The gaming industry is vast. The industry’s various business models make it one of the most profitable entertainment subsectors. These models collectively culminate to help developers earn more ‘royalty’ per game.
Unfortunately, royalties in the game industry have always been a complex concept due to several factors. But, the recent successes of token games indicate potential solutions for these complexities. Blockchain technology eliminates several problems regarding calculating and tracking game royalties across different infrastructures.
Tokenized crypto games are still relatively new. But, before the video game market hits a $300 billion valuation in 2025, tokenized royalties’ technology would be developed to standard.
Royalties and licensing are technical terms used frequently in the same sentence in the gaming industry. But, with the advent of blockchain, ‘tokenized royalties’ now join the group as a gaming industry buzzword. Hence, if you’re curious about how the new token crypto games benefit developers, continue reading.
Understanding Royalties in Traditional Gaming
Developing and distributing the best games require arrays of licensing, partnerships, etc. All of which comes at a price. However, as a game player, you probably don’t concern yourself with these economics.
However, the advent of blockchain in gaming now lowers the barrier to developing personal games. Hence, you can create a game in your room and publish it to millions globally. But, while coding and designing are pieces of cake to you, the business of gaming may not be.
Before building those cool tokenized crypto games and uploading them for sale, understanding royalties in traditional gaming is vital.
How do Royalties Work in Gaming?
Royalties are the percentage of a game’s profit allotted to the developer. For instance, as a developer, you set a retail price for a game published on the Apple store. The profit each copy of the game makes is the selling price minus the manufacturing cost.
So, if making the game costs $10, and the retail price is $14, then the profit is $4 ($14 – $10). Per the initial agreement, 30% of the profit may be for the publisher (Apple Store). The remaining 70% (of profit) paid to the developer is royalty.
In reality, the calculations aren’t that simple. For example, the exemplified analysis above is based on revenue from direct sales. However, the gaming industry currently employs several models and systems, diversifying revenue streams. And thanks to the more diverse revenue streams, calculating royalties is tricky.
Ways Game Developers Generate Revenue
Beyond direct sales, game developers leverage the following ways to generate revenue:
Advertisement publishers buy boards on digital platforms that pool large audiences, and gaming is one such. In 2019, advertisements alone added about $3.25 to the game market. Games like Candy Crush even have systems that reward players for watching ads. The presence of ads is also used to prompt players to pay for ad-free subscription experiences.
Games requiring monthly subscriptions are on the rise. One famous example of this is World of Warcraft. The game requires a $14.49 per month fee to play. Also, Xbox Game Pass provides 100 free games at $9.99 per month.
Microtraction involves in-game purchases, which always cost less than the game. This is common with freemium games. You can purchase in-game utilities only when you need them for the free versions. Fortnite heavily relies on micro traction, from which it made $2.4 billion in 2018.
Other revenue sources for traditional games are; OEM activations and merchandising.
How Tokenized Game Royalties Will Work?
The introduction of blockchain in gaming has redefined the industry’s economics, favoring players in the process. Players now earn crypto tokens in-game, called play-to-earn. However, helping players earn is only the start of blockchain’s impact on the game industry.
As evidenced by the recent announcement from Microsoft and its Xbox game, tokenized royalties are set to become the solution to long-standing problems in the industry. Unfortunately, though, as with other concepts related to blockchain, the extent of tokenized royalties’ reality remains unknown.
But from developments so far, here is how royalties on token trade games will work.
It’ll be the Sole Source of Truth
Licensing game content is complex work, and many times, violations abound. But, blockchain has the infrastructure to provide all required information in real-time. In addition, with tokenized royalties systems, calculation terms become immutable, and processing becomes automated.
Gaming revenue streams and business models are always more than one. As a result, tracking, managing, and processing payments for royalty contracts become easier.
Furthermore, blockchain-powered game token crypto infrastructure is transparent. Hence, it won’t be just the distributors and platforms managing royalty payments; developers and partners gain enhanced visibility into every detail.
Overall, the business has become more transparent and efficient. Taking a cue from Microsoft, the solution the company built on the Quorum Network on Ethereum will increase royalties’ distribution rate by 99%.
Managing Numerous Licenses
Several licensing deals go into making a single game. And for each sale, a royalty has to be processed. Things get more complex because licensing is a two-way street in the game industry.
For all token games developed, there are licensing deals for images, voice, music, textures, etc. The various licensing deals also come with varying terms. Some require payments per play; others are unlimited. Some licensing is even based on time-based variables.
Tokenized royalties tackle transaction complexities resulting from complex ownership structures and rights agreements. The innovation solution helps companies cut costs while improving transparency. All companies involved in a game‘s development also work off singular foundational information.
Once the information, terms, and requirements are coded into smart contracts, the process becomes automated. According to Paul Brody, blockchain lead at Ernst & Young, “smart contracts implement unique logic for each agreement and, over time, extend the network from publishers onwards to developers and contributing artists.”
In games featuring tokenized crypto earns, NFTs are core to the development. In addition, Crypto games allow players to sell utilities, in-game characters, etc.
NFTs represent something missing from games in recent times – rare and valuable entities. Digital games are available to everyone, so their value is always low. However, NFTs facilitate value accumulation for independent utilities. Hence, developers can potentially earn from the value-creation work done by players.
When secondary sales occur with these collectibles, tokenized royalties help game developers earn. NFTs enable developers – IP holders – to earn royalties on secondary sales.
Learn About CoinFantasy
CoinFantasy is a fantasy gaming platform built on the blockchain. The platform tokenizes entities from the crypto-stock market to create a gaming experience that rewards players via the play-to-earn model.
Royalties have always been the backbone of the traditional game industry for both developers and platform providers. However, soon, ridiculous complexities arise in a bid to create something magnificent. But, by leveraging on tokenization with blockchain, making all parties happy becomes easy.
Frequently Asked Questions (FAQs)
A game token is a full-fledged cryptocurrency with which players can convert in-game winnings into cash on a decentralized exchange platform. These tokens have different uses in-game. For instance, you can use them to procure new gaming weapons, or you can use them to upgrade your gear.
Tokenized money is a fiat currency converted into token crypto, which you can move, store and record on a blockchain. Tokenized money holds the value of a particular utility or infrastructure, for easy transfer and usage across the blockchain network.
This is the type of ownership represented by digital tokens. Essentially, when you hold the token of a particular platform, infrastructure, or application, you are a part owner of such. With tokenized ownership, you’ll play a role in making governance decisions for the application and its users.
Yes, crypto tokens have value. The value of a cryptocurrency arises from its utility, which can be a service or a platform. For instance, Decentraland has the LAND token, whose value depends on the current economy and realities of the game.