Alan Wake publishing rights
July 1 announced that the publishing rights of Alan Wake were reverted from Microsoft. Earlier Remedy has owned the IP for Alan Wake but not the publishing rights. Alongside this deal, the company reported a one-time income of EUR 2.5 million. This income was explained as a royalty payment from previously released games. The website “gamedaily.biz reached out to the lawyer Richard Hoeg about the royalty payout and he thought it was some kind of royalty cash up for the final period of the license-agreement. The royalty will be paid to Remedy in the second half of this year.
After this deal Remedy has full control of the Alan Wake franchise. For example, the studio can decide to publish the game (and the spin-off) on Playstation. However, these games were released in 2010 and 2012 so the commercial potential is limited if not the studio decides to develop a remaster of the game series.
In our initial research report, we speculated in a new Alan Wake game at earliest in 2020 alongside the planned TV-series. Remedy has developed for some time a game called “the third project” to investors. It is unlikely this game will be an Alan Wake game after many comments from the company in media that Remedy does not currently develop an Alan Wake 2.
At Microsoft’s E3 briefing June 9 it was revealed that Crossfire X will be the first game in the series to come to console. The game will be launched on Xbox One in 2020 with exclusive content on the platform. As a development partner to the IP owner Smilegate, Remedy is working on a single-player campaign for Crossfire X.
Crossfire X will include the single player campaign that was developed during the company’s first collaboration with Smilegate. The campaign will also be included in Crossfire HD, which entered a closed beta phase in China in January.
The two-year-long “work for hire” project agreement that was announced October 25, 2018 is a completely new project that is still unknown. According to our estimates Smilegate currently stands for the majority of Remedy’s revenue with the “work for hire” agreement. Remedy has also communicated that there is a royalty opportunity included in the partner agreement between Smilegate and Remedy.
We believe this royalty will be a relatively low percentage of gross sales. Crossfire has been the biggest and most profitable first-person shooter game in China for many years. In this relationship, Remedy does not have the strongest negotiating strength. We have been very conservative in our estimates for the expected obtained royalty. Actually, we have been so conservative we do not have an estimate for this royalty in our model, which means this will come as a bonus. As initial sales for Control is so uncertain, we see a royalty from Crossfire as a helpful contributor in our expected margin of error.
It is important to know that Crossfire has its stronghold in China. And consoles are a rarity in China, which means the market is almost none existent. Crossfire X is, therefore, Smilegates effort to bet on the western market with its highly popular game-series. We assume Remedy has a royalty opportunity both in the single-player campaign for Crossfire HD (published by Tencent and “Asia exclusive” at the moment) and Crossfire X.
Currently and for many years to come Sony, Microsoft, and Google (amongst others) battle for exclusives in the ongoing platform wars which will result in many lucrative deals for the best content providers. At the beginning of July, the website PushSquare speculated in that Sony was lining up a bid on Remedy. One of the harder facts behind this speculation was that Sony’s worldwide studio's president Shuhei Yoshida recently visited the studio. As stated earlier we believe Remedy want to be an independent company and it is much more likely Sony is negotiation an exclusive Remedy game on their platform.
Sony is the dominating player amongst the console owners with a majority of the market share and over 100 million PS4-consoles sold. One of the most popular genres on the Playstation is third-person single-player action games which means Remedy games is a perfect match. The so-called “third project” under development at the Remedy studio is likely a single-player action game according to us. We believe Sony want the game to be exclusive on Playstation consoles and one good reason to buy the new console Playstation 5.
Sony could also be interested in the Vanguard-project, a more open-world experience probably with a “Game as a Service” business model. Sony’s exclusive portfolio of this type of games is close to non-existent at the moment which means Sony perhaps is interested to fill the “content gap”. However, this game is still in an early stage so we would bet on our first assumption on a Sony exclusive third-person single player action game.
We expect a strong release of Control
In 20 days, Remedy will release probably its most ambitious project yet namely the game “Control”. On July 24 the studio announced the new game went gold which means it is finished after three years of development. An average of 100 team members has been working on the game for the last three years according to director Thomas Puha.
Control is one of the years most anticipated games, for example, PC Gamer recently made a top 9 list of the most exciting PC games still to come in 2019 were Control was one of them. Control will be exclusive for Epic Store on PC, which most likely means Epic have guaranteed a generous amount of money based on the estimated PC sales of Control. The game development has been financed by Remedy and the publisher 505 Games (owned by Digital Bros).
A few days ago, Remedy reduced the PC-requirement, which means the game is suited for a more mainstream audience increasing the commercial potential.
According to interviews with Remedy, the game will have a playtime of at least 10-15 hours. Including so-called side-quests, the playtime could be pushed to 20 hours. This is pretty standard for a so-called campaign (single player mode) in most high budget action-adventure games.
After E3 in June, many of the major gaming digital magazines wrote about their impressions on the playable demo at the expo. The reception has been mostly positive. The core of the game namely the gameplay is described as entertaining, unique and challenging. Remedy has taken the best action elements from their previous games Max Payne and Quantum Break a made something immensely satisfying. The protagonist Jesse Faden has supernatural abilities, allowing for an interesting balance between gunplay and telekinetic powers, which is described as the absolut highlight of the experience. And yes, maybe this game is the true Jedi experience which could make the game appeal to Star Wars fans.
The story in the game is still a big mystery and like in the best David Lynch movies critics have no idea what to expect. An even bigger mystery is the much more hyped Playstation exclusive game Death Stranding which will release only three months later. We do not even know if this game is an action game so it I still hard to tell how big of a competitor this game will be to Control.
The reported flaws we can find in those impressions from the demo at E3 is that fascial animation felt unfinished and stiff. The interactions between characters also appeared like they needed more polish since the dialogue came across as robotic and unnatural.
Previous Remedy games have been very linear which is one thing that Control is set to change. The game will according to interviews have so-called “Metroidvania” elements. This means the game offers a more open world where the player needs certain objects or skills to open new areas. This game type is very popular amongst critics and the gaming community. In the demo played at E3, a critic at the digital magazine Playstationlifestyle only could find minor Metroidvania-elements. If the whole game is mostly linear, it could be a minor disappointment for many gamers.
We will not change our estimated sales for Control our fair value range. August 13 Remedy will publish its H1 2019 earnings report.
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