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Protocol Gaming
Your essential guide to the business of gaming with Seth Schiesel and Shakeel Hashim.

Is VR finally going mainstream?

Quest 2

Hello! This week in Protocol Gaming, your weekly guide to the business of video games: Facebook's success with its new VR headset, Geoff Keighley's perspective ahead of The Game Awards, and what's the use of cloud gaming?

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The Big Story

Cloud gaming needs cloud games

What good is cloud gaming? How would you explain to a normal consumer why they should care if the game they're playing is computed in a server farm rather than inside the device in their hand or that box in the corner?

  • Right now, that message is all about the device. The various cloud gaming initiatives from Amazon, Google, Microsoft, Nvidia, Shadow and Sony differ in their business models, but for now they all share the same basic story: "You should care because you can play games you like on devices that couldn't play those games before."
  • OK that's nice, and it's true. It is amazing that cloud gaming works at all. Google's Stadia proved that this industry really can deliver a legitimate gaming experience streamed to a mobile phone or a browser on a potato-caliber PC, and with load times measured in seconds.

But that message seems only vaguely interesting to most actual gamers, which is why Microsoft, in particular, is talking about cloud gaming not as a standalone service but as one component of a larger ecosystem.

  • Real consumers — especially gamers — don't mind upgrading their phones, consoles and PCs once in a while.
  • The pitch about cloud as a revolution in game distribution and accessibility just isn't working.

Rather than devices, the compelling message would be about content: "You should care about cloud because the games are better." That's it. That is what gamers are waiting to hear: how cloud computing will make their games richer, more interesting and enable new forms of multiplayer interaction. Rather than distributing the same old games to new screens, the real promise of cloud will be realized when we start seeing brand-new entertainment experiences that could only be enabled by cloud resources.

And those may be coming a bit sooner than many people expect. Microsoft's leveraging its full technology stack to deliver the stunning new Flight Simulator was one step in this direction.

  • But I expect unexpected companies with significant resources to make unexpected and innovative moves to expand the concept of cloud gaming even as Sony and Microsoft release new consoles next month.

Of course, new uniquely cloud-based game experiences will come along with new advertising and monetization experiences as well.

Since its inception, cloud gaming has been about distribution. It should be about content. For more, check out this vital Twitter thread from Genvid CEO Jacob Navok.

— Seth Schiesel

Overheard

  • "Studios are much more difficult to fund than solo development work, and the avenues to financing this are limited in many places on the continent." — Sithe Ncube, who recently joined Humble's Black Game Developer Fund as a strategic adviser, said there was potential for the fund to boost game development in Africa.
  • "I don't have to go ship [Bethesda] games on any other platform other than the platforms that we support in order to kind of make the deal work for us." — Microsoft's Phil Spencer said the company's installed base was big enough to justify the ZeniMax acquisition without selling its titles on PlayStation. He also said he expects the $300 Series S to outsell the $500 Series X.
  • "What we are selling now may have provided some positive aspects, but on the negative side time has stood still in terms of production. We couldn't develop anything. That is where the impact will come." — Square Enix CEO Yosuke Matsuda said the pandemic's effect on the games industry will "resonate in the future."

A MESSAGE FROM MICROSOFT AZURE

Azure

Make next level games with Microsoft's own AAA-grade development toolbox, including the battle-tested solutions of Azure and PlayFab, powering some of the world's biggest games.

Learn more.

Level Two

Is VR finally going mainstream?

Since my Quest 2 arrived last week, I've barely left VR. And it turns out I'm not the only one.

By all accounts, the launch was a giant success. "We really couldn't be happier," Facebook Reality Labs' Chris Pruett told me. "The device is selling quite well," he said — "faster than Quest did" and "maybe a little bit beyond what we expected."

  • Developers I spoke to concurred. Rec Room head of community Shawn Whiting said that the Quest 2's launch was 250% larger than the original Quest's, noting that by 7 p.m. PT on launch day, there were more concurrent Quest 2 users in Rec Room than Quest 1 users. Cloudhead Games CEO Denny Unger said via email that Pistol Whip saw a "10x increase in sales since the Quest 2's launch."
  • It's not just that demand was high: It's that Facebook was able to meet it. Pruett said the company had worked hard to avoid the stock shortages that plagued the original Quest, and the spike in launch day traffic suggests that preorders tended to arrive on time.

And it seems these users weren't just upgrading from the original Quest. Rec Room's data showed that 80% to 90% of new users had never had a Rec Room account before, Whiting said, indicating that these were people trying VR for the first time. Pruett agreed: "I think most of these folks are new to VR."

The implications of that could be significant. "I think it's the best shot that we've ever had at VR going mainstream," Whiting said, with Unger noting that the combination of the technology and price point means the Quest 2 "has everything going for it to truly break into the mainstream." Skydance Media's Guy Costantini, meanwhile, called the release "another important milestone for VR," adding that "it's what our industry needed." After years of being a growing niche, this might finally be VR's iPhone moment.

That could reshape the industry. "As the ecosystem grows we're seeing larger and larger investments," said Pruett, pointing to the new Walking Dead title as one that "probably could not have existed in earlier generations of VR because the market simply wasn't large enough to support it."

  • As more people flock to VR and the potential revenue pool grows, Pruett expects more big developers to get involved. "Developers are pragmatic, and they've been waiting for the market to increase to the size where this sort of investment seems to make sense to them," he said. "I do think this is probably the inflection point." Since the Quest 2's announcement, he said, his team has been "inundated with requests … [from] developers that have been sitting on the sidelines."

The big question is now how large the VR market can get. On Twitter, analyst Benedict Evans suggested it was always likely to be a subset of the overall gaming market, given the intensity of the experience. The way Facebook talks, though, it has bigger ambitions: It clearly wants VR to be a new social platform. "Our intention is to make this device something that is very reasonable to find in any home," Pruett said.

This holiday season could provide a sense of whether that's likely. "We are anticipating aggressive growth leading into the holiday and into the new year," Unger said, adding that the device is in many ways "a perfect gift."

  • Having spent the past week with the Quest, I agree: It's remarkably easy to pick up and play, and games like Beat Saber, Superhot and Red Matter are stellar.
  • I've been impressed by the size of the catalogue, too, especially given the Oculus Link functionality; it's going to take a long time to get bored of this.

Whiting is also feeling bullish about the holidays, saying he expects Facebook to spend a lot on marketing the Quest in the coming weeks. Whether it sells will be a good test of if people actually want VR, he said. "If you can't sell a VR headset to people for $299, of this quality, during a global pandemic — I don't know what better shot or what better timing there could possibly be."

— Shakeel Hashim

Lootbox

  • That Microsoft/GameStop deal is more interesting than it appeared. GameStop told analysts that it will get a portion of all digital sales revenue on Xbox consoles sold by GameStop. It's unknown how much of a portion GameStop will get, though, with one analyst estimating less than 1%.
  • Video game spending was up 10% year-on-year in September, according to NPD data. Accessory sales particularly soared, with the $191 million spent last month up 30% YoY. That compares to an 8% increase in content spending.
  • On Protocol: Turner Sports launched an online blockchain golf game. The Ethereum-powered Blocklete Games is the company's first significant foray into actually developing video games, and is the first step in Turner's big blockchain plans.
  • Alliance Entertainment acquired GameFly and plans to use its distribution network to sell accessories and collectibles. In other deal news, Vungle bought AlgoLift, Virtuous acquired CounterPunch Studios, and My.Games bought a minority stake in Mamboo Games.
  • Playtika filed for a U.S. IPO. Earlier in the year, Reuters reported it was seeking a $10 billion valuation, which would be a significant boost from the $4.4 billion private equity investors paid in 2016.
  • 35% of gamers have a subscription service, according to a 13,000+ person survey by Simon-Kucher. Those numbers vary significantly from region to region, though: In the U.S., it's only 20%.
  • AOC is a Twitch streamer now. The politician plans to play Among Us tonight, as part of her get out the vote efforts. Professional streamers Pokimane and Hasanabi appear to have bagged a coveted slot to appear on the stream.

Five Questions For...

Geoff Keighley

Every week we ask a leading industry figure five questions. Geoff Keighley, founder and producer of The Game Awards, is the best-known media personality in gaming. The 2020 Game Awards will stream live on Dec. 10.

What was your first gaming system?

My first gaming system was an IBM PC in the mid-'80s. First I learned how to read with the game Reader Rabbit, and then started playing the early adventure games from companies like Sierra On-Line like Space Quest and King's Quest to improve my reading! Not long after I started playing on the Nintendo Entertainment System.

What is the most important trend in the game business in 2020?

It's exciting to see the proliferation of cross-platform play and content. Games should be more accessible in more places to more people. For so many years I would get frustrated when I was traveling and couldn't play my consoles and games on the road. Now with cloud and mobile, the barriers are coming down. One day soon I can just pack up my PlayStation or Xbox controller in a suitcase, and start playing my console game on a hotel room TV or certainly my mobile phone. When you combine this shift with new business models like Game Pass and free-to-play games, there has never been so much content for fans to sample.

What has been the most overlooked aspect or development in the game business over the last year?

It's exciting to see games and gaming technology power more and more of entertainment. Travis Scott's Fortnite concert was a watershed moment for our industry, and it's fascinating to see the Unreal game engine power virtual events and TV shows like "The Mandalorian."

2020 is the year when the wider world has come to realize that games and game technology are at the center of all entertainment. It's easy to look at this industry and only see it as being about competition and skill, but there's a much larger opportunity for interactivity and game technology to sit at the center of all entertainment.

There's been a lot of talk about the "metaverse," and it's finally starting to emerge.

Games and game technology are the evolution and the next phase of social networks. The real question is whether the top social networks become more like games, or if games end up leapfrogging the social networks over the next five years.

What new technology or technical development are you most looking forward to?

As a big fan of narrative or story-driven games, I'm excited how advances in artificial intelligence will intersect narrative to create truly emergent and replayable stories. Imagine the narrative richness of a game like The Last Of Us Part 2, but with a flexible plot and procedurally generated dialogue. Back in 2014, Ken Levine (creator of BioShock) gave a great talk at the Game Developers Conference about what he called "narrative Lego blocks." I think we're on the verge of some pretty exciting developments in this space that will impact traditional story-driven games and also online experiences. We aren't that far from "Westworld."

What games are you playing recently?

I've been spending a ton of time playing Fall Guys over the past few months; it's fun to see a pick-up-and-play game get so much traction. Among Us has also been a huge discovery. It's inspiring to see that a team of three developers can build something that successful. But honestly the game I've been playing the most the past month is Super Mario All-Stars for Nintendo Switch. Mario 64 is one of my favorite games of all time. It holds up incredibly well in 2020. Nintendo's games are timeless.

Look Out For

Atari is back in the console game

Atari has a plan for going up against Sony and Microsoft this holiday season: blockchain. Its new Atari VCS device will let users spend its new Atari Tokens cryptocurrency on in-game purchases, part of a broader plan to create an industry-wide currency. Nostalgia plus crypto: It's the perfect 2020 product.

— Shakeel Hashim

A MESSAGE FROM MICROSOFT AZURE

Azure

Make next level games with Microsoft's own AAA-grade development toolbox, including the battle-tested solutions of Azure and PlayFab, powering some of the world's biggest games.

Learn more.

Thanks for reading. Tell your friends and colleagues to subscribe here, and send tips, feedback and ideas to sschiesel@protocol.com and shakeel@protocol.com. See you next week.

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