Benchmark’s Mitch Lasky and Blake Robbins on The Art of Business in Gaming

In this special episode of "Acquired," hosts Ben Gilbert and David Rosenthal, along with guests Mitch Lasky and Blake Robbins, unpack the evolution and impact of the gaming industry. Mitch, a former executive at EA and Activision and investor in Riot Games and Discord, shares his journey from law to gaming, emphasizing the importance of distribution leverage in the business. Blake reflects on his transition from playing games to investing in them, highlighting the potential of AI in revolutionizing game development, particularly in art pipeline, quality assurance, live ops, and balancing. They discuss the historical stigma around gaming, its deep roots in the toy industry, and the shift towards recognizing its social and cultural significance. The conversation also touches on the emergence of esports and web three gaming, with skepticism giving way to cautious optimism as traditional gaming companies begin to explore blockchain's potential in enhancing in-game economies and player experiences.

• Mitch Lasky shares his admiration for the podcast's accuracy regarding topics he has personal experience with.
• He expresses a high level of trust in the podcast due to their meticulous representation of events and stories.
• Mitch's compliment suggests that the podcast has a reputation for faithfully recounting true stories.

"I have so much trust in your podcast because the stuff that you do that I was a part of, and there are many things you've done that you don't know that I was a part of, that I was a part of. You guys are so good. It's so accurate. It is really remarkable. Somehow you're able to tell a story that is actually as close to true as true exists."

The quote emphasizes Mitch's trust in the podcast's ability to tell accurate stories, highlighting the podcast's reputation for truthfulness in storytelling.

• Ben Gilbert and David Rosenthal introduce their podcast "Acquired" and mention their previous deep dives into Nintendo and Sega.
• The episode features Mitch Lasky and Blake Robbins, notable figures in the gaming industry.
• Mitch Lasky is celebrated for his investments and executive roles in the gaming industry, while Blake Robbins is recognized for his insights into the gaming landscape.

"So today our conversation is with Mitch Lasky and Blake Robbins. Mitch is perhaps the best games investor of all time, generating literally billions of dollars of returns from early investments in Riot games, Discord, and that game company, not to mention Snapchat."

The quote introduces Mitch Lasky as a highly successful games investor and provides context for his significance in the gaming industry.

• Mitch Lasky and Blake Robbins started the Gamecraft podcast to explore the history of the gaming industry from a business perspective.
• The podcast aims to show how business decisions have shaped the creative aspects of the gaming industry.
• Gamecraft is presented in a unique format, retelling the same story through different lenses and avoiding a strictly chronological approach.

"And Mitch and Blake just launched an incredible podcast called Gamecraft that chronicles the history of the gaming industry from the business perspective."

The quote explains the core concept of the Gamecraft podcast, which focuses on the interplay between business strategies and creative development in the gaming industry.

• Mitch Lasky was inspired to share his knowledge after retiring from active investing.
• He considered writing a book about the business side of the gaming industry, influenced by the book "The Genius of the System" by Thomas Schatz.
• Mitch wanted to highlight the collaboration between business and creative people in gaming, similar to the film industry.

"And so I thought it might be fun to do something in that vein where we showed what was happening on the business side and how it was informing what was happening on the creative side."

The quote reveals Mitch's motivation to showcase the significant role of business strategies in shaping the creative output of the gaming industry.

• Mitch Lasky discusses how business models, such as selling discs, have historically influenced game design.
• He explains that the need for planned obsolescence in games was driven by the business model of selling physical copies.
• The conversation touches on the evolution of business models and their impact on game longevity and design.

"So just to give you an example, in the packaged goods era, your goal was to sell a disc and then get somebody to come back a year later and buy another disk. And that's a business model choice."

The quote highlights the direct influence of business models on the design and marketing strategies of video games during the era of physical game distribution.

• The podcast hosts and guests discuss the transformation of the gaming industry from niche to mainstream.
• They explore the concept of "casual gaming" and its growth beyond the traditional gaming audience.
• The conversation reflects on the early days of gaming when it was considered a subset of the toys industry.

"I mean, there were a few, obviously, electronic Arts had gotten started and interplay existed and there were a couple of others, but it was primarily pc publishers."

The quote provides a snapshot of the gaming industry's landscape during its earlier stages, where pc publishers were prominent, and the market was less diverse than it is today.

• Mitch Lasky and Blake Robbins discuss key topics in Gamecraft, including the shift to free-to-play models and online distribution.
• They compare the impact of free-to-play on gaming to the introduction of television in other industries.
• The podcast covers the evolution of game economies and the concept of "forever games" that endure over time.

"We do an episode on the change in publishing from a packaged goods at retail business to an online distribution business. Really, the rise of Steam would be kind of indicative of that particular part of it."

The quote outlines one of the significant themes of the Gamecraft podcast, which is the transition from traditional retail distribution to online platforms like Steam.

• The discussion includes the emergence of platform-based publishers and how they've disrupted traditional gaming business models.
• Mitch Lasky describes how companies like Steam aggregated demand to leverage supply in the industry.
• The conversation touches on the potential for Nintendo to become a significant player in the App Store market.

"So they're now back to aggregating supply in order to have enough viable ip on the platform such that you will continue to subscribe, which is really interesting."

The quote discusses the strategy of aggregating supply as a means to attract and retain subscribers, drawing parallels to other subscription-based services.

• Mitch Lasky and Blake Robbins talk about the rise of cloud gaming and its potential to change the business model of the games industry.
• They consider the demand-driven aspect of cloud gaming and how it caters to a wider audience without high-end gaming hardware.
• The conversation reflects on the technological and market readiness for cloud gaming as a mainstream option.

"I do think, however, that the audience has expanded, really in the last twelve to fifteen years, and that this next generation of kids who've grown up on Fortnite, who've grown up on harder core games, but are still casual in their self-identification, I think that's the real opportunity for the cloud gaming."

The quote addresses the growth of the gaming audience and how cloud gaming can serve the needs of players who do not identify as hardcore gamers but still engage with complex games.

• Mobile gaming continues to grow, with expectations of playing high-quality games like Assassin's Creed on mobile devices.
• Single-player mobile games are particularly impressive, but multiplayer games may need more time to develop.
• The transition of gaming platforms into social networks, where friends and transactions are in a self-contained ecosystem, is significant.
• Riot Games is highlighted as an example of a company that successfully aggregates demand within its own universe rather than becoming a third-party publisher.
• The discussion questions the viability of launching games solely on platforms like Steam for venture-backed companies.

"I want to bring it back a little bit to your question though, David, around the platform based publisher stuff and where those might fall because Mitch was involved with Riot, and Riot is another spin of what that looks like today."

The quote emphasizes the shift in gaming platform strategies, using Riot Games as an example of a company that has created a successful ecosystem for launching and managing games.

• Platform-based publishers aggregate demand and secure user data, including payment information, to reduce customer acquisition costs.
• The Nintendo Switch is discussed as a potential model for maintaining a fan base and creating a compelling platform for third-party developers.
• The concept of backward compatibility and an open App Store is considered a modern and consumer-friendly approach.

"So you've got this audience there that's pre-qualified, where you've got their credit cards, hundreds of millions of users, and so you just use it as a way to lower your customer acquisition cost effectively to zero for the next products that you launch in the pipeline."

This quote discusses the strategic advantage of having a pre-qualified audience with payment information on file, which can significantly lower the cost of acquiring customers for new products.

• The console business model is seen as static and less interesting compared to revolutionary business models.
• The historical impact of consoles as a revolutionary model at their inception is acknowledged, shifting from arcade quarter drops to accessible home entertainment.
• Cross-platform play is identified as a recent evolution, with companies like Microsoft and Nintendo embracing it, while Sony historically resisted.
• The discussion explores the notion of leveraging customer relationships into publishing and why some companies succeed while others do not.

"The console business has been essentially the same business since 1985, really since 1975, right. I mean, it's sell a box and sell some physical hardware for that box and grudgingly allow it to be played online and grudgingly allow communication between users."

This quote reflects the speaker's view that the console business model has remained largely unchanged and is not as dynamic as other business models in the gaming industry.

• The conversation touches on the difficulty of launching games on consoles due to the approvals and manufacturing processes.
• Crossplay is highlighted as a monetization opportunity, with players who engage in cross-platform play often spending more.
• The profitability of in-game purchases, like FIFA Ultimate Team, is discussed, emphasizing the high willingness to pay among console gamers.
• The importance of distribution leverage in the gaming industry is underscored, with content being secondary to the ability to reach and monetize users effectively.

"I would not counsel any of my portfolio companies to launch on the console because the hoops that you have to jump through for approvals for manufacturing, et cetera, et cetera, just in general are dire."

This quote conveys the speaker's advice against launching games on consoles due to the complex and challenging processes involved.

• The discussion includes the criteria for venture capital investment in game studios, focusing on companies with strategies beyond just creating content.
• The speakers share personal investment philosophies and experiences, including the story of funding "that game company" and its unique pitch.
• The concept of a "forever game" is introduced, referring to games that continually engage players over a long period.
• The debate continues on whether a successful single game is enough to justify venture investment or if a broader platform strategy is necessary.

"I invest in businesses, not in studios, right? And those businesses have to have a strategy that transcends. I want to make a game and put it on Steam, or I want to make a mobile game and put it in the App Store, right?"

The quote highlights the speaker's investment philosophy, which focuses on businesses with a clear and scalable strategy beyond simply creating and releasing games.

• Tencent's successful embrace of being a platform-based publisher is contrasted with Facebook's less successful gaming ventures.
• The speakers discuss the importance of intentionality and commitment in the gaming industry and the challenges of leveraging existing platforms for game distribution.
• The story of Riot Games' early growth hacks, such as acquiring websites related to defense of the Ancients, is shared as an example of effective customer acquisition.

"I would rephrase it. Right. Which is my opinion, is that why QQ was successful was that they didn't just decide that they were going to be a platform based publisher, they embraced being a platform based publisher."

This quote explains that Tencent's success came from fully embracing the role of a platform-based publisher, rather than simply deciding to become one.

• The episode concludes with a sponsorship message from Statsig, a feature management and experimentation platform for product teams.
• The discussion returns to the importance of data-driven decisions and the ability to tie new features to core business metrics.

"Statsig is a feature management and experimentation platform that helps product teams ship faster, automate a b testing, and see the impact every feature is having on the core business metrics."

This quote describes the services offered by Statsig, emphasizing the importance of using data to drive product decisions and measure impact.

• The video game industry consistently offers opportunities for new companies to dominate previously niche or dead genres.
• Survival genre games evolved from niche mods to mainstream hits like PUBG and Fortnite.
• Games that started with a small, hardcore audience can become widely popular by adapting gameplay or business models to attract a larger audience.
• The success of Fall Guys and its clones like Stumble Guys and Eggy Party demonstrates the potential for rapid growth and acquisition in the gaming market.

"For example, the survival genre, right? Which started with arma mods like Day Z and H1Z1 and sort of evolved into PUBG and then into Fortnite, right?"

This quote highlights the evolution of the survival genre in video games, demonstrating how a genre can grow from mods to major hits.

"And then there's these three guys in Finland made basically the same exact game, pushed it on mobile. It's called Stumble Guys. And then it gets acquired by... the biggest game in China is this game called Eggy Party on mobile. And that is actually literally just a Fall Guys clone."

This quote emphasizes the replication and adaptation of successful game concepts across platforms and regions, leading to acquisitions and significant market presence.

• World of Warcraft (WoW) is an example of a game that expanded its audience far beyond the hardcore base of its predecessors.
• Early MMORPGs like Ultima Online and EverQuest catered to a niche audience but did not significantly grow the player base.
• WoW found product-market fit and greatly expanded the MMORPG audience, maintaining its position for over 17 years.

"World of Warcraft basically does this, right? They find the product market fit and just embrace it and blow it out. And it's 17 years later, it's still a number one product."

This quote illustrates WoW's success in capturing a broad audience by finding the right product-market fit and highlights its longevity in the market.

• Paid customer acquisition can be a slippery slope, potentially leading to an unhealthy reliance on paid marketing.
• Doubling down on organic growth and expanding to new platforms can reinforce competitive advantages.
• Live operations, such as adding new content and balancing gameplay, are critical reinvestment areas for free-to-play games like League of Legends.

"I resist as long as possible going paid... But what I do love is doubling down on the organic stuff."

This quote discusses the preference for organic growth over paid customer acquisition in the context of game development and marketing.

• Ongoing content updates in live operations can require as much or more annual investment as the initial game development.
• Games like League of Legends update frequently, adding new content and balancing to keep the game fresh and engaging.

"I think you can expect to spend as much or more on an annual basis than you were spending in development. In live ops."

This quote highlights the significant ongoing investment required for maintaining and updating live service games, often equating to or surpassing development costs.

• Esports can serve as a marketing tool for both the games themselves and for associated brands.
• The viability of esports organizations often depends on their ability to leverage esports as marketing for other business pillars, such as content and apparel.
• The attainability of becoming a professional player in esports compared to traditional sports can drive player engagement and aspiration.

"Esports is marketing. Right."

This quote simplifies the role of esports in the gaming industry, identifying it as a form of marketing rather than an independent revenue stream.

"It's way better than golf and tennis because the barriers to entry are so much lower. You don't need the money."

This quote contrasts esports with traditional sports, highlighting the lower barriers to entry in esports and the potential for any player to compete against the best.

• Skepticism exists around web3 and crypto gaming due to early projects being poorly executed by developers unfamiliar with the gaming industry.
• Recent developments show promise as experienced game developers begin to integrate web3 and crypto elements organically into games.
• The potential for web3 and crypto to enhance elder game experiences and enable new economic models in gaming is being explored.

"This new crop that we're starting to see now... You saw Eve Online just raise 40 million, led by Andreessen Horowitz to make a crypto-enabled version of Eve."

This quote indicates a shift toward more legitimate and thoughtfully designed crypto-enabled games by established developers.

"The dream of the web three space is that this can be more broad than even that."

This quote conveys the aspiration for web3 technologies to enable more expansive and dynamic in-game economies and player interactions.

• Evans and Sutherland, a company formed by University of Utah professors, played a pivotal role in the development of computer graphics technology.
• The company's alumni went on to found or influence major tech and gaming companies, such as Pixar, Adobe, and Silicon Graphics.
• The history of Evans and Sutherland demonstrates the interconnectedness of the early computer graphics community and its impact on the gaming industry.

"So all of these incredible people came through that same program and what it must have been like. And Evans and Sutherland had a big impact in the games community because former employees of theirs started up a bunch of games companies."

This quote reflects on the influence of Evans and Sutherland on the gaming industry and the legacy of its employees.

• The gaming industry has historically been larger than TV and Hollywood when arcade revenues are included.
• This contradicts the common perception that the gaming industry's prominence is a recent development.

"I think it's always been true."

This quote challenges the notion that the gaming industry's dominance is a new phenomenon, suggesting that it has always been significant when considering all revenue sources.

• The arcade business was a significant sector in the early video game industry, with a long-lasting presence.
• Companies like Sega had to weigh the risks of transitioning from arcade to console.
• Arcades served as important social spaces for youth during their peak.

"And the thing that always stands out when you look at it is just not only how big the arcade business was, but how long it persisted."

This quote emphasizes the surprising size and longevity of the arcade business within the video game industry's history.

"They're literally making billions of dollars in the 70s. Like billions of dollars in revenue in the course. You're not going to stop doing that."

This quote highlights the enormous revenue generated by the arcade business in the 1970s, which explains why companies were reluctant to move away from it.

• Mitch Lasky's first video game experience was with a console version of Space Wars.
• Blake Robbins grew up playing games as "player two" alongside his brother.
• Early experiences with gaming influenced both Mitch and Blake's future interests and careers.

"So, yeah, like Space wars. You played Space wars at a Woolworths in Fort Lauderdale, Florida, where I was miserably consigned to grow up."

Mitch Lasky describes his first encounter with video games, highlighting the influence of early gaming experiences on his life.

"My brother just loved single player, narrative type creative games. And when Xbox came out, I was like, oh, I can finally get something that my brother's not going to take all the time with."

Blake Robbins shares his experiences with video games growing up and how it shaped his preferences in gaming.

• Mitch Lasky and his wife both transitioned from practicing law to working in the video game industry.
• They created a game together during law school, which did not succeed but confirmed their interest in the field.
• Mitch's wife worked as a district attorney before moving to Activision, while Mitch represented Atari Games against Nintendo.

"We wrote a game together, I programmed and she designed."

Mitch Lasky discusses the collaborative effort with his wife in creating a game, which was a pivotal moment in their transition to the video game industry.

"Neither of us were totally into it. She actually was a district attorney in the hardcore gangs unit in LA."

This quote reveals the professional backgrounds of Mitch and his wife before they fully committed to the video game industry.

• Xbox Live was a significant business proposition due to its captive audience and demand for community and multiplayer play.
• The service generated substantial revenue by charging for online play without providing internet access.

"You had a captive audience who really wanted a community, who really wanted multiplayer play. And basically they said, yeah, there's one way to do it. You can pay us $5 a month."

Mitch Lasky explains the business strategy behind Xbox Live and its appeal to the gaming community.

"The number of people that wanted to get online services for their game that had to pay Xbox in addition to their console that they're buying. It's just insane."

Blake Robbins emphasizes the financial impact of Xbox Live's subscription model on gamers who wanted online services.

• Mitch Lasky's first dedicated gaming machine was a Commodore Amiga during law school.
• Blake Robbins' first gaming experience was on a Nintendo console, with Halo on Xbox being a transformative game for him.
• The discussion includes reminiscing about early gaming hardware and experiences that shaped their gaming preferences.

"The first dedicated gaming machine I owned wasn't until I was in law school in 1987."

Mitch Lasky recalls the first gaming machine he owned, indicating a later adoption of dedicated gaming consoles.

"Halo was the thing that changed my life. I was like, what is this? This is amazing."

Blake Robbins reflects on the impact of the game Halo and how it influenced his passion for gaming.

• The Gamecraft podcast released eight episodes at once, which was a risk but received universally positive feedback.
• There is an audience for intellectually rigorous exploration of niche industries.
• The team is considering how to continue the podcast without turning it into a full-time job.

"I've just been incredibly surprised by how universally positive the feedback has been."

Mitch Lasky expresses his satisfaction with the positive reception of the Gamecraft podcast, which was a new venture for him.

"We probably wouldn't have done it if you guys hadn't existed, we probably wouldn't have done it."

Mitch Lasky acknowledges the influence of other successful podcasts on the decision to create the Gamecraft podcast.

• AI has been a part of games since their inception, but its role is evolving with new technologies.
• There is skepticism about AI's ability to democratize the game industry fully.
• Potential applications of AI in games include art pipeline, quality assurance, balancing, live ops, and narrative assistance.

"I do believe that making games is really hard. Right. And I think making a coherent, narratively satisfying journey in a game context, in an interactive context, is not necessarily going to fall to AI early."

Mitch Lasky expresses his view that while AI will have many applications in gaming, creating a full game experience may not be one of the early achievements of AI.

"We can now train an AI to play these things. And we were talking to a senior executive who has done so and reported back that the AI can now describe an activity as fun."

Mitch Lasky discusses the advancements in AI that allow it to play and evaluate games, which could revolutionize game testing and balancing.

• There is a stigma associated with playing video games, often seen as a waste of time or a deviant activity.
• The roots of this stigma may be traced back to the industry's early association with the toy business.
• The perception of video games is changing as they become more social and mainstream.

"It's a moral judgment. Yes."

Mitch Lasky and others discuss the moral judgment implicit in the idea that playing video games can be "too much," questioning why it's viewed negatively compared to other social activities.

"I think there's also the subtle shift of games becoming really social."

Blake Robbins notes the shift in gaming towards social interaction, comparing it to other social activities like playing golf.

• The resources required to make great games can stifle innovation by limiting who can enter the industry.
• User-generated content platforms may become more valuable in an era of AI asset generation.
• The games industry may benefit from the democratization of game development tools, similar to the impact of YouTube on video content.

"It's better than it used to be. It used to be you had to write your own engine in order to make a game work, right?"

Mitch Lasky discusses the past challenges of game development and how the industry has become more accessible over time.

"We still haven't fully reached maybe the iPhone moment for your camera, but we're getting there."

Blake Robbins compares the current state of game development tools to the transformative impact of the iPhone's camera on photography, suggesting that a similar moment is approaching for games.