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šŸŽ® App Storeā€™s NFT Guidelines: Imminent peril or entry ticket for blockchain games?

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In Todayā€™s Email

šŸš€ This week, we get into one of the hottest topics, whether the App Storeā€™s NFT guidelines will hurt or help blockchain games.

On the go? Listen to one of our podcasts from this week, weā€™ve got

šŸŽ§ TWIG #209 What is going on with games in China???

šŸŽ§ Tokenomics #20 - Why MystenLabs Raised $300m to Build a Better Layer1 for Web3 Gaming

Lastly

šŸŽ® We review the game of the week: Fishdom Solitaire from Playrix

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App Storeā€™s NFT Guidelines: Imminent peril or entry ticket for blockchain games?

One of the biggest problems of blockchain games is reaching a mass audience. Most of the games on blockchain run either on browser or PC. Even the ones that exist on mobile cannot push for mass adoption, because there is no clarity as to how blockchain games are positioned.

Appleā€™s latest updates to the App Store Review Guidelines shed some light on this positioning while creating even more questions about the topic. The updates focused on the usage of NFTs and their functionalities inside games. The rules regarding IAP methods are now the following:

Apps may not use their own mechanisms to unlock content or functionality, such as license keys, augmented reality markers, QR codes, cryptocurrencies and cryptocurrency wallets, etc.

This can be seen as a safety measure against blockchain games monetizing their players outside the App Store. The discussion around the alternative payment systems inside the App Store has a long history where Apple even had to allow for alternative payment systems in South Korea. The fact that Apple doesnā€™t want crypto payments to happen without them getting their cut is no surprise and this newsletter article is not long enough to discuss that.

However, the juicy part of the updates comes after the lines above. Apple gives a very vague description of the utility of an NFT inside the App Store with the following:

Apps may use in-app purchases to sell and sell services related to non-fungible tokens (NFTs), such as minting, listing, and transferring. Apps may allow users to view their own NFTs, provided that NFT ownership does not unlock features or functionality within the app. Apps may allow users to browse NFT collections owned by others, provided that the apps may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchases.

There is a lot of interesting stuff going on with that short statement above, so letā€™s try to deconstruct it sentence by sentence. 

The first sentence that goes ā€œApps may use in-app purchase to sell and sell services related to non-fungible tokens (NFTs), such as minting, listing, and transferring.ā€ is actually saying that NFTs can be sold in games through IAP. So, blockchain games can sell their NFTs as long as they are structured as an IAP. I can hear people saying ā€œBut isnā€™t that against decentralization?ā€ because this means that the App Store would act as the central marketplace for every game there. I donā€™t think decentralization is the actual value proposition that comes with blockchain games. Terms like decentralization, democratization and a bunch of other overarching words were thrown around during the crypto bull run. Nevertheless, now that the hype faded out and people are more focused on actually making games, the trade-off between decentralization and mass market reach should sway developers to forget about buzzwords.

I think that trade-off is quite clear when it comes to primary sales, i.e., when the game developer sells an item to a player: You either use the blockchain marketplaces that take a 2-5% cut with the really restricted market reach they have, or use the App Store that takes a 30% cut in exchange for reaching the billions of mobile gamers of the world. 

Where that first sentence worries most of the developers is secondary sales, i.e., sales happening between players. There is absolutely no point in using the App Store for secondary sales, because giving 30% of the transaction value each time an NFT changes hands practically drains all the value out of the players and hands it over to Apple.

So, although the secondary sales issue looks like it will stay as a gray area for a while, I can see two potential solutions to this problem:

  1. Apple will allow game developers to handle secondary sales through their own marketplaces as long as the primary sales for those NFTs were available as IAP in the App Store. This will prevent Apple from making any changes in the App Store while getting their cut from those blockchain games for every primary sale done inside the mobile app.

  2. Apple would agree on taking a smaller percentage (similar to the 2-5% that the blockchain marketplaces take) for the secondary sales. This would require Apple to work both on the technical implementations and also the legal arrangements, but it is definitely a better long term solution that will serve the whole business.

These solutions may seem optimistic right now. Nevertheless, I believe that successful developers in this space will show everyone that there are profitable and sustainable ways of developing and maintaining a blockchain game. It will help big platforms like the App Store to meet on a common ground.

Letā€™s look at the second sentence: ā€œApps may allow users to view their own NFTs, provided that NFT ownership does not unlock features or functionality within the app.ā€ It is the real deal that sparked most of the discussion around the guideline updates. I think there can be a number of different perspectives that we can view that piece of information from. First of all, if it means that NFTs bought outside the App Store cannot be used, but only viewed, it doesnā€™t make sense at all. There are cross platform games that sell items outside the App Store that can be used with the mobile version on the App Store. So, I think we should dismiss that possibility as it really doesnā€™t add up. 

Another approach that can be taken is more focused on the exact meaning of ā€œfeatures or functionalityā€ that is mentioned. For example, an NFT boosting the gameplay, through increasing stats or giving the player some kind of an advantage, can be seen as unlocking a feature or functionality. If that is what the guidelines mean, it again does not make a lot of sense. The whole discussion around NFTs were focused on two main topics for most of the time: vanity and utility. I think the guideline updates make it clear that the cosmetic NFTs that have vanity purposes are not under any threat at all. NFTs with utility inside the game, on the other hand, are waiting for a clarification from Apple in order to be safe from exclusion. There may be games using cosmetics as their main source of revenue, but excluding the utility driven NFTs from the App Store will definitely prevent a lot of developers from moving to the App Store.

The last approach, which I think makes the most sense, focuses more on the monetization side. If what Apple means by ā€œfeatures or functionalityā€ is related to unlocking monetization tools like battle passes or other items that can be bought through IAP, then I think it makes sense from their perspective to try and protect their business model. No matter what they mean by that second sentence, I think Apple should clarify their stance.

Then the last sentence is actually the most straightforward one among them: ā€œApps may allow users to browse NFT collections owned by others, provided that the apps may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than in-app purchase.ā€. Apple simply does not want game developers to direct players to make purchases with any method but IAP. As long as you structure the purchasing mechanisms inside your game as a usual IAP, viewing and purchasing NFTs should not be a problem. Of course, this makes sense assuming the secondary sales problem mentioned before is already solved. 

If that last sentence means the secondary sales happening between players should also be an IAP, it does not only make sense because of the 30% cut mentioned above. There is also the fact that the App Store allows certain price tags for IAP items which completely destroys the concept of secondary market.

Itā€™s tempting to treat these updates as a way of Apple saying ā€œDeath to blockchain games!ā€. In the end, we all saw how their privacy changes affected the whole mobile gaming business, which causes everyone to interpret Appleā€™s stance in the harshest ways. However, I donā€™t think any company in the world would just deny a sustainable cash flow in the long run. People are developing fun and engaging games that use the blockchain technology, which will eventually attract players and create a profitable business.

For a blockchain game to exist on the App Store, there is one big condition that doesnā€™t seem to change anytime soon: the primary sale of NFTs should be structured as IAP and Apple should take their 30% cut. Itā€™s all about that trade off between mass market reach and the idealistic view of blockchain technology. I canā€™t see why a blockchain game developer would choose the latter, but we will see how the market will react.

Once that condition is satisfied, there remains the problem of secondary sales which will have three possibilities including the two solutions discussed above:

  1. Apple will demand their usual 30% cut from the secondary sales, too. This will definitely prevent any game from entering the platform as long as they want their players to trade NFTs between each other. The nature of a secondary sale is it is not creating value, but merely transferring it. So, paying 30% each time an NFT changes hands is not going to work at all.

  2. Apple will allow the external secondary market, which seems quite unlikely with how Apple wants full control of everything. This would work out fine for both the game developer and the players, but I canā€™t see how Apple would be okay with giving up control.

  3. Apple will work on that secondary marketplace inside their platform with a cut similar to other blockchain marketplaces. Although this is the best possibility out of the three, it requires Apple to invest on this new structure. It also means that they have to be fine with getting a very low cut out of the secondary sales compared to their usual 30% cut. This is, without question, the best scenario for blockchain gaming, but depends heavily on Apple being willing to add a new dimension to their platform.

In conclusion, I think itā€™s crucial for blockchain games to utilize the mass market reach that existing gaming platforms provide if they want to be more than a niche. That cannot happen without compromising on certain aspects like decentralization, so that those centralized platforms can help these games. Of course, just blockchain games compromising is not enough, so we have to also see the gaming platforms working together with blockchain games. Otherwise, I donā€™t think the current way the blockchain games operate is going to be big enough to reach mass adoption.

Written by Ahmetcan Demirel

šŸŽ™ļø Deconstructor of Fun Podcast

šŸŽ™ļø Deconstructor of Fun Podcast

šŸŽ§ TWIG #209 What is going on with games in China???

Eric and Laura cover their respective trips and dig into a few positive updates on Landmarkā€™s funding and new game. The two rehash Nintendoā€™s partnership with DeNA, discuss releasing games in China, and rant on Newzooā€™s mobile market update. Kress offers an update on Microsoft and Activision Blizzard acquisition.

šŸŽ§ Tokenomics #20 - Why MystenLabs Raised $300m to Build a Better Layer1 for Web3 Gaming

It's big #20! In this latest episode of Tokenomics, Ethan sits down with Koh Kim, Head of Ecosystem at Sui maker MystenLabs. The company, formed by ex-Meta veterans, has raised a $300m treasure trove to build a new and better Layer1 blockchain purpose built for Web3 gaming. Koh tells us about her history in gaming, how she red-pilled on Web3 and why she joined up with Mysten, and how the Sui blockchain is the Layer1 that will allow gamedevs like you and me to build better Web3 game experiences.

The Game of the Week

Fishdom Solitaire (Playrix)

Playrix (the Match-3 powerhouse behind Gardenscape and Homescapes) has globally launched its latest title based on one of its famous IPs: Fishdom Solitaire. Fishdom is the third biggest title in the Playrix portfolio with a lifetime IAP revenue of an impressive $1.4bn according to Statista. 

Fishdom Solitaire is following the UA approach that appears to have become the best practice for Playrix: Use minigames as creatives to sell the game and include them as part of the gameplay (the first level in the game is a minigame suspiciously looking like one of their famous UA creatives). 
The experienced Fishdom player will quickly recognize that the game is more or less Fishdom with the core gameplay exchanged with solitaire instead of match-3. It will be interesting to see if this tactic pays off for Playrix. Time will tell. 

Weekly highlight by Jesper Gustavsson, Director of Product at SYBO Games

šŸ“ NEWS

šŸ“Š INDUSTRY

  • Mapping the post-ATT future of mobile free-to-play gaming 

  • Pangle produces a roadmap to help mobile game makers increase revenue during the holiday season 

  • Blizzard will suspend World of Warcraft in China because of licensing dispute 

  • Blizzard and Netease end 14-year partnership: Everything you need to know 

  • Four lessons Apex Legends: Mobile can teach about porting AAA franchises to mobile 

  • Accenture has 1,500 game services staff to help big game studios function 

  • Northern Sweden is aiming to become a ā€˜more interesting societyā€™ by making itself a hub for the gaming industry 

  • Lawsuit claims Google struck a $360 million deal to prevent Activision Blizzard creating its own app store 

  • Sonic creator Yuji Naka arrested for insider trading 

  • First Xbox Transparency Report shows over 7m enforcements over six months 

  • Newzoo: VR games revenues to hit $1.8bn in 2022 

  • God of War Ragnarok launch was bigger than Call of Duty, Elden Ring and Pokémon | UK Boxed Charts 

  • New forecasts suggest the mobile gaming market will shrink 6.4% year-on-year 

  • Newzoo forecasts game market will shrink 4.3% to $184.4B in 2022 

  • InvestGame Q3 2022: Cooling investments and consolidation 

  • 64% of hardcore and mid-core paying users generate 97% of revenue-Are you leveraging your gaming app audience? 

  • Memento Mori: Japanā€™s Last Mobile Game Hit Made US$34 Million In 24 Days 

  • InvestGame: From Q1 to Q3 gaming deals hit $37bn 

  • Asiaā€™s gamers will exceed a billion by 2026 | Niko Partners 

  • Mobile gaming predicted to have the largest compound growth in 2023-2030 with a CAGR of 16.8 percent 

  • Subscription-based gaming to reach $24.1 billion by 2030 - mobile is the fastest growing segment 

  • Newzoo predicts VR games revenue will double by 2024 

šŸ’» PUBLISHER

  • Netflix is leaning hard into video game adaptations 

  • Reliance Games partners with Atari to publish city-builder & management game Citytopia 

  • Mobalytics and Overwolf join forces to expand competitive features 

  • Honor of Kings is expanding into a full-fledged universe with three new games and a film 

  • Gameloft sees initial success with expansion to PC/consoles

šŸ’ŽšŸ™Œ INVESTING / M&A

  • Matchingham Games acquires two IPs from Pow Games in $11.7m deal 

  • Big Pixel Studios veterans' Landmark Games raise $4.6m investment for co-op mobile game 

  • Swedenā€™s Behold Ventures raises $25.9M to invest in Nordic gaming startups 

  • Krafton to acquire The Ascent developer Neon Giant 

  • Yahaha raises $40m for its user-generated games platform 

  • Noodle Cat raises $4.1M for remote working studio 

  • Thunderful Q3 revenues down 5%, profits down 76% 

  • Thunderful acquires Jumpship as studio launches debut title Somerville 

  • Methodical Games raises $15M to create multiplayer action-adventure game 

  • Nvidia reports Q3 revenue of $5.93B, down 17% 

  • Zynga subsidiary Rollic acquires hypercasual games studio Popcore 

  • Embracer sales up 190% during Q2, with 35% organic growth 

  • NetEase celebrates a 10.1% year-on-year increase in net revenue 

  • Eschatology Entertainment raises $4m in seed funding 

  • Immersive Gamebox raises $20 million, receives new patent 

  • Behold Ventures becomes Swedenā€™s largest venture capital firm with $25.9 million raised 

  • Azerion Acquires International Digital Ad Business Hybrid Theory 

  • NetEase invests in gaming fitness bike outfit PlayPulse 

šŸ‘¾ NEW GAMES

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