a16z Podcast - 16 Minutes on the News: Fortnite, Esports, Gaming, and Entertainment

Episode Date: August 4, 2019

with @andrewchen @dcoolican and @smc90 This is episode #3 of our new show, 16 Minutes, where we quickly cover recent headlines of the week, the a16z way -- why they're in the news; why they matter from our vantage point in tech -- and share our experts' views on these trends as well. This week we do a short but deep dive on esports, given recent news of the inaugural Fortnite World Cup champion, and how this all fits into the broader trends in gaming, social networks, and the future of entertainment. Our a16z experts in this episode are general partner Andrew Chen and investing team partner D'Arcy Coolican, both of the consumer vertical, in conversation with host Sonal Chokshi.

Hi everyone, welcome to the A6 and Z podcast. I'm Sonal. I'm here today with the third episode of our new short form news show, 16 minutes, where we cover recent headlines, the A6 and Z way, offering expert takes on the trends involved and more. You can follow the show in its own feed in your favorite podcast player app. Our other episodes cover multiple news items and topics, but this week we're doing two separate short but deep dives connected to recent headlines. One on the opioid crisis, which you can find in this feed or at A6 and Z.com slash 16 minutes and this episode, which is on e-sports, gaming, and entertainment. So here's the news. The Fortnite World Cup just happened this past weekend. It's the first time ever. It was the inaugural World Cup, and it actually took place in the same exact stadium in New York that the U.S. Open for tennis takes place. And the news was that besides the fact that this is a big new thing, was that a 16-year-old named Kyle Giersdorf won $3 million. And that is actually the largest prize ever for a single person in e-sports history. And by the way, his nickname, or his player name is Buga, and that's actually the name he got from his grandfather calling him Buga,

Buga, Buga when he was a baby, which I think is really cute. Just to put this in even more context before I introduce our experts, what's also really interesting about this is that this prize money is not that different from traditional physical sports. Everyone's talking about how Buga earned more money than Tiger Woods did for winning the Masters. And it's not even the biggest prize pool overall. Dota 2's the international is the largest ever so far with over $30 million. And that's what everyone's talking about. To me, the real big news here is that two million people concurrently live streamed this this past Sunday on Twitch and YouTube. My friend Angela Watercutter at Wired pointed out that this is not as big as Game of Thrones, but that's a hell of a lot,

so it's slowly mainstreaming. I'm going to introduce our A6 and Z experts, Andrew Chen, general partner, who covers our consumer vertical and Darcy Kuliken on the investing team for consumer. I want to hear from you guys, what's a broader category that this fits in, what's hype, what's real and how are you guys thinking about this in the context of the future of entertainment and tech? That's a big question. Awesome. I think, you know, when we look at e-sports, the most fascinating thing about it is it is the most publicly visible phenomenon of the much broader trend, which is, you know, the emergence of gaming as a new form of entertainment at a peer level to TV and movies and music and so on. It's sort of inevitable that it'll get there. And just the

hours that consumers are putting in really show that. For years, people have said, well, you know, gaming, it's this like hits-driven business, and you build a game and you release it, and you get all your sales in year one, and then that's it. And I think what we're seeing is that in this new style of hyper-social gaming properties that have e-sports leagues around them, that have multiplayer built in, that these properties like League of Legends, Riot Games, is their flagship game, has now been around for 10 years. It's still doing, you know, over a billion and revenue. There's still a ton of people playing, you know, EverQuest. There's still a ton of people playing, wow. World of Warcraft, right. And so this is sort of a new way that consumers

are coming together and interact with each other in a big way. And in esports is kind of the natural outcome of all that. So you've alluded to the fact that people have been talking about this for a while. Why now? What's different that this is finally starting to compete with TV and other forms of entertainment? There's a couple different trends that are coming together. I think the very first one is that video has just become such a huge thing. Streaming has become such a huge thing. That is very much to do with the fact that we have phones. We carry these supercomputers in our pocket. We have the bandwidth ability to be able to do it. And so when you look at these stats around Twitch and YouTube, there's literally billions of monthly actives that are consuming video, what that means

is that creates this new medium for any product that produces lots and lots of visual content to live on top of that video. And so we often will, you know, talk about this in the context of gaming or in a context of education or the context of many other of these things. But gaming is clearly the one that like has very much benefited from that. So I think that's that's one really big piece. The second piece here is that there's steam, there's all the new consoles, there's cloud gaming, you know, that's coming out. I think all of these new trends really serve to bring gaming that, you know, but maybe back in the day you would have had to buy a $3,000 PC rig in order to run. Like, you know,

They load up all the graphic processors and all these different things to really enjoy the game. Exactly. And then now it's like, wow, you know, actually like the iPad plays Fortnite pretty well, right? You know, they have to modify the controls a little bit and this and that. But, you know, that is such an amazing experience to be able to play one of these massively multiplayer games without needing to spend thousands of dollars. So I think, you know, those two things. And we're also just seeing that kids that are growing up playing Minecraft and Roblox, they're graduating to Fortnite. You know, and there's a very good question.

Like, are they going to graduate from Fortnight? night and what else are they going to do? Are these kids going to find that, you know, in a world where they've been immersed with all their friends in these, like, insane, you know, 3D environments, that they're going to go to a 2D feed with static images and think that that's actually the coolest way to hang out with their friends. Like, probably enough. That's new for us, but for the kids growing up like that with that native worldview, that you're right. That's their new, that the baseline has shifted. If you grew up on AOL instant messenger, you would not have been able to guess that a system of profiles and feeds and, you know, this and that would be the dominant way to hang out with your friends,

not instant messenger. And, you know, now for many of us that are in the Facebook or, you know, Instagram kind of generation, I think it's going to be hard to extrapolate, like, oh, maybe actually the next way that all the humans in the world want to get together isn't going to be also feeds and following and photos and, you know, all this other stuff. It might look more like Minecraft, might look more like Fortnite. Yeah. That's so fascinating because it has interesting implications for where the future social network comes from, which is from games. Yeah. I mean, I think you're already seeing this. Like the product experience of a Facebook or a chat group is now the product experience of a game itself and the social network layers around it. Fortnite then

becomes the place where people hang out. You know, we say why now? And it's this idea that games entered the cultural zeitgeist and that's driven by a lot of technology and it's driven by video and it's driven by a bunch of the other things. But then, you know, once your friends are playing it, you want to play it. It's kind of like reaches this gating point and then it hits and then it hits a tipping point and then everybody wants to be playing and then they want to be where their friends are. So just to bring it back to the news then, because that's where the trends are going and how to think about in the big picture. Let's talk about e-sports for a minute, particular. So you guys are saying that this is part of the larger trend than what's happening with gaming, technology,

social networks, the future of entertainment, really. But first of all, when I was at where I did an op-ed in 2013 that argued that e-sports, it was quite a long time ago, is no different than other sports. It was from Kevin Morris, who was at the Daily Dot at the time. And it was really interesting because I had to fight at the headline desk, because they were like, what the hell is e-sports? They were like, you can't say that. And just to give people context who are not familiar with that category, e-sports is big business. What really struck me is that it's not that it has a lot of the same features as traditional sports.

You've got training, like Buga in particular was playing for only two years, but he played six to eight hours a day. He's been training for two years, like entirely. He has a management company. There are sponsors. There are fans. You know, there's all these things in the regular sports ecosystem that play out with e-sports.

I'm actually curious for your thoughts in particular around e-sports about where does this fit in how to think about this. So I actually think the e-sports term is maybe a little bit tortured. Maybe not necessarily the best term. But you can just think about this as like, e-sports is another form of entertainment. Sports is one form of entertainment. You want to watch the people that are like the highest skilled people at any particular

sport. And it's kind of like a performance-based form of entertainment. You also have like personality-driven forms of entertainment, right? That's everything from like reality TV to, yeah. You can call that like some sort of e-sport in and of itself, right? I think e-sports sits somewhere in the middle of that kind of like performance-based entertainment, personality-based entertainment, right? Like Fortnite is much more kind of cartoonish.

It's much more driven off the personality of the streamers. Ninja is probably the most famous and the most highly compensated streamer, and he's kind of, like, personality-based. That's super interesting that's like, how did you think about this along the spectrum of sports, entertainment? From your vantage point and tech and, like, the future of entertainment, like, why does that matter? I mean, one aspect of it is that right now, when we think about sports and e-sports, inevitably, it's a player versus player competitive type genre. And I think what we're going to very quickly find is that, you know, if you just go to YouTube and search for Minecraft. There are so many things that people want to watch that are not this PVP competitive kind of format. And so I think-P-Pil-Bus player.

Right. And so I think what we're going to see instead is we're going to end up seeing a, you know, vast set of, you know, new genres, a very watchable, very streamable entertainment experiences, ultimately, that have as much to do with, you know, creativity and creative expression. You know, you can imagine playing rock band or, you know, Dance Revolution or whatever, like, kind of imagine that as a- I've always loved Dancing Revolution. Even if you take the metaphor as game shows, right?

Game shows are some of the most widely watched forms of entertainment. We don't call them sports, right? But people love watching them. And there's going to be competitive versions that aren't going to be about shooting somebody. It's going to be like, who can, you know, make the best virtual garden. You know, who can cook the best virtual recipes. That's going to be a thing. You're right.

What I love about that is things that are very native to what people already do and love. Since like there's a whole cult around the great British baking bakeoff. Yeah, totally. It's like, imagine that and like, to your point, like in sports form, that's super interesting. Yeah. Well, it's funny because people are like, oh my gosh, I can't believe people watch other people play video games.

But we watch like other people answer trivia questions. We watch other people play real physical sports. We watch other people like fix homes on reality TV in like quasi-competitive situations. That entire world exists. And it's just bringing that world into a place where people can do that more digitally. And then you're just creating the entertainment layer that sits on top of that interaction. So let's just go to talk about Fortnite specifically. It's made by Epic Games.

It allows up to 100 plays. to play at a time. And some people argue that's a thing that sort of made it really work. And a lot of games are now adding, you know, a battle royale mode where people can fight and compete in like a confined space, et cetera. Fortnite was a top rank free game last year. It made $2.4 billion in revenue according to Nielsen-owned Super Data Research. And I think people only focus on the fact that it's been around for two years. But it wasn't really a sudden overnight success because it has a longer history. And I'm just curious for your guys' view on sort of this trend of a lot of these games writing to add a battle royal mode in particular.

Yeah, one of the really fascinating patterns that's been happening in the games world has been that, you know, oftentimes there's a whole ecosystem of moders. These are people that, oh yeah, like, you know, I love the modding community. Right, yeah, exactly. Modify games. Exactly, that's right. They're modifying games. They're adding new assets, adding new rules, you know, et cetera, et cetera.

And, you know, League of Legends was originally derived from Dota, which was a mod of Warcraft 3. And similarly, Fortnite had had a bunch of predecessors. There's PubG, there was a mod that was built on, you know, ARMA, you know, et cetera, et cetera. And so I think... And modding goes all the way back to Doom and even before that. Yeah, exactly. And so I think what we see is that, you know, many of these genres are taking time to kind of incubate

and kind of evolve in the indie gaming community and in the modder community. And then you have a new entrepreneur that then comes out with a fully integrated AAA-type level kind of thing. And that kind of, you know, brings it forward. And I think what they end up tapping into, especially this kind of new generation of games is bringing network effects into the games industry. What do you mean by that? What I mean is that it used to be that game was just a piece of content and you'd play it

and then you were done. Right. A lot of the times these games are great. This tradition you're describing a modding, it actually leads to quick games being built and then dying. Right, right, exactly. And so what ends up happening is in a world where you can mod and then also ultimately create these full games that are multiplayer intrinsically and have competition, have these

different elements, what these are tapping into is they're able to create video and streaming communities around the game that kind of keep it going. Hence the network. That's one form of a network. Another form of a network has been the e-sports leagues and the teams and this whole ecosystem of folks that are-man sponsors, everything. Right, right, who all have this very strong incentive to like keep the game going and continue marketing and et cetera, et cetera.

And then, you know, the third one, which we haven't talked about is, you know, user-generated content in the context of games. I'm actually very interested in that because that's actually been a trend in every media wave where there's always like a central established player that makes the content and then there's a user generated phase that kind of comes right after that. That's right. Yeah. And I think, you know, as much as we're talking about Fortnite's Battle Royale, you know, a lot of what the company Epic has been, you know, emphasizing is their creative mode, which is just being able to like make cool structures and new types of gameplay, et cetera. And that's another form of how you can build

a network effect, the same one that's propelling Minecraft and Roblox as well as, you know, kind of this entire modding community. That's obviously been one of the most powerful forces in the internet consumer product sphere. And I think it's inevitable that that all makes its way into the games world. That's absolutely right. And I think the focus you're seeing on games companies trying to build, whether it's, whether it's e-sports, whether it's kind of battle royale or multiplayer modes, whether it's UGC. Like user-generated content. You know, like Epic didn't get Fortnite competitive, like the esports of Fortnite right on the first try, right? It took iterations. That's to me the interesting story here. Yeah. It's not an

It's not an overnight success. And like the game itself is not an overnight success. Like the e-sport, it is not an overnight success. But the idea of building towards network effects, I think you're seeing more and more games companies focused on that as the kind of ultimate end goal. So how does this play out with the real world? Because another really interesting article that actually the Wall Street Journal did this past week, and we've seen this as well, which is that real estate developers all over the country are trying to convert malls, convention centers, et cetera, into destinations for e-sports. They're doing stuff like adding locker rooms, like Broadcast studios, higher speed connectivity, massive LED video walls like in Times Squares.

And some of the cities involved here are like Baltimore, Philadelphia, Arlington, Texas, Los Angeles, New York, and Las Vegas, of course. So how do you guys think about this in this context? So I think that's a really interesting trend, which is around this idea of like what's happening in real life versus what's happening in the digital world. This division between like atoms and bites and gaming and this kind of genre is like this really fascinating transition point. You literally have people sitting in New York in a.

stadium watching something happen online. You also have people within the game watching the event happen within the game itself. And then you have like these characters and it's got this like Disney World Feel to it. But then you also have this stuff where they announced Marshmallow was going to do a concert at the World Cup. And there's this moment where you're like, is that happening in the game? Is that happening online only? Because like Marshallel had that concert, you know, a couple of months ago. That's right. That was a big deal. The cell membrane between like what's happening in real life and what's happening in the digital world in this game's context is getting super, super thin. People are now building stadiums for people to have e-sports competitions. And it's just this

blending of the physical world and the digital world. Yeah, Nathan Jorgensen used to talk about this concept of digital dualism, that it's kind of a false dichotomy to separate in real life IRL and the online world in many ways. You're saying that games is the bridge between them, which I think is super fascinating. I think the other thing that is happening, if you look at it from the real estate end of things, is that, you know, what are we going to do with all of this mall space, right? And what are we going to do with all these, you know, restaurants that are you know, kind of the three-star Yelp restaurant. It's just there, you know, but like really you could order from your favorite place on, you know, Uber Eats or DoorDash or whatever. And like, you know,

that's even better. Right. So it's, you know, cities are changing a lot. And there's a lot of space that's opening up that we're going to have to figure out what to do with it. You know, that very naturally leads to all these new forms of entertainment, especially when there are things that can drive foot traffic. Consumers are going to are going to go to these locations when they're deeply experiential, when they're very Instagramable, when it's something that's fun to do together. What's going to drive people to go to the mall in these spaces versus doing it in their home? Yeah, I think there's a bunch of different reasons why people will ultimately want to go to these experiential places. The very first thing is, you know, if you've ever been to Oracle Arena while they're playing League of Legends in a group of like, you know, tens of thousands of people, it is a very different experience than doing it at home.

Or you're going with your family to a, you know, sandbox VR, you're putting on all the latest gear and you have, you know, haptic feedback. You have like, you can actually feel the moves, not just. play it in VR visually. And you have fans, you have this and that, you know, and you're in a thousand square foot space, like how many folks in San Francisco have a thousand square feet of blank space and, you know, five VR headsets, you know, and all the gear and custom software and content. When you're talking about the highest end cutting edge experience, you know, that is going to be something that, you know, you're going to have to do outside a system that costs hundreds of thousands of dollars. We also are very excited

about the in-home experience as well, but that will always be a more casual type of, you know, experience than what you can get out in the field. Ultimately, I think it's going to be both. This is a very hopeful future. Sounds like we're going to have a lot of fun and interesting entertainment, and it's going to creep into other areas of our lives, education, et cetera. So we've covered everything in this episode from, you know, the recent milestone, Fortnite gaming, e-sports, the future of entertainment, real estate.

Bottom line it for me. Like, how should we think about the recent news of Buga, Buga, Buga, Buga, making, you know, $3 million and in this context of these larger trends? So I think there's three things I can bottom line. One piece of it is, you know, it just reflects Fortnite's kind of status within the current zeitgeist at the top of the stack right now. I mean, obviously, these things shift around, but for right now it's at the top. The second thing is it's the importance of e-sports competitive play to gaming more broadly. You know, publishers are going to continue to push this, Fortnite push this, you know, the importance of events like this, the important, the publicity that gets live events, the retention it drives, the kind of engagement it drives from players.

is just going to kind of continue to grow, and it's going to be more and more important to publishers as they develop these games. The third thing is just that shows the size and scale of what happens when games meets network effects, right? Which I don't think is a surprise, but I think what these events do is they crystallize it for the outside world. It gives you that point where you can now compare it to,

you know, how big is Bogow relative to Tiger Woods or Roger Federer or anything like that? Exactly. Exactly. Yeah, you literally put it in Earth or Ash Stadium, and now you have this nice contrast. point, which for people outside of the gaming industry, gives them something tangible about how big this is as a force in the world right now. Fantastic. Thank you guys for joining this segment. Awesome. Thank you. All right. Thank you.