Reviewing games industry headlines over the last year, it might seem nearly every major publisher in the games industry is involved with blockchain gaming. Yet, as we note in our latest market report, despite the corporate buzz around blockchain gaming and NFTs, history suggests a scrappy new entrant, a start-up, will be the first to harness this new technology and find its fit to the market.
Setting aside the historical precedent, here are three reasons we might expect blockchain gaming to skip the incumbents on its first big break:
In the early 2010s the free-to-play(F2P) model established itself as the premier model for AAA multiplayer games. In the F2P model, publishers leverage microtransactions (MTX) to directly sell cosmetic skins and power-ups to players. They then prevent players from trading those items between themselves. This closed model allows publishers to sell identical items to millions of individual players with zero marginal cost. In a blockchain game where these items are backed by NFTs, players are free to buy, sell, and trade these items between themselves on secondary markets - not only for items within the same game, but for any other NFT-backed game item or currency on the blockchain. With this secondary market in place, players could continuously buy and sell ‘used’ items, rather than buying ‘new’ items directly from the in-game store, cutting the publisher out of a significant portion of skin sales revenue.
Currently, the legal status of token economies and NFTs are poorly regulated and rife with speculation. Introducing additional regulatory uncertainty into an environment where many publishers are already facing scrutiny from regulators concerned about loot boxes and other gambling-like behaviors is a big risk for established publishers. With many blockchain games already setting up shell businesses in BVI and other financial havens to facilitate token launches and other ‘avant garde’ economic models, the complexity and uncertainty around legal compliance is already sufficient reason for many conventional gaming businesses to keep their profits far away from blockchain.
Unanticipated player behavior
Underlying concerns around revenue headwinds, regulatory complexity, rapidly evolving technology, and open game economy design is the threat of the players themselves. Unexpected player behavior can magnify each and everyone of these risk areas, and, as we covered in our latest market report, the history of gaming is riddled with player-discovered exploits and gray markets born out of gaps between player desires and the functionality prescribed by the game developers. In CS:GO, the open API for the CS:GO item ecosystem unlocked functionality for players to programmatically exchange items. This feature enabled players to sidestep Valve’s in-game marketplace fees, launder money, and build unregulated gambling websites at multi-billion dollar scale. Compared with CSGO skins, NFTs multiply the possibilities for emergent - and illicit - behavior in every direction. NFTs are easier to sell, harder to regulate, and more flexible than CSGO skins in their functionality. Until established publishers have a success case to emulate, say from an indie studio with nothing to lose, it’s unlikely established publishers will dive into blockchain gaming and the associated player risks.
Check out our latest market report for more discussion on the above topics and the current state of blockchain gaming, including the top games and the most popular gaming blockchains.