7 x Game Industry Truths with Chris Hewish, President of Xsolla

In the latest podcast, Mishka delves into an all-encompassing discussion with Chris Hewish, President and interim CEO of Xsolla. Chris boasts an impressive gaming career that spans iconic companies like Skydance, Survios, DreamWorks, and includes a substantial 13-year stint at Activision. Quoting Mishka, Chris is hailed as "a true game executive starting from the beginning of your career."

The conversation covers a gamut of topics, ranging from macroeconomics and behavioral economics to generative AI, Unity's strategic shifts, the dynamics of the console market, and much more. 

For those seeking a quick summary of key insights, scroll down below the podcast link. Otherwise, get comfortable, and don't miss out on this truly in-depth chat about the latest developments in the gaming industry.

The discussion is kicked off by delving into the nitty-gritty of what might not be the flashiest but holds immense significance in today's gaming landscape—macroeconomic shifts.

The macroeconomics of today and the gaming industry

The surge in interest rates, and escalating costs, are, without a doubt, reshaping the gaming investment scene, according to Chris. As a result, investors are veering towards proven teams and profitable companies, steering away from high-risk ventures, such as companies with hyper-growth intentions. 

The escalation of game prices, coupled with diminishing disposable income due to inflation, poses financial challenges for both players and gaming businesses. Chris astutely points out the deceptive stability of in-game currencies amid rising inflation, cautioning about the potential risks for game businesses:

"Even if you're running a games business and you’re saying, ‘I'm not really raising the price of anything in my game, so I'm not passing that cost on to the consumer,’ the reality is that even if in-game currencies stay stable and inflation’s going up, they become more expensive because the absolute value of those items, even though the number has stayed the same, the impact on the consumer has gone up. This can create some real ‘deflate or inflation’ on your in-game currency, hurting your overall game business."

Behavioral economics and gaming

The duo dives into the influential space where player behavior meets monetization—a crucial force in gaming success rooted in behavioral economics. Discussing strategies like limited-time offers, leveraging the scarcity principle (FOMO), and emphasizing the impact of in-game personalization on repeat purchases and revenue growth, they stress the need for a nuanced approach.

Recognizing the profound influence of behavioral economics on gaming, Chris and Mishka caution against the simplistic emulation of strategies from other games. They stress the need for developers to comprehend the underlying principles and tailor them to fit the unique context of each game, aligning strategies with the specific audience and game dynamics. Mishka advises against superficial adoption, recommending a deeper understanding through reading relevant articles and books. Chris suggests drawing insights from real-life examples, such as concierge services in hospitality, to glean valuable perspectives.

Unity’s Odyssey

Drawing attention to Unity's recent communication challenges, Mishka brands it as "objectively the biggest communication blunder of the year." Chris delved into the broader context, highlighting how companies, including Unity, shifted focus from hyper-growth to profitability and margin considerations amidst changing economic landscapes. The success of the hyper-growth phase, led by strategies like blitzscaling, masked the need for robust core business plans to generate additional revenue.

Mishka and Chris wrap up the Unity talk on a positive note, underscoring the significance of building rapport and familiarity with stakeholders long before seeking support or resources. This crucial approach, applicable beyond the gaming industry, guarantees a more seamless process when the need arises. They advocate for proactive community engagement, active participation in events, and effective networking as indispensable tools for success in any industry.

Console gaming: challenges and opportunities

Chris explored the dynamics of the console market, acknowledging its growth while highlighting challenges arising from diverse business models dominating PC and mobile platforms. He noted concerning trends, such as lower-income households shying away from expensive console expenditures, raising questions about the survival of premium single-player experiences. Chris expressed concerns about the potential impact on younger demographics and the need for evolving business models in response to changing demographics.

He also sees growth potential in LiveOps and free-to-play games, considering them more adaptable to changing market dynamics. However, the fate of subscription models, particularly for triple-A content, remains uncertain, as it might not suffice to recoup the colossal investments required for such games. Amid these uncertainties, Chris reflects on the unknowns looming over the console gaming landscape.

Transmedia: navigating cross-platform adaptations

The conversation transitioned to the evolving landscape of transmedia, emphasising a notable change in attitudes toward cross-platform adaptations. Insights are shared on deal structures, revenue-sharing trends, and aligning game design with the core fantasy of the IP. Chris observes a positive shift towards contemporary trends favouring revenue-sharing deals, providing greater flexibility compared to the hefty upfront licensing fees in the past. Regardless of the direction (from movie/show to game or vice versa), understanding the core fantasy or value proposition of the IP is crucial. Aligning game design with the essence of the IP can lead to successful transmedia experiences, but the lack of understanding between industries often poses challenges.

Mishka added depth to the discussion, touching on the complexities of deal structures and the double risk inherent in transmedia projects.

The impact of generative AI on creative workflows

While recognizing AI's potential to save costs and enhance efficiency, Chris reflects on historical patterns where technological advancements didn't necessarily reduce overall workload but rather increased productivity. He expresses optimism about AI's role in supporting the shift towards "forever games," allowing for cost-effective content production on an ongoing basis, particularly beneficial for smaller developers. Chris sees AI as a tool to level the playing field, empowering smaller teams to create impactful games. For him, AI's value lies in scaling and increasing the capabilities of smaller teams to achieve remarkable results.

However, Chris acknowledges potential dangers, drawing a parallel with the ongoing actor's strike related to concerns about losing digital likenesses. He wonders if game development could face a similar challenge, where AI trained on an in-house art style might reduce the need for extensive art teams. This, according to Chris, represents the potential dark side of AI in the gaming industry that raises concerns about job security for certain roles.

Xsolla Mall

The conversation concludes with Chris introducing Xsolla Mall, an innovative online destination for video games. The company’s first B2C product, Xsolla Mall aims to create a single destination for players, providing a unique combination of a distribution platform, a prime gaming drops environment, and a marketplace.

The platform offers developers the opportunity to showcase and monetize their content through specific branded landing pages, providing analytics and customization options that may not be available on third-party platforms. Influencers can also create their own branded pages, facilitating collaborations and promotions with their audiences. Xsolla Mall merges existing technologies, including direct-to-consumer capabilities and an influencer platform, aligning with Xsolla's mission to support the gaming community. Overall, it represents a new and exciting way to reach diverse audiences, gather data on game performance, and collaborate with influencers.

Sounds like a very exciting product and we can’t wait to try it out!

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Our heartfelt thanks go to Chris for his sharp and insightful perspectives, even in the early hours of this conversation taking place at 5 am.