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Layden is the former chairman of PlayStation Worldwide Studios and former president and CEO of Sony Interactive Entertainment America. He left Sony in 2019 after more than 30 years there, and he hopes his advice will help a variety of companies at an important time of the hazards of the pandemic as well as the opportunities of huge growth in the population of gamers.
Layden’s career started in 1987 in the corporate communications department as the assistant to Sony cofounder Akio Morita. He played a key role in launching and running the PlayStation consoles over the last 20 years. We talked about how diversity can help the game industry deal with labor shortages, how to fund triple-A games, and the prospects for things like nonfungible tokens (NFTs) in games.
Three top investment pros open up about what it takes to get your video game funded.
We’re going to be addressing a lot of those topics at GamesBeat Summit Next, our event coming on November 9 and November 10.
Here’s an edited transcript of our discussion.
Advising game companies
GamesBeat: We connected again more recently with the advising you’re doing for Streamline Media Group. Can you talk about that?
Shawn Layden: I decided to come on the advisory board at Streamline Media Group, which was founded by Alexander Fernandez about 20 years ago, starting off as an outsourcing resource for game development. It’s grown over time continuing in that role, as well as creating original IP and doing some interesting things in the overlap, the collision between entertainment and enterprise, how you can take the things we know quite well in game design and development and find that they have applications outside the game world. Really looking at where this goes from here. What does this latest generation or latest epic of video gaming augur for those of us in the playing community and the creating community?
GamesBeat: We did a call about that, and we had a good conversation about diversity and some of the connections to Streamline Media Group. We all know that we’ve seen a lot of problems with diversity in the game industry lately. These problems come up and surprise us in a way because they make us feel like we have a long way to go. The question for you, then, is how do you think about getting more voices in the room?
Layden: The road to diversity and inclusion and bringing more people into the gaming sphere — the road is longer than we imagined, and we need to move faster than we want to, or faster than we expected to. That’s an important thing to remember right now. We need to continue to push against this. One thing I’m concerned about in the world of video gaming, whether it’s in the playing end of it or the creating end, is that we’re not bringing enough new people into the world. We seem to have a very vibrant, active, and engaged gaming community, but certainly, from where I come from in console gaming, it seems every generation, the number of consoles out there, if you stack them all up against all the different platforms, is somewhere between 240 and 260 million on a global basis. It just doesn’t seem to get out of that bracket.
On a revenue basis, what did they say about last year? Video game revenues went up 20% year on year or more? It’s just getting more money from the same people. From the business end of things, that fills a lot of boxes and crosses a lot of Ts and those sorts of things. But as an industry overall, we need to break out. We need to bring more people in to enjoy games. And I think part of that ecosystem if you will, is to bring more people in to make games. Not just having the usual suspects creating the games we’ve come to love for decades, but bringing in new voices to the room to create those games and hopefully appeal to a wider range of folks who are into video gaming.
GamesBeat: Recruiting people from across the world can then help with diversity?
Layden: Absolutely. If you’re a great artist and you live in Sri Lanka, or if you’re a coder living in Johannesburg — this idea of figuring out how to move yourself to Europe or get to Silicon Valley is removed as a barrier. Ideally, with the current systems, we have in place to enable and encourage worldwide collaborative remote development, now all of those talents around the world can participate without completely disrupting their lives and moving halfway around the planet. This will be seen over time as a huge innovation in game development.
The gaming boom
GamesBeat: We can connect this topic to the next one a bit. Let’s talk about the gaming boom right now. A lot of companies reported a 30 percent increase in lots of things — user activity, time spent playing games — during the second quarter of last year. A lot of that continues. With the latest quarter, that growth flattened, but we didn’t give up all those players that came into gaming. They stuck around. That seems to be a good thing. Do you have your own thoughts on the nature of this boom and how some of it will play out from here?
Layden: It’s fairly obvious that a lot of that growth spike “benefited” from people who were trapped in their homes. They wanted to find a way to, one, entertain themselves, but two, across platforms like Fortnite and other multiplayer experiences, there was a way of finding social connection in real time with other people inside the game experience. I’ve been in a number of multiplayer games online, and most of the conversation doesn’t have anything to do with the game at hand. We’re all talking about other things, using the game as a kind of connective glue to bring us together. That’s positive.
At the same time, because families have been housed together in close proximity throughout the period of this pandemic, it gave parents a chance to see — what’s all this I’m hearing about Fortnite and so on? What are my kids doing? Why is all this time being spent on FIFA? What does that mean? Parents began to see that video gaming and playing and communication abilities that their kids can have across these platforms is a net benefit, an actual positive. This year has gone a long way to shedding some of the old shibboleths about the dangers of gaming to the youth of the world. We’ve begun to see that, wow, this can be a positive experience if engaged in the right way. I like to think more parents are understanding and engaging with their kids, which is going to have a positive effect going forward on the world of gaming.
GamesBeat: What came with that, too, was the biggest investment boom we’ve ever seen in gaming. Two different sources say it’s either $50 billion or $60 billion coming into the game industry in the first half of 2021. One of them said that was four times the amount that went into games in the first half of 2020, which was also a boom year. Compared to five years ago, you had maybe $15 billion worth of activity across public offerings, acquisitions, and investments in game startups. How do you interpret what sort of historic opportunity we have now because of that?
Layden: Over the last three-to-five years there’s been increased interest in the video gaming sector by private equity and venture capital and banking interests. A lot of people I would talk to, though, said that they just didn’t know how to invest in content. They would complain that it’s a hit-driven business, and they don’t know how to place bets against that. My counter-argument was always, what business isn’t hit-driven? There are hit cars. There are hit refrigerators. Every business is hit-driven.
Maybe in entertainment and software, it’s a bit more mercurial. The volatility may be more extreme. But the way the industry has been growing coming up into the pandemic, and then the way the industry’s revenues grew in the year 2020, I think that was a huge siren call to all of this capital looking for a place to land. The growth rates in this industry cannot be ignored anymore. People are coming in and trying to get on top of that. At the same time, because of your point about the shrinking pool of talent, or the slow growth of the talent pool–as the gaming industry grows, the talent pool doesn’t grow at the same pace. A lot of the larger players in the field feel that they must acquire talent. It’s not hire and grow, it’s buying entire teams and studios. You see a lot of that activity in that $50-$60 billion number you quoted earlier.
GamesBeat: The other thing that’s seemed to happen for game investors — we did a lot of transitioning to free-to-play across the industry, live operations. A lot of games picked up this long tail. They never came to an end. It’s not like a single-player game where you have to replace the revenues from it in three months because it’s run through its lifespan. Now, these games can last a long time. It might be premature to call them forever games like some companies are doing, but the live operations and the revenues from in-app purchases keep coming in. People keep buying Fortnite skins. That’s made revenues and financial performance more predictable. If you look at Take Two boss Strauss Zelnick now, he doesn’t have to worry so much about everyone asking him when the next Grand Theft Auto comes out, because he has GTA Online generating money. That seems to have helped with the investment boom.
Layden: Those kinds of games as a service, persistent worlds that continue to exist, they’re not waiting for the sequel or even expansion packs. They continue to build against that environment, which lives server-side and grows out. From an investment perspective, yes, that reduces volatility. It de-risks a lot of your investment. You’re seeing people playing more hours against fewer discrete titles. That’s either a great boon to the industry or it’s a warning signal. I’m still trying to figure out which it is.
Funding triple-A games
GamesBeat: You’ve had your own worries about triple-A games and who’s going to have the will to fund them, to invest in them. Especially single-player games with deep narratives alongside these other games, where, to quote other gamers out there, “investing in crappy mobile games” is perhaps financially more of an opportunity now than it is to pour all your money into a triple-A game for seven years.
Layden: The table stakes are lower. That’s what creates the interest across those types of investments. If you’re looking at the triple-A stuff we were doing back in the PS4 days, you’re into triple-digit millions. It’s hard to be completely exploratory at that dollar figure. People are going to look for comparables against that. What is this game like, so I can get a feel for what it’s going to do? Is it a sequel, so I can compare it against its predecessors and draw a line through there on revenues and profitability expectations? But to come out with a completely new IP at a greenlight figure of triple-digit millions, there are very few publishers in the world who can belly up to that desk and place that bet down. I’m a bit concerned about that.
GamesBeat: The benefit of investing in new IP, though — it seems to get to that problem that you pointed out where we just have the same gamers playing the same types of games. This investment in new IP is really an investment in the future, trying to expand beyond those 240 million console owners.
Layden: Right. I understand it from a green eyeshade, finance perspective. This is a way you cabin the risk. You know the players who will buy it. You know how to sell to them. You know where they live and what they do. To reach out to the consumer you don’t know with a product you haven’t launched before, it’s a scary piece of business. As they say in Prince of Persia, leap and the bridge will appear. That’s where we’re going to see a bit of a contraction of the offerings that come out.
My concern, again, going back to what we talked about earlier–if the current assembly of games we have, whether it be first-person shooter X or free-to-play collaborative game Y — if those games haven’t brought new people into the player sphere of gaming, I don’t believe sequels to those games will bring new players in either. They’ve already decided this is not what they want to do.
GamesBeat: It used to be that the technology for a sequel was so much better than its predecessor that those sequels actually did bring in more people. That may have flattened out a bit.
Layden: Sure. Technology has reached an arc where, across the platforms and across the silicon, it’s quite similar. It’s kind of plateaued. So yes, we don’t have those whiz-bang moments where you can get someone to look at a PS2 and say, “Oh my God, that’s so much better than the PlayStation.” We have to do it with content, not just with advancing tech.
A talent shortage
GamesBeat: Another impact of the gaming boom has come around to that talent question. It’s produced shortages of the kind of people that have been very much in high demand to make these games. I was remembering how I had conversations with Activision Blizzard. They’d say, “We have 2,000 openings.” And then the next quarter they’d say, “Well, now we have 2,500 openings.” I think a lot of people have left some of the big companies to join all of these well-funded game startups. They’re almost in a constant state of replenishing their people. And then they’ve greenlit so many interesting opportunities that their production needs just keep rising. That’s one piece of interesting information.
I did a little survey on Twitter, which is not scientific, but I asked people where they think the bigger shortage is now: game developers, AI developers, or crypto developers? The winner was game developers. It’s the hardest thing to hire for now. How do we address some of this labor shortage problem?
Layden: Again, it’s incumbent upon us, those of us in the industry or adjacent to it, to take steps to help bring the next generation in. We spent a lot of time during my tenure at PlayStation, toward the final years, and I continue to involve myself with this — things like Girls Make Games. Laila Shabir has this amazing initiative that she got off the ground about five or six years ago where they create these boot camps all over the world now, bring together 40-to-50 young women between the ages of nine and 16 to collaborate in four weeks and come up with a demo of a game.
With Girls Make Games, it’s so inspiring to see 10- and 11-year-olds talking about how they had to write new macros for Unity because the ones they had weren’t working. It makes my head explode to think that when I was at that age, I was still playing with Hot Wheels.
But that’s where it begins. We have to go deep down the stack to get to children in their grammar school years, their high school years, to take a look at this. At the same time, we have to widen our net around the world. We can’t just continue to look for talent here in the Pacific Northwest or parts of Europe. There’s talent everywhere. Thankfully we can now use the internet to find them and bring them in.
GamesBeat: We just happened to publish a story about Girls Who Code and Riot Games. Riot was able to have a training program this summer. Despite the pandemic, they doubled the number of girls going through it. They trained 60 girls for a short time this summer. That’s part of the answer, for sure.
We’ve pointed out that there have been these problems at game companies. We’ve seen Hollywood go through a lot of its own #MeToo problems. But the Hollywood model is so different when it comes to addressing labor. They have labor unions. They have people who just work on projects. They come together for the project and then leave for another gig. I wonder if you think that model is going to come into games as well.
Layden: Movies, television, music, all of these industries went through a period of time where the record label or the film studio or the TV broadcaster had all of these talents on salary. There was a time when actors were contracted and salaried to film studios. They’d get loaned between studios to do different projects with other directors. TV was the same. Music was the same. You used to have banks of songwriters on payroll at record labels to create songs for the artists they were signing up. They’ve all kind of devolved into more of a federated, “come together for the opportunity and move away when it’s over” type of structure across all of those entertainment industries. It would be foolish for us in video games to believe that is not going to happen here.
I believe we’ll see more talent breaking off of other studios to create small collections of like-minded people who want to make a certain kind of game, which either they couldn’t do where they were at, or they didn’t have enough say in the product where they were at. They’ll all come together to do this thing on their own. I think that’s good for the industry overall. It brings more discrete ideas, more individual ideas to the table to work from. You have a larger number of creative talents making a larger number of decisions across the titles that come out in the world. That can only be beneficial.
Not having the opportunity to see games, or having games not getting to market because they’re somehow throttled within a larger structure of huge developers and huge publishers, I think that’s a bad outcome. I want everything to come out if it can get a chance.
The edges of gaming
GamesBeat: I do wonder about the mainstream status of games and the different ways to think about that. I’ve been writing a lot about NFTs lately, non-fungible tokens, and blockchain. One of the big breakouts has been NBA Top Shot, these collectibles that are one of a kind thanks to blockchain technology. They’ve generated $750 million in sales in just nine months or so. But the number of people who are doing this is about 1 million. That’s one look at the mainstream. They’re celebrating that amount of money, saying they’ve gone mainstream. But then you look at consoles and suggest that 240 million users isn’t quite mainstream. A lot of people talk about 2 billion gamers worldwide if you count mobile. If you look at all this different framing, how do you think about gaming and the mainstream?
Layden: We talked about video gaming being a [$175 billion] worldwide industry. That makes it bigger than film, bigger than music. But if you look at the social impact of these sectors, it’s completely flipped. Music probably makes one-fifth the annual revenue globally that gaming does, but its social impact is almost saturated. Everyone in the world has music they like, an opinion about music, music in their world. Granted maybe there’s a small percentage that doesn’t. But it totally over-indexes compared to the impact of gaming in society.
Gaming in society has gotten a bit bigger. I’m old enough, been in this business long enough, to remember when you didn’t talk about video games in polite society. If someone said “Crash Bandicoot,” my ears would prick up and I’d want to go with them to the bar to talk about that quietly where no one would see us. But in today’s world, you see people like Paul George wanting to do a set of kicks with the PlayStation logo attached to it through his contacts at Nike. That all comes together. People are wearing branded merch. People are talking about it all over the place.
It has, in that sense, become mainstream to a certain extent. It’s no longer seen as this peculiar proclivity of a certain portion of society doing things that the rest of us don’t understand. People now know what it is. Some are video game curious and others are not. But I still think that if you look at “mainstream” as the impact on the world as we know it, it’s extremely limited in video gaming. As to the NFT example, yeah, but whenever people talk about NFTs they only ever mention the NBA example. You never hear about any other examples of NFTs going crazy.
GamesBeat: There’s hope for an actual game, Axie Infinity, that’s taking off now. But still, I think limited numbers of actual players really know or understand how to get into that, what it takes, and what their opportunity is. But yeah, there’s hope that you can play games like that and earn a living doing it. Some people in the Philippines are making a living playing this game and trading their NFTs.
Layden: NFTs have value in that small circle of aficionados for that thing. It’s not like a bar of gold, which has value wherever you take it. As long as the world of that game is alive then the value proposition against those NFTs stays alive, but if you lose interest in the game, I don’t know what the value of the NFTs are for you after that.
GamesBeat: If you think about all these different edges of the industry, whether it’s NFTs or esports or user-generated content or AR and VR, what has impressed you the most or caught your attention as far as where people are pushing the edges of the game industry?
Layden: The way that so many of these persistent world platforms have almost become social media spaces, where you’re watching a concert or watching a movie or hanging out talking with your team about what you’re going to do for the weekend — I think that’s a great innovation. Giving a bit more interactivity to that exchange, rather than just sending DMs across Twitter. That’s an important aspect.
AR and VR will become more important over time. A lot of the frustration people had, particularly with VR–you just have to understand that we’re probably at version 1.5 of VR right now. It’s going to take a long time to get there. It’s going to take patience. I know that in today’s world, our ability to be patient is getting more challenged over time. But I look at it this way. If you look at a VR headset today, equate that to a Motorola analog cell phone from 1995. You can’t just use your imagination, looking at that analog phone, and see an iPhone. You can’t make that leap. I believe that same sort of dramatic change will come in time, where we’ll look back at 2021 and say, “Wow, I couldn’t imagine this great 2035 thing could happen.” I’d advise patience for that.
The other innovations around gaming, they’re all good. We’re all trying new things to reach new people. That’s the other thing. For us to get more people into gaming, we have to go to where they are and what they’re interested in and find out how our skills and our content might apply to them. We can’t just sit here in our gaming citadel and wait for people to arrive.
User-generated content and creators
GamesBeat: I have a lot of optimism about that combination of user-generated content and all the creators and influencers around it. They have some real chance, if they do their own content, to get a lot of eyeballs on it. We’ll see how that goes.
Layden: UGC and the creation of more powerful tools and abilities for creating content, whether it’s in games or outside the game space to create your own gaming content–there’s Unity and Unreal. Those are still fairly unwieldy for the novice. But there are other ways you can get in, through Roblox or Minecraft, just to learn the basics around game development. That’s great. I can’t wait for the TikTok of gaming.
GamesBeat: If you think about all these challenges and problems that the industry has, it does have so many advantages, but it feels like each one is almost really small. It’s a point of friction. Friction is really the enemy of games spreading around the world. One thing that made me think about friction was when the Epic versus Apple lawsuit came around. Epic was saying that they should be able to sell their products as they wanted in the App Store, and Apple said, well, you can just go through the Safari web browser on iOS devices and sell that way. The problem was friction. The added point of friction meant people would never do that. I wonder what you think about that. How do we get rid of all that friction?
Layden: The idea that the person who built the store and owns the store — if that person sells your product, they’re going to receive a margin of some kind. That’s capitalism for the last 2,000 years. If you don’t want to sell at X margin, go build your own store. That’s always been a challenge. How do you get your product in a marketplace where there are known retailers where that transaction typically occurs, where people understand what that means and how to get there?
Even with the App Store, though, to your example, there’s so much content there. It’s not too dissimilar from being in the unexpurgated web when you’re trying to discover something. Discovery on the App Store is pretty challenging unless you know exactly what the name of the product is that you want. But with all things, where people found over time — you see the emergence of platforms like eBay or Etsy, places where you could commercialize your products without having to go through an established retail outlet. I think gaming is going to find a way as well. That’s the nature of innovation. They will continue to find new places to go.
Again, we look at TikTok, what that’s done to music discovery. I certainly discover more on TikTok than I would listening to the radio anymore. Gaming will start to develop its own grassroots platforms where these new ideas can be seen and discovered and can lead to a purchase.
GamesBeat: What do you think about the metaverse and the opportunity there? Does that feel real yet?
Layden: Metaverse, metaverse. I don’t think we have a good cohesive understanding of what that word means. It means different things to different people. Certainly Alexander Fernandez at Streamline talks about the metaverse a lot, but his view is probably more consonant with my own, which is that it’s not so much about creating virtual worlds where people gather together and I can push advertising at them. That’s how some people look at the answer. I think the metaverse really means what we were talking about earlier. There are so many technologies we’ve developed and skills we’ve acquired over time in creating video games that we can now see that application outside of the gaming realm. They can move into enterprise, whether it’s helping advertising agencies, or whether it’s consumer products looking to make a better UI/UX experience.
If you look at the advertising world, last year you couldn’t have Paris Fashion Week. All of these things had to turn into digital instances of those kinds of showcases. Again, this is where video game technology can come in to build an entire fashion show, bring your products through that, show them to people in a way that’s quick to market, fast turnaround, that doesn’t require live people on a soundstage. You could work around things that weren’t possible during the pandemic. We’ve created skills and technologies and an understanding of engagement and user behavior and how to keep people compelled by your activity that have applications well outside video games. That’s where I see the metaverse nomenclature being most appropriate.
GamesBeat: Do you have any thoughts on what you’d like to see happen with indie developers and publishers? Somebody asked, more specifically, what you’d like Sony to do with indie developers.
Layden: I no longer speak for Sony, so I won’t have any comment about that directly, but the industry in the overall — much as I’ve talked about how we need to invest in and upraise the next generation of game developers through things like Girls Make Games, Girls Who Code, Black Girls Who Code. We need to look at independent developers. That’s a proving ground for the next generation of talent. Not to sweep them all up and get them to all work on one piece of a big triple-A franchise, but to look at their ideas, their takes on gaming, the content they’re bringing out, and see how we can help them get a leg up. That’s incumbent on the big players.
Remember where you came from, all of you big guys. We were all proto-indie at one point or another in our lives. We need to look at this new generation of young developers and see how we can help them break in and step up. We need a lot more attention, more discoverability for them, a way to break into these rooms where the big dollar decisions are happening and try to get their ideas across as well.
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