Using blockchain and smart contracts to solve game industry problems.

Piotr Bombol, Szymon Pepliński, Maciej Skrzypczak, Łukasz Turkowski. Gamenation / www.gamenation.co

In this post we propose a new model of distributing, discovering and selling video games. By using blockchain and smart contracts we may solve some of the industry crucial problems with discovery, payments and promotion (through influencers). Our model is the first of its kind and has a potential to disrupt the industry for the benefit of game developers, influencers and gamers. We encourage you to share this article with anyone who may be interested in the subject. Remember to follow us for further updates, including upcoming launch of the platform and the first game distributed using our model.

If you want to fast forward through the material, we recommend a short presentation we have prepared for 2017 Game Industry Conference on Slideshare:

https://www.slideshare.net/Gamenation/gic-2017-smart-contracts-for-game-industry-1/

Problem no. 1: How to make your games discovered?

Video games industry is big and fast growing. Current estimations state that the global video games market is worth $108,9B, making it bigger than music and cinema industries combined ($42,9B and $38,3B respectively; all figures for 2016 [1]). At the same time it is the fastest growing branch of entertainment, with an estimated growth of 6,2% on average during 2016–2020 [2]. Number of available games is becoming surreal: there are around 1 000 000 games on Google Play platform, 800 000 on Apple Store (both mobile) and 17 000 on Steam (PC) [3]. Number of monthly released games has never been higher: 500 games are released every day on App Store alone and 40% of all Steam games were released in 2016 [4]. There are 2,2B gamers around the world (as many as all sports fans [5]). So far nothing indicates against video games becoming key element of modern world.

Healthy market perspectives attract new market entrants. Competition is growing strong and it takes much more effort to sale the game than just to make it good. Low entry barriers (anyone can make and publish a game) resulted in games being lost on infinite shop lists on Steam and other video game retailers. The blessing became the curse. Smaller studios, also called indies (derivating from “independent”) struggle to reach target audience, to the point in which the situation was dubbed “indiepocalypse”. Even great, ambitious projects may not survive it — simply because they are just not being discovered.

To reach target audience video game studios invest in promotion. While most of them focus on creating mythical buzz, many developers invest in paid media. Unfortunately it is very hard to compete with huge marketing budgets of the top 20 gaming companies, especially when all campaigns share the same target group. Battle for attention results in constant rise of cost per impression, conversion and user acquisition (on all platforms). Instead of decreasing the margin, elevated costs are calculated into the game price and effectively paid by the consumer. And we are talking about huge budgets here — money spent on video games marketing can accumulate up to $20B globally (roughly 18% of the market worth [6]). A lot of that money go to middlemen like ad platforms (Facebook, Google) or multi-channel networks (aggregating influencers), who are the biggest winners. The losers are game developers and gamers.

Problem no. 2: How to manage game studio cash flow?

Even after successful game campaign and selling lots of copies game developers may have difficulties managing cash flows. All distribution platforms (Steam, App Store, Google Play) delay payments for as long as 60 days and execute transfers on certain days of the month. It is then combined with specific threshold, meaning you need to accumulate a minimum amount of money to have it sent — if you fail to do so during one cycle, the funds are moved to the next one. If your game is not popular and it costs a penny, it may take a while. Let’s also not forget about distribution platforms margins that take up to 30%, which further diminishes the earnings. All in all, small studios have hard times managing their funds when the due profit is decreased, frozen for some time and paid with a delay.

Problem no. 3: How to effectively promote games with influencers?

Influencers are an inherent part of the video games industry. Rise of video sharing services like YouTube enabled creation of charismatic, self-made video game experts who then started to threaten the traditional key opinion leaders — game journalists. Impact of gaming media on gamers started to diminish, especially when they became sponsored (officially or quietly) by huge publishers. Gamers looking for new games and unbiased opinions turned around to influencers. It was the base for success of Twitch platform, where users could also interact with their idols in real time. We came to a point, when all video gaming content on YouTube and Twitch is bigger than all content on Netflix, HBO, Hulu and ESPN combined. Two out of three viewers watch gaming content to learn more about a title they would like to play [7]. No wonder game developers started to approach influencers for earned or paid cooperation, which in fact proved to be very efficient, driving engagement and even sales (among video gaming content viewers 51% have purchased a game directly after seeing it featured in an influencer stream [8]). Sometimes being covered by one key influencer (like PewDiePie) would result in the game becoming an instant hit.

Nonetheless influencer marketing prove to be difficult for game developers. More and more often the cooperation is on a commercial basis, which causes problems for both parties. First of all, the cash flow risk is transferred onto influencers, thus they often get paid after the developer receives money for game sales. Secondly, if the cooperation is performance-based (success fee for transactions) there is an asymmetry of information, where influencer may receive incomplete data and in consequence miss the expected payment. It imminently results in conflict of interest, where both parties may have inclinations for cheating as in classic game theory’s prisoner’s dilemma. That being said, even though influencer marketing can be very effective, it often is suboptimal and may lead to unrealized expectations for both game developers and influencers.

Technology: can blockchain solve all these problems?

Blockchain technology offers unprecedented possibilities for peer to peer settlements. Basically it is ‘an open, distributed ledger [register] that can record transactions between two parties efficiently’ [9], that is move value and represent ownership. Blockchain runs as global, shared infrastructure. That is why it is perceived as a perfect tool for optimisation of any kind of digital transactions. Blockchain technology and cryptocurrencies that run on it are disrupting many industries including banking, insurance, properties, but also art and music. It is being popularized due to the possibility of full transparency, decentralization, democratization, minimal margins and delays in cryptocurrencies transfers. The video game industry has specific system problems that can be resolved with blockchain. It is especially fortunate that this market is significantly digitized — as much as 87% of revenues are generated through digital channels [10]. Thanks to blockchain-based Ethereum platform and smart contracts we can propose a new way of games distribution, which is based on the most fundamental economic relation: producer — buyer. We then add another layer to counter the problem of games discovery and thus propose a new way of game distribution & promotion: producer (game developer) — endorser (influencer) — buyer (gamer). The blockchain-based distribution model puts the game developers and artists back in the centre of the economy and minimize the cut for skippable third parties.

Ethereum smart contracts are the key thing here. Smart contracts are ‘applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference’ [11]. They enable to create entire markets, stores, promises — without the need of middle man or counterparty risk. You can think of it as a type of a modern vending machine — a device that implements the conditions of an agreement and grants the security [12]. There are specific rules written that are clear, accessible to everyone and that cannot be changed. Using reference of vending machine, smart contracts work like this: if you put one dollar it gives you a soda. If you put less than a dollar — you don’t get soda, but it returns money. If you put more than a dollar — it gives you soda and the change. The whole process runs on the Ethereum platform, which is fast and secure.

Our solution: Gamenation, a blockchain-based platform re-connecting game developers, influencers and gamers

Our platform enables game developers to sell and promote their games using Ethereum smart contracts. It re-connects game developers, influencers and gamers for their mutual benefit. We called it Gamenation. Let us show you how it works.

In the simpler distribution-only model, a game is put by a game developer on our platform, transferring generated game keys to a register. Then a smart contract is created determining split of future revenues per copy sold. A gamer enters the platform and buys the game for ether (later he would use any currency) and in return receives game key for Steam or GOG. Smart contract executes funds distribution that go directly, securely and almost instantly to engaged parties (in this case — 95% goes to the game developer [13]). No need for middlemen: the game is bought almost directly from the game developer, as the smart contract works autonomously. The graph below represents the process.

In the advanced distribution & promotion model, a game is put by a game developer on our platform, with chosen influencers agreeing on cooperation. Each influencer receives individual agreement and smart contract that will determine the split of future revenues. Engaged influencers put effort in promoting the game by creating video content (reviews, gameplays, montages) and posting it on their channels. They encourage users to buy the game using their dedicated smart contract and direct them to our platform, where they have their own dedicated subpage. A gamer enters the subpage on our platform through a direct link, buys the game for ether and in return receives game key for Steam or GOG. Smart contract executes funds distribution that go directly and almost instantly to engaged parties: game developer and chosen influencer (in this case — 80–90% goes to game developer, 5–15% goes to influencers [14]). The user may decide to use other smart contract: one where more money go to game developer or one where a cut goes to another influencer (although it seems unlikely; influencer fans are very dedicated and they will definitely want to reward their idol). Either way the price for the user is the same, it’s just that there are different smart contracts and in result the revenues are differently distributed. No need for middlemen: influencers agree on terms and promote the game which then is bought almost directly from the game developer, as the smart contract works autonomously. The graph below represents the process.

Our approach can change how game developers and influencers approach cooperation. We provide solutions to crucial game industry problems. We provide discovery through effort put into promotion by engaged influencers. Payments in this model are instantly received after every transaction and aren’t cut by margins. With fair and transparent rules the influencers are becoming deeply involved in the game promotion. Influencer marketing is a powerful tool, but too often game developers wish on receiving free coverage. We believe it’s an utopian assumption that will be more and more difficult to realize. Thanks to breakthrough blockchain technology we can enable both sides to cooperate on a level of mutual engagement that has not been seen before.

Benefits: why would anyone bother?

We realise that disruption on the market occurs only when the proposed solution is better for everyone. Our concept is aligned to provide benefits for all the parties. Game developers are big winners here with bigger and faster revenues. Influencers can enter a fruitful and fair cooperation, where their work result in profits. Last but not least there are all of us — gamers. Each one of us can learn about new, interesting games from followed idols and by buying the game we can appreciate both the game developer for their creative process and the influencer for their effort put in recommending the game. Gamenation is a solution that aims to help game developers in their uneven fight with ‘indiepocalypse’ and in the process it makes life easier for influencers and gamers.

Final thoughts

Gamenation challenges how video games distribution and marketing works. Our main motivation is to give credit where credit is due — to game developers for their creation and to influencers for their effort in promotion. Our platform diminishes negative effects caused by the three main problems stated at the beginning of article: with discovery, payments and influencer marketing. Unfortunately it is not a magic wand that would make them disappear. The process of changing the industry for good will take time and many parties may oppose it or stay indifferent. Many game developers or influencers may not want to take part in it and not all influencers will be able to promote certain games effectively. Questions may arise around the subject of taxes and regulations. Either way we believe that it has to be done and we will welcome all the supporters. We want to give power back to the people. Change is often repelled at first, but then it becomes reality. We are confident that Gamenation will lead the positive revolution in video games industry.

Soon to come: first game released on Gamenation!

We are proud to announce that in the nearest future we will release our very first game using smart contracts as a selling and promoting mechanism. Together with Polish indie studio Thing Trunk we will distribute their game Book of Demons and engage top global influencers in promoting it. We want to get as much support for this test, so we encourage you to follow us and join the disruption!

Gamenation team:

Piotr / piotr.bombol@gamenation.co / https://www.linkedin.com/in/piotrbombol/

Szymon / szymon.peplinski@gamenation.co https://www.linkedin.com/in/szymonpeplinski/

Maciej / maciej.skrzypczak@gamenation.co / https://www.linkedin.com/in/mskrzypczak/

Łukasz / lukasz.turkowski@gamenation.co / https://www.linkedin.com/in/lukaszturkowski/

References:

[1, 2, 5] “Global Games Market Report 2017”, Newzoo, [06.2017]. (https://newzoo.com/solutions/standard/market-forecasts/global-games-market-report/).

[3] Own calculations based on data provided by each platform: Google Play (Google), App Store (Apple), Steam (Valve).

[4] Steamspy, (https://twitter.com/Steam_Spy/status/804072335997358084).

[6] Own calculations based on discussions with game developers, publishers and distributors.

[7, 8] “Gaming Video Content”, Superdata, [04.2017], (https://www.superdataresearch.com/market-data/gaming-video-content/)

[9] M. Iansiti, K.R. Lakhani, “The Truth About Blockchain”, Harvard Business Review by Harvard University, [01.2017].

[10] “Global Games Market Report 2017”, op. cit.

[11] Ethereum.org

[12] N. Szabo, “Smart Contracts: Building Blocks for Digital Markets”, University of Amsterdam, [1996], (http://www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/smart_contracts_2.html)

[13, 14] All numbers are exemplary and subject to change in final version.

Icons made by Zlatko Najdenovski.