Speaker 1: Welcome to trillions. I'm Joel Webber and I'm Eric Beltis
Speaker 1: Eric Um, how much gaming are you doing during the pandemic? Well,
Speaker 1: we have Roku and Realko allows you to get these
Speaker 1: free old school games. So I have been playing a
Speaker 1: little Galagha and mini golf and maybe some chess, but
Speaker 1: that probably doesn't count. I think my nine year old
Speaker 1: is a better representative. He's become highly addicted to Roadblocks,
Speaker 1: which is his interactive platform game. Is kind of cool,
Speaker 1: and he likes his Nintendo Switch. So I think he's
Speaker 1: probably more of a representative of like what people are
Speaker 1: doing in the lockdown in terms of gaming. But he's
Speaker 1: definitely gamed more in the past four months. You know.
Speaker 1: It's a constant battle to you know, keep him doing
Speaker 1: other things versus that. But you could feel the poll. Yeah,
Speaker 1: and my guys almost five. That pole is for real Lego.
Speaker 1: That's his His go to game on the on the
Speaker 1: phone is all the Lego games. Those are great, he
Speaker 1: also loves, and that's representative of the bigger trend. No, Eric,
Speaker 1: like the gaming industry has just been its rocket ship.
Speaker 1: What's it look like in the E T F Lanscape? Yes,
Speaker 1: so there's four of them, esp O, which is van
Speaker 1: Eck up this year. Remember this is a year where
Speaker 1: the S and ps up two percent and emerging markets
Speaker 1: are down one percent. A lot of these funds have
Speaker 1: emerging market exposure as well. So is astonishing. Hero is
Speaker 1: the Global X that's um, NERD is round Hill that's up,
Speaker 1: and gamer g A m R is e t F
Speaker 1: MG that's up. So and collectively they have about five
Speaker 1: million dollars maybe six hundred million. To me, that is
Speaker 1: astonishingly low. Given the numbers that I just read off
Speaker 1: to you. They're having a shiny object moment. The numbers
Speaker 1: in the video game industry which will go over are massive.
Speaker 1: They dwore some other areas where them ETFs are, you know,
Speaker 1: multiple billions. So I hope we can get into that,
Speaker 1: not only where the performance coming from, but also why
Speaker 1: there is some hesitancy from advisors to try to ride this.
Speaker 1: Uh there's it's a little bit of a mystery and
Speaker 1: to help us navigate these games. Matt Cantraman, a Bloomberg
Speaker 1: Intelligent analyst, and Will Hershey, who's behind NERD that roundto
Speaker 1: et F you mentioned, are going to be joining us
Speaker 1: this time. I trillions. Welcome to the meta fverse, the
Speaker 1: future of the gaming industry. I want to start really
Speaker 1: just with the nuts and bolts, start with will here.
Speaker 1: You walk into an advisor's office, right, it's a boomer,
Speaker 1: you know, it's like a six year old advisor. He's
Speaker 1: got all these wealthy clients. What do you do to
Speaker 1: pitch him on this industry? What numbers are you throwing
Speaker 1: at him? Well, I first I pull out my Atari
Speaker 1: because that's the only console that he's gonna be able
Speaker 1: to relate to. No um. I think at the at
Speaker 1: the highest level, you look at the overall gaming industries
Speaker 1: revenue figures and you're talking about, call it for last year,
Speaker 1: around a hundred and fifty billion dollars in revenues. That's
Speaker 1: bigger than the global box office and music industries combine.
Speaker 1: And it's a It's an industry that's also growing while
Speaker 1: other forms of entertainment or shrinking. UM So, coming into coronavirus,
Speaker 1: I think you're probably looking at high single digit growth
Speaker 1: rates year over year kind of for the next few years.
Speaker 1: I think what we're seeing now was stay at home.
Speaker 1: You mentioned it in the intro. We're gonna have growth
Speaker 1: rates that are above that for the next few years
Speaker 1: and then the bigger the bigger question here. And I
Speaker 1: believe that gaming is a secular trend, right You're playing
Speaker 1: into the fact that younger people don't want to be
Speaker 1: passive in terms of the way that they engage with entertainment.
Speaker 1: They want to be involved, whether that's social media or
Speaker 1: gaming or watching on Twitch. It's more about being involved.
Speaker 1: And I think I think what we're seeing going on
Speaker 1: right now is is a short term uptick, but that's
Speaker 1: more representative of a long term trend um. And that's
Speaker 1: kind of the high level pitch. I'd make the advisor
Speaker 1: and just real quick, go over the numbers. What's the
Speaker 1: annual revenue and give us something that's in close to
Speaker 1: that for a reference point. You're talking about a hundred
Speaker 1: and fifty billion UM, So there aren't that quite that
Speaker 1: many reference points. I'm trying to think off the top
Speaker 1: of my head, and there's nothing that's like right around
Speaker 1: that size. I think, Erica, you like to point to
Speaker 1: some of the other thematics. It's bigger than some of
Speaker 1: the others that have have garnered way more in terms
Speaker 1: of assets, right, It's bigger than robotics it's bigger than cybersecurity. Yeah,
Speaker 1: that those numbers would be bigger, and then you've got
Speaker 1: the growth rate, and then I guess I would go
Speaker 1: back and just say, how do how do those companies
Speaker 1: produce that revenue? Because are people buying games like they
Speaker 1: used to or they're moving on to more Because I know,
Speaker 1: like with my son, if if I asked him last night,
Speaker 1: if I gave you fifty dollars right now, what would
Speaker 1: you do with it? It's twenty five of it He
Speaker 1: used with for roebucks and he'd buy like stuff to
Speaker 1: make his like avatar look better. He'd do this some
Speaker 1: private server thing. Um, it's all very there's he has
Speaker 1: a whole plan of what he'll do. But that's a
Speaker 1: platform that's free, but he's about to spend money on it.
Speaker 1: So is that the new Are you giving him that money?
Speaker 1: By the way, No, he has to earn it. In fact,
Speaker 1: roebucks are what we do for allowance. Basically there's no
Speaker 1: more dollars. So this is like what we thought was
Speaker 1: gonna happen with crypto. It's just happening in a digital
Speaker 1: in a digital world with with Fortnite's b bucks, with
Speaker 1: roadblocks it's like digital economies are being built within games,
Speaker 1: and we'll see if that shapes out to be kind
Speaker 1: of what everyone kind of wants to call the metaverse
Speaker 1: every where at Neil Stevenson snow Crash. That's kind of
Speaker 1: this concept of our our younger generation is gonna live
Speaker 1: inside these digital worlds. But in terms of what you're
Speaker 1: what you're alluding to, eric Um, it's a shift that
Speaker 1: we've seen in the business model. Right when I was
Speaker 1: when I was growing up, you'd go to the game stop,
Speaker 1: you buy the physical version of the game. You'd go
Speaker 1: home and you play it with friend or brother or
Speaker 1: or your sister or whomever, and that was kind of
Speaker 1: the extent of the engaging with the content. Now what
Speaker 1: we've seen is, via technology and kind of online gaming,
Speaker 1: we're broadly the ability for games companies to deliver new
Speaker 1: and engaging content over the Internet. So, you know what
Speaker 1: that's meant is a shift in the business models one
Speaker 1: to kind of this more games as a service model,
Speaker 1: where games are free to play and are monetized via
Speaker 1: in game monetization. Uh, kind of what we call micro transactions, right,
Speaker 1: buying a new outfit for your character, buying a new
Speaker 1: dance move whatever it might mean, um and and that's
Speaker 1: ultimately meant over the past several years, it's meant multiple
Speaker 1: expansion for a lot of the game publishers, because if
Speaker 1: you're able to deliver content digitally, that can be a
Speaker 1: whole lot more profitable from a margin standpoint than having
Speaker 1: to shift out physical games every time. You know, you're
Speaker 1: trying to put out new content and and taking that
Speaker 1: taking that one step further. What it's also meant is
Speaker 1: intellectual property has never been more valuable than it is
Speaker 1: right now in gaming. People are playing the same games
Speaker 1: now for five ten years, and that's kind of we're
Speaker 1: seeing the development of franchises the same way we've seen
Speaker 1: it in Hollywood and blockbuster movies. Is is i P
Speaker 1: is super super valuable right now because you can continue
Speaker 1: to monetize it again and again, Matt, let's bring you
Speaker 1: in here that i P conversation. The producers of this
Speaker 1: Who are the players that you as an analyst, you're
Speaker 1: you're most interested in watching. One of the big names
Speaker 1: that everyone looks at is Take two because they owned
Speaker 1: rock Star and everyone knows Grand Theft Auto. And to
Speaker 1: further Will's point about comparing to the box office. Basically,
Speaker 1: everybody saw Avengers a game. Most successful movie in the
Speaker 1: box office ever, so grand Theft Auto five cost about
Speaker 1: half to make versus m Avengers end game, and it's
Speaker 1: made more than double lifetime. So to kind of put
Speaker 1: it in perspective, the biggest video games out there are
Speaker 1: much more profitable over time than than any movie that's
Speaker 1: ever been made. And that's and that's mostly because of
Speaker 1: what Will is alluding to the fact that of this
Speaker 1: life services model. So take two, I mean ten Cent,
Speaker 1: the HK listed China company, is the global leader in
Speaker 1: the industry. But if you dig into ten cents weeds
Speaker 1: they have investments in ownership of multiple gaming companies globally. Um,
Speaker 1: they own Riot Games, who makes League of Legends, They
Speaker 1: own Stakes and Activision and ub Saw. So they're they're
Speaker 1: they're they're global electronic arts. Everyone knows for the sports games,
Speaker 1: they don't own that intellectual property, but they've built up
Speaker 1: these these licenses that are almost impenetrable by by competition.
Speaker 1: So they have the factor monopolies in the sports arena
Speaker 1: where they where they where they compete the best, uh,
Speaker 1: you know, And then you also look at companies I
Speaker 1: mentioned us off. They have some great I P but
Speaker 1: all of the biggest companies that are in the easy
Speaker 1: t F indusees you know, like Wills, like like the
Speaker 1: like the nerd to et F. These are the industry
Speaker 1: leaders and the value does come from the intellectual property
Speaker 1: for sure. I also want to bring up these two
Speaker 1: companies that have been you know, hitted in like a
Speaker 1: decades long rivalry and there this rivalry is about to
Speaker 1: continue again with a kind of a new chapter. And
Speaker 1: that's Sony and Microsoft, right, who are known for consoles, right,
Speaker 1: And you know, I think that's one of the things
Speaker 1: that's really been interesting with gaming is obviously everybody's got smartphones,
Speaker 1: you've got games on all those, but the consoles remains
Speaker 1: sort of the heartbeat of the gaming industry. And both
Speaker 1: of them are about to bring out new consoles by
Speaker 1: the end of the year. What what's that going to
Speaker 1: do to the business. It's an exciting time to be
Speaker 1: a gamer. Is just an amazing year. You have the
Speaker 1: new consoles, as you mentioned, cloud gaming is starting to emerge, um,
Speaker 1: and then you factor in the COVID boost. But for sure, um,
Speaker 1: you know I I I personally have been an Xbox
Speaker 1: owner my whole life. UM, I plan on buying both. Um,
Speaker 1: I will be I will be that that weird nerd
Speaker 1: that that buys both this time around. Look at it
Speaker 1: at the end of the day. UM, you know, if
Speaker 1: we wanted the clock back a little bit. When we
Speaker 1: had the seventh generation cycles that consoles that was the
Speaker 1: Xbox three sixty and the p S three, Microsoft and
Speaker 1: Sony basically were fifty fifty. They basically sold the same
Speaker 1: number of consoles. But then in the most recent generation
Speaker 1: that was started in with the PS four and the
Speaker 1: Xbox One, Sony has outsold Microsoft more than two to one,
Speaker 1: and the main driver of that has been their exclusive content.
Speaker 1: They're they're self developed games that they make as well
Speaker 1: as third party games they get exclusive distribution for. Sony
Speaker 1: realized that was going to be their competitive advantage over Microsoft.
Speaker 1: Microsoft tried to be a home entertainment platform and it
Speaker 1: didn't didn't resonate, and they didn't have the games to
Speaker 1: back up the platform, and that's what led to Sony dominating.
Speaker 1: So Microsoft has made a lot of moves in the
Speaker 1: last couple of years. They've they've doubled their studio account
Speaker 1: to over ten now. Um. But with acquisitions of smaller
Speaker 1: studios to bolster their content. They're also really pushing subscriptions.
Speaker 1: They have their Xbox game Pass subscription service which has
Speaker 1: tons of has over two hundred games in there. I
Speaker 1: literally haven't been using it NonStop, um you know, during
Speaker 1: the during the lockdowns. Don't tell my boss, but um,
Speaker 1: you know, uh you know, we've been uh, you know,
Speaker 1: playing lots of games there. They've over ten million subscribers
Speaker 1: in there now and now with cloud gaming, they're gonna
Speaker 1: bundle their cloud gaming right into those subscriptions, so it
Speaker 1: won't be any additional costs to the users. So, um,
Speaker 1: Microsoft is taking a different route to differentiate itself. You know,
Speaker 1: the Xbox, the new console, is going to be the
Speaker 1: most powerful box, but they're also giving you other ways
Speaker 1: to to to interact with their services and their games.
Speaker 1: And at the end of the day, as Will mentioned this,
Speaker 1: games as the service models all about engaged and they
Speaker 1: don't care where they get that engagement from, whether it's
Speaker 1: their game or someone else's game, whether you're playing on
Speaker 1: a phone, a console, or a PC. They just want
Speaker 1: you in their ecosystem. And and this has been a
Speaker 1: big culture shift for Microsoft in the last few years,
Speaker 1: not just in gaming, I mean their entire business has
Speaker 1: gone from being a closed ecosystem to an open cloud architecture,
Speaker 1: and their gaming businesses now it's following that. Now. I
Speaker 1: will just add that we in the US and in
Speaker 1: the West love to talk about console gaming because there's
Speaker 1: a very high console penetration rate. People grew up with
Speaker 1: a Super Nintendo. Um, if you look across the globe,
Speaker 1: I really see the biggest opportunity in mobile because what's
Speaker 1: going on right now is smartphone technology has gotten so
Speaker 1: good that you can play the best video games in
Speaker 1: the world if you want to call them triple A
Speaker 1: video games on iPhone, fives on Android, potatoes, whatever, whatever
Speaker 1: you want to call them. Um, what that's really done
Speaker 1: is two things that's made games even more global than
Speaker 1: they already were, and in doing so, has really unlocked
Speaker 1: emerging markets. And I look at Latin America and Southeast
Speaker 1: Asia is really kind of the two most exciting growth
Speaker 1: areas for the gaming industry going forward, and it's all
Speaker 1: about introducing new gamers who never had had a Supernintendo
Speaker 1: growing up, that are now getting introduced via smartphones and
Speaker 1: to the best games in the world. I think that's
Speaker 1: a really important point that's going on right now. Okay,
Speaker 1: so now comes the most important question that I'm gonna
Speaker 1: asking the whole interview. How much view game on a
Speaker 1: day to day basis, like twenty four hours in a day.
Speaker 1: How much do you dedicate to gaming? Um, I haven't been.
Speaker 1: I haven't been gaming recently, but I would say I
Speaker 1: don't know, maybe a half hour. Like it's it's great
Speaker 1: because nowadays you can, you know, you can just jump
Speaker 1: into a game, play one play one round or match,
Speaker 1: and then and then kind of sign off and do that,
Speaker 1: you know, whenever you want. Well, that's just that's that's
Speaker 1: just that's disappointing. That's disappointing. I mean, I'm a solid
Speaker 1: four hours a day or so easily. Um, I wake
Speaker 1: up early in the morning just so I can play
Speaker 1: video games during lockdown. You know, I normally am a
Speaker 1: wake up early, go to the gym, go to work person.
Speaker 1: But there's no going to work, so and it's very
Speaker 1: easy just to sit in front of the TV when
Speaker 1: you're home and play. So my wife and I we
Speaker 1: beat Overcooked two. That's a great game to play as
Speaker 1: a couple. Really works in your communication skills. And if
Speaker 1: you survive that game without ripping other's throats out, that
Speaker 1: that's a huge accomplishment. I've beaten fours of Horizon four,
Speaker 1: which is this huge open world racing game. That's what
Speaker 1: I've been playing recently. But I played through the entire
Speaker 1: Halo collection because the new Halo is coming out at
Speaker 1: the end of the year, so I was like, I
Speaker 1: gotta play all the games again and get ready for
Speaker 1: the new game. So I've been playing everything that I
Speaker 1: can get my hands on. But it's all in the
Speaker 1: subscription service that I told you about, so it's like,
Speaker 1: you know, it's already paid for, it's just there. I's
Speaker 1: gotta play it, so it's it's fantastic. But now I've
Speaker 1: definitely been playing more since the lockdowns, and you know
Speaker 1: our our estimates that we've published on the terminal on
Speaker 1: b I Go, I always have to throw the plug. Um.
Speaker 1: You know, we've looked at the user base expanding about
Speaker 1: thirty globally for gamers since since the startup lockdowns in
Speaker 1: mid March. UM revenue is up, you know, the growth rate.
Speaker 1: Will was talking about a high single digit paces like
Speaker 1: the long term trend, but we're about ten to twenty
Speaker 1: points higher than that during this period. Um, and looking
Speaker 1: at the US, you know, looking at the U S
Speaker 1: mobile market for example, grew in the second quarter. So
Speaker 1: so the numbers are pretty huge right now, just go
Speaker 1: to the numbers how many people game out of in
Speaker 1: the world, if is there some kind of way to
Speaker 1: estimate that or what percentage of people. I mean, the
Speaker 1: numbers you here thrown around are somewhere around two and
Speaker 1: a half billion. Now that includes uh, definitely includes mobile, right,
Speaker 1: and it definitely includes also kind of what I would
Speaker 1: call casual or hyper casual mobile, right, which is candy
Speaker 1: crush mores with friends, those countless games in that calculation.
Speaker 1: But I mean over two billions the big number, no
Speaker 1: matter how you want to slice it. If you're talking
Speaker 1: hardcore gamers like the guys like me that are that
Speaker 1: play multiple hours a day, it's still in the hundreds
Speaker 1: of millions globally for sure. Um, when you add up
Speaker 1: console PC and the hardcore mobile players. I mean in China,
Speaker 1: there's lots of hardcore mobile players because you know, that's
Speaker 1: where all the game development is. Most of these video
Speaker 1: game ETFs have a good amount of exposure in Asia.
Speaker 1: In fact, Asia's typically the predominant area US might be
Speaker 1: typically um, there's one company in there that is at
Speaker 1: the top of a lot of these and I gotta
Speaker 1: I see it all the time as an E t
Speaker 1: F analysts, But again I'm an E t F anists,
Speaker 1: So don't dig into the companies which just ten Cent UM.
Speaker 1: You know, they're also in cloud computing ETFs, they're obviously
Speaker 1: in emerging markets in China. E t F s UM
Speaker 1: will talk to me about why it's in there, how
Speaker 1: much of their revenue actually comes from gaming, and like
Speaker 1: who's running ten Cent are they? Why are they so good?
Speaker 1: Like they seem to just keep rising in the ranks
Speaker 1: of these ETFs UM and they're they're everywhere. Now, yeah,
Speaker 1: I mean at a higher level, ten Cent is I
Speaker 1: think just past Ali Baba as the biggest company in
Speaker 1: China on a market cap basis. So it is a behemoth.
Speaker 1: It is an Internet giant that just so happens to
Speaker 1: have kind of really built an empire focused around gaming.
Speaker 1: And I think China is it kind of a unique
Speaker 1: market where they were able to start and gaming as
Speaker 1: kind of the core of their business and expand from there.
Speaker 1: In the US, you're kind of seeing large tech get
Speaker 1: into gaming a little bit later. UM. But in terms
Speaker 1: of Tencent, I like to call them like a mini
Speaker 1: gaming and esports et f on their own because of
Speaker 1: how many h great investments they've made into the space
Speaker 1: and how many companies under like subsidiary companies within their
Speaker 1: portfolio that they have that are doing really compressive things.
Speaker 1: To give you a few examples, UM, Tencent bought Riot Games,
Speaker 1: which is League of Legends, probably the biggest e sport
Speaker 1: in the world. They bought that, um a few years back.
Speaker 1: They also owned around Epic Games, which is Fortnite. They
Speaker 1: own super Cell which is Clash of Clans, a big
Speaker 1: mobile e sports, so they've really built like the premier.
Speaker 1: They also owned five percent of Activision Blizzard and a
Speaker 1: few percent in Ubisa, so they're they've really built just
Speaker 1: kind of a tremendous portfolio of underlying um underlying companies
Speaker 1: that are doing things in the games industry on the
Speaker 1: on the game development side. They also have stakes in
Speaker 1: in a few Chinese game streaming platforms that have been
Speaker 1: great investments for them as well. So they've done a
Speaker 1: ton in terms of investing capital all and I almost
Speaker 1: look at them as like a Berkshire Hathaway East if
Speaker 1: you will, if you look at how many public companies
Speaker 1: are companies they've had public and their portfolio and how
Speaker 1: well they've gone. And Matt, let me just follow up
Speaker 1: with that. You know, we'll just said the sports a
Speaker 1: couple of times. Um, just define this and like, what
Speaker 1: section of this whole revenue pie is e sports? And
Speaker 1: I will anecdotally tell you. I asked my nine year
Speaker 1: old last night, what would you rather do? Go to
Speaker 1: go to an Eagles game right from I'm from Philly,
Speaker 1: or watch a bunch of guys play roadblocks? And my heartbro,
Speaker 1: he picked, he picked watched people play roadblocks. I'm like,
Speaker 1: that just makes no sense to me because when I
Speaker 1: was in the eighties, Yeah, you'd stand around the pac
Speaker 1: Man game if some guy was on fire. But I
Speaker 1: wasn't gonna go and watch. I was more interested in
Speaker 1: actual sports. Um, are real sports gonna fade away? And
Speaker 1: the sports kind of like take over? Is that what
Speaker 1: we're looking at here? I don't. I don't think it
Speaker 1: will fade away, just a it's just an additional, you know,
Speaker 1: differentiated offering. Look, I mean the sports too, there's lots
Speaker 1: of ways to measure it and once you count as
Speaker 1: E sports. But it's it's a couple of billion dollars
Speaker 1: on top of the numbers that will and I've already
Speaker 1: been discussing, it's in addition to that, most of that
Speaker 1: comes from from media rights and selling the rights for
Speaker 1: like streaming on the internet or even on TV. Uh.
Speaker 1: You know. Speaking of Philly, you know the Overwatch League
Speaker 1: that's one of activisions leagues. They had the finals in
Speaker 1: Philly last year. Um. You know, Comcast has been a
Speaker 1: big supporter of that. They own one of the franchises, um,
Speaker 1: you know, and then they have they're building a stadium
Speaker 1: in Philly and E sports Arena, so, um, you know,
Speaker 1: a lot, a lot of investment is going into E
Speaker 1: sports and you know, at the end of the day,
Speaker 1: you know, for the large video game publishers, E sports
Speaker 1: is going to be very incremental in terms of the
Speaker 1: profit contribution. Like it's basically break even for Activision at
Speaker 1: this point. But what it does, it's it's much higher
Speaker 1: return on your marketing spect because if you're gonna go
Speaker 1: out there and promote your game as a competitive game,
Speaker 1: anyone can get this good and rise to these ranks.
Speaker 1: It's a great more direct way to bring more people
Speaker 1: into your ECO system. Sell more copies of your game,
Speaker 1: generate more engagement with more players. So for them, you know,
Speaker 1: even if they break even on actually running sports league,
Speaker 1: they benefit just because more people play their games. Weren't
Speaker 1: people spend money in their games? Now? I would say,
Speaker 1: I, I I know what kind of you're you're talking about,
Speaker 1: Which is this one two billion dollar sports industry? Where
Speaker 1: I look at it, it's around forty five to fifty five.
Speaker 1: And and in doing so, I'm really counting the games
Speaker 1: that are predominant E sports. Let's call it a League
Speaker 1: of Legends or a counter strike. The revenues that those games,
Speaker 1: which are really in my mind been driven by competitive
Speaker 1: play and people watching other people play, if we count
Speaker 1: those as E sports revenues totally different. Um. I think
Speaker 1: what Matt referring to is kind of these these in
Speaker 1: person events that look and feel like traditional sports, and
Speaker 1: and and the meteorites off of those which are certain
Speaker 1: to get sizeable in certain cases, but that's not quite
Speaker 1: there yet. Or to answer your question, are sports going away? Um?
Speaker 1: We recently launched a product that's kind of more focused
Speaker 1: on the traditional sports side. So my personal belief is no,
Speaker 1: But I do think you could see certain sports I'm
Speaker 1: looking at you, like the MLB in particular, that deals with,
Speaker 1: you know, a very high average age of its fan
Speaker 1: base that just as kind of phase out and goes
Speaker 1: the way of boxing or horse racing, just from a
Speaker 1: demographic standpoint, and that I could see kind of baseball
Speaker 1: being replaced if it doesn't figure out a way to
Speaker 1: kind of speed up the game and make it more
Speaker 1: engaging and exciting. Totally agree, But I've stopped baseball for
Speaker 1: the most part. I was just gonna say, if you
Speaker 1: look at the NBA, the n B A is a
Speaker 1: is a joint venture partner in the NBA two K League,
Speaker 1: which is the sports league based on Take two his
Speaker 1: video game two K NBA two K. So the NBA
Speaker 1: is all in on the sports they get it. Um.
Speaker 1: I agree with Will you know, especially during lockdowns, you
Speaker 1: saw MLB players streaming MLB the Show on Twitch all
Speaker 1: the time. Tommy Kinley, who's a picture for the Yankees,
Speaker 1: who's a absolute psycho. He was amazing to watch on
Speaker 1: I would wake up early in the morning just to
Speaker 1: watch him. Um, and I'm super pumped for baseball way back.
Speaker 1: I'm a huge baseball fan, and the Yankees are gonna
Speaker 1: you know, just the evil umpires back. Let's go Yankees.
Speaker 1: But the more that professional league see value in supporting
Speaker 1: an e sports league to complement what they're doing, it
Speaker 1: brings in the younger generation who is kind of disenfranchised
Speaker 1: with sitting around and watching a football game for four
Speaker 1: hours a day. What we're seeing going on right now
Speaker 1: with no traditional sports now hopefully that all changes Thursday
Speaker 1: and we continue on with the schedule, is a unique
Speaker 1: amount of attention being paid to sports simulation e sports.
Speaker 1: So Matt Matt talks about the NBA two K League
Speaker 1: or or Matt and or MLB the show. These these
Speaker 1: games that are meant to simulate traditional sports in normal environment.
Speaker 1: Those aren't that Those aren't the games that people are
Speaker 1: you know, tons of people are watching. I think a
Speaker 1: lot of people think that they hear the sports. They
Speaker 1: think it's like, you know, it's people playing virtual football.
Speaker 1: Really not. And I think the the fantasy games, if
Speaker 1: you will, or or shooting games, things that you can't
Speaker 1: replicate in real life, um are the ones that really
Speaker 1: attract people's attention. It's kind of this more of more
Speaker 1: of even more of an escape then I think you
Speaker 1: get from the kind of sports sem title. Okay, well,
Speaker 1: I want to bring it back to the the e
Speaker 1: t F right, because as we mentioned at the top,
Speaker 1: there's sort of four gaming e t F s. You're
Speaker 1: behind NERD, but you've got gamer Hero esp O. What
Speaker 1: distinguishes the products from one another and and specifically NERD
Speaker 1: from the competitive set? Yeah, I mean, I think if
Speaker 1: you look across the board, they've all performed rather well,
Speaker 1: So there's kind of a correlation there which you would
Speaker 1: expect um for us. Really, we try and take a
Speaker 1: kind of a pure play approach to all the products
Speaker 1: that we're gonna put out in terms of thematic equity.
Speaker 1: So you can imagine a scenario where you know, you
Speaker 1: have a Microsoft or a Sony that we talked about
Speaker 1: included in ETF like this, Well, they don't really generate
Speaker 1: a whole lot of revenues from their gaming segment relative
Speaker 1: to the overall business. We do two things. One, we
Speaker 1: try and identify companies that are really really kind of
Speaker 1: tied to this theme of e sports and game streaming
Speaker 1: and to assign a higher weight to those companies, And
Speaker 1: we kind of have a tiered methodology that helps get
Speaker 1: us to kind of what we believe is a really
Speaker 1: unique place, not waiting based on market cap, but rather
Speaker 1: kind of this pure play exposure concept and what it's
Speaker 1: meant for us kind of UM, year today is is
Speaker 1: some of our biggest holdings, Um, maybe our underweights are
Speaker 1: not even including some of the other e T s
Speaker 1: like the Chinese game streaming platforms for example. So on
Speaker 1: other follow up I have for this is, you know,
Speaker 1: if we talk about the numbers, like we've talked about
Speaker 1: the ETF has barely been a year now, what took
Speaker 1: so long? Um? You know, I I'm quite I'm surprised
Speaker 1: as well. And I think that you know, we launched
Speaker 1: it for a reason, right, We thought there was there
Speaker 1: was a huge, huge opportunity here. Um. But I think
Speaker 1: it still comes back to this concept of now we're
Speaker 1: doing things differently. I think we're marketing to a younger audience.
Speaker 1: We're we're kind of taking a different approach and et
Speaker 1: F distribution. But UM, when you talk about coming back
Speaker 1: to Eric's earlier conversation around advisors really being comfortable and understanding, UM,
Speaker 1: it felt like there was so much in the news
Speaker 1: over the past couple of years with with Fortnite and
Speaker 1: and Ninja and Drake playing and having hundreds of thousand
Speaker 1: people watched them on Twitch, that it kind of felt
Speaker 1: like it was e sports and gaming in the U S.
Speaker 1: We're just getting to the point where they were mainstream,
Speaker 1: and even those those advisors who maybe have never picked
Speaker 1: up a game themselves were kind of able to they
Speaker 1: had heard about it, and that I think played into
Speaker 1: the timing. And if I could add to that as well,
Speaker 1: because I think if you think about the fundamentals of
Speaker 1: the industry and how it's changed in the last decade, also,
Speaker 1: I think that also plays an important role because a
Speaker 1: lot of investors, a lot of you know, R A
Speaker 1: s and whatnot that are older when they think of
Speaker 1: video game companies, these are hit driven businesses, just like
Speaker 1: the box office companies where historically, before this game to
Speaker 1: the service model, you live and die by every game,
Speaker 1: and so you was, you know, you had beta risk
Speaker 1: on the upside and you have massive negative downside skew
Speaker 1: in these companies that were you know, living buying by
Speaker 1: single by single games at the time. But now we're
Speaker 1: in a world where you have these large live services
Speaker 1: games that are highly recurring in their revenue, you know,
Speaker 1: electronic arts of their revenue and over ninety percent of
Speaker 1: their cash flow is basically recurring. Now you couldn't say
Speaker 1: that ten years ago. And so because of that dynamic,
Speaker 1: you look at a business a business model that is
Speaker 1: that is much more sasllite than it was box office
Speaker 1: like ten years ago, and that that is starting to
Speaker 1: change investors perceptions. And you saw this start to really
Speaker 1: take hold in seen that's when multiples of the sector
Speaker 1: really started to detach away from other media stocks and
Speaker 1: trade more like tech stocks. And since then it's kind
Speaker 1: of been in that range. And so you know, it
Speaker 1: took a couple of years for investors to buy into
Speaker 1: that thesis. But since then, um that that that really
Speaker 1: that new mindset has taken hold. And I think you've
Speaker 1: also seen that in the flows into funds like wills
Speaker 1: as well. Yeah, I do think this is a you know,
Speaker 1: an issue that is gonna just persist. I pulled people
Speaker 1: on Twitter a year ago, and perception to frivolous was
Speaker 1: the number one answer for why the video game ETFs
Speaker 1: haven't attracted the kind of assets that robotics, cybersecurity and
Speaker 1: even cannabis has despite having numbers that are as good
Speaker 1: or better in terms of performance and revenue. Uh. And
Speaker 1: then the second choice was ignorance unaware they're missing a
Speaker 1: lot of growth right now. It's just it's just weird
Speaker 1: to me. I feel like if you did one of
Speaker 1: those old schools taste tests and you put up the
Speaker 1: numbers but not the name of the e t F,
Speaker 1: people would pick the video game et F over those others.
Speaker 1: But then you showed the name and they're like, oh,
Speaker 1: I didn't want to pick that. I think. I think
Speaker 1: another thing that we kind of touched on a bit earlier,
Speaker 1: but is the exposures in the underlying industry. Just in
Speaker 1: terms of the nature of which companies are public, there
Speaker 1: aren't that many household names that are US listed. You
Speaker 1: have Activision, Blizzard, Electronic Arts, take Too, and maybe throw
Speaker 1: Zinga in there, and that's it. And I think without
Speaker 1: kind of in the investing public having been conditioned to
Speaker 1: understand these companies follow earnings things of that nature, when
Speaker 1: you put a whole portfolio of names in front of
Speaker 1: them that there may be not as familiar with, it
Speaker 1: kind of takes a little bit of time. Let me
Speaker 1: watch a little bit um versus uh, you know, maybe
Speaker 1: maybe other sectors where you've got fifty sixty plus percent
Speaker 1: US names that you're all familiar with. And I would
Speaker 1: also say that to Will's earlier point about Microsoft and Sony,
Speaker 1: a lot of the companies aren't pure plays in gaming.
Speaker 1: You know, Microsoft is one of the biggest gaming companies
Speaker 1: in the world, but gamings only ten percent of Microsoft.
Speaker 1: Sony is a bank. People forget that Sony also is
Speaker 1: a bank. Um See Limited, which is one of the
Speaker 1: best performing emerging market stocks in the world right now. Um.
Speaker 1: They're a huge gaming company in Southeast Asia, but they
Speaker 1: also have this massive e commerce business that's growing at
Speaker 1: a hundred percent a year, So that that also affects
Speaker 1: the business model as well in the sense that these large,
Speaker 1: the largest players are diversified tech conglomerates, you know, basically,
Speaker 1: and then you have smaller players that are also diversified
Speaker 1: as well. You only have a handful of your plays.
Speaker 1: One thing we're seeing happen right now, um, and it's
Speaker 1: happening in both the West and the East, is big
Speaker 1: technology companies. The largest technology companies in the world are
Speaker 1: all making investments in terms of human capital and millions
Speaker 1: of dollars into video games streaming platforms. So you have
Speaker 1: Amazon that famously bought Twitch. Google is investing into YouTube gaming,
Speaker 1: Facebook has Facebook, and then if you go to kind
Speaker 1: of Asia Pacific ten cents invested into Huyian. Do you
Speaker 1: Sony and Billy Billy, And I think, really what this
Speaker 1: all has has and this is transpired over the last
Speaker 1: few years, is it speaks to the fact that one
Speaker 1: gaming is becoming mainstream, but two, I think there's something
Speaker 1: bigger at work here where large tech is figuring out
Speaker 1: that gaming, whatever form that kind of takes. In this case,
Speaker 1: streaming platforms really can be a user acquisition tool to
Speaker 1: kind of and kind of be that top of an
Speaker 1: all um for kind of building relationships with a younger
Speaker 1: audience and having them over time convert to potentially higher
Speaker 1: margin businesses. And there's something like really powerful about the
Speaker 1: biggest tech companies in the world investing into games streaming. Um.
Speaker 1: I think it's a little bit early to say what
Speaker 1: their endgame is there, but it's just it's so fascinating
Speaker 1: to watch, and I think really important to note that
Speaker 1: the biggest tech companies all say, hey, there's something here.
Speaker 1: This demographic is really valuable. Let's let's invest. It's also
Speaker 1: important to note that a lot of those companies are
Speaker 1: the big cloud companies Microsoft, Amazon, Google, Facebook, and cloud gaming,
Speaker 1: as I mentioned, is starting to take off, and over time,
Speaker 1: I think you're gonna see a blending of streaming and
Speaker 1: cloud gaming. I mean, think about it this way. You
Speaker 1: could pay to play Fortnite with Ninja. You hop into
Speaker 1: his Twitch stream and then all of a sudden, you
Speaker 1: pay a premium and you can jump right into the
Speaker 1: game with him. You know, these are the type of things.
Speaker 1: This is where gaming is going, going to what I
Speaker 1: was talking about the metaverse being hyper engaged with audiences.
Speaker 1: This is where gaming is going. And I think that's
Speaker 1: that's one of the key trends. This is like a
Speaker 1: decade long trend. But this is where I think we're going.
Speaker 1: I can tell you guys are just like nerd ing out.
Speaker 1: You could I could see you guys intended going like
Speaker 1: hours at a bar over this stuff and know you're
Speaker 1: exciting to go to a bar. Just go to a
Speaker 1: video game. Yeah that's right. Sorry, that doesn't exist anymore, right,
Speaker 1: social interaction, screw that, Okay, but we'll go to a
Speaker 1: video that's right. There is there a video game called
Speaker 1: bar just going to grant theft auto online. You go
Speaker 1: to a bar that's right speaking Well, this this actually
Speaker 1: riffs merges into my question. I just saw Already Player
Speaker 1: one with my son and it was a good movie,
Speaker 1: you know, it was, we enjoyed it. But I think
Speaker 1: it was ramp or. Somebody on Twitter said that's what
Speaker 1: they see as being the most accurate depiction of what
Speaker 1: the future will be like. And I was thinking more
Speaker 1: about it and the way you guys are talking, I'm like,
Speaker 1: will there be like this world in which we communicate
Speaker 1: in and live in digitally that isn't the real world
Speaker 1: that sort of becomes bigger and bigger and maybe even
Speaker 1: at the expense of the real world. And does that
Speaker 1: starting September because we're all in a pandemic. I think
Speaker 1: I think if you'd speak to most people, it's kind
Speaker 1: of it's it's it's not if. But when that kind
Speaker 1: of really takes hold and becomes kind of a bigger
Speaker 1: part of culture, I mean you're seeing pockets of it now.
Speaker 1: Um You're seeing uh graduations held within Minecraft, You're seeing
Speaker 1: dates inside roadblocks, you're seeing um music concerts. Travis Scott
Speaker 1: inside a Fortnite right, Like, these games are becoming platforms
Speaker 1: for things other than what the original intention and the
Speaker 1: code that was written for people to try and win
Speaker 1: the games. They're becoming more like social media, um in
Speaker 1: that sense, and I think, um, in my mind it's
Speaker 1: you know, I actually if you if you go on Twitter.
Speaker 1: About a year ago, I asked him Sweeney, who's the
Speaker 1: CEO of Epic on Twitter, I said, do you view
Speaker 1: Fortnite as a game or platform? And he famously said
Speaker 1: I view it as a game, but asked me, you
Speaker 1: get in twelve months, and I think all of these
Speaker 1: game CEOs are really thinking about how to how to
Speaker 1: make their i P bigger than just a game and
Speaker 1: a place where people engage more and more. And then
Speaker 1: the amount of monetization potential that you have there. I
Speaker 1: mean you talk about in game advertising, you talk about
Speaker 1: brand activations inside of games, and and just kind of
Speaker 1: this entire new world is opened up. But it is
Speaker 1: a scary concept. Right like now, I think we're uniquely
Speaker 1: the entire world is kind of sharing in this concept
Speaker 1: of living virtually right now. So it's maybe more than
Speaker 1: ever seems like something that hey, that's not so crazy. Um,
Speaker 1: but I think it's really it's not if but when
Speaker 1: Will cavya and say, because I am a big VR
Speaker 1: virtual reality skeptic, I don't think this is gonna be
Speaker 1: everyone putting on a virtual reality headset and completely disassociating
Speaker 1: themselves from the world around here. You guys have kids,
Speaker 1: could you imagine like locking yourself out with noise canceling
Speaker 1: headphones and kids running around and god forbid they hurt
Speaker 1: themselves and you have no clue because you're in the metaverse.
Speaker 1: Like so, so I think there's limits to it, But
Speaker 1: I agree, But I just I don't think it'll be
Speaker 1: exactly like what we've seen in the movies where or
Speaker 1: what's coming in cider Punk later this year from CD Project,
Speaker 1: who's a great video game developer, where you your character
Speaker 1: inside the game, puts on a VR headset inside the
Speaker 1: game to go inside a neural network inside the video game. Um,
Speaker 1: that's coming later this year in November, and it's gonna
Speaker 1: be an amazing game. But you know, so I don't
Speaker 1: think that kind of thing happens. I think it's going
Speaker 1: to be continuing more of what we've seen, you know,
Speaker 1: as as Will said perfectly, video games morphing into social networks.
Speaker 1: These are the new social networks. This is what's displacing Facebook. Okay,
Speaker 1: So closing questions, best game of all time and the
Speaker 1: game that I need to go play when I get
Speaker 1: off of this interview. Oh man, that's so difficult. I'm
Speaker 1: gonna show off that I'm not as hardcore of a gamer.
Speaker 1: But I want to say the best video game of
Speaker 1: all time, it's Halo Halo one, the original Halo. And
Speaker 1: maybe that's that's like very specific to my age and
Speaker 1: in terms of what you gotta go play now, Um,
Speaker 1: I mean, if you've never played Fortnite, it's free to play,
Speaker 1: like you've got to try it, or called Duty war
Speaker 1: Zone one of those two. But I'm gonna say Doom,
Speaker 1: the original Doom, because that kind of was the precedent
Speaker 1: for like all sorts of modern shooter games going forwards. Um,
Speaker 1: games that I have spent the most time in. My
Speaker 1: favorite game of all time was called Duty Modern Warfare two. Um,
Speaker 1: you know, back in the heyday. Um. And what I've
Speaker 1: been playing now I mentioned it. I've been playing for
Speaker 1: is the Horizon for And it's just fun because you
Speaker 1: get to jump cars off of mountains, all right, Matt Kannerman,
Speaker 1: Will or she think you guys so much for joining
Speaker 1: us on Trillions. Thanks guys, thanks for listening to Trillions
Speaker 1: until next time. You can find us on the Bloomberg Terminal,
Speaker 1: Bloomberg dot com, Apple Podcasts, Spotify, and wherever else you
Speaker 1: like to listen. We'd love to hear from you. We're
Speaker 1: on Twitter, I'm at Joel Weber Show, He's at Eric Baltunas,
Speaker 1: And you can find Matt at the cantor Bot. And
Speaker 1: you can find Will at Maybe Bullish. This episode of
Speaker 1: Trillions was produced by Magnus Hendrickson. Francesca Levy is the
Speaker 1: head of Bloomberg Podcast. Bye.