#1212 – Consumer Videogames Feel the Heat

We continue to catch up on the developments in the sector impacting entertainment and leisure experiences. We look at the impact the current consumer videogame upheavals are having on the market, and then look at how consumer VR and MR are weathering the storm.

AI Constructed Brief

The video game industry is experiencing significant upheaval due to mergers, acquisitions, and restructuring, with major publishers like Take-Two reporting record losses and studios like Fall Damage and Phoenix Labs facing layoffs and closures. The B2C game media landscape is also shifting, with IGN acquiring Gamer Network‘s brands and speculation about further consolidation. Meanwhile, rumors suggest Microsoft is considering a $16 billion acquisition of Valve Corporation, which could have far-reaching implications for the PC gaming and VR sectors. The “Videogame Apocalypse” is a term used to describe the industry’s challenges in adapting to changing player habits and market conditions.

Covering the changing landscape of the virtual reality (VR) and augmented reality (AR) industries, particularly in the aftermath of the Augmented World Expo (AWE) USA 2024 event. Highlighting major restructuring efforts by industry leaders like Meta (Facebook), Ultraleap, and PICO, as they pivot towards enterprise and lower-cost consumer solutions. We also touch upon the launch of Apple‘s Vision Pro headset, the success of the VR game Gorilla Tag, and the growing influence of AI in the AR space. Overall, this paints a picture of an industry in flux, with companies adapting to shifting consumer preferences and the need for more affordable hardware and content to survive.

Full Stinger Report

Consumer Videogames Rocked by Continued Upheavals

The rocky conditions of the conventional videogame hierarchy was placed into sharp relief with the continuing impacts of the Mergers and Acquisitions (M&A) climate on the publishers and development studios, with closures and restructuring supporting these developments.

Just a matter of hours after going to the wire with The Stinger’s 30th anniversary coverage (#1202), citing the dire situation in the B2C consumer video game media, and it was announced that IGN Entertainment had acquired Gamer Network’s family of digital news brands for an undisclosed sum. This will see news sites such as GamesIndustry.biz, Eurogamer, Outside Xbox and Digital Foundry, along with many others, now stabled at IGN – who also has its own raft of similar news services – and amalgamated into the new operation. It is expected to be followed by a round of serious layoffs and even the shuttering of duplicated services. This is seen by many observers as the closing endgame of the B2C games media, with all eyes now turned to Polygone and Kotaku as outlier media resources ripe for acquisition.

Defined by many as the enfolding “Videogame Apocalypse”, and the impact on the consumer game scene regarding changes in player habits was reflected in reporting from leading publisher Take Two – owner of Rockstar Games, who publishes the vastly successful ‘Grand Theft Auto’ franchise. The operation had undergone its own major layoffs, and then reported record $3.75b annual losses.

The big M&A stories kept on coming during May, with the news that the current incarnation of ATARI had acquired the brand and some 200 titles of Intellivision – the once erstwhile rival from the birth of the home videogame industry in the 1980s. The deal is reported as seeing the brand and games acquired from parent holding company Intellivision LLC and will see ATARI still support the plan by the company to release the long-delayed source-founded Amico home gaming console. The complicated licensing birds’ nest that is the current ownership of the ATARI brand continues, with the corporation reportedly on an acquisition spree. Further purchases of game and brand IP are expected, as the current owners consolidate their position. This comes on the back of plans by ATARI to open a hotel based on their IP, as well as their own game and console publishing aspirations. As well as the reactivation of the original parent corporation’s brand (Infogrames), all adding to a confused mess that has yet to reveal its true potential.

One of the most influential M&A deals to hit the current videogame business was still only a rumor during May, with well-placed sources suggesting that Microsoft was endeavouring to acquire the game publisher and developer and owner of Steam, game store portal, Valve Corporation. In a deal reportedly valued at $16b, this would see Microsoft take control of the business, and the lucrative Steam Store and SteamVR PC gaming platforms. The deal has been encouraged by the want to retire of key executive owners of Valve. If successful, the acquisition would place Microsoft in an incredibly strong position in the PC gaming scene, as well as securing a strong VR catalogue. This would grow their gaming position, securing lucrative IP from Valve, and access to revenue from the PC gaming portal. Valve’s involvement with the ‘Defence of the Ancient’ (DotA) 10m player base, and the vast ‘Counter Strike’ eSports community, as well as the ‘Half Life’ franchise – could see this valuation seem lower than expected.

One aspect not covered in the initial reporting of this rumored acquisition was the impact on the flailing consumer VR sector. Valve had been instrumental in establishing the early VR sector, going to market in partnership with HTC first with their VIVE headset platform. Valve has developed their own PC VR headset (the Valve Index) and has licensed many aspects of their VR business to HTC to continue the VIVE brand (such as the vital Lighthouse tracking architecture). Reports suggest Valve had been working on a Index2 but this was shrouded in mystery. Likewise, Microsoft has an interest in MR and VR development, having recently closed its Windows MR operation, in favor of becoming a third-party developer of the Meta Horizon OS platform. How this partnership would be impacted by retaining the Valve VR interest can only be speculated on at this point. The impact on HTC’s VR business can also only be guessed at. The slowdown in consumer VR retention would also play a part in continued allegiances.

The continued woes for videogame developments are reflected with a spate of announcements, such as from the Swedish operation Fragbite Group declaring bankruptcy for their development studio Fall Damage. The operation, formed in 2017, span off from publisher DICE. The company was reported to have been permanently shuttered, although work on their game IP (‘Alara Prime’) was said to be ongoing with a remaining team, towards finding a publisher and sale. Games studio Phoenix Labs laid off, what was reported from sources, some 100 staffers – this followed previous layoffs, and some ex-employees on social media suggested that the studio had shut down, seeing a number of their projects in development cancelled.

XR Technology Redefines its Place in the Market

Augmented World Expo (AWE) USA – the 15th annual convention, held in Long Beach, California, anticipated some 6,000 industry professionals to view over 300 exhibitors and attend numerous conferences, all focused on AR and VR applications during the three days.

The event had seriously pivoted to supporting the Extended Reality (XR) scene, along with a smattering of vendors promoting “Spatial Computing” as part of the Apple Vision Pro’s bandwagon. Also, AI played a pivotal part, and not just as a marketing term, as the show organizers used AI to translate, in real-time, the conference presentations. The pivot to a strong XR reality for the AWE focus was also matched by a wholly more commercial (enterprise) move on new releases – exhibitors were looking at the arts, education and industrial uses as their focus, against lacklustre consumer usage.

An example of the enterprise focus in the VR sphere on display was the appearance at the show of Sony, showing their new enterprise XR platform (branded the ‘SRH-S1’), created wholly for creative development in the enterprise sphere. The 4K OLED XR headset was created to support spatial application development. This is a totally different departure from their consumer VR platform, the Sony PlaystationVR2 – a system that recently saw the launch of a PC adaptor to allow it to support this architecture, with severe discounting to address a “difficult” sales process (the company is actively cutting back new VR game development to only two titles for 2024). That enterprise now focuses the minds of the electronics giant, speaks volumes of the true difficulty the consumer VR landscape has been encountering.

How to make money from the changing consumer VR scene was best illustrated by the announcement that free-to-play multiplayer online VR game environment ‘Gorilla Tag’ had achieved 1m daily active users – having achieved some 10m users since its launch. While an amazing achievement for the game’s studio Another Axiom, having seen them generate over $100m since launching in 2021, this is not the norm in the consumer VR game scene. The game itself is mostly free-to-play, depending on microtransactions, with a strong social media presence on TikTok (their hashtag #gorillatag sees some 10b views). It is played by a very young audience (defined by many as mainly Generation Alpha). And so, this limited revenue model and a growing demand for cheaper headsets has now fractured the VR community, seeing a difficult business for all to succeed within compared to the Indie utopia proclaimed some ten years ago.

The trending AI influence was felt on the AWE show floor, with the announcement that social media platform Snap was growing its investment in the new technology to support their Snapchat platform, offering generative AI to make AR images on demand. The corporation has already used AI in its chatbot and is now employing the tech to create effects and characters through the prompts of the user via the creator tools. Snap is hoping to be first to the AR market with an AI tool set. The social media focus for AR (and low-cost) was also promoted with the launch of Xreal new AR glasses branded ‘BeamPro’, proposing a low entry price to encourage users against more expensive platforms.

It was even reported that Apple was diverting from their previous roadmap regarding the consumer spatial computer headset system and looking to develop a cheaper version – trying to achieve sales rather than continue with a version 2 of their expensive Vision Pro original platform. Just as the original platform is launched for sale outside of the US, internal reports suggest a rush to come up with a more cost-effective hardware system from Apple, to try and achieve catchment of the expected audience for such a system. The race for this young audience has seen AWE exhibitor Meta launch its “Quest Lifestyle Apps Accelerator” initiative, hoping to foster greater utilisation of its platform for lifestyle app creation. Meanwhile, at the same time, sources revealed work on the ‘Meta Quest 3S’ lower cost model, expected to be launched Q4 2024. A userbase of young customers with limited disposable incomes is proving consumer VR far less enticing for developers and investors, who had been promised big returns on their 2018 investment. The situation is igniting restructuring, as will be reported later.

Returning to the AWE’24 show floor, we look at the launch of the new concept in mixed reality by studio Draw & Code with ‘FanPort’. The four-player immersive enclosure system employs large screens, real time lighting and spatial audio, supported by AR glasses to create a “holographic” environment for the group of players. The system debuted at AWE’24 was a demo using Magic Leap 2 glasses to support the spatial experience. This first prototype was developed in partnership with 302 Interactive, and the system was showcased as a location-based entertainment platform some ten-years in the making. No word on who will be the first operator of the concept.

Speaking of AR, and poster boy Magic Leap also exhibited at AWE’24. It was announced, at the same time as the event, that the corporation had signed a strategic technology partnership with Google, towards developing Google’s plans in immersive tech, benefiting from Magic Leap’s optics and device manufacturing abilities from making their ML1 and ML2 platforms. This move sidesteps the previous focus by the new management on a wholly enterprise and medical trajectory for the hardware, following its tempestuous previous management and decimated valuing, that inevitably ended with the Magic Leap corporation assets being acquired by Saudi wealth fund.

While AWE’24 basked in the afterglow of the launch of the ‘Apple Vision Pro’, only just in February, the event clearly reflected the changing conditions for the AR and VR landscape. In the wild, the Apple spatial computing platform saw updates in its VisionOS and the confirmation of sales outside of the US – but it was clear that the lustre had dulled from the initial high praise of launch. Many observers were keen to speculate on the coming follow-on to the ambitious MR headset, than address the current generation. There are concerns that the Apple platform was an illustration of a cooling of interest in this approach (as illustrated by the rumored roadmap change reported earlier).

Regarding the headset scene, PICO exhibited at AWE’24, promoting its range of VR sets including their ‘Pico 4 Enterprise’. The company was exhibiting at the convention, as well as speaking in the conference session, underlining their focus on enterprise use cases, including corporate training and education – along with their edutainment and entertainment involvements. Surprisingly, LBE VR was mooted in their presentation, while the ‘Pico Neo 3’ has been deployed by numerous LBE developers, – although there has been a restructuring of adoption of their platform in recent months. Sources confirmed PICO is still working hard on its LBE Solution support for VR free-roaming arena map sharing. The stage presentation from PICO included promotion of their hardware used in sports fitness for school and enterprise. PICO was also linked to rumors of a launch of a new headset – called the ‘Pico 4S’, this is a system purported to use the new Qualcomm Snapdragon XR2 Gen 2 chipset and looks to go directly against Meta’s position in the market with their Quest 3. AWE exhibitor Qualcomm was presenting an extensive list of manufacturers incorporating this new chipset into their MR and AR platforms.

In further PICO developments following AWE’24, the corporation announced more restructuring. This throws open the doors to their app store, offering content developers direct access to download their game to the store, directly removing much of the curation. This mirrors the moves undertaken by Meta who removed the gatekeepers from their “App Labs” platform. PICO is emulating this move to encourage more content from independent creators, and this move also mirrored Meta by getting rid of their store and opening the platform. Layoffs have attempted to remove many of the gatekeepers that have been seen to hinder independent development in VR on these app stores. Both Meta and PICO seem to be looking at drastic measure to try and salvage the situation they find themselves in.

This news came just as Meta Reality Labs announced major restructuring of their operation – now split into two groups, most of the retained staffers either work for “Metaverse” or “Wearable” organizations. With this restructuring, some departures have been activated as the corporations move to a HorizonOS approach – while the business sees a defocusing on wholly built Meta hardware. Although still with interests in AR and VR hardware, MR now seems more of their NorthStar. How much this scaling back will continue will depend on the rollout of the first OS supported hardware and the planned release of a new Meta VR headset later in the year.

The changing landscape of VR was discussed in hushed tones during the AWE’24 event, especially during the event’s famous opening party and “Auggie Awards” night. While new VR headsets were trialed, the reality seemed to be that consumer VR was in the doldrums, with expected job layoffs from several studios that had banked on mass consumer VR adoption by this point, such as the announcement by VRChat of their 30-percent cut in workforce. Those who remain seem to be pivoting hard towards enterprise.

One of those operations which had focused heavily on commercial application was Ultraleap, having merged the Leap Motion and Ultrahaptics operations some five years ago. The operation has sold their hand tracking technology into many industries. The LBE VR scene had benefited from this application, with games such as ‘STORM’ from TRIOTECH and ‘King Kong VR’ from Raw Thrills implementing the hand tracking technology. Following AWE’24, it was reported that Ultraleap had started a process of laying off staff, and well-placed sources confirmed the executive team was looking to sell off its hand tracking group (comprising the previous Leap Motion team). The executive operation is looking at a much smaller corporation, less focused on VR support.

This was just the latest example of the shakeup in previous VR frontrunner technologies and developers. Rumors swirled that there would be more major restructuring news from key parties in the sector, as the market pivoted and XR seemed to be the order of the day. All eyes in the scene now turn to AWE Europe, scheduled for October, and what it will reveal on the health and future opportunities of the sector.