Why I think AAA developers will continue to avoid Web3 games in 2023
Last year’s events point to another year of wait-and-see for Western devs, but perhaps a year of build for Japanese devs
Over a year ago, I outlined why I thought the major players in the traditional gaming industry would avoid blockchain gaming in 2022. It is an understatement to say that much has changed since the beginning of 2022.
Part 1 of this update will be similar, recapping what the AAA developers ended up doing since January 2022 regarding blockchain gaming, and then discussing predictions for 2023. Then there will be a Part 2 that will leverage the market research conducted last year by various firms, and I will discuss its implications on Web3’s value proposition for gaming. Stay tuned!
Traditional gaming mostly took a step back from Web3 gaming in 2022
Since 2022, many big players in the gaming industry, particularly in the Western regions, did indeed take a wait-and-see approach toward NFT games. There was little reason to rush into it. This lack of urgency can be attributed to a few factors:
- Peers of Ubisoft around the world could closely follow the performance of Quartz in Ghost Recon Breakpoint first. If successful, they could fast-follow with their own NFT experiments (on tier 2 IPs of course). If Quartz failed, then the developer could also quietly shutter NFT efforts without having incurred any fan wrath. Basically, Quartz tested the waters for the rest of the industry. The massive backlash to Quartz’s initial announcement was a lesson on staying quiet rather than teasing NFT aspirations. Then poor implementation doomed Quartz for failure when the NFTs were all one of only four identically plain skins, defeating the purpose of NFTs being unique, rare collectibles.
- The increasingly strong anti-NFT sentiment in the West expressed by gamers and journalists was difficult to ignore. The mid-2022 “crypto winter” and decline of play-to-earn, notably Axie Infinity, further depressed the reputation of NFTs among the otherwise unswayed gamers.
- Some executives were just not bullish about Web3’s role in games to begin with. Some (e.g., Xbox, Valve) stuck by their initial opinions, while others, such as EA, were initially undecided but then leaned into the rising sentiment of blockchain’s lack of value prop and high risk of scams.
Western AAA developers have been losing interest in Web3 gaming
With each new announcement in 2022, Western AAA developers have distanced themselves further from in-game NFTs:
- Activision Blizzard: While silent in 2021, in April 2022, Blizzard president Mike Ybarra tweeted a simple “No one is doing NFTs” in response to speculation. It is unlikely this stance will be reversed if Activision’s acquisition does ultimately happen, given fellow Microsoft-owned studio Mojang’s anti-NFT stance, and Xbox head Phil Spencer’s “hammer looking for a nail” view on in-game NFTs.
- Atari: Atari Chain and ATRI token, launched in partnership with ICICB Group, was abruptly canceled in April.
- Electronic Arts: CEO Andrew Wilson reversed his stance on NFTs, from calling it “the future of our industry” in 2021 to announcing its de-prioritization in a February investor call.
- Epic Games: EGS started listing NFT games, starting with Blankos Block Party. Today, there are four games available and eight more coming soon, with plans for a total of 20 games this year. However, Epic attaches a warning to each game’s page, stating that they do “not encourage the purchase or sale” of any cryptocurrency or NFT. EGS also does not grant access to their payment systems for the NFT games. In public, CEO Tim Sweeney has taken a less hardline stance against NFTs compared to 2021. In July, in response to Minecraft’s NFT ban, he dodged the question on Twitter and said instead that Epic would not be “forcing their views onto others.”
- Mojang (Minecraft): Banned all applications of blockchain due to the NFT model of “scarcity and exclusion” going against its guidelines. This caused the rapid collapse of NFT games based on Minecraft, such as NFT Worlds and Critterz.
- Ubisoft: Terminated support for Quartz in April. Then in September, CEO Yves Guillemot stated that they are “still in research mode” regarding NFTs and how they may “really answer the players’ needs.”
Japanese game giants have been more optimistic about Web3
In contrast to Western developers, the Japanese games industry has gravitated closer towards Web3 in the past year. This can perhaps be explained by geographic differences in Web3 attitudes.
Multiple market research studies from last year have shown that the fiercely anti-NFT sentiment among gamers is not universal, but is concentrated in Western audiences. Gamers in Asian markets are more likely to approach Web3 from a neutral, unbiased place, and that may be why Japanese game companies have been less deterred from it:
- Bandai Namco: Committed in February 2022 to invest $130M into building a metaverse of its IP, starting with a “Gundam Metaverse Project.” Though details are still vague and nothing concrete has been shown, they have confirmed the use of NFTs and blockchain.
- Konami: Perhaps due to the success of its Castlevania NFTs in January, Konami posted hiring ads in October for multiple roles in Web3. It then announced the development of in-game NFTs and a blockchain-based trading platform for them.
- Sega: Announced a partnership that will see the creation of its first Web3 game. Similarly to Square Enix and Ubisoft, Sega will not be leveraging its top-tier IP, but will instead be experimenting first with Sangokushi Taisen, a series mostly unknown outside of Asia.
- Square Enix: Released a teaser to announce Symbiogenesis, its first web3 game, following hints of it since November.
But some developers continue to experiment and hedge bets with low-stakes NFT ventures
Given how fraught with emotions the subject is, there are people on both sides of the debate who misunderstand and overreact to any NFT news coming out of the gaming world. This results in many overlooking the vast difference in commitment between a simple NFT collection drop, which can be done no-code these days, and fully investing in in-game blockchain / NFT implementation, which could take months of effort by an entire team.
Examples of what I call “low-stakes” NFT ventures are as follows:
- Atari: 2,600 NFTs were released as loot boxes containing different original art work to celebrate “50 Years of Atari”
- Konami: 14 NFTs of classic artwork for Castlevania’s 35th anniversary sold for over $162,000 total in initial sales
- Square Enix: NFTs of Final Fantasy 7’s Cloud, Aerith, and Tifa were made for the $150 Digital Plus editions of their action figures. The NFT will be delivered this November, 1.5 years after pre-orders opened
- Ubisoft: Released Rabbids NFTs as avatars in The Sandbox for the Year of the Rabbit
Interestingly, Square Enix had mentioned that it was “too early to make Dragon Quest and Final Fantasy blockchain games,” referring to their most important IPs. However, for collectible NFTs, they felt comfortable experimenting with Final Fantasy 7, arguably their single most valuable IP. I see this as a reflection of the significant difference in reputational risk and resources required for a blockchain game versus a simple digital collectible.
NFT drops or collaborations can be leveraged as low-risk market pilots or brand signals
Perhaps Square Enix’s experiment with Cloud Strife NFTs was inspired by fellow Japanese developer Konami, who may have used Castlevania NFTs as a market test that emboldened them to ultimately invest in blockchain gaming. The initial reaction to the Castlevania drop was overreactions on both sides. But despite loud online backlash, there was enough appetite that each NFT sold for an average of $12,000, and there appeared to be little downside for the franchise. Konami must have considered this a heartening sign that they would continue to find fans in the Web3 world. But unlike with their NFT drop, this time it will take years and millions of dollars to produce a quality blockchain game.
Regarding Ubisoft, their use of Rabbids NFTs likely served as a signal to the market that are still exploring the Web3 space, despite terminating Quartz almost a year ago. Again, the news was received with excitement from Web3 fans and consternation from its detractor s— both of which seem to be an overreaction to what is essentially just licensing out IP for another game to create skins with. It is nowhere near the level of investment that Quartz required.
Collaborating with an NFT game can be a great way to engage with the Web3 community and your IP’s core fans, while naturally steering clear of opponents to the technology. By partnering with The Sandbox, Rabbids (and Ubisoft) may attract new fans from the Web3 community while steering existing fans toward the game. Meanwhile, opponents to NFTs are unlikely to play The Sandbox and will soon move on to the next controversy.
Given the strong reactions of the Web3 and gaming communities to NFT games, traditional game developers can strategically leverage this by undertaking low-stakes NFT projects. Collaborating with another NFT project or even releasing a simple drop can help gauge the temperature of your fanbase or earn the goodwill of the Web3-savvy. The fashion industry has long understood this, releasing collectible NFTs and themed avatars in NFT games to position their brands as tech-forward and in tune with younger generations. Game companies should keep this in mind as a potential strategy should their Web3 interest reignite in 2023.
Predictions on The Pokémon Company and Epic Games
As a side, I want to apply these principles to share my interpretations of the Pokémon and Epic Games cases:
The Pokémon Company International (TPCi)
TPCi recently posted a job that stirred up fears of NFTs among the gaming community. The posting was for a Corporate Development role requiring expertise in Web3 and a deep “network of investors and entrepreneurs” in the Web3 and metaverse space.
I believe the community is again overreacting and not sufficiently distinguishing simple NFT collectibles and in-game blockchain. A major Pokémon game as a blockchain game is highly unlikely given the lack of innovation in recent Pokémon titles. Moreover, it would require multiple Web3 developers and project managers, rather than an individual contributor in corporate development. Additionally, the requirement for a wide professional network suggests partnerships or investments, rather than building a game.
Thus, I believe this ad points toward a possible NFT collection drop or IP collaboration at most, indicating that Web3 may be an area of early curiosity, but not a top priority for TPCi at the time.
Epic Games
I don’t believe Epic Games is truly an ally of blockchain gaming. As mentioned earlier in the article, CEO Tim Sweeney is unlikely to be personally supportive of blockchain games, given the strength of his opinion just 1.5 years ago. Demurring now when asked for his opinion in public does not make him an ally, but rather suggests he is being careful of PR now that EGS carries NFT games. I think Epic’s friendliness with NFT games, which began in response to Steam’s ban of them, is part of a strategy to straddle both camps to hedge for both the success and failure of Web3 games.
Regardless of what happens with Web3 games, Epic does not lose:
- If Web3 games ultimately become too risky due to scams, hacks, and rug-pulls, then Epic can “cover their asses” by pointing to their warnings (pictured above) under each game and say that they had been discouraging all along the purchase or sale of crypto or NFTs
- If Web3 games do end up becoming the future of gaming, then this will be a major win for EGS over Steam, reaping the benefits as both the first mover to the space and as the favored partner to Web3 gaming studios
- If Web3 fizzles away quietly, Epic loses nothing, as they have neither invested in any of their store’s Web3 games, nor helped shoulder any of the associated risks of crypto
This communications strategy has been successful. Epic’s plan to add 20 blockchain games to their store resulted in celebrations across the Web3 community despite EGS publicly discouraging gamers from engaging with Web3 elements. This makes me believe that if Web3 gaming fails to thrive, Epic won’t shed a tear for it.
Conclusion
In summary, my predictions for how the big traditional game companies will approach Web3 in 2023 are as follows:
- Western developers will likely maintain a wait-and-see approach towards Web3 games due to the lack of market tailwinds and the reputational risk in their core audience demographics. However, an unexpected success from Symbiogenesis among pockets of Western gamers could change the minds of these developers prematurely
- Japanese developers with ongoing NFT efforts will likely spend this year focusing on building a AAA experience, incorporating lessons from Quartz’s hasty implementation and Axie Infinity’s excessive focus on earnings. Symbiogenesis may launch in mid-late 2023, but its roadmap is still unclear
- Some developers may engage in occasional NFT drops or game collaborations as low-stakes ways to test the Web3 waters or for other strategic or branding purposes
- The rise of AI in 2023 will compete with Web3 for the time and resources of innovation budgets across game developers, due to AI’s clearer value potential and reduced reputational risk. Gaming VCs are starting to showing this preference, and Ubisoft is already exploring AI-powered NPCs while returning to ““research mode” on in-game NFTs
Stay tuned for Part 2, which will Web3’s potential value proposition in the context of market data. Please check back here or on my LinkedIn!
