The Future of Modding

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Hi everyone. It was a relatively light news week, but there were a few items that stuck out that we considered worthy of diving into. Here’s your weekly roundup and analysis of what’s happening in the video game industry…

#1: Modding’s Next Frontier

Have you ever wondered why PUBG stands for “PlayerUnknown’s Battlegrounds”? Well, an Irish modder by the name of Brendan ‘PlayerUnknown’ Greene created an extreme survival mod of Bohemia Interactive’s open world tactical shooter ARMA 3 with one simple rule - be the last man standing. Not only did that result in the birth of the Battle Royale genre, but also the creation of the breakout hit we all know today as PlayerUnknown’s Battlegrounds.

Game mods have been around since the dawn of digital gaming. In some rare occurrences, modders have created some of the worlds most popular games such as DotA and Counter-Strike, while also giving birth to new genres like auto-chess and the previously mentioned battle royale. Further, they've helped countless games like Minecraft, Skyrim, and The Sims expand and live on with new and exciting content for players. Unfortunately, due to high technical skill requirements, the relative isolation to PC games, the lack of curated distribution mechanisms and a web of copyright infringement possibilities, modding has remained a relatively niche pursuit over the past couple decades. It was mostly spearheaded by superfans looking to satisfy primarily hedonic motivations through websites such as Mod DB and Nexus Mods.

It was arguably Steam’s UGC hosting service - “Workshop” - that made modding cross the chasm. Between 2012 and 2014, Steam Workshop paid out ~$57M to 1,500 creators. While that equates to a meagre average of ~$12.7k per year per creator, this was only generated from UGC (including mods) created for Valve games. Steam then decided to support paid, curated Steam Workshops for non-Valve games resulting in 3.2 million items being sold in 2018, and it jumping by +35% to 4.3 million in 2019.

Today, various technological advancements and an industry-wide embracing of UGC can allow for modding’s hedonic motivations to transcend into more economically beneficial ones for the modders, mod curation platforms and the developers of the modded-on games themselves. Quite interestingly, “mod” as a video game search term has been seeing an uptick on Google Trends over the last couple years even though one of the most modded games in history, Skyrim, has been steadily dropping in search interest levels.

If I (Manyu, here) had to guess why that is, my first hypothesis would be - if today’s gaming generation flocks to mod-friendly games like Minecraft and GTA V to “hangout”, a need exists to enhance the base game experience faster than the game developer can churn out new content in a cost effective fashion. On top of that, these content enhancements need to be unique and engaging experiences, thereby increasing the upside attached to crowdsourcing creative ideas. Both points help create fertile grounds for an ecosystem to be built around modding and thereby letting it increasingly enter the mainstream.

That said, I feel modding continues to remain a relatively nascent market opportunity for modders and entrepreneurs alike. There are some significant hurdles (and conversely opportunities) to cross before a robust ecosystem can exist -

Legality: The developers of the most popular games need to rethink mod ownership rights. For example, in early 2020, Blizzard updated its Custom Game Acceptable Use Policy clarifying that all mods are its property. If large publishers are looking to grow and foster a community of modders, such moves may not be the best way forward.
Accessibility: Games that allow mods need to provide first-party tools or enable third-party tools to easily, quickly and reliably build the mods on. Not only will that help capture today’s experienced modders, but also create new modders. To put this hurdle in context, even though Steam Workshop helped increase the TAM for mods, it was notable that the number of mod creators increased very slowly from ~1.5k at the end of 2014 to ~1.7k in 2018.
Curation, discovery and distribution: While curating mods for safety and compatibility is necessary to grow consumption, improving mod discovery and enabling their distribution across key platforms where gamers access gaming content are key areas to tackle. One step forward here, similar to Steam Workshop’s premise, is how the Xbox (Beta) app on PC started supporting mods on games delivered via the Microsoft Store.
Cross-platform capabilities: If mods continue to be a mostly PC phenomena, modding’s future isn’t going to be all that bright. Mods need to be increasingly embraced across platforms. Past examples of Bethesda enabling Fallout 4 mods on Xbox One and PlayStation do exist, but each mod was put through strict pre-approval processes and ended up curtailing any possibility of console mods thriving. Back in 2019 and as a console industry first, Paradox Interactive and Microsoft allowed Xbox One players to get direct access to PC mods without any pre-approval from the console maker or publisher. Paradox now has a vibrant mod library and more recently, games like Space Engineers and Skater XL also allow cross-platform mods.
Monetisation models: Today, this is predominantly revenue share based. But opportunities do exist to expand revenue generating opportunities for modders through advertising, subscription and partnership based monetisation models.

There are two companies currently on my radar that are realising different facets of an eventual modding ecosystem, and thereby creating new opportunities for modders to build a living off of their passion. The first is mod.io - an Australian cross-platform modding solution, led by the founders of Mod DB, that facilitates the upload, search, browsing, downloading and trading of mods in-game. It raised $1M pre-seed in March 2020 through Play Ventures, and followed that up with a $4M seed round in December 2020 led by Sequoia’s Surge and Makers Fund. The second is Overwolf - an Israeli platform for mod creators to host, distribute and monetise cross-platform mods and in-game apps across a variety of top games. With its acquisition of Twitch’s mod repository CurseForge, Overwolf boasts 30k creators, 90k mods and 18 million MAUs across a multitude of games, including Fortnite, World of Warcraft and Minecraft. All that has resulted in Overwolf’s revenue growing by +300% over 2020, and they recently raised a $52.5M Series C co-led by Insight Partners and Griffin Gaming Partners. Check out Overwolf’s story here.

Overall and looking ahead, more game developers will come to realise that enabling their fanbases with the tools to create mods not only extends the game’s shelf life at a fraction of the cost, but also increases fanbase engagement in an ever evolving fashion. The associated business impact is obvious. And in the imminent future of UGC thriving across gaming, modding does seem to have its place. While the mainstream adoption barriers it needs to break through are significant ones, it will definitely be interesting to follow modding’s continued evolution.

#2: Sony Acquires EVO

Sony Interactive Entertainment has teamed up with RTS to acquire Evolution Championship Series (EVO) through a joint venture partnership. Established in 1996, EVO has grown into the top fighting game tournament in the world, with a total of 6.22 million hours watched during EVO 2019 and peak viewership of 245k. So why has EVO decided to sell after 20 years of independence and success?

Evo 2020, which was originally set to take place in Las Vegas, was cancelled due to COVID-19. It got rescheduled as EVO Online later that year, but that too was scrapped due to accusations against EVO’s CEO, Joey Cuellar. Since the accusation, EVO’s top draws including Capcom’s Street Fighter and BANDAI NAMCO’s Tekken had pulled out of the event. And that is definitely a massive step back for EVO’s.

That said, Sony/RTS acquisition of EVO is a triple-win situation for everyone. EVO’s founding team see a graceful exit, though likely one that was cheaper than originally hoped for. Sony & RTS get a top Esports tournament brand and infrastructure, and Sony’s backing could help with keeping Capcom and BANDAI NAMCO on board. Further, RTS is led by Stuart Saw, previously Endeavor's SVP of Esports, and is backed by Endeavor. This connection could lead to a possibly interesting future for EVO, as Endeavor also owns UFC (yes, they own the entirety of UFC) and that could mean EA’s UFC series soon coming to EVO.

For 2021, EVO is returning as EVO Online - a 100% online competition. Players will be able to compete in BANDAI NAMCO’s Tekken 7, Capcom’s Street Fighter V: Champion Edition, Warner Bros’ Mortal Kombat 11 Ultimate, and Arc System’s Guilty Gear -Strive- in an open format. Nintendo’s Super Smash Bros Ultimate is nowhere to be seen, and this is what Nintendo has to say - “… We will continue to assess EVO, and other opportunities, as we plan for future online and offline Super Smash Bros. tournament activity.” Translation: Thanks but no thanks, we’ll be pushing the NintendoVS Challenge Cup. (written by Owen Soh, China Market Entry Consultant)

#3: Star Citizen Sees Record Revenues in 2020

Since its initial crowdfunding campaign over eight years ago, Star Citizen has been covered to death by the game industry press, and not always in a positive light. Even amid the criticism and continuous delays, Cloud Imperium Games (CIG), the company behind Star Citizen, has been able to raise ever-larger sums of money from its fanbase.

In fact, CIG had a record year in 2020, raising $77M from enthusiastic players. Even though CIG refers to this revenue as crowdfunding, it is comprised of Star Citizen's alpha game sales and in-game virtual items. To date, CIG has raised a whopping $417M to build Star Citizen, including $350M in crowdfunding and $67M in private funding.

There are two palpable perspectives here, the first of which is the cynical one. CIG and game director Chris Roberts have raised hundreds of millions in ten years and all they have to show for it is an alpha build. Critical tech, including production-ready netcode and world persistence, is clearly not there yet, nor are the gameplay loops that one would expect from a full-fledged MMO. Any game developer can make the mental math between what has been promised and what exists today, and make an educated guess for the year that Star Citizen will finally release. Not to even mention that CIG is also building a separate single-player game, Squadron 42, with no gameplay to show for it yet.

The other perspective is more kind to CIG. The company's hundreds of passionate and talented developers are absolutely building something that has never been made before. The current version is not just any alpha; instead, it is already an immersive game and a home to a passionate community that enjoys the gameplay in its current state and even spends real money on it.

To say that CIG is ambitious with Star Citizen would be understatement. Star Citizen attempts to be pretty much everything at once: a first-person shooter, a space arena shooter, and an economy simulation all in a deep, fully simulated universe, topped with ridiculous attention to detail.
There is something to be said about constraints here: when Chris Roberts released the games that he is famous for, he always had external pressure to scope down and ship. When Wing Commander shipped in 1990, the world of game development was vastly different. Freelancer, a landmark title ridden with production problems, eventually shipped in 2003, after Microsoft had acquired Roberts' previous company Digital Anvil and Roberts had already left the helm.

With Star Citizen, the constraints are simply not there. For the first part of the past decade, Roberts endlessly added features and systems into a game that did not even exist, with no apparent regard for scope. After the alpha launched in 2015 the company had to face the music as players realized the gap between promises and reality. That said, even as progress in the production has been slow, Star Citizen in 2021 is in a much better shape than it was a couple of years ago.

Now that Roberts has retired his promise pants and put on his production pants, it is certainly believable that Star Citizen will eventually be a great game. How long it will take is anyone's guess, and we will likely never see many of the things promised along the way. If CIG keeps raking in the revenue, they might not even be in any hurry. (written by Miikka Ahonen)

🎮 In Other News…

China’s tech giants test way around Apple’s new privacy rules. Link
Google Play halves its fee to 15% for devs’ first $1M revenue per year. Link
Embracer Group raising over $890M for even more acquisitions. Link
Jade Raymon opens Sony-backed Haven game studio in Montreal. Link
Tencent, Sony and Square Enix invest in cloud gaming company Ubitus. Link
Keywords Studios acquires 85% interest in Tantalus Media. Link
Stratosphere Games raises $2.5M for new projects. Link
Turfan raises $2.3M and acquires Playr.gg. Link
My.Games takes minority stake in Espresso Publishing. Link
Activision Blizzard Esports announces layoffs. Link

🖥 Content Worth Consuming

The Business of Building Games on Roblox (Monetising Media). “Monetizing Media host Eric Peckham discusses the business of Roblox game development with Joe Ferencz, the CEO of Gamefam. Gamefam is a leading game studio and the first dedicated game publishing company on Roblox.“ Link

Social Token (Blockchain) in Gaming (GameMakers). “Today we talk about Blockchain in Gaming with a focus on Social Tokens - what are they, current, and future applications in gaming - but also NFTs.” Link

The Best Apps Today are Games in Disguise (John Lai). “Many of the top consumer / enterprise / fintech apps embrace game design. These 'game-like' experiences feel fun and have great retention.” Link

Henry Lowenfels: The Future of Mobile Entertainment (Creators at Work). “Join Katie Kuffel and Brett Nowak, Liquid and Grit’s Founder and CEO, as they chat with Henry Lowenfels, the CPO of OneTeam Partners, about the future of mobile entertainment, advertising, and how he sorts through information to keep his finger on the pulse of the gaming market.” Link

Why Genshin Impact Inspired So Much Gay Fanfiction (Overlode). “Genshin Impact, miHoYo’s popular gacha RPG hybrid, boasts a thoughtfully crafted world, attractive sceneries and characters — and a big gay fanfiction community. When they’re not whaling on limited-edition banners or charting extensive team-building spreadsheets, some players take to prominent fan fiction sites like Archive of Our Own to post fan works, many of which happen to be gay.” Link

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