Protocol Gaming
Your essential guide to the business of gaming.
Photo: Resolution Games

VR needs a better business model, but advertising isn’t it

A screenshot from the Oculus game Blaston

This week in Protocol Gaming, your weekly guide to the business of video games: Facebook learns the hard way why it's too early for VR ads, a tasteless gaming press event creates a firestorm, and WitcherCon will be about a lot of things … except for updates on upcoming games.

It's too early for VR ads. Facebook found out the hard way.

A screenshot from the Oculus game Blaston Facebook's attempt to test ads inside VR hit immediate opposition. Photo: Resolution Games

Facebook's quest to experiment with advertising in virtual reality took on the familiar three-act structure of tech backlash.

The test was announced on June 16 and caused reasonable concern among critics and players over the ensuing three days. By Monday of last week, the only game developer signed up to test ads — Blaston maker Resolution Games — pulled out. It leads us all to wonder why none of the smart people in charge at Oculus didn't see this coming.

The test crashed before it even started. It's now unclear how Facebook intends to proceed, but players have made their voices heard loud and clear.

  • Resolution was the first to break the silence. "After listening to player feedback, we realize that Blaston isn't the best fit for this type of advertising test," the developer wrote on Twitter. "Therefore, we no longer plan to implement the test."
  • The developer was fast becoming a focal point of the criticism, suffering a barrage of one-star reviews for Blaston (a $9.99 game) on the Oculus Store. "Blaston is getting uninstalled forever and I'm not gonna buy a single game from this company from now on," wrote one enraged fan.
  • Facebook gave a feeble defense of the test, saying in a statement, "Ultimately, opening up new revenue streams for devs will help us to unlock new types of content on the Oculus platform and offer products at consumer-friendly prices." Resolution may now shift the ads to its free-to-play game, Bait!

VR and advertising have had a rocky relationship. This was Facebook's most high-profile attempt to test the advertising waters with its VR platform, and it's been a resounding failure. A cursory look at the history of Oculus should have told Facebook executives this was bound to happen.

  • Oculus co-founder Palmer Luckey said in 2014, following the Facebook acquisition announcement, "We are not going to track you, flash ads at you, or do anything invasive." Luckey is no longer at the company, and Facebook is now controversially forcing users to link a Facebook account with their Oculus profile by 2023.
  • While video games have included more and more in-game ads over the years, players associate those ads with free-to-play mobile games more than any other category. Premium, non-VR games have instead resorted to brand tie-ins and other forms of more subtle marketing. Ads in VR, however, have long carried a dystopian flavor.
  • It seems inevitable that the coveted combination of VR and the metaverse will contain ads, yet Facebook's reputation makes the format extremely unpalatable, especially on a pricey headset and within paid games.

VR's business model is an open question right now. That's increasingly true as Facebook, an advertising company, is becoming the biggest force in the fledgling market, scooping up the most popular developers for its Oculus platform in a way that resembles its push to control digital communications technologies a decade ago.

  • Earlier this month, Facebook bought its fifth major Oculus developer, Population: One studio BigBox VR. Facebook now owns the makers of many of the most popular games on its platform, raising concerns it's establishing close to a monopoly on the software side of VR long before it goes mainstream.
  • Facebook could, if it chooses, begin experimenting with business models on its first-party VR titles, making some free to play and filling them with ads. There are plenty of other options, too, from subscriptions to more bite-sized indie experiences priced like paid mobile apps.
  • But without the financial safety net of Facebook or Sony, few VR developers can find success right now due to how nascent the market is. That gives Oculus more control to set the terms for how VR software monetizes going forward.

Facebook's primary issue is presiding over a dominant VR ecosystem that costs a lot to operate, doesn't make a lot of money and is mostly made up of enthusiasts who aren't sympathetic to pragmatic arguments about how to grow and fund the market. This audience right now is mostly distrustful PC gamers for whom getting in bed with Facebook is akin to a deal with the devil.

All of this is in conflict with Facebook's strategy of giving away stuff for free and funding it with targeted ads while hoping users respond to its business model with apathy. It's not clear how the Oculus platform evolves from here if Facebook isn't willing to continue floating it for years or doesn't find a more consumer-friendly mechanism for extracting money. It is still early days for VR, but perhaps a bit too early to rely on advertising to pay the bills. Let's hope there's a better way.

Overheard

"In this light, the solution seems simple: Organize the video games industry. If there were a video game developer's union as powerful as the Writers Guild, with agreements with all the major publishers, game development would be a vastly different career, and many of those problems seemingly endemic to game production might suddenly seem less intractable." —The New Republic's Alex Pareene laid out a smart, impassioned defense for unionizing the dysfunctional game industry in his review of Jason Schreier's new book, "Press Reset."

"Respect and tolerance are keystones of our company's culture and we were distressed to discover that an event meant to be fun and engaging for participants had instead caused offense for some attendees." —Sniper: Ghost Warrior developer CI Games apologized for a San Diego press event in which journalists were invited to participate in mock firefights again enemies based largely on Arab and Muslim stereotypes. The company, based in Poland, said it was unable to oversee the event directly due to COVID-19 travel restrictions.

A MESSAGE FROM MICRON

Recently, Micron announced new memory and storage innovations across its portfolio based on its industry-leading 176-layer NAND and 1α (1-alpha) DRAM technology. But what does "1α" mean, and just how amazing is it?

Learn more

Lootbox

On Protocol: Microsoft announced a new policy last week alongside its Windows 11 announcement allowing PC app developers to bypass its store commission if they use their own third-party commerce system — but Microsoft isn't extending that option to game developers.

Epic Games extends multiplayer tools to all developers for free.
The Fortnite maker said that anti-cheat software and voice chat technology it developed for its own titles can now be freely added to any game, as part of the Epic Online Services toolkit.

PUBG's parent company scrambles to fix China data sharing.
Krafton, the company in charge of the popular battle royale series, said it was taking "immediate" action to remedy data sharing with Chinese servers on the newly relaunched version of PUBG Mobile in India, IGN reported, amid growing tensions between the two countries.

ByteDance is tapping TikTok influencers to promote its own mobile games.
The social media juggernaut launched a successful ad campaign on Douyin (the Chinese version of TikTok) to draw new users to its new mobile game based on the popular Japanese manga and anime series One Piece, The Information reported.

Marvel's Avengers bug inadvertently doxxed streamers.
The Square Enix online multiplayer title was exposing IP addresses of PS5 players with an onscreen overlay, creating a security risk for streamers. The developer advised against streaming the game, yet it took the company nearly a full day to fix the issue with an emergency patch.

Tencent's TiMi Studios will open its doors in Seattle.
The studio best known for developing hit smartphone games like Call of Duty: Mobile and Honor of Kings is expanding its U.S. footprint with a new studio in Seattle opening later this year, TiMi told VentureBeat last week. The team will focus on big-budget console and PC games, as Protocol first reported earlier this month.

Microsoft ends its Cyberpunk 2077 refund offer.
The troubled action RPG won't be eligible under a unique Xbox refund policy starting July 6, The Verge reported. Those who want refunds may still be able to get them, but Microsoft said on a support page update it will start treating digital purchases of Cyberpunk 2077 like any other game.

VRChat secures an eye-raising series D.
The social VR app has raised $80 million in a new funding round to help turn VRChat into a proper creator platform, GamesIndustry.biz reported on Friday. The company plans to "expedite development of a creator economy where members can earn." It also plans to expand to more platforms.

On Protocol
:
Discord on Monday scooped up AR startup Ubiquity6, which was in the process of building a video chat app called Backyard that offers integrated multiplayer mini games. The app was still in beta and was shut down last week, but the team at Ubiquity6 says they're "excited to share more in the coming months about bringing the best of Backyard to Discord."

A MESSAGE FROM MICRON

Recently, Micron announced new memory and storage innovations across its portfolio based on its industry-leading 176-layer NAND and 1α (1-alpha) DRAM technology. But what does "1α" mean, and just how amazing is it?

Learn more

The Witcher franchise gets its own multimedia extravaganza

Despite the size and influence of the gaming industry, it's still quite rare to see a game series break into the mainstream. But that's exactly what CD Projekt Red accomplished with The Witcher, turning a cult classic Polish fantasy book series into a sprawling multimedia universe that next month will get its very own convention, aptly called WitcherCon.

CDPR is running the all-digital event with Netflix on July 9, so expect to hear quite a bit about the upcoming season two of "The Witcher" TV show. Unfortunately, die-hard fans might have to wait a little longer for more info on whatever the studio is cooking in the game department; the event's website says not to expect any reveals about Geralt's future gaming exploits. At least Henry Cavill is on the schedule.

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