Fighting for video game supremacy in the metaverse
Gatecrashing the gatekeepers: entertainment and technology
Do you consider yourself a gamer?
People who aren’t “into fashion” still buy clothes.
Many people who wouldn’t call themselves “gamers” still play games.
Video games and technologies traditionally associated with gaming are increasingly all around us. Global video game industry revenues had already grown, pre-COVID, to be larger than the industries of film, music and major American sports leagues combined. While still commonly associated with children and teenagers, those who grew up with games have never put down the controller with the average gamer in their mid-30s. Trends like these have caused a shift in the commentary surrounding video games including Netflix stating in a 2019 Shareholder Letter that:
“We compete with (and lose to) Fortnite more than HBO. […] There are thousands of competitors in this highly fragmented market vying to entertain consumers”
While games are still considered a waste of time by some, the video games industry is increasingly recognised for being at the forefront of innovation and as a fertile ground for the adoption of new technologies. These include digital assets, AR/VR, the metaverse and more.
Battle of giants: console wars to streaming wars
There’s been speculation the PS5 and Xbox Series X could be the last generation of high-performance consoles, especially with Microsoft’s shift in focus to subscription services. Microsoft’s Xbox Gamepass, combined with Xbox Cloud Gaming, see its new and old content library of video games available across console, PC and mobile. By changing the release strategy of a triple-A title like Halo from being a console exclusive to instead a service exclusive (Gamepass), it marginalises the console to just one of many options after previously being a necessity for consumers. Only PlayStation and Nintendo are excluded, although one day it might change for the latter.
The increased popularity of games like Fortnite and Roblox are also minimising the role of consoles and their network effects by driving cross-platform play (users play together online using different consoles/devices) to accelerate the network effects of their own products. The trends of mobile gaming, subscription services, cross-platform play and the increasing number of more casual gamers are converging to transform the industry landscape.
The streaming wars, led by Microsoft’s Gamepass, have already started. While consoles used to be considered a barrier to entry, new entrants have replaced the need for them with cloud infrastructure (Google Stadia, Amazon Luna), captive audiences (Apple Arcade, Netflix) and pioneering technology (Meta Quest). Steam has featured multi-device capability for PC for many years and some third-party publishers like Electronic Arts and Ubisoft are also pushing their own subscription services. While PlayStation’s Now streams in selected countries and Nintendo recently launched a back-catalogue of retro games to stream in collaboration with Sega, both companies are yet to reorient their businesses and new release strategies to feature streaming at the centre. As the entertainment industry reorients to uphold gaming as a core pillar alongside music and film, what used to be a three-way race has now opened up to the global tech giants. They bring new technology, new money and new rules, which PlayStation, Nintendo and many third-party publishers are struggling, or choosing not, to keep up with.
Unlike the film industry, where major studios have decades-old back catalogues to justify standalone streaming services (at least for now), major gaming publishers release only a few titles per year that feature mostly repetitive gameplay elements (e.g. Call of Duty, FIFA, NBA 2K etc). Few companies, if any outside Microsoft, PlayStation and Nintendo, will have enough content to justify a single subscription service. If the streaming wars usher in the next generation of gaming, it will lead to consolidation through M&A or alliances being formed amongst publishers as the music labels did with Spotify. Bethesda already decided it was easier to join Microsoft than compete in this new era.
NFTs and the metaverse of madness
Beyond streaming, play-to-earn gaming is getting more attention for its potential to accelerate mainstream adoption of non-fungible tokens (NFTs). It would appear to be common sense for any gamer playing pay-to-win games to invest more time in play-to-earn after overcoming the sunk cost fallacy. In the future envisioned, all gamers will have true ownership of their in-game digital assets and hopefully generate returns through reselling them. These assets will also be interoperable between different games and platforms, a core principle for NFTs in the metaverse. The evolution of video game streaming will have an important role in demonstrating the importance of ownership and interoperability.
Hypothetically, there’s three gaming subscription services in the future: A, B and C. A gamer is subscribed to all three and their favourite game is currently on service A. They spend hundreds of dollars on in-game assets for the game in service A. Like on Netflix, sometimes movies drop off to appear on Prime Video, so the game moves to service B. What happens to the digital assets the gamer bought on service A? Except for limited exceptions, current platforms would see the gamer lose everything until their favourite game returns to service A. However if the assets were NFTs and the different platforms supported interoperability for the game, there’s a world where the gamer can move their hundreds of dollars of assets from service A to service B and pick up where they left off.
Fortnite already faced a related challenge when onboarding PlayStation to cross-platform play, which can be considered an early precursor to an interoperable metaverse. PlayStation was the last standing hold-out to cross-platform play and only agreed to it after negotiating a unique revenue agreement with Epic (owners of Fortnite). If there are more Fortnite players on PlayStation than PlayStation’s share of Fortnite revenue royalties, Epic has to top-up the difference. As different stakeholders get a better understanding of the impacts of changing consumer demands to their businesses, the rules will continue to be rewritten.
Historically, when choosing a console or PC, gamers compared features like graphics, processing power and first-party content. As many of the technology features reach closer to parity and new technologies emerge, the features influencing consumer decisions will change. With the integration of NFTs in gaming these might be based on the blockchain trilemma: decentralisation, scalability and security.
There are a few pioneers in the NFT gaming space including Immutable, Dapper Labs (Flow) and Enjin. Each have built solutions that support the creation of popular games. Each has its own platform, token, content and more. All promote the potential of an interoperable future. Perhaps some of the major publishers will start building on these (like when Sega exited the console wars to focus on third-party content for the incumbents). Maybe some will build their own NFT platforms. While each of these start-ups might be revolutionising how gamers play and what the incentives should be, one legacy they’re carrying on from consoles to streaming to the metaverse is a competition for which platform will win.