Quote tweeters have been amusing themselves with the Wall Street Journal writing that Diablo IV is “shaping up to be a surprise hit”. Or should I say that the entire internet OWNED the out of touch IDIOTS at the MURDOCH OWNED Wall Street Journal who thinks it’s SURPRISING the series that sells TENS OF MILLIONS OF COPIES will be a hit. The difference between the article and the people quote tweeting it, other than the fact that the article is correct and informative, is a respect for the uncertainty inherent in the products being discussed.
Mention of a surprise hit is part of the article’s subheading, as the article is ultimately about the state of Microsoft’s purchase of Activision Blizzard. Diablo IV is one paragraph out of seven in the article. The surprise is in reference to an analyst’s increase in their sales forecast by 20% (from about 15 million to 18 million, 6 million more than Diablo III sold in its release year). Equally important is the fact that at the time the acquisition was announced Call of Duty: Vanguard had underperformed and there were rumors that the series would be skipping a sequel for that year (a rumor that did not appear to materialize with Call of Duty: Modern Warfare II releasing in late 2022).
The context matters because, even though the acquisition was announced over a year ago, Activision Blizzard has only recently started trading above its average price to earnings ratio (a valuation measure) for the past decade. While there has been (and continues to be) skepticism about Microsoft’s ability to close the deal, any probability greater than 0 of the company being acquired at a significant premium to the current valuation should increase the value. This gap can and should be seen not just as pessimism about the deal closing, but concern that Activision Blizzard’s prospects as an independent company would be worse than they had been in the previous decade. Financial analysts do not have a spotless track record, but they do have an advantage over gamers in that they respect risk.
Everyone is an expert after the fact. Take the Dungeons & Dragons (D&D) movie. Obviously, a license to print money. Only a moron would bet against it. Nerd stuff is mainstream, and D&D is the most recognizable brand by far. And yet, almost exactly one year before The Lord of the Rings: The Fellowship of the Ring came out, Dungeons & Dragons was released by the same studio and completely failed (as an aside, that year saw the first X-Men adaptation, the second Pokémon feature, a Dune adaptation on TV and a direct-to-video Batman Beyond feature, so the D&D movie was certainly not the only bet on nerd stuff).
Dungeons & Dragons was a particularly bad film from a first-time director, and so may be a bad example due to the “obvious” problem of talent. So obvious that investors put tens of millions of dollars into producing the film, and a distributor with experience in exactly that kind of adaptation paid money not only for the distribution rights but options on follow-ups. Consider instead an adaptation of a sci-fi novel considered a major inspiration for filmmakers and sci-fi authors alike. The adaptation is from the most powerful studio in Hollywood, with a budget in the hundreds of millions of dollars and a cast overflowing with “Oh I know that guy!” recognition. The writer and director of the adaptation brought two Oscar wins, and four additional nominations for screenplay. The result: John Carter. John Carter actually gets special mention in Disney’s 2013 annual report with regards to its effect on the write-downs the company needed to take (basically The Lone Ranger, another obviously bad idea of reuniting Johnny Depp with the Pirates of the Caribbean team, was also a big bomb, but not as big as John Carter so it made the earnings look better). As William Goldman was fond of reminding everyone in Hollywood, nobody knows anything.
This is an article about games, so why spend so much time on movies? Mostly because if I had limited myself to examples of film sequels that failed to turn a profit, the point would have been considered boring and obvious. But there is no magic that makes video game sequels immune to disappointing follow ups. Even with the advantage that assets are more transferrable between games than films (people get less crabby about reusing functions from the last game than they do reusing scenes from the last movie), game sequels still tend to have more people working on the follow up, reflecting greater effort. The best a follow-up to a successful game will get you is a leg up.
The assumption of success isn’t evenly applied. Star Wars and Warhammer 40,000 are highly recognizable franchises that do not have a track record in terms of quality or success. This is partly explained by the fact that they are licensed and so have considerable variation in terms of the development of the individual games. Even with the benefit of hindsight, the situation isn’t as easy to parse as one might think. Nobody sets out to make a bad game or lose money. Paying for a license indicates enough confidence in the project to spend money to get the license. Even developers with successful track records produce projects that fail to meet expectations.
Marvel’s Midnight Suns was a turn-based tactics game by a team with a legitimate claim to have reinvigorated the genre, and it was attached to an incredibly popular franchise. Despite positive reviews, the game did not meet sales expectations. This particular title seems to generate a fair number of know-it-alls who “knew” it would fail. To these I can only say, no you didn’t. And yet I have some sympathy here because I feel like I was close to the target demographic. I don’t know a lot about Marvel, but I like Firaxis games enough that they are often a day one purchase for me. When I saw this game priced like a premium title I thought “don’t care for the men in tights that much, but I’ll pick it up on sale.” I imagine a lot of people thought this. This sucks for Firaxis because the game really is a premium title. I suspect the complaints about the abbey sequences are an indirect way of saying “I wanted something on the scale of XCOM: Chimera Squad and priced accordingly.” But that isn’t what Marvel’s Midnight Suns is, and Firaxis staffed and priced the game accordingly. Because I said “this seems like a game that was intended for me but I don’t want to pay full price” I did have diminished expectations for the game. I only stop short of being a know-it-all because I recognize that this is not the same as knowing it would be a flop, and it is not helpful to pretend otherwise.
To see how poor our individual judgements are at determining sales results, consider the following games without looking at Steam: Resident Evil 4 (the remake), EA SPORTS™ FIFA 23 (currently discounted 70% on Steam), Crusader Kings III, and New World (the Amazon Games MMO). Where would you put these in the overall Steam sales rankings (including the knowledge that one of these is currently discounted)? Chances are that some of the guesses, likely the ones you’re most interested in, will be pretty close. If you like sports games, or generally track game sales, you’ll guess that FIFA is a juggernaut and is near the top (it is, #5 at the time of this writing). Resident Evil 4 is the newest release and so it may not be a surprise it’s near the top as well at #4. But would you have guessed that, given the difference in price, it is very likely that considerably more people are buying EA SPORTS™ FIFA 23 than Resident Evil 4 right now? What about the rest? Any answer outside the top 10 is wrong. New World, despite perceptions that it failed to live up to its initial promise and sporting the dreaded orange text of a ‘mixed’ steam review, is #9. Crusader Kings III is at #10, almost two and a half years after release, at full price, despite the fact that the game will be discounted with the release of the next DLC which is due next month.
Judgements based on our experience are helpful in their own limited way, but they create a distorted impression of the broader market. When talking among our peers, most of us simply will not buy a game until it is on a discount, but only 1/3 of the top 50 sellers that aren’t free to play have any discount at all, and a large number of the discounted titles are at the bottom of that list. The daily activity on storefronts often looks completely different from our own habits.
What about Diablo IV? Sure, even big companies need to start with an empty Visual Studio session and a blank canvas, but surely nobody reasonable expects this game to fail. Yet the conditions people would discuss in the event of a failure are already present. Diablo IV was delayed from an anticipated 2022 release. This was due to high employee turnover, a consequence of the lawsuit from the California Department of Fair Employment and Housing. These departures included the game director and lead designer for the game, both Diablo III veterans. Personnel changes extended to the leadership of Blizzard Entertainment itself. Sequels do not require the original team to achieve critical or commercial success, but in so far as continuity is some kind of hedge against failure, Diablo IV is weaker now than it was when it started.
I don’t think that games are assured success, and I think continuity only matters so far as it demonstrates that a team can deliver a successful product. The point here is more that people who do think these things were far more optimistic about Diablo IV than the facts would justify. The qualities that might have been the signs of a successful game didn’t exist, while the indicators of a troubled project do. The beta’s success points towards a project that is in good shape, which is exactly the point the article is making, but prior to this new information, skepticism about the state of the game would have been entirely justified.
Diablo IV will probably be a hit. However, sometimes being a hit isn’t enough. Over the decade I used to calculate the historical price earnings ratio for Activision Blizzard, another company made a significant decision. Epic Games ceased to develop the Gears of War franchise, selling it to Microsoft and turning their attention to smaller games-as-a-service style titles (“Epic 4.0”). This move was partially motivated by the fact that a new entry in the series would require a budget of at least $100 million dollars. This meant that anything less than a hit could wipe the company out. The wisdom of the approach was proven by their ability to fail with Paragon and succeed with Fortnite.
It is appropriate to call Diablo IV a surprise hit, both in the context of Activision Blizzard’s diminished expectations a year ago, and in the context of the risks of game development in general. This can be expressed in gaming terms. Permadeath in roguelikes is only fun because you get to reload. Failing to respect the risks inherent in even the most promising projects is closer to enabling permadeath that permanently locks you out of your Steam account.
SystemTalk 