Hi Everyone. Just a quick announcement that Naavik will be at GAM3R Forum 2022 on November 2nd at UC Berkley this week. Two members of the Naavik Pro crew will be on the following panels:
Don't Launch an NFT, Yet! at 1:45pm PST with Lawrence Hsieh, and joined by Kathleen Osgood (Sky Mavis), Chris Heatherly (Great Big Beautiful Tomorrow), and Catherine Carroll (LifeForce Games).
Designing Web3 Game Economies at 5pm PST with Devin Becker, and joined by Ryan Foo (Delphi Digital), Kiefer Zang (Economics Design), and Eric Kress (Deconstructor of Fun).
Please come find us to chat all things blockchain games, Naavik Pro, and more. We hope to see you there!
Will Apple’s NFT Guidelines Kill Crypto Mobile Games?
In this Metacast Roundtable, Anil Das-Gupta and Aaron Bush join Maria Gillies to discuss Apple’s new NFT guidelines, and whether or not they spell the end for blockchain mobile games. The group also dives into Microsoft’s new cloud gaming storefront, and explores whats powering Netflix’s recent investments in cloud games themselves. The trio also talks games — including the news behind the recent revival of the Silent Hill franchise and the launch of Marvel Snap.
#1: Understanding Marvel Snap’s Meteoric Rise
The latest game rising up the mobile app store charts is Marvel Snap, a free-to-play card battler from developer Second Dinner. The self-described “fastest card battler in the Multiverse”, Marvel Snap launched on Android and iOS on October 18th, quickly tallying more than $2M in IAP revenue in its first week on the strength of its addictive gameplay and 5M+ downloads. Not reflected in the numbers are those playing on PC, where the game was also launched (via Steam) with crossplay and cross-progression.
The game’s key innovations are its bite-sized matches (each lasting roughly five minutes) and its eponymous “snap” mechanic, allowing players to double-down on perceived strengths and introduce a bit of game theory into what is otherwise a relatively straightforward battle for control over three rotating territories.
From a design perspective, the game is more akin to CD Projekt Red’s Gwent than Blizzard’s Hearthstone, but plays much faster than either one. Add in a heavy dose of Marvel IP, and the result is a maddeningly fun new entry into the card battler genre that is perfectly suited to a mobile audience.
This early success should come as little surprise to close followers of Second Dinner. The studio was formed by five experienced co-founders in 2018; among them, Hamilton Chu (former Hearthstone Executive Producer) and Ben Brode (former Hearthstone Director) – the latter of whom initially housed the company in his Irvine, CA garage.
It’s hard to overstate the importance of the founding team’s pedigree as it relates to the early successes of Marvel Snap. Not only is the design expertise plainly evident in the quality of the product, but one has to assume that the networks and business connections these industry veterans have formed over the years have contributed to their rapid ascent.
Second Dinner first stepped into the spotlight with a $30M minority investment from Chinese publisher NetEase (notably, Blizzard’s publishing partner for mainland China) and a coveted Marvel license to build its then-unannounced card game. This deal was all the more noteworthy given the existence of another F2P mobile Marvel card game: Nexon’s Marvel Battle Lines (though it would ultimately be shut down in January of 2020).
Despite the investment from NetEase, Second Dinner opted to work with rival Chinese publisher Nuverse (the gaming subsidiary of TikTok owner Bytedance) for Marvel Snap’s launch outside of China. Though Nuverse has had its share of difficulties recently, the early momentum of this launch (combined with recent news of TikTok’s forthcoming gaming efforts) will come as welcome news to Bytedance leadership.
Marvel Snap is an excellent game as it stands today – especially as the debut product of a brand new studio – but it is by no means perfect. Commentators have already pointed to the game’s relatively light monetization feature set as a potential near-term problem. Unlike many of its competitors, Marvel Snap does not sell new cards or card packs (via gacha, direct purchase, or otherwise). Rather, the game monetizes via Battle Pass sales and cosmetics (each card can be visually upgraded six times, from “Uncommon” to “Infinite”).
The experience is quite player-friendly overall – especially in the early game – which feels very much intentional. I tend to agree with the observations of a “high DAU, low ARPDAU” strategy that were hypothesized in a recent Metacast episode. Since launch, the game has averaged ~500K DAU (according to data.ai) and shows no signs of slowing (albeit, over a very small sample size).
With a core game this compelling and an IP as deep and robust as Marvel’s, Marvel Snap has a solid foundation upon which to maintain a healthy baseline of engagement for months to come. There’s certainly no shortage of upcoming Marvel projects available for potential tie-ins with live ops, sales and offers, or other new content.
Monetization improvements will need to come with time, however, given the game’s relatively shallow spend depth. Obtaining the cosmetic upgrades to each card feeds into a progression system, through which the player is able to unlock new cards over time. Every new card is obtained in a semi-random order from tiered pools of available cards, thus preventing players from insta-buying the most meta-friendly decks and instead forcing them to continue upgrading cards to complete their collections.
With each new card unlocked, a new currency sink opens up, creating an escalating currency deficit that should – in theory – push players towards monetizing on virtual currency, either through direct purchase or the Battle Pass. In practice, players have no choice but to engage deeply with the core game to continue acquiring content, whether they want to make IAPs or not. The game sells neither power, nor shortcuts (with the exception of additional currencies acquired through the Battle Pass), and instead relies almost solely on cosmetic-driven prestige.
The Marvel Snap team has surely anticipated these short-term concerns, however, and will likely release new card packs over time to continue extending the content treadmill. In fact, the team has been fairly transparent with its roadmap, as you’ll see below. The forthcoming addition of ranked modes, leaderboards, and social features will surely increase the game’s momentum and open up new monetization opportunities.
Even beyond the game’s feature set, Second Dinner still has meaningful room to scale its mobile marketing efforts. In a recent Two & a Half Gamers episode, the hosts identified several missed opportunities in the areas of user acquisition, ad creatives, and ad targeting, among others.
Importantly, these are all solvable problems for a live service title. As Second Dinner continues to operate the game and execute against its roadmap, it will be interesting to observe what response (if any) we see from incumbent titles in the card battler space. Will Hearthstone look to fast-follow, as they did with Battlegrounds (Blizzard’s take on the autochess craze)? Or will Marvel Snap be crowned the new winner in the card battler genre? (Written by Matt Dion)
#2: Blockchain Gaming Q3 2022 Report — New Frontiers And The Path Forward
Naavik has partnered with CoinMarketCap to release a new report reviewing the state of blockchain gaming in 2022. Below is a selected excerpt from our nearly 50 pages of analysis. If you’d like to read and download the full report, check it out here.
There’s a strong bifurcation in blockchain gaming right now. The bear market continues to rage, and unsustainable, ponzinomic, and non-fun games (essentially the first era of blockchain games, namely play-to-earn games) continue to deteriorate month after month.
However, the next generation of fun games that are less dramatically play-to-earn is steadily being built by many talented teams worldwide.
What’s challenging is that because great games take time to make, the existing games are falling apart faster than the next era of games can launch and prop up industry growth. This leads to rough-looking industry statistics. The major highlights are how the token prices of major first-era games – such as Axie Infinity, Pegaxy, Crabada, and STEPN – are all down approximately -80% and more from their peaks
Plus, in a bear market, many retail investors/users are less willing to shell out significant money for NFTs than they were 6-12 months ago, and that eventually results in lower dollar volumes being traded across the entire space as exemplified by Axie Infinity and STEPN below:
Very much related to the above, we also see similar downward trends across other speculative game-related assets – most notably virtual land NFTs belonging to games that are yet to launch. In other words, market speculation during this bear market is not where it used to be during the 2021 bull run of play-to-earn gaming. This is seen in the drop in sales volume for virtual land NFTs belonging to Yuga Labs’ Otherside, The Sandbox, and Decentraland, respectively:
In a nutshell, it’s a tough time to be a gamer, developer, or investor in the crypto space.
All that said, we continue to push what we’ve said since day one of Naavik Pro: the time will likely come. It just takes some patience, and in the meantime, we should learn all we can to best prepare for spotting future opportunities (as developers, founders, or investors).
CryptoKitties defined the first era of blockchain gaming primitives. This era showcased what NFTs and “player” ownership could mean, but (limited functionality aside) it was fundamentally held back by the Ethereum network’s complete lack of scalability (and there were no other options).
Axie Infinity defined the next era. Sky Mavis built a real game and used scalability solutions. Still, Axie Infinity’s fatal flaw was economic design — prioritizing unsustainable earning (yield) over fun, which cascaded across countless copycats and infrastructure built around it (guilds, tooling, etc.). As previously discussed, this led to a strong demise of P2E gaming across the board, such as Axie Infinity, STEPN, Thetan Arena, and Crabada, which have all lost upwards of 90% of their market capitalization over the past year.
To learn more about the inner workings of the fatal flaws in the economic design, please read our full deconstruction of Axie Infinity since this game not only pioneered a highly innovative business model but also set irrational industry standards in many ways. The blockchain game developer community is now unlearning and rebuilding new game design, economy strategy, and tokenomics best practices.
The next era of crypto games, to (over)simplify, will build off of the previous two eras — using various scalability solutions and sidestepping the most significant economic flaws while prioritizing fun. It doesn’t mean everything will be perfect, come instantaneously, or take over everything — none of that will be true — but there’s too much talent, capital, excited players, and building momentum (despite the bear) for much of this to not come to any fruition. Great teams are building, and eventually — over the next year or two — we’ll likely see the next wave of growth: catalyzing active wallets, engagement, and transactions to new highs yet again. Here are three projects that continue to impress us.
#3: Xbox’s Earnings Keeps Game Pass Growth Cryptic!
This roundup on Xbox was written by Simon Carless, and originally appeared on his newsletter here.
So yes, it was Microsoft’s latest quarterly financials this past week — which the market didn’t love, btw, partly due to weak demand for PCs (& therefore Windows), even though it posted $50 billion in revenue and $17.6 billion in profit.
For Xbox specifically, hardware revenue was up 13%, and Xbox content and services revenue was down 3%, “with lower engagement hours and higher monetization, partially offset by growth in Xbox Game Pass subscriptions.” Woo, Game Pass?
TweakTown’s Derek Strickland listened to the Microsoft earnings call and noted: “Gaming was on the back burner. No one asked about Game Pass, Xbox, or Activision. It was all cloud, Azure, and advertising.” It’s easy to forget that Xbox is a small part of MS.
Still, there were some interesting top-line Xbox boasts, as viewable in the call transcript, and we’d love to go through them with you:
- The highlights chose to de-emphasize Xbox hardware: “We saw usage growth across all platforms, driven by strength off-console… PC Game Pass subscriptions increased 159 percent year over year.” (Perhaps this is partly due to the big ‘Xbox vs. PlayStation’ fight over ATVI If you’re saying how much better PlayStation hardware is doing in gov filings, you don’t want to be pushing Xbox hardware growth here.)
- On that specific PC Game Pass stat? It’s an odd one, because most people get access to PCGP via Game Pass Ultimate. We’re estimating PC-only Game Pass titles for our upcoming GameDiscoverCo Pro offering, and we think Total War: Warhammer III has about 300,000 Game Pass owners of any kind (Ultimate or PC-only). So sure, PCGP is ‘up 159% YoY’ — but that’s off a pretty low base number.
- Also said: “With Cloud Gaming, we’re transforming how games are distributed, played, and viewed. More than 20 million people have used the service to stream games to date.” Some of this is Fortnite being available for free without a Game Pass sub. And most of the rest is likely the ‘stream cloud instead of downloading the game’ option on Xbox consoles. Like PC Game Pass, cloud growth here is a long-term goal.
- Finally, an interesting fact: “Nearly half of the [Xbox] Series S buyers are new to our ecosystem.” Would love to know more - how does that compare to Series X, or previous Xbox consoles? It could well be that PS5 shortages have driven players onto other consoles. Or it could just be a cherry-picked stat that sounds nice…
What’s also notable is that — again -- there was no update in the total number of Game Pass subscribers (The last milestone was 25 million active subs in January 2022). So it’s difficult to see where GP numbers are going — other than slight overall revenue growth.
So, yep. Game Pass has been a boon in growing overall Xbox revenue, and setting up a multi-hardware platform opportunity. It’s also cleverly shifted the narrative — Xbox is ‘providing you the benefits of Game Pass’, rather than ‘running a store that sells you games’.
And breaking news as we go to press — Phil Spencer was at the WSJ Live event, and said that Game Pass “will stay in that 10-15% of our overall revenue, and it's profitable for us”, and: “We’re seeing incredible growth on PC.. on console, I’ve seen growth slow down, mainly because at some point you’ve reached everybody on console that wants to subscribe.”
The next question is whether these ‘hopeful’ stats on PC and cloud (and mobile) gaming can be backed up by meaningful off-console revenue & usage growth, as a percentage of the entire business. (And if Microsoft will tell us if it isn’t, or just push up the yield on existing subscribers, which also works for ‘em).
🎮In Other News…
💸Funding & Acquisitions:
- Roblox acquired Byfron, an anti-cheat solution. Link
- Crop Circle Games raised $25M from a variety of investors including Transcend Fund. Link
- Loric Games raised a round led by Hiro Capital. Link
- Makea Games raised a $1.3M preseed led by Play Ventures. Link
- More than 20M people have used Xbox Cloud Gaming (but Game Pass didn’t hit its growth targets). Link
- The MENA games market is expected to be worth $5B by 2025. Link
- New App Store regarding NFTs — another 30% tax. Link
- The Chinese mobile game market fell 19% YoY in Q3. Link
🕹Culture & Games:
- EA released a PC client for Windows. Link
- Riot Games delayed two Riot Forge games. Link
- Marvel Snap made $2M in its first week. Link
- Steam hit 30M concurrent users. Link
- Fandom’s State of Gaming 2022. Link
- Female gamers in Asia. Link
- Can Microsoft find its next big thing in China? Link
This Week In Naavik Pro
Looking for more great games industry analysis? This past week the Naavik Pro team published:
- A deconstruction of June’s Journey and how it came to dominate the hidden object subgenre
- A research essay on Xsolla, X.LA, and revenue sharing smart contracts, including exclusive insights from founder Shurick Agapitov
- An updated game radar with takes on NBA Clash and Murder by Choice
- Analysis on Playstudios’ acquisition of Brainium, Take-Two Interactive’s closure of Playdots, Delysium’s $10M raise, and Stardust’s $30M raise.
Next week we’re publishing a post-mortem on EA’s acquisition of Glu, an analysis on Apple’s new NFT rules, an update on China’s mobile games market, and take a look at MetalCore’s alpha gameplay. After that, we’re writing deconstructions on several hyped web3 games, a deconstruction on Marvel Contest of Champions, another monthly financial market update, dive into the latest with “free to own”, and much more.
If interested in learning more or signing up, click the button below.
- Legendary Play: Senior System & Economy Designer (Remote)
- Bungie: Director of Product Management (Remote — US)
- Guerrilla Games: Technical Animation Manager (Amsterdam, Netherlands)
- Manticore: Head of HR and Recruiting (Remote)
- Naavik: Content Contributor (Remote)
- Naavik: Games Industry Consultant (Remote)