The Metaverse Big Bang: Preparing for the Internet's Evolutionary Leap

Content creation and distribution companies – including video gaming platforms, film studios, music labels, event promoters and sports organizations – are eager to leverage the metaverse's immersive qualities to connect with customers in entirely new ways. All are at different points in their metaverse journeys: some already operate in the metaverse, while others are formulating their strategies.

Will they find success in these new virtual worlds? Several things must fall into place before the metaverse becomes as ubiquitous as today's internet. Content and distribution companies will be challenged to acquire the relevant technologies and skills, while regulators must strike the right balance between allowing innovation and protecting consumer safety, privacy and data.

In many respects, video games are early metaverse prototypes. After all, gaming platforms are virtual worlds where players purchase accessories and use social features such as in-game chats. Keeping audiences engaged for long sessions is a key metaverse goal, and game publishers excel at this. It's little wonder that they are seen as a key starting point by companies that aren't involved in that sector. In fact, many companies are already hosting events on game platforms like Roblox and Fortnite. Others do so on virtual world platforms like the Sandbox and Decentraland.

You don't need to look far to find examples of how content creators and distributors have monetized popular brands, franchises, characters and stories across gaming platforms.

C21 Media noted several in a Jan. 24, 2022, article titled, "Is TV Ready to Venture Into the Metaverse?" Among the examples cited: Warner Bros. partnered with Roblox to create a virtual movie launch for the musical film "In the Heights." British broadcast company ITV launched a playable version of its game show "The Void" inside Fortnite. In late 2021, NBCUniversal debuted "Bravo Bazaar," which lets users journey through virtual "rooms" based on Bravo's shows and talent. Disney launched its "Golden Moments" collectible non-fungible tokens (NFTs) inspired by its Pixar, Marvel and "Star Wars" titles, which can be exchanged much like physical trading cards.

As the metaverse grows to encompass more ways to work, play, learn and transact, gaming titles will become just one of many "realms" in the metaverse, competing with a variety of destinations and activities. Many non-gaming businesses are expected to build their own branded metaverse destinations. Think virtual theme parks, sports stadiums or art exhibitions and museums.

Creating metaverse equivalents will give people around the world a greater ability to consume entertainment and art. Because there are virtually no constraints on event capacity or geography, the number and types of events that can be held in the metaverse are limitless.

In the metaverse, every virtual seat can be in the front row – with premium pricing. Over the last two years, music labels have teamed with Fortnite and Roblox to hold very successful virtual concerts that allow fans to interact with their favorite bands. In the future, sold-out Broadway shows could be accessible to audiences around the world.

Accordingly, this increase in fan engagement could drive additional licensing and sponsorship opportunities, along with incremental ad revenues.

NFTs Drive Revenue

NFTs provide one of the best opportunities for building recurring revenue streams for both creators and owners. For instance, a musician can sell a stake in a song to investors. With a smart contract, these investors will be compensated every time the song is played on a streaming service. (Smart contracts are programs that are stored on a blockchain and run when specific, predetermined conditions are met. So, if one condition is met, then another action automatically executes.)

In the play-to-earn model, if a video gamer creates an NFT character that someone else uses to earn crypto, the original creator receives a portion of that revenue.

A handful of filmmakers are funding film projects with NFT token "drops" (releases). Investors in those projects will share the film profits, and they'll receive certain perks, like visiting the production set. Two articles published last December report on this. One, in Forkast News, discussed the strategy of "The Irishman" producer Niels Juul, who hopes to make a film fully funded by NFTs. And MailOnline released a story about producer Mike Sheen, who's worked with Martin Scorsese and reportedly secured backing for the first Hollywood movie funded entirely by NFTs.

The movie-based NFT opportunities go beyond that. For example, a theme park could fund the creation of a ride or attraction by tying it to a popular film character. Buyers of character-based NFTs would have exclusive or preferential access to those attractions.

Given these possibilities, content and distribution companies must develop and articulate an overarching metaverse vision. They will need to ask themselves: "Who are our customers, and what will they be doing in the metaverse? What value proposition do we bring (or plan to bring) to our customers, and how can we keep them engaged? How will we differentiate ourselves from our competitors?"

Creator Economy

In addition to offering content based on legacy franchises, a mix of entirely new characters and stories will materialize in the metaverse. That will require a significant skills upgrade for many companies. We expect to see rising R&D spending as they work to improve technology and operational capabilities. However, many will also find that tapping into the skills and competencies of partners in the consumer products, retail and technology sectors can effectively complement their internal metaverse efforts.

Because of this, a creator economy will emerge. Individual content creators (such as musicians, game developers and visual artists) will have a greater incentive to monetize their intellectual property independently, rather than through traditional content or distribution companies.

This will force such companies to re-evaluate their value propositions to talent. They should consider what they can offer newly empowered content creators beyond what they provide today.

For instance, multiple video game companies already provide the ecosystem and tools for creators. In the future, these companies will need to enhance and streamline the end-to-end development experience by improving their enablement toolkits – from game development to analytics to monetization.

Record labels can leverage their marketing muscle and industry relationships to help artists find new ways to connect with audiences and brands and create new revenue streams.

Possible Friction Points

Everyone agrees there need to be rules around data gathering and use, content moderation, as well as physical and cyber safety in the metaverse. However, there's considerable ambiguity about what those rules will look like and who will enforce them. What is certain is that the metaverse is moving too quickly for regulators to keep up.

Content and distribution companies should not wait for regulators to develop effective policies related to governance, data use, security and content moderation. By instituting effective measures now, they will be in a better position to help shape industry dialogue going forward.

There are other challenges, which relate to the current complexity and cost of NFTs. They could be barriers to widespread adoption. NFTs are complicated to buy and come with expensive fees.

At the same time, companies and brands will also need to consider which blockchain a particular activity is hosted on. There are several commonly used blockchains – each with relative strengths and weakness related to transaction speed and costs, ease of programming, security and energy usage. All of these factors will have an impact on the user experience and how a company transacts business.

Many individuals and companies may be discouraged about the viability of these new asset classes, given the recent volatility of the crypto and NFT markets. However, we are in the early stages of this latest technology-driven revolution. While some will stay away because of disruptions and uncertainty, the winners will be those who focus on the long-term structural implications and economic opportunities.

The metaverse promises to transform the way we live, work and play. Yet, there are technology and business hurdles to surmount before the metaverse becomes ubiquitous in our daily lives. As the contours of the metaverse start to come into focus, content creation and distribution companies must refocus their organizations and investments to be ready for this fully connected, immersive 3D world.

The views expressed by the authors are not necessarily those of Ernst & Young LLP or other members of the global EY organization.

This article was originally published in the Sep/Oct issue of TFM.

Scott Porter is the media and entertainment consulting services leader at Ernst & Young LLP. He can be reached at scott.porter@ey.com. Adrian Ang and Rich Golik, also at Ernst & Young LLP, contributed to the research and the article itself.It's based the study, "What's Possible for the Gaming Industry in the Next Dimension," available at ey.com.

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The opinions expressed here are the author's views and do not necessarily represent the views of MediaVillage.com/MyersBizNet.