- "Apex Legends" and "Fortnite" have tens of millions of players and are transforming the video-game industry.
- The two free-to-play, ‘battle Royale’ games have boosted their creators, Electronic Arts and Epic Games, as well as retailers and toy makers such as GameStop.
- They have hurt other video-game publishers such as Activision Blizzard, and pushed some studios to shut down.
- Watch EA, GameStop, and Activision-Blizzard trade live.
"Fortnite" and "Apex Legends" have shaken up the video-game industry, boosting their creators as well as retailers and toymakers, but hurting rival publishers and pushing some studios to shut down.
"Fortnite" is the the world’s most popular game with around 250 million players. It’s signature, free-to-play mode drops 100 players on an island for a "battle royale" with only one winner. It generated close to $2.5 billion in revenue from sales of virtual items in 2018, according to Nielsen’s SuperData tracking arm. Creator Epic Games netted $3 billion in profit from "Fortnite" and its other games last year, according to Techcrunch.
Electronic Arts’ entry in the battle-royale genre, "Apex Legends," was released in February and attracted more than 50 million players in its first month. Nearly 30% of the game’s players are new to EA, CEO Andrew Wilson said on the company’s fourth-quarter earnings call. The influx of fresh blood fueled a boost in total active players to more than 500 million in the year to March.
"’Apex Legends’ is easily the fastest-growing franchise we’ve ever had," said COO Blake Jorgensen on the call.
He estimated the game drew between 7.5 million and 15 million players simultaneously — five to 10 times the largest number of users on FIFA at any one time.
It also drove EA’s net bookings — net revenue plus any change in deferred revenue — from live services up 24% to $854 million last quarter. Management predicted "Apex Legends" would generate net bookings of $300 million to $400 million this fiscal year, driving overall live-services net bookings up 10% to 15%.
"Apex looks to have had an oversized impact on the quarter despite its short time on the market," Gerrick Johnson, an analyst at BMO Capital Markets, said in a research note. "Given that ‘Apex Legends’ is still a relatively new phenomenon, we believe the guidance for this free-to-play game is on the conservative side."
However, Wilson warned the game’s daily user count had "come down slightly" since February, and strongly suggested user spending was down. Those trends highlight a major headache with free-to-play games — pushing out enough content and virtual items for sale to keep players engaged and money rolling in.
"The biggest challenge on spend is having enough things that people could spend money on," he said.
Other companies have benefited from the hype around "Apex Legends" and "Fortnite."
GameStop’s net sales of accessories surged 22% to $957 million last fiscal year. Customers snapped up headsets and controllers, reflecting the "ongoing popularity of battle-royale-genre games like ‘Fortnite’ and now ‘Apex Legends,’" COO Robert Lloyd said on the video-game retailer’s fourth-quarter earnings call. Both games continue to drive sales of accessories and in-game currency in its stores, he added.
Similarly, Turtle Beach CEO Juergen Stark described the "Fortnite effect" on the gaming-accessories group’s fourth-quarter earnings call. He argued most of the growth in headset sales in North America between 2017 and 2018 — from about 9 million to 14.7 million, according to Nielsen — was "attributable to the influx of new gamers and new headset users from battle royale games, especially Fortnite."
Moreover, "Apex Legends is "keeping headset users engaged," and its lack of a price tag frees up money for gamers to spend on replacing and upgrading their headsets, Stark added.
It’s been a similar story at Logitech, the computer accessories group. Fortnite and PUBG – PlayerUnknown’s Battlegrounds, another battle royale game — were "bringing new gamers into the market and driving upgrades to gaming-dedicated peripherals," CEO Bracken Darrell said on the fourth-quarter earnings call last year.
"If you create something that has magnetic appeal…and it’s fun to watch, like Fortnite, you have the potential to drive not only the existing players to move over, but even more important, new players to come in and new people to start watching," Darrell added.
"There are new games coming on that look like they’re on track to be as big as Fortnite," he said on Logitech’s fourth-quarter earnings call this year, suggesting he thinks "Apex Legends" could provide a similar boost to the market.
"Fortnite" obsession has also spread to the toy shelf.
Funko, which makes pop-culture collectibles such as bobbleheads, earned 10% of its revenue from "Fortnite" last quarter, according to its latest earnings call. Meanwhile, Hasbro executives reported "a very strong start" for "Nerf Fortnite" and said "Fortnite: Monopoly" was "performing well" on the toy giant’s first-quarter earnings call.
Others are starting to see their "Fortnite" tailwind fade. Plantronics’ sales of consumer headsets slowed to about $48 million last quarter — lower than in any of the previous three quarters — as "the Fortnite phenomenon is starting to play out a little bit," CEO Joseph Burton said on the audio-communications group’s fourth-quarter earnings call.
The success of "Apex Legends" and "Fortnite" has come at others’ expense.
Keywords Studios — which provides testing, localization, and other services to video-game companies — said in its latest annual report that "the competitive effect and loss of player base" from "Fortnite" forced its clients to spend less on supporting their games and terminate games entirely. By vacuuming up too many dollars, the game may also have pressured studios such as Telltale and Starbreeze into closing down, it added.
Activision-Blizzard’s franchises — which include "Overwatch," "Call of Duty," and "Warcraft" — suffered "some reach impact from competitors," COO Collister Johnston said on the company’s first-quarter earnings call, referring to "Fortnite" and "Apex Legends." Total monthly active users fell by 3% to 345 million, according to the group’s earnings report, pushing net bookings down about 9% to below $1.3 billion for the quarter.
However, Johnson spied "real opportunity" for Activision-Blizzard in the combined battle royale and free-to-play space, particularly as the company is ramping up investment in its biggest franchises. A game that throws "Warcraft" or "Overwatch" characters into a battle royale could be around the corner.
"Fortnite" has popularized the battle royale format in video games, fueled demand for everything from gaming headsets to board games, eaten into others’ sales, and perhaps even pressured competitors to shut up shop. "Apex Legends" and the inevitable copycats will hope to make a similar mark on the industry.
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