Kagan estimates that in 2022, publishers generated $3.64 billion in revenue from non-fungible tokens related to items for use in video games, and we expect this figure to rise at a 33.5% compound annual growth rate through 2027 to $15.46 billion as the number of games increases. with NFT mechanics are entering the market and attracting a wider player base.
In-game purchases have changed the video game industry, and many in the industry believe that enabling users to trade and sell these items on the open market via NFT is the key to unlocking a new level of demand. On the horizon lies the potential of these NFTs to bring virtual items to different game experiences and the metaverse. Developers will have to convince players, regulators, and platform owners that NFTs are a worthwhile and safe investment.
In-game NFTs are blockchain-backed digital assets that prove ownership of in-game items such as weapons, costumes, real estate, and avatars. Linking in-game assets to NFTs allows users to exchange an item for cryptocurrency through exchanges such as OpenSea by Ozone Networks Inc., which can then be exchanged for fiat currency.
Our analysis of the gaming market is based on our research on startups in the segment and discussions with industry leaders. We also used our research and data on the broader video game content and in-app purchase markets.
Game publishers make money from NFTs in two ways. The first is the initial sale of the newly created or minted NFT. The publisher offers NFTs for sale on their website or through an exchange and receives the bulk of the purchase price as revenue (minus payment processing, blockchain transactions, and exchange fees).
The second way a publisher makes money is any subsequent resale of NFTs. Many in-game NFTs include mechanisms that route a portion of any post-sale transaction back to the original minting authority.
The biggest game that works with NFTs is SKY Mavis PTE. Axie Infinity Ltd. The game invites users to engage in turn-based battles with other players using Pokemon-like Axie monsters. Monsters are tied to NFTs, which must be purchased from Sky Mavis or the NFT exchange. The lowest “last sale” price of the Axie monster on OpenSea as of January 13th was 0.0174 ETH, or roughly $25. At the height of the Axie’s popularity, some monsters were reported to sell for hundreds of thousands of dollars.
The winner of the battle receives a “little love potion”. When the player has a certain number of potions, they can exchange them to create a new monster. The new monster can then be used to win more matches or sell on the open market.
The game became known for its enduring capital class, which spurred speculative trading and fueled networks of players growing love potions in employment relationships that resembled pyramid schemes. This asset management meta layer has overshadowed the actual gameplay, which is relatively small. And the lack of compelling mechanics or story limited the game’s organic potential to attract players.
However, the game’s economy grew rapidly until 2021, partly due to the pandemic giving a boost to the broader crypto and gaming market. In February 2022, the company announced that it had generated nearly $4 billion in lifetime revenue.
But in March 2022, a hack into the company’s servers drained the game’s economy by $600 million. We see this event and the resulting decline in interest in Axie as a key driver of the market downturn in 2022.
Other popular NFT games include Immutable Pty’s collectible card battle Gods Unchained. Ltd., the Alien Worlds space miner by Dacoco GmbH, and the Cryptokitties cat keeping simulator by Dapper Labs Inc.
This analysis also includes metaverse driven NFT revenue such as The Sandbox by Animoca Brands Ltd. and Decentraland by Decentraland, which provide traditional gaming environments and mechanics for socializing and shopping. These games may become the hubs of a future metaverse, but now they are mostly niche curiosities for speculators.
We have identified 30 publishers covered by CapIQ that are actively or strategically focused on the in-game NFT segment. Together, these companies have invested $1.74 billion since 2018. These funding rounds and minority stakes support improvements, expansions and new projects with a focus on user acquisition.
Please note that our analysis includes some companies with operational interests in NFTs that are not directly related to gaming. In particular, Yuga Labs Inc. best known for its Bored Ape NFT artwork, and Dapper Labs is known for its partnership with the NBA on Top Shot NFT collectibles.
Potential NFT game releases in 2023 that will be more appealing to average gamers include the Bored Apes-based Yuga Labs Otherside, ATMTA’s Star Atlas space game, Ember Labs’ Massively Multiplayer Online Survival RPG The Walking Dead Empires, and the marauding shooter from Sipher. Cypher Odysseus.
Most of these publishers will start selling NFTs related to their games as soon as possible if they haven’t already started, but the games themselves will come in various stages of completion with alpha and beta testing stages, limiting the potential for market growth in the near future. term.
In the long term, it becomes increasingly likely that one or more games will find the right gameplay to match the new item ownership model that NFTs are broadcasting. We see this move as potentially disruptive, much like the movement of games towards in-app purchases with games like Supercell Oy’s Clash of Clans and Riot Games Inc.’s League of Legends was in the previous decade.
We estimate that at the end of 2022, NFTs accounted for approximately 3% of the total in-app purchase market, and we expect this share to rise to 8% by 2026.
If major publishers or platform holders become more fully immersed in the market in the next year or two, expect a steeper growth curve. If they still haven’t accepted it by the end of the forecast, expect a more modest growth curve.
The biggest problem for the NFT market is the reluctance of large platform holders such as Apple Inc. and Sony Group Corp., to participate in cryptocurrency-related transactions. Thus, computer games actually remain the only significant opportunity for the market. In 2021, PC games alone generated only 19% of total gaming content revenue.
Some mobile games available on the Google Play Store and Alphabet Inc.’s Apple App Store can be connected via a web browser to the post-sale NFT ecosystem where items can be traded and sold, but this push-pull interface limits player participation. with NFT transactions. Examples of such games include NPLUS ENTERTAINMENT Pte. Ltd.’s League of Kingdoms and Benji Bananas Animoca Brands.
Publishers are hoping that the power of emerging mechanics and models will force larger platform owners to support NFT games, but this train of thought is something of a chicken-or-egg puzzle: how will new mechanics take hold if they aren’t available, where are the game’s consumers?
We expect any policy changes from companies such as Sony and Apple to be made cautiously and possibly only at the direction of an internal project developed or sponsored.
However, we are not aware of any platform holders that have specific plans for the NFT gaming space in the near future. In addition, major publicly traded publishers have largely gone silent on NFT games after several ill-fated experiments, such as Ubisoft Entertainment SA tying some of the weapons in Ghost Recon: Breakpoint to NFTs.
The biggest threat to NFT gaming comes from regulatory action. Given the perceived risk associated with cryptocurrencies and the collapse of FTX Trading Ltd., governments around the world will be increasingly wary of making the average consumer more vulnerable to blockchain-related transactions.
We expect some level of regulation to respond to the first wave of mass market NFT games regarding any particularly predatory mechanics. This echoes how, in the early days of in-game transactions, paid “loot boxes” containing randomized items were regulated. Publishers eventually moved to more transparent “season pass” rewards, although some regulatory burden remains, as evidenced by the FTC’s action against Epic Games Inc. in December 2022.
Technology is a regular article by Kagan, the media research group within the TMT S&P Global Market Intelligence offering, which provides exclusive research and commentary.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separate division of S&P Global.