Last week Merge Mansion maker Metacore made headlines by acquiring Piñata, a Helsinki-based animation and illustration studio. It's a small acquisition – Piñata has under 20 employees and low single-digit millions in yearly turnover. But what's more interesting is Metacore's motivation to acquire its animation partner.

Highly specialized talent in high-end concept art, visual development, and character design might be typical in AAA studios, but it is far from the norm in mobile. Even industry giants like Supercell have turned to boutiques like Piñata for marketing and concept art.

Mobile marketing is fiercely competitive, and publishers have to stand out. Publishers might have different approaches to ad creatives, from unique gameplay to shock ads, but one thing is constant: Any large mobile publisher will employ dozens to hundreds of people, either directly or through partnerships, in the creation of ad assets.

Merge Mansion relies heavily on hand-crafted animation for its UA creatives. Most Merge Mansion ad creatives are 30- to 60-second animated shorts, and even those focused on gameplay start with a brief animated clip as a hook. Making high-fidelity animation is neither easy nor cheap. That, combined with the need for a constant flow of fresh ad creatives, makes production a sizable operation.

Piñata, while small, is known in Finland as a high-end outfit, and during its 15 years of operation, has become the go-to team for local ad agencies seeking top quality animation. So the talent is there. But why did Metacore buy it instead of continuing to partner?

The idea of insourcing an animation studio solely for ad creation seems excessive; Metacore must see value in Piñata beyond just as an in-house ad creative. The Piñata team will likely be involved in concept art and narrative development in both Merge Mansion and Metacore’s new games.

However, while Piñata is experienced with game industry clients, it is not a team of game developers. Perhaps even more importantly, transitioning from a studio that works on different projects to an in-house provider for a single customer may be a mixed blessing for Piñata employees. While it offers continuity, it might come at the expense of creative diversity.

Rovio's acquisition of Kombo over a decade ago provides a surprising parallel. Kombo was an animation studio Rovio had previously partnered with, and its visual and narrative expertise arguably played a pivotal role in building up the Angry Birds IP. Rovio's attempt to establish a standalone animation business had mixed results. But Metacore is not Rovio, and Merge Mansion is not Angry Birds.

In the post-targeting era of mobile advertising, publishers will continue to employ different strategies to stand out: fake gameplay, pin puzzles, and shock ads with sophomoric humor, to name a few. Metacore’s approach could be considered a full-circle back to quality video trailers reminiscent of AAA games’ marketing tactics or brand advertising in general.

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Web3 Market Update - Q3 2023

By Devin Becker, Naavik Contributor

This quarterly web3 report emerges in the middle of the crypto winter that began in early 2022. There are still a number of first generation web3 games hanging on with a mix of bots and die-hards, but there have been very few impactful game releases for some time. We’ve also seen a pull-back in venture funding, and many ambitious games are still taking a long time to see the light of day.

It’s been a quieter time, but the building continues. There’s been a strong focus on iterative improvements across infrastructure, onboarding, tokenomics, and mobile policy. Issues like transaction speed and cost are being addressed by a number of games using improved zero-knowledge technology or game-focused blockchains. Also, a variety of wallet solutions are being built out to ease onboarding and custodianship for the next wave of adopters.

And as the market has cooled down in the west, there‘s still enthusiasm for web3 gaming in the East. South Korea is increasing development despite a ban on playing web3 games locally, and Japan has also begun embracing web3 gaming, with even the government supporting NFTs, and heavy-hitters like Square Enix, Sega, and Konami all dipping their toes in.

Other big publishers are testing on the fringes too. Despite Ubisoft taking some hits for its failed Quartz NFT attempt, the company continues to experiment with its first web3 game, Champions Tactics. Zynga’s foray into web3 gaming via its multigame Sugartown project is also making progress. Yuga Labs, meanwhile, has been pushing forward past its initial effort, Dookey Dash, to launch two small games using its NFTs: HV-MTL Forge and Legends of the Mara.

Progress was also made on the mobile front. Google finally revealed a more welcoming NFT policy, and Apple made it (mostly) clear where it stands on the topic. This led to one moderate web3 hit on both platforms, Mythical Games’ NFL Rivals.

Elsewhere, with new self-publishing capabilities, the Epic Games Store could become a leading destination for desktop web3 games, helping bypass the clunkiness of downloading and updating games from websites or custom launchers. There is still a lot of potential for the integration of web3 features like wallets, marketplaces, and more that Epic Games could pursue. We’re also keeping an eye on Hyperplay, which is building a different distribution platform with growing web3 features (like bridging the gap between wallets) from day one.

In terms of quarterly metrics, Unique Active Wallets (UAWs) have surprisingly maintained relative stability over the past two quarters, mostly running between 700K-800K per month, according to DappRadar. This consistency likely results from a blend of bots and committed users, with the balance tilting toward the former. However, games that once led UAW activity, such as Alien Worlds, now give way to casual mobile games and late play-to-earn ecosystems. Newer games are exhibiting a much lower level of contract interaction (and therefore UAW metrics) as a separation grows between fully on-chain concepts and “web2.5 games,” largely “traditional” games with optional web3 elements. This has a tendency to solidify the presence of longtime favorites in the top 20 monthly UAW games until there are more universal ways to track activity.

Secondary market activity for NFTs has also continued to decline. With the broader NFT and play-to-earn bubble long since popped, plus players waiting for fun games that are worth trading around, there’s little reason to see volume rebound in the short term. Consequently, games built around affordable, enjoyable to collect, and frequently traded NFTs, like trading cards, now dominate transaction volumes, albeit at a limited scale.

This quarter also accentuated the gap: NFTs from games like DigiDaigaku and Yuga Labs’ Otherside, which leaned heavily on speculation, witnessed sharp declines in both price and volume. The challenge of ensuring royalties has further discouraged developers from promoting high-volume trading until there is a stronger solution, especially after OpenSea’s flip-flopping on the matter.

While we may not have reached the market nadir this quarter, the end might be in sight. Game business models are evolving alongside enhanced tokenomics and platform policies. Game developers are starting to rightly question what parts of web3 make sense for games and how best to implement them, especially around tokens.

It’s also worth noting that a tighter funding environment means we’re likely to see several teams run out of cash and need to shut down; others will need to run more lean to extend their burn rates. Of course, there still are several investors in this space; it’s just that expectations have risen as broader interest has waned — all part of the hype cycle. In short, patience is still needed, mostly as we wait for higher quality games to release through 2024 and 2025. We’ll keep you posted, but for now, let’s dive into the details: game updates, company updates, metric trends, and funding announcements for the latest quarter.