Why Meta is looking to the video game industry for metaverse inspiration
Hello, and welcome to Protocol Entertainment, your guide to the business of the gaming and media industries. This Tuesday, we’re taking a look at the game-inspired monetization strategy behind Meta’s Horizon Worlds, Amazon’s under-wraps AR/VR project and Blizzard’s stance on NFTs.
Why Meta wants its own Roblox
Facebook remade itself into a metaverse-first company, but Mark Zuckerberg’s social networking giant lags far behind the game industry when it comes to building virtual worlds that are both popular and lucrative. The closest thing Meta has is Horizon Worlds, a VR-only social space and game-making platform that’s equal parts Rec Room, Roblox and VRChat.
Meta last week revealed how it plans to monetize Horizon Worlds, with an aggressive 47.5% take rate of all in-app purchases. If Horizon Worlds were a video game, like Roblox, that would fall within the industry standard. But if Horizon Worlds is in fact a metaverse platform, an NFT store or a software marketplace, that steep commission becomes harder to excuse. We’re not really sure yet what Horizon Worlds is, but it’s now becoming more obvious why Meta wants to compete directly with Fortnite, Roblox, Minecraft and others.
Video games monetize extraordinarily well. Even games that rely on user-generated content, like Roblox, tend to keep a lot for themselves, largely because video game companies operate closed platforms mostly within the confines of closed ecosystems operated by giant tech and entertainment companies.
- Because so many game companies have to fork over roughly 30% of all purchases to companies like Apple, Google, Microsoft, Sony, Nintendo and Valve, they tend to not leave a lot left over for creators, if they support creators at all. Many games do not, and even prohibit selling of in-game cosmetics or monetizing virtual creations.
- This is why Roblox takes a little under half of all in-app purchases to help finance “platform hosting and support,” “platform investment” and what Roblox characterizes as “ongoing services and operating costs.” After paying out on average 24% to Apple, Google, Xbox and credit card companies, Roblox leaves around 28% to give to creators.
- By those standards, Meta’s 47.5% take seems reasonable, especially if it were paying out 15% to 30% to Apple and Google. But Meta doesn’t yet publish Horizon Worlds on mobile, though it’s planning to this year.
- Preparing to give 30% to Apple and Google might be why Horizon Worlds has such a high take rate to begin with. Changing the rate after the fact, or keeping it inconsistent across platforms, may not be as desirable as keeping it high out of the gate.
Gaming arrived early to the metaverse. The platform Meta is trying to build is going to require users before it can bank on creators creating virtual goods those users want to buy. Video game developers, on the other hand, don’t get very far if their games aren’t fun or the method by which they make money falls flat. That means the competition is stiff for Horizon Worlds.
- “We want there to just be a ton of awesome worlds,” Zuckerberg said in a recorded interview on Horizon Worlds last week. “In order for that to happen, there need to be a lot of creators who can support themselves and make this their job and make a living doing this. There’s got to be good ways for people to make money.”
- Meta is hoping it can pull creators away from platforms like Roblox and Rec Room to build for Horizon Worlds with the promise of revenue sharing. But its similar take rate would suggest it doesn’t have a whole lot to offer just yet, especially considering the app is right now restricted to the Oculus Quest platform.
- Meta’s insistence on characterizing Horizon Worlds as the foundation of its metaverse ambitions, instead of just a game platform, has given fuel to its rivals. Apple took a shot at Meta in a statement to MarketWatch, accusing the company of using small businesses and creators as a scapegoat.
- “The announcement lays bare Meta’s hypocrisy. It goes to show that while they seek to use Apple’s platform for free, they happily take from the creators and small businesses that use their own,” an Apple spokesperson said.
Meta needs its own Roblox. If Meta wants to start setting up shop in what it believes will become the metaverse in 10 or even 20 years’ time, it will most likely need to develop a popular video game that can live on multiple platforms and maintain a consistent monetization strategy throughout.
- Without the fun factor (and kid-friendly appeal) of a Fortnite or Roblox, Meta has a slim chance of turning its Quest VR platform into its next fast-growing social network.
- Even when Horizon Worlds arrives on mobile, it’s going to need a hook to draw users in, and so far demanding nearly half of all creator revenue doesn't sound any more appealing than what already exists in the game industry. As of February, Horizon Worlds has just over 300,000 registered users. Roblox, on the other hand, has around 50 million people playing every day.
- Meta is open to changing its approach. “This will be a really iterative process,” Zuckerberg said in last week’s interview. “We'll see what resonates with the people using the worlds, and then we'll build the next round of tools.”
One solution would be for Meta to buy its way to a successful video game position by acquiring Roblox or a similar platform and integrating it into its Quest and broader social networking ecosystem. But the chances of that happening, in a regulatory environment that successfully killed its acquisition of Giphy, seem slim.
Instead, Meta will need to make Horizon Worlds a platform people want to spend time and money on. That will bring the creators, which in turn should start the financial engine of the metaverse that Zuckerberg seems so intent on capturing. Perhaps the company’s AR and VR advantage will eventually pay off in this respect, or maybe Horizon Worlds will indeed create experiences that are as engaging as Fortnite or those found on Roblox. But if it wasn’t certain before, it certainly is now: The metaverse needs video games, not the other way around.
— Nick Statt
“Do we need games to be bigger? No. Are some games going to benefit from being able to be bigger? Absolutely … I don't think there's a real connection between games being bigger and them being better or worse. It depends on the creators and how they want to spend their energy achieving their vision." —Patrick Bach, the managing director of Ubisoft Stockholm, expanded on the publisher’s new Scalar cloud technology that’s designed to more efficiently build even bigger game worlds and live service platforms in an interview with GamesIndustry.biz.
"Because [Soulstorm] slipped to April, we had the highest-downloaded game on PS5 and it was, I think, approaching ... close to 4 million units or something like that for free because they were all subscriptions. So for us, it was devastating." —Oddworld creator Lorne Lanning opened up about the perils of subscription gaming in an interview with Xbox Expansion Pass after the most recent Oddworld game launched onto PlayStation Plus to alarming success, and, as a result, undermined sales.
A MESSAGE FROM PwC
M&A and workforce reorganization can create a wealth of opportunities for companies seeking rapid growth, transformation and market expansion. In fact, 47% of executives say pursuing corporate M&As, joint ventures and alliances is their top growth driver in 2022. Unfortunately, nearly half of executives say talent acquisition and retention challenges are the biggest obstacle.
In other news
China bans livestreaming of unapproved games. Just a week after lifting its ban on new game approvals, China now says titles without the appropriate licenses from government authorities can’t be livestreamed on platforms like Bilibili and DouYu.
Microsoft is considering in-game advertising. The Xbox owner is looking into launching an ad platform that would make use of in-game billboards and other product placement spots within free-to-play games, according to a report from Insider.
Just a little more time for The Witcher 3. CD Projekt Red said last week it was bringing development on the next-gen update for its seminal role-playing game in-house, though the company claims it’s not stuck in “development hell.” There’s no set release date.
Elden Ring mints a modern-day legend. Discourse around FromSoftware’s Elden Ring rages on, and one of the best moments yet has been the rise of “Let Me Solo Her,” a player who helps random strangers best one of the game’s hardest bosses. The anonymous savior told IGN he’s carried more than 300 players to victory.
The Activision saga’s corruption twist. California Gov. Gavin Newsom last week denied interfering with a state agency’s lawsuit against Activision Blizzard after a bombshell Bloomberg report detailed the firing and resignation of two employees over apparent meddling from the governor’s office.
Buying a dumb TV is hard. TV makers are increasingly betting on recurring revenues from ad-supported services, making it a lot harder for consumers to buy TV sets that work without apps and connectivity.
Amazon is hiring for an unannounced AR/VR product. The company may have AR glasses envy, or it could be working on a product that will offer glasses-free immersive computing, according to new job listings.
Netflix is going all in on Exploding Kittens. The streamer is working on an animated show based on the card game and will also launch a related mobile game.
A MESSAGE FROM PwC
ProEdge can help you conduct a skill gap analysis across your organization and gain insights you can leverage to develop forward-looking plans while taking into account the needs of the entire enterprise, including individuals, teams and functions. In an M&A scenario, an upskilling program like ProEdge can also be used to uncover employees’ skills that weren’t utilized before
Blizzard shoots down NFT speculation
Blizzard has a storied history with aftermarkets, having operated the controversial Diablo III auction house for nearly two years starting in 2012 before player backlash forced the studio to remove it. But the developer apparently has no interest in revisiting the episode in Web3 form after a recent player poll stirred up the gaming community’s enduring hatred for all things blockchain.
The recent saga started when gaming publication VGC reported on the poll, which asked players about their interest in new technologies like NFTs and play-to-earn if they were introduced into Activision Blizzard games. In response to a tweet from VGC editor Andy Robinson, Blizzard President Mike Ybarra said, “No one is doing NFTs.”
Those are strong words from a high-ranking executive, suggesting we might never see an Overwatch NFT skin or a cryptocurrency-powered Diablo auction house. Over the long arc of time, it certainly seemed possible Activision Blizzard, even if the Microsoft deal is approved and the publisher joins the Xbox family, would dabble in some form of blockchain tech. Yet Ybarra seems confident this won’t come to pass, at least not under his watch.
Thoughts, questions, tips? Send them to firstname.lastname@example.org. Enjoy your day, see you Thursday.