The Renaissance of Gaming
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The resilience of the gamer spirit was on full display last week. Despite the smog coming down on the Northeast, the regulators assailing the web3 space, and the crypto market running red, players were full of excitement. There were new games to try and worlds to explore:
- 3XP the first web3 gaming conference brought the industry together in LA.
- Blizzard went all out to ensure a historic kick-off for Diablo IV.
- Ava Labs and Fractal presented initiatives to help bring more games into web3.
- The SEC launched another attack on the industry and involved gaming.
- Esports saw more tensions between players and publishers.
- OTK may have started a new publishing trend with Mad Mushroom.
Let’s dive in!
The First Web3 Gaming Expo Was a Success
Hats off to Chris Gonsalves and his team for pulling off a great event with 3XP. In his opening speech, the founder of Community Gaming, said that gaming is going to catalyze the 2024 bull market. Those were welcome words for those in attendance.
Studios working in web3 have faced skepticism, derision and outright contempt as the spaced faced the fallout from the missteps of early play-to-earn. However, last week in LA it was clear that a new wave of games was getting ready to compete for players’ attention.
Avalanche and ImmutableX-Polygon confirmed themselves as the clear leaders when it comes to gaming ecosystems in web3 and showed off some exciting titles. HyperPlay showed up as the go-to launcher, capitalizing on the announcement of the $12M raise.
Two of our portfolio companies showcased their games: MetalCore and Lords of Light. It was amazing to hear the excitement from gamers after their play-tests. I could not be more proud to be part of the journeys for Studio 369 and Raini Studios.
3XP was a much needed event. It allowed game developers, content creators, publishers and investors to come together, take stock of all that has been achieved and start to chart a path forward. I can’t wait for the next event!
Blizzard Pulled Out All The Stops For Diablo IV
After a slew of underwhelming releases over the past few weeks, Diablo IV had an epic launch. The game already became Blizzard’s fastest selling, and looks poised to do well going forward.
This was not only a monumental development effort, but also a masterclass in marketing. From the immortalization of the first 1000 players to reach level 100 on the Lilith statue, to the now iconic NYC billboard, to Megan Fox eulogy readings, Blizzard has been timely and on point.
However, the publisher has also been on the ball with updates. A patch with a class rebalance went in just before the official launch, and development of two extensions is already underway. So, it looks like there will not be a shortage of content for the game.
Studios in web3 should take note. While most will not be able to wield the same marketing budget as Blizzard, a thoughtful approach to play tests, early access, timely marketing stunts and liveops can go a long way.
Paving The Road For Traditional Studios
More and more experienced game studios and publishers are actively exploring the web3 space. However, no matter how accomplished a team is in the traditional space, the new tech stack and open economy principles present a unique set of challenges.
Teams that have been working in web3 for a while know the real issues, and have been trying to develop relevant solutions. Fractal recently came out with FStudio to help teams monetize and distribute their titles.
As more games hit the open alpha stage, more mindshare is dedicated towards user
acquisition, and Fractal thinks its tools can help with that.
Ava Labs approached the problem space from a different angle trying to make it easier for publishers, who have large gaming portfolios and established distributions, to integrate web3 into their stacks.
Their new Arcad3 initiative aims to bring together established publishers with teams who have experience in web3 to help prevent flops like the ones the industry has seen in the past. The opportunity for guidance coupled with non-exclusivity could bring more games to Avalanche.
SEC Nicks Games in The Attack on Binance and Coinbase
The market took a beating after the news that the SEC was suing the industry’s two biggest centralized exchange players. The regulator’s enforcement action coupled with a lack of (and seeming unwillingness to provide) regulatory clarity has been the target of much criticism.
The most recent lawsuit classifies a number of gaming ecosystem tokens, including SAND, AXS and FLOW as securities. This could significantly impact the go to market and token issuance plans for many gaming teams in web3.
Price of Sand Token
The integration of an open economy token has been a challenging endeavor for studios. The industry has seen a number of shifts in model preferences, for instance from two token to single token designs, without a provably scalable example to point to.
More and more I hear that teams look to forgo utilizing a fungible token while maintaining NFTs. The new regulatory assault may strengthen these voices. If nothing else we are likely to see TGEs get delayed, especially for teams targeting the North American markets.
However, studios are also looking for capital and with a challenging fundraising landscape, some are looking to token sales as a source of revenue. Moreover, a number of investment companies built their strategies around deploying into tokens and could now be stuck.
The industry is gearing up for a legal battle, but if Ripple’s story is any indication, this is going to be a long fight. In the meantime, the gaming vertical in web3 may experience more of a capital crunch.
During the panel that I took part in at 3XP, one of the sentiments that was often echoed is the need for resilience and scrapines from both founders and investors. More than ever, we will need to be there for each other, but as they say: “the night is darkest before the dawn”.
Trouble in Esports Highlights Publishers Disconnect with Gamers
The drama between LCSPA and Riot was somewhat resolved, as the parties reached an agreement that will allow for Summer Split to kick off on June 14. The Player’s Association was able to get some protection for players, such as severance pay and healthcare availability.
The deal, however, falls short of the initial LCSPA goals and the MOU regarding meetings and notice periods seems questionable when it comes to enforcement. Compromises often delay conflict resolution especially when the root of the problem is not addressed.
At its core the issue is the lack of respect publishers have for players. This came up recently in a Pokemon tournament in South Korea. Pokemon Korea canceled the finals to prevent a Metronome protest by the finalists over conditions, compensation and lack of respect.
Most recently, Activision removed NickMercs Bundle from CoD because of a controversial tweet. While the comment was criticized by many, and it continued a string of PR debacles for Faze Clan, the publisher’s move also raised many questions and concerns.
Publishers seem intent on proving to players that they have no rights in the gaming ecosystem even though it would not exist without them. In this environment web3, with its citizen-gamer ethos and an open economy, may start to resonate quicker with traditional gamers.
A New Kind of Publisher
Influencer marketing is playing an increasingly larger role in the success of games. Streamers have a more direct relationship with their fans, and so the recommendations they make and the games they play carry a lot of weight in the gaming communities.
This makes content creators an ideal distribution channel and a rival to the traditional publishers. The recent launch of a publishing house, Mad Mushroom, by OTK may be a sign of things to come.
We have seen content creators try to create publishing platforms in the past. There have also been attempts by esports brands and guilds to wade into content creation, to take a more active role in game distribution. To this point success has been limited at best.
Nevertheless, there is no denying a shift in game discovery mechanism is happening. Gamers listen to streamers. Moreover, the abusive power trips traditional publishers go on have been exhausting gamers.
OTK focus on indie studios could help show the way for leveling the playing field a bit. There seems to be a natural fit for web3 games in this paradigm, so it was nice to see a web3 enabled title, Tollan Worlds take part in the recent OTK Games Expo.
In the end, if content is king, why can’t content creators be king makers.
This wraps it up for this entry. As always, if you are working on something exciting in the web3 gaming space, or are a traditional gaming team looking to explore the possibilities, don’t hesitate to reach out to any of us at Sanctor Capital. Have a great rest of your week!
Ilya Abugov (@AbugovIlya)
Disclaimer: This commentary is not investment advice. It does not purport to include any recommendation as to any particular investment, transaction or investment strategy, or any recommendation to buy or sell any investment. It does not reflect any attempt to effect any transactions or render any investment advice.
This post is solely for informational and entertainment purposes. It is inherently limited and does not purport to be a complete discussion of the issues presented or the risks involved. Readers should seek their own independent legal, tax, accounting, and investment advice from professional advisors. The views reflected in this commentary are subject to change at any time without notice.
