition over the years. We've seen a movie like Uncharted, which is a decent comparison to Call of Duty, pull in $400 million. And then on the other hand, that recent Gran Turismo movie did only around $100 million. Okay. And I assume that the Call of Duty movie will want more than $100 million. 

Reynolds: I'm sure. I'm sure. I think all total you guys identified that there are 21 video game related projects in development for the big screen. 

Barbour: Yeah, something along those levels. Some of those have not been announced for a release window. In fact, most of them haven't been. And some of these projects won't make it to the screen. We've heard reports of these coming up and going away over the years, but yeah, it looks like there’s a pretty substantive pipeline ready to produce hopefully some big hits. Or at least I'm sure the studios are hoping for big hits. 

Reynolds: The other side, one of the bigger shows on HBO Max is The Last of Us, also from the video gaming space. 

Barbour: It's interesting when movies like that come out or shows like that come out a couple of years after the video game has been released, and you'll see it feedback into catalog sales or the publisher will rush to put out a remake or a remaster of the game to line up with the release. What's interesting about Call of Duty is that a Call of Duty game comes out every year. So if they can plan accordingly, they could line up a film release at least close to a Call of Duty release, and that'll really be the first real test of a game and a movie feeding into each other at the same time. 

Reynolds: Yeah. Cross-franchising, if you will. Yeah. We're returning to Roblox. Kagan also tracks traffic there. Neil, the Roblox platform is what? Does what? 

Barbour: Yeah. So Roblox is a hugely popular game/service that is available across PC, console, and mobile. The hook is that when you turn it on, it offers you a bunch of different, smaller games or experiences nested within that app. Okay. And they're all developed by third parties. Roblox itself makes very little or perhaps none of the experiences offered on the platform, and when users make an in-game purchase connected to these individual experiences, there's a revenue split between Roblox and the developers. We kept seeing Roblox's top-line revenue grow and grow, but we weren't getting a good sense of what was fueling the momentum other than some relatively vague investment figures. So we decided to start tracking these user-generated worlds and see what's happening at the ground level. And what's really striking is how quickly some of these new game modes are ramping in terms of player count compared to older experiences, which took years to find the same level of success. An early assessment might be, not only has Roblox as a company been successful getting the platform in front of new people, but the users generating the content have gotten really good at giving those people exactly what they're looking for. 

Reynolds: I think through early September you guys named the three most popular experiences among active players are 98 Nights in the Forest, Steal a Brainrot, and Grow a Garden. I'm particularly interested in Steal a Brainrot. Neil, what is that? 

Barbour: So Steal a Brainrot is a game, and I have a fairly good conception of what's going on in this game, although I've certainly not mastered it. Where you want to gather these pets and keep them in a cage or keep them in your house or something like that. The person with the most pets wins. So you can steal pets from other players, but the problem is when you leave your home to go steal other people's pets, you leave your home unattended. 

Reynolds: … your door is open to the same, huh? 

Barbour: That's exactly right. And so this concept has been insanely successful on the Roblox platform. 

Reynolds: Okay. Deservedly so. In terms of this, you had mentioned that a lot of these games are coming on a lot quicker than they have in the past. 

Barbour: The thing about Steal a Brainrot and you mentioned its rival, Grow a Garden. Earlier, Grow a Garden was considered this breakout success. It launched in March, and by late spring, early summer, it was all anything kids were talking about. But the really interesting thing is that Steal a Brainrot debuted in May, and it's doing the same thing. So it's, these games are ramping very quickly. And to see one right after the other like that, one of the interesting things about Grow a Garden is that there hadn't really been a breakout success for a while. So to see two back-to-back like that makes you think something's going on. 

Mike Reynolds: Yeah, maybe again, it's the platform, the different experiences, and now Roblox has a good rep and people know to go there. It'll be something interesting to find. 

Barbour: Yeah, exactly. And success begets success in these kinds of environments. 

Reynolds: Grow a Garden comes from something called Brookhaven, which has an NFL game in this space. What's that about? 

Barbour: So the thing here is that, like I said before, most of the games published on Roblox are small teams, small operations, true homebrew experiences, but we've seen a few organized attempts to crack this market, and Voldex is one of them. They have partnered with the NFL; I believe there's a few other branded experiences they have going on, and while these aren't the tippy-top traffic drivers on the platform, if you start putting them together, they have a little cachet. So I can't help but think that other developers are going to start to take note of how quickly some of these new projects have been ramping and try to push some resources in there in the same way Voldex has. 

Reynolds: Okay. Alright. The final thing we're going to talk about today is Meta Ray Display Glasses. The product was introduced at Meta's annual conference showcase last month. Neil, I know this isn't necessarily an easy thing to do considering we're communicating virtually and there are no visuals, but Meta Ray-Ban display glasses do what for users? 

Barbour: Yeah, so this is building on an existing product line called the Meta Ray-Bans that Meta and Ray-Ban have collaborated on for the past two years. And they've mostly until this point been audio-based. So you'd put them on and you'd say something like, “Hey, Meta Ray-Ban, take a picture of what's in front of me.” They have a front-facing camera, okay? Or “Meta Ray-Ban, connect to my phone and play this podcast for me.” And they have little speakers in them to play the podcast. More recently, they have linked them to large language models and other AI. So you can do something more complicated like, “Hey, Meta Ray-Ban, what am I looking at?” If there's maybe some of the demos I've been in, there's a plant in front of you, and it'll tell you what the plant is, that kind of stuff. So really interesting use cases along those lines. Those cost about $300. So what they announced at the most recent Meta Connect was that, except now, instead of only talking to you, it has a screen in the lenses. So a transparent screen that's at the bottom right-hand corner of the lens. It's supposed to be offset, so it's not distracting. It can come up and go away as you need it. It'll do things like send you notifications from your phone, or you could make a FaceTime call with it, or just give some general visual language in and out of another device. These cost $800 and they're bigger than the Meta Ray-Bans, which are already a bold fashion statement to begin with. Unfortunately, the demonstrations that they had at the Meta Connect were troubled. They didn't all work quite the way they wanted to. A rocky launch, but an interesting segment nonetheless. 

Reynolds: In your piece, you wrote that you expect big things from this, and I take it that's not because Mark Zuckerberg modeled the glasses himself on stage. 

Barbour: So our five-year forecast for smart glasses, I think, is relatively tame. I think the audio-based smart glasses have reached a pretty good price-to-feature point. Okay, a level that they could move millions, maybe tens of millions of units. The display-based glasses are a little too bulky and a little too expensive to catch a mass market, I think, in the three to five-year timeframe. That's not to say that they're not going to sneak into the market, that you're not going to see somebody wearing a pair in the airport sometime soon. But as I say, I don't think they've reached the same value proposition as a wearable that audio-based smart glasses have just yet. That said, I have definitely tried some of these models of smart glasses or things very much like what Meta was showing at shows like CES and Augmented World Expo. And they're pretty cool when they get to the right price point. I do think people are going to get excited about these. 

Reynolds: $800 remains a sizable chunk of change for most. 

Barbour: Think about, that's before you even get the prescription lenses in there, so you could walk out paying more than $1,000. 

Reynolds: Okay. Alright. Consumer Insights did a recent survey, and it said consumers are either wearing or interested in getting more smart glasses. Going back years ago to the AR/VR world, you put the device on your head, it's got a strap. It's clunky. If you wear contacts or glasses, maybe you're okay with it. For those who don't, it's an impediment. Your sense here, you said it's a little clunky. You expect them to get better? 

Barbour: Yeah, I think as the form factor improves, some of what we saw in the survey will bear out a little better. The question that we had was, are you interested in purchasing smart glasses over the next year? And 50% of people who didn't already use smart glasses said they were interested. That does not necessarily translate to a purchase. If you're interested in those smart glasses and you go to the store and Meta Ray-Bans are $800 and they have those two X size Coke bottle frames, maybe you're not interested anymore. 

Reynolds: Okay. But... 

Barbour: I think there is a market here. If you look at things like other wearables like watches and earbuds, things that people weren't wearing before either, but found the utility for, found a way to work it into their everyday entertainment or productivity, they could have something here. 

Reynolds: Yeah. Every day, I think's the operative word there; you see so many people with them. So you're thinking this is going to grow. 

Barbour: Yeah, I think we have our smart glasses going up to 20 million to 30 million units by 2029 on an annual basis and growing into a pretty good install base over that period as well. Not quite as high as the earbuds or watches just yet. But again, we're thinking of the value proposition, and especially in terms of pricing, it's just not as competitive as you can find for a smartwatch at this time. 

Reynolds: I gotcha. Alright, we'll see where things map out that way. That concludes this episode of “MediaTalk.” Next time Neil joins “MediaTalk,” we'll both be wearing Meta Ray-Ban display smart glasses. I wanted to thank Neil for sharing his tech acumen across the board with us today and his initial thoughts on the big EA deal. Appreciate it, Neil. 

Barbour: Great. Thanks, Mike. 

Reynolds: Alright, and I want to thank all of you for listening. We'll catch up soon on the next installment of “MediaTalk.”