VR has failed to thrive in the pandemic

This isn't how it was supposed to play out. 

As the COVID-19 pandemic's first wave gathered speed, and fortunate souls like me switched from meatspace commuting to tele-commuting, I started seeing more and more takes like this one, from CNBC:

Virtual reality is booming in the workplace amid the pandemic. Here’s why.

After years of promises and false starts, Covid-19 has driven a record number of workers remotely and could finally usher in their regular use of VR and AR at home — or at least give the tech a push on the path to mainstream.

A PwC report last year predicted that nearly 23.5 million jobs worldwide would be using AR and VR by 2030 for training, work meetings or to provide better customer service. According to a report by ABI Research this year, before the pandemic the VR market was forecasted to grow at a 45.7% compound annual rate, surpassing $24.5 billion in revenue by 2024. Virtual reality used within businesses is forecasted to grow from $829 million in 2018 to $4.26 billion in 2023, according to ARtillery Intelligence.

The alert among you will have already spotted the repeating pattern here: a click-bait headline that talks about a VR boom as if it's happening, then immediately follows with a sentence that only says that it could happen; and "analysts" with skin in the VR game, bullishly predicting that VR will grow into a multi-billion dollar business in the next five years, in a report published a year earlier, before the pandemic had even started. In short, a lot of speculation with no substance, breathlessly presented as if CNBC were reporting on something that was already happening.

We've been seeing this same pattern play out for years, in no small part because analysts like PwC have been making these same predictions for about five years now, without the predicted VR boom ever happening, but COVID-19 changed a lot of things. Did it change this one? Was this actually VR's hour, come round at last?

Confirmed: Epic's big gamble is actually a loss

Or, as Kotaku put it, "Epic CEO Tim Sweeney Is Very Excited About The Epic Games Store Losing A Ton Of Money." This revelation apparently comes to us by way of Epic's own court filings in their ongoing war of legal attrition against Apple, which the eagle-eyed and awesomely-named Tyler Wilde spotted, and wrote about for PC Gamer.

Epic Games has spent the past two years shoveling Fortnite money into the Epic Games Store, making over 100 exclusivity deals and giving away free games every week. We knew Epic was spending a lot of cash to get customers onto its store, but didn't have many specifics until [...] we learned this week that Epic committed around $444 million to Epic Game Store exclusivity deals in 2020 alone.

[...] A "minimum guarantee" is just another way to refer to an advance: It means that Epic guarantees the publisher a certain amount of money whether or not their game actually sells enough to cover it. For example, Epic put down $10.45 million for Control.

[...] Some of those deals must be for exclusives releasing in the future, but according to Apple's learnings, Epic is going to eat "at least $330 million in unrecouped costs from minimum guarantees alone" if you also consider 2019's deals.

I'd posted about Epic's big gamble back in 2018, and have opined before about how Tim Sweeney's arrogant approach was likely doomed to fail; for more, check out "Metro:Exodus proves several of my points about Epic's new marketplace," "PR Communications 101: Sarcasm = Mockery," or "Why platforms aren't your friends" (although that last one was basically an excuse to embed Folding Ideas excellent video on essentially the same subject).

Suffice it to say that I am not at all surprised to learn that Epic are losing money on the EGS; given how much money they were spending to basically bribe both developers and consumers into adopting it, I would have been far more surprised to learn that they were turning a profit. Interestingly, Epic's exclusivity agreements appear to work exactly the way I always thought they did: like the royalty advances of book publishing and other, similar industries, but even I did not predict losses on this scale; apparently even Fortnite's huge haul isn't enough to keep pace. 

I'm also a little surprised that we're learning about these losses at all; I was expecting this information to remain well-buried for a long, long time. I suppose I shouldn't have been surprised, though, given the broad extent of Apple's document pulls from all and sundry in the matter of their legal battle with Epic Games; the California judge overseeing the proceedings described it as Apple having "salted the Earth with subpoenas" from a variety of industry players, including Valve Software. This likely means that Friday's bombshell is likely only the first of many; there are a lot of previously confidential, behind-the-scenes dealings which are about to become part of the public record. That's very exciting. Consumers could be on the verge of learning a lot about the workings of an industry that we previously could only guess at.

For now, though, we can only shake our heads in mock disbelief at the extent to which Epic's Game Store has flopped. Given that the service launched in 2018, and is still hemorrhaging money with no end in sight, I have doubts as to whether Epic can actually turn this around. The brand damage here may just be too deep, and the stench of flop sweat and failure is unlikely to attract new business partners eager to associate their valuable brands with Epic's radioactive one. 

Even worse for Epic: the Fortnite revenue which has been funding the EGS to this point is also down, from $1.8 billion in 2019 to less than $500 million in 2020:

[...] Epic said that players spent $700 million on the Epic Store in 2020, but third-party game sales only accounted for $265 million of that spending.

No wonder Sweeney has resorted to litigation! At this point, the EGS's only hope may be to find a sympathetic judge who'd be willing to "flip the board," disruptive the game of the entire video games business on their behalf. Given how much room to run Judge Hixon is affording to Apple, though, I would recommend that Sweeney not count too heavily on the tree of that particular lawsuit bearing the sort of lucrative fruit that the EGS needs in order to stave of death by starvation, especially since their entire legal argument is that the 30% cut is unnecessary. Apple can now counter that argument by simply pointing out that Epic's 12% cut is losing them money hand over first, and clearly not a sustainable business model. Look for that lawsuit to badly for Epic.

Will Epic's epic-scale Game Store losses cause the company to course-correct?

Probably not, alas. Sweeney is still Epic's majority shareholder, which means that he's basically able to do whatever he wants with the company. Epic's next-largest shareholder, Tencent Holdings, who own 40% of Epic, do have the sort of resources required to put pressure on Sweeney, but they can't simply vote him out as CEO, or off Epic's board of governors, which will limit their options... assuming they're even inclines to intervene here, which is far from certain. For all the suspicion that surrounds any Tencent acquisition, their management style has so far been pretty hands-off, at least with their interests outside of China.

Of course, even Epic Games can't sustain this kind of burn rate forever; eventually, they're going to have to make changes in order the stop the bleeding, and put in place some sort of plan to "return to profitability" (corporate code of mass layoffs). Given that their legal battle with Apple has only served to make the industry-standard 30% cut to the platform look more essential than ever, and that Epic has done almost nothing to earn back the trust and good will of the Steam community (which, at this point, includes basically all of the PC gaming community), and also given that efforts to repair their brand and rebuild their business can't even start until the Apple lawsuit, at least, is either dropped or settled, I'm starting to have serious doubts about Epic's long-term prospects. I beginning to wonder if Epic will be able to survive at all, in the medium-to-long term.

In the near term, however, while Epic still have a fat war chest and a loyal Fortnite fan base, I expect that the PC gaming industry news is going to be very, very interesting. Watch this space...

Well... that was quick

As reported by CNN:

The NFT bubble might be bursting already

Non-fungible tokens, or NFTs, are all the rage. But their popularity may have already peaked. Prices of NFTs, the digital certificates that have taken the art and collectibles world by storm this year, have plunged about 70% from their high point in February.

[...]

NFTs have been an investing and pop culture mania for the past few weeks, leading some to wonder if the frenzy is a market bubble fueled by the wealthy and younger traders flush with stimulus money.

As always, I am surprised only that people are surprised.

 

NFTs, for the uninitiated, are non-fungible tokens, essentially digital certificates of authenticity for digital content. Because they're encoded on the blockchain, they can't easily be duplicated or counterfeited, and each is unique, which is appealing to people cursed with a compulsive collecting habit.

They aren't, however, the actual pieces of content that they're linked to; the blockchain is already enormous, and adding the entire piece of a digital work to the chain would be prohibitively expensive. The digital works in question are stored separately, and can be moved, altered, or deleted without altering the NFTs themselves, resulting in a digital certificate of authenticity for something which doesn't exist anymore.

So NFTs aren't actually certificates of ownership in any convention sense. Additionally, the licenses that they encode are almost always specifically worded to exclude any sort of copyright, so someone spending millions of dollars on an NFT can't even sell copies of the thing they've "paid for." In essence, NFTs are an elaborate mechanism for adding bragging rights to what is, effectively, Patreon. 

 

What could possibly go wrong? Apart from the environmental impact of bitcoin mining, of course, which is enormous.

A secondary effect of NFTs' collapsing value might also mean a collapse in the price of Ethereum. Most NFTs are encoded on the Ethereum blockchain, specifically, so a bursting NFT bubble might just burst the Ethereum bubble, too. That would make PC gamers happy, since a burst in the Ethereum mining bubble could mean a quick sell-of of the equipment used to mine that particular cryptocurrency, including tens of thousands of the latest PC graphics cards, which ease both the current supply shortage of those parts, and drive their prices down to something approaching MSRP.

Still... I have to shake my head at the whole thing. What were people thinking?