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Category: Gaming Metaverse

A Guide to Everything Metaverse and Gaming

In the past year, one of the most searched for (and least understood) phrases on the internet was ‘metaverse’. This was a result of Facebook – after 17 years of operating under the name – rebranded itself to Meta because Mark Zuckerberg believes the metaverse is the future. Meta has also announced an investment of $10 billion in 2022 and more over the coming years to develop metaverse technologies. In fact, the metaverse is estimated to become an $800 billion market by 2024. The question that comes to mind is, what’s all the hype about?

In this article, we will attempt to understand what the metaverse exactly is, the technologies that play a major role in it, and its future.

What is the Metaverse?

The word “metaverse” came into existence in the 1992 science fiction novel Snow Crash by Neal Stephenson as a combination of “meta” and “universe.” It was Stephenson’s early 1990s vision of how a virtual reality–based internet might evolve and resembled a massively multiplayer online game (MMO) where people controlled virtual avatars. In modern parlance, the metaverse is a network of three-dimensional virtual worlds focused on social connection. It seamlessly blends games, virtual reality, live-streaming, cryptocurrencies, and social media. The gaming world seems to have already adopted the metaverse’s most basic form. We’ll dive into metaverse games a bit later.

The metaverse, as envisioned by Neal Stephenson in Snow Crash.

The metaverse is a word that is often used in conjunction with Web3 or 3.0 which aims to decentralise the internet. Web3 technology is supposed to give their users the following guarantees:

  • Unified identity authentication system
  • Decentralized operation network
  • Data confirmation and authorization
  • Privacy protection and censorship resistance

For this to be possible, there has to be technology that has decentralized storage, immutability, and information encryption. 

Technologies That Play a Part in the Metaverse

There’s a lot that you need to create a fully-fledged three-dimensional virtual reality and in the past decade or two, technology has developed a great deal. We can break down the requirements into hardware and software needs. The former includes powerful computers and mobile devices, augmented reality (AR), virtual reality (VR), and their associated peripherals. We have a series of articles where we talk about VR and its evolution in detail if you want to learn more. When it comes to software, there has been no wide-scale adoption of a standardized technical specification for metaverse implementations, and existing implementations rely primarily on proprietary technology. At this juncture, you have multiple platforms that offer experiences in VR and AR which are like the different apps you can download from the App Store. However, there isn’t a single portal that people can use to access the metaverse.

The Role of NFTs and Blockchain Technology

Two terms you would have heard often in conjunction with the metaverse are NFTs and Blockchain. We’ve covered the basic definition of these in our 2022 Gaming Trends article, but to recap, a blockchain is essentially a chain of data blocks on a computer network that is transparent to all of its users as well as anybody else. It cannot be altered or relocated. This way, a complete record of everything that has transpired on the network in relation to the data is preserved. Blockchain gaming is a means of turning digital assets inside video games (such as collectibles or cosmetic skins) into real-world assets in the form of NFTs or non-fungible tokens. 

The metaverse is a virtual universe with a lot of possibilities: you could buy a virtual house, get designer clothes, or attend a concert. One of the main features of the metaverse is that it has a full-fledged economy within it and bestrides the boundaries of both the real and the virtual world, so it needs to be decentralised. This means no one person or organisation should own it or control it. Ideally, it should be a distributed peer-to-peer network that uses blockchain technology (because of its aforementioned transparency) to maintain consensus. In the metaverse, creators need to be able to assign value to their digital assets and NFTs are a way of doing so. NFTs will be in charge of pricing their content with proof of ownership.

NFTs are created when a digital file (commonly an image, video, or GIF) is minted. Minting means that a certificate of ownership and originality is generated via cryptocurrency (usually Ethereum) and sold or granted to the new owner. They are also often combined with tangible benefits in the real world, such as Chevrolet auctioning an NFT of a Corvette where the winner of the auction also gets the uniquely colored car in real life (the auction didn’t get any bids, so the benefits can be dubious.) Owning an NFT can also give you access to certain private communities, though the jury is still out on whether it’s worth spending hundreds of thousands of dollars on virtual images of a monkey in a suit, even if celebrities don’t seem to mind.

The Chevrolet NFT of the unique Corvette (which had no takers.)

It is important to note that while the words NFTs, blockchain, and metaverse are all often thrown around together, only a handful of companies have already built real solutions in this field that implement NFTs. It is perfectly viable to be a part of the metaverse without using these technologies, and that’s what some of the most popular games do, such as Fortnite. Let’s look at gaming in the metaverse, because it is one of the most popular areas of interest in it.

Games in the Metaverse

Players can invite their social media friends, interact with other players inside the Metaverse, and collaborate to enjoy games together. Metaverse games are also often based on the play-to-earn concept that allows players to win virtual in-game items and sell them to earn real-world money. However, not all metaverse games are NFT-based or play-to-earn.

When it comes to the envisioned future of the internet, the simulation game Second Life is pretty close. You can sleep, eat, shop, and basically enjoy an existence similar to what you would have in real life. Your avatars in the game are how you virtually represent yourself. This was released way back in 2004 and has evolved since then but the concept is the same. In 2006, Roblox was released. Here, you can play games other people have created and spend time in their worlds. It gained massive popularity during the pandemic and was the third highest grossing game in 2020. Recently, a collaboration between Roblox and Gucci created a virtual Gucci Garden space that sold limited edition virtual bags. One of the digital bags even sold for $800 more than the actual version.

In 2015, Decentraland, the first platform to allocate virtual pieces of land via a proof-of-work algorithm, was launched and since then, some of these plots of land have sold for several hundreds of thousands of dollars. You can also find and participate in events like art exhibitions, parties, and the like. Something similar is the Sandbox, the third-largest metaverse based on the Ethereum blockchain. It allows users to create, share, and monetize their assets (like real estate) and gaming experiences.

In 2017, Fortnite released and quickly became a cultural phenomenon. Travis Scott, a famous rapper, hosted a virtual concert in 2020 that was attended by over 12 million people. There are in-game character skins created in collaboration with several famous franchises like Star Wars, Naruto, Marvel, DC Comics, and more. 

Some Fortnite skin collaborations with Marvel, Stranger Things, Star Wars, DC Comics, Borderlands, and even musicians like Marshmello.

Play-to-earn games have started becoming a phenomenon. In 2017, a game called CryptoBots went public, which was the first play-to-earn NFT game. In 2018, Axie Infinity, a play-to-earn NFT blockchain game, was built on the Ethereum network. During the game, players breed mythical animals and trade them. Your creatures can battle other animals to earn Smooth Love Potion tokens, which can be traded for real money through a cryptocurrency exchange. Axie Infinity has made over $4 billion in NFT sales since its launch. It also shows that there have been 14.45 million transactions and 1.62 million buyers since its inception. However, it has also proven to be vulnerable to hackers, who stole approximately $620 million worth of cryptocurrency from a network used to process in-game transactions. While Axie representatives have stepped up and said that they’re committed to reimbursing players for their losses, the risk remains.

Axie Infinity, one of the most notable play-to-earn games.

In 2019, Facebook (now Meta) launched a social VR world called Facebook Horizon, now called Horizon Worlds. With the success of AR thanks to Pokémon Go, Swedish lifestyle and furniture behemoth IKEA jumped in on the bandwagon with their innovative Place app, which lets you choose a piece of furniture and see how it looks in your home or office. In 2020, Alien Worlds was released. It involved a multi-metaverse interplanetary scenario that had NFT characters interacting in a decentralized autonomous organization to mine tokens and perform tasks. By 2021, Alien Worlds had more than 2.5 million users

We can see that games in the metaverse fall into one of the below categories, and are often a mix of multiple categories. 

  • Social Gaming: These are games in the metaverse where you can meet your friends from real life or make new ones with similar interests. You can even hang out with strangers and meet new folks. One of the first social games was Horizon Worlds by Meta but usually, successful social games are combined with other categories so they’re more fun. Notable examples include Fortnite and Decentraland.
  • Games-as-Platforms: Games aren’t just limited to playing Tetris or whatever, they’ve become a whole new lifestyle. You can spend time in them building your own house or games, play other peoples’ creations, and enjoy a diverse, virtual life. Roblox and its many worlds are a great example of games as a platform.
  • Mixed Reality Experience: When we talk about mixed reality, we mean not just pure VR games but also augmented reality and any kind of mix between the virtual and the real.  Games like Beat Saber (VR) and Pokémon Go (AR) are testaments to how merging the worlds can end up into incredibly fun experiences.
  • Play-To-Earn: From a zero-value market size, the blockchain gaming industry grew to $3 billion in 2021 and is projected to rise to $39.7 billion by 2025. Fueled significantly by the play-to-earn model, the blockchain gaming industry has attracted over 1.5 million diverse gamers across the globe. Games such as Axie Infinity have generated several millions in revenue and are used by a multitude of people as a source of revenue.
  • Portable Game Assets: This is technically not a game category but is a huge feature that the metaverse would like to ideally have. Being able to buy cool things in a game and reap their benefits in game has been a thing ever since skins for characters and weapons became popular. In the metaverse though, one of the biggest promises is that of portable game assets, where for example, if you own a car in one metaverse, you should be able to take it to the next. There are no universal portable game assets (yet) but in games like Roblox with a huge number of worlds, you can take your virtual belongings around between them.

Gaming in the metaverse is full of potential with a focus on new ways to play, earn, work, and do a lot more.

The Costs and Processes of Populating the Metaverse

However, all this isn’t easy. Currently, it feels like every mention of the metaverse comes with a price. NFTs are either exorbitantly expensive or the fees associated with them are, blockchain games require expensive buy-ins before one can try the gameplay, and owning digital land within a metaverse platform can rival one’s real life rent. Equipment costs can also be high if you want to buy VR gear or more powerful devices to experience the metaverse. While brands and tech companies want consumers to embrace this evolution of the internet experience, it seems increasingly inaccessible to a large portion of the internet’s denizens.

A lack of capital is a hindrance in the metaverse. A writer loaded up Decentraland to try playing a little poker to see how well it worked. In the poker area, they were informed they needed to buy an item of clothing, which acts like a membership card to play. The price for the cheapest item, a pair of glasses, was 1.948 ETH, around $5,588.19 then. Compare this to informal poker buy-ins in real life. According to Fortune, the metaverse platforms Sandbox and Decentraland are selling the smallest chunks of land for 3.7 and 3.46 eth respectively, which was around $14,099 and $13,211 at the time.

A lot of people turn to the internet as a place of affordable entertainment. The metaverse so far though seems to cause more roadblocks to this sentiment than aid it.

The Positives of the Metaverse

It isn’t all doom and gloom though. The metaverse, even in its current avatar, brings a host of benefits to the table. These include:

  • Better social connections irrespective of physical proximity:
    You can stay in touch with your friends and find new people who have the same interests as you relatively easily. Gaming worlds like Roblox excel at this as you can find a game within it you and your friends like and hang out in that world with them, just like going to a park together.
  • Immersiveness:
    You can enjoy games and experiences online with additional dimensions, with new haptic suits and gloves even simulating physical interactions. The critically acclaimed Half-Life Alyx takes interactions in VR to a new level: you have to physically duck for cover or reload a gun by taking the magazine out and reinserting it.
Playing Half-Life Alyx is a highly interactive experience.
  • New business opportunities:
    Whether it’s NFTs being sold, virtual brand deals and concerts, or even digital real estate, the metaverse is a great place to try and make money. The risk might be high but the rewards can be astronomical. Games like Axie Infinity have proven to be ways for players to supplement their income or even play the game for a living and places like the Philippines account for 35 percent of Axie Infinity traffic and the biggest share of its 2.5 million daily active users.
  • Games have drastically improved:
    With VR being increasingly realistic and affordable, far more VR games have been released and companies like Epic are betting on gaming and the metaverse. They put in $1 billion into metaverse gaming in early 2021. These investments into the gaming industry are sure to bear fruit, either in the form of new and innovative games, or other supporting technology such as VR. Meta is certainly focusing significantly on the latter.
  • Online education and work:
    One thing during Covid was how several schools and universities around the world switched to platforms like Zoom to ensure their students would be able to continue learning. Further, imagine learning with the help of immersion. If you want to teach geography, wouldn’t a virtual tour of the world be better than just staring at an atlas? Gamification of academics is a great way to encourage learning and metaverse gaming is a great way to do that. Companies are also looking more favorably on remote work and the virtual office is looking increasingly likely.

Challenges the Metaverse Faces

There are a lot of problems to solve before the metaverse can really thrive though. While we’ve looked at the benefits, the drawbacks should also be considered.

  • Social issues:
    While the metaverse might not be affected by physical distances, it can definitely lead to a loss of connection with the real world. Internet addiction disorder, social media, and video game addiction can have mental and physical repercussions over a prolonged period of time, such as depression, anxiety, and an increased risk for obesity and cardiovascular disease thanks to a sedentary lifestyle.
  • Cybercrime:
    Existing online platforms and games are vulnerable to all sorts of illegal activities, such as fraud, money laundering, child exploitation, illegal goods, services trafficking, and cyberattacks. The metaverse is no different, with several large-scale scams already proving to be an issue. The lack of moderation and proper guidelines and comprehensive laws can lead to major criminal activity. User safety is also a concern, as there is no easy way to verify age, gender, and the like without possible privacy violations.
  • Personal Data Security:
    Users will probably have their information collected on an even greater scale now as a result of interactions in the metaverse as well as possible biometric data through VR and AR devices. Companies like Meta also plan on having targeted adverts within their metaverse, which might lead to more exploitation and manipulation of individuals.
  • Feasibility and accessibility:
    A true metaverse as portrayed in fiction such as Ready Player One and Snow Crash might not be feasible with today’s technology – both in terms of hardware and software. Furthermore, the technology currently available often is extremely expensive. Virtual spaces might also have too high an entry cost for a lot of people and this might prove to be prohibitive.
  • Lack of Interoperability.
    Currently, it’s nigh on impossible to take virtual items like cars or real estate from one metaverse to another. Legal and commercial challenges are also a major issue, with no real adjudicator available on the scene yet.

Current Investments in the Gaming Metaverse

Like we mentioned at the onset of this article, the metaverse is estimated to become an $800 billion market by 2024. That’s up from almost $500 billion in 2020

In October 2021, Tencent established the F1 studio under the subsidiary TiMi Studio Group for focusing on metaverse development. Meta has also announced investment of billions of dollars over the coming years to develop metaverse technologies. The tech giant has also invested up to $10 billion in acquiring VR technology and has plans to invest in AR technology to build out their virtual world capabilities. With their plans expected to take up to 15 years, they’re in this for the long haul. Google has also discussed the possibility of mapping the Metaverse and implementing current services such as YouTube into virtual worlds. They have also invested a hefty $39.5 million into a fund that invests directly into Metaverse projects. 

In June 2021, Epic Games said that it has secured $2 billion in its latest round of investments in its quest to create the metaverse, a realm of interconnected virtual worlds like those depicted in novels like Snow Crash and Ready Player One. Disney is developing a metaverse theme park. Nike has a virtual store within the Roblox Metaverse called Nikeland, which has attracted over 7 million people from over 200 countries. They’re currently selling their Nike branded virtual sneakers for over $100,000.

Nike sold a pair of virtual sneakers for $186,000 in the metaverse. Source: Ladbible.

Even dating apps like Tinder are getting in on the action, with their new concept on a few college campuses in South Korea that allows users to meet in an area called Singletown and interact as avatars using real-time audio. The company is also rolling out its own coins — Tinder Coins — which are currently being tested in several markets, including a few markets in Europe.

What the Future of the Metaverse Looks Like

If the metaverse can be decentralised, safe, and accessible, it is possible that it will be as commonplace as the internet is today. AR, VR, and other technologies are propelling the metaverse forward and evolving along with it. Future technologies and players that will enhance metaverse capabilities have yet to emerge. The power and reach of the metaverse can potentially eliminate many of the constraints and biases of today’s reality. 

The future of the metaverse is uncertain, but only as to how exactly it will look. With major investments being pumped into it by global titans such as Google and Meta, it is likely that the combination of digital worlds, virtual assets, and how they shape our social experiences and affect our economy will be of extreme significance. Gaming in the metaverse in particular is breaking barriers with increasing speed and soon, we might be able to play games in the metaverse and enjoy them like a real-life experience.

Gameopedia works with clients across the industry on custom requests and can provide in-depth data about metaverse-related games. Reach out to us for data that can empower you to new heights. 

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Why the Gaming Industry is Spending Billions on Consolidation

The pandemic was a difficult time for the world, but a period of growth for gaming. The industry rose to prominence during COVID lockdowns – when millions turned to video games – and its biggest players are now consolidating at a rapid pace through high-profile mergers and acquisitions. 

In this article we will discuss some of the transformative gaming deals of the past to provide context for the current spate in M&A, and delve into the motivations behind today’s high-profile acquisitions – companies are looking to penetrate lucrative gaming platforms, racing to create the metaverse, enriching gaming with cutting-edge technology, and incorporating vast user bases built around successful franchises. We will conclude with a discussion of how the industry appears to be entering a period of mega-consolidation.

How Explosive Growth in Gaming is Powering Consolidation

The industry registered record growth during COVID – people restricted to their homes sought to entertain themselves and stay connected, and gaming enabled them to do both – as more users played multiplayer games, time spent on gaming and related activities increased by 39%. No surprise, then, that the gaming market was valued at $198.40 bn in 2021, and is expected to be worth nearly $340 bn by 2027, with mobile games revenue expected to cross $100 bn by 2023. The gaming industry is larger than the movie and music industries combined.

Video Game Revenue (Source: Statista)

The industry is capitalising on this growth by consolidating: according to investment banking firm Drake Star, M&A activity reached a record $85 bn in 2021 – three times the value in the previous year – as game companies participated in 1,159 deals including 299 mergers and acquisitions. The value of deals announced in Q1 2021 was $18.2 bn, and deal value mushroomed to $90.4 bn in Q1 2022, on the back of Microsoft’s purchase of Activision Blizzard (the biggest ever acquisition in gaming), and Take Two’s deal with Zynga

While industry observers agree that explosive growth is powering gaming consolidation today, they also argue that tech giants are fighting over the future of gaming through high-profile deals, and vying for supremacy in the industry. COVID transformed gaming forever, and the aggressive plays by tech powerhouses are the result of this tectonic shift. However, there is more to the consolidation today than just a bid for primacy or an investment in gaming’s future, as we will discuss below. 

Transformative Gaming Deals: Then and Now

Gaming deals then and now have powered the growth of companies via the acquisition of lucrative IPs. The key difference between the deals of the past and the M&A today is the large sums of money involved, and the complex agendas behind consolidation. Some acquisitions before the pandemic period also reveal similar motivations, foreshadowing the billion-dollar deals that characterise gaming acquisitions today. 

The IP-centric deals of the past

Many of the transformative gaming deals in the two decades prior to COVID center around the acquisition of lucrative IPs. 

In 1998, Take Two bought BMG Interactive, the then makers of Grand Theft Auto, for $14.2 mn. Take Two’s purchase eventually resulted in ‘the most lucrative game in history’ and the most profitable entertainment product of all time – GTA V. GTA’s ‘incredible staying power’ has yielded billions of dollars in revenue.

Grand Theft Auto (Courtesy Rockstar Games Inc)

In 2005 Bandai and Namco merged and became the third-largest gaming company in Japan after Nintendo and Sony, on the strength of their combined franchises. 

In 2011, Tencent became the majority shareholder of Riot Games, the makers of League of Legends, acquiring a 93% stake in the company for $400 million. Four years later it acquired the remaining 7%, owning League of Legends outright at a time when the game was rapidly becoming one of the world’s biggest esports. The game is hugely popular, especially in China, and League of Legends’s esports events are some of the biggest in the world.

League of Legends (Courtesy Riot Games, Inc.)

In 2014, Microsoft acquired Mojang, the creator of Minecraft, for $2.5 bn – a prescient deal, considering that Minecraft would go on to become the best selling game of all time, with 238 million copies sold across platforms as of 2021. 

Amazon’s acquisition of Twitch in the same year for $970 mn is an example of a pre-COVID platform play – Amazon not only had the capacity to sustain Twitch’s rapid growth, but it could also enter an entirely new platform – live streaming – and Twitch was eventually able to support a massive number of viewers and broadcast high-profile esports tournaments on the back of Amazon’s support platform. In 2021, the Dota 2 International finals drew in a total of 1.7 mn unique viewers on Twitch – 62% of the 2.7mn viewers who tuned into the game

Tencent’s 2016 acquisition of Supercell is not only one of the few high-stakes deals before COVID: it is also a platform play. The Chinese company made the third-largest gaming deal in history by paying $8.6 bn for a majority stake in Supercell, adding the Finnish developer’s flagship game Clash of Clans to its portfolio. The mobile title raked in nearly $490 mn in 2021 through in-app purchases. Tencent has consistently made the most of the mobile gaming platform – 60% of its $19.3 bn gaming revenue in 2019 came from mobile games, and in Q2 2021, the company’s mobile games raked in $6.3 bn – 30% of all gaming revenue.

The Billion-Dollar Deals Today

Gaming M&A today are notable for the massive, billion-dollar amounts in play, and how they have catapulted companies into market-leading positions. In the past, Tencent’s buyout of Supercell or Activision Blizzard’s $5.9-bn purchase of King were the exception rather than the norm, but today, even the low-profile deals – such as EA’s acquisition of smaller mobile gaming companies – run into billions of dollars. 

Gaming acquisitions in the post-pandemic era
Major video gaming acquisitions in the post-pandemic era

In 2020, Microsoft purchased Zenimax for $7.5 bn, giving it control over some of the world’s greatest franchises, such as Fallout, The Elder Scrolls, Doom and others. 

Xbox Bethesda
Xbox acquires Bethesda (Courtesy: Microsoft)

Electronic Arts, the third-largest Western gaming company, has largely built its success on desktop and console titles. The studio bought into the mobile gaming market in 2021 with the acquisition of Glu Mobile for $2.4 bn in April 2021, followed soon after by the purchase of Playdemic for $1.4 bn.

But it was in January 2022 that the gaming industry went on a purchasing spree. Take Two acquired Zynga for $12.7 bn. Microsoft bought Activision Blizzard for a whopping $68.7 bn. When Sony acquired Bungie for $3.6 bn, its stock surged by nearly 6%

When Microsoft completed its purchase of Activision Blizzard, it announced that it was the third largest gaming company in the world by revenue, behind Sony and Tencent. Microsoft now owns 24 first-party studios, while Sony owns 19.

xbox first party studios
Xbox First-Party Studios (Courtesy MIcrosoft)

Various reports have led to speculation that Ubisoft may be the next studio to be acquired. A Bloomberg article reports that a few private equity firms have been scrutinizing the business, and employees have also claimed that various company divisions are under audit. In 2018, the studio fought off a hostile takeover play by French company Vivendi, but Ubisoft’s CEO has said in a recent earnings call that the company is open to offers for purchase, amidst plummeting stock prices. 

In the next section, we discuss the reasons why gaming companies are making such high-profile deals today.

Platforms, Metaverse, Tech and Users: Why the Industry is Consolidating

The industry’s M&A frenzy is not just about capitalizing on growth during the pandemic. By consolidating, companies are attempting to make their mark on new platforms, jump-start the metaverse, enrich gaming with new technologies and assimilate vast user bases spread out among multiple IPs and platforms.

Platform Plays: Staking a Claim in Lucrative Platforms

The high-profile deals made by Take Two, Microsoft and Sony do share a common thread – the acquisition of first-rate IP’s. However, Take Two and Microsoft are also making multiple platform plays with their acquisitions. 

Take Two grew on the back of console and PC gaming, powered by franchises such as Red Dead Redemption and Grand Theft Auto. It is now looking to grow on the mobile platform by acquiring Zynga. 

Take Two has unsuccessfully tried to build an in-house mobile gaming market strategy by acquiring small companies such as PlayDots. By buying Zynga, it not only owns money spinners like Farmville, but can also learn from Zynga’s expertise in making free-to-play mobile games. Take Two also plans to launch more of its franchises on mobile platforms – will we be seeing a mobile version of Read Dead Redemption in the coming years?

Microsoft’s acquisition of Activision Blizzard not only gives it ownership over World of Warcraft, but also mobile games such as Call of Duty Mobile. It also gains mobile games such as Candy Crush Saga, because Activision Blizzard acquired the social gaming company King in 2015. 

Microsoft makes about $250 million per month from its 25 million Xbox Game Pass subscribers, and Game Pass subscriptions account for 80% of the tech giant’s gaming revenue. With Activision, Microsoft now has 24 first-party Xbox studios and can offer even more content on a subscription service already known as the ‘Netflix of gaming’, reaping ever-higher profits from its XBox division. 

And if that’s not enough, Microsoft boasts a steadily improving cloud gaming solution, Xbox Cloud Gaming. By purchasing Activision Blizzard and Zenimax, the tech giant could offer a wider variety of IPs on the cloud, drawing more users into its game streaming service.  

The Chinese company Tencent has become the world’s largest gaming company by revenue largely on the back of its extensive portfolio of online games, targeted at its domestic audience. Games like PUBG Mobile and Honor of Kings regularly rank as top-grossing mobile titles, and as discussed above, its mobile segment has always been a rich source of revenue. 

Now, it may be looking into desktop and console gaming. In 2021, Tencent acquired 11 gaming companies, including Turtle Rock (developers of Back 4 Blood) and Sumo Group (developers of many Sonic racing games). This is a bid to enter the console and desktop platforms, according to industry analyst Drake Star, which also expects the gaming giant to acquire many AAA studios and developers this year. 

Platform plays are not restricted to high-profile deals – smaller acquisitions reflect similar objectives. Netflix is continually buying indie studios and adding to its gaming library in a bid to enter the mobile gaming sector, and it intends to use data from its gamers to enhance its video catalog as well. In a Gamopedia poll, 33% of the respondents expressed interest in playing games on the Netflix platform, while 26% said it depended on Netflix’s gaming library.

The Metaverse: Jump-Starting the New Internet

The metaverse is a combination of virtual and augmented reality where users fully inhabit a simulated world created by technology, interacting with each other within digital environments. It is considered the future of the internet and cyberspace. It is still in its infancy, and it could take more than a decade for a full-fledged metaverse to come into being.

Horizon Workrooms
Horizon Workrooms (Courtesy Meta)

When Meta (formerly Facebook) acquired Oculus in 2014 – years before the company had sold a single headset – it was staking an early claim on the metaverse. 

Meta has also acquired many successful VR game studios, such as Ready At Dawn (the makers of the award-winning Lone Echo) and Beat Games (makers of the highly successful Beat Saber). These acquisitions are not just about adding IPs – but about offering more reasons to participate in the metaverse and ‘Social VR’. 

Meta’s Oculus has also acquired many companies to accelerate development of the metaverse by improving the VR experience. In 2015, it acquired Surreal Vision, which recreates 3D environments in virtual spaces. A year later it purchased Eye Tribe, which specialises in eye-tracking technology that allows you to control the direction you look using your eyes alone. 

Meta’s metaverse play has actually hurt profits and Reality Labs, the division behind augmented reality and virtual reality, lost more than $10 bn in 2021, despite impressive sales figures for the Oculus Quest 2 headset in the same year. This has not deterred investment in the metaverse. 

According to Bloomberg, even Microsoft’s acquisition of Activision Blizzard is a metaverse play, because the company’s new IPs give it access to massive gaming communities, which have come closest to creating metaverse-like experiences. Both Roblox Corp, publisher of Roblox and Epic Games, the publishers of Fortnite, have organized immersive in-game experiences such as live concerts. Epic Games pioneered crossover events featuring an eclectic mix of IPs through custom skins. Such events were attended by millions, turning Fortnite into a metaverse community rather than just a battle-royale F2P game. 

Technology First: Betting on the Cutting Edge

Sony’s reasons for acquiring Bungie, however, have little to do with the metaverse, but much to do with technical know-how: they want in on Bungie’s capabilities in live-game services, and its expertise with cross-platform play. Sony has not delved into the live-service platform, opting instead for narrative-driven games and open-world franchises such as Horizon Zero Dawn. Buying Bungie gives Sony the chance to get into the live-service platform, and move past a console-only strategy – in fact, the company wants around half of its games on desktops and mobile devices by 2025, indicating a significant change in its approach to making and distributing games. 

Bungie has mastered the live service model after years of developing the Destiny series, which has drawn 187 million unique users over the course of its existence. Bungie also has pioneered cross-saves and cross-platform play, and has deployed a variety of revenue models to keep Destiny competitive against other F2P and subscription titles. Bungie’s complex infrastructure supports almost a dozen different hardware platforms for Destiny 2, including Google Stadia. Sony could not have chosen a better tech partner. 

Bungie plans to extend Destiny beyond gaming as well – there is speculation that the company is working on a Destiny TV show or movie as part of its plans to create a Destiny Universe, just as Sony adapted The Last of US into a TV Show and Uncharted into a movie. Venturing into new mediums will draw more users toward Sony and Bungie’s franchises, and Sony may well lean on Bungie’s expertise in coping with enormous player communities. 

Square Enix has sold off its western titles to focus on technologies such as the blockchain, AI and the cloud. Square Enix’s deal with Embracer Group involves the sale of 50 IPs, including classics like Tomb Raider, Deus Ex, Thief and Legacy of Kain, for just $300 mn. However, the company still has a strong library and has also retained some of its Western IPs. Its decision to focus on new tech could enhance their gaming titles as well.

Prior to the sale of its IPs, Square Enix invested in the Ethereum-based game developer TSB Gaming, creator of The Sandbox, a virtual world built on the blockchain, which allows players to build, own and monetize their voxel gaming experiences.  

Square Enix’s president Yosuke Matsuda has emphasized the company’s interest in introducing blockchain technologies into gaming to incentivise gamers and modders, and the gaming firm may also look into including token economies in its titles. The sale of Western IPs will bankroll these endeavours. 

Gaining User Communities and Data

Consolidation buys access to millions of users spread out among the popular franchises of smaller studios, and these user bases yield significant data-driven insights. 

This enables bigger players to devise well-directed promotion strategies across an ever-increasing portfolio of games and first-party studios, thereby saving costs on marketing and ad campaigns. User acquisition and retention is a high priority across gaming platforms and a significant part of a game app’s marketing strategy. Microsoft not only gains lucrative IPs by buying Zenimax and Activision Blizzard, but it also buys into vast user bases and data across platforms such as desktops, consoles and mobile.

User acquisition is vital to the metaverse – big players are already taking notice of the huge user communities of Roblox and Fortnite and their metaverse-like experiences. Having access to data on these communities, their behaviour and their metaverse expectations might be a game-changer for tech giants who are looking to usher in the new internet. 

Gaining users and their data will hence allow gaming giants to fine-tune their consolidation agendas. Indeed, user data and insights into behaviour tie into all the three objectives listed above: they will enable companies to maximize gains from new platforms, entice gamers into a new, as yet unpolished metaverse, and improve the user experience with new technology.

Impact of Consolidation on Gaming

Today’s gaming deals are not solely about acquiring high-performing IPs – companies have a complex agenda, ranging from platform plays to metaverse investments. In this section, we discuss how gaming could change as a result of such strategic moves.

More monopolies and exclusives: Microsoft’s acquisition of Activision Blizzard was not met with unanimous approval, and raised concerns that the tech company had suddenly risen to a position where it could dictate terms as a monopoly player with the largest number of first-party studios. Microsoft’s position of power over the gaming industry may also draw antitrust scrutiny according to some observers. Such larger players can also decide to keep lucrative IPs as exclusives – note that XBox chief Phil Spencer has all but confirmed that The Elder Scrolls VI will be an exclusive available only on XBox and PC. 

Tech giants vs smaller players: Big companies have made gaming acquisitions that will cement their place as market leaders. This will make it harder for smaller studios to compete, but not to create, as they will get opportunities to be purchased in an industry that hungers for new talent and new experiences. Netflix has bought many mobile game studios, and Meta has done the same for VR game studios. However, industry behemoths may not allow such creators to maintain their independence. Studios with successful franchises may succumb to acquisition after a few failed experiments hurt their bottomline, and the dominance of a few large players may stifle innovation and the creative freedom of developers working within the confines of a larger corporate structure. In effect, smaller studios can still create in an era of consolidation – but what they create may be dictated by their corporate paymasters rather than their creative ambition, leading to less variety in gaming content.

Cross-platform play as the norm: The gaming industry has traditionally not been very keen on providing cross-platform playability. However, this is likely to change because of the various platform plays reflected in today’s gaming M&A. Thanks to its acquisitions, Microsoft already boasts a sizeable collection of games playable via the Xbox Game Pass and its cloud platform. Sony is looking to enter the live-service online platform with the help of Bungie. Take Two wants to launch mobile versions of its famous IPs. As the number of multi-platform franchises grows, cross-platform play could become the norm rather than the exception. At the very least, gamers can expect an enhanced cross-platform experience going forward.

Mobile gaming as default: Smartphones are already the most popular device for gaming, but the introduction of high-quality IPs on mobile platforms could make smartphones the default device for gamers, or at least provide an experience that transcends casual gaming. As cloud gaming on mobile matures, more subscription-based services featuring high-quality games can be accessed purely via smartphones – without any hardware apart from the mobile screen. In the future, a smartphone streaming to a HD screen or a headset may be all that you require to get a high-fidelity, immersive playing experience. Gaming could hence become ‘mobile-native’. 

Forging the Metaverse and its community: Apart from its technological trappings, the metaverse is essentially an online interconnected space where individuals interact with each other. Acquiring gaming companies that have experience dealing with massive user communities, rather than just user bases (contrast WoW players vs Windows users), will enable tech giants to understand how to create the metaverse community. In many respects, WoW can be considered a successful proto-metaverse – from its earliest stages, it featured player-driven economies, social gathering points and virtual real estate. Technology companies are looking to integrate the immersive elements of gaming into the metaverse experience: Roblox, Epic Games’ Fortnite, and GTA Online already have metaverse-like platforms that incorporate player communities into their business models.

Conclusion: How Consolidation will Beget Consolidation

Microsoft’s purchase of Zenimax in 2020 sparked speculation that there would be more such major acquisitions in the future – and this has proved to be true. 

Tech companies and game industry giants have harnessed COVID-period growth to make billion-dollar consolidation deals. To some observers, the consolidations are still very much underway and experts suggest that we are entering an era of mega-consolidation, where consumer demand for cross-platform experiences will drive further M&A. Even tech firms without a presence in gaming may enter the market because of the industry’s massive potential – 26% of the world’s population plays games and gaming is the most lucrative entertainment industry by a wide margin. 

Acquisitions lead to acquisitions, according to analyst Brandon Ross. Successful publishers and studios can expect to be bought – the industry may become the fief of a few large players, but studios that create quality games will not lack for customers, be they gamers or tech giants. 

Mergers and acquisitions are about spending money to make money. Big players can create or simply buy more content. With more content comes more players, and with more players arises the need for more and diverse content – a virtuous cycle where high-profile acquisitions constantly transform the gaming market so that it can keep pace with rising consumer expectations and the demand for more content. 

The consolidation in the gaming industry may eventually propel it toward a new normal, with a thriving metaverse and a tech-enriched gaming experience that transcends platform limitations. For gamers, developers, independent studios and gaming giants, that is a win-win situation.

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