Hi everyone — welcome to another issue of Naavik Digest. If you missed our last one, be sure to check out our Q&A with different gaming VCs about how they’re approaching the current climate in game investing and what makes them excited for the future.
In this issue, we’re taking stock of major game publishers’ stances on web3 and blockchain gaming, as well as discussing how these positions have evolved over the past two years and what to expect going forward.
What Big Publishers Think of Blockchain Gaming
By Devin Becker, Naavik Contributor & Consultant
Web3 game development has been cooling over the last six months, but one area worth investigating is the stance of AAA game publishers who were bullish on the technology in late 2021. When Axie Infinity quickly escalated the hype around blockchain gaming, especially play-to-earn, most of the larger publishers took a wait-and-see approach outside of some minor public interest. When the market started retreating in early 2022, most companies halted any new development into the space and left it mostly to smaller, more dedicated developers.
Now that some time has passed, most of the AAA publishers seem to have moved on. However, some remain resolute in their drive to press forward. These pioneering publishers are determined to figure it out, and we anticipate that despite the remaining hurdles, there may be enough motivation to push others to tiptoe in over the next few years. While the bulk of this continued momentum stems from the East, one outsized Western publisher continues to invest, too.
Ubisoft Stays on the Edge
Ubisoft has a history of embracing new technologies and platforms. Examples include its foray into cloud gaming, a venture that contributed to the short-lived Stadia platform, its subscription service Ubisoft+ (which also supported Stadia and Luna), VR gaming with titles like Star Trek Bridge Crew and Werewolves Within, and its toys-to-life experiment with Starlink. However, none of these ventures drew the ire of gamers quite as much as Ubisoft’s interest in blockchain gaming. The company has shown interest in blockchain technology since 2018, when it helped form the Blockchain Game Alliance.
Initially, Ubisoft explored blockchain technology through its "Strategic Innovation Lab." The lab developed Hashcraft, a Minecraft-like game based on blockchain technology. Though intriguing, Hashcraft never progressed beyond the prototype phase. The lab then followed up with a more public endeavor: an interoperability partnership that gave birth to a short-lived fantasy sports side game, One Shot League, using Sorare's football cards. However, these initiatives didn't catch the public's attention until Ubisoft stumbled with the introduction of its ill-fated Ubisoft Quartz program.
Quartz was Ubisoft's entry into the NFT world, with the product offering referred to as "Digits.” The company tried to address criticisms against the technology by choosing the Tezos blockchain (for so-called environmental reasons), making NFTs cosmetic-only to allay pay-to-win concerns, and linking them to the popular game franchise Ghost Recon.
The marketing was aimed at collectors and fans who were excited about having limited-edition, serialized cosmetics that could be traded outside the game. However, the public perception of NFTs at that time was largely negative, associated with high prices, Ponzi schemes, and being unpopular with the average Ubisoft customer. Adding to this, the most recent Ghost Recon game at the time, Breakpoint, had suffered from poor sales and significant player backlash. This unfortunate timing led to the NFTs only adding insult to injury.
Ubisoft's relationship with blockchain gaming worsened following Quartz. There were reports of employees being displeased with the push toward this technology, culminating in the cancellation of an untitled web3 game known as "Project Q." At one point, Ubisoft even publicly stated it was reverting its blockchain activities to "research mode" as a way to step back from what appeared to be an aggressive stance. Despite these setbacks, Ubisoft invested in several web3 projects, including Cross the Ages, Nine Chronicles, Dogami, Rebel Bots, and Skyweaver.
The company also used its Rabbids IP to explore NFT partnerships with Reddit and The Sandbox. Even though these ventures haven't seen much in terms of returns, and despite recent cancellations and strategic reevaluations, Ubisoft announced its own web3 game last month: Champions Tactics: Grimoria Chronicles.
Not much has been revealed about Champions Tactics, besides it being a "PvP tactical RPG experimental game on PC" in which players "assemble a team of mythical Champions, engage in thrilling tactical battles against other players, and discover the legends of the dark and mystical world of Grimoria," according to the game’s website.
The timing of the announcement was no coincidence — it was part of a special event for the Japan and Korea-centric Oasys blockchain during Japan Blockchain Week, with the game slated to launch on Oasys. Ubisoft is one of 21 official validators for the Oasys blockchain, joining some big names in Asia, including Square Enix, Com2us, NEOWIZ, Netmarble, Wemade, and NHN Corp. Oasys itself was created by well-established Japanese game developers Bandai Namco, Sega, Thirdverse, and Double Jump Tokyo. The event was also used as a new website launch meant to showcase all the games it has to offer alongside multiple publisher announcements.
Sega is Still Playing
Sega's stance toward developing blockchain games has fluctuated. In 2022, the company announced a partnership with Double Jump Tokyo to develop a game on Oasys based on its arcade IP Sangokushi Taisen. The Sangokushi Taisen arcade series presents a potentially fitting web3 model due to its unique utilization of trading cards for creating and manipulating army units in a real-time strategy setting.
Given the success of mobile card-based strategy games like Clash Royale, the move seems logical. In 2022, Japan also saw the release of Arsenal Base, a successful physical trading card-based Gundam game with gameplay similar to Clash Royale. While the project was initially announced in 2022, Sega seized on the opportunity of Japan Blockchain Week to provide an update. A teaser video was released, along with more information about the game, which will be a card-based, three-minute match auto battler named Battle of Three Kingdoms that’s slated for release in late 2023.
Despite the new information and commitment to the game's release, a recent Bloomberg discussion with Sega COO Shuji Utsumi gave the impression that the company is distancing itself from web3 gaming. Utsumi was quoted criticizing play-to-earn games as boring, saying, "What's the point if the games are no fun?,” and expressing skepticism about blockchain technology's prospects in the industry. However, he also underscored the potential of the space, stating, "For the majority of people in the video game industry, what blockchain advocates say may sound a bit extreme, but that’s how the first penguin has always been. We should never underestimate them." He added that while Sega was wary of its largest IPs being utilized by third parties for blockchain games, it would continue to explore the space with external partners.
In a seeming contradiction to these remarks, Sega partnered with Line Next to bring one of its "major franchises" to Game Dosi, Line Next's blockchain gaming platform. Line Next, a South Korean division of the company Line, is behind the popular Japanese messaging service of the same name. Game Dosi, launched in mid-May, announced several third-party games and a first-party trading card game called Project GD. Unlike Oasys, Game Dosi uses its own Cosmos-based blockchain, Finschia, designed for ease of use, with a simple wallet system that includes social logins like Line and Google.
Although Sega did not reveal the franchise or any details about the game, it's clear that despite some reservations, the company is still interested in the opportunities offered by blockchain technology. Further confirming its ongoing interest, a limited run of NFTs from one of Sega's successful IPs, Virtua Fighter, was released on Oasys in March.
Square Enix Stays The Course
Square Enix is another major publisher that has expressed a strong belief in blockchain gaming. The company's annual New Year's letters from President Yosuke Matsuda in 2022 and 2023 emphasized its conviction in the technology's potential and commitment to exploring it. Matsuda was replaced as president in March by Takashi Kiryu, whose statement suggested a continuation of interest in blockchain tech.
“Under the rapid change of business environment surrounding the entertainment industry, the proposed change is intended to reshape the management team with the goal of adopting ever-evolving technological innovations and maximizing on the creativity of the Company's group in order to deliver even greater entertainment to its customers around the world,” Kiryu wrote.
This is not surprising, considering Kiryu served as the general manager of Dentsu Innovation Initiative, a forward-thinking R&D group with a keen interest in blockchain technology. The group even released a web3 readiness tool in May. The key question is how cautiously Square Enix will approach the currently bearish environment for blockchain gaming, especially concerning its flagship IP, Final Fantasy. Square Enix did at least tentatively explore the field by releasing Final Fantasy VII NFTs, which were originally mentioned in 2022 and fully revealed only in May of this year.
Its most significant venture so far has been the launch of Symbiogenesis, which straddles the line between an NFT art project and a full-blown game. The project focuses on art and fiction, with gameplay resembling a hidden object game. The object is completely concealed, and only clues guide the clicking. Despite its unusual approach, the project appears to have attracted a dedicated fan base, with daily Discord activity amongst its 37,000 members and pieces of fiction and clues released to its 42,000-follower Twitter account.
South Korea is a Pillar of Web3 Gaming
While Japan's confidence in blockchain gaming is evident — with even Prime Minister Fumio Kishida promoting NFTs — South Korea has been pioneering and refining blockchain games for several years now and has emerged as Asia's pillar for blockchain gaming. This progress is noteworthy, considering blockchain gaming has been illegal in South Korea since 2019, leading developers to create web3 gaming projects for foreign markets instead.
Wemade has been at the forefront of this movement, incorporating tokens and NFTs into its successful Mir series of games with Mir 4 and Mir M on Steam and mobile platforms. The company has established its own blockchain, WeMix. To date, it hosts 62 games of varying quality. That said, Wemade's journey hasn't been without controversy. Discrepancies around token circulation numbers led to its token being delisted from exchanges.
Netmarble is another prominent South Korean developer that has embraced blockchain technology. Its blockchain game releases include classic IP usage, such as King of Fighters, as well as newer games like A3: Still Alive, Golden Bros, Ni no Kuni: Cross Worlds, Meta Football, and Meta World. The company also has additional games set to launch, including GrandCross: MetaWorld in Q4 2023.
Netmarble has been involved in developing games for big IP holders like Marvel, as well as porting CCP Games’ EVE Online to mobile. However, it seems unlikely we'll see the company developing a blockchain game for a large IP in the near future.
Com2uS has continued promoting its web3 ambitions this year after building and rebranding its own blockchain XPLA (formerly C2X). It has already released multiple games on XPLA, like its flagship game Summoners War: Chronicles, as well as Ace Fishing Crew, Summoners War: Lost Centuria, and more to come. Com2uS also announced at the Oasys event that it would bring Summoners War: Chronicles to the platform as well. The company even spoke at GDC this year about its learnings in blockchain gaming.
Nexon, another major South Korean game publisher, astounded everyone at GDC with an extensive presentation announcing a new web3 game in the colossal MapleStory series for the Polygon blockchain. While this is still just an experiment for the company, the presentation laid out major ambitions for how the technology can enhance both MapleStory and its ecosystem. We also recommend checking out Naavik's recent interview with Nexon CEO Owen Mahoney.
Out of all existing IPs exploring blockchain potential, MapleStory stands out as the most significant, boasting a rich 20-year history. Over this period, Nexon has grappled with an array of secondary market issues and game design challenges common to developers new to the blockchain. These experiences have provided valuable lessons that can be applied to future ventures.
In its presentation, Nexon made clear its awareness of the risks to the franchise, reflecting the blend of enthusiasm and apprehension that many of these publishers experience when venturing into web3's financial and social minefield with a well-known brand.
Should MapleStory succeed on the blockchain, it could serve as a catalyst for many developers who might be on the fence about taking the leap into this space. But realistically, the project is likely quite some time away from any kind of public release.
The Quiet Ones
While the most vocal supporters of blockchain gaming among major publishers are primarily from Japan and South Korea, several others have chosen to maintain a low profile, quietly working on their projects or observing from the sidelines. For instance, Zynga hinted at its ambitions in this sphere after its acquisition by Take-Two Interactive. Since then, the company has remained mostly silent, save for active job listings for a Senior Game Designer and a Lead Producer in blockchain gaming. EA has similarly kept a tight lid on its activities until a recent announcement about integrating Nike NFTs into its sports games in what appears to be a cautious first step.
Activision Blizzard appears uninterested, but its eventual parent company, Microsoft, has openly displayed interest in the technological aspects of the sector and has invested in multiple projects, including blockchain games. It’s worth noting that Microsoft has also shown caution in integrating blockchain tech into existing properties, as best evidenced by Mojang’s ban on NFTs in Minecraft.
The Future
As is often the case with technological and business developments that revolve around hype cycles, the next major shift toward blockchain technology for game developers could be triggered by just a handful of successful games. The 2021 frenzy was fueled by the success of Axie Infinity, and although that venture eventually faltered, the next game to ignite similar excitement could trigger renewed enthusiasm and attract more developers.
Ubisoft, for example, is already struggling to correct its course in a number of areas that include canceling and delaying projects. The majority of the technology bets mentioned previously failed to pan out, making it unlikely Ubisoft will find a game-changing win with Champions Tactics. A lack of financial success for any one blockchain push over an extended period of time will no doubt cause companies to reconsider their focus.
Both Sega and Square Enix seem hesitant to risk too much of their best IP on the technology, a sign that there is only so much risk appetite for blockchain gaming among more traditional publishers. Sega made a smart choice in relying on a trading card-centric franchise, as that’s one genre that has shown a measure of longevity in the space as we’ve seen with Sorare and Gods Unchained. Square Enix, on the other hand, is leaning into its strong suits with Symbiogenesis, although Square’s strengths here are not something directly enabled by the blockchain. It’s unlikely the annual 2024 letter from Square’s new president will talk much about the technology unless the publisher sees some serious traction this year from its current projects.
Judging by Japan Blockchain Week, there is a fair amount of regional enthusiasm for exploring what blockchain can do for gaming, despite the bear market. South Korea has also persisted in developing games around a technology it can’t even use locally. Both countries are displaying a certain amount of resilience and determination to at least experiment with web3 and blockchain gaming tech to see if it’s a viable potential business. There is, however, a certain amount of market reality that the publishers will have to deal with in terms of the bottom line that could quickly shift nervous execs back into a wait-and-see stance.
The most likely outcome is that some of the publishers we’ve detailed here will shift focus elsewhere without substantial early success. We likely won’t see a blockchain-enabled Final Fantasy or Sonic the Hedgehog game anytime soon. It’s also important to factor in the multiple years it takes to develop a AAA-quality game, making a high-quality blockchain game more of a side project as these publishers will still need to put a majority of resources toward major franchises.
Instead, expect strategies like Sega relying on third parties or Square Enix building smaller experimental new IP to allow for progress without making risky bets. We also don’t expect to see Western publishers making any big moves into blockchain gaming in the next year or two without some success to emulate.
Sponsored By Lakestar: Partners to the World's Tech Entrepreneurs
Lakestar is one of the leading pan-European venture capital firms. Lakestar’s mission is to find, fund and grow disruptive businesses that are enabled by technology and founded by exceptional entrepreneurs in Europe and beyond. Founded by Klaus Hommels, the team’s early investments include Skype, Spotify, Facebook and Airbnb. Since raising its first fund in 2012, Lakestar manages an aggregated volume of over €2.8bn across both early and growth funds.
The team actively advises and supports portfolio companies in marketing, recruitment, technology, product development and regulatory insight, accompanying founders from seed to early-stage, growth-stage or exit. Lakestar’s Games and Media team has made eighteen investments, including 1047 Games, Zebedee, Modulate and Trace.
Content Worth Consuming
Could Halo have changed the FTC's fortunes at the Microsoft trial?(Shannon Liao / IGN):“What if the FTC were to rush out with a better video game example that’s more apples-to-apples with Call of Duty and is indeed exclusive to Xbox? What if we talked more about Halo? Famously almost a Mac exclusive, Halo is a shooter video game that spans books, films, and merchandise. It’s Xbox’s crown jewel. It’s the perfect example to draw because Halo was invented by Bungie, and first announced in 1999. Microsoft acquired Bungie in 2000 and Halo became a launch title for the Xbox. Halo is Xbox’s God of War, or Last of Us, or Horizon Zero Dawn. Except there’s only one of Halo, which is exactly why we're here, because Microsoft didn’t make Call of Duty.”
The birth of id Software(John Romero / The Verge): “In the space of about one second, at the age of almost 23, I had glimpsed my future, my colleagues’ future, and the future of PC gaming, and that future was phenomenal. Moments before losing my capacity to utter a single word, I had arrived early to an empty Gamer’s Edge office to find a 3.5-inch floppy disk on my keyboard with a note from Tom instructing me to run the program on the disk. I inserted the floppy. I was greeted with a brown title screen announcing, Dangerous Dave in “Copyright Infringement.” One side of the screen had a circular portrait of Dangerous Dave, a character I had created a couple years earlier, in his signature red baseball cap. The other side had a portrait of a judge bedecked in a powdered wig holding up a gavel. I took in the image and wondered how Dave was going to interact with the halls of justice. I had no clue where this was going. I hit the spacebar and got the shock of my life.”
Netflix’s next act Is investing in video games(Lewis Gordon / The Ringer):“More than 15 years later, Netflix is gearing up for what appears to be its third and most ambitious act: video games. The company has long had its eyes on interactive entertainment: A Stranger Things tie-in game arrived in 2017; the interactive drama Black Mirror: Bandersnatch was released a year later. In its 2021 fourth-quarter earnings report, Netflix admitted that the rise of streaming rivals was affecting its “marginal growth.” Thus, pushing into a new medium makes sense, especially because the company has publicly identified video games as its biggest competition in the cutthroat fight for attention. “We compete with (and lose to) Fortnite more than HBO,” the company stated in its 2019 earnings report. Since then, Netflix has followed the adage of so many smart, merciless companies: If you can’t beat them, join them, and if you need to, buy them.”
Game availability study(Robin Kunimune / Video Game History Foundation): “Brandon Butler, Director of Information Policy at the University of Virginia Library and Law and Policy Advisor at the Software Preservation Network, joins us to talk about a major new study published jointly by the Video Game History Foundation and the SPN, which shows 87% of classic games released in the United States are now out of print. In this episode, we find out how these games have become critically endangered and why it matters.”
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