Don't Be So Serious

Fabian Schonholz and Chris Heatherly

Summary

Fabian Schonholz and Chris Heatherly discussed how AI is revolutionizing the game industry, addressing challenges like the high cost of content creation and accelerating development, particularly in 2D asset generation. They emphasized AI’s role in leveling the playing field for startups, personalizing gameplay, and enabling community-driven content creation through “internet IPs.” Chris Heatherly predicted that AI would lead to “creative destruction” within the industry, where new “AI-first” companies would challenge incumbents by creating dynamic, personalized game worlds and blurring the lines between different forms of content.

Details

• Introductions and Backgrounds Fabian Schonholz, an independent strategy consultant, introduced Chris Heatherly, highlighting their past professional relationship at NBCUniversal where Mr. Heatherly was a manager. Mr. Heatherly, with 25 years of experience in games, media, and entertainment, shared their background, including 14 years at Disney running their toy and mobile games businesses, and their subsequent role at Universal establishing a games business with Mr. Schonholz (00:00:00). Mr. Heatherly also noted their recent focus on blockchain and Web3 gaming, including starting their own Web3 gaming startup (00:01:06).
• AI in Games: Current State and Challenges Fabian Schonholz initiated a discussion on the evolution of games and how AI can address the current challenges in the game industry, such as the need for continuous content and the high costs associated with it (00:01:06). Chris Heatherly acknowledged that AI is moving past the demo stage into valuable production use, despite the industry’s reluctance to openly discuss AI adoption due to negative sentiment and layoffs (00:02:08). Mr. Heatherly highlighted the significant progress in AI for 2D asset generation in games, emphasizing its potential to resolve the high cost and scalability issues of content creation that previously led to project shutdowns, such as their game “Series” (00:03:21).
• AI for Content Generation and Development Acceleration Fabian Schonholz shared their prior experience with Rob in using AI models to generate game levels, specifically for match-three games, dating back to 2018, which Mr. Heatherly recalled as a promising prototype (00:04:27). Chris Heatherly noted that AI’s ability to train on well-formatted data and create variations significantly speeds up development, particularly in 2D art creation, where AI tools and pipelines are already established, and 3D asset generation is progressing (00:05:30). They emphasized that the most effective AI integration will involve tools that allow artists to collaborate with AI through a combination of prompts and direct manipulation, rather than relying solely on linguistic prompts, which Mr. Schonholz affirmed (00:07:03) (00:09:03).
• AI as an Equalizer for Startups and Industry Restructuring Fabian Schonholz provided examples from their consulting work, where AI significantly reduced the time and cost for creating revenue models and full P\&Ls, illustrating AI’s role in accelerating and lowering the cost of various tasks (00:08:05). Chris Heatherly elaborated that AI will level the playing field for new startups to compete with larger companies by enabling small teams to perform tasks that previously required extensive resources, transforming the industry similarly to how “mobile-first” restructured businesses (00:10:24). Mr. Heatherly suggested that companies adopting an “AI-first” approach will gain a competitive advantage, as retrofitting existing software to be AI-centric will be more challenging than building new solutions from scratch (00:11:39).
• AI’s Impact on Jobs and Global Competitiveness Fabian Schonholz asserted that AI will not replace people, but rather individuals who master AI will replace those who do not, drawing a parallel to historical automation trends that increased productivity and changed job requirements (00:13:11). Chris Heatherly concurred, acknowledging concerns about job displacement but pointing out that outsourcing had already exerted massive pressure on markets like the US and Europe, making AI an essential tool for these regions to remain globally competitive (00:15:30). They stressed that if professionals in more expensive markets do not embrace AI tools, they will be unable to compete with lower-cost labor markets (00:18:02).
• Personalization and Dynamic Gameplay through AI Chris Heatherly discussed how AI will revolutionize game design by moving beyond one-size-fits-all experiences to personalized gameplay, particularly in dynamically adjusting difficulty levels to match individual player skills (00:19:07). Mr. Heatherly predicted that this personalization will enhance player retention, engagement, and enjoyment, potentially mainstreaming gaming even further by making it more accessible to a wider audience, as difficulty often deters players from finishing games. They also anticipated that AI will enable generative gameplay and make in-game characters “smart and informed,” reacting to player actions and even social media interactions (00:20:30) (00:22:50).
• Evolution of IP and Community-Driven Content Creation Fabian Schonholz inquired about AI’s role in opening up dormant intellectual property (IP) for use in games, citing difficulties in negotiating licenses (00:26:25). Chris Heatherly identified resolving copyright issues as the primary challenge, arguing that AI companies should not be allowed to train on creative works for free and replace creators without compensation (00:28:01). Mr. Heatherly also suggested that many existing IPs, particularly those from the 80s and 90s, are losing relevance with Gen Z, creating an opportunity for newly created, internet-based IPs or Asian anime (00:32:44).
• Rise of Internet IP and Collaborative Creation Chris Heatherly highlighted “Brain Rot,” an open-source community IP that originated on TikTok and has led to highly successful games on platforms like Roblox and Fortnite, as an example of new internet IPs (00:34:00). They explained that this collaborative IP creation model allows millions of engaged users, including creative individuals, to contribute using AI tools and potentially monetize their contributions, fostering a “creator culture” fundamentally different from traditional consumption models (00:36:27). Fabian Schonholz agreed that open environments and community-driven content, akin to open-source software, will outperform closed IP environments, enabling continuous content creation and potentially higher quality output (00:38:40).
• Future of Games: Dynamic Worlds and New Business Models Chris Heatherly envisioned future games as more “alive,” with dynamically tuned difficulty, auto-generated worlds, and AI-powered NPCs that feel like real humans, offering highly interactive storytelling and personalized experiences (00:44:20). They predicted a shift beyond 3D geometry to AI generating pixels directly, leading to games that look like reality and can reconfigure themselves in real-time, built on an entirely new tech stack driven by AI (00:45:15). Mr. Heatherly also anticipated increased user-generated content (UGC) and a more consumable gaming market, exemplified by “disposable gaming content” like the “Philly Karen” game, which emerged rapidly in response to a viral meme (00:46:19).
• Industry Disruption and Creative Destruction Chris Heatherly believed that the line between games and other forms of content like movies will blur as costs decrease, leading to a spectrum of experiences from highly disposable content to massive metaverse worlds (00:48:33). Mr. Heatherly predicted that AI will lead to “creative destruction” within the industry, where new startups built on AI from the beginning will challenge entrenched incumbents struggling with legacy tech and slow adoption (00:49:28) (00:51:48). They used the example of a Chinese company developing an anime version of GTA at a fraction of the cost and time, emphasizing that if major players like Take-Two do not adapt quickly, they risk being overrun by new competitors who can leverage AI with very small teams (00:50:44) (00:53:07).