Joost van Dreunen – Unlocking Value in Gaming

**Patrick O'Shaughnessy** (0:00)
This episode of Invest Like the Best is sponsored by Canalyst. Canalyst is the leading destination for public company data and analysis. I'd heard of Canalyst over the past few years and became more interested after meeting the founder and CEO last year to pick his brain about SaaS businesses. Founded by a former buy-side analyst who encountered friction in sourcing, building, and updating models, Canalyst is now used by over 300 institutions, including the largest money managers in North America and by a number of guests on the show. With detailed company-specific models on virtually every investable public equity, Canalyst clients are able to react more quickly. If you've been scrambling to keep up with the deluge of IPOs these days, Canalyst has models on DoorDash, Palantir, Airbnb, and everything in between. Their pre-IPO models are built as soon as the S1 hits and include all segments, KPIs, and non-GAAP figures. If you're a professional equity investor and haven't talked to Canalyst recently, you should give them a shout. Learn more and try Canalyst for yourself at canalist.com forward slash Patrick, that's canalyst.com/patrick.
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_2** (1:34)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (1:59)
My guest today is Joost van Dreunen, an investor in the gaming world, professor at NYU Stern School of Business, and former CEO and co-founder of SuperData Research, a data-driven gaming firm that was acquired by Nielsen. He also recently authored One Up! Creativity, Competition, and the Global Business of Video Games, a great book on the gaming industry.
Our conversation covers the rise and decline of GameStop, what parts of the value chain actually make money in video games, the evolution of the video games business model from Nintendo to Fortnite, and what other industries can learn by studying the video game industry. I hope you enjoy this great conversation with Joost van Dreunen.
So Joost, we're going to tell a story today of the history of the business side of video games and gaming. I recently finished your book and that's how we met. I thought it was a fantastic single industry deep dive history lesson, picture of the day and potentially of the future. I think obviously we have to start at the beginning. What do you think the most appropriate first chapter of the modern gaming business is and what defined it?

**Joost van Dreunen** (3:04)
The first thing to really cover is really the moment Nintendo came into the scene. I guess the short recap of the 70s and early 80s goes as follows. You had Atari and Pong and Pac-Man and all that, which led to a huge undifferentiated market that ultimately turned off and alienated its customer base. So it grew explosively to $2 billion in value in only a few years as the console moved out of the arcade and into the living room.
And very quickly after that, you had too many manufacturers and too little content. There was just no reason for people to care, to give a crap. So the market then collapsed and quite literally became decimated to like a tenth of its value to about $200 million in 83 And then in 84, 85, you see the Japanese firm by the name of Nintendo roll in and everybody thought they were crazy. So you have this phenomenon of video games, which everybody at the time thought was a fad. So the games industry emerges from the toy aisle at retail, that's really where it started. The video games in their early iteration were basically toys with chips built into them and a lot of people regarded them as such. Basically it's a hula hoop with a TV screen.
So for all those reasons, people thought, well, this is not going to amount to much. Another toy makes it big and then disappears next holiday season. In 84 then, in 85, Nintendo comes in and they start to really put some terms around what it's like to be a platform, what it's like to be a manufacturer of hardware and what it's like to be a company that hosts third-party content. And so the very first thing about the games industry that has led all the way to its success today has been this aggressive way of curating content, of building third-party relationships, of keeping this promise to consumers, like having something new to show, something worth their time to show. And so from the beginning, because such a segment that was under pressure from just the bullshit economics that they had before that, you have very high standards in terms of production, development, marketing, and so on. And so that then becomes the blueprint for how everything else is done. Nintendo really wrote that blueprint. They really drafted it in the 80s. And some of the aspects of it, for instance, were that as a content creator, you would only be allowed to have five titles on their platform. It would have to be a two-year exclusive to their platform.