The metaverse, gaming, and the future entertainment economy

Feb 4, 2022

In this essay, Santeri Suominen speculates what kind of changes the recent big acquisitions in the digital entertainment space might implicate for the future of the metaverse.

Screenshot from AltspaceVR digital world, showing a sunset sky and aurora borealis.

To your battle stations! A glorious and unclear future awaits!

Recent weeks have given a lot to think about in terms of the future of games and digital entertainment.

Sony is acquiring Bungie in a hefty deal. Microsoft’s historical announcement about the acquisition of Activision, which is over five times a larger deal than the second largest deal in history and just about as large as 29 of the next largest deals in history COMBINED, really makes one wonder why now is the right time to make such moves. Gaming is larger than ever, yes, and there must have been extensive practical reasons – but the definitive answer looms somewhere on the horizon, as it does with any major groundbreaking deal. The future of the digital world is aggressively transformed by moves like this, and the race for it quite strikingly resembles a new kind of space race – but where the colonizable soil is something that has to be made first in order to be claimed.

If Yoda would try to read the future right now, the answer would be: “Hmmmm mjmmm…. Clouded my vision is…. By all this noise.” That is the noise of a battle between David and Goliath. The future of our digital space is under conflict of two opposing forces: Big hegemonic corporations of the digital field like Microsoft, Meta, Amazon, and Google are being challenged by the new wave of community-driven change in financial and technical structuring of the world, who flock under the banner of decentralization, Web 3.0 and the open metaverse. This matchup invokes all the possible imagery of small versus large, like a guerrilla war or a righteous revolution for equality. Every large corporation driven by digital services is responding to this growing momentum by heated head-scratching, huge rebrandings like Facebook -> Meta, mergers and acquisitions and stockpiling of digital goodies as a core for future battle stations.

Microsoft’s acquisition of Activision goes to the last two categories. Microsoft got moves. They are making the future as they go. And Microsoft’s statement following this acquisition confirms that they are betting heavily on the metaverse and are doing what they can to shape it as they like.


The Intoxicating Metaverse

If anyone reading this is uncertain about how the metaverse will form out, or is downright skeptical of the whole phenomenon, there is no reason to be alarmed. Nobody really knows exactly what it will be, which is exactly why everyone wants to talk about it. It’s like a gigantic therapy session for a confused global tech nation that is searching for answers from a vision of our future digital space. It is welcomed, because it reminds us of a future to look forward to in our current seclusion, that doesn’t have to rely on the end of COVID, but rather double down on the current fact that our social functions are increasingly mediated by technology. It is no surprise that at a time when even the most liberal societies are systematically facing greatest control and inhibition to individual freedoms since the second World War, we find a lifeline of liberty from a transformative vision of a digital society where everyone is maximally free. That is why the metaverse is so intoxicating. It is something else while being totally compatible with our current digital seclusion.

The metaverse discussion is more important than ever before, but it is evidently largely driven by the need to step on board the hype train. Hype constitutes mostly of noise, but at the same time it might also be substantial in its core, not to be simply dismissed, but rather dissected. One simple way is to just follow the money and find that the largest colonizers digital service providers are ready to throw all their loose cash on a wild bet that they will reach a position of success or perish. With this move, Microsoft signals their rivals that they’re seeing the signs of decentralizing web and the open metaverse and they are going to be formidable also in the future but in their own terms. It’s a game of deterrence. And of course they want to capitalize on the hype short term, and remind the gaming public where to turn when encountering the m-word right now: everybody wants to be the face of the new thing.

In the gaming space, truest innovation happens within small studios, indies and especially modding communities. Large corporations cannot suddenly become agile and decentralized, nor do they ever need to, because they have the biggest muscles, and they can use them to paddle towards the optimal position to catch the next wave. Like Microsoft, they can stockpile digital raw material and brainpower that is essential to the creation of future entertainment while appropriating new business and creative concepts that have been already proven successful by others. Warcraft. Call of Duty. Convert THAT immense war machine to next-gen digital entertainment services and you have a winning recipe. However, in order to be capitalized upon in the highest extent, this requires an immense change also in the social structures of current game design, development, distribution and support. Wouldn’t it be fun to speculate with those a bit, shall we?


We need to monet- uhh, incentivize EVERYTHING – design, development and distribution

The currently perceived potential of the play-to-earn business model, after initial success stories like Axie Infinity, must be hailed in company strategy meetings like free to play on steroids. It monetizes not only the investment of the makers of the game, but the players too, by rewarding their time investment into a game with fungible and non-fungible tokens that have exchange value also outside the game’s internal virtual economy. Time is the ultimate finite commodity and whoever can monetize the general use of time in the most utilitarian way reaps the greatest profits, or at least that’s the theory of it.

Imagine a game which people gladly dedicate their lives to because of its entertainment value (like World of Warcraft), but which can somewhat support its players also financially simply through play-to-earn. This kind of system also incentivizes early adoption, as the first players earnings initially multiply based on how much others also invest their time into a game, while eventually stabilizing according to the growing size and devotedness of the overall player base. The game makers can reap the profits from this spontaneous, collective utility. The combination in its addictiveness and lucrativeness is seriously scary.

It remains to be seen how financially incentivized gameplay models impact game design – whether games become even more grindey that they are today (which is the low-hanging fruit and equates games closer to WORK than art and entertainment), or whether this potential to generate income for players and game makers alike through engagement in a game free us from the grind and pay-to-win associated with free-to-play models. Quite the opposite, it’ll flip the script completely. Instead of having the player pay for playing a game, the player is getting paid for playing. What if players earned tokens by engineering socially relevant and innovative gameplay, by solving complex creative problems, by creating significant thoughts together by playing together, by bending the rules of the game in emergent and unforeseen gameplay methods? How to quantify and incentivize creativity and play as a generative force beyond the grind is a huge creative question in itself.

Actual game development practices might change drastically as well. Modding communities and user-generated content in general could be incentivized with NFT’s and utility tokens in a new way to produce distributed development. Modding communities could suddenly become actual co-developers, letting the game-making team focus on updating and enhancing core features, while the content and levels are increasingly made by the player community. Studios could found DAO’s together with their core player and modder base, who can buy into the process by playing the game, advocating and creating playable content. Decisions about new features and roadmaps could thus be made together with the fans and creators, if studios really are serious about listening to their fans to the extent of making the creative process co-owned and co-funded. It seems like a new age for early access games is beginning.

NFT’s and decentralized finance also affect the distribution methods of games heavily. Currently no major software distribution platform is allowing the distribution of NFT-financed games; Steam outright banned NFT games from its service. This forces the games further into decentralized distribution and to conveniently show that decentralization is a viable way for distributing games. It also gives us a glimpse of future, if we take this premise and take a few steps forward.

Decentralized web is the natural ultimate evolution of an influencer economy, where influencers and social networks have immense and direct financial value both to people following them and to the parties the influencers endorse. If distribution of games becomes truly decentralized, we will not have the current megaplatforms for easy distribution. It forces a stronger rhizomatic curatorial system by influential individuals to emerge and perhaps even gives birth to new social networks dedicated to gaming. Sort of a decentralized social media for game distribution, a bastard child of Steam and Facebook with a business model that resembles neither. Suddenly curation and endorsement become an even more relevant income strategy for tastemakers as well as a new person-driven user acquisition cost segment for game companies.

As far as I’ve understood, current user acquisition costs in mobile games are astronomical but strategically quite secure. A certain level for return of investment is expectable, even if investment requirements are huge. In a decentralized curatorial and play to earn system the UA process is a lot more volatile (a degree of human error and serendipity is expectable) and audiences harder to find, but perhaps less expensive as a whole. At least the mechanisms of it can be made 100% transparent. And, of course, the whole process can be incentivized to a different extent, as these influencers can become de facto investors in the game through their social influence. Instead of receiving payouts, they receive a stake in the economy as a whole.

But rather than going all the way into decentralization, digital giants like Microsoft could rather expand upon and support their own distribution channel and perhaps mobilize their own utility tokens and NFT marketplaces very soon in a push to create their own early crypto economy and test the waters. I have no idea what legal ramifications this could have, and that possibly is one reason why it hasn’t happened yet. The platform war will intensify, but in a way that the battle for engaged consumers is more lucrative for the average gamer than ever. If playing a game is a financial incentive for both the players and the creators, we might just see the day when instead of a consumer paying for a game or a service, the consumer is being paid for staying committed to a certain game or service. It might even become an obligation, another transgression of work contra play.


Conclusion: Mixing business and pleasure in the new digital age

To sum things up, it is worth being reminded that the future consumer metaverse will not be “just” about games nor could it ever be. As it is the true next stage of our digital environments, it will have huge implications to entertainment, work, politics, travel, friendships, love and anarchy. Especially in the case of Microsoft, as they have a huge stake in productivity applications and many of the non-sexy digital tools that are used every day across the world, they will be huge in the metaverse too.

And it would be mistake to think in 2022 that games are “just games”. They are an artform and a social space. The most successful games nowadays are generally gatherings, which provide much more to its players than only gameplay. Fortnite, Roblox and others are in the 2020’s what the shopping malls were in the 90’s: places for hanging out. In the metaverse, the interwoven relation between social features and activities will drive people towards new shared experiences. All the arts will be there in an explorable mixed media. Who knows, perhaps one future metagame is to find games, content and artwork in an explorable virtual Microsoft-verse, where you can actually discover, generate and map a string of virtual colonies as you roam around the galaxy with your friends. Sort of like No Man’s Sky or Elite Dangerous but with real-life ramifications to your game library and NFT collection and a generative function to the game world itself: the world would be generated and molded according to your input and play, creating more places to visit for others also.

I think in the future we have big changes ahead also in terms of where to draw the line between work and play, and how work in general is defined in the future as more and more DeFi opportunities to “make money” emerge. Work as a category should be distinguished from making money, because these two cannot be equated. Work has always existed, way before currency has. It is the sum total of our productive endeavors that has value implications and utility beyond our ability to earn money. And what exactly is the value of play to earn or cryptocurrencies, other than making money for yourself and others?

Axie Infinity has been promoted heavily due to its capability to provide a livelihood to people in countries like the Philippines and Venezuela by playing the game. However, while being initially quite lucrative for players, reports from late 2021 have shown that player earnings have dropped below the Philippines’ minimum wage. Crypto volatility might not allow play-to-earn games become a steady shot at a livelihood after all, as for example Axie Inifinity’s utility token SLP’s value is practically tied to the demand of Axie NFTs. Financial incentives will ensure some degree of popularity for Axies also in the future, as momentum is everything here, but what happens to them when the next big lucrative thing emerges? The long game of NFTs and their value is an immense question mark. And as a rule of thumb, for me it is always a matter of some suspicion if a thing’s usefulness is marketed and outright justified with a convenient social cause, without explaining fully what the end of the other involved parties is. Axie Infinity is a business valued at $3B, not charity, but it is too often implicitly framed as the latter. So, I’d rather balance all the enthusiasm related to NFT and gaming as an egalitarian miracle of play with a grain of salt. We are still in the very beginning. And we will always have to grow the food we eat.


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