Reading Time: 10 minutes

Hi Everyone — This week’s issue is a bit different. To kick off 2022, we’ve gathered predictions from across the Naavik team to forecast how this year may change the gaming industry as a whole. Do you have a bold prediction of your own? Or maybe agree /disagree with one of ours? Hit reply and let us know your thoughts.

The Metacast Roundtable #32: The Sandbox Deconstruction, Women in Games, and What’s Next For Dapper Labs

In this Metacast episode, Maria Gillies, Jayne Peressini and Aaron Bush join your host Nico to discuss:

• Naavik’s The Sandbox Deconstruction

• Women in Games

• What’s next for Dapper Labs

You can find us on Spotify, Apple Podcasts, Google Podcasts, our website, or anywhere else you listen to podcasts. Also, feel free to shoot us any questions here.

#1: Our 2022 Industry Predictions

Subscription Services Will Proliferate Across the Industry

In 2022, I predict there will be a heightened focus on subscription business models (with notable ripple effects), and, more specifically, PlayStation will make some big moves to increasingly solidify its own long-term subscription business beyond PS+. Xbox Game Pass is leading the charge with 25 million users, not to mention the fact that (if we count Activision Blizzard, which closes next year) it has 30 studios building exclusive games that will be roped into Game Pass, included on Day 1. It's a tremendous value proposition for customers, and it's going to be an increasingly important dimension of competition in the console/PC world. In response to Xbox's growing ecosystem, this year Sony will reveal PlayStation's tiered subscription ambitions, and they will announce one or two multi-billion dollar studio acquisitions (likely targeting big and diverse AAA IP — perhaps Ubisoft or Square Enix). Interestingly, these moves may also accelerate PlayStation's footprint into mobile, could push PlayStation to bring more games to PC sooner, may impact the PSVR2 pipeline, and it could very well send us down the path where the "console wars" become "subscription wars." Plus, the more consolidation continues and IP gets torn between certain consoles, the more likely we'll see these subscriptions offered on non-proprietary hardware (such as Xbox Game Pass existing on PlayStation and vice versa). I'd be shocked to see this occur in 2022, but if PlayStation and Microsoft continue their M&A streaks then it's certainly plausible in the following year or two.

Lastly, even though Microsoft and Sony will be the center of the subscription action, we can't ignore Netflix, which operates an even larger subscription business. Netflix will likely start making more aggressive gaming moves in 2022. It's hard to say what they'll acquire, who they'll license with or who they'll hire, but they'll almost definitely make big headlines. Others — Steam, Nintendo, Epic, etc — are less likely to move towards superior subscription models in 2022, but the more that other parts of the industry shift the more likely it is that others follow suit (to some degree). (Written by Aaron Bush)

M&A Activity Will Continue to Rise in 2022

Last year, in the Q1-Q3’21 InvestGame Gaming Deals Report we saw that in the first nine months of 2021 more deals had happened than in the full 2020 (667 vs. 664), bringing 72% more in value than that of the whole 2020 ($57.7B vs. $33.6B); 224 M&As of those 667 deals accounted for $27.9B — nearly half (48%) of that total closed deal value! And I remember thinking then: wow, 2022 is probably going to be even bigger, with more companies hunting for teams, IPs, and business synergy. Little did I know…

This January we were gobsmacked by the Take-Two & Zynga $12.7B deal, and then, having not yet fully recovered, thunderstruck by the Microsoft & Activision Blizzard $68.7B acquisition, which has been discussed far outside the usual gaming community. This is, of course, not to mention other M&As, like the most recent Stillfront & 6waves $201m announcement. Clearly, the gaming industry is hot right now. My prediction is that we’ll see an even more intensive M&A deal activity in 2022, with at least one deal topping MSFT-ATVI value-wise, and at least one of the participants being either Apple, Amazon, Sony, Google, Disney, or Netflix. (Written by Anton Gorodetsky of InvestGame)

Gaming Will See Increased Public Scrutiny

The games industry will come under increased public scrutiny in 2022 as a confluence of issues draw mainstream attention.

The recent spate of mega-acquisitions (Microsoft & Activision; Take-Two & Zynga) and potentially other M&A activity to come (either in response to Microsoft or post-IDFA deprecation) will increasingly attract the attention of antitrust regulators, particularly in the U.S.

Mistrust in AAA publishers from gamers and industry workers alike will keep the public spotlight on workplace conditions, pushes for unionization, and repeatedly delayed releases. I expect this to be amplified if the aforementioned M&A activity results in any significant employee layoffs.

Continued criticism of “loot boxes” and other F2P monetization methods will overlap with the growing chorus of anti-NFT sentiment. Web3 games will continue to be lumped in with the “NFTs = scam” narrative as early backlash from countries like South Korea dampens consumer adoption. (Written by Matt Dion)

Gaming Will Become a Market-Expansion Strategy

It won’t be enough to just build a games company anymore. Games will be a wedge into other consumer or commerce lines of business.

Coming out of 2021, one my biggest inspirations was Garena Free Fire and how Sea built an enormous and fast-growing commerce enablement and fintech ecosystem. They won’t be the last company to do this: Riot Games is demonstrating masterfully a playbook on bridging IP to new forms of content; Sky Mavis built Ronin to 1) power its own ecosystem but 2) become the marketplace and infrastructure for other games; Blockchain-based games also have robust DeFi components to them; And, Carry1st has leveraged its platform into a fintech offering and consumer on-ramp in Africa. What’s next?

2021 has shown us that games increasingly have become “venture-backable” projects. The games that are able to attract the most users to their platforms will have the greatest opportunity to expand into non-gaming SKUs (outside of multiple game IP), should they choose. And I predict we’ll start seeing more of these types of companies — where games are a wedge into other ambitions — more in 2022. (Written by Fawzi Itani)

Blockchain Games Will Need More Time to Mature

I predict that by the end of 2022, Axie Infinity will still be the most successful/popular Blockchain game.

Building a fun game takes time. During 2021, we saw hundreds of teams shift their focus towards building a crypto game. And those 'Axie killers' won't be finished within the next 12 months. Sky Mavis has a number of advantages:

• Huge head start, as they've been building & iterating since 2018.

• They have managed to onboard millions of players into their Ronin ecosystem, switching costs are high.

• The team knows that the current model is unsustainable, and will implement a number of fixes in the next year.

2022 is not the year in which blockchain gaming will go mainstream (100M+ players), and by the end, Axie will still be on top. (Written by Nico Vereecke)

Blockchain Games Will Take A Page from The Broader IndustryMy prediction is that 2022 is the year where blockchain games meet the reality of the “normal” games market. So far they had all the money and attention “for free” as enthusiasts piled in both as investors and as players. This year, as some of these projects mature, is when they will learn about user acquisition and associated costs, as well as about competing on actual quality gameplay as opposed to gamified investing. (Written by Florian Ziegler)

Token-based Gaming Valuations Will Balance Out

My prediction is that we'll continue to see positive fundamentals (higher wallet counts, volatile but growing transaction volumes) but see lower valuations for gaming tokens as the hype cycle begins to hit and unsustainable game economies burn token holders. Another (maybe too bold) prediction is that IMX will be one of the best relative performers in 2022. Illuvium's FD market cap is greater than IMX's right now. Illuvium is built on Immutable X. Ember Sword and Guild of Guardians are also set to release on IMX this year. This could be a big year for them. (Written by Jimmy Stone, Managing Partner of Alderbrook Companies)

New Studio Launches Are Imminent

Fueled in part by recent IPOs and acquisitions, we will see a lot of new studios pop-up. Many of which are mission-driven, giving them an advantage in the fight for talent. Companies will have to further adapt New Work models to retain employees in a post Covid-19 world. An example of this is Matt’s recent piece on gaming DAOs as an exploration into new models of work and game development. (Written by Franziska Zeiner)

Gaming IP Will Rise to Prominence

Gaming IP will continue to grow in influence, dwarfing all but the most successful traditional media businesses.

In recent years, the media industry has celebrated brands like Disney for successfully growing their IP-powered flywheel into the 21st century. The company already used its content to power IRL interactions and merchandising, entering into the competitive landscape of live-streaming to the level of success the company has seen is nearly unheard of. Just look at what Riot did with Arcane, Fortnite partnerships, multiple games, etc — this is truly a transmedia company.

As Matthew Ball discussed in an article back in 2020, brands like Nintendo, Fortnite, and Roblox all have that same potential, and 2022 will be the year they take concrete steps towards fulfilling it. Industry leaders like Roblox and Fortnite are already deep into merchandising with toys at big box retailers, and Nintendo already has their first theme-park (and a movie on the way). The interactivity that gaming provides its players offers an easier and more effective way for up and coming gaming IP to build affinity amongst customers. Why couldn’t Disney be overtaken by our favorite gaming characters? (Written by Max Lowenthal)

Hypercasual Games Will Take Over Advertising

Hypercasual-led creatives will be the new norm for advertising.

Let’s forget about the persona led creatives everybody talked about due to IDFA deprecation. Instead, Let’s focus on adapting hypercasual game concepts to your game: for instance, ASMR slicing videos vaulted ASMR Slicing into a big hit. There are other concepts to use for games like Tangle Master 3D, Crowd City, etc. I predict that this type of creative will flourish in 2022.

The great thing is that there are new ones popping up every day! This game concept is now used by Warpath and other strategy games. Topwar, merge strategy game is leveraging hypercasual game concepts for creatives and I’ve also seen Playrix go into this direction. Gaming companies will do everything to decrease those CPIs! (Written by Matej Lancaric)

Game Economy Design Will Evolve

Great game economy design will not be enough to create long-term sustainable player-owned economies in blockchain games.

As we uncovered in our Axie Infinity deconstruct, maintaining price stability for in-game utility tokens (such as SLP) is very important for a large population of players whose key engagement motivation is economic incentives. But looking at the price trajectory of SLP over the past six months, it is also clear that maintaining price stability over both the short and long-term is no easy task for a game development team, regardless of how well funded/experienced they are.

As the gaming industry continues to peel more layers of the blockchain gaming onion, I predict blockchain game developers will slowly learn that remolding F2P game economy design best practices to fit a blockchain game context will be only table stakes when it comes to maintaining in-game utility token price stability across the game’s economic expanse.

The reason why is because of a simple, yet fundamental difference between the game economies. Most of our industry’s talent has historically learnt to build versus the nature of economies the blockchain gaming world is demanding to be built — closed vs open economies. The former represents 99% of the game economies out there, while the latter is something that has not needed to be explored. At least not until the rising demand for player-owned, value-in-value-out, blockchain-based economies came into existence.

So if that’s just table stakes, what will it take? I’d further predict that there will be a three-way marriage between game economy design best practices, real world economic principle realizations, and the implementation of financial instruments to bring the industry one step closer to creating long-term sustainable player-owned game economies at scale. And each of those three will serve their own purpose:

1. Reinvesting learnings from 10+ years of F2P game economy design will help with designing economies that drive player engagement in the right way.

2. Understanding how to integrate real world economic principles into blockchain-based game economies will help with maximizing the chance of long-term economic sustainability.

3. Implementing various financial instruments to enable in-game trading economies will help with hedging against game economy volatility risk.

Sky Mavis has compared Axie Infinity to a “digital nation” multiple times, and they are frankly not too far from the truth. We all know why maintaining price stability for the $ or € and why ensuring a <2% economic inflation rate are two key responsibilities for a country’s central bank. I guess I don’t see Axie Infinity (or any player-owned blockchain game for that matter) any differently. (Written by Abhimanyu Kumar)

Tokenomic Design Will Be in High Demand

This year's hottest new job will be tokenomic designers for blockchain games.

System designers were (and are) invaluable for F2P games, but as web3 continues to grow, the realisation that games are living, breathing virtual economies akin to small countries where millions live and work will hit home. High profile blockchain games will make mistakes with their tokenomics which prevent growth of any kind as early stage investors dump their tokens, whereas under the radar games will become surprise hits through smart economy designs, where users feel rewarded for time spent.

Experienced tokenomic designers will command large salaries due to high demand. The best people may even come from fields currently outside of games such as economists from financial institutions. (Written by Anil Das-Gupta)

🎮 In Other News…

💸 Funding & Acquisitions:

• ESL was sold to Savvy Gaming Group for $1B. Link

• Nexters bought three mobile games studios for $100M. Link

• PortalOne, a game / talk show raised a $60M Series A. Link

• FrostGiant Games announced a $25M raise. Link

• Emerge, a “bare-hands tactile experience” for the metaverse, raised $13M. Link

• VR platform Alta raised $12.4M from a16z. Link

• BreederDAO, which helps ease P2E asset supply, raised a $10M round. Link

📊 Business:

• Roblox creators earned over $500M in Robux in 2021. Link

• Why Turkey is becoming the Silicon Valley of mobile gaming (hint: subsidies). Link

• Epic Games Store year in review. Link

• Sony is taking full advantage of Steam features with God of War. Link

🕹️ Culture & Games:

• “Pokemon Legends: Arceus is a messy, worthwhile experiment”. Link

• PSVR 2 needs big changes before we give it another chance. Link

• How Oblivion sparked a level design revolution. Link

• A new Yu-Gi-Oh TCG has been averaging 200K concurrents on Steam. Link

• The new VR MMO, Zenith, topped Steam charts in its first two days. Link

👾 Miscellaneous Musings:

• Four years of Celeste. Link

• Video Games: Who Owns What. Link

• The rise of Taiwan’s indie scene and why it deserves our attention. Link

🔥 Featured Jobs

• Guild of Guardians: Head of Partnerships (Remote)

• Polygon Studios: VP Gaming (Remote)

• Rec Room: UGC Development Lead (Seattle; Remote)

• Riot Games: Biz Ops Manager (LA)

You can view our entire job board — all of the open roles, as well as the ability to post new roles — below.

Thanks for reading, and see you next week! As always, if you have feedback let us know here.