Should other publishers worry about Fortnite?

The sudden success of Epic’s free-to-play battle royale title has not gone unnoticed. It’s hard not to. Ever since Drake and Ninja streamed their session and set a whole new record for the most concurrent viewers, both industry and mainstream press have been unable to get enough.

The question for many is whether the new kid on the block is just a passing fad or the shape of things to come. And, if so, if incumbents like Activision and Electronic Arts should be worried.

Central to the game’s rise to infamy has been Epic Games’ ability to make the most of current market trends and deploying an innovative business model. Analyze Fortnite’s success you’ll get an understanding of several of the most important drivers of change in gaming today.

The first is free-to-play. With the digitization of gaming the underlying revenue model has dramatically shifted. Where publishers previously monetized their audiences with a $60 price tag at the door, high-quality games are increasingly available for free. Today free-to-play gaming is a massive category valued at $82 billion last year and accounts for roughly three-quarters of total consumer spend on interactive entertainment.

A close competitor and predecessor is PUBG: a military shooter that popularized battle royale game play. One key difference is that it costs $30. Despite PUBG’s success and widespread visibility across streaming channels, its price point makes a critical difference in appealing to a broad audience base.

The popularization of video games is to a large extent the result of publishers lowering their pricing on content. Following a model comparable to other consumer platforms like Facebook, the games themselves are free and seek to monetize directly and indirectly by achieving a critical mass.

This is further boosted by a second trend that Fortnite has used to its benefit: the game is platform agnostic and available across PC, console, and mobile. Giving consumers the opportunity to download directly to any device ensures the largest possible addressable audience.

From a consumer’s point of view, there is no reason why video games should be exclusive to a single device any more than that a TV show should be exclusive to a television set manufacturer. Yet this is precisely the way the traditional console business has operated for decades.

But where Sony and Microsoft share a combined install base of 130 million units, mobile and PC reach far more people. (Fortnite is currently does not available on the Nintendo Switch.) More so, since Tencent already owns 40% of Fortnite’s developer Epic Games, the game is pretty much guaranteed to have a seamless release in both one of the biggest and toughest markets in the world, China.

The ability to quickly circulate among a large contingent of consumers is a key driver behind trend number three: mainstream appeal. Different from the slew of military-style shooter games out there Fortnite offers a colorful, cartoony aesthetic riddled with jokes and funny dances. It is distinctly less serious from the grunting and shades of beige in games like Call of Duty, CS:GO, PUBG, and Battlefield.

This also makes it more suitable for an important demographic segment that has enough time in the day to play a lot even if it cannot spend as much money. Teenagers are key tastemakers when it comes to spreading the word on ‘what’s cool’. My 14-year old neighbor rolled her eyes the other day when I asked what everyone at her school is playing. “Not you, too.”

This ability to drive a game’s visibility underscores the fourth key point that deserves attention — that the marketing of interactive entertainment has fundamentally changed. Previously publishers relied on traditional marketing channels and their retail partners to claim mindshare and create a frenzy towards a game’s release date.

Today streaming platforms like Twitch have taken over this role. Streamers spend hours online playing through a game or taking on online opponents, giving people a chance to view the game before committing to it. These are the new gatekeepers and tastemakers for interactive entertainment which means that publishers have had to relinquish control and rely less on printed game magazines.

All these changes create for some interesting commentary during earnings calls from big publishers. Obviously feeling the burn from investors and Wall Street analysts who worry that Fortnite may be taking market share away from their priced properties, management teams were repeatedly quizzed.

Both Activision and EA seem to look at Fortnite as innovative and a beneficial to the industry as a whole. According to Activision Blizzard’s CEO, Bobby Kotick:

“Gaming is constantly evolving and innovating, which often expands the marketplace, and the success of Fortnite is no exception. This game is attracting new players of all ages and gender and it is helping gaming become even more mainstream entertainment. […] And while many of our players try new games, they always come back to the franchises that are the foundation of the communities that they are a part of.”

Electronic Arts’ CFO, Blake Jorgensen, expressed a similar sentiment:

“We welcome innovation in the industry. That’s what makes this business so exciting and fun to operate in. If you look back over the 20 or 30 years, the innovation that one game team has done has been going through the whole industry. It’s fantastic, and we welcome innovators like Fortnite or PUBG that really help push everyone’s thinking. And we feel that that’s great for the business as a whole.”

It’s a clever tactic to refer to the new battle royale mechanic as a novelty, suggesting that it’s something that can be copied and leveraged for existing titles. It is also a nice spin to argue that it brings younger audiences to the shooter genre, thereby raising all the boats. What’s missing however is the acknowledgement that Epic and Tencent, the companies behind Fortnite, are experienced and well-intrenched. They are formidable competitors and not a budding firm that just hit its first success.

Given the tremendous market power of incumbent publishers the chance of a single game overtaking them entirely is highly unlikely. But certainly they should be well aware of what’s happening outside of their expensive studios. Or they may well find themselves out-innovated not in terms of content creation but in terms of business model innovation.

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