Video Game Cannibalization: What the Experts Get Wrong!

Opinions often stated as fact by game “experts”:

  • Clash Royale cannibalizes Clash of Clans revenue
  • Hearthstone’s new auto chess game mode Battlegrounds highly cannibalizes the game’s overall revenue
  • Riot’s Valorant: the more successful it becomes, will highly cannibalize League of Legends

While we’re not purporting to give you a definitive answer to these questions, the objective of this post is to help you understand the drivers and situational context that most industry experts seem to lack understanding of.

The common wisdom by many executives in the F2P mobile gaming industry is as follows:

  • Given a successful game with high per player monetization,
  • If you make a new game using the same IP or market a new game with lower per player monetization, to players of your existing hit game, this automatically cannibalizes revenue of the successful game

This simply is not true. While everyone has opinions, I’ve actually seen real data. The data does not always support this. Hint: Look at Sonic Dash and Sonic Dash 2 which are the same IP, same audience, and actually pretty much the same game.

So let’s talk about depth and situational context. How should industry executives and product managers think about cannibalization? While we won’t give you a specific formula, we highly recommend you develop your own system to determine cannibalization potential for new games in a game studio or publisher’s game portfolio.

Here are some (not all) of the key drivers for potential cannibalization:

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Ultimately, the biggest question that we want to find the answer to is:

  • Will the new game maximize the revenue for the overall portfolio of games?

Or is this the right question?

So depending on the objectives of your organization, you should modify the system you create to optimize against the right question. Which may also alternatively be:

  • Will the new game maximize the long-term sustainability and competitiveness of our games company?

Ok, so let’s go back and try to provide a perspective on the original opinions from this post… How cannibalistic is Clash Royale (to Clash of Clans), Battlegrounds (to Hearthstone), and potentially Valorant (to League of Legends)?

Clash Royale

First, let’s swag our Cannibalization Drivers against Clash Royale vs. Clash of Clans:

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Based on the analysis of this specific swag (yes we know this is rough) of the cannibalization drivers, we would assume that the risk of cannibalization of Clash Royale to Clash of Clans to be relatively low. Or at least the revenue from Clash Royale to mitigate loss of Clash of Clans.

However, some people look to the following revenue trends to draw the opposite conclusion. Look at the time period around January of 2016:

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Source: Sensor Tower

The argument here is that the level of Clash of Clans revenue after Clash Royale is dramatically lower.

However, let’s take a closer look at Clash of Clans in isolation:

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Source: Sensor Tower

Even before Clash Royale, Clash of Clans revenue was already heading precipitously downwards. The point is that when we look for something specifically in data, we tend to find it. But other factors were also likely at play including other exogenous factors outside of an internal new game launch like:

  • Increased external competition
  • Overall better quality games coming out (Pokemon Go released in 2016)
  • More games figuring out monetization and increasingly buying up player traffic

In conclusion, we do not believe Clash Royale had a net negative cannibalization impact to overall portfolio revenue.

Even further, the other advantages of successfully launching Clash Royale should also be considered as part of the overall consideration: Clash Royale expands the audience, it further builds the Clash brand to a broader audience, and the game establishes the Clash IP as one that has a higher potential for creating other types of new games with.

Hearthstone: Battlegrounds Mode

In November of 2019, Blizzard launched a new mode in Hearthstone called Battlegrounds. This was Blizzard’s response to the auto-chess genre and was launched as a new game play mode inside of Hearthstone itself.

Let’s swag our Cannibalization Framework again for this opportunity here below:

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Based on this analysis, we believe there is high potential for cannibalization. In fact, after the launch, we immediately saw a drop in revenue. So let’s take a closer look.

First of all let’s take a look at revenue on a seasonal basis:

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Here’s a Month by Month comparison:

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Source: Sensor Tower

Note: There’s likely some positive 2019–2020 Feb/March boost from coronavirus.

While we agree that Battlegrounds does potentially cannibalize revenue: the argument that you are shifting players from a paid game mode to more of a free mode, the answer to whether the move was “stupid” (as some industry experts would argue) or not is much deeper as is the conclusion about cannibalization.

Let’s start with a fundamental issue: what question are we answering?

If the question is maximizing revenue, then we believe there was most likely a short term cannibalistic impact from Battlegrounds. However, the answer to the second question is less clear:

  • Will the new game maximize the long-term sustainability and competitiveness of our games company?

Does Battlegrounds improve engagement and retention? Does Battlegrounds reactivate lapsed players? Does Battlegrounds “block the kick” of a potential competitor like Riot that could use Teamfight Tactics as a channel to steal players to a new Hearthstone competitive game that does monetize?

Even further, can we definitively attribute cannibalization to Battlegrounds? Let’s dive deeper…

Hearthstone follows a pattern of April, August, and December expansion releases. They probably see a surge in new spending based on player reception of the expansion or how the player base is at the moment. Looking at November to February, we see the spike cap early, meaning that the December expansion didn’t perform the same way it did in the past. Hence, it’s possible that Battlegrounds stole interest in the core game play modes and thereby player’s investment in the new expansion cards. But it’s also possible that Hearthstone lost some players due to the Hearthstone World Championship scandal that happened in October and those lost players resulted in weaker monetization for this expansion.

We’ll have a better idea of how things will be once the April 7 expansion fully matures

Conclusion: Probable negative revenue impact from cannibalization (not definitive). HOWEVER, the answer to the question of whether Battlegrounds was ultimately negative or not for Blizzard is not as clear. What question are we answering?

Riot’s Valorant

Early monetization for Riot’s new Shooter game title Valorant seems to be very light. This has led many in the industry to speculate that Valorant’s success would ultimately lead to an overall negative portfolio revenue impact due to cannibalization.

Let’s actually analyze this as before below; understanding of course, that the objective of this exercise is illustrative.

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Based on this Cannibalization Framework, we conclude there is low risk for overall cannibalization to League of Legends.

Even further, one insight often missing from executives looking at cannibalization issues is actually playing the game itself. League of Legends is one of the best designed games of all time. The engagement and retention of the game is incredible. So the very casual conclusion that you can easily rip a player away from a game they love to play in some cases over 6–8 hours every day so easily to a new game is a little naive.

Conclusion: We don’t believe Valorant will have a significantly negative impact on League of Legends or at least, even if the game becomes wildly successful, to have negative overall negative portfolio revenue impact. Further, we believe Riot will become a much stronger company with multiple successful IPs and games.

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