Hi Everyone. Thanks for tuning in for another week of Naavik Digest. If you missed last week’s edition, we wrote about Sony’s acquisition of Savage Games Studio, and the company’s strategic shift to mobile. Check it out and let us know what you think.
This Week on The Metacast
- Social Media Apps Downsize Games: Why is there a history of failed social app games?
- Creativity Within IAPs: Why is creative exploration of IAPs still important in free-to-play games?
- Xbox Game Pass Friends & Family: How does the new subscription tier influence Xbox’s market position?
Source: Into the Metaverse
This market research essay was written by Naavik contributor David Taylor and originally published by our friends at Into the Metaverse. You can check out their Substack here and their podcast here to follow along.
As part of consistently creating and delivering great content for our growing community I started to look for writers, thinkers and analysts who share my passion for the emerging metaverse, and who want to contribute thoughtfully to understanding the space. David Taylor caught my attention with his essay “A Look at Roblox Developer Unit Economics” on Naavik (an ITM friend), and after getting to know him better it became obvious that he would be a great fit to write an analysis letter on Into The Metaverse.
While Roblox is the current category leader of metaverse-type platforms, it is well known that Epic Games has the ambition of turning Fortnite Creative into a platform that can compete with Roblox’s hegemony. The anticipated integration of the Unreal Engine 5 editor into Fortnite Creative sometime in 2023 promises to usher a new era for the ‘Fortnite as a Platform’ vision.
I’m delighted to share with our community the excellent analysis letter that David wrote about Fortnite Creative and its future prospects.
Fortnite Creative 1.0
December 2018 is when it all started for most of the Fortnite Creative studios I spoke to. They jumped into the newly launched Fortnite Creative platform, leveraging the straightforward building system to immediately start creating maps with the Epic-provided items that could dictate map layout, aesthetics, and gameplay mechanics by selecting them from a menu and dragging them into the map landscape.
While the majority of players at the time came for the whimsical, Hunger Games-style Battle Royale and the exciting live service that allowed them to play as their favorite characters from entertainment broadly, an increasing number of players were exploring the Creative modes made by their peers and friends. Creative mode grew in popularity for its ability to enable players to farm XP, as a training ground to level up their Fortnite skills, and also as a way to enjoy new experiences once Battle Royale got old. It has grown so much, in fact, that CEO, Tim Sweeney, stated, “about half of Fortnite play time by users is now in content created by others, and half is in Epic content” in an interview with Fast Company
The popularity of Fortnite Creative, combined with Epics’ long-stated objective to build the metaverse, is leading to Epic investing in “Fortnite Creative 2.0”. It represents the introduction of Unreal Engine 5 tools into Fortnite Creative, and is expected to change everything for creators. I spoke to several Fortnite Creative teams to understand their approach to the platform today, how they’ve been able to make a business of it, and what Fortnite Creative 2.0 means for the future of creating these experiences.
How Creator Studios Got Started
All of the creators I spoke to got into Fortnite Creative initially as casual gamers on Fortnite, who also happened to love making games. They have been playing since Chapter 1, Season 1 and started building when Creative mode was released in the seventh season. By being so early, they were caught up in the upswell of Fortnite itself. They benefited greatly from being the small group of serious creators building experiences for millions of players that were flowing in as a result of Fortnite’s explosive growth. So they kept building, but many were still not able to quit their day jobs despite the high volume of players in their games.
That has to do with the limited ways in which these creators are able to monetize on the platform–either through Epic’s Support-a-Creator (“SaC”) program or by building maps or experiences for brands. Let’s dive into both to understand why.
Fortnite players have the option of giving 5% of their purchases in Fortnite to specific creators via a creator code. This is not a default option on Creator generated maps. Players either have to input the code manually in the menu, or find and press the SaC button when visiting the creator’s map. These codes deactivate after two weeks or when a new creator code is submitted (a player can only have one code active at a time).
To analyze how much money can be made this way, I’ve done some quick napkin math to estimate the total market that creators are competing for:
We know because of Epic’s court filings that Fortnite made $9 billion in 2018 and 2019. We also know that those numbers increased thanks to the pandemic, but have recently plateaued. A safe assumption might be that Fortnite rakes in about $5 billion in revenue each year.
- 5% of revenue can go to creators via the SaC program, and
- SaC codes expire after two weeks, and
- not everyone who purchases from the item store will use a code or be aware of it,
we can (optimistically) assume that 50% of purchases may use a creator code, meaning that 2.5% of total Fortnite spend goes to SaC payouts. That puts the total-addressable-market at $125 million annually.
But we then have to consider how skewed this revenue can be towards popular streamers. For example, Ninja claimed to make $5 million in a single month off of his SaC code, which is a run rate that would capture almost half the market alone ($125M/12months = ~$10M a month). Now, he doesn't make that much each month, but when we consider that he’s not the only popular streamer sharing his SaC code with his audience, it would seem there isn’t much SaC revenue to go around for map creators without a streaming audience.
Brand Partnerships Breakdown
This likely explains why most map creators have turned to brand partnerships as an alternative source of revenue. As I’ve discussed previously, non-gaming IP and brands are increasingly looking to UGC platforms like Fortnite for the ability to create highly-engaging experiences with a sizable audience. Fortnite creative studios that create experiences for brands mostly operate as a creative design agency. Brands will approach these teams with a vision that can vary in specificity, and Fortnite creators will give them an estimate based on the scope of work. According to the creators I spoke with, pricing is based on the number of hours they expect it to take (a cost-plus model). Then there are additional hours that can be added if the scope of work changes or if additional rounds of edits are requested.
The real money, once again, goes to those with the viewership: For the 100 Thieves Cash App Compound re-creation in Fortnite, the esports organization, 100 Thieves, made $500k, while the creators of the actual experience anecdotally made $15k.
Why Epic, Esports organizations, and popular streamers capture most of the revenue
It becomes abundantly clear that Epic’s SaC program is primarily benefiting streamers with the largest audiences. Similarly, it appears that non-gaming brands also lean heavily on popular streamers for their Fortnite Creative activations while limiting spend with the creators themselves.
This makes it difficult for Fortnite Creative studios to scale in any meaningful way.
I spoke to some of the most successful creators who had been building since Season 1, had multiple top-featured maps, had been close collaborators with Epic on building out Fortnite Creative over the years, and were only now, four years later, starting to expand their respective teams. I‘ve outlined why this is the case below, and believe it applies to not just Fortnite Creative, but all UGC-gaming platforms to varying degrees.
Changes creators are asking for will only marginally help
Ultimately, what will matter most for the success of Fortnite Creative is the quality of experiences that are created. The current state of things makes it so the best creators are forced to create branded experiences whose primary intention is to be good off-platform PR—at least that’s what one creator I spoke with suggested. For those building original experiences, many creators are forced to create portals within their already high-traffic games to send players (sometimes unknowingly) into a new game to drive traffic for that game, and thus be discoverable on the discovery page. None of this is in line with Epic’s ultimate goal to drive player engagement. Something has to change, but what?
Epic might increase the 5% SaC payout: Some people have suggested that Epic should pay more than the current 5%, but as we’ve seen above, streamers will capture the majority of SaC payouts so increasing this will only marginally help.
Epic might improve discovery: Another request I heard from creators was that the discovery needs to be improved. At best, this increases engagement from users as they’re able to find the Creative Modes that best suit them. On the flip side, however, improved discovery can also mean that the meager amount of money available to creators will be more evenly spread out to the point where everybody gets a little, but nobody gets enough. One creator I spoke to said her SaC revenue dropped by 90% when Epic launched the new discovery page roughly six months ago. According to her, it was not worth even applying to Epic to be featured given how un-concentrated demand had become.
Epic might allow creators to monetize in their games: One thing creators themselves are eager to get are in-game monetization tools. They currently are not allowed to sell any in-game items, loot boxes, or progression boosts. But let’s play this out for a second: If creators are able to better monetize in-game, then they will have more incentive to spend on marketing to make sure their game is algorithmically discoverable. And where do they spend this? On streamers.
Source: Epic Games
So long as the tools are straightforward enough that anyone can learn, creators will always be stuck between Epic’s control over fee structures and streamer’s ability to dictate what games get traction.
However, with the introduction of Fortnite Creative 2.0, I believe there are some opportunities for creators to escape this cycle and capture more revenue than what is currently available.
Fortnite Creative 2.0
In December 2020 , Epic revealed that they would be introducing Unreal Engine 5 capabilities into Fortnite Creative mode, calling it “Fortnite Creative 2.0”. As gameplay has shifted from Battle Royale mode to Creative mode, Epic is responding to the demand from players for the UGC side of things. Not only that but the rapid ascent of Roblox in both the number of players and monetization of Roblox games has signaled that there is real money to be made in UGC economics. So much so that it may come as a surprise that Epic has been rather slow to establish a creator economy. The reality is that Fortnite has been so profitable and popular through licensing IP on a season by season basis that it may not have made sense to invest in the creative side of the business. That has now changed. More and more players have shifted over to Creative mode, and the IP owners they were licensing from have gotten visibility into how much money Epic was raking in on these deals.
In the same way that Fortnite Creative has evolved considerably over time, Fortnite Creative 2.0 won’t be one massive overhaul release either. Rather, it will be a series of updates over time. The first major change will likely be the way that the maps are created. Currently maps need to be created piece by piece as visualized above, but Fortnite Creative 2.0 will likely look much more like Unreal Engine. In Fortnite 1.0, a creator has to select individual assets to change them and can only select and drag at most 100 items at a time. With 2.0, the initial landscape design, building construction and any large scale changes will be far less labor intensive with a zoomed out view where the entire map can be altered in broad strokes, and existing assets, easily copied and pasted.
The most impactful changes for creators are expected to be:
- No more third person creating format (visualized here)
- Building tools similar to Unreal Engine: Shaping, angling, scaling and placement will be done faster and with a lot more precision than Fortnite 1.0.
- An undo button: Undo changes is surprisingly not something that has existed. Meaning if you want to try something out and you don’t like it, you have to build back to the original version.
- Search pre-created content: creators expect to be able to search and quickly find what they’re looking for rather than selecting through tabs.
- Test the map instantaneously and modify on the fly: In UE5, you can immediately test your map, whereas in Fortnite Creative, one must load the game like they’re jumping into a new game of Fortnite Battle Royale and then exit the test mode to make any changes.
- The ability to code elements into the map rather than drag and drop (a full list of what capabilities were leaked are here).
Building Worlds in ‘Fortnite’ With Unreal Engine | Unreal Fest Online 2020
Creators I spoke to estimated that this would increase the speed of creation substantially for those who learned the coding language and were on PC.
One thing that Epic is likely considering as they shift from a player focused Creative mode to a creator focused one is that it could make building a little less fun. Additionally, mobile and console creators will likely have less sophisticated UE5 tools than PC creators. As a result, I expect that Fortnite will offer both the current Creator mode and 2.0 simultaneously, at least in the short term. However, this still risks alienating the creator base on mobile and console as they will be at an orders of magnitude disadvantage to those on PC.
What’s notably missing from these leaks is any clarity on what future monetization opportunities there will be in Fortnite Creative 2.0. I suspect this will be the last thing to change, given how well the current set up benefits Fortnite. As discussed earlier, the SaC feature primarily functions as a marketing incentive for streamers, and hardly as an incentive for creators of the maps themselves. While Fortnite Creative 2.0 is certainly the future of Fortnite, Fortnite creators have already demonstrated a willingness to create these engaging experiences for pennies on the dollar. Thus, I suspect the priority at this time is giving creators tools for making more engaging experiences rather than the capabilities to monetize those experiences. Especially, since monetization can sometimes come at the cost of good user experience.
In the longer term, Fortnite will likely open things up even more to the point where creators can do more UE5 capabilities. Creations won’t have to look like Fortnite in aesthetic or gameplay whatsoever. I suspect that Fortnite Creative will be a UE5 Lite and will compete directly with Roblox where creators have the choice of leveraging the platform aesthetic or going with completely stand alone experiences.
Unlike Roblox, however, Tim Sweeney’s comments suggest that Fortnite will continue to have tight control over what is published. Whereas, Roblox can take a matter of minutes, it might be that Fortnite will only approve items that they feel contribute strongly to the ecosystem and Fortnite brand. As such, in the same way that existing creators have benefited from working closely with Epic, those with existing relationships with Epic will likely benefit from faster approvals.
Eventually, it’s likely that Tim Sweeney’s mission to give more to developers will come through on the Fortnite Creative side as well. Ultimately, they will need to provide the right incentives to get developer talent onto their platform. I suspect that they will follow the Roblox model in this regard, though probably undercut Roblox on the developer revenue split as they have done with the Epic Game Store.
Economy Version 3.0
While it might take some time for Fortnite to transition to a creator economy, Tim Sweeney has stated that it is coming. Economy Version 2.0 might look like minor tweaks; perhaps they unlock basic monetization within Fortnite Creative such as a limited number of power-ups, in-game cosmetic purchases, or progression boosts. After all, better tools should make it easier for creatives to execute on a compelling live service. I expect that 3.0 will lead to the type of vibrant economy that you see on Roblox and even go further:
Asset sales to creators- There are a number of factors that I believe are weighing in on what Fortnite does here. On the one hand, Fortnite has a history of being far more curated than their Roblox counterpart, always limiting the cosmetic items that can be offered through Fortnite Creative. On the flip side, UE5’s marketplace is less curated than Fortnite and has a long list of potential items or assets that can be sold there. It’s not unreasonable to think that Epic would take a combination of the two approaches with Fortnite Creative 2.0; dedicating significant resources to the curation of content while also opening it up to allow creators to create and sell their own assets to other Fortnite creators. Additionally, all Epic’s acquisitions over the last few years might create some really exciting use cases. Consider their recent announcement of RealityScan, an integration of Epic’s Capturing Reality and Quixel that promises to make it easy to take a photo of an object and port it as a 3D object in a virtual world like Fortnite. It’s not unreasonable to think that this might also extend to entire landscapes that can be purchased by a creator.
Some other acquisitions that might prove relevant include a possible ArtStation integration (a marketplace for digital artists), making it easier for creators to find creatives to collaborate on a new game with. Sketchfab, the 3D modeling and marketplace for AR/ VR content, could make it seamless to port a new character into Fortnite or make it easy to create immersive, VR/AR focused experiences on Fortnite. The music platform Bandcamp will likely make it seamless for creators to license and port music into their games.
Pay-to-play experiences - With the range of tools at creator’s disposal, I expect that we will start to see some AAA-like experiences that don’t even look like Fortnite at all. It’s possible that some of these games will have a one time entry fee or even be subscription based, as a way to monetize without having to lean on microtransactions. I suspect game-specific cosmetics will also exist for games that choose to leverage a different design aesthetic than that of Fortnite.
Non-game experiences - We will likely see music venues hosting concerts from lesser known artists that might not be as highly produced as a Travis Scott Fortnite concert, but engaging nonetheless. Harmonix, the AAA music game developer of Rock Band that was acquired by Epic last year, might grant creatives new capabilities around concerts that don’t exist on any other platforms.
How Fortnite Creators Can Build A Strategic Advantage
As discussed earlier, even with all of these new capabilities placed in the hands of creators, they will still be squeezed between two demand aggregation points: the Fortnite platform and streamers. But, there are still some things that they can do to capture their fair share of what will be a far more flourishing economy than it is today.
Community & Brand Management: One tactic that may be particularly effective is for creators to grow an audience of their own. We’ve seen the importance of community engagement on Roblox as many players will follow the creators themselves, not just the games. This gives those Roblox creators a significant advantage as they are able to promote on their own channels and drive players to their game for free. In the future, this may lead to cross-selling opportunities from established games to new games. Perhaps community members get a discount code for games or unique skins when they complete objectives across multiple games.
Brand Relationship Management: Given the excitement about the space, many brands are eager to demonstrate their innovativeness with activations in the “metaverse”. Many of the creators I spoke to referenced their experience working with brands and their portfolio as a key differentiator that enables them to continue receiving business. As the role of the metaverse expands, having strong relationships with these brands will be key for repeat business as well as referrals to new lines of business.
First mover advantage: As I outlined with Roblox, the average age of the Top 10 games is 4.5 years. There’s no guarantee that this will also be the case with Fortnite, but given how algorithms favor the already popular, those who are able to strike gold early with a compelling launch are in a strong position to hold on to those users. Many creators I spoke with also reported a learning curve for creating compelling experiences in Fortnite and this will continue to be the case for Fortnite Creative 2.0 games. Lastly, Fortnite Creative HQ reports 23,124 map codes, which (if true) is a far less saturated market than the over 30 million experiences created on Roblox.
Innovation: Different creators have unique capabilities. The ability to create a certain style of gameplay or aesthetic can help to differentiate certain creators and carve out a niche that drives a premium for their games. This will be even more the case once Creative 2.0 releases and grants creators a much vaster array of capabilities and ways to hone their craft.
IP Ownership: While the total number of MAUs on Fortnite might be considerably less than those on Roblox, it is still a sizable audience with which to launch original IP. Furthermore, the ability to design high fidelity AAA games within Fortnite will make it possible to launch IPs that are far more compelling than what is currently possible on Roblox and more appealing to an older audience. On the flip side, perhaps it’s also possible that a kid who grew up on a Roblox IP and ages out of the platform, can continue to engage with that IP on Fortnite.
Creators will shape the future of the metaverse
Although none of the creators I spoke with are getting rich overnight, they are on the frontlines of a major shift from physical goods to digital goods as well as premium content to UGC content. Non-gaming brands are leveraging Fortnite creators and the limited set of tools they are currently operating with today for primarily PR purposes. But one top creator spoke of how these brands eagerly await the ability to sell digital items in these experiences. Imagine that you buy a limited edition Nike shoe in Fortnite, but then you get its physical twin shipped to you the next day. The possibilities compound once creators are given the right set of tools for the job.
Experts agree: according to one estimate, 1 in 10 dollars spent in the gaming space will be on UGC content by 2025. Time is of the essence for Epic to capture this opportunity and it starts with ensuring a vibrant economy that adequately compensates creators for their work. (Written by David Taylor and originally published by our friends at Into the Metaverse)
Tencent Acquires a Larger Stake in Ubisoft: Tencent increased its ownership of Ubisoft, the developer behind games like Assassin’s Creed. This is a curious deal structure where Tencent acquired ownership of the company from the Guillemot Brothers Limited (which previously owned ~15% of Ubisoft) instead of Ubisoft itself (and at such a high price, ~$10B!). Amid toxic work allegations, blockchain woes, and leadership changes, the company continues to chug along, and the deal with Tencent presents a new frontier in cross-platform AAA mobile games. Gamesindustry.biz had a solid overview (admittedly, it also felt like a piece that favored Ubisoft a bit too much) of the deal structure and the strategic rationale — CEO Yves says: "To grow the business and generate more revenue, and to make sure our brands really are everywhere in the world. Creating AAA games on mobile is really quite difficult to do, so we are doing some of them internally but we are also working with partners like Tencent to create some as well.”
With Chinese conglomerates recently acquiring larger stakes in From Software (Elden Ring) and Quantic Dream, there’s a clear trend toward a more international and cross-platform consolidation approach for these companies.We’ve written previously that console lies within Tencent’s strategic priorities but that this is most likely catalyzed by domestic regulatory headwinds. It’s likely that this M&A lens won’t slow down and that prices will continue to be competitive. What else Tencent intends to do with their new stake is unclear. At the very least, we have a few new Assassin’s Creed games to look forward to in the meantime.
Scopely Acquires Stumble Guys from Kitka Games: This is my favorite news of the week. A smaller developer that built a mobile Fall Guys clone found a solid outcome in a spinoff to Scopely. I personally thought that the team would reinvest the cash they made from Stumble Guys back into developing another title (plus keep the game running), and it seems the title was hit enough for Scopely to want to do just that. Real multiplayer continues to be an important lever in this mobile genre. In our analysis of the game earlier last month, we wrote that “the challenge will lie in long-term retention and new user growth — where they were able to innovate and drive real engagement was in their unique twist on multiplayer in the genre.” Scopely, given the company’s vast experience in mobile, is an important partner for this.
Google Console / PC report: Google commissioned a 14k+ person survey on console & PC players. There’s a lot to dig into, but a few interesting tidbits: 38% of people are playing 2+ games at any given time and 25% are playing 3+ games; 39% want to have flexibility around character creation, 31% want more social features, and 29% want to engage more with special events; And lastly 40% of people discover games through Youtube videos and 38% through friends & family. This is a great survey given its breadth and intersectionality with trends like cloud gaming, cross-platform, and player behavior.
🎮In Other News…
📊Funding & Acquisitions:
- Tencent increased its stake in Ubisoft to ~11%. Link
- Mysten Labs raised $300M at a $2B+ valuation in a round led by FTX. Link
- Scopely acquired Stumble Guys from Kitka Games. Link
- Revolving Games, a blockchain studio, raised $25M from a suite of investors. Link
- Netspeak Games raised $12M. Link
- Internet Games raised $7M to build a web3 mini-battle royale. Link
- Patron led an investment into SpaceCaps. Link
- Steam hardware & software survey. Link
- Bytedance and Garena laid off hundreds from their gaming divisions. Even Snap’s layoffs means a pause on their gaming platform. Bytedance | Garena
- Roblox immersive ads. Link
🕹Culture & Games:
- EA announced Ridgeline Studios to build a narrative game for Battlefield. Link
- Sky Mavis launched a new feature set for Axie, including accessories. Link
- Sorare teamed up with the NBA. Link
- Moonbug teased their first video game. Link
- Disney and Marvel showcased a whole bunch of upcoming games. Link
- Arcane won an Emmy. Link
- “The metaverse is as dead as Zuckerberg’s eyes”. Link
- How Apple can build a $30B ad business. Link
- Game emulation via neural networks. Link