This week, the Pixels & Profits brothers, Matthew Kanterman and Brian Peganoff, and I discuss some outstanding hot topics in the game development industry recently:

Major structural and cultural problems afflicting Ubisoft
Latest outlook on Unity
Quick update on Applovin
China and the impact on global gaming companies
Microsoft's acquisition of Activision; the impact and future outlook
Quick update on Roblox

Join us for this newer format and stay tuned for more Pixels & Profits; we’ll have more cooking by the end of the year and into 2025!

🎧 Listen on Spotify, Apple Podcasts, or Anchor

Speakers:

Joseph Kim. CEO at Lila Games.
Brian Peganoff. Founder at Timber Advisors.
Matthew Kanterman. Director of Research, Blue River Financial Group.

🎮 Hot Takes: Ubisoft's Struggles, Unity's Revival, and Microsoft's Game Pass Gambit

The gaming industry continues to evolve rapidly, with several major storylines developing across key players. Here's the Pixel bros take on the most important trends and takeaways from recent developments:

🎯 Ubisoft's Structural Challenges

Execution Issues Continue: Ubisoft's recent game delays (including Assassin's Creed) and underperforming titles (Star Wars Outlaws) highlight ongoing execution problems
Development Model Crisis: There are growing questions about whether Western studios can sustain large-team, high-budget development approaches, especially given recent failures:
- Warner Bros' Suicide Squad ($200M loss)
- Sony's Concord (pulled after 2 weeks)
- Bethesda's Redfall
- Battlefield 2042
Path Forward Options:
- Consider focusing primarily on Assassin's Creed franchise
- Explore hybrid development models leveraging Asian studios
- Potential acquisition, though complicated by French labor laws and ownership structure
- Private equity buyout, though challenging without major restructuring ability

🔄 Unity's Turnaround Attempt

New Leadership Impact: Under CEO Jim Whitehurst and now Marc Bromberg, Unity has:
- Cut costs and divested non-core assets
- Killed controversial runtime fee policy
- Brought in new talent to revitalize ads business
- Reset street expectations
Positive Technical Progress:
- Unity 6 bringing meaningful improvements in rendering and optimization
- New systems like GPU Resident Drawer and enhanced render pipelines
- Better developer sentiment around recent updates
Key Challenges:
- Ads business losing share to AppLovin
- Questions about the long-term viability of the current pricing model
- Need to improve operational efficiency
- May need to consider going private for a major pricing model transition

📱 AppLovin's Rising Star

Strong Execution:
- Now hitting $1B quarterly revenue
- 75% EBITDA margins on software business
- Strong free cash flow generation
- Gaining significant market share in mobile ads
Market Evolution:
- Moving beyond just mobile into CTV and web
- Publishers seeking alternatives but AppLovin's dominance growing
- Maturing into a major ad tech player

🎮 Microsoft + Activision: The Game Pass Question

Key Strategic Questions:
- Will Activision be larger or smaller in 5 years under Microsoft?
- How will Game Pass impact traditional game sales model?
- Can Microsoft effectively monetize mobile gaming?
- Future of Xbox hardware vs cloud gaming
Industry Impact:
- Creates opportunity for competitors like EA's Battlefield
- Questions about maintaining annual Call of Duty cadence
- Potential for ad-supported Game Pass tier
- Mobile app store implications

💭 Final Thoughts

The gaming industry is at an interesting inflection point. Traditional Western AAA development models are showing cracks, while Asian studios (particularly Chinese) demonstrate the capability to execute large-scale projects successfully. Meanwhile, business model innovation through subscriptions and advertising continues to reshape how games are monetized.

The next few years will likely see continued evolution in development approaches, business models, and market leadership. Companies that can successfully navigate these changes while maintaining execution quality will be best positioned to thrive.

What are your thoughts on these industry developments? I'd love to hear your perspective in the comments.

Pixels & Profits

Ubisoft, Unity, China, and Microsoft x…