(Bloomberg) — Mike Morhaime, a co-founder of video-game giant Blizzard Entertainment, sent a letter to staff at his new company Dreamhaven this week that he wished he didn\u2019t have to write. <\/p>\n
One month after Dreamhaven launched Wildgate, a multiplayer shooter game, the company had sold just 130,000 units, according to the letter, which was seen by Bloomberg News. The company\u2019s other game, Sunderfolk, sold just 62,000 copies since its April debut, Morhaime wrote.\u00a0 <\/p>\n
Despite receiving positive reviews, both titles performed below expectations, Morhaime said. He\u2019s looking for new financing for Dreamhaven, but in the meantime the company would need to retrench. <\/p>\n
\u201cOur monthly expenses are outpacing revenue,\u201d Morhaime wrote. The focus now is \u201curgently reducing costs,\u201d he said, adding that \u201cwe are committed to Dreamhaven surviving through this.\u201d\u00a0 <\/p>\n
Dreamhaven isn\u2019t the only pedigreed video-game company facing challenges drawing players into debut games. Some of the US\u2019s most promising new studios are hitting roadblocks. Respected game-makers who left established companies to launch their own ventures are struggling to land hits and thrive, even after securing tens of millions in funding.\u00a0 <\/p>\n
Frost Giant Studios Inc., also founded by Blizzard veterans, released Stormgate in August. Co-Founder and Chief Executive Officer Tim Morten said in a Linkedin post last week that the game wasn\u2019t getting the traffic or sales he hoped for.\u00a0 <\/p>\n
The company had already reported in an April filing with the Securities Exchange Commission that \u201crevenue from early access game sales is not sufficient to support the company\u2019s future operating expenses.\u201d The company lost $11.7 million on sales of $1.4 million last year. <\/p>\n
\u201cThe games business has always been inherently hit-driven, but as existing games continue to draw players, competition from other digital media like TikTok has increased,\u201d Morten said in response to a query from Bloomberg. \u201cRecord numbers of new games are being launched, so the challenge is harder than ever.\u201d <\/p>\n
Video-game companies are struggling to pry gamers from the \u201cforever games\u201d they come back to every night. Titles like Fortnite, League of Legends, Counter-Strike 2 and DoTA 2 are regularly refreshed with new content to keep players interested. New releases don\u2019t have the gravitational pull of a longstanding community and a catalog of already-purchased digital items.\u00a0 <\/p>\n
Many of the new games struggling to find their audience are designed for multiple players at once, a particularly saturated genre, but one that looks to generate revenue from recurring in-game purchases, not quick upfront sales.\u00a0 <\/p>\n
Over the pandemic, an unprecedented number of people turned to games to pass the time \u2013 and investors noticed. Excited about the boom, the number of deals and total investment in the industry from venture capital nearly doubled in 2021 to 1,683 and $13.7 billion respectively, according to data from PitchBook. That money went to many video-game studios helmed by developers looking to take a more nimble approach to games \u2013 one distinctly different from past companies like Activision Blizzard, now a division of Microsoft Corp. and Tencent Holdings Ltd\u2019s Riot Games.\u00a0 <\/p>\n
The easy money spurred a bloom of new studios. Now that their games are well into development or fully released, many are reckoning with a more saturated market and challenges securing additional funding. Since the 2021 peak, the number of deals and total raised has fallen by half, according to PitchBook. The research firm\u2019s senior analyst for gaming, Eric Bellomo, cited a lack of breakout hits and a saturated market in a June report explaining the decline. <\/p>\n
Fantastic Pixel Castle, founded by Riot Games alumnus Greg Street, is at risk of losing funding from NetEase Inc., according to three people with knowledge of their deal. The company is working on an ambitious massively-multiplayer online role-playing game \u2013 the same genre Street was developing at Riot Games. <\/p>\n
Fantastic Pixel\u2019s game, codenamed Ghost, initially had a budget of more than $100 million from NetEase, said two of the people, who declined to be identified because the information isn\u2019t public. The company is now looking to decrease the size of its budget. <\/p>\n
NetEase has been cutting back on spending, fueled by CEO William Ding\u2019s increasing skepticism of the games industry, Bloomberg previously reported. <\/p>\n
\u201cNetEase remains steadfast in offering a diverse range of games that appeal to players domestically and globally,\u201d the company said when asked about its Fanastic Pixel investment. \u201cIt is both standard industry practice and our responsibility as a business to regularly assess the progress, viability, and potential success of all of our games and studios, and to make decisions based on those business considerations.\u201d <\/p>\n
A spokesperson for NetEase disputed the size of the budget for the game.\u00a0 <\/p>\n
Morhaime is a legendary figure in video-games, helping develop titles including World of Warcraft, Diablo and Overwatch while at Blizzard. Microsoft acquired its parent company, Activision Blizzard Inc., for $69 billion in 2023, the largest video-game merger of all time. By then Morhaime had already left, founding Dreamhaven in 2020.\u00a0 <\/p>\n
In an interview, Morhaime said he\u2019s cut the price of Wildgate by one-third to $20 on the Steam gaming platform. He hopes the reduction will make the game more accessible to players.\u00a0 <\/p>\n
\u201cMaking commercially successful games has always been challenging – I\u2019ve seen this throughout my career,\u201d he told Bloomberg. \u201cAs game makers, we must adapt to the environment and continue listening to our communities and their feedback.\u201d <\/p>\n