Five Key Predictions for the Gaming Space This Year
Gaming and esports are changing. Here's how I think it'll shake out this year.
I’m a big fan of NYU professor and tech pundit Scott Galloway. One of his pieces I look forward to each year is his annual predictions—a review of the ones he made the year before and his thoughts on the year ahead.
I’ve been thinking a lot about how the gaming and esports industries will change in 2022. I’ve spoken to a multitude of executives—some on the record, but many on background or off the record, some whose public statements don’t match the way they speak in private. I’m cheating here a little bit, because it’s April, and I’ve been able to take the past few months to soak in all that has already happened this year. But I want to get in the habit of making these predictions and holding myself accountable come the end of the year.
So here are my five key predictions for the gaming space this year:
More Consolidation, Acquisitions and Public Offerings
We’ve seen some of this already. FaZe Clan is set to go public via a SPAC merger—which was planned for Q1 2022, but here we are 20 days into Q2 and nothing has happened yet. ReKTGlobal is also going public, slightly indirectly, by way of an acquisition by self-proclaimed “metaverse innovation” company Infinite Reality, who are set to SPAC soon, too. On the broader gaming front, Microsoft is going through the diligence process to acquire Activision Blizzard in 2023, Take-Two is set to absorb Zynga, and Sony is picking up Bungie.
Those won’t be the end of it. We’ve reached a crucial touchpoint in the gaming and esports worlds, although I’m not so sure the shift in both are connected.
On the gaming front, it feels like the industry is changing in lieu of powerful parties further cementing their flags and in a time where gaming is redefining itself. There’s a push to be the largest stakeholder in the metaverse and there’s no better way to do that than to own a lot of IP.
The metaverse isn’t a new concept. It’s just a buzzword reflecting much of what many gamers already experience: having a fictional life in a different world (see also, every MMORPG ever made). There’s also a rise in mobile gaming—which is why the Zynga acquisition makes so much sense—and a lot of people trying to figure out the play-to-earn model, which some I’ve spoken to think will replace free-to-play as the dominant form of gaming.
In esports, the cards are being called. A lot of venture capitalists that rushed into the industry in 2015 to 2018 are realizing there’s not a five-to-eight-year return here. So they’re trying to find ways out. That will look like outsourcing, downsizing and eventually acquisitions—with frankly some being below the previous funding round’s valuations. Expect this to touch all of esports, including even the most prominent leagues, like the LCS.
“Esports” Will Be Redefined
When I speak with advertisers or folks working tangential to the gaming space, they often say “esports” when referring to not just competitive gaming, but also gaming-related streamer and influencer culture. It’s true, many of the roots of the game streaming industry stem from esports. Tyler “Ninja” Blevins, Michael “Shroud” Grzesiek and others were once esports players before they became millionaires via Twitch.
Culturally, the two cultures have been quite distinct, but I expect those lines to blur further in 2022 for a few reasons:
First: Co-streaming is growing, with people like Shroud drawing in a lot of views for “VALORANT” tournaments. It does have an effect on advertiser sales—as a result, its lowering wages and budgets for esports broadcasters—but it’s undeniable that it’s a big future for a portion of the esports industry.
Second: Most esports teams have recognized that to bring in revenue, it requires them to win. In pro “League of Legends,” that means spending upwards of $10 million annually, between player salaries, support staff, facilities, housing, travel, meals and other expenses. So, there’s been a pivot in their business strategy, diversifying into talent management, content, software, blockchain and other means of revenue.
Third: A new audience is emerging in the esports industry. We’ve seen a lot of insecurity from older esports figures because they’re less relevant to the audience that’s coming of age and becoming the primary esports fanbase. This isn’t new—each time a new game comes out, the industry gets younger and younger because of its generational popularity. There are a few games to thank for that right now, including “Fortnite,” “VALORANT,” “Rocket League” and others who have caught on among the Gen Z audience.
I expect the word “esports” to become something closer to “boomer” advertiser speak than to the entrenched phrase of meaning strictly competitive games. This will be met with a lot of resistance, but it feels inevitable.
Play to Earn Will Become the Hot Commodity for Investment
This might be a cop-out, because it's clear that Web3 is the hottest thing on the block for investors. No one has broken the code for play-to-earn games, in terms of massive market reach yet, though.
Rewinding here for a second, I should probably explain play-to-earn games. There’s a variety of ways these models work, but let’s compare them to Pokémon cards. Recently, Pokémon cards have accrued value as they’ve become more and more of a cultural collectible item. So that rare Charizard that may be hanging out in your deck book in your mom’s closet from 15 years ago might be worth thousands now. Some of that concept applies to play-to-earn games.
To get in, you pay a purchase price to buy your NFTs—similar to picking up a starter deck of Pokémon cards. It’s an investment, and the more you play with those NFTs, the more rewards you get and the more they can increase in value. You can then resell them and earn a profit.
This has taken off in parts of Asia, including the Philippines, where it has made headlines that the popular play-to-earn game Axie Infinity has become a major source of income for some.
The problem is with most cryptocurrency-related businesses: They’re speculative and they’re highly vulnerable. Hackers stole $622 million in value from Axie Infinity and its players in March by penetrating the blockchain it was built on. That’s a lot of dough.
Play-to-earn games have not taken off in the West yet. But a bunch of investors are trying to figure it out, backing highly-speculative programmers with a wide variant of ideas. Last year, venture capitalists invested $30 billion into Web3 companies. Expect that number to be larger and play-to-earn games to be a meaningful piece of that pie.
Games IP Will Become a Hotter Commodity for Film and TV
I’m sort of cheating here. I run a production company, Overcome, that’s creating original non-fiction film, television and podcasts. I started that company because I saw a trend, which I believe is already being realized and will continue to be in 2022 in meaningful ways.
So far, we’ve gotten “Arcane,” the Netflix original series based on “League of Legends” lore.
Paramount+ also launched a “Halo” TV series and is set to launch a mockumentary about the LCS later in the year, in partnership with Riot and the creators of “American Vandal.” This week, Netflix ordered an animated series about “Exploding Kittens,” the card game that’s also launching a digital game.
That’s not all. There’s a handful of pilots ordered—such as the Rick Fox-focused series developed by Warner Bros. TV for CBS; and a Legendary Pictures comedy in which Will Ferrell will star as an esports athlete. We’ve not heard about these for a while, but they’re indicative of a trend.
Simply put: Both before and certainly after “Arcane” showed that non-gamers can dive deep into gaming-related content, there’s an increased demand for it, especially in a world where billions of dollars are being spent by entertainment companies to build streaming services in an oversaturated market. Even Netflix reported it lost 200,000 subscribers in Q1 2022, the first down quarter for the company in a decade.
The streaming wars are going to continue to be contentious. Gaming will be a means for diversification as platforms fight their competitors for subscribers.
Esports Player Salaries Will Correct
Semi-related to my first prediction, I believe this year we’ll see a correction in player salaries. No more deals like the incredibly expensive, $6 million, two-year contract between TSM and Hu “SwordArt” Shuo-Chieh, which terminated in November; or the Cloud9 and Luka “PerkZ” Perković deal that didn’t lag far behind in annual average salary.
Esports is an unsustainable business, especially in “League of Legends” and “Counter-Strike,” where spending highly outweighs revenue. We’ve reached a ceiling on player contracts for now, in my view, and I see a world where no one makes near that $3 million annual salary figure again.
Instead, I believe the LCS will make some strides toward unionization and the players and LCSPA will be met with swift and loud resistance from team owners—either directly or via media surrogates. We’ve seen that begin with the partnership between LCSPA and OneTeam Partners to monetize group rights. Personally, I’m rooting for unionization, even if in the short term it affects player earnings.
The future forward to make current player salaries sustainable will require a monumental shift in esports revenues. The industry needs to find a way to successfully activate media rights, gambling and alcohol sponsorships, live events, and other categories; or it needs to carve its own path. Peripheral deals ain’t cutting it anymore, and I refuse to believe that Twitch will keep cutting the big deals it has with prominent esports teams—frankly, because they don’t need to anymore. There’s no competition for them.