Franchise Value: videogame IP vs. movie IP
Many investors dismiss videogames as unpredictable, hit driven businesses with low “franchise value.” I disagree. I think a reasonable way to measure the “franchise value” of any creative intellectual property is to look at the peak to trough variance within franchises. i.e. More durable/recurring franchises with high “franchise value” should be less sensitive to the quality of individual releases and therefore have less variance within the franchise. I think it is fair to consider Star Wars as the best movie franchise of all time even though reasonable minds might disagree
Yet on this metric — peak to trough variance within the franchise — Call of Duty is a more durable franchise than Star Wars over the last 10 years. The highest variance within the Call of Duty franchise over the last 10 years was between Modern Warfare 3 at 30.7m units relative to WW2 at 12.2m units per statista.com (this data does seem incorrect in that Infinite Warfare almost certainly sold less than WW2 — I would take the over on the 12m units for both games though). The highest variance between individual releases in the Call of Duty franchise over the last 10 years was therefore 2.51x. The highest variance within the Star Wars franchise over the last 10 years was between The Force Awakens at $2,068,223m relative to Solo at $392,924m per boxofficemojo.com. The highest variance between individual releases in the Star Wars franchise over the last 10 years was 5.26x. We have seen 2x more variation within the Star Wars movie franchise than we have within the Call of Duty franchise over the last 10 years.
This makes logical sense to me. Games like Call of Duty are social networks and more important to the identity of their hard core “fans” than any movie/TV intellectual property. As Owen Williams wrote, Fortnite is a “place not a game” where players go to socialize as much as they to do play. All multiplayer games are “places” to one degree or another where the players tend to play with the same core group of friends. These social network qualities are a significant contributor to the stability and longevity of multiplayer videogame franchises as new competitors have to not just convert individual players, but entire groups of players to their new game.
Beyond these inherently social characteristics, videogames have secular tailwinds that other entertainment modalities do not have which makes the comparison more difficult. Perhaps a reasonable adjustment to the above analysis would make the franchise value closer to being equivalent (i.e. videogame sales in 2018 were significantly higher than in 2011 when Modern Warfare 3 came out which effectively increases the variance within Call of Duty). The other adjustment that is impossible to make is to include adjacent revenue streams for Disney — i.e. how much of theme parks recent pricing power came from the inclusion of Star Wars intellectual property. Although adjacent revenue streams are also coming for CoD.
Even with comparable franchise values (assuming very generous adjustments in Disney’s favor given the prior two points), the secular growth of videogames is powerful. Videogames now outsell movies and music combined (including streaming services like Netflix and Spotify) in the UK despite being a fraction of movie/music sales 20 years ago.
The main reason for this disparity in relative growth is that videogames are the only form of entertainment riding Moore’s law. I would argue it is impossible to make a movie or dramatic TV series that is better than the Godfather 2, Empire Strikes Back or the Deer Hunter which were all made in the 1970s. Similarly, it is hard to imagine Beethoven, Mozart or Bach being surpassed as musicians. Conversely, today’s videogames are incomparably better than games from even 10 years ago with lots of headroom to continue improving until they are indistinguishable from real life. And Moore’s Law makes videogames continually more affordable with streaming a massive market expansion coming in the next 2–3 years.
And fingers crossed that at some point in the future we get a Star Wars videogame as good as Knights of the Old Republic.
*this was originally published as a thread on Twitter on January 5, 2019.