Game Economist Cast

E41: Karl Marx as a 5* Character & Ukrainian Drone Economy Design

• Phillip Black

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Eric covers the economy and the system’s design of Ukraine’s Drone squadron. What does economy balancing look like in the face of war? Phil can’t stop gushing about Heroes of History, but there's one economy design piece holding it up. The crew descends into a John Maynard Keynes debate as a 4* or 5* character. Chris covers the economic impact of the UK’s new obligation for internet providers, potentially transforming UGC as we know it.

https://ericguan.substack.com/p/ukraine-gamified-drone-warfare


Phillip Black:

That's actually where I wear sunglasses now. From the light of AI being so bright,

Chris Smith:

Cast and

Phillip Black:

I published four fucking packages this week. Over a weekend.

Eric Guan:

Using cloud code.

Phillip Black:

I started on cursor, I got addicted. I blew through a hundred dollars worth of credits and then immediately switched to cloud code to save money.

Chris Smith:

My God. So when you say you switch from cursor, so cursor is like the, I don't know what you like, I call it I guess a wrapper. It's but it's the thing that allows you to use different models. So I actually get pretty much unlimited credits. So I've been using all the different models. I've used this a couple of different softwares I've found that. Cursor or copilot in my case, directly in VS. Code is the best because I still get to use my vs. Code extensions. I have found that my ability to produce stuff has skyrocketed. I don't know if my like actual useful output has changed all that much. Now you said you've delivered four packages, which is pretty cool.

Phillip Black:

It was it's like you're in the matrix because the thing I realized you could do is you could open multiple cloud code windows, first of all, within one project, so you can be working within one project and you'd be kicking off multiple queries, working simultaneously. And Claude knows that the other quad is working, so you can run AI agents almost. No, they're pretty good at coordinating. They sometimes they sometimes wrap up a little bit, but it's pretty good. The other piece is you can spin up multiple windows with VS code and it could be separate projects and basically you're just ping between each of them as it's thinking. And so it's kinda juggling, juggling 5, 5, 5 chat windows at once. We have a beautiful podcast today, just absolutely beautiful podcast. We have the Online Safety Act. Chris, you're gonna be living the 4 1 1 on internet regulation. This shit does matter for games, though, there's actually a bunch of things that this ends up conditioning that I don't think people realize. When you have verified parental consent, which we'll talk about what that means, what the Online Safety Act is.

Eric Guan:

I wanna talk about drone warfare. Ukraine, there's a war going on. And they did a bunch of like game economy design stuff. I think it's worth talking about,

Phillip Black:

That is a perfect game economist cast topic. I'll do Microsoft's downfall. But before we begin Microsoft's downfall, let's talk about what we've been playing. Chris Fresh from Croatia,

Chris Smith:

Yes. I downloaded a bunch of games for the flight that I never ended up playing. Instead I just watched, What's that? South Korean TV show that just came out on Netflix.

Phillip Black:

Squid Games.

Chris Smith:

Squid Games, season three. I watched that, read some books but haven't been playing a bunch of games. But I did recently acquire a cooperative board game called Blue To the Rings, the Fellowship of the Ring, the Trick Taking Game. So a nice mouthful there. It's a trick taking game. So if you're not familiar with these types of games, these are like Eker

Eric Guan:

like hearts.

Chris Smith:

Taking Game Hearts is a trick taking game. Basically, everybody plays a card down. Whoever has the highest card within the suit wins the trick. The way that modern board games have changed trick taking is by giving user giving players roles. Hey, your specific role is that you need to get exactly three of the tricks, or you need to get more than three tricks. So in that way, this game is not super innovative. It's a pretty straightforward trick taking game. There's a single card that's like the Trump card. It's the only Trump card in the game, and it's the one ring. But what's cool about it is obviously the Lord of the Rings theming. They're, they got an extra five bucks outta me just for that. But what's cool about it is it's a story game. So it really just walks you through the different chapters of the Fellowship of the Ring, and there's thematic episodes. So it's technically a legacy board games. You're playing through this series of quests. And each one has like a theme. Now, the only real actual gameplay change that, that occurs with these different chapters is not, it doesn't really have to do with the actual trick taking. You're just taking tricks. And a five of hills is no different than a five of clubs, so that's not really interesting. But you get access to different characters and each character has a different gameplay that will change the way that the game is played or the win condition. One character might say, draw a card from the threat deck. And there's these like black riders that are the threat decks. You draw a black rider card and let's say it's a three, you must win the three of clubs in this game. If you don't, you lose the game. So it's this cool, a bunch of different mechanics get added in over time. You get different characters and the art is absolutely delightful. And it's based off the book. Not a video game, but a game. Very cool game. And you can really see the board game industry juicing, Lord of the Rings just like every other physical media company out there. Lego let's see, magic Gathering Lord of the

Eric Guan:

The Tolkien estate has just been a lot more liberal

Chris Smith:

It's just,

Eric Guan:

or something.

Chris Smith:

So I'm actually really curious, like what happened, because I know that they had been pretty pretty like strict about this kind of stuff.

Phillip Black:

so remember there actually is a reason for this. So Middle Earth Enterprises got sold to embrace a group, which is a Swedish operation out here. It was rolling up a bunch of companies. They have now had their downfall, their stock prices absolutely collapsed. They didn't deliver on their promises and the amount of capital that was invested to'em. And so they spun off into three companies, one of which is a board game company. Another one is like the remaining Embracer groups. And the last one is Middle Earth Industries, which is now the owner of the Token Rights, the Lord of the Rings rights. And so they've been licensing back out'cause now they don't have to deal with the estate, which was nor notoriously stingy. And so that's why like the Amazon, MMO of Lord of the Rings is back on. You saw EA come out with a squat RPG that kind of failed immediately. And I think you're seeing stuff like this.

Chris Smith:

I'm okay with them being more liberal as long as they don't like, so I'm gonna be the guy who says that the Amazon TV show sucks. It's not good. They extrapolated on the story.

Eric Guan:

be the first one to say

Chris Smith:

Yeah, I know It's not a controversial I love, however, I love the use of the ip. Gimme the characters I love. Tell me more about them. Yes. I want to have Sam Wise Gaji as my character in this trick taking game. Could I play this game with a standard deck of 52 cards? Probably. But I'd rather have a picture of Frodo Baggins, sitting on the table. So I'm okay with it. I'm okay with this use of the ip, but it's just crazy how much is out there. There are three Lord of the Rings themed board games that have come out in the last three or four years that I saw at the store. This just happened to be the one that was like in the price range and kind of the experience that I was looking for. But yeah, really interesting to see them, them juicing. The board game industry is, I think it's doing okay just

Phillip Black:

it's do. It's doing

Chris Smith:

the Yeah.

Phillip Black:

it was the only profitable segment of Embracer was the As Modi, which was the board game company that they bought

Chris Smith:

It's more than just settlers of Kaan and Monopoly and Pandemic. There's no Lord of the Rings pandemic. I think that came out. I could be wrong on

Eric Guan:

dude. Even though the library here, you can check out board games and they've got, they've, they've got a bunch of crash rooms, but they have a good ones too. They've got stuff like, pandemic legacy and, we put played mariposa's, like a butterfly migration game. Yeah, I think board games are really hitting the mainstream. Yeah.

Chris Smith:

Yeah. So

Phillip Black:

Eric, what have you been up to? What have you been playing?

Eric Guan:

Nothing really, I guess I've been playing a ton of Once Upon a Galaxy. It's a auto bat drafting auto battler, very similar to Super Auto Pets, which I know this pod is a fan of.

Phillip Black:

Oh my God why didn't you tell me about this? You gotta let me know about this

Eric Guan:

yeah. No, it's great. It, I got hooked on it again, just like suit my first romance with Silverado Pets. It's a little more complex, which is good. Got some hard, some battlegrounds influence there. Interesting thing about this game is it was originally funded by Sam Bakeman, free of X-D-F-D-X fame. It was his old college buddy who was like a, got into game design and back then it was called Storybook Brawl. And in, in that Michael Lewis book, he actually talks about it. But yeah, so FTX was the funder for this game and obviously FTX collapsed and they they owned Storybook Brawl and so the guy just rebooted the game, gave it a new name. It's called Once Upon a Galaxy, which is a strange name.

Chris Smith:

is not a crypto game.

Eric Guan:

Yeah I don't think either one involved crypto at any point. But but yeah, it's basically, crypto funded, but the game's good. We love to see subsidies for games we like. They're struggling to monetize. So I, once you guys play it, I'd be curious to hear your take on how they're monetizing. I think this genre in general has had trouble monetizing.'cause if you don't. If you're drafting, you don't really own the cards, so it's less compelling to get them that sort of thing. If not everyone's playing with the same set of cards, it doesn't really feel like you're playing a fair game, that sort of thing. But yeah, fun game in the book that talks about how Sam was in these million dollar investment meetings and he is just playing storybook brawl. It is my browser.

Chris Smith:

What's the what's the new game? The new version called

Eric Guan:

Once Upon a Galaxy.

Chris Smith:

once Upon a Galaxy

Eric Guan:

Yeah.

Chris Smith:

for you to Play.

Eric Guan:

Yep. Very free. I've felt no pressure to monetize.

Chris Smith:

Is there a Way to monetize?

Eric Guan:

Yeah you'll see it, when you get in there. But yeah, it's been fun. And I've been rollerblading a lot. I guess that's actually what I've been doing lately. I,

Phillip Black:

Oh my God. The dream of the nineties is live.

Chris Smith:

The nineties is coming back.

Eric Guan:

yeah, no, my, my daughter wanted to ice skate and I was all right, you, I'm gonna invite you some roller blades and we're gonna like roller blade until you can stand up and skate around before I take you to the ice rink.'cause otherwise it's gonna be a waste of time and money. And she did. And while

Chris Smith:

So economical

Eric Guan:

and I was like, wait, this looks fun. I wanna do it too. So I got myself some skates.

Chris Smith:

dude. I've been e biking a lot lately. Like I, I didn't really have a strong desire to bike. I had a bike growing up, didn't really give a shit about it. You put a motor on that thing and it's just like the whole world opens up.

Eric Guan:

Yeah.

Chris Smith:

are amazing. Just take some wheels in your town,

Phillip Black:

it's particularly in Stockholm, there's so much bike lane. They actually have these little bike police, which are hilarious. They'll flag people, they put these little, their helmets. It's a whole thing. but like,

Eric Guan:

is just on their helmet. Like a little light on

Phillip Black:

Yeah. It's greats like very Paul Poplar Mall cop type shit.

Eric Guan:

Yeah. We'll definitely. Top 10 invention list for me, goated.

Phillip Black:

Yes. You know what? You know what? Guys in a game Economist cast first we are about to see live in-game footage, figured out how to share my screen, live in-game footage of what I've been playing. Ladies and gentlemen, it's heroes of history. I have been addicted and I love this game's thesis, and we should talk about it. So all of the characters that are in the public domain, you of course can use by definition. And so they basically have taken that thesis. And so you can play literally as the heroes of history. So my they made it a squatter, pg. So my team, my five star team is Sia.

Chris Smith:

Which,

Phillip Black:

Margaret, the first of Denmark, Vincent Van Gogh, by the way, Carl Marx is down. Here's a two star character. He's garbage, as you would expect.

Chris Smith:

stars. Where's where's Milton Friedman? Is he a

Phillip Black:

Yeah. So here's the thing. Like I, I definitely wanna reach out to this team. I think I could get Adam Smith in this game. John Locke is here. I think John Stewart Mill could get in here,

Chris Smith:

Who

Phillip Black:

Adam Smith, I think maybe, I think Keynes could have, has a shot

Chris Smith:

When you say in the public domain, these are like human beings that existed. What does that even mean? Do they have to be in the public domain?

Phillip Black:

here. So they're public figures

Chris Smith:

But

Phillip Black:

and they don't own their own likeness. Like I, you can't just go out and make let's say Kim Kim Kardashian, the ho the Glue

Chris Smith:

You can't just do that. Oh,

Phillip Black:

No you need they own the rights of their

Chris Smith:

So when that crypto game when that crypto game off the grid, did the Donald Trump versus Kamala Harris like fight to the death video game mode, that was like illegal.

Phillip Black:

No, because it is parody. Parody is always allowed

Chris Smith:

Oh God. Beautiful.

Phillip Black:

That Supreme Court actually was a ruling.

Chris Smith:

Wow.

Eric Guan:

Once Upon A Glee

Chris Smith:

sack Julia.

Eric Guan:

It's all like fairytale characters. Yeah. You got a ton of IP to work with that people have resonance with, but you don't have to buy anything. Yeah.

Chris Smith:

Yeah.

Phillip Black:

There's a there's a CCG that's doing this called Project O, which we talked about actually when we're at GDC amongst the three of us, which I also am like in love with, but they're also going with fictional characters like Frankenstein. And this is all I love this because not only do you have these heroes of history, literally, but the other thing that is in this game is this whole builder aspect. So this is like an old loop. Normally squad RPGs have moved away from this, where you would have these base building elements and you'd have these characters and how they're looped together. And they go back to this old design. The thing that's really cool is that as you do more research, you move through these research trees, and when you're done with a research tree, you move to a new civilization. So right now you start at the Stone Age and you'll go all the way to the high Middle Ages, and they're adding more and more worlds. And you see where they're gonna take this. They are gonna run outta runway, right?

Chris Smith:

they run out of time,

Phillip Black:

they're gonna have to go to the future. Yeah. They're gonna have to go to the future.

Chris Smith:

Mars, Jupiter, to the different.

Phillip Black:

but then you're gonna lose all your emotional connection.

Eric Guan:

No, I just flip to a different civilization. This is all European stuff, right? Just, a new track in Asia or something.

Phillip Black:

that's a very true. They could also do things like Wakanda, gone of forever. So they can do some of that, but I think they can the thing that's nice is that it, you may move through histories in the city building aspect because it's a linear progression, but you can have characters that are competitive from any age. You're not restricted to that. So even though that I started the game, let's say in the stone ages, you can still get characters who are more modern that, that is a completely different track, which is really nice. So they don't place any preconditions on that. I could ride John Lock into the sunset.

Chris Smith:

so other than the characters, that's the, that's their com, their edge is that they've got these kind of historical characters.

Phillip Black:

It's the historical characters in the historical settings. So right now we're looking at a live ops event that's actually Viking based. And funny enough, I actually went to Norway I'm in Sweden, but Norway actually has a lot of the good Viking shit. And there are these Viking churches. And one of the things that you have in this live ops event that's a Scandinavian themed Viking building event, is that you can actually build one of the churches. They have the design, which you can see right here. You see the third one, the luxurious home, this three stacking

Chris Smith:

Uhhuh.

Phillip Black:

Of roofs. And for those who aren't watching the YouTube version, it looks almost like a Japanese Japanese architectural design, but closing in at the top parts. And when you see these in Norway, they actually have these like dragon, these dragon parts, which it's really fucking cool. But it's a very unique appeal. It's a very unique game. It's going back to this kind of thesis. That I thought had been abandoned about having a city building aspect and having the heroes. I do hope they don't get too stuck in the city building aspect. I have concerns about it. Their gotcha actually sucks. Like their velocity is really low of not pulling a lot of characters. I'm not rolling a lot of characters. I'm not feeding characters into other characters. There's some mistakes I think they make that I could go on and on about. But the core idea of having these heroes of history, I think is extremely unique and is a ton of fun.

Chris Smith:

So how much have you spent?

Phillip Black:

I have spent$200

Chris Smith:

Jesus, dude I will. I've never, Yeah.

Phillip Black:

their monetization. Monetization is really bad. So they give you an example, like what is one of the best monetization windows for them? It is when you enter a new era and you want to jumpstart, and so they do have starter packs. The problem is that the starter packs are almost very little relation to what is actually happening when I start a new world. Like I don't have a sense of predictable value from that. It's basically just a bunch of resources that have been discounted. I wanted something that gave me more research points. So the thing that I really wanna point about their economic design, I'll have blog posts soon. Going through all their loops, is that they have research points, which is what controls you moving to through the different ages and research points are generated on a regular schedule for all players. every 30 minutes you're getting a research point. And so what you really wanna do is you wanna log in every 30 minutes and you wanna deposit your research points into the research trees. And then after you deposit your research points, then you have to send resources to unlock it. So there's two costs. So you're going in here and dumping your points every so often based on how fast they regenerate and how many points you can hold, quote in your wallet. And so this is the central bottleneck for all progression. This is how they pace players. They know if they can control your research points, they can control your research trees and research trees basically influence the level cap of all your buildings. And the level cap of all your billings really influences how far you can go with your characters. And so you can see that they've created this really nice economic loop, although it needs some refinement. They have some good levers at their disposal by

Chris Smith:

they don't sell, he, they don't sell the heroes.

Phillip Black:

They do, they sell hard currency that you can use to do gotcha rolls. It's just that the poles are very expensive and there's very little that you can do with duplicate. They have this awakening system, but usually you would expect to be doing hundreds of polls in this game. And I've done maybe five, maybe 10 or 15.

Chris Smith:

Yeah.

Phillip Black:

They're stingy too.

Chris Smith:

I struggle with these kinds of games because how do you choose the one that you're gonna play forever? I look at this and I see it looks most, I agree there are some interesting thematic elements, but it looks like a reskin of, a bunch of different games that I've seen in the past. Do businesses like this I don't know, create a moat other than, okay, this person spent$200.

Eric Guan:

I don't think they're to play it, Yeah, I think you're supposed to cycle between them. You play one until the progression gets stale and you play another,

Phillip Black:

Every company wants you to play forever so they can continue to grow your LTV, right? That's just how they make profit is LTV minus CPII think exactly to your point, Chris, is that there's very few moats on mobile, and I think it has a lot of resemblance to a perfectly competitive market. Part of it's just path dependency, transaction costs, all the normal things we think about in markets. But yeah look, what's happened with Match three is okay, Royal Match Candy Crush, all these games were successful. A bunch of new ones flooded. Now those games still retained. I think there was a, like a sense of maybe a little bit of path dependency. But they also have been they invest massively in those products. There is a material difference, I can tell you, between Candy Crush and like a smaller team this thing called Adaptive Drop, how they handle seeds. Like they are doing a lot of incredible things.

Eric Guan:

When you say path dependency, you mean like first to market matters, like the order in Or what do you mean by path

Phillip Black:

O only in the sense that if I start a new squad, RPG, something with linear power progression, that means I have to restart at the beginning of the track. And so I think there's some path dependency that once I'm deeper into an RPG, the there, there's it basically, I don't wanna call the block in is not the right word. But once you, for instance, is it easier for me to code in Python or in r I'm path dependent at this point'cause I've been spending so much time

Eric Guan:

Like it sunk cost or whatever.

Chris Smith:

Yeah, cool. Looks cool, but every time I see one of these games I'm like, eh, I don't know. Why wouldn't I play one of the other, like the most popular squad, RPG, this looks more like an A, this looks more like A civilization game than a squad RPG.

Phillip Black:

I think it's got some civilization vibes. It's very astute observation. Chris sorry, I take it back. Carl Marx was now three stars three stardom. he, you can see right here he is got the

Eric Guan:

character have a fixed star level or is it, there's different, you could roll Carl Marx at any star level.

Phillip Black:

So it's interesting, I have not seen the ability for you to star up these characters, which is also something that you normally do with duplicates is you're able to star them up to the star cap, which is not the case. What duplicates do here is that it goes to something called the the awaken, which is again, just more vertical progression, which I've also been disappointed with, which is again, a really, another good point, Eric. This is one of the reasons their gotcha, I think is bad.

Chris Smith:

He's arranged character, but he is got a sickle and a hammer.

Eric Guan:

Maybe he throws them.

Phillip Black:

Also. Do you see his class as manipulator

Chris Smith:

That makes sense. I like that.

Eric Guan:

Is the Hammer Sickle? Even a Marx thing isn't the, didn't the Russians do that? I guess it's thematically linked. It's cool. But yeah,

Chris Smith:

It's fair enough. It's close enough.

Phillip Black:

okay. Who do you want me, who do you want from the econ list to go in here? Who? Like we each get to, we each get to one

Eric Guan:

to mind.

Chris Smith:

Adam Smith is the most famous, but I

Phillip Black:

But who? Let's put it this way. Who do you guys want? You get one pick. I won't limit to common economists

Eric Guan:

recognize ability. So I would say Marx and Smith are like the two big ones,

Phillip Black:

That's fair. That's fair. I think John Mayard Cas would be really cool here because he also was super tall. I think he could be a very interesting character.

Chris Smith:

Is Kane's very recognizable though?

Phillip Black:

Oh, absolutely. That mustache, he was like six four.

Chris Smith:

I know what Adam Smith looks like.'cause I've seen like old, my PFP is him, but it's just like an old dude, an old fancy dude. People are like, oh I know him.

Phillip Black:

gonna be, it's gonna be hilarious when they get more modern. Dude, you know what I wanna rip with, like Bill Clinton who doesn't want Bill Clinton on the team?

Eric Guan:

You think Clinton's making him the list?

Chris Smith:

The Democrats

Phillip Black:

Dude, bill Clinton is totally making the list, man.

Chris Smith:

Yeah. Adam Smith is probably the best choice. I can't really think of anybody. If I could choose a modern person, it'd be Daron. Asim. Olu.

Phillip Black:

I am disappointed at the lack of American revolutionary work. That's not true. I saw Thomas Jefferson was in here.

Chris Smith:

It's George Washington

Phillip Black:

only tj. Right now. Only tj.

Eric Guan:

They're gonna release Washington as part of an event and, he'll be like a

Phillip Black:

Dude. I really, I, dude, I really won't fucking want. So his Thomas Jefferson's ability is called Founder's Pac Forms a spirit link with the enemy hero possessing the highest HP lasting for six seconds. Linked, 45% of any damage Thomas receives is transferred to the link to enemy hero.

Eric Guan:

What's the theme here? I don't get it.

Chris Smith:

Is that thematic? I Thomas Jefferson Deflect Bullets,

Phillip Black:

do you remember the famous flag? Or what was it that Ben Franklin said, we either hang together or we hang separately.

Eric Guan:

Yeah, but this is a pact with the enemy team.

Phillip Black:

Yeah.

Chris Smith:

one's Ben

Eric Guan:

This is like damage sharing with the enemy team.

Phillip Black:

Yeah, it

Chris Smith:

have gone. They missed an opportunity to do Alexander Hamilton. He's got much better name recognition with these young kids

Eric Guan:

About that dude.

Phillip Black:

You know what Chris? I think you're right.

Chris Smith:

I would like an Alexander

Eric Guan:

my 6-year-old knows tj. He doesn't know, she doesn't know Hamilton she knows I'm

Chris Smith:

doesn't know Alexander Hamilton

Eric Guan:

knows'cause we played the, But they teach TJ in school. He's on the fucking Mount Rushmore, he is on the

Phillip Black:

so what about, yeah, so what about Saka? Joa,

Chris Smith:

sca,

Eric Guan:

I'm surprised she's on here. I think they just wanted diversity. she's deep.

Phillip Black:

Her

Eric Guan:

Yeah. Also if you wanna talk about historical impact, like she's pretty low, to be honest.

Phillip Black:

oof,

Chris Smith:

Oh, do you know what they, they need John Smith and wasn't John Smith, was it? Was John

Phillip Black:

That was a fictional character from Pocahontas. No, that's true. That's true. That's true. No, that is true. That is true. I think you're right. You're right. You're right.

Chris Smith:

John Smith is a real person. It didn't happen the way that it happened in the movie, but he was a real person.

Phillip Black:

you're right. I can see that. Can

Chris Smith:

Jesus.

Phillip Black:

And she did go back to England too. I remember seeing those pictures.

Chris Smith:

It's crazy. It's crazy.

Phillip Black:

they've, it's interesting, like what characters they choose to include and whatnot, because I think there's a lot of really interesting political decisions you actually have to make. For instance, Ottoman v Otto Von Bismarck gets there Carl Marx gets there. Like these are not, Cypress are great. Like these are not always like savory figures,

Eric Guan:

but they're of big importance. one would

Phillip Black:

Yeah. But I'm saying like okay, how much can we push the limit?

Chris Smith:

I'm

Phillip Black:

Can Paul Pot

Chris Smith:

who they have here.

Eric Guan:

don't think. Paul Potts of that historical significance, nowhere close to Marx.

Phillip Black:

What about Mao? Would you put Mau in here?

Chris Smith:

Wolfgang

Eric Guan:

I think it could put if it could be a sieve. It could be a sieve character. It could be in here. I think

Phillip Black:

Dude, there he is. Man.

Chris Smith:

Ben

Eric Guan:

key in the kite.

Phillip Black:

Hercules is in here somehow. I don't think

Chris Smith:

So he he may have been like a person technically or something.

Phillip Black:

Lancelot is here. So they, oh.

Chris Smith:

Okay. So they do have,

Eric Guan:

Washington. Washington is in here.

Chris Smith:

look at that. Robin Hood. They've got fantasy characters. William Wallace Medusa. Definitely not a real person. Dude, it's only a matter of time. I do the little characters of famous people. Abe Lincoln. I knew they would have Abe Lincoln.

Eric Guan:

Yeah.

Phillip Black:

a good call. Florence Nightingale is a healer, of course,

Eric Guan:

They got FDR in here.

Phillip Black:

is a wheelchair.

Eric Guan:

Yeah.

Phillip Black:

Oh Jesus. We're going straight to hell.

Eric Guan:

What? No, that's just the truth. He was in a wheelchair. It was,

Phillip Black:

And that'd be really funny to see him fight

Eric Guan:

that's all it takes. I can't get into these games.'cause I like, I feel like I see behind the veil. Do you know what I mean? I'm just like, this is a path to nothing.

Phillip Black:

Oh, why do you think it's different in the other games you play?

Eric Guan:

I play games where I like the decision making where like they challenge me to make decisions and if I make the wrong decision, I fail.

Phillip Black:

that is the case. It's not just grinding, that is one component of it, but it there is labor and there is capital. So to give you one example, like one of the main key progression funnels is the PVP environment. And so what squad you choose to compose, because there's embo. So if you see here, there's,

Eric Guan:

sure. But the,

Phillip Black:

this speaks.

Eric Guan:

how much of this is like chores and grinding and how much of this is like actual interesting? You like, oh yeah, great, we got rock, paper, scissors. Yeah, firearm's been doing this forever. I,

Phillip Black:

that's fair. But what I think that does is it guarantees you progression in the long run. Whereas it isn't always the case that like, I could be stuck at the same rank in some of these games for a really long time. And if the game is fun enough, I think that's, that you have to figure how to cc you as long as you're not progressing and getting better as a player. And I think that's very tough

Eric Guan:

yeah. Yeah. For me, I like, I've played enough competitive games and know what being bad is like that I'm like, I'm fine just being bad and continuing to play as long as I enjoy the game. I guess that's not true for a lot of people. So you have that elusory progression, but,

Phillip Black:

So to give you an example, this is 48, 4800 diamonds for 10 summons. that's$48. That's crazy. That's extremely expensive for

Eric Guan:

Hmm.

Chris Smith:

So what is a, how does a summon work is this just to use them once?

Phillip Black:

It's a straight loop box. So you have a probability of getting a different character. You can see like here I have 1, 2, 1 0.2%.

Chris Smith:

10. 10. Loot boxes is$48.

Phillip Black:

Correct?

Chris Smith:

So loot box is$5 and this gives you a chance of winning a single character.

Phillip Black:

Correct. You're guaranteed a character. The question is just what character are you gonna get?

Chris Smith:

Yeah. That's insane.

Phillip Black:

A three star or four star or five star

Chris Smith:

can you get the same character twice?

Phillip Black:

You can, and remember it goes through that awaken system So you can upgrade your single character by getting a dupe. Normally that's what stars them up. To Eric's point,

Chris Smith:

It's pretty expensive.

Phillip Black:

it's extremely expensive. I think this is one of the problems with the game, and honestly, I think they could hold prices constant. The problem is that they don't have a lot of reoccurring money sinks, like we were talking about. Those new starter bundles, they don't really work. The other thing that they don't have is these annuities we've talked about. Basically I pay an upfront fee and I get a stream of hard currency payments every single day. Like they have one version of this, but it's for the gotcha. It's for stand. It's not a very good deal and I wish I could stack these.

Chris Smith:

Let's just smash through this Microsoft downfall.

Phillip Black:

So if you guys have not been following the news, Microsoft and particularly the Xbox, really wanna talk about the Xbox Division is in a really bad place. And so what's going on? Didn't they just acquire Activision K Blizzard? They were calling all these studios and then there's all these layoffs. What's going on? The headline story is that they bet on Game Pass, which is their game subscription service. I've been very anti game subscription'cause it's antithesis to how people consume gaming content, which is increasingly them playing less games over time, not more games in the sense they're getting attached to a live service game. So that instantly cuts your tam at the margin because this is most valuable to people who consume lots of games because their savings is however much the cost of the games would be. Relative to the price they're paying in monthly subscription. Honestly, we can make that an opportunity cost and they're gonna consume more.'cause now they're in a zero marginal cost network if they're in a subscription. But they've been spending a lot of time on this. That, again, is antithesis to where games are in terms of, I would argue content consumption. There's also the resistance to gamers to not being able to own their content, which I mean, we can go back and forth on the definition of owning whether or not it's a license or not, but people have this idea of wanting to build your digital library, like building your steam collection is something that I think is recognized as really positive. And that's one of the reasons Epic's Game Store started to do this. Free giveaways is you're starting to build your library on an Epic game store. So even if you don't play those games, which everyone jokes about, just building the library, I think gives you a little bit of lockin in some sense. Although it doesn't feel like it, it's just where your digital library is so to speak. And I would say the thing that I just can't get over is that they weren't able to ever provide an answer for why all these other game subscription services failed. So you guys remember on Live

Eric Guan:

I remember ads for it. I never used it.

Phillip Black:

On Live was your game streaming service through, via the cloud that they had a subscription service. You could also buy full price games for them, but they had a subscription service. Gang Kai ended up getting bought by PlayStation. They just do game streaming right now. But they were trying to dabble in this game Fly, if you remember, that was almost Netflix for this. And then digital Pivot into a digital environment. It's just very hard. It's very hard to get this right. And if you don't have something like MTX also supporting it and a strong element of MTX, then it's hard to also have reoccurring revenue. You're just giving away too much content. And so they've been focusing on game Pass, which has been a total failure. Like they stopped reporting monthly active pass users, which is a huge, obviously, component to any subscription services, how many MAU you have. So when you start hiding that, it's not a good sign. I think it was like 35 million was the last they mentioned. But the most crucial factor, their downfalls, they're not selling Xboxes anymore, is that Xbox has collapsed in Europe. It never had a foothold in Asia, but it's collapsed in Europe and PlayStation has taken over. That is the single thing that is the most harmful to Xbox's division, and that's caused the cascade of all these other things. But the point that regulators, this is what really frustrates me about regulation, is that the. UK Competition Authority. If you guys remember when Microsoft announced it was buying Activision King Blizzard dragged their feet forever on getting this merger approved. So did the FTC, which by the way, abandoned its final lawsuit finally a couple weeks ago about this merger, which has happened a while ago. They were still trying to go back and have it undone. But the CMA basically diddled around because they thought Microsoft acquiring this gaming company would be a monopolistic potential activity and threat in future innovation in the cloud gaming market. Does anyone understand what the cloud gaming market is? What is that? That is, this is always, this is, yes. This is always the antitrust game is like defining market segments and they somehow had the unilateral authority to give it this very small market segment. And although they did eventually approve it, the fact that they did for so long on this harmed Microsoft's ability to get this game passed strategy, going and seeing it at its best, and even if I didn't believe in it, it should have had the shot, it should have had its best possible shot. And we as a games industry are all worse because of this, because they didn't have their best shot. And regulators will never take accountability for this. Even though there was no threat to cloud gaming. They'll never look back on this and be like, wow, as Microsoft shedding employees, do we take any responsibility? No, never. And this is what really frustrates me about the regulators.

Eric Guan:

Do you think the regulars are what caused it to fail?

Phillip Black:

I think it harmed their ability. In terms of having success or reduce their probability. And I think if you're a regulator, even if you're doing even if there's a real market threat, like I'm not debating whether or not there was a market threat or there was, but I think what they had to be was swift. And they were not swift. And that would be my criticism more than anything.

Chris Smith:

That's how crypto people feel about regulation. They're like, oh, we got all fucked over because there was no clarity. Yeah, the only cloud economics out there was Roblox. And I don't think Roblox was gonna be touched by Microsoft. They weren't. They weren't in threat of this. I'm curious, so do you attribute the failure of Microsoft, so regulation aside sounds like the hardware component is playing a big role here and what different, why is PlayStation so much better off than Xbox?

Phillip Black:

I think it depends on like how far down the causal chain we wanna go. So for instance, like why is Microsoft not selling hardware units in Europe anymore? I would argue it's because they've basically had a collapse of first party software. So like, when's the last time Halo was a relevant franchise? That's a franchise. That's been a disaster. Remember they bought years of War from Epic. That was another capstone. That was another capstone project that's basically gone nowhere. Like all of their studios that they've acquired haven't produced rare games. You remember? Rare fucking Rare Perfect Dark Zero, where is it got canceled as a part of this, they've been working on Perfect Dark Forever.

Chris Smith:

I remember that trailer.

Phillip Black:

So it's just been under delivery. Under delivery under Starfield did not do as well as it should have. Remember they bought Zenax that was a part of this expansion as well, and so like they just haven't had the consistent delivery they've needed relative to Sony, which is killing it left and right. Look at Spider-Man selling, selling all these single player high budget games do really well on PlayStation.

Chris Smith:

Do we think that there's does Xbox just kill their console? Like the Xbox Console

Phillip Black:

They are they've been trying to, they don't wanna be in the hardware business.

Chris Smith:

what is Xbox though? Like without their hardware, what are they like?

Phillip Black:

A gaming streaming service and a game publisher. That's it.

Chris Smith:

I would not use Xbox if it weren't for the console. I would not use them. I have, yeah,

Phillip Black:

I think this is it guys. I think it's over.

Chris Smith:

It's done.

Eric Guan:

So what have they done? So they've, you said they've stopped hardware sales in Europe, they've done the layoffs they're, you said they're pulling out of Europe, so like they're literally not selling Xboxes in Europe anymore.

Phillip Black:

No. They've declined in Europe. They've declined in terms of sales of Europe and I forget the regions, but they are pulling back on advertising in some regions as well. Not all of Europe. They're

Eric Guan:

And then your prediction is that they'll cut console hardware altogether at some, like in the near future.

Phillip Black:

Yeah. I don't think Xbox is consistent with Microsoft's broader company strategy either. And if it's not making as much money as it should, like it, it'll be gone. It'll be sold for pieces

Chris Smith:

So it's time to up upgrade to PlayStation. I'm gonna be a PlayStation Mac person by the end of the year. That's insane. I was a pc Xbox guy. My whole world torn apart. In terms of PlayStation's monetization model, don't they also have a subscription though?

Phillip Black:

They do. They do. They

Chris Smith:

why is theirs working or,

Phillip Black:

so they have a, it's not the centerpiece of their world, and the way PS plus works is different. So PS plus is their subscription service. It does great money, but what happens is every month they give games away and you claim them, but you have to be there in the month subscribing to claim them and add them to your library. If you don't continue to subscribe, you lose it. It's actually like a really nice little behavioral, again, meta collection tactic, little

Chris Smith:

you, If you, let's say I'm a sri, a subscriber in July, I claim the game and then I unsubscribe in August. Can I still play that game?

Phillip Black:

No, you have to have an active subscription to be access to your collected

Chris Smith:

Okay. So it's like the Xbox library. It just doesn't like the Xbox library. It's like always in and

Phillip Black:

It, It's per, it's persistent. Like Netflix is a persistent library. This is two games that you're claiming every month.

Chris Smith:

I dunno.

Phillip Black:

It's, I think it's a fascinating mechanic for sure. it's,

Chris Smith:

what are you paying for in that model? In the PlayStation model, like in the Xbox model, I tell myself that I'm paying for like free games

Phillip Black:

Here's the thing. It gets a, it gets more valuable the longer you subscribe, right? Because you're collecting more games, which builds your library. And so every month you're paying for access to a growing library.

Chris Smith:

Is there an online component? Do you have to pay for online chatting with your friends?

Phillip Black:

No, I think everyone's gotten rid. I forget what PlayStation was. It's been a while.

Chris Smith:

gotten rid of it. It's annoying.

Phillip Black:

You can you can for free to play games though.

Chris Smith:

Yeah, I had to every time I get a new game on Xbox, I have to resubscribe Xbox Live so I can talk to my friends while I'm playing it. Like night reign. I had to buy the game for 40 bucks and then I had to resubscribe for a month while I played it and beat it. And then I unsubscribe, like, annoying to have to deal with.

Eric Guan:

Can you play without subscribing or is it just for the voice chat?

Chris Smith:

You cannot play online without subscribing unless it's like a free to play game like Fortnite or Rocket League, which I've always found infuriating. So we're gonna go, we're just gonna go full circle and just go back to premium games box price. You buy your PlayStation, you buy Spider-Man for 70 bucks, and then you play Spider-Man for 50 hours and then you go on to the next thing.

Phillip Black:

Yep. Yep.

Eric Guan:

So what does console look like if it's just PlayStation and Switch? They don't even compete directly that

Chris Smith:

Yeah, it's like there's no com competition for PlayStation

Phillip Black:

E

Chris Smith:

in this model.

Phillip Black:

Exactly. This is not good for games publishers. This means they, they will be more extractive. cause you're now bouncing off between Steam and Sony. That's it. That. That's what this world looks like. That's scary.

Eric Guan:

Yeah.

Chris Smith:

It's grim actually. It's great. Do you think I'm sure that the story, the mainstream story will be that micro or Xbox, like killed the, like corporate America killed Xbox, corporate America killed a BK, like all these franchises that were good. You talk, you mentioned gun guys, the big bulky football

Eric Guan:

of War,

Chris Smith:

guys, here's a

Phillip Black:

The.

Chris Smith:

yeah I actually played that not too recently, or not too long ago. They just, was it just like terrible management? Just like a horrible misunderstanding of the medium.

Eric Guan:

I think Phil mentioned like there was a bunch of bad acquisitions, right? They acquired a bunch of rising star companies that failed to deliver after they were acquired, like rare, like Bethesda bungee.

Chris Smith:

Just feels like it happened so quick, like it all happened within a decade. I guess that's not that, that quick, but it seems like you'd be able to point to something

Eric Guan:

my guess is a lot of bad bets during Zer also probably hurt them as well. They went like way too hard into this whole game pass thing. They reoriented the whole strategy around Game Pass and then it failed, right? Like the A BK acquisition seems super questionable to me. Especially to Phil's point. People play fewer games and they play them for longer and which reduces the value proposition of Game Pass. A BK games, call of Duty, candy Crush, world of Warcraft. These are games you play singularly for an extremely long time. It totally does not fit in the subscription model. Yeah, I don't know.

Chris Smith:

Is there a way for them to come back, Do away with subscriptions and just start, how, I don't know.

Phillip Black:

subscriptions are just, they're not. They're not. See, here's the other thing. If you're on the publisher side, they try to do engagement based payouts, but as we know, like time spent is not the same as willingness to pay. So there's all this attribution problem, because the other thing you've gotta remember is that all these publishers who get onto these subscription platforms also have their own deals, which sometimes have minimum guarantees. So these pots get carved up in very weird ways. And sometimes even though you might have a high share game, you could be getting a low payout. So I think there's this, we could call it like a principle agent problem that doesn't exist, I think, in a different market. Because the thing is that we're, you are actually like employing a different principle, right? Like I am, I'm actually employing Microsoft when I own a subscription to be my content distribution decision maker on what they expose to me how they go out and make media purchasing decisions, where normally I put that onus on me, right? And then I just have zero marginal cost access to their network, what they've, what they put on the platform.

Chris Smith:

Yeah, I almost wonder if they should just move to an Apple model, like an Apple app store and just Hey, we're gonna take 20% of everything you make on our platform and just let the businesses deal with the monetization. It's almost it's almost like a, centrally central plan monetization. Whereas each project should probably be optimizing its monetization based on markets as opposed to us trying to slap this subscription model over 10,000 different games, a thousand different genres. Just say, Hey, okay, we're moving to a 25%, cut of all your revenue or profit or whatever it might be is coming to us now we're doing away with subscriptions. Players can, maybe there's a, I don't know, maybe there's some sort of minimum subscription thing. But take the Apple route. So much less work and

Phillip Black:

Yeah. Sounds

Chris Smith:

you don't have to manage this stupid library.

Phillip Black:

I'm not against that.

Chris Smith:

But it sounds like it really does come down to content, though. Like they don't have, they don't have a moat around their consoles because there's nothing unique to an Xbox that you can't get with a PlayStation.

Phillip Black:

Look I would say that Game Pass, I think would be the least of their worries if they delivered on their first party acquisition studios delivering regular beats into their franchises. The way Sony did that is what, that's what brings all the boys to the yard. It's content it's, it. This isn't that hard.

Chris Smith:

It's scary for PlayStation.

Phillip Black:

You remember they've, I think the tech part of them has always strayed, right? Because they're always just like a field experiment from Microsoft. Remember, connect, remember the video bar that you had put out? Remember how they were gonna have digital rights management, where you would connect there? There were so many mistakes that they've made, I think as a tech company. To be honest with you, they're one of the few tech companies that ended up persisting for this long. But once they're gone, that's also, by the way, one of the last vestiges of tech companies in games, Every other attempt has been thwarted. And Sony is, could we call it a com? A tech company? I think it's so many things. It's a Japanese conglomerate, by the way. You can go to Japanese economics and these interlocking companies. It's this whole thing, by the way, Japanese economics and how their regulatory regime has created these like monstrosities and lifetime employment. But yeah, this is also a big browbeat back for tech and games too.

Chris Smith:

Speaking of destruction and war of companies, Eric put out a pretty lovely a brief article on game economics

Eric Guan:

In case you haven't heard, there's a war going on in Ukraine among other wars. And one of the major facets of this war is the emphasis on drone warfare. Those like autonomous little quadcopter things, you fly around, turns out you strap a bomb to'em, fly'em at somebody kills people, Military theorists have hypothesized about the value of drones and technical warfare for a long time. And this is the first major conflict where both sides are actually making active use of drone and anti drone technology. So there's a lot of like military eyes on this. Ukraine in particular is fighting Russia. Russia has a large manpower advantage. Ukraine has a bunch of financial and technological backing from the west, they're not sending in people. And so Ukraine is making heavy use of drones. And one of the major, news headlines that broke recently was Ukraine has been using this point system, which resembles a video game to incentivize their pilots. And it works like this. So military targets are assigned points. If you kill a soldier, a foot soldier, an infantryman, it's worth five points. If you kill a tank, it's worth, I don't know, 30 points. If you kill like a rocket truck, it's worth 50 points. If you destroy like a, a military facility, it's worth like 200 points. Targets have points. And then the drone pilots are, given the freedom to choose their targets and they rack up points for their squadron based on what targets they kill. The score, the platoons that have the highest point totals are celebrated. There's a famous one called The Birds of Maggi are, they're like, one of the top drone platoons in Ukraine. And also you can redeem these points for additional drone equipment. So they can say, oh, we really want a bunch of these like heavy bomber drones.'cause we want to go after like the tanks. So they might purchase those with their points. Similar to

Phillip Black:

No fucking way. No fucking way. There's an in-game store.

Eric Guan:

exactly.

Chris Smith:

read, you gotta read Eric's article. It's a it's pretty quick, but it's pretty interesting. I learned some stuff.

Eric Guan:

And Ukraine is crediting this with massively improving the efficiency of their drone program. And yeah, there's a lot of belly aching about, oh, video games. This is, you shouldn't be using video games to kill people, blah, blah, blah. But, I want to sidestep that and just talk about why is this so effective from an eco economics perspective. So one is just that it's like a free market, on the drone supply side. The platoon knows best what types of equipment they need, right? They'll say, oh, we actually want to go for a lot of infantry targets, so we want to use this type of drone. Or, oh, hey, this type of drone would be good, but the price is too high. And so actually we'll purchase this other type instead. And this offers a lot of information back up the supply chain to the manufacturers who say, oh, this type of drone is super high demand. This one, people aren't buying. So we should shift our production accordingly. And, this is like market prices dictating, like how, what to produce. And again, this is very different from traditional military supply where it's, top down, okay, logistics, this many guns goes to this troop, this many, boots goes to this group, And so this market demand market for equipment actually helps them decide what types of drones to build. And this is especially useful in a situation with a new technology where the commanders might not necessarily know which type of drone is actually most useful, but the boots on the ground really do. So there's this free market element to it that makes it more efficient. There's also just this incentive alignment component where you gotta imagine the drone pilots, they're told, Hey, go kill Steph. And they're like, okay, what do I kill? Should I kill the soldier or should I kill the tank? I think I can almost certainly kill the soldier. Maybe there's a 30% chance I kill the tank. What do I do? The absence of guidance like this, you might expect that you, I'd expect these novice drone pilots to behave like a novice Call of duty player, where if you ever watched a newbie play a shooter, they just run in and go for kills. They have no regard for strategic importance, They're not like, oh, this is a critical location, or so I need to hold it. They're like, no. Oh, there's a head, let me shoot it. And also they tend not to care about their own death, They'll tend to just chase that adrenaline rush of getting a kill with no disregard for their ratio. And this creates a very explicit okay, here's the explicit trade off. Okay? If they have a 20% chance of killing the tank, or a hundred percent chance of killing the soldier, you should go for the tank, These point values help inform down the line what they should be prioritizing. And on top of that, these point values are adjusted dynamically based on battlefield conditions. So maybe in a certain terrain let's say it's mountainous and tanks are less useful, but foot soldiers are more useful. They might change their point values and say, okay, foot soldiers are worth six points now instead of five, and this is very similar to a game designer saying, oh killing goblins is now worth seven XP instead of six, because we want to, encourage going for goblins instead of orcs or whatever. Yeah. And

Phillip Black:

Is the idea here to give some basic, like you're basically building a utility function for drones on the fly and then trusting the drone to execute against the utility function?

Eric Guan:

Exactly. Yeah. Whereas in the past, the utility function was just a command, right? Just do this now. It's okay, here's the utility function and you agent optimize against this utility function.

Phillip Black:

So I guess this is so if it's spotted multiple targets, it might think of something an expected value meets traveling salesman problem of okay, I could take out this, five point right here and then based on this distance, it could be a two point, but if I go straight instead of left, my expected value of getting this target as 50%. You can do a lot of modeling to get this done. A lot of optimization,

Eric Guan:

And like that stuff is the kind of stuff I think players or these drone pilots intuitively do. You fly out, you see a soldier, you're like, okay, maybe there's a tank over there, maybe there's not. Should I scout for an additional targets or should I take the one I have? That decision is hard to make formally, but it's something that pilots will intuitively start to learn to do and get better at. You see this, I believe in this kind of evolutionary optimization where like you just get a lot of different people. You give them the same incentive structure, but you get let a lot of people loose. Some of them will find better strategies and then those strategies will start to proliferate and the system as a whole gets better at doing it rather than, the top down sort of command structure.

Chris Smith:

Do what is the, so the reward pool is just upgraded equipment, or do they have things like food cigarettes I don't know swag are there other things? What's a part of the, do you know?

Eric Guan:

I know that it's a mix of just military honors, you're like, we're the top scoring squadron and everyone gets a medal, that kind of stuff. And that's, we've seen that before and the ace pilot with the most confirmed to kill counts, it gets like a Purple Heart or whatever. But I think it's interesting that the shopping component of, oh, and I can also spend these points the points are spent at a platoon level, so it's not individuals. So I don't think that they're buying cigarettes with them. I think they're buying, specifically drone equipment.

Chris Smith:

Would that be, that'd be interesting though. It's it's improve the reward pool. Do you get, because if a point can't buy anything, then I, maybe I care less about the points p they're purely psychological versus oh, I can buy a better drone or a better bomb or a better weapon. I think it's interesting. I'm curious. Yeah. I'm curious if they could improve results by improving the reward pool.

Eric Guan:

I think you want the reward pool. To be reinvested into the objective, right? It's like in a game where they have multiple currencies. One currency is only used for like upgrades, right? And the other currency is used for like gotcha polls or something.

Chris Smith:

Yeah, that's fair.

Eric Guan:

yeah.

Chris Smith:

I.

Phillip Black:

I think you wanna win though. Even when I sometimes look at like how NFL contracts are done, which there's a lot of incentive-based NFL contracts. The thing that's interesting is they don't get hyper specific. They don't like a lot of the, first of all, they're set like almost always one or two years in advance, like incentive-based metrics. And they're always based on like very clear flat amounts. And they're sometimes team-based goals, get to the Super Bowl maybe there might be something like get to 2000 yards, but or like it's play 50% of games. It's very rarely performance based, which I found interesting because football has so many diverse strategies that they don't wanna optimize the wrong thing and crowd out what should be important. Like it's very hard to get, I think, internal incentives like within a, a corporation. Because you can screw them up too, right? You can definitely, like incentivizing something, you can make something worse. I absolutely believe that to be the case. You can distort things in a way that you shouldn't. So I guess I'm curious like how they evolve this institution.'cause ultimately they wanna win, right? Like the whole point of all these systems is that it helps them win. So what's the systems design that wins, I think becomes the question. Even if like things are dynamically changing, they're still building an infrastructure on top of that.

Eric Guan:

Yeah. Yeah. Ultimately, like it's, when a corporation sends incentives like that, It's almost, it's still like a command economy where rather than telling soldiers what to do, they're fixing prices. A soldier infantry is worth five points, right? It takes worth 30 points, and they still have to adjust those fixed prices, but to some optimal level. And yeah I imagine that's probably a struggle for them. And they probably have people looking at these numbers and aggregate and trying to figure out how to tune things. Just like your game designer has to tune your loot tables. I say it's a free market. It's not, it's it's like more of a market. It's a market with fixed prices that the economy designer adjusts. And yeah I don't know what their process is, but I gotta imagine that's a big part of optimizing it. And if you set the point system wrong, you could create all sorts of weird outcomes. One thing worth noting though, on the perverse perversion side is the nice thing about drones in particular is they all have cameras on them, right?'cause the pilot needs the camera to fly. And so the camera doubles as like a confirm kill confirmation. So you can see the tank blew up on

Phillip Black:

Oh, you get the feedback

Eric Guan:

Exactly. Yeah. So this prevents things where you glitch the system into thinking you got a billion points when you didn't. Is that like the commanders actually review footage? Yeah, no, there could definitely be fraud. Yeah.

Phillip Black:

We know there's fraud with confirmed kills during war. That's actually fairly common. You're exact. Oh my God.

Eric Guan:

And so the camera provides that confirmation. Um,

Phillip Black:

they have a, they have an agent monitoring as well.

Eric Guan:

yeah, and no, with no additional equipment cost.'cause they already have the camera feed. Yeah.

Phillip Black:

That's right.

Chris Smith:

It's interesting'cause we're talking about organizational structure and like this kind of and you call it a market this kind of like rewarding individuals for their level of effort or level of output. Just like in this setting where you have to have these specific conditions, you need to be able to observe the output, the quantity of the output, and attribute that output to a specific user. You have the same issue in a normal org where it's it's sometimes more difficult to attribute revenue or profit to a specific individual. It's a little bit easier in like big organizations where you have lines of code and engineers. But I just think it's interesting, like this type of competitive approach works for this environment with drones, but it wouldn't work if you were, soldiers, feet on the ground. Guns, no cameras. It's funny the analogy.

Phillip Black:

Fascinating article,

Eric Guan:

Yeah.

Chris Smith:

Yeah.

Phillip Black:

Absolutely fascinating. This was incredible. Find and

Eric Guan:

Cool. Yeah. Shout outs to a rockley who actually pointed me towards this. He was like, Hey, this is super interesting. You wanna write about it? I was like, oh damn, this is crazy. There's a similar point system that doctors use for how they, when they see patients, they get points based on what type of visit it is and what happened. And I'm pretty sure it's causing all sorts of perverse behavior.

Chris Smith:

oh, I was gonna say that sounds like the opposite of what you want.

Phillip Black:

have you heard about the value of statistical life?

Eric Guan:

no.

Chris Smith:

heard that term before.

Phillip Black:

Oh my God. So man, we could talk about how regulatory frameworks, yeah. So basically what happens is that there have been regulations passed. It's not as bad as people would imagine, and the US government, where there's any regulation that's proposed to have an economic impact, I think it's a hundred million or more. It has to go through a cost benefit analysis. And that's why there's so many economists in DC and I was one of them too. They basically have been hired to farm out all these cost benefit analysis. And it's amazing, okay. What goes into a cost benefit analysis for a regulatory framework? And like, how do you actually figure about that? What does the agency want? But ultimately, like for instance, when you're considering some safety regulation, how do you start to quantify some of that in cost benefit analysis? We have something called the value of statistical life, which is very similar to what Eric mentioned, which is basically, yeah, you want to save as many life years as possible and oh, we can debate whether or not each, life year is as equal, pe people are surprised to learn that these frame frameworks exist. And it's only, they seem to be fine when they're under operation.'cause I think they are fairly good at what they do, but as soon as they know about it there's just like all these riots,

Chris Smith:

Do you, what is the statist value of statistical life right now?

Phillip Black:

oh,

Chris Smith:

I'm gonna just, I'm gonna guess 1.8 million because I'm doing 30 working

Phillip Black:

It's age adjusted.

Chris Smith:

the median. But it's a, it's an average, right? It's just like

Phillip Black:

You could average it.

Chris Smith:

is it? So it varies by

Phillip Black:

Okay. It is for analysis using no. It's set at the agency level. We all have to use the same calculations. So an analysis using a 2024 base year VSL or the value statistical life is 13.7 million.

Eric Guan:

Damn, 10 x.

Phillip Black:

has 13.7 and EPA looks like Ken set their own and they have it at nine

Chris Smith:

I am evil. Oh my God. Why is it that much? That seems really high.

Phillip Black:

Yeah, so it's trying to say how much people are willing to pay to reduce the risk of dying, like they are trying to do this the right way.

Eric Guan:

So this isn't inferred from like insurance purchasing behavior or what?

Phillip Black:

Yeah, that's a part of it. There's a lot of like pretty hokey methods you use to try to get at this. A lot. A lot of it is gymnastics, to be

Chris Smith:

took the median wage and multiplied by

Phillip Black:

And I would also say it's very interesting to me that, in all the analysis I end up doing very few of the costs end outweighing the benefits, which is very interesting for the regulatory state.

Eric Guan:

Speaking of health outcomes, let's talk about

Chris Smith:

let's talk about, let's talk about porn. So the UK just passed, or didn't just pass, they passed a while ago, the Online Safety Act 2023 also known as the act. And basically what this does is it protects users of internet, users from damaging illegal content illegal content duties are now in effect. Criminal offenses, if you do expose people to to illegal content or harm, harmful content and illegal content is the typical stuff you would imagine. Inciting violence, race racism, fraud, extreme pornography, CSAM, any of that type of horrible stuff that's not super interesting. It's just, hey you're not allowed to have this stuff on your website anymore, and you could pay massive penalties for having it on your platform. 17 million was a number that I saw in terms of kind of the the average buying for being being found re liable for this. But the the big piece here is actually content that's harmful to children. So now you need to confirm the age of people using your platform. If you're gonna show them anything like self-harm, eating disorder, suicide, or in particular pornography I thought was an interesting one. So this is this is, this basically says if you are PornHub and you're trying to operate in the uk, you need to have age verification on your website. So I'm not necessarily interested in chatting about the Online Safety Act although I think that it's an interesting piece of regulation and I'm curious if the rest of the the Eurozone will implement it. So the UK already has GDPR actually all of the Eurozone has GDPR which is. Rules about tracking data, tracking information. So if you have a website that collects information and you have users that are based outta the EU or the Euro economic zone, you need to disclose that and ask them if it's okay if you collect their information. This is a new level. The next iteration of that is the Online Safety Act. I'm curious where this goes, if everybody will adopt it. We've seen a pretty big push against pornography in most most regions of the world. The us I think South Korea might have had a push against porn recently, and then obviously the UK and EU are also pushing pretty heavily against protecting or for protecting children from pornography. The interesting component here to me is whether or not anonymity online is important, good or bad. I work in the crypto industry, I work in the blockchain industry, so people care a lot about anonymity. They care a lot about KYC is the antichrist. And it's ridiculous to expect people to out themselves. There's a lot of

Eric Guan:

Can you explain what KYC is to Yeah.

Chris Smith:

Know your customer. So this is basically if you want to open a bank account, you need to KYC and that's providing some sort of proof that you are who you say you are. Typically this will come in the form of an ID or a government issued id or like an image of your face. Something like that.

Phillip Black:

That's what VPC is for this verify parental consent is that if you, when you go through an age gate, if you say you're under 13, you then have to hand it off, quote to a parent. And the way you validate that is that they have a credit card which means you have to be at least 18. And that's the verified parental part which introduces a lot of

Eric Guan:

Wait they ID by credit card, not state id. like a sneaky way to get, sounds like a sneaky way to get payment info.

Phillip Black:

the no, I don't think it saves us as credit card. Oh, that's very smart though, Eric. He's yeah, fuck yeah. I'd get credit card info. Okay.

Chris Smith:

What are you

Phillip Black:

Fuck. That's genius,

Chris Smith:

Fucking illegal to do anything with it.

Phillip Black:

Is it? You do authorize a payment

Eric Guan:

You just save it so that it's faster checkout next time. Like it's.

Chris Smith:

but that's different than that. That's different than age verification with a credit card. Hey, are you 18 or older? Please send us a credit card so that we know that a bank approved that you're 18 years or older.

Phillip Black:

But Eric's saying you can then save that as saved information and make it for in-app purchases.

Chris Smith:

But a lot of the companies that do this, for example, I forget the company, I'm blanking on the name, but, um, they do KYC, they don't store that information. Like they're not storing your credit card number. They're confirming that you provided proof. And if you provided proof, then they put you in their server as having been kyc. It's almost like a zero knowledge algorithm. But I think it's interesting because in the age of AI, and like autonomous agents, they like what percentage of Twitter is, real accounts versus bot accounts. I think it's an interesting debate. Like anonymity is a powerful thing. But in real life, we don't have anonymity. If I show up to the grocery store and I make purchases, like you can see my face if I am passing my neighbor, in my neighborhood, you could see my face. I'm not gonna flick my neighbor off if he cuts me off at a stop sign because he's my neighbor versus online. I have this, era of anonymity

Eric Guan:

I would say in theory you could go to your grocery store with a full on ski mask, purchase, a bag of cookies, and

Chris Smith:

But it's so sketchy, like it's unacceptable. It's socially unacceptable to do that,

Eric Guan:

you can still do it. Like they're not gonna stop you.

Chris Smith:

Yeah. No, I, yes,

Eric Guan:

but like This forces you to take off your ski mask'cause of the difference.

Chris Smith:

yeah, but nobody wears ski masks in public who aren't super sketchy. So I guess I'm probably a pro I would like it for everybody on the internet to be real human beings. Okay. That's not, that's too far. I would like it for me to know whether I'm interacting with a human being or I'm not a human being better yet, I would like to know the quality, the characteristics of that person. Especially in the age of autonomous agents, don't really have a strong philosophical, argument for that. But I do think that the better we can emulate real hu interactions in our real world, the better the online world will be.

Phillip Black:

I don't think Chris is wrong. I would say though that I still see people say nasty shit on Facebook and that's like where you, she's supposed to have personal identity

Eric Guan:

Yeah. But now people regret it and they like stop using it because they're afraid of some shit that they said is, yeah.

Chris Smith:

that face Facebook is an interesting case because I think a lot of times it's like you've, we've all maybe we've all gotten upset with somebody. We said something we regret. Facebook is like that. But instead of just saying it to your spouse or your kid or your mom, you say it to everybody and you say I'm angry and I'm gonna make this post. And it's 15 minutes later you're like, fuck, I shouldn't have

Eric Guan:

Yeah. And if you don't there

Phillip Black:

I, there's an interesting aspect in which games is one of the few digital online mediums in which your history is not really recorded in that sense, right? There's very little, there's very little permanence of your social interaction that could expose you to something like that. And you're usually always anonymous within, inside the context of the game too.

Chris Smith:

yeah. And a shout out a little what's the word when you're man, when you're shouting out somebody, we use this term all the time.

Eric Guan:

Is it? Shout

Phillip Black:

Mama, you made it.

Chris Smith:

Not shout out. No. Just, uh, God almighty. It's like my

Phillip Black:

I don't think that's it either.

Chris Smith:

No, there's a term for,

Phillip Black:

Holler

Chris Smith:

you've got a podcast. Oh, tell us about your podcast.

Phillip Black:

She,

Chris Smith:

chill. Jesus Christ. I haven't been

Eric Guan:

worked in crypto.

Chris Smith:

dude. I haven't been spending enough time online is what it is. pretty much cut out. I've been I've basically cut out all use of Twitter and Blue Sky and all

Phillip Black:

Where's your once a month. Web3 gaming is inevitable. Tweet, everyone's got every, everyone on the web, three food lines. Gotta do that. They're gonna get whipped.

Chris Smith:

I forgot to. I do it in a Substack article every once in a while. Anyway, I'm gonna shill a friend's company. Recently started got some pre-seed funding play Safe id They got a million a million pounds,$1.2 million. But that's pre-seed, right? That's Hey, build this thing, get a couple, get a couple 10,000 users and prove that this is something people want. But basically the idea is if you have an id, it means that you are a unique human being and you have a track record, any offenses, just the offenses themselves and your id, not necessarily who you are, what your picture looks like, or what the offense was, get recorded. And then it spits out a little, this person's a good guy, this person's a bad guy. And so when you go to log in, people know if you're a pedophile or not. They know whether you've been, you've said, harmful things in chat logs. I think it's a really, especially in the age of ai, I think it's a really interesting concept. I think it's important. I know it's gonna get a lot of pushback, especially from the crypto industry. But at the very least, like if we just had flags online of this is a human, this is not a human

Eric Guan:

Yeah, I think digital identity, like y'all said, is a big problem to solve. So

Chris Smith:

No, I mean it also it also helps with mon monetization and ads like, Hey, I don't want to pay. Sure, you might have a billion users, but if 90% of them are bots, I don't, I'm not paying for bot traffic. I wanna pay for premium users who are like human beings

Eric Guan:

I think the danger is when you know everything you described as things people universally would describe as bad, like pedophiles, but like when it starts getting used for not objectively bad stuff like, political targets and

Phillip Black:

We'll see, look at look at what's worried in front of us. So if you're watching the YouTube version, you have one of the explanations from the UK government about the law. And so what they're arguing is that what by law, children must be given age appropriate access to what they're calling priority content. And so they categorize priority content as a couple different things, but one of them I wanna point out, as content that encourages dangerous stunts and challenges. That is now what, right? Yeah. That, that is what regulators are going to be deciding. And so okay, think about track mania, right? You remember track mania on steam, where you create all these crazy hot wheel style tracks. What if I car race? What if it was a street car race?

Eric Guan:

What? No, they're obviously that.

Phillip Black:

and I think that right now what you're seeing in the UK is very scary when it comes to free speech regulation. Remember, they passed laws that certain behavior posted online. If it makes someone feel uncomfortable can very easily what they, not only just a hate act, but that is now illegal in the UK and you can be arrested.

Chris Smith:

Okay. Now that's on the regulation side, but when we, yeah, I mean it is a bit scary.

Phillip Black:

Now, this is saying that this is saying that you can still have access to it. Like you can still have dangerous stunts and challenges,

Chris Smith:

Yeah and that's like to me what we need is categorization and Hey, I'm playing in the safe zone. Like it's all good over here. I'm not gonna be exposed to anything crazy

Phillip Black:

they have two kids, right?

Chris Smith:

Yeah, exactly. And if I go outside of that, I'm consenting to that. It's okay, I know that I'm going into the danger zone, so like that play safe idea I was talking about, there might be platforms that are like, we don't wanna use that because it goes against our principles. Or it could, Hey, we think you guys are punishing for stupid reasons, whatever everybody knows. It's oh, okay, I'm gonna go into this zone and I know there's no play safe. I, ID, it's just like a regular, it's like the free the wild west, you end up with like almost a dark web. Kind of version of the normal web where it's like the protected web, the unprotected web, and then the dark web. Now free speech obviously is a whole thing, but as long as private companies are the ones making those decisions, then other private companies can decide whether or not to, and when I say private, just mean, I just mean capitalistic, businesses can decide whether or not they wanna participate in that market. As long as the market decides, I'm perfectly okay with it.

Eric Guan:

I just had a little story about anonymity. So there's been like ice raids and stuff down in SoCal. I'm in Orange County, so I'm not really at the heart of it, but there's two stories that could really scared me where like, all right, so there's one, some Asian kid went up to la, he doxed a bunch of ice officers, like he put up posters with their personal information. And then he came back and, this is like an hour drive away from his house, and he got caught because the cell tower data triangulated his location to his address. And they like, they found him at his address and arrested him. There was this other kid, some Hispanic kid who was throwing bricks at ice cars and broke a bunch of windows. And he also was caught by a very similar method. They like triangulated to sell data identified where he, his house was, and his dad was an undocumented immigrant, and that guy got deported. So it just got, maybe he was like super paranoid about like positional tracking and all these devices and stuff. And then they put up a bunch of these like cameras on the house on the street around our, in our neighborhood, like these, like traffic cameras. And yeah, I don't know. It's scary. It turns out those traffic cameras were just, like traffic surveying cameras and not actually like police cameras, but, I, I feel like anonymity is important for free speech.

Chris Smith:

Yeah. No, that's fair.

Phillip Black:

So did Mr. John Stewart Mill our favorite econ Utilitarian

Eric Guan:

Add'em to the League of Heroes or whatever.

Phillip Black:

hero of history.

Eric Guan:

Heroes of history.

Phillip Black:

All right. Game of Thrones cast episode. Episode 41, right? 41. We get this one in the can. We're back. We're gonna be on a regular schedule. Finally, our eternal quest till next time.

People on this episode

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Phillip Black

Host
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Chris Kaczmarczyk-Smith

Co-host
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Eric Guam

Co-host