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What Marketers Need to Know About the Future of Video Games

The gaming industry is growing rapidly with an outsized cultural influence, yet the shifts towards cloud gaming and the metaverse bring new challenges and opportunities

Photo by Andre Hunter on Unsplash

Video games, once a designated hobby of nerds and geeks, has grown into a mainstream medium with cross-generational mass popularity and outsized cultural impact. The gaming audience, now estimated at nearly 3 billion worldwide, are starting to diversify demographically, with women now making up roughly 45% of the gaming community, and the average age of a gamer being 31, per a 2021 study from the ESA. Gaming’s cultural footprint can be seen in every facet of our daily lives, from gaming IP-inspired movies and shows topping the charts, to people hosting virtual weddings and attending immersive concerts in online games.

As gaming’s audience and influence continue to grow, advertisers are eager to jump on board, but the overall effort still lags behind audience attention. In fact, gaming is the preferred entertainment activity for younger audiences, beating out TV, movies, and social media as the top medium of choice in a recent Delotte study on Gen Z’s media habits. And they are particularly averse to traditional forms of advertising and notoriously hard to reach through conventional media channels.

As gaming continues to mature as a media channel and siphon attention away from other legacy and digital channels, it is imperative that brands develop a gaming strategy that is both practical and future-proof.

Looking ahead, the ongoing shift towards cloud-based gaming will introduce new business models and unlock new opportunities for advertisers to engage with gamers; Meanwhile, the burgeoning metaverse is being birthed out of the MMO (massively multiplayer online) gaming space, with promises of elevating the gaming experience into a new immersive level. Both shifts will significantly change the dynamics of brands and consumers in the gaming space.

Cloud-Based Gaming Unlocks New Opportunities

As I covered in my article on the Netflix-fication of video games, playing video games is becoming more like watching Netflix — subscription-based streaming services will make more games easily accessible to more players. As evidenced by the launch of services like Xbox Game Pass and Playstation Plus, all major gaming companies seem to have embraced this vision.

Naturally, this shift in gaming distribution will disrupt the value chain of the gaming industry: for instance, Sony’s revamped PlayStation Plus subscription services will follow a windowing release strategy for its top-tier games, which illustrates the push-and-pull tension between the legacy business model and the subscription model.

Some have proclaimed that cloud-based gaming will bring the end of the “console wars,” but that has turned out to be a rather premature statement. With issues of lagging, latency, and triple-A title availability, most cloud gaming services are not good enough yet for the hardcore gamers, who still prefers concoles over PC or mobile as their primary gaming device. However, as the runaway success of the Nintendo Switch has shown, there’s demand for more flexible cross-screen gaming experiences even among the console fans.

Overall, the differences between gaming devices persist, and consumer preference based on their level of engagement will remain for the near-term future. This means that when brands are entering the gaming space, it is important to first figure out who your target audience is, and which types of games and gaming platforms your target audience segment is most likely to be spending time on.

In the long run, however, it is clear that the shift towards cloud-based gaming and the subsequent shift towards the subscription-based model will unlock new opportunities for brands to engage with the gaming community. For example, Microsoft is reportedly moving ahead with an Xbox Game Pass Family Plan, and Amazon is expanding the Prime perks to gaming audiences with subscribers receiving special bonuses in Blizzard games. Netflix’s recent entry into mobile games can also be read as a bundling strategy to expand its offerings within its subscription service. As this shift continues, we can expect more bundling and family plans to diversify the industry’s business model and extend the reach of video games.

In addition to the new purchase models, the shift towards streaming-based services is also prompting stakeholders in the video game industry to reconsider advertising. Reportedly, both Sony and Microsoft plan to introduce ads in their free-to-play games within this year, mimicking the streaming video companies’ move towards embracing ad-supported tiers. Players could also get rewards for watching advertisements, and the ads would be sold through a private marketplace. Although some brands may have legitimate concerns about potentially appearing next to mature or violent in-game content, it seems safe to assume that both companies will be addressing these brand safety issues to reassure ad buyers.

One interesting side effect of this netflix-fication of video games is that, as gaming becomes increasingly platform-agnostic, the creative formats of video games will also become more fluid and dynamic. In the future, casual mobile games could coexist with triple-A console titles on the same platform, ready to be played at the tap of a button, regardless of the devices. This, in turn, would open up space for brands to come in and create their own branded mini-games to engage with their best consumers. In a world of abundant choices enabled by all-you-can-play subscription services, there is a real opportunity for branded content to stand out on brand recognition and, as is often the case with branded games, a chance to earn loyalty points or rewards.

This shift should also be treated as a creative window for brands to explore different types of video games designed for purposes beyond pure entertainment or killing time. As the following chart of Octalysis Framework for Gamification & Behavioral Design laid out, people play video games for different reasons and motives. Therefore, brands will need to figure out how to build gamified experiences beyond just earning redeemable coins and badges, and start tapping into other consumer needs, such as empowerment, wellness, or social capital by experimenting with different types of branded games.

Source: yukaichou.com

The Metaverse Will Push Boundary On Gaming

Gaming is the frontier of metaverse development, and a key channel where brands can start to test and build out the different facets of their metaverse strategy today. Major players are investing heavily into the space. For example, Fortnite-maker Epic Games recently announced $2 billion in funding for its metaverse efforts, while gaming startup Playable Worlds raised over $25 million to build a cloud-based sandbox MMO game that’d be, in principle, open to brands and creators.

For the video game industry, the eventual arrival of metaverse will likely mark a watershed moment in the way games are developed, distributed, and consumed, further consolidating the industry’s value chain. In the meantime, however, the gaming industry is busy figuring out how to create gaming experiences on platforms with metaverse ambitions, in tandem with the developments of these early attempts at building metaverse platforms in question. Some early success on MMO gaming platforms like Fortnite, Minecraft, and Roblox are showing intriguing promises as to how the metaverse may elevate video games — and branded gaming along with it — to new dimensions.

Games today are mostly made by game studios, distributed by game publishers via various platforms, and played by consumers with little direct input or feedback loop. In contrast, as some MMO games with metaverse ambition already showed us, video games are about to become way more creator-driven and collaborative. As a result, innovation-forward brands should consider the following three facets of in-metaverse gaming.

Starting off, virtual assets would be an important element that brands can’t afford to neglect. If the metaverse were to become a primary channel for online socialization and other entertainment activities, then it would stand to reason that brands can benefit from having their assets featured in a creative toolkit for the metaverse platform in question. Epic Games recently announced that it is partnering with toy brand Lego to “shape the future of the metaverse” by building a digital experience where children can play safely online.

NFTs are becoming a popular way for brands to release virtual assets, and they share quite an audience overlap with video games. Gaming-related NFTs generated $4.8 billion of revenue in 2021, according to data from DappRadar, and represented roughly 20% of all NFT sales during the year. However, the play-to-earn model, perhaps best exemplified by the breakout game of 2021, Axie Infinity, where users gain and lose assets by breeding and trading NFTs of Pokemon-inspired creatures, is now under scrutiny and regulatory challenge following multiple major incidents of security breaches and frauds in the NFT space — including one recent incident involving Axie Infinity itself. Therefore, brands should proceed with caution.

Second, new experiences unlocked by an increased awareness of digital presence, both our own and others sharing the same digital spaces, will be an interesting venue for video game designers and brands to explore. Online presence can serve as a bridge between immersive gaming and metaverse, and we are already seeing some successful examples. Most recently, Coachella partnered with Epic Games to release themed skins and in-game features in Fortnite. Coachella will release two series of skins to coincide with weekends one and two of the music festival, as well as a takeover of the in-game Icon Radio, which means players will be able to listen to music by over 30 artists from this year’s festival lineup while in Fortnite vehicles.

Last but not least, in-metaverse games will provide a new channel for community building. There are already some early attempts at building prototype metaverse environments for workplace socialization and team-building. Better yet, there is a real opportunity for brands to come into the space and foster their own community.

For example, American Eagle recently made its metaverse debut on Roblox with a virtual “member’s club” for players to explore. The apparel brand partnered with Livetopia, a role-playing game on Roblox, to create a virtual “AE Members Always Club’’ where users hunt for digital apparels based on its latest spring collection. It is smart for American Eagle to partner with a top-ten game on Roblox with over 1.5 billion visits to date, rather than building its own Roblox game from scratch.

In a metaverse environment, every interaction could be turned into a gamified experience. In this embodied version of the internet, brands will need to be prepared to earn their presence instead of simply expecting to buy their way in. While media opportunities will no doubt be developed for in-metaverse games and experiences, the smart brands know that the most authentic way to reach the gaming audience is to enter through creator-led content native to the platform. Branded Roblox games — mostly designed as companion interactive experiences that are meant to steer players toward new content and, increasingly, toys and other retail products — are already a budding genre in their own right, and similar formats are set to flourish across various metaverse platforms in development over the next few years.

Want to Learn More?

Besides the shift towards cloud gaming and the development of the metaverse, the future of video games could also further extend into offline spaces with the steady growth of esports events and AR-enabled games. Meanwhile, the development of multi-sensory games may bring new dimensions to in-game opportunities for food, CPG, and travel brands. Various types of customer experiences, be it in retail or auto, could be gamified to fit into the metaverse future.

If all these sound a little overwhelming, that’s OK. The future of video games is dynamic and full of opportunities, and the Lab is here to help your brand figure out the best strategy to move forward. If you wish to dive deeper into this topic, or simply start a conversation around key trends mentioned in this article, please reach out to our Group Director Josh Mallalieu at josh@ipglab.com.

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