This piece was originally published in Naavik Digest, a video game industry newsletter. I played a role in scaling Naavik following its acquisition of my gaming media business, The Pause Button, in early 2021.
When I wrote about FaZe Clan’s SPAC announcement last fall I was skeptical of the company’s chances for success in public markets. My greatest critiques centered around scalability – the resources needed to grow a content-driven business model were large and the margins didn’t meet the $1B valuation of the company. Since, FaZe has still yet to go public, and the company has amended its S-4 to note higher than expected costs for programming and executive hires, impacting their bottom line and missing projections from their first filing. Sufficient to say, profitability at scale continues to be the largest barrier to success for late-stage, content-driven gaming businesses like FaZe.
Despite FaZe’s struggles, I have conviction that one of these content businesses will eventually build the right mix to solve the profitability problem. It comes down to finding the right high-margin business to better monetize the reach these companies command. That’s why it caught my attention last week when 100 Thieves announced it plans to develop its own video game, a play at diversifying revenue for the content business and a refreshingly unique initial stab at higher margin business lines.
In the announcement video, Nadeshot and COO/President John Robinson paint a vision of a game built with input from the company’s “community, creators and owners.” Affectionately dubbed Project X, the duo shared that they’ve already brought on Zynga/TellTale/Mythic Games alum Pete Hawley to serve as the company’s Chief Product Officer and lead the charge on the title’s development.100 Thieves has always excelled at building a brand across different revenue drivers – so, why couldn’t they be well-positioned to build a game and fix the problems faced by FaZe and others? Let’s explore further.
The success of the game hinges on the ability to give its development team the time, resources, and staff needed to get something fully baked into the market. Project X is no exception. A look under the hood at 100 Thieves’ financials reveals a stable and diverse business. In an interview with Joe Pompliano last fall, COO John Robinson said that the company's revenue is an even 33/33/33 percentage split between their existing content, apparel, and esports businesses (that being said, the costs for these businesses are likely not equally shared). Contrast that to FaZe’s 76/18/8 revenue mix across the same categories, and this begins to paint a picture of a durable business that isn’t overly reliant on one part of the company.
Add that to the organization’s recent addition of Highground, a gaming hardware brand acquired last fall, and the revenue mix into DTC continues to deepen – 100 Thieves has excelled in physical products and branding, and has cash in the bank from these ventures to reinvest elsewhere. The question is if they can now bring this elsewhere, and if the team’s expertise is truly durable enough to sustain long development cycles.
The team’s management also seems to be operating the business with a long-term time horizon in mind, building for “decades, rather than months.” Simply put – from the outside looking in it seems as though the company has the financing and flexibility to invest in building out this studio. Success in this category is a natural segue for its creators (which already promote other games) and allows the company to reach its next milestones.
That doesn’t mean that the organization has hedged all its risks, though. Long-time fans will remember FaZe’s own gaming debacle back in 2016, in which the team gathered over $20,000 on the promise of launching their own FPS title. The game was ultimately scrapped mid-production and never saw the light of day, with FaZe’s announcement for the game being removed from YouTube. The difference between FaZe’s downfall and 100 Thieves’s latest bet are noteworthy (the team used an understaffed, less experienced third party studio rather than building their own in-house as 100T is), but the end result still serves as a precautionary tale of what's to come if the organization can’t execute correctly.
That being said, while 100 Thieves has some of the best expertise in building personal images for their creators, establishing a brand around IP is a different muscle to flex. Success cases like Dream SMP & Minecraft, or Offline TV and Rust show that creators can supercharge go-to-market efforts once they have something to promote, but the game needs to come to fruition before that can happen, and that's anything but a given. Luckily, creator-driven models for games are abundant and 100 Thieves can tap into this inspiration.
There’s also the expectations of the team’s fans, which are some of the most dedicated and vocal in the space. As I noted in my analysis of Dr. Disrespect’s own gaming studio last summer, phrases like “creator and community driven development” come with the added scrutiny of vocal detractors. Mix this with Hawley’s own history of delaying titles in favor of quality over speed, and it’s not hard to imagine a world two to four years from now with no news or launch date for the game and public pressure mounting. There is a lot that hinges on execution.
Long-term, I am still optimistic about content-based gaming businesses finding a way to overcome margin and profitability issues. Ultimately, value in this space accrues to building a strong brand and a horizontal product play across their fans. 100 Thieves creators and their engaged fans should help tackle that.
The gaming creator space is one of my favorites across the entire industry, and I am personally a big believer in the journey 100 Thieves has created to take viewers from casual fans on YouTube to monetizable audiences via merchandise, content, and (eventually) in-game purchases. While game development comes with a lot of questions, I’ll be watching this one closely.