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Predictions for gaming in 2023 | The DeanBeat

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Predictions are as difficult and foolish to make as ever. The year 2022 had a different rhythm than we expected, after two solid years of growth for gaming in 2020 and 2021. Still, it remained one of the most unpredictable in gaming history. As I learned during the pandemic, I now think about predictions with both a sense of hope and a sense of dread.

The pandemic threw off our ability to predict what will happen life, and it did the same in the game industry. Game companies had a record year in 2020, and I wondered if it was a one-time bump thanks to the coronavirus forcing lockdowns. People played games to survive, repair their social lives, and distract themselves.

And yet while it was hard to top 2020, the game industry grew in 2021, according to market researcher Newzoo. But for the first time since it began making predictions, Newzoo now says that the game industry will shrink 4.3% in 2022 to $184 billion, thanks to weakness in mobile games. The invasion of Ukraine caused havoc in the markets, followed by a crypto crash, high inflation, and global economic weakness. All of that took its toll.

Some of this is easy to explain in hindsight. The consoles were in short supply. Big games were delayed. The global economic downturn and privacy initiatives hurt mobile games, while VR gained ground. And people started going back to other pursuits as they regained the ability to travel and go out in public as the pandemic entered a new stage.


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And while we saw a huge surge in game deals in 2021, we saw even more activity in 2022, with Drake Star Partners reporting that game deals hit $123 billion in value in the first nine months of the year — driven by the pending $68.7 billion acquisition of Activision Blizzard by Microsoft — compared to $71 billion in the first three quarters of 2021.

As I said last year, I know that our compass, informed from the patterns of the past, is broken. But I’ll wager we can expect games to continue to outgrow other forms of entertainment. I expect that trends such as Hollywood transmedia, the metaverse, Web3, cloud gaming, esports, mixed reality, and other trends will come along to reinvigorate the game industry — as well as great new games in the core areas of the PC, console and mobile game industries.

For the usual comparison and embarrassment, here are my predictions from 2022, 2021 2020, 2019, 2018, 2017, 2016, 2015, 2014, 2013, and 2012. At the bottom of the story, I’ve also given myself grades for the predictions I made a year ago for 2022. I gave myself seven “A” grades out of 11 predictions, so I suppose it wasn’t a bad forecast.

I’ve been very publicly calling for ideas on social media about my predictions, and I appreciate all of the followers and readers who have pitched ideas to me. Many of these ideas were adopted from my social media conversations. Some of these come from Chris Heatherly, Kate Edwards, Noah Falstein, Steve Peterson, Chris Akhavan, Edward Saatchi and others.

Thank you for your help, and Happy New Year! Stay safe out there.

My predictions for gaming in 2023:

1) Console and PC games will get stronger, but mobile games may get weaker with the economy


I expect that growth will resume for the game industry as a whole. At some point during the year, PlayStation 5 and Xbox Series X/S consoles will regularly be in stock at most retailers. The PlayStation VR 2 will debut in February and it will give a mid-life boost to the PS5. Nintendo may finally announce a replacement for the Switch, spurred by competition from similar devices such as the Steam Deck.

While Sony pretty much owned the holiday season of 2022, Microsoft should come back with a strong slate in 2023 with titles like Starfield, Redfall, Alan Wake 2 and more. Electronic Arts has Star Wars Jedi: Survivor and Dead Space. Suicide Squad: Kill the Justice League has a date, as does Hogwarts Legacy. Diablo 4 is coming, and Nintendo has The Legend of Zelda: Tears of the Kingdom. Square Enix has Final Fantasy XVI. Sony has Spider-Man 2. And the BioShock creator has Judas. The list goes on. As long as gamers can get their hands on new consoles, this list should drive demand.

I’m not so confident about mobile gaming, which has some cool titles like Warzone Mobile coming. It is vast and unpredictable, but it is driven by free-to-play gamers who may be more sensitive to economic doldrums and less hardcore than PC and console fans.

2) The metaverse will not prove its worth in 2023, but it will continue to inspire

deep learning metaverse
Will we see the metaverse soon?

The metaverse is going to take a long time to develop. If it is to meet our imaginations of delivering something close to sci-fi books and movies — something akin to the Star Trek Holodeck — it’s going to take time. We will start laying the foundations for the metaverse in 2023 with the launch of 10G cable networks and real-time interaction. But it will take years to deliver the creative experiences and games that will inspire the masses to join.

There will be backlash against the metaverse, much like there is backlash against Web3 gaming and cryptocurrency. Noah Falstein calls this the “meta-averse” reaction, and it’s easy to foresee because no one is delivering on the metaverse for a while.

But I believe that all industries will converge on a 3D internet, and when we create the tools and standards to maximize interoperability and reusability of assets across many worlds, we’ll finally have something that attracts the masses. And I expect Hollywood to keep stoking the inspiration with cool metaverse visions.

2) The pseudo-metaverse will start to emerge

You can draw or sculpt with the Meta Quest Pro.
You can draw or sculpt with the Meta Quest Pro.

What we’ll get instead are metaverse experiences that are smaller in scale and adhere to defacto standards, rather than real ones. Do not be deceived. This will be somebody’s metaverse, but it won’t be the open metaverse.

Back in March 2022, the Game Developers Conference released a survey that said 17% of game developers were working on a metaverse project, and 83% were not. If that survey were
done again today, I think we’ll see a swing toward more projects in the works. Those projects will include work on gaming galaxies (not quite real open metaverses) like Roblox, Minecraft, Dreams and Fortnite. But there are likely more platforms that will emerge for the metaverse, and you can bet that game devs will seize the opportunity to create content on these platforms.

That tells us that things are in the works, and more things are coming that will flesh out the metaverse. With luck, we’ll see how Apple makes its play in the metaverse (even though it won’t call it that) with the launch of its mixed reality headset for mobile devices. Meta’s Mark Zuckerberg has promised we’ll see the Meta Quest 3 VR headset emerge in 2023, and Sony may do well with it core gaming audience with PSVR 2.

At first, we’ll see metaverse applications that are interoperable within a single company, and then we’ll see some alliances form. After standards get worked out, we’ll see something like a real open metaverse emerge — I hope.

3) Gaming will disrupt other industries, and it will be disrupted by outside forces

League of Legends Worlds Championship 2022.
League of Legends Worlds Championship 2022.

Gaming has a good command on our leisure time and with each new generation of players there are more and more native gamers. Over the years, we have seen inexorable growth with generational change.

The average age of a gamer is 33, according to the Entertainment Software Association. And 69% of American homes have at least one gamer. And 97% of Americans view games as beneficial in some way. People play an average of 13 hours a week, up from 12 hours in 2021. And so that is taking audiences away from other pursuits, and it’s why we see Hollywood making so many game-related entertainment. Game technology — such as the cloud and game engines — is infiltrating other industries.

But this doesn’t mean that gaming will always grow. We saw how it was battered in 2022 by the Russian invasion of Ukraine, high inflation, high interest rates, two cryptocurrency disasters, and general economic malaise. Forces like government regulation in China and the closing off of markets like Russia have an effect. And COVID-19 and its aftermath had effects on gaming, such as suppressing in-person esports. I hope we don’t see more of the same in 2023, but we should expect this push and pull to continue.

4) Geopolitics will continue to interfere with global gaming

A statue from the 2014 war in Cherkasy: A Ukrainian soldier guards the White Tree of Gondor.
A statue from the 2014 war in Cherkasy: A Ukrainian soldier guards the White Tree of Gondor.

Our hearts go out to the victims of geopolitics. The Russian invasion of Ukraine has taken so many lives, and it has also scattered Ukraine’s rich game development community. Some are fighting. Some fled the country. Some relocated and now work remotely, sometimes without a reliable electrical grid.

Russia’s aggression has also inflicted wounds on its own game industry. Many game companies like Wargaming and My.Games have moved their developers out of the country. It’s fair to say that no one is investing in home-grown Russian game studios anymore. But the diaspora has provided much-needed talent for game companies with operations in other countries. Mytona moved its workforce out of Russia and has operations in places like Singapore and New Zealand.

In China, government restrictions have affected gaming. Popular gaming cafes had to shut down, and game studios had to shift to remote work. Many studios closed down altogether. Restrictions on launching new games kept a lot of foreign games out of the market. And curbs on game-playing for young gamers took a toll on demand. The result was weakness for one of gaming’s biggest markets. And leaders like Tencent and NetEase focused on expansion in the West.

Web3 game companies also saw a lot of regulations, some in reaction to scams. South Korean courts upheld laws prohibiting initial coin offerings. And censorship was alive and well in various jurisdictions in the world. Geopolitics will likely continue to stand in the way of a global game market.

5) AI will trigger big changes for games and game development

The Simulation is a gonzo AI metaverse.
The Simulation is a gonzo AI metaverse.

We’re seeing a growing trend for AI characters as the main agents in games. Instead of playing as a character, humans will groom AI characters — like in Fable’s upcoming The Simulation — who will live in simulated game worlds and live their lives. In this came, humans are trainers, not players. Startups like Inworld AI plan to use the rapidly accelerating intelligence technology to make smarter non-player characters (NPCs) in games so that the engagement will seem so much more realistic. These games will draw us into the fantasy of gaming or give us compelling narratives that keep us involved.

On top of that, technologies like generative AI, AI art and AI chat will change game development. The technology may threaten a lot of jobs associated with grunt work — with impacts in areas as varied as programming, user acquisition and art. Many veterans won’t like the impact it will have on labor, but it’s hard to fight the wave if the technologies bring efficiencies that alleviate the high costs of game development. It may be better to think of new ways to work by taking advantage of the technology.

AI will help democratize game development, making it easier to do user-generated content. And it should make life easier for creators who make a living from celebrating game content. In fact, we may even see AI-based creators become celebrities in their own right. AI’s effects — like we’ve seen in many other industries — will likely be broad, deep and lasting. Don’t underestimate it.

6) Gaming for wellness will become a regular conversation

Mental health is an important issue in games.
Mental health is an important issue in games.

Before the pandemic, there were lots of memes around gaming addiction and violent games. The pandemic taught us that gaming brought us much-needed social and mental relief. Campaigns such as Play Apart Together helped raise awareness around gaming’s goodness.

The annual survey of the Entertainment Software Association found that many see mental health benefits from gaming. About 89% of people say that video games provide stress relief.

And 93% believe video games bring joy through play. Another 88% believe they build cognitive skills. Some 57% play to unwind, 46% play to escape, 44% play to use their brains, and so on.

Startups in gaming such as Tripp are dedicated to games that focus on meditation. Deepwell DTx is concentrating on games with therapeutic value. Nonprofits like Take This are dedicated to mental well being of game developers, helping them cope with stress and burnout. Streamers have raised the issue as they raise funds for organizations that can help. And conferences like TIGS and Games for Change helped normalize talking about mental health challenges in a public and humane way.

It’s a long overdue conversation in gaming, and there are lots of ways gaming can help.

7) Web3 gaming’s comeback chance will depend on a wave of high-quality games from legit game teams

Gods Unchained will adopt the 0x protocol to sell in-game items on the blockchain.
Gods Unchained

Web3 gaming has a poor reputation among gamers in the West, though it is more accepted in Asia. Many saw it as a bunch of scams, cash grabs, complicated technology, and poorly conceived business models. The believers see it as potentially disruptive, giving players ownership of their digital assets and ways to make money such as the resale of used games once offered.

Venture capitalists have poured tons of money into the space, with Web3 game investments account for half of all funding in the third quarter of 2022, according to Drake Star Partners. A lot of that money has gone to veteran game developers with triple-A ambitions, and their work hasn’t surfaced yet.

Chris Akhavan, chief business officer at Forte, believes Web3 gaming will make its comeback with a wave of high-quality games that will launch in the second half of 2023 and revive the overall space. These titles will come from legit game teams. I believe these teams will have their chance to prove themselves with gamers, especially in Asia, as nearly all South Korean gaming giants are investing heavily in the space, in addition to companies such as Animoca Brands and Square Enix.

There are also many strong and well financed startups in the space that have a lot of cash, like Sky Mavis, Sorare, Immutable, Horizon Blockchain Games, Mythical Games, Dapper Labs, Lucid Sight, Gala Games and Double Jump Tokyo. These companies haven’t shown all they can do with their resources yet.

While the crypto winter will clear away many of the weak companies and force consolidation, I think the survivors will show us the way.

8) Gaming will become more open

Epic takes a swing at Apple.
Epic takes a swing at Apple.

There are many forces at play that will make gaming more open. The web browser is poised for a comeback. Companies are working on ways to get around the restrictions of the app stores by turning to the open web. In the past, this meant bad graphics and limited interactivity. But new standards like glTF and proprietary technologies could enable speedier delivery.

The open web could be succeeded one day by the open metaverse. That won’t happen real soon, but enough people are talking about this that the conversation is top of mind at some of the biggest and most important companies in the industry.

Epic Games raised the issues of openness when it sued Apple and Google for antitrust violations. Without waiting for a final verdict in the appeals for that case in the U.S., the European Union and South Korea have forced changes that big companies like Apple and Google will have to comply with. One byproduct of the U.S. litigation and regulation in the EU is the right for developers to create their own third-party app stores.

Yet gatekeepers who create platforms still take a 30% cut of royalties. Matthew Ball, author of the bestselling book The Metaverse, has argued that this stands in the way of progress as it weakens the developers who are in the best position to push forward ideas like the metaverse. While the industry isn’t going to change overnight, the added awareness to the costs of closed platforms is a catalyst for change.

Epic isn’t fighting for this all by itself. The Open Metaverse Standards group has formed to push for better open standards, and USD is making progress as an interoperable 3D file format. Forte and Lamina1 have raised a lot of money and they believe that blockchain technology infrastructure can also improve the openness of sectors such as gaming, enabling players to finally own their stuff.

Overall, more business models and technologies — like Web3 or cloud gaming or subscriptions — will yield more choice for both developers and consumers.

9) Gaming deals will continue to grow with consolidation in metaverse and Web3 sectors

Xbox is buying Activision Blizzard.
Xbox is buying Activision Blizzard.

Will the industry continue to consolidate? It’s a good bet that will happen, whether or not the $68.7 billion acquisition of Activision Blizzard by Microsoft closes. The Federal Trade Commission, focusing on the goal of openness and antitrust restraints, is suing to stop that deal.

But the economic slowdown will make life hard for a lot of startups and mid-size gaming publishers and developers. In that kind of economy, companies will combine to get bigger and rivals will counter the strategy with expansion plans of their own. Drake Star Partners reports that gaming deals on both the acquisition and startup investment front hit new heights in 2022, after record-breaking years in 2021 and 2020. So this isn’t a hard prediction to make that the trend will continue.

And as gaming continues to outperform other sectors, investor money will continue to move into the space. That will provide war chests for companies so that even the biggest companies in the industry will not be immune from acquisition pressures.

10) The realism and imagination of games will astound us

Unreal Engine 5 can capture an open world.
Unreal Engine 5 can capture an open world.

This is perhaps the easiest prediction to make. Gaming has always made progress. But as Mike Abrash, CTO of Meta Reality Lab, has said, this isn’t a foregone conclusion. It depends on the brilliance and hard work of game developers making the best possible game they can.

With Moore’s Law slowing down and the need for sustainability, it isn’t a given that we’ll always have more computing power to make our games look better. But we haven’t taken full advantage of technology yet.

Game engines such as Unreal Engine 5.1 and Unity have been making steady progress, helping interactive entertainment catch up with the visual delights that we seen in movies. Game teams haven’t been able to fully exploit these technologies yet, but they’re hard at work on amazing experiences.

And the demand is there because gamers are always seeking something that fulfills our imaginations, whether that comes in the form of better graphics or clever gameplay that we surprises and delights us.

Grading my 2022 gaming predictions

Epic Games is launching the Free Fortnite Cup. Guess who the villain is?
Epic Games launched the Free Fortnite Cup with Apple as the villain.

1) The war between game devs and platforms will get worse

Letter grade: B

2022 notes: Dozens of states joined Epic’s lawsuit against Apple in its appeals court proceedings. That drew more attention to the case. The European Union adopted laws that will force Apple to make changes to its app store in Europe, such as allowing non-Apple stores to be accessible from within iOS. Epic’s lawsuit against Google proceeded in court as well. Game devs complained about Apple’s focus on privacy over targeted ads. But there wasn’t an additional all-out war between developers and platforms.

Game platforms became flashpoints in 2021 as Epic Games sued Apple for antitrust violations. Epic decried Apple’s policy of collecting a 30% fee on every in-game transaction in titles like Fortnite. While Epic largely lost most of its case, it did win on one important point that could give alternative payment providers and game developers more hope of capturing the revenues they generate. The courts have stayed that decision so far. But it offered developers hope that they will be at least able to promote lower prices for digital goods on websites that are off the app stores. It underscores the duality of modern platforms, which hold game developers captive yet offer internet browsers that can take players elsewhere.

While Yvonne Gonzalez Rogers, the federal judge in the Epic v. Apple case, concluded that current antitrust law doesn’t protect smaller companies as much as it does consumers, she did point out flaws for legislators to address that could curb the power of big tech.

On top of that, Epic still has an antitrust suit pending against Google over Google Play Store practices, and that is sure to flare up in 2022. And regulators around the world such as the European Union are investigating the big tech companies and the leverage they hold over developers. Add to this Valve’s decision to ban nonfungible tokens (NFTs) in games on Steam (only to see the Epic Games Store embrace NFT games) and you have more developer anger boiling over.

Adding fuel to this developer unrest is Apple’s decision to emphasize privacy over targeted ads. That move also upset game developers, who face lower revenues thanks to the deprecation of the identifier for advertisers (IDFA). As the industry chases the metaverse and blockchain monetization, the rules of engagement for platforms and developers will matter more than ever. Apple has the right to do these things for now, but it can’t afford growing developer resentment.

Nor can any big tech platform that wants to benefit from the stickiest applications of all: games. I expect to see more flashpoints over time and movements by game devs to bypass big tech altogether. Both platforms and developers need each other, but they’re still figuring out which side is more powerful.

IO is a simulated person built with Epic Games' MetaHuman Creator.
IO is a simulated person built with Epic Games’ MetaHuman Creator.

Letter grade: C

2022 notes: I can’t say any new bonified metaverse emerged in 2022. But the existing defacto metaverse worlds continued to grow. Those included Roblox, Minecraft, Fortnite and Second Life. The technologies that enable the metaverse — such as standards being developed by the Open Metaverse Forum — started to emerge. There isn’t much interoperability yet between the worlds of Meta’s VR gadgets and those of rivals such as Pico and HTC. And Web3 games have only started to show some interoperability. We did see quite a bit of progress as Nvidia’s Omniverse platform tools took off, with more than 700 enterprises adopting it, using USD as the standard 3D file format. But we knew the metaverse wouldn’t be built in a year. And we are encouraged at the changes we’ve seen happening.

The metaverse has to start somewhere. It will likely begin with a patchwork of walled gardens that don’t work together. A lot of people could legitimately argue that this isn’t a metaverse at all.

Over time, it will become interoperable with easy transit between worlds, open source standards, and trade agreements. Standards always take a long time to establish, but they eventually happen when enough of the power brokers conclude that working together is better.

We’re just not at that stage yet. Right now, everyone who is trying to build a metaverse will attempt to establish themselves as the first mover with the largest audience.

Roblox can make a case that its user-generated games platform is the leading candidate for the metaverse, while Epic Games can make a similar claim for its Fortnite game, and Facebook will say its Oculus (renamed Meta) VR platform will win.

It’s not a real metaverse until we get that interoperability, of course, but we’ll see islands emerge thanks to the launch of tools such as Epic Games’ Unreal Engine 5, which is coming in 2022 with a free city that developers can use as a foundation to make metaverse-like games.

On the non-gaming side, we’ll also see cool experiences arrive for enterprises in Nvidia’s Omniverse simulation world. In fact, the biggest chance for us to see the real metaverse emerge in the long term could come from the Omniverse, as Nvidia CEO Jensen Huang believes that his company will use the powers  of AI and supercomputers to build a digital twin of the Earth for climate change predictions. And once that is build, Huang believes we’ll get the metaverse for free. Some game developers like Brendan Greene, creator of the PUBG battle royale game, really do want to build a digital twin.

These, too, will start out as patchwork like BMW’s digital twin factory. Over time, the connective tissue will form — such as NFTs that make it easier to identify digital items that can cross worlds. But it will be like the early days of the internet, like when users on The Well couldn’t talk with those on Compuserve or AOL. At some point, a shared ecosystem or commons will emerge, but probably not in 2022. And maybe not for years.

The hardest thing will be for the industry to come together and put selfishness aside in favor of the greater good of establishing open standards for the interoperable metaverse. We’ll see if advocates like Epic’s Tim Sweeney can convince others that coming together is a matter of enlightened self interest.

3) NFT games will go mainstream amid a divided audience of lovers and haters

NFTs are a flashpoint for Valve.
NFTs in games are starting to come on strong.

Letter grade: C

2022 notes: We’re still waiting for Web3 games that can capture the imagination of mainstream gamers. Axie Infinity lost some ground and users in 2022 as the crypto winter got a double shock with the bankruptcy of FTX. Gods Unchained has done well but it still has a small base. With a crash in crypto and NFT prices, the core supporters of Web3 games suddenly found they had a lot less money. It was cool to see projects announced like Paul Bettner’s The Wildcard Alliance. His company, Playful Studios, raised $46 million for that game, but it hasn’t launched yet. That’s the case with many top titles in the works. I’m still confident we’ll see the fundings and talent pay off in this space, but we’ll likely see a culling first.

Foes of NFTs were gleeful at the backlash that Ubisoft faced when it announced NFTs for Ghost Recon: Breakpoint — a move that gamers roundly criticized. They further reveled in GSC Game World backing off on NFTs for Stalker 2. But I don’t think those foes realize just how much financial might has lined up to make NFT games into a mainstream passion.

The true believers in crypto and smart capital are betting that mainstream adoption of NFTs is coming, and they are pouring billions of ideas into the opportunity. This is why we already see so many unicorns created so early in the emerging market among the makers of NFT game infrastructure and platforms. These platforms being created by companies like Forte pledge to make it easy for the best game developers to create mainstream NFT games that take advantage of blockchain technology. These platforms could also simplify the adoption of cryptocurrency through the simplicity of gaming.

I’m confident that the innovation will come from blockchain and cryptocurrency and rewards-based business models. I don’t know what that innovation is yet, but when the smartest people in the industry band together to make it happen, I bet that it will happen.

I don’t have a stake in this race, but I talk to a lot of people. I have seen this kind of innovation cycle happen before with the derision that free-to-play faced at the outset of mobile games and the ultimate victory it has won with the majority of all games now being free-to-play and mobile. While others scoffed at free-to-play, those that embraced it — like Supercell, Machine Zone, King, and Zynga — won the market. These were mobile-first companies wrecked the premium-price model embraced by incumbents.

It is not a foregone conclusion, however, that NFTs will win. The game developers who are integrating them into games will have to win over gamers, who are skeptical, through skillful game design. Skeptics have pointed to problems such as environmental damage from blockchain computing, scams, money laundering, weak games, and profit seekers. But all of these problems can be overcome as the quality developers and companies move into the space.

Perhaps the stickiest criticism is that NFTs don’t enable you to do things that you can’t already do in games in some way. I think that this criticism fails to recognize the cleverness of game developers and the value of decentralization — where NFTs can be used to bypass traditional distribution mechanisms and enable peer-to-peer transactions — in cutting out big tech. In this way, NFTs are an arrow in the quiver of independent-minded game developers, much like web games and instant games are.

Among the professionals moving into NFT games are Zynga, Mythical Games, Com2Us, Ubisoft, Jam City, Will Wright, Peter Molyneux, Graeme Devine, Austin Grossman, Gabby Dizon, Naomi Augstine-Lee, Chris Clay, Chris Akhavan, and others. Josh Williams, CEO of Forte, which raised $725 million to build NFT game infrastructure, said that all of the major game companies are investigating NFTs.

And the NFT game companies raising the most money are the ones that have veteran game developers. Meanwhile, the big companies will get stuck waiting for regulators to say the coast is clear. As Amy Wu of Lightspeed Ventures pointed out, the crypto natives and gaming natives have to come together. When they do, I think that is when we will see mainstream adoption of NFT games and the resistance from gamers may melt away.

4) Game deals will grow so long as the global economy stays healthy

The biggest game investors and acquirers of 2021.
The biggest game investors and acquirers of 2021.

Letter grade: A

2022 notes: Drake Star Partners said that in the first nine months of 2022, there were a record 976 deals announced or closed that were valued at $123 billion. That number has already eclipsed the $71 billion for 2021. Of course, a big chunk of that is the $68.7 billion pending acquisition of Activision Blizzard by Microsoft. That deal is still up in the air, as the FTC has challenged it on antitrust grounds. But even though the U.S. venture capital industry has seen a decline in deals in 2022 compared to 2021, gaming deals have been strong, led mostly by investments in Web3 gaming startups.

As noted above, game investments hit record levels in 2021, with $71 billion pouring into game startups, acquisitions, and public offerings in the first nine months of the year, according to Drake Star Partners.

More than $4 billion went into blockchain games. More than 100 game venture capital funds and dozens of private game unicorns (or startups with valuations above $1 billion) are feeding money into games. Public stock markets have rewarded merger-happy companies like Embracer Group (which has made dozens of acquisitions) and Zynga. This money comes from the top of the food chain, with big investors pouring money into different parts of the ecosystem on the belief that games are benefiting during the pandemic.

While that is true, it’s an effect that can wear off. We saw how some companies (Roblox) hit continuous growth targets with each quarter compared to the anomalous quarterly results of 2020 while others (Take-Two, Zynga, Activision Blizzard) barely grew their revenues this year compared to last year. So it’s clear that game companies can’t defy the laws of gravity. If the global stock markets head south, all bets are off.

But I don’t really expect that to happen. What is unprecedented at this time is that all parts of the gaming ecosystem are thriving and fueling each other.

Scene from the upcoming Uncharted movie.

Letter grade: A

2022 notes: Hollywood knocked it out of the park, making this prediction come true, as we saw Riot Games’ Arcane win four Emmy Awards for the outstanding quality of the Netflix animated series. We didn’t come up with a new word to replace the tainted “transmedia,” but game-based movies and TV shows thrived. Examples include the excellent third season of Ubisoft’s Mythic Quest comedy about a game studio; the second season of The Witcher turned out good, and I was happy to see films such as Sonic The Hedgehog 2 and Uncharted finally hit the screens.

I was pleasantly surprised with the quality of Cyberpunk Edgerunners. The Halo series on Paramount+ got mixed reviews but it was renewed for another season. We’ve also got tons more in the works, like The Super Mario Bros. Movie, Minecraft: The Movie, Sonic the Hedgehog 3, BioShock, Death Stranding and so many more.

And I am very much looking forward to the January 15 debut of The Last of Us on HBO.

One of the conclusions from that last point is that games will become the center of the entertainment universe. And that could mean that movies and TV shows will follow gaming.

Gearbox Software’s Randy Pitchford has been touting the opportunity to turn Borderlands into a movie franchise. That’s the opposite direction that Hollywood studios usually pursued when trying to extend entertainment franchises from one media to another. Transmedia became a dirty word because it promised too much in years past. The notion was that properties such as Mickey Mouse could spawn everything from theme parks to video games. But now that games hit the key demographics and have mainstream adoption, extending them into other media makes more sense. Games are now the lead horse.

We saw that with Riot Games’ Arcane (based on the League of Legends game) animated television series that became a big hit on Netflix. And we have high hopes for Naughty Dog’s games The Last of Us and Uncharted, which are both being turned into major releases from Hollywood. Microsoft is getting there on its Halo television series. The great hope is that these will come off as compelling films rather than cheesy live-action role-playing (LARP) events.

And in the end, streaming subscriptions for the combination of games and movies will make sense. In the end, bits are bits, and Netflix has shown that it is happy to stream either kinds of bits to its audiences. Microsoft would also be happy to offer exclusive game-based movies with its Xbox Game Pass.

6) Game console shortages will continue amid strong demand

Switch OLED.
Switch OLED.

Letter grade: A

2022 notes: As much as we heard hopes of the supply chain loosening up this year, the next-generation consoles and high-end graphics cards were in short supply for much of 2022. With a crash in crypto mining and a weak economy, many believe that we’re in the midst of a recovery in the supply-demand balance. We’ll see if that holds true for the holiday season and 2023, but let’s hope that gamers still really want these machines that are finally becoming available.

I was pleasantly surprised with the quality of Cyberpunk Edgerunners. The Halo series on Paramount+ got mixed reviews but it was renewed for another season. We’ve also got tons more in the works, like The Super Mario Bros. Movie, Minecraft: The Movie, Sonic the Hedgehog 3, BioShock, Death Stranding and so many more.

And I am very much looking forward to the January 15 debut of The Last of Us on HBO.

Microsoft, Sony, and Nintendo all continued to ship more and more consoles throughout 2021. But it’s hard for them to meet demand because of the voracious appetite for games and the shortage of key semiconductor chips. That shortage is widely believed by companies such as Intel, Nvidia, and Advanced Micro Devices to last into 2023. And that makes it easy to predict that the consoles — which can depend on hundreds of suppliers of thousands of parts per console — are still going to be in short supply in 2022.

By now, Nintendo’s Switch should cost a lot less than the introductory price of $299 when it debuted in 2017. But it has topped 100 million sales and still continues to sell well, so Nintendo has no motivation to cut the price. It finally did cut the price on the old Switch in September as it introduced the new Switch OLED model, but nobody really has an incentive to push a price war when we’re still in a pandemic-induced supply shock.

If anyone has an opportunity here, it’s the makers of mobile gaming hardware and mobile games, as they can make games more accessible to a wider market. And it’s no surprise that Qualcomm recently introduced a model for a mobile-based game handheld. Now if its manufacturers can get a hold on enough parts to manufacture it, it could exploit the opportunity.

7) Play-and-earn will spread in emerging markets

Axie Infinity
Axie Infinity lets players battle with NFT Axie characters.

Letter grade: C

2022 notes: Play-and-earn games held their own. Axie Infinity has survived a tough crash in its market and its owner Sky Mavis launched its free-to-play game Axie Infinity: Origin. But the crypto winter and the FTX bankruptcy destroyed a lot of the wealth in this market and that meant it was harder to get new play-and-earn games off the ground. There are a lot of games still coming, but game companies are modifying their models so players are motivated by outstanding gameplay, rather than just the prospect of flipping NFTs and making money.

Games are great at motivating players to play because of their intrinsic value. People enjoy them, and they enter a mental state of “flow” when they get really engaged with games. That’s intrinsic value. Extrinsic value is something like getting paid to play games.

But the difference between intrinsic and extrinsic value is blurry. We saw the blurriness emerge this year as games like Sky Mavis’ Axie Infinity offered rewards to people who played the game. By investing in unique game items via NFTs, players could acquire unique game characters and make them more valuable through gameplay. They could then resell those characters to other players and make a profit. In the Philippines, hundreds of thousands of players took advantage of this “play-to-earn” game to make more than triple the minimum wage in a country that had 40% unemployment during the pandemic.

NFT resales can easily be tracked and credited to either the original creators or the owners themselves. And so players or even the original creators can benefit from item resales. It’s part of a Leisure Economy that is lifting people out of poverty around the world.

The small amount of money to be made won’t really appeal to gamers in richer countries, but those gamers might like games that have both intrinsic and extrinsic value.

Critics say that Axie Infinity wasn’t inherently fun and it gave players a profit motive rather than pure enjoyment. This extrinsic motivation would eventually wane, the critics said, and the players would give up the game if the ability to make profits went down. But while some praised the life-changing potential of play-to-earn — Sky Mavis said 20% of its players were unbanked — others saw it as just the first inning.

Miko Matsumura, cofounder of Gumi Cryptos, believes that NFT-based play-and-earn games — where the game is designed by game veterans to be really fun — that also give players ownership and ability to reap profits will become the prevailing model in gaming.

Players, he believes, will see playing games as an investment, just like in the old days when they bought console games and then sold them as used titles to GameStop in years past. Those profits from the used game sales enabled them to reinvest in new games. Players in the West may scoff at this. But those in emerging markets could enjoy earning their digital goods through gameplay and then sell them to labor-averse players in the West. And who doesn’t want to own their own stuff in games they love to play and also make money from it?

Mark Zuckerberg said the metaverse will let you teleport to different worlds.
Mark Zuckerberg said the metaverse will let you teleport to different worlds.

Letter grade: A

2022 notes: It’s generous of me to give this one an A, as we have seen companies such as Meta struggle to market a profit in VR. But the core fact that supports this prediction is that the virtual reality market grew an estimated 37% in 2022 from 20.2 million VR hardware units sold in 2021 to 27.7 million in 2022. That’s a healthy growth rate, and sales of VR software are expected to show similar growth patterns. That is happening in a year where overall gaming is shrinking 4.3%, according to Newzoo.

Augmented reality and virtual reality went through their hype cycles in the past five years. Many game developers gave it a try and then reverted to making traditional games. But the hopes of creating a metaverse to offset the woes brought on by the pandemic have given new hope to those AR/VR dreams. Companies like Niantic, the maker of Pokemon Go, have shown the path for innovations in AR.

Niantic has invested heavily in making the leap from location-based games to next-generation AR, which can deliver useful information to you while you’re on the move. And Facebook/Meta continues to double down on Oculus/Meta Quest hardware. In fact, Facebook’s $10-billion-plus-per-year investments make Magic Leap’s $2 billion-plus in funding for its own metaverse ambitions look like chump change — or maybe a couple of months of Facebook’s spending.

The belief is that these investments, while still based on nascent markets, will be worth it because AR/VR are the most immersive platforms when it comes to accessing the metaverse. It’s good to see AR/VR startups getting investments again, but we still want to see more hits before this market becomes the reality that we all want to see. In the meantime, on the ground level, I see AR/VR startups getting funded again after a fairly long drought. Of course, the biggest boost of all will come whenever Apple decides to launch its AR/VR product. But predictions about that have been pretty bad so far.

9) Game companies that fail to change will get acquired — or left behind

Activision Blizzard's brands.
Activision Blizzard’s gaming characters.

Letter grade: A

2022 notes: It was fortuitous that I used Activision Blizzard as an example here is that the company went through huge changes in 2021 and 2022 with its lawsuit and Call of Duty franchise. It is still defending itself in the case but Call of Duty has seen one of its best years in history as the company reinvented its game engines and aligned its strategy around the core PC/console title, Warzone 2, and mobile. That kind of transformation showed it could change for the better. The jury is out, and it’s not clear if Microsoft will succeed in the acquisition. But 2022 showed that a lot of change is happening at the core of the game industry.

When change comes, the losers fall victim to the innovator’s dilemma of sticking to the old cash cows when they should embrace innovations that cannibalize the old. Activision Blizzard is a good case in point. It has reached huge revenues with games like Call of Duty, World of Warcraft, and Candy Crush Saga. But most of its games in the works are sequels or remakes.

Where are the original titles? The bar is evidently so high in the company’s R&D ranks that the opportunity cost of investing in older franchises versus new ones is too hard to overcome. Activision Blizzard’s stock price fell dramatically in 2021 as Call of Duty subsided from a 2020 high and it was hit with a sexual harassment lawsuit by California regulators.

The latter fact showed that other kinds of change are also necessary for modern game companies to keep up with the times. Failing to recognize when it’s time to change has always been fatal, and that failure often comes from unexpected directions.

Activision Blizzard is now a potential acquisition target from possible buyers such as Disney. And nobody expects Activision Blizzard to be a leader when it comes to acquisitions or investments in NFTs, VR, the metaverse or other innovations.

It’s worth noting that Roblox, which innovated in a platform for user-generated content, is now the most valuable video game company in the U.S. The results could lead in a variety of directions. Employees may leave the big company for startups. The lesson is a steady-as-she-goes strategy is good until it isn’t, and then change will happen.

10) God of War: Ragnarok and Horizon: Forbidden West will signal Sony’s real next-gen arrival

We got the first glimpse of God of War: Ragnarok on Thursday.
We got the first glimpse of God of War: Ragnarok.

Letter grade: A

2022 notes: Both of these games came in for a landing in 2022 and they showed that Sony’s dedication to single-play narrative blockbusters remains one of its strongest points. Both titles were on my list and GamesBeat’s list for the top titles of the year, and Sony has been greenlighting even more such titles as it strives to compete with its big rivals.

I figure if these potential blockbuster games from Sony got delayed in 2021, they should arrive in 2022, right? And I believe both will highlight Sony’s competitive strongpoint of funding games with huge single-player campaigns with strong stories.

These games and others like them represent Sony’s unique advantage over Microsoft, which until recent acquisitions didn’t have the giant single-player brands in the same way. Microsoft took a major swing with Halo: Infinite, which is my favorite game of 2021 and represents the best it can produce on the console/PC. But strong narratives are part of Sony’s DNA.

If anything should set the PlayStation 5 apart from the Xbox Series X/S, it will be these expensive narrative titles. It takes brave executives to greenlight budgets of hundreds of millions of dollars on projects that take years to complete — even as everyone else focuses on games-as-a-service — to make the hardest core gamers happy.

I have the highest expectations for both God of War: Ragnarok and Horizon: Forbidden West. They are carrying a very important torch. I believe they have strong teams and budgets behind them, and this is one of those things that Sony shouldn’t change.

11) Labor will be tight, and labor unions could form

Assassin's Creed: Valhalla was a major hit for Ubisoft.
Assassin’s Creed: Valhalla was a major hit for Ubisoft.

Letter grade: A

2022 notes: For half of the year, the labor market was tight. But as the world economy weakened, we saw layoffs affect the game industry. Big companies like Meta and Amazon cut a lot of jobs, and game devs got hit. Still, it wasn’t easy to find the specialized developers that everyone wants. And we did see the first major union in the game industry as Activision Blizzard’s Raven Software QA team voted to form a union, following up on a vote a the small studio Vodeo in 2021. We’ll see where this leads.

Just like my No. 9 prediction, this prediction about unions forming seems like a perennial one for games. Game developers have often been exploited and made to work long hours without sufficient pay — known as crunch. Work conditions are sometimes dreadful for diverse workers such as women at companies like Activision Blizzard and Ubisoft. That has always made labor unions appealing, and a survey by the International Game Developers Association (IGDA) in January 2020 showed that 54% of developers favored a game union.

Still, the unions have scored only small victories. The pandemic and fresh accusations of bad work conditions at big companies have opened the opportunity for labor unions to make new headway in games. We know that wages are rising amid a huge shortage of skill game developers as the industry enjoys an unprecedented expansion. Crypto game companies are picking off a lot of developers, and VCs are busy funding startups staffed by veterans. The shortage will continue in 2022, and that could once again create conditions for more unionization.

These are forces that will help union organizers, but these are forces that the leaders of benevolent and enlightened companies — if they exist — could and should address.

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