A GameFi Future: The Current Dilemma with Gaming
This is the first part of our article series, A GameFi Future, where we discuss the pros and cons of blockchain technology as it pertains to the gaming industry as we know it today.
In this first article, we’ll explore the history of gaming from the perspective of its ardent players, its explosive growth over the past decade, and some of the hidden issues that plague the industry and its consumers today.
Going Digital
Over the past decade, video games have seen a meteoric rise in popularity that no other form of media or entertainment has in history. Once a weekend pastime for kids or the quirky enthusiast, gaming is now much more than that, providing some with a way to connect with friends around the world and others with an entire career with which to support their personal lives. Before 2010, consumer media was grossly dominated by cable television, film, and music; now, video games alone outperform film and music combined. According to Statista, video games, not including eSports, accounted for $160 billion in media revenue worldwide, second only to paid television and television advertising.
Today, it seems almost obvious in a post-pandemic society that video games, the content they breed, and the communities they form are generating unfathomable success for all parties involved.
The cultural transition that game consumers experienced in the public eye is actually, more than anything else, a technological one. Over the past 10 years alone, things have changed tremendously. Across all genres of games, the distribution of video game experiences has shifted from physical devices – disks, cartridges, and memory sticks – to digital channels like download portals. This meant that customers’ purchasing appetites were no longer limited by physical inventory, and users could buy games from the comfort of their own homes. In fact, these days, people rarely – if at all – purchase a physical copy of a game, with 43.6% of all US console games created in 2021 being exclusively digital. If you remove the major publishers from the equation, that percentage rises to 91.3%.
With the advent of digital downloads and – interestingly enough – the mobile gaming power provided by smartphones came the “free-to-play” business model. Game producers and developers could onboard more users to play their games at zero initial cost and, instead, offer in-game buyable content to supplement the passive income generated by in-game advertisement – weapons skins, story-expanding content, character costumes. You name it, they sold it.
The market didn’t just boom – it exploded thanks to this new business model. By 2018, $4 out of $5 earned by the video game industry were generated via the free-to-play business model. According to Mat Piscatella, executive director of the market research giant known as NPD group, in-game content – DLC, microtransactions, and subscriptions – in particular led the free-to-play model to the success it enjoys today, accounting for nearly 60% of all non-mobile video game content spending in the US in 2021. It isn’t an understatement to say that the gaming industry is bringing more commodity to the average gamer than ever before, and the demand for it is rising too.
Unfortunately, despite the fact that we pay literally billions of dollars more for our gaming fix than we did back in 2010, the fact stands: we still don’t own anything.
Wait, I don’t own it?
Yep, that’s right. That digital copy of Fortnite where a player – let’s call him Jimmy – logged 500 hours of play time and spent an equivalent number in US dollars for V-Bucks isn’t actually his – not legally, at least.
What happens in the case of a digital purchase and download of a new video game is actually a matter of licensing. Essentially, every game developer publishes its terms of use, and more specifically, its End User License Agreement (EULA). This document contains all the fine-print that no one in their right mind would read for fun; in it, every game publisher indicates that their product and services “are licensed to you, not sold.” Per the words of EA’s term’s of use documentation, which are by no means singular to them, “[company] grants you a personal, limited, non-transferable, revocable and non-exclusive license to use the [company] services to which you have access for your non-commerical use…”
In short, the game you bought, the skins you paid for, and the 30-second dance your in-game character does while standing next to a defeated enemy are the property of the game developer, not of you. At any point, the game developer has every right to pull the plug on the game, its online community, and all of the assets for which real money was exchanged.
Why should I care?
For so many casual gamers, the truth about game “ownership” being a matter of licensing does not raise any immediate concerns. We have already been playing numerous online multiplayer games for nearly a decade at this point; why should we worry at all?
Upon digging a bit deeper into the digital game industry, the issues become abundantly clear. Put simply, it’s unsustainable.
For many game economies, both free-to-play and paid, the flow of money in exchange for in-game goods and services follows a unidirectional path directly to the developer. This is also known as a “command” or a “planned” economy – one in which a governing body (the developer) controls the means of production (the creation and distribution of in-game assets).
A Faltering Marketplace
The issues elicited by this kind of game economy are two-fold for players. The first of these is that players are limited in their ability to transact within a command economy. In market economies, which allow for trading and maintain competition between vendors, consumers are privileged with choice – the choice to choose from whom they purchase their goods and services, the choice to sell off unused or unwanted items to recoup financial losses, and the choice to price their belongings according to their own terms. The list goes on and on.
In the marketplaces that games provide their players today, there is only the choice to opt in or to opt out of purchasing from a limited selection of fungible items. In turn, players find themselves growing weary of the same marketplace they’ve frequented over and over again; they lose interest in the patterns their vendors repeat when curating items for sale, and they ultimately decide that there is no further utility in spending their money for the same consumer experience over the long-term.
The second glaring issue of a command economy results from the first; the diversity and agency that game developers’ marketplaces withhold from their players is sought after in what are known as grey marketplaces. These are third-party resources that will allow them to transfer purchases or exchange their in-game assets for other valuable resources or even fiat currency.
The issues that can arise from the use of grey marketplaces are numerous. First, “grey market” transfers often occur via social media or third-party marketplaces like eBay, where sellers and buyers can exchange sensitive and identifying information. This exposes players and the game systems they come from to scammers and hackers, who capitalize on users’ gullibility, their desire to transact at a lower cost than possible with the game developers, and the demand for scarce, highly-valued items that official marketplaces have long since depleted from their stores. These pernicious actors rob players of their money, data, or their identities, and prevent developers from earning the revenue they deserve.
Third party marketplaces also often support gambling features, for example Bitskins, c5game, and GM2P. These websites were incredibly popular for enabling skin and lootbox gambling for CS:GO weapon skins, a wildly lucrative aftermarket asset for the game. These websites utilized Steam’s OpenID API to verify users’ Steam accounts, even though such use was prohibited by Steam’s Subscriber Agreement. Valve Corporation, the developer of the Steam Community marketplace, has consistently endeavored to curb this activity, but has never completely succeeded in doing so.
While issues of ownership and the advent of alternative, unprotected commerce plague different gaming ecosystems to a varying degree of detriment, every online multiplayer game runs into them at some point in their life cycle. Eventually, each game experiences the disintegration of its ecosystemic appeal and thus the loss of its user base. Blockchain technology provides a potential solution for enabling true ownership of in-game assets, both enabling players to better control their own experience and also permitting developers to foster a sustainable economy and ecosystem for their games. The path forward necessitates challenging and novel changes to the way games and their economies are constructed, but the potential benefits make the endeavor worthwhile.
In our next article, we’ll observe how blockchain technology serves to address these issues and present new qualities to the player’s experience that we had never known we wanted.
Reference:
https://unsplash.com/photos/hUD0PUczwJQ
https://www.statista.com/statistics/1132706/media-revenue-worldwide/
https://www.techradar.com/uk/news/gaming/from-floppy-disks-to-freeware-the-history-of-f2p-gaming-1248467
https://www.gamepur.com/news/almost-60-of-video-game-sales-in-2021-were-from-dlc-microtransactions-and-subscriptions
https://katusaresearch.com/how-video-games-make-hundreds-of-millions-of-dollars-per-month-in-microtransactions/
https://www.techradar.com/news/pc-game-ownership-in-the-digital-age-what-do-you-do-in-a-post-ownership-age
https://www.reddit.com/r/gaming/comments/k9gf6t/the_cyberpunk_2077_end_user_license_agreement_is/
https://www.investopedia.com/ask/answers/032515/what-are-advantages-and-disadvantages-command-economy.asp
http://www.differencebetween.net/business/difference-between-free-market-economy-and-command-economy/
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