A Special Report For TLL Subscribers Only
By Gary Symons
TLL Editor in Chief
Just months ago, on Aug. 1, The Licensing Letter released its first Special Report on the development of the metaverse and how it will apply to the licensing industry. At the time, most people didn’t know what the metaverse was, let alone how our industry would take part in it.
Since then, stories about the metaverse have been everywhere, partly due to the bombshell announcement from Mark Zuckerberg on Oct. 28.
In a well orchestrated presentation, much of it from inside the company’s own metaverse prototype, Zuckerberg told the world Facebook was changing its name to Meta, reflecting the company’s intention to base its entire future on being a leader in the development of the metaverse.
Rather than being primarily a social media company, Zuckerberg envisions Meta as a company dominated by its work in what is now called the metaverse, a term that came from the influential sci-fi novel Snow Crash.
Zuckerberg unveiled the new brand at Facebook’s Connect 2021 conference, saying Meta brings together all of the company’s apps and technologies under a single brand, similar to the way Google rebranded its parent company as Alphabet.
However, it is not the rebranding that is of primary importance for Facebook, or rather Meta, but instead the radical change to the company’s business model, which the company described in a single sentence: “Meta’s focus will be to bring the Metaverse to life and help people connect, find communities and grow businesses.”
Zuckerberg says the metaverse will feel like a hybrid of today’s online social experiences, sometimes expanded into three dimensions or projected into the physical world. “We’re a company that focuses on connecting people. While most other tech companies focus on how people interact with technology, we focus on building technology so people can interact with each other.”
Since that announcement only weeks ago, investment in the metaverse has grown so rapidly that The Licensing Letter team felt almost obliged to write a second report updating the state of the technology. Thanks to billions of dollars in investment from companies like Meta, Apple and Niantic (among others), the metaverse is not only coming on stream faster than expected; it is also going to offer a wider range of licensing possibilities in a much shorter time.
Now, rather than seeing the metaverse as a major source of licensing opportunities by 2025, TLL now projects the metaverse will be a significant category and source of revenue by the end of 2022, or the beginning of 2023 at the latest.
DEFINING THE METAVERSE
As in our first report in September, we’ll start by defining what the metaverse is, and how it will impact the licensing industry.
Essentially, the metaverse is the term used to describe the next evolution of the internet. In Web 1.0, companies like Netscape and Google first connected humanity online, and in the process, created a new economy largely based on information. With Google and other search engines, people could almost instantly (remember dial-up speeds?) access any information they wanted, and also connect with people around the world.
Web 2.0 saw the development of the mobile internet, with smartphones popularized by Apple pretty much taking over our lives. Web 2.0 gave us access on the go to all the information available on the web, but also connected us through social media like Facebook, Twitter and Instagram.
But throughout the development of the web, we still accessed information and interacted with other people through small, glowing rectangles.
The metaverse, sometimes called Web 3.0, will do something far more dramatic. It will drop us in an almost physical sense into the internet, creating representations of ourselves known as avatars that will be able to walk around in a three-dimensional, realistic world. A good example would be someone taking a fitness class today, watching a YouTube video. It’s handy, but pales in comparison to what people will be able to do in the metaverse. Already, students can enter a fitness class in the metaverse, and they are surrounded by other people, and the instructor can see what you’re doing from any angle, walk around you, and give you instructions to improve your form.
Web 3.0 creates the difference between observing the internet, and living inside the internet through virtual reality technology.
Secondly, the metaverse also brings the internet into the real world, so that as we travel through our physical reality, we can also see things that are projected into that world through artificial reality glasses. The best current example of that is the AR game Pokemon GO by Niantic. That game allows you to view the world through your smartphone, but also interposes fictional characters in that world with whom players can interact. The next step for the AR portion of the metaverse is that AR glasses will allow one to see these digital artefacts in the real world all the time. For example, you might see a three-dimensional Elvis Presley selling shoes, or view an elephant running down the street, emblazoned with advertising.
In short, the line between our physical and our digital realities is about to become very blurred, and in that process, we will experience new forms of entertainment, shopping, and commerce.
NEW INVESTMENT IN THE METAVERSE
When TLL released its first Special Report on the Metaverse, Facebook was still called Facebook, and had not revealed its plans to focus primarily on the development of the metaverse as its primary purpose.
A lot has happened since that announcement. Let’s start with some of the major investments we’re seeing in metaverse companies, a typical benchmark that helps discern which technologies are being developed most quickly.
A massive amount of that investment is coming from Meta, which revealed it is spending billions of dollars on the development of several new services and technologies. As reported in our November issue, these include:
■ Horizon Home, which is essentially a portal that acts as your home base within the metaverse;
■ Horizon Workrooms, a digital work-space within the metaverse that acts as a place for workers to meet and collaborate, rather than going to a physical office;
■ Venues, which allows users to virtually attend concerts, sports and other live events;
■ Horizon Worlds, a tech framework allowing developers to create their own virtual spaces within the metaverse;
■ Various VR games that allow players to drop themselves into the action, using Meta’s Oculus headsets and remote controls.
· A number of immersive VR fitness applications, such as the boxing fitness app Supernatural; the VR workout app Fitness XR; and Player 22, a VR sports training app.
Meta has also announced it expects to invest a staggering $10 billion on research and development for metaverse projects, and as part of that spending, it also said it is hiring more than 10,000 new workers in Europe who will take part in developing and launching its metaverse technologies. Within a very short time frame, CEO Mark Zuckerberg says he expects an entirely new layer of commerce to arise within the Web 3.0 framework.
“Our hope is that, if we all work at it, then within the next decade the Metaverse will reach a billion people, host hundreds of billions of dollars of digital commerce, and support jobs for millions of creators and developers,” he said.
“Think about how many people make a living on the internet today, and how many of those jobs just didn’t even exist a few years ago. I expect the Metaverse is going to open up lots of opportunities for people in the exact same way.”
Meta’s announcement also lit a fire under other companies who are now launching several major funds aimed at developing the metaverse. One of those is Meta’s own fund, a $50 million pool of cash set aside in the XR Programs and Research Fund. Meta says the money will be spent over the next two years to ensure the metaverse is “… built in such a way that’s inclusive and empowering.”
NIANTIC CLOSES $300 MILLION FINANCING TO BUILD A NEW TYPE OF METAVERSE
The transformation of Facebook into Meta seemed to ignite the entire metaverse space. In a single week in November, we saw news released about several other major financing deals. Perhaps the most important of those saw Niantic— the developer behind the AR game Pokemon GO— raising $300 million to create a “real-world Metaverse.”
Unlike many other companies, like Roblox or Meta, Niantic CEO John Hanke believes it’s just as important to bring digital reality into our real world, as it is to bring our real world selves into the internet.
To do that, Niantic took in a $300 million investment from Coatue—a global investment manager focusing on tech—at an eye-watering valuation of $9 billion. That funding will be used to build what Niantic calls a “Real World Metaverse,” which is essentially a platform for artificial reality based on a 3D map of our world.
“We’re building a future where the real world is overlaid with digital creations, entertainment and information, making it more magical, fun and informative,” Hanke said in a statement. “This will take a significant investment of talent, technology and imagination, and we’re thrilled that Coatue is on this journey with us.”
Coatue believes the metaverse is at the heart of the next major phase of internet technology, and says the company is willing to risk a lot of its funds on the metaverse concept.
“Niantic is building a platform for AR based on a 3D map of the world that we believe will play a critical role in the next transition in computing,” Matt Mazzeo, a general partner at Coatue, said in a statement. “We are excited to partner with Niantic because we see this infrastructure supporting a metaverse for the real world and helping to power the next evolution of the internet.”
Unlike Zuckerberg, Hanke despises the idea of wearing VR headsets and living in a digital world, calling that concept of the metaverse a “dystopian nightmare”. Instead, Niantic will use the funds to invest in current games and new apps, expand its Lightship developer platform and build out its vision for the Real World Metaverse.
That vision is also being shared by others, including some of the biggest players in the licensing industry. Launch partners include Universal Pictures and Warner Music Group, the PGA, and the Coachella music festival, among others.
While Niantic hasn’t shared its ideas for licensing in its version of the metaverse, we would expect to see golf fans able to see key information while attending golf tournaments, as well as marketing of various licensed products shown digitally to the crowd.
The same would apply at Coachella, while Universal Music would likely be involved in licensing its music library for Niantic’s digitally enhanced world.
THE APPLE FACTOR: BRINGING THE METAVERSE TO THE MASSES
While Meta is betting the farm on virtual reality as the path to the metaverse, Apple is putting its money (at least initially) on augmented reality. It’s no secret Apple has been working on highly advanced Apple Glasses that will allow users to see digital objects and information displayed in the real world, like it did with Niantic’s Pokemon characters on its iPhones and iPads.
While competitors like Google, Facebook and Snapchat have all tried releasing AR glasses, with disappointing sales, the highly regarded analyst Ming-Chi Kuo of TFI Asset Management revealed that Apple is now expected to release AR glasses by the end of 2022 that have the same computing power as a Macbook laptop, with lenses that offer a picture comparable to a 4K TV.
According to a note to investors from Kuo, Apple’s AR glasses will have one M1 chip to provide heavy duty computing power, while a second chip will handle what he called “sensor related computing.” It will also have at least six to eight optical modules to provide the user with continuous ‘see-through video’ and it will use two of Sony’s 4K micro-OLED displays.
Once the glasses are released, companies like Niantic will be able to display images for the user based on various apps. The Pokemon Go app is an obvious one, but the glasses would also provide users with useful services like a Heads-Up Mapping display, or apps that provide real time translation of foreign language signage, for example.
Essentially, the Apple Glasses will overlay an entire digital layer over our reality, and that reality can include all types of advertising and entertainment.
OTHER RECENT INVESTMENTS
Coatue, Apple and Meta are far from the only major investors betting on the metaverse. Ironically, the Winkelvoss twins who famously feuded with Facebook founder Mark Zuckerberg are also major investors in the metaverse, and in the crypto exchanges they believe will provide the currency for digital worlds.
Tyler and Cameron Winkelvoss say they are going head-to-head with their old rival, and will allocate capital from a new $400 million funding round through their crypto exchange Gemini.
Gemini announced it closed that round at a valuation of $7.1 billion in late November, and they appear to be setting themselves up as the bankers of the metaverse. “We’re going to build a Gemini experience in different Metaverses, where you can go into Gemini and trade, but it would be immersive instead of on your phone,” said Tyler Winkelvoss.
A lot of the investment for the metaverse is coming from crypto companies, and among them is a new $100 million Efinity Metaverse Fund from the crypto-tech company Enjin, and another $100 million fund from competing firm KuKoin Labs. Both are geared toward financing early stage metaverse projects.
The KuCoin fund, announced on Nov. 17, is specifically aimed at combining the concept of a metaverse with the concept of blockchain-based crypto currencies and non-fungible tokens (NFTs). The head of KuCoin Labs believes the metaverse hasn’t really developed up until now largely because it required its own digital currency. In other words, the development of the metaverse was held back because there was no agreed upon way to buy and sell things, and that problem has now been addressed by cryptocurrencies and by the development of NFTs.
“The concept of Metaverse has remained at the theoretical level since it was proposed in the last century,” Yu argues. “It was not until the birth of the blockchain that Metaverse became the next migration destiny for mankind.
“It’s no doubt that the Metaverse will reverse our lifestyle,” he adds. “However, there’s also a dilemma between individual privacy protection and technological advancement. Therefore, KuCoin Metaverse Fund is set to establish a more private and secure Metaverse ecosystem based on Web 3.0.”
Even this short list of investments doesn’t tell the whole story. According to various sources, TLL ascertained that in Q3 alone cryptocurrency companies raised about $8.2 billion, of which $1.8 billion was allocated for the development of NFTs and metaverse technologies. That amount does not include the $10 billion allocated by Meta, or the other major investments being made by Unity, Apple, Microsoft, Roblox, Fortnite, and several other metaverse-related companies.
THE ENTRY POINT FOR LICENSING
It’s that idea of using NFTs to sell unique digital assets that has propelled the metaverse from interesting concept to a real opportunity for companies involved in licensing. Prior to the development of NFTs, most of the purchases of digital assets happened inside video games. For example, video gamers often make what are known as in-game purchases, which are generally completely digital assets like character skins, enhanced weapons or items to improve game play, and so on.
Licensing professionals are already very involved in video game licensing, and proponents of the metaverse say licensing will simply scale up to meet demand as more and more people dive into these new digital worlds, not just for play, but also for work, health care, fitness, and many other activities that today only take place in the real world.
According to a new report from Grayscale Research—a division of digital currency asset manager Grayscale Investments—video gaming and social media are the two primary ways most people will be introduced to the metaverse.
“A greater and greater portion of our attention is going towards digital activities, especially for younger generations,” the Grayscale report says. “Today, ~1/3rd of our lives (~8 hours/day) is already spent watching TV, playing games, or on social media. As we spend more of our time in these digital world experiences, we also spend more of our money within these digital realms to build our social status within these online communities.”
An example of these types of purchases is the purchase of artworks, like the multimillion dollar sales of NFT artworks sold at a digital art gallery owned by Sotheby’s in the Decentraland Metaverse. Other purchases now include buying property for businesses or online ‘homes’; various fashions for one’s avatar; and a variety of pop culture products like the NBA’s successful NFT program Top Shots.
The future of licensing, however, will be much wider and more lucrative. For example, Peloton and Lululemon will stage licensed fitness classes in the metaverse; studios will debut new feature films in a digital cinema; fans will attend sporting events and concerts; and designers will hold online fashion shows on a 3D catwalk. Even licensing conferences will move into the metaverse, so if you can’t be at a conference physically, in a few years you’ll still be able to walk the tradeshow floor through your avatar.
Grayscale Research predicts that, thanks to NFTs and the development of metaverse licensing deals, the revenue from virtual worlds will more than double in five years. “Our social lives and gaming are converging and creating a large, fast-growing virtual goods consumer economy,” Grayscale predicts. “It is estimated that revenue from virtual gaming worlds could grow from ~$180 billion in 2020 to ~$400 billion in 2025.
“The continued shift of game developer monetization is a key dynamic within this growth trend. Players are increasingly moving away from paying to play premium games towards free games, which developers monetize by selling players in-game items to enhance gameplay or social status within these virtual worlds.
EVEN OLD GAMERS CAN LEARN NEW TRICKS
This is not a trend limited to young Gen Z gamers. Data from Goldman Sachs indicates that among the US population, Gen Zers spend the most time in video games daily, at 3.5 hours per week, but people 65 and older actually place the second highest, tied with Millennials at about 1.5 hours of gaming per week. Busy Gen X and Boomers place last at just 0.7 hours per week on average.
What is more interesting is that, for many people, playing online games has become a major part of their social lives in a world where friends and family are often scattered across the globe.
I’m actually a good example of that. While I was never much of a gamer, and in fact, never played an online game until I was well into my 50s, I now play with my siblings who all live in different cities. Seeing each other on a regular basis is difficult, but seven years ago one of my brothers came up with the idea of getting online every week to play a game called World of Tanks. The idea worked, and now we meet more than once weekly to play the game, and it’s become the means by which we talk or share family news.
Along the way, we’ve also spent a fair bit of money on in-game purchases like skins or premium accounts, usually totalling $200 to $300 a year. While not a licensing juggernaut like Fortnite, World of Tanks also does a lot of licensing, like selling premium tanks branded to the rock band Offspring, celebrities like Chuck Norris, and several in deals with Amazon.
But what is missing in this world, and where the opportunity lies, is the ability of players to trade or sell items among themselves.
“Many gamers today spend their money and hours of their time building digital wealth within Web 2.0 closed corporate metaverse worlds,” points out the Grayscale report. “The problem is, most game developers don’t let players monetize their investment and efforts. Developers prohibit players from trading items with other players and keep these worlds closed so players cannot transfer their in-game wealth to the real economy.
“Web 3.0 open crypto metaverse networks solve this problem by eliminating the capital controls imposed on these virtual worlds by Web 2.0 platforms,” Grayscale argues. “This new paradigm allows users to own their digital assets as Non-Fungible Tokens (NFTs), trade them with others in the game, and carry them to other digital experiences, creating an entirely new free-market internet-native economy that can be monetized in the physical world.
“This evolution of the ‘creator economy’ is known as “Play to Earn.”
Up until now, these types of transactions happened in a gray economy where certain websites would break the developer’s rules by helping conduct sales of player accounts to other players. Some talented gamers would even grind through various gaming levels to acquire certain goods, and then sell those goods to less experienced gamers.
Now, the development of NFTs that operate across the metaverse, and across all types of games, is predicted to launch an entirely new economy in which individuals earn and sell these digital assets, while the developers and licensors pick up royalties every step along the way.
Already, assets that are considered rare or in high demand have commanded multimillion dollar prices.
A RECORD NFT PURCHASE IN DECENTRALAND
A good example of this was seen recently in the metaverse world known as Decentraland, which is to date has developed the world’s largest market for online real estate. Companies and individuals typically buy this digital property either as an investment or to build a business within the metaverse, such as the Sotheby’s art gallery mentioned earlier in this report.
On Nov. 23, the publicly traded company Tokens .com Corp. announced the largest-ever acquisition of digital real estate, buying out 6090 square feet of ‘land’ in Decentraland’s Fashion Street district for 618,000 MANA; the equivalent of $2.3 million USD at the time of this writing. It is the largest metaverse land acquisition to date.
Token .com subsidiary Metaverse Group now owns this digital parcel, and says it will be used for the operation of a fashion business.
“The estate will be developed to facilitate fashion shows and commerce within the exploding digital fashion industry,” said the Metaverse Group in a statement. “Metaverse Group also plans to establish partnerships with several existing fashion brands who are looking to connect with new audiences and expand their ecommerce offerings within the metaverse. Metaverse Group will collaborate with Decentraland to curate fashion projects and events on the estate.”
Sam Hamilton, Head of Content at the Decentraland Foundation, says the purchase is just a small part of what’s happening in this virtual world, which is now pushing forward with several initiatives around fashion licensing and sales.
“Fashion is the next massive area for growth in the metaverse,” said Hamilton. “So it’s timely, and very exciting, that Metaverse Group has made such a decisive commitment with this land purchase in the heart of Decentraland’s fashion precinct.”
According to the Grayscale report, fashion is just one of many exploding businesses that are already operating within various metaverse worlds like Decentraland or Sandbox.
Web 3.0 crypto metaverses are emerging market, virtual world economies with a continually developing complex mix of digital goods, services, and assets that generates real-world value for users,” the report states. “Users purchasing these items are starting to build a new e-commerce experience. Examples of some more popular business activities within Decentraland and other virtual world economies today are:
• Art Galleries, such as Sotheby’s, have launched allowing owners to showcase and sell their digital NFT art at auction.
• Business Offices: crypto businesses like Binance and others have established digital headquarters in the Metaverse where employees can meet and collaborate.
• Games & Casinos where players can win MANA.
• Advertising: digital billboards have been built by property owners to advertise to game players for a fee.
• Sponsored Content, such as the recently announced Atari arcade which will feature games that can be played within Decentraland.
· Music Venues where DJs and musicians play music and hold concerts.
Most of these new types of businesses within the metaverse also lend themselves to licensing, but what is the size of the marketing opportunity?
As noted earlier, Meta CEO Mark Zuckerberg believes the metaverse economy will generate hundreds of billions of dollars by the end of this decade, but Grayscale predicts the amount will be much higher as Web 2.0 companies make the transition to Web 3.0.
“This vision for the future state of the web has the potential to transform our social interactions, business dealings, and the internet economy at large,” Grayscale says. “The Metaverse is still taking shape, but Web 3.0 open virtual world crypto networks are offering a glimpse of what the future of the internet may hold. The market opportunity for bringing the Metaverse to life may be worth over $1 trillion in annual revenue and may compete with Web 2.0 companies worth ~$15 trillion in market value today. This potential has attracted companies like Facebook to pivot towards the Metaverse, which may serve as a catalyst for other Web 2.0 tech giants and investors to follow.”
Jensen Huang, the CEO of Nvidia, agrees the metaverse is an economic opportunity that will dwarf the $15 trillion generated from our current internet technology, because it blends the real world with a much larger digital world.
Nvidia has developed its own metaverse technology that it calls the Omniverse, and uses that technology to help real world engineers solve problems in Omniverse replicas of the real world. For example, engineers can design city infrastructure in the Omniverse and test it out before spending a lot more money building that infrastructure in the real world.
“It is a 3D extension of the internet that is going to be much, much bigger than the 3D physical world that we enjoy today,” Huang said in an interview with Yahoo Finance Live. “The economy of the virtual world will be much, much bigger than the economy of the physical world. You’re going to have more cars built and designed in virtual worlds, you’ll have more buildings, more roads, more houses — more hats, more bags, more jackets.”
And perhaps the best thing of all? You don’t have to worry about recycling digital bags or packaging!
Want to Learn More? See TLL’s Original Special Report: Licensing In The Metaverse
https://www.thelicensingletter.com/shop/special-report-licensing-in-the-metaverse/