Let’s talk about using NFTs in Video games, or in normal English: ‘how to make people pay for making their own games’.
You may have missed last weeks post, but I wrote an analysis of NFTs and why they suck. TL;DR version: NFTs are over-complicated digital receipts that wreck the environment.
NFTs are all the hype on the internet where people are purportedly selling art. Though, really, those people are gambling. Gambling with digital images — images they did not make — or even just links to digital things.
Those gamblers pump millions of dollars into NFTs and so the game industry smells blood. Because the video game industry loves gambling. The digital sharks are circling the NFT market, as it were.
Video game economics
Video games have a reputation for being harmless entertainment for young people. Let me cure you of that misconception. The global gaming market is around 150 billion dollars annually. That is on par with the movie industry and writing industry. So, the video game market is a business. A big business.
At the top of the video game market are a group of big players, the self-proclaimed AAA publishers: Activision/Blizzard (revenue 8 billion), EA (revenue 5 billion), Square Enix (revenue 3 billion), Ubisoft (revenue 1.6 billion), and so on. There are also the bigger players like Microsoft, Sony, and Nintendo, but they make game consoles as well as the games on them, so revenue says less, and them selling their own hardware creates a slightly different dynamic. It’s a bit of a snake pit, where the snakes eat each other to become bigger and more powerful. Only this week Microsoft bought Activision/Blizzard.
You might think ‘snake pit’ is a bit harsh, but bear with me. I’ve already written an article about neural marketing in video games. The take-away from that article is that companies, like the ones described above, are deliberately using psychological tricks to make money. What’s worse, they’re using these psychological tricks specifically to target vulnerable people, children chief among them. And it hasn’t stopped there.
Since my article and the linked video, things have only gotten worse. Video games have been made deliberately grindy (players have to repeatedly perform stupid repetitive tasks to be able to finish the game) to compel players to buy shortcuts to ‘skip the grind’. They take out the fun, to make you pay for putting it back in.
Games like Fortnite and Overwatch deliberately foster a culture where buying cosmetic upgrades for in-game characters is required to fit in. ‘You’re basic’ is a saying originating from those who dare to use only the basic (default) looks of characters in games.
And let’s not even talk about the gambling those games add, by stuffing the cosmetic items into loot boxes: you don’t buy the actual cosmetic items, just raffle tickets for a chance at those items.
The games offer these cosmetic upgrades, loot boxes, and grind-skipping options through complicated in-game economies featuring various fake currencies and psychological tricks to foster increased spending.
A lot of people are reasonably immune to this, but some are particularly vulnerable: children, former gambling addicts, and the neuro-atypical. These people regularly spend thousands of dollars on games, sometimes bankrupting themselves. That’s not a side-effect, but the deliberate goal of these mechanics. And there is no ‘off’ option for this in games. Heck, even if you manage to buy a game without these mechanics, they might be added later with an update. Many video games are designed to make money off the vulnerable, the ‘whales’.
More, more, more
The thing is, these giant video game companies have shareholders and CEOs that don’t really care about ‘the art’. They may say they do, but really, it’s about share value and profit. It’s capitalism, after all. That means these companies are always looking to make more money for less costs. That’s not nefarious by definition, it’s just how capitalism works.
However, you need a government that creates a basic set of rules so that companies do not harm their customers, or employees. Unfortunately, both barely exist: there are (sexual) harasment problems at many of these companies, they treat their workers like disposable assets, and they abuse vulnerable customers to make a quick extra buck for the shareholders.
Now NFTs have peeked the interest of these companies. You see, they offer the ability to make digital goods scarce. Not only that, the veil of techno-babble and quick-money has made NFTs a way to make digital goods artificially scarce without seeming to do so.
Because that’s the crux of the matter: digital goods are not scarce. You have to impose limits on them to make them scarce. You can copy an image freely, and you can distribute them across the world for next to nothing. NFTs use smoke and mirrors to pretend that that’s not true, and that the files you make are available in limited quantities. The goal: to increase the value of what’s being peddled.
Of course video game publishers love this idea. They’ve already created cosmetic upgrades in games, and have created a culture where you need to buy those to fit in. If you can make them artificially scarce without raising an uproar, you can hike the prices and make even more money. And since there’s no real scarcity, costs are minimal.
So, imagine a new hat in a game costs 1.000 dollars (that’s a day or so of work for a developer including tools, workplace, and overhead, and that’s probably on the cheap side). Nowadays, you sell them for something like 3 dollars, and you might be able to sell 10.000 of them (no idea, I’m making educated guesses for all these number), meaning you have a profit of $27.000.
Now imagine you create 10 different hats, and artificially limit them to 1.000 copies each. If you sell those for 10 dollars each (because scarce), you have a revenue of 200.000, and with 10 times $1.000 in costs it nets you a tidy $190.000 in profit. Well, great, you’ve just increased your profit 7-fold. Those numbers might not be completely realistic, but you get the idea.
And this is exactly what the game industry is planning, like the president of Square Enix explains in a letter.
Play to Earn
When you sell digital goods, you still have to make those digital goods. The costs in the example above were ten times as high as before, even if the profits soared. It’s capitalism, so could companies cut those costs somehow?
Why, yes, they can. By not doing the development work either. Luckily, per the letter above, the publishers have a way to achieve that. They let the users do it themselves! User-Generated-Content is a thing in a lot of games. Example: Minecraft. Minecraft allows users to create their own stuff. It’s a sandbox. It has attracted users for the creativity, of course, but that concept is so alien for publishers, they believe they can rake in more people with money.
The idea that Square Enix has, is to turn their games into a user-generated NFT marketplace. The idea is to add ‘play to earn’ mechanics to a game. Users can start earning money by creating content for the game and selling it as NFTs. How great is that!
Spoiler: not one bit. Youtube did the same thing for creating videos and now it’s filled with harmful videos, veiled commercials for children, and is often powered by child labor.
Why it’s harmful
You see, ‘play to earn’ means a couple of not-so-great things.
As a consumer, I’m no longer buying entertainment, but a place of work that others have to fill with entertainment. I don’t know what I’m buying, or if it will still work a few months down the line.
This also pushes the risk of failure to the content creator. This mechanic is familiar to those in the book space and music space, of course. It let’s large numbers of users create stuff for pennies and sees what’s sticks. The content-creators get paid if their work sells well, but if not, then they get nothing, and the publisher gets a cut either way,
This whole setup is mostly beneficial to the publishers, because they take a cut based on the volume sold, and the more users, the more content, and thus the more money. User-generated content costs the publisher nothing and makes money from the transactions around it, so quantity is king and the risk is put on the content-creators.
This whole scheme pushes quantity over quality. But that’s still not the end of it.
It diminishes the value of development overall. The publishers foist a part of the work onto the end-users and why pay money for something that users can create for free? Doesn’t matter to the publisher, though. If the total volume of stuff sold goes up, their cut goes up.
Then there’s the unscrupulous people who will just copy-paste any high quality things to appear, undercutting the original creators. NFTs suffer from rampant copyright violation as well. Doesn’t matter to the publisher, though. Volume up, profit up.
Finally, this also puts the onus of quality on the consumer. You have to look for quality amidst the abundance of crap that’s bound to come flooding out of new NFT-content farms. Curation of content costs money, so that’s not going to happen. Or maybe, publishers foist that back on the community as well. Just look at Steam for examples of the problem.
The bottom line here is that publishers want to turn games into platforms. They set it up, connect producers and consumers, and start raking in money from the transaction fees. Suddenly, they’re no longer in the business of selling entertainment, but in the business of gatekeeping content between users. Profits galore. The only thing they need to make it work is to keep the players invested with all the psychological tricks they learned from neuromarketing. The goal is addiction, and spending, not entertainment.
But, but, but…
Now, there are those that argue that you’ll be able to buy high-quality NFTs and use them across your games. That’s a fun idea, but that’s not how it works. Game assets are not interchangeable. You could maybe make them interchangeable, but that would hurt the scarcity, so I doubt publishers will go for that.
And even if they made the asset format interchangeable, there’s little reason to assume assets from one game will work properly in another. A hat that works in one game might not work in another. For example, the Assassin’s Creed cloak I buy might have Lara’s pony tail sticking through the back in Tomb Raider. Or worse, be through her waist, because the rigging of the character model is different. Assets have to be made to fit the models in games and that’s a lot of work.
Even if it were possible and it all turned out to increase the fun (I doubt it), there’s still the question of why you’d use NFTs. Games already have a data store that contains ownership information for cosmetic shit you bought. Adding a counter to ensure limited availability is easy. Publishers have tried marketplaces for that kind of stuff. The only thing NFTs add is obfuscation. Smoke and mirrors so you fall for the scam, and it costs them nothing. It ruins the environment, but that’s not a cost video game publishers have to pay, so they don’t care.
Of course, let’s not lose sight of the fact that sandbox games can be fun. Minecraft is very popular. There’s nothing with that, but there is something wrong with monetizing the hell out of it, and shoving it into every other game (which is possibly going to happen).
The ‘Triple A’ publishers are on the brink of embracing a vile technology to do vile things.
It would be nice for governments to step in. Not to forbid it outright, but to maybe protect consumers. Especially the neuro-atypical and the children. And to make the environmental costs actually land on the publisher, which would make the NFT scam a non-starter. But of course, that’s not capitalism.
Burn it all, as long as the shareholders are happy and the profits keep rolling in.