Carlos Morales

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My startup pitch during pandemic (late 2019–2021)

Box Art and Game Disc of Video Games
PlayStation 4 games: Final Fantasy, Diablo, Metal Gear, Mortal Kombat, Modern Warfare, and God of War

I wrote an article calling out Venture Capitalists in 2016 before the Presidential Election, in which I voted for Trump. Because most Venture Capitalists don’t understand what I wanted for my company. People I know, already know that I wanted a Video Game company. I’m going to lay the groundwork of understanding so there is no misunderstandings. I’ve been real patient with investors, venture capitalists, and anyone else that deals with venture capital. It doesn’t matter how much involvement they had, direct or indirect involvement.

I’m going to start with my thought process with the company, so everyone understands where I come from, and how I concluded at my ideas. When I’m writing this article, the target audience is the investors with money to burn, venture capitalists that have money to invest and get their ROI (Return on Investment). Everyone else — leave the room. (Though, if you want to stay and learn, go for it, but just understand that this is business talk.)

Why are you writing this article?

Well, as of right now, I live in Alabama. Not exactly what you’d consider a startup hub. Despite some major companies being founded here, like Twitch. That’s just about it. If you travel to Alabama, you will realize just how barren everything is. It’s a state with a lot of land, but everything is far away from each other. You want to buy clothes? Drive 20–30 minutes. You want to eat out at a restaurant? Drive 20–30 minutes. You want to buy food for everyday eating? Drive 20-30 minutes to something like an hour.

I do see opportunities, which I will cover later in this article, but options are limited. Banks here are not well-known nationally. There’s a Wells Fargo, yes, but most of them are far away or closed. That’s how bad the economy is in Alabama. It’s not for the lack of customers, it’s for the lack of traffic to locations. You will find more boarded-up windows than businesses. This was true before the pandemic hit. We moved in early 2018.

Well, why did you move?

A lot of reasons. To be fair, I was the only one who fought to stay in California. I was the only person who was optimistic about my company’s future. But, the reality is, we saw rising costs of just about every single daily object. You wanted gas? $30 a gallon, please. Last time I saw the gas prices, it almost hit $3 per liter, that ounce of liquid? Psh. Price went up, brah. You want to rent? Try coming up with $1500 a month in a middle-class neighborhood. The owner raised the house rent twice in one year. This is before the pandemic hit, mind you. Now, if you are a first-time business owner… With a growing online business, no less. You’re going to have to come up with $1800 and file the taxes. If you don’t have a good tax preparer for your company, you’re screwed in a democratic state.

I regret voting Obama.

I. regret. voting. Obama. in 2008. My mother, and I voted Trump in 2016, and 2020. We’ll do it again. My brother and his fiancé are both Democrats. It was funny (not “ha ha” kind of funny), to see my mother and brother stressing over taxes after dissolving my mother’s company (which was an LLC), I thought to myself “That’s what happens when you don’t do your research.”

I chose corporation over LLC because of the restrictions and limitations that LLC’s have. I only wish I understood that in order to pay less taxes is to elect S Corp after the filing for Articles of Incorporation. You’d still have limitations under S Corps, since it’s practically an LLC for tax purposes. The LLC license is complicated from a tax perspective, because the tax system is as follows…

LLC members are considered self-employed business owners rather than employees of the LLC so they are not subject to tax withholding. Instead, each LLC member is responsible for setting aside enough money to pay taxes on that member’s share of the profits. The members must estimate the amount of tax they’ll owe for the year and make quarterly payments to the IRS (and to the appropriate state tax agency, if there is a state income tax) — in April, June, September, and January.

Yes, it sounds complicated if you elect S Corp (an LLC) on a [C] Corporation, but IRS/FTB sees you as a binary company, and doesn’t consider when you started that company. The opposite is true, electing a corporate status on an LLC. The problem is, I see the long-term goal of my company. See, most investors ask for an “exit” strategy, I had one in mind: IPO. And still C.E.O.

If you incorporate an LLC, and you decide to go corporation, it will take a long time to elect as Corporation. That’s one of the drawback of an LLC.

Okay, you got a minute to pitch, then…

Video Games is a 130 Billion dollar industry. Call of Duty is in the lead currently with 250 Million copies or customers reached, and each quarter they accumulate $1 Billion. CarlosX360 is a global network of blogs and forums in the video game industry with 1 Million Users worldwide, and 3 Million pageviews worldwide.

Please Note: This was written in 2019. Since then, Call of Duty: Warzone was released, and grew into a 70 Million player Battle Royale experience. Market size should already be 400 Million “installed base.”

So, what’s the problem?

Video Games are expensive. Even, I know that.

There are 3 or 4 tiers of development budgets. The first one is indies, or independent developers, which usually has a budget of less than a million dollars. Anything above a Million is consider an “A” developer, an “AA” developer is considered a budget between 5–10 Million. “AAA” or commonly known as “Triple A” developers usually does 20–50 Million projects. Higher than that? You’ll need to break even.

History of game budgets can be seen here if you’re interested. [Wikipedia]

If you want a better explanation through videos, here one from Extra Credit…

[I’ll repeat some info from the video in this article. It actually provides some understanding. I would ignore some information here, like “If you want to do x, you’re dead on arrival.” I’ll explain why eventually.]

I could just go into a pitch meeting and ask for a Million for a startup today, because I built connections in California, already. Every month, I go to a crowdfunded startup competition. I’ve built rapport with startup organizer, startup investor(s), and other business connections since 2013. They. All. Said. No. But, in 2018, before I left… I swayed one person.

I asked for 50 Million dollars capital. I just explained to you the tiers. These tiers are similar to Hollywood, and the films/movies industry. Why? Well, customers react to different budget titles differently. If you want the Call of Duty market, which I vehemently do… you’re going to need Triple A budget, or the customers that walk through the store, and looks at your game, is more than likely either like it, or pass it on. The thing is, I am a marketing guy. I’m telling you… IF YOU WANT THE CASUAL MARKET, YOU’LL HAVE TO DO BETTER THAN

Call of Duty.

As a marketing guy, WORD. OF. MOUTH. is better than the garbage that CD Projekt Red did with Cyberpunk 2077.

For those of you who don’t know: Cyberpunk was announced in 2012, released in December 2020. In all of 2019, CD Projekt Red has been antagonizing many players, customers, consumers, leftists who don’t usually buy games, SJW’s who almost never buy games they’re complaining about, and trash the game leading up to the release because of virtue signaling to groups of interests, like LGBTQ, blacks, and other minority groups. When the game was released, it was released in a buggy state. Sony booted Cyberpunk 2077 off the PlayStation Store, which has more than 114 Million PS4s sold and installed worldwide. By the time I wrote this, about 5 Million PlayStation 5 consoles has been sold.

CD Projekt Red had a reputation of creating high quality games. As they were developing Cyberpunk 2077, they were marketing the game here and there until E3 2019. At E3 2019, Keanu Reeves was revealed as a cameo in Cyberpunk 2077. No disclosure on how much CD Projekt Red paid, or promised to pay Reeves for appearance.

This cost falls under marketing, so that’s where I come in. Typically, when you want to appear on a big market, or at least get a major, major celebrity to come to your game or even appear as an advertisement, you’ll need more than 5 Million. That is, where you want a game to be advertised… If you want to to advertise on Super Bowl, you’ll need at least 5 Million. Example, during Super Bowl Sunday in 2021, the cost of displaying a M&M commercial, it was 5.5 Million…

CBS has been asking for about $5.5 million for a 30-second in-game ad for Sunday’s Super Bowl 55 matchup between the Kansas City Chiefs and Tampa Bay Buccaneers

Source: USA Today

That’s just 2021. During a pandemic, but normally, it’s around the 3-4 Million mark. To be fair, Keanu Reeves is a really nice guy, so I don’t think he’ll ask too much from CD Projekt Red. On a unrelated sidenote, I don’t think he’ll want to just sue CD Projekt Red, unless he can prove me wrong. If I were Keanu, I’d sue their ass. I don’t think Reeves expected the reaction to be this divisive. I would expect the game to sell more than at least 20 Million copies, but the game sold…

Cyberpunk 2077 received eight million pre-orders on all platforms, of which 74% were digital,[215] and it received more pre-orders than The Witcher 3: Wild Hunt;[91] one third of PC sales were through GOG.com.[216] It was a best-seller on Steam in China.[217] CD Projekt Red has stated that digital preorders for the title alone recouped the game’s production cost as well as the game’s 2020 marketing cost.[218] According to a CD Projekt investors call, sales saw a drastic decline four days after release owing to the technical issues present.[219] After the launch, analyst estimations for sales over 12 months fell from 30 million to 25.6 million.[220]

Within twelve hours after its release, the game had over one million concurrent players on Steam.[221] The PlayStation 4 version of Cyberpunk 2077 sold an estimated 104,600 physical copies during its debut week in Japan, making it the second highest selling retail game of the week in the country.[222] As of 20 December 2020, the game sold over 13 million copies worldwide.[223][224] It had the biggest digital game launch of all time, selling 10.2 million digital units[225] and grossing $609 million in digital sales as of 31 December 2020.[226]

Keep in mind, investors, that THIS is only after the release of Witcher 1, 2, and 3. Witcher III has been hailed as the pinnacle of the series, so at this point, CD Projekt Red thought they could go higher. They went to Microsoft for funding, and exchanged the license for an exclusive marketing deal. This means, the best version of Cyberpunk 2077 would be the Xbox One/Xbox Series X version.

Why is that?

Because 90% of the small startups, or companies go to publisher in exchange for distribution. 80% of the industry has this mentality of going to the publisher in exchange for the monetary, financial backing in exchange for a license agreement where the publisher is able to sell the game under their publishing agreement. Refer to the video below to understand the split between developer and the publisher.

This is why 90% of the small gaming startups get acquired. The problem with acquisitions, is that it devalues the brand behind the company goes down in value. Take Infinity Ward for example, Activision and Infinity Ward had an agreement to distribute the game, sell the game, and market the game as their own. When the game, that they developed, sells extraordinarily, extremely, and profitable… the developer is usually acquired.

When Infinity Ward released Call of Duty 4: Modern Warfare, Activision acquired the company after their initial investment. The acquisition worked for a while until Modern Warfare 2 was being developed. Midway through the development, Vince Zampella and his colleagues left the studio to create Respawn Entertainment. Years later, Respawn Entertainment was subsequently acquired by Electronic Arts. In the middle of creating Respawn Entertainment, they were embroiled into a lawsuit with Activision for not being paid. Electronic Arts was simply collateral damage.

If you want to go into depth about this subject, here is a quora thread that I pinned to my profile in hopes of reaching more eyeballs.

What’s your point?

I want to avoid the pitfalls of other companies and remain independent. That’s why I asked for $50 Million capital. I was not greedy when I asked. The industry works through CONTRACTS. Each employee is $10 to $20 thousand dollars a month, $100k a year, If you burn through a year, you won’t be able to capture the first 3 months of development. That’s why I asked for $50 Million capital.

But, how much does it cost to reach Call of Duty numbers?

100 Million, honestly. As I mentioned earlier, advertising through Super Bowl is anywhere between 3–4–5 Million. An MLB match or World Series is lower. WWE is even lower because of their business model. The business model of WWE isn’t 2 years long of “rivalry.” It does happen, but what I’m saying is it’s not locked every year. Sometimes 2 years of rivalry in WWE happens, yes it does, but it depends on the storyline. Typically, the shelf-life of a rivalry is until Wrestlemania is finished.

Let me put it this way: WWE pays Brock Lesnar multiple millions per match. WWE also pays multiple millions to Undertaker per match, until his retirement. Why do you think that is? Both are a draw to customers each time an advertisement is revealed about their appearance.

Isn’t Video Games saturated?

I have a rebuttal on that one: Isn’t films/movies/hollywood saturated? There is opportunity for everyone in the gaming industry. Here’s what I said on a Quora thread

The reason that a lot of Indies don’t make it to “the big time.” It’s not because people don’t want to try out your games, it’s because Indies in general have a stigma. For example, when you go into a store to buy Wii games — you see a lot of indie games. Pick one that has gone to sell millions? Not a lot of indies make it. That’s the harsh truth. However, it does not have to be like that. You have to be a marketing person to really push that game beyond that “indie” status.

A lot of indies (for the lack of a better word…) “spray and pray.” Your job as producer of that game isn’t to “spray and pray.” Your job is to market the game. Tell people about your game. Go on Twitter, Facebook, Google+, Twitch, YouTube, and show why they should buy your game. You need to up your game, up your influence, and make people care. Or just fly back to obscurity.

Let me put it this way: Two studios, Motion Twin and Evil Empire developed Dead Cells, and went on to sell 3.5 Million copies. Most of the time, this does NOT happen unless “word of mouth” spreads enough to lights the world on fire. Dead Cells has a magnificent game design. It’s competing with the other Metroidvania games out on the market. Metroidvania games are basically 2D exploration games that progresses with you and your actions. Castlevania: Symphony of the Night has a cult following to this day, I can say the same for Super Metroid. Hence “Metroidvania.”

To put it in perspective for you: Super Metroid sold 1.4 Million. Castlevania: Symphony of the Night sold a measely 477,304 units in United States, in total there was 703,166 units across U.S. and Japan. Night and Day, honestly. But they have a cult following, so the re-releases are the money makers. Super Metroid reached more eyes via Super Nintendo Classic Edition which sold…

The SNES Mini sold 368,913 units within its first four days on sale in Japan. By the end of October 2017, it had sold more than 2 million units worldwide. By its fiscal year 2017 report, ending March 31, 2018, the SNES Classic had sold more than 5 million units. Combined sales of the NES and SNES Classic editions by September 30, 2018 exceeded 10 million units.

How are you going to make money?

Once released? Each disc, each download will cost anywhere between 30, 60, 80 dollars at launch. Just remember this is based on the tiered budget system outlined earlier. I showed the typical business model of developers/publishers in the video embedded above.

What about after the game is released?

Ah, that’s the beautiful thing about the industry. Right now, the business model is if you release a game, there’s a Downloadable Content [pack] after launch. This business model has changed over the years, but developers/publishers still maintain the DLC pack model after launch. For example, Devil May Cry 5 was released to a critical acclaim, but later, Capcom released a DLC pack as “Devil May Cry 5 Special Edition.” Capcom is notorious, and famous for the “release version 1, release version 2 later” business model. In fact, if you bought Street Fighter V, you can expect “Street Fighter V Champion Edition” about 6 months after release. Other games just release new patch updates through the console or platform of choice. Anyone playing Call of Duty: Modern Warfare (2019) knows what I’m talking about.

Any other business models?

Yeah, but they’re controversial in nature. Most games has a store embedded inside games. Star Wars Battlefront II is notorious because of how Electronic Arts forced developer “DICE” to plaster items, upgrades, characters, and character skins for sale — via REAL cash. Yes, you heard me, your hard earned $20 cash? It’s gone under Electronic Arts. Because not only do you pay for it, it’s as “surprise mechanic.” Like a casino vending machine. Electronic Arts likens it to those McDonalds Happy Meals you get. I’ll let Angry Joe explain it for you…

How are you going to scale this business?

I, CarlosX360, already am ahead of this. I entered the blog and forums section of the industry, because I know first hand, as a writer — that having a website is better, and cheaper than to have a physical location like a restaurant. I am paying only $250 a month for server upkeep. Google is sending me traffic via SEO.

I already am trying to brand my company, and name. The issue is more on Twitter, Facebook, Twitch, YouTube, and so on. Especially during these trying times, this pandemic.

What are your challenges so far?

This wasn’t a problem when I started my company in late 2009, but now it is. It’s part of the reason why I regret voting Democrat/Obama. I registered to Twitter in 2008. I registered to Facebook in 2008. I registered to YouTube much, much earlier than that: 2007.

But, YouTube, Facebook, Twitter, and yes, Twitch, all have aligned themselves, have been kissing China’s ass. Starting with Mark Zuckerberg. In 2012, Mark Zuckerberg’s wife is hailed as the “American dream.” In 2014, Mark Zuckerberg told his wife’s family, that they were getting married. In 2016, Mark Zuckerberg met propaganda chief. In 2014, Facebook welcomed a “censor-in-chief” to its world heaquarters. In 2017, Zuckerberg met with China’s officials. Zuckerberg also met Xi Jinping in 2017.

I don’t know about you, Zuckerberg, but this shit is DANGEROUS in many ways. I don’t know if Zuckerberg realizes this, but China is communist. I don’t know if you could just waltz in there, shake your in-laws’ hands and walk away without getting killed, silenced, or shamed in public. Even if you walk away, unscathed… they’ll intimidate you later. Sigh. Surely your wife, Priscilla told you the atrocities of China…?

You know what? Moving on.

I never understood why people trash each other on Twitter for a long time. It got worse after the advent of GamerGate, MeToo, and the rise of Social Justice Warriors (SJW). Most of it is feminism. People get offended over stupid shit. “Oh, I’m offended!” Oh, shut the fuck up.

You know, my friend told me to write articles about how companies suck, and just flat out drop their stock price. I said “no,” because you could get sued for it. This was before Cancel Culture was exactly what came out of Twitter. There are some cases where lawsuits happen because of Cancel Culture, and I was right. However, at the same time, he was also right. Just remember though, I’m a marketing guy. I know exactly how things sound, how things will sound like coming from the other side.

Cancel Culture may be fun for leftist losers, but perception is everything, people. This comment is also aimed at you, too, China. This pandemic, all of your posturing, all your bullshit, all your lies — you hurt everyone. Me included. My dream is to become the most successful person in United States, and since 2012… you’ve hurt my prospects. But, in hindsight, I should thank you. Many Investors, many Venture Capitalists said “no.” I am thankful for experiencing what I did… because I would eventually find out that Silicon Valley became a leftist community of investors. I would know, because no matter how many times I tried to court an investor who invested in Twitter… I could never get him to say yes, I now know why. He’s a Democrat.

Jack Dorsey is nothing more than a lapdog for the leftist Democratic agenda. His co-C.E.O. was an extreme leftist Socialist (communist) that literally said “line ’em up!” Most Social Media websites encourages hateful messages on their platforms. Twitter included. I used to defend Jack Dorsey because of his calm demeanor, but the shit that goes on Twitter makes me think twice on defending him. His mod team moderates unevenly.

I’ll come back to this later, but that’s the jist of what my challenges are. My challenge is getting through this leftist/socialist/communist noise, and come on the other side as the winner. I am simply trying to be patient, biding my time until this garbage is gone.

What is your strength? What makes you “different”?

I see opportunities before they manifest themselves. I learned about Twitter, and Facebook by accident. I jumped on the bandwagon, after MySpace started to whither away. With Twitter, I tried to self-learn how the “algorithm” worked at the time in 2008. There wasn’t really an algorithm, per-se, well, not at the scale it is now. But after they implemented the algorithm, I could never grow past 700 followers. Not even as a paid member. Oh no.

Yes, I paid for traffic for a while until it stopped accepting my payments. So, whatever upcoming payment plan they have cooking in 2021, it’s going to piss off a lot of people, because the payment processing is horrible.

The thing is, I am a visionary. I can see things coming from a mile away. Just so it happens, I was thinking of creating a Social Media alternative. That idea is more relevant, more amplified today than it has ever been. I even looked at streaming. Twitch has been falling from grace for a while now, succumbing to the SJW, leftist, Woke culture. At Startup Grind 2018, I pitched to an investor who specializes in streaming. I tried contacting him, nothing came of it. I also met the lead video game guy/streaming guy at facebook. Nothing.

Brick wall, after brick wall.

My biggest strength besides being a humble, nice person? Marketing. I know exactly where opportunities are, and where to point my gun at. I know how to time events to reap future rewards. For example, I purchased CODForums in 2010, and completed the acquisition in early 2011. Since then, I’ve grown the community from zero, to 1.8 Million pageviews.

During the pandemic, I broke a record milestone, and the traffic continues to grow afterwards. That’s not all, in 2019, I acquired PS4Forum, and launched PS5Forum around the same time Sony was about to announce PlayStation 5. Since then, it grew from zero to 290 thousand pageviews…

Traffic is not slowing down.

What are the opportunities?

Well, I explained a few of them already: Social Media, YouTube replacement, Twitch replacement, and now I’ll explain a few new ones. Google has been under fire over privacy issues on phones (it tracks you for marketing reasons), Google has been under fire for the botched Stadia launch (direct streaming of games to devices — it failed because Google was simply too early), Google has been under fire for YouTube demonetization, and I have my own issues with Google with Adsense. Google has been trying to steal my money for a while now, and I can’t even access my own account where I have $257 readily available.

Uh, that’s not funny, Google.

What are you doing in Alabama?

Well, the same thing I was doing in California; building a community of gamers via Blogs and Forums. Though, I remiss if I don’t mention it: I am losing money. Google isn’t helping my case, either. They took my christmas money last year over what they consider “invalid clicks.” It’s not my fault a bunch of losers has been doing some nefarious things on my site. I’ve been banning their accounts and discouraging them from my site for a long time now. Why the fuck should I suffer the consequences of a loser from Russia, or China? Huh? You ever think of that, Google? Fock you and your people, leftist liberal shitheads!

Okay, so you’re asking me if there’s any opportunity in Alabama? Well, yes. The problem lies is knowing where to go, who to connect with, where are the safe spots, how to find capital? So many questions, and so many directions to go. Three things I noticed: Houses are cheap here; $100k a house. Buying a business is much, much cheaper here than it is in California. And there is a lot of land. They’re cheap, but expensive to build from scratch (I mean, of course.) I see opportunities in the highways, though. Lots of them. Those billboards you see on highways? That could be my most profitable business, but I don’t know how to build those — and those billboards with a TV screen.

Founder & C.E.O. at CarlosX360 Co. Ltd.