Winter 2023

Abstract

Younger generations are ushering in a transition from 2D social media platforms to social, virtual video-game-like worlds. This is the transition to immersive media, where static social media scrolling is being replaced by fully formed digital environments, or virtual worlds, where people not only interact with each other, but curate digital identities spanning their avatar appearance, virtual home, and possessions. Immersive media is becoming an increasingly popular leisure activity to the detriment of other media formats–a trend which marketers and companies need to prepare for.

What is “Immersive Media”?

A new frontier for social media and video gaming.

‍Immersive media is the future of media, characterized as interactive, social video game-like content delivered through virtual worlds. Immersive media is what happens when social media and video games converge, creating alternative realities that allow people to build virtual lives in online environments. 

Immersive media encompasses social video games, virtual worlds, VR & AR, and haptic devices. It also includes the concept widely referred to as “the metaverse,” a vision of interconnected virtual worlds where individuals can create and participate in various activities and build a virtual life that is as rich and nuanced as their real world identity, or perhaps even moreso. 

The convergence of video games and narrative media (TV & Movies) has come conspicuously into view through the popular HBO series The Last of Us. Whereas past video game adaptations like Sonic or The Angry Birds Movie presented a narrative and graphic style as cartoonish as their source material, The Last of Us shows that peeling back the layers of a video game can uncover plotlines and elements remarkably human. Immersive media, similarly, gives a name to the elements of video games beyond their high scores and boss fights–whether that’s socializing, working, or the endless other experiences finding their online counterparts for the first time ever. 

 
Simply put: traditional social media is losing the competition for users’ time. Platforms like Instagram engage users for an average of 30 minutes throughout the day, while the average Roblox player logs on for over 2.5 hours (source). Young users are not content with scrolling endlessly through social media feeds. 

Instead, they’ve been increasingly replacing it with gaming on platforms like Roblox. With 40 million games and new ones released each day, Roblox is as lively as any social media feed (source). 

The immersive media ecosystem is expansive.

Looking at how much is being spent across gaming and digital advertising, we can estimate almost one trillion dollars in annual revenue across the immersive media industry. The immersive media market encompasses parts of several existing industries, some of which are already mature, like video gaming, and others which are more nascent, like haptics and virtual reality devices. The total size of this market is nearing $1 trillion in annual revenue.

The global video game market is estimated to be $184 billion in 2022, including revenue from browser-based PC games, downloaded/boxed PC games, console games, and mobile games (source). This represents a player base of 3.2 billion individuals who contribute to the industry through purchases, ranging from premium items to in-game microtransactions.  

One subset of the global video game market is the virtual goods market, which accounted for almost $61 billion in 2021, primarily driven by mobile purchases (source). Virtual goods, such as non-physical items and in-game currencies, are increasingly seen as essential components of the gaming experience, promoting achievement, escapism, relaxation and exploration. As such, we anticipate that immersive media will continue to penetrate the tech stack and transform experiences in new ways.

The digital advertising industry, which is even larger than the gaming market, is estimated at $680 billion, accounting for 69% of the overall expenditure on media ads (source). As non-gamers seek out virtual worlds for entertainment, advertising becomes an even more important avenue for reaching these consumers in their preferred environment. 

Immersive media is replacing traditional media.

Immersive media is disrupting–and possibly absorbing–social media for young generations. 

Behavioral data suggests that younger generations prefer video games to traditional and even social media. Television, radio, and print have been facing a precipitous decline in popularity as networks struggle to find content other than sports to draw in younger crowds. Even playing physical sports has been edged out by video games.  

Traditional and social media platforms have been largely supplanted by YouTube and TikTok. While staples like Facebook and Instagram remain popular, they are less popular among younger users who prefer sharing experiences in video games over social media scrolling. Meanwhile, threatening all forms of social media comes social gaming. 

Gen Z prefers gaming to every other form of entertainment. While 26% say video gaming is their favorite entertainment type, only about 10% of the generation prefers social media or TV and movies (source). 

As the gaming sector is broadened by the development of immersive virtual worlds, other forms of entertainment are being enveloped into the space. This merging of entertainment types is ultimately a positive force for gaming and virtual worlds, and for the time being a drag on the usage of traditional social media, TV, and movies. 

Over the past few years, this trend has been painted with a broad brush, encapsulating even the concept of “the metaverse,” which marketers and technologists have failed to convincingly define. Companies like Meta have worked hard to convince the masses of an imminent future where people don virtual reality goggles and spend time in VR-based virtual worlds. Meta’s efforts–and those of other metaverse platforms–have so far been largely disappointing, causing many pundits to mock the concept of the “metaverse” as a folly which is unlikely to materialize. 

Hundreds of Millions of People already Love Virtual Worlds.

Gamers became social gamers overnight, and no one noticed.       

Social gaming is an integral part of life for Gen Alpha and Gen Z. One of the reasons video games have become so popular among younger people is that they offer a level of engagement and interactivity that traditional forms of media cannot match. Video games are no longer just a form of entertainment and have instead become an entire lifestyle. Players are able to connect with friends, create their own content, and customize the game to their liking-all of which satisfies their social requirements and desires for customization.

Around 90% of Gen Alpha and Gen Z consider themselves to be gamers or game enthusiasts (compared to 79% of the total online population) (source). Gen Z gamers already spend nearly twice as much time with friends in virtual worlds than in real life, and over half believe they can more easily express themselves in virtual worlds (source). Not only do they invest more leisure time, but they are also more likely to spend money on games. Roughly half of their generation regularly spends money on games and in-game purchases, to the tune of more than $60 billion per year (source) (source). These trends will only amplify over coming years, especially as Gen Alpha and Gen Z grow up and find more purchasing power in the global marketplace. 

What is a social video game?

And why people are spending so much money in them.       

A social video game is a type of video game that allows players to interact and play with other players. These games often have features such as multiplayer modes, online leaderboards, and the ability to communicate with other players in-game. Examples of social video games include Fortnite, Minecraft, and Apex Legends.      

Social video games:

• Include some traditional role-playing games and first-person shooters (FPS).
• Often feature non-violent life simulation instead of nonstop shooting and destruction. 
• Attract younger generations who increasingly see their virtual identity as living in virtual worlds rather than 2D social media platforms. 
• Are growing as a proportion of revenue in the gaming industry. The segment is expected to surpass $240 billion in annual revenue by 2026 (source).

Social video games have a unique set of revenue-generating channels. In-game market forces motivate players to purchase the trendiest, most popular items that they can strut in front of other players. Social video games, meanwhile, have ample opportunity for in-game advertising that can be embedded seamlessly into environments mimicking real-world neighborhoods and spaces.      
 

Roblox, one of the dominant social games for players primarily under 16, reported an average daily active user count of 58.8 million in Q3 2022, a 24% increase from 2021 (source).

These games are a far cry from the conventional first-person shooter games that the gaming public has come to anticipate.  

Young Audiences Choose social video gaming Over other activities. 

Virtual worlds are the go-to social activity for Generation Alpha

Virtual worlds, once seen as something of a niche activity, have become mainstream in recent years. This shift in perception can be largely attributed to the rise of Generation Alpha, who have grown up socializing in virtual worlds, particularly during the pandemic.  

Virtual worlds have become a natural and normalized way for the digital-native generation to interact with others. 

As technology continues to improve, and this generation grows up, virtual worlds will likely become an even more important part of our daily lives. Generation Alpha isn’t embracing social media the way former generations did, and the change may be permanent. 

Crossing the Chasm: virtual worlds become mainstream.

Virtual worlds aren’t the first fringe online activity to go mainstream. 

For older generations, virtual worlds were seen as something of a mildly embarrassing private hobby, something that people often kept secret. Compared to Geneneration Alpha, who today log into virtual social gaming worlds as much, or more, than older generations do into their Facebook and Instagram accounts. Virtual worlds have become more socially acceptable because they offer a sense of community that is difficult to find in the real world.  

Older generations associated virtual worlds with gaming and other forms of entertainment, but for Generation Alpha, virtual worlds are becoming a primary way for them to interact with others. They are a mandatory form of social currency. 

We have seen this mainstreaming of fringe behavior in other areas of digital media. One such example is online dating. When online dating first emerged in the mid-1990s, it was primarily used by people who were unable to meet potential partners through more traditional means. As a result, online dating was often stigmatized and carried a negative association. However, the introduction of casual dating apps like Tinder and Bumble in the early 2010s made it easier for people to connect with others in a nonchalant way that drew more people to the platforms, thus the stigma began to dissipate. Social simulation games and virtual worlds are undergoing a similar shift, where behaviors once considered fringe have become mainstream.      
 

What’s next after the “metaverse fade”?

A hyper-focus on improved audience engagement and authentic brand experiences will lead to a resurgence for virtual experiences.      

The "metaverse fade" refers to a decrease in interest and enthusiasm for the concept of the metaverse, as well as a decrease in the value and popularity of companies that have positioned themselves as leaders in the metaverse space. This, in turn, has led to a decrease in interest and investment in the metaverse space as a whole.      

However, despite the current metaverse fade, many experts believe that the metaverse remains a promising and exciting area of technology and that it is likely to experience a resurgence in popularity as the technology and infrastructure continue to evolve and mature (source). To successfully navigate the current challenges and capitalize on the opportunities in the metaverse space, immersive media companies must:

• Create authentic engagement: Companies should aim to engage young audiences in an authentic and creative way, as they are savvy and skeptical towards traditional marketing tactics.
• Know their audience: Understanding the interests, attitudes, and behaviors of young people is crucial in connecting with them effectively.
• Develop meaningful brand experiences: Creating engaging and interactive content or developing brand experiences that are relevant and meaningful to young people can help companies connect with them on a deeper level.

Admittedly, the metaverse platforms that have launched so far have been fairly disappointing both in their ability to attract meaningful numbers of users and the quality of the content that users can find on them. However, it is still the early days of this space, and many of the power users of social video games are still very young.        

How can immersive media become an effective marketing channel?

Virtual world marketing requires mastering new in-game advertising nuances, balancing engagement with intrusion.      

Marketers who are able to effectively connect with young audiences are likely to reap the rewards in terms of brand awareness, engagement, and loyalty. Publishers in the space need to be cognizant of each generation’s reactions to advertising and the ways in which advertising becomes intrusive. Market entrants should note:       

• Some gamers see in-game advertising as intrusive and disruptive, depending on factors such as frequency, type, and context of the advertisement.
• Some gamers may tolerate a certain amount of in-game advertising while others may avoid games with too much or use ad-blocker technology.
• Gen Z is less tolerant of traditional forms of advertising and more likely to use ad-blocker technology.      

And yet, Generation Z’s favorite games are home to some of the most overt advertising in the gaming world. Fortnite and Roblox have on boarded brands like NFL, Chipotle, Gucci, Star Wars, allowing players to don skins and accessories, often paying real money to do so. Items that are cool, trendy, or worn by their favorite streamers will be purchased by gamers, regardless of the conspicuousness of the product placement.  

Success is not contingent on the adoption of Ar/vr headsets.

Compatibility with hardware users already own, like smartphones and tablets, will drive mainstream adoption.      

While immersive media is being developed for every device, not every device is optimized for immersive experiences, and some devices simply aren’t popular enough to spark a global transition to immersive media on par with social media’s rapid adoption. US households feature to varying degrees one of four devices where immersive media is being developed:       
 

Virtual Reality (VR) headsets, the device most closely associated with immersive media, has gained some popularity in recent years due to a decrease in cost and a growing number of useful applications developed for the medium. While VR allows users to experience a simulated environment as if they were physically co-located, VR’s shallow market penetration paints a dubious case for the technology to propel the adoption of immersive media.  

Consumers are likely to interact with immersive media on a device nearly all of them already own and a great majority already use to play social games: their smartphones. 

While video gaming consoles and VR headsets offer a greater sense of audio-visual immersion, mobile devices are integrated into a user’s life the same way immersive media integrates consumers’ online activities. Leaving your digital identity at home, as a VR headset or console requires, is not compatible with the vision of immersive media as a new form of social media and gaming wrapped into one. 

Virtual identities are increasingly important.

Virtual Identity is an oasis for self-expression in a way that mitigates discrimination and bullying.      
 

The concept of curating a virtual identity on social media platforms like Facebook and Instagram has been around for over a decade. Some generations are more eager about extending this identity into virtual worlds than others. One approximation of this eagerness is an adult’s interest in creating an avatar. Over half of millennials and Gen Z say they’re interested in creating an avatar, while the proportion of Gen X and Baby Boomers saying the same is 41% and 16%, respectively (source).       

Before concluding older generations are unlikely to ever launch their virtual identities, first note the importance of network effects in motivating individuals to take unfamiliar actions, like signing up for social media. While not initially targeted at older adults, social media rapidly became equally a staple of Baby Boomer’s social networking as it did for younger generations.         

Virtual identities are promising tools for liberation and escape from societal pressures, especially for historically marginalized communities. For individuals facing stigma and discrimination or discovering themselves, virtual worlds may offer an outlet. 

Virtual worlds offer the opportunity for LGBTQIA+ individuals to explore and express their identity in a way that may not be possible in their real-life communities. 
 

However, it is important to note that virtual worlds are not immune to discrimination and harassment, and LGBTQIA+ individuals may still face similar challenges in virtual spaces. It is important for virtual communities to have policies and mechanisms in place to address these issues and ensure that they remain safe spaces for all users. 

Immersive media presents opportunities ready to be capitalized on.

New entrants can still disrupt the space through a host of new industries and opportunities. 

Immersive media is home to several exciting business opportunities across payments, blockchain integrations, and haptic technology. Meanwhile, new challenges in community moderation and user data privacy require innovative solutions to protect users.
 

Customer Service & Community Relations      

Gamers expect to have a direct relationship with the developers of their favorite games and provide real-time feedback on social platforms like Discord and Reddit.  Discord has become the social messaging app of record for gamers, who use it to interface with developers on a host of problems or for sharing feedback in real time.       

Whereas customer service in other industries has become increasingly automated, gamers’ expectation of a personal connection with members of development teams suggests the same level of automation won’t take hold as easily for virtual worlds. The intensive job of community relations manager currently commands a significant average salary of $127,000 in the U.S., which may be overly burdensome for small developers (source). Businesses that can meet developers’ needs of handling community relations cost-effectively, from managing rollouts of bug fixes and updates or answering general inquiries, can provide significant value.

‍Payments & Microtransactions      

In October 2022, Tilia, the payments system that handled microtransactions in Second Life, became a standalone company backed by JP Morgan Chase (source). Tilia handles payment processing, in-game transactions, as well as payouts to creators by converting in-world tokens to fiat currency including U.S. dollars, and can serve as payment rails for nearly any virtual economy. Tilia handled more than $85 million in transactions for Second Life and serves as the infrastructure for a $650 million in-game economy 20 years after the game was founded.      

The emergence of Tilia as a standalone company in the immersive media space has far-reaching implications for other companies looking to enter this market. Tilia's success suggests the viability of payment infrastructure for immersive media, a space still waiting for a payment processing leader. Innovative payment processing that can handle the transactions of millions of virtual worlds players will benefit from significant returns to scale. 

‍Web3 and Users’ New Relationship with Data Privacy      

Immersive media is emerging while web3’s popularity and use cases are expanding. Blockchain can also facilitate microtransactions in a cost-effective way.

Blockchain-based NFTs have the potential to once again redefine game monetization strategies. In-game asset marketplaces found on Fortnite and Roblox could soon be replaced by NFT asset marketplaces based on chains like Ethereum and Solana. The benefits for consumers, who can then own their own assets and trade them freely, are not necessarily shared with game developers. Closed garden ecosystems like Fortnite’s marketplace allow the developer to strictly control the sale of in-game assets, as well as harness users’ data gathered throughout their gaming and purchasing experiences.       

Other web3 solutions like Lens, a social media protocol where users actually “own” their posts and can remove them from any source at any time, may usher in a new expectation of data privacy. In December of last year, Lens purchased mobile metaverse Sonar, noting, “the metaverse has brought a whole new social layer to the internet, where users can truly own, collect and trade NFTs that make up their digital identity” (source). Companies that can provide data privacy and purchasing infrastructure, especially when integrated on-chain, may deliver value to users demanding a new level of ownership of their assets and data. 

‍In-Game Advertising     

Video games have long relied on digital in-game advertisements as a primary source of revenue for free-to-play models, and we are seeing a growing number of in-game advertising marketplaces and companies emerge to meet this need, such as Gadsme and Adverty. Gadsme and Adverty in-game advertising offerings have been leveraged by some of the most successful game publishers in the business, including gaming giant Ubisoft and mobile gaming trendsetters TapNation and Lion Studios. Gadsme and Adverty help convert blank spaces in games into fully-fledged in-game advertisements as well as find subtle integrations using audio and other product placements.      
 

Embedded advertisements, like this one in EA Sports’ Fifa, can look natural in the environment a game is imitating, such as a soccer stadium.

‍In-game advertising is priced in familiar ways to other advertising channels. Advertisers can expect to pay between $4.00 and $12.00 per thousand impressions (CPM) (source). Now increasingly integrated into mobile games, in-game advertising is the preferred mode of ad engagement for 82% of mobile gamers in the Asia-Pacific and largely preferred elsewhere (source).      
 

Companies that can find new ways to market to users and avoid the pitfalls of poorly executed in-game advertising (known to take users “out” of the game and feel contempt for the advertising brand) could unlock the potential of the burgeoning advertising medium. From placing branded goods in virtual goods marketplaces to filling simulated environments with advertising space, the opportunities in immersive media for in-game advertising are only just being explored.  

Community Moderation     

The growth of virtual and social video games has resulted in an increased demand for moderation services as platform owners and developers seek to maintain a safe and positive environment for users. This includes tasks such as monitoring user-generated content, enforcing rules and policies, and addressing instances of harassment, bullying, and other harmful behaviors.      

New solutions like Levity that employ AI for content moderation offer a glimpse at the innovation happening in this space. Virtual worlds need tools to address their own blend of content moderation concerns, such as the added threat of speech-based harassment. As virtual experiences and social video games continue to grow in popularity, it is likely that the business of moderating these environments will expand, providing new opportunities for individuals with the right experience. 

‍Haptics  

By providing tactile feedback, haptic technology will help make immersive media experiences even more realistic and engaging. As the haptic touchscreen market grows and the technology continues to advance, it's likely that we will see more integration of haptic technology into both 2D and VR experiences, further blurring the lines between our virtual and physical lives.      
 

The use of haptic technology in immersive media is one of the forces driving the estimated growth of the market to $20.48 billion by 2025 (source). Already a force in healthcare and handheld device technology, haptic producers will need to consider the market potential of social gaming and virtual worlds where people want to spend considerable time and demand more immersion.  

Summary

Immersive media is a growing sub-segment of the media industry and one that presents tremendous opportunities for those willing to embrace its challenges. Companies interested in attracting or retaining younger generations will need to cater to their preference for immersive media platforms that engage users more than 2D social media.       

Further, a decline in the popularity of traditional media and social media platforms among these generations should not be seen as a departure from narrative media or social media, but a restructuring of the ways in which people interact with those same types of media. Gaming and interactive media storylines are replacing passive narrative media, while social virtual worlds are providing a higher value proposition than endless, mindless scrolling through social media feeds.       

New and reignited industries like haptics, content moderation, and in-game advertising are quickly maturing and their role in immersive media cannot be underestimated. Meanwhile, web3 infrastructure and a new relationship users have with their own data is influencing the future of immersive media towards decentralization, where users are not only free to develop their virtual identities but also own every piece of them. As a new social layer for the internet, immersive media requires a drastic paradigm shift in technology and infrastructure, one that opens up new opportunities for businesses looking to make their mark.      

In summary, immersive media presents an enormous opportunity that should not be overlooked.

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About Everyrealm

Everyrealm is a technology and infrastructure company that develops and invests in businesses related to virtual worlds, social video gaming, and the metaverse— an ecosystem also known as immersive media. For business inquiries please email hello@everyrealm.com.      

www.everyrealm.com 

Disclaimer

This report is for informational purposes only and the reader should not construe any information or other material as legal, tax, investment, financial, or other advice.   The reader acknowledges that Everyrealm has not given any investment advice, credit information or rendered any opinion as to whether any purchase or investment is prudent.  To the extent any of the information contained in this report may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. All information contained in this report is believed to be correct and unbiased and Everyrealm does not accept responsibility for any loss arising from decisions made upon this information.