Game time? Microsoft adopts Ethereum blockchain for gaming royalties

Enterprise Ethereum is beginning to show its impact as some of the largest companies in the world start to leverage the Ethereum network to solve complex business challenges. For example, tech giant Microsoft and Big Four firm Ernst & Young announced the expansion of Microsoft’s blockchain-based solution to extend to gaming rights and royalties management.

Paul Brody, blockchain lead at EY, told Cointelegraph that Microsoft’s blockchain solution for this particular use case is being conducted on a private Quorum network based on Ethereum. Brody noted that this expansion will provide a financial system of record for royalty agreements, allowing Microsoft's blockchain network to record contract creation, payment and reconciliation transactions associated with gaming rights.

Specifically speaking, Microsoft plans to use the expanded blockchain functions to enable its Microsoft Xbox gaming partners — along with its vast network of artists, musicians, writers and other content creators — to gain increased visibility into tracking, management and payments processing for royalty contracts.

Luke Fewel, general manager of global finance operations at Microsoft, told Cointelegraph that the biggest benefit of a blockchain solution for royalties management is that it provides real-time, compliant accounting of transactions between Microsoft and its gaming partners:

“The solution will let partners know exactly what they’ve earned in real-time, and allows Microsoft to record the transactions in an automated, fully compliant way. Ultimately this project will touch thousands of partners, who all rely on timely and accurate royalty payments, as part of their business model.”

An in-production blockchain solution for royalties management

According to Brody, a blockchain-based solution for royalties and rights management is an ideal use case for video games and other content platforms that have large, digital supply chains that are combined with complex ownership structures and rights agreements. He added: “Administering these is one of the biggest costs companies face in content distribution, and doing it in a transparent and fair manner is a similarly large challenge."

As such, Brody believes that putting royalty agreements on a blockchain allows all the parties to work off the same foundational information while enabling each to examine the business logic that applies to different participants. Simply put, Microsoft’s newly expanded blockchain network serves as a single source of truth, or a financial system of record, meant to improve the end-to-end royalties management process.

For example, Brody commented that contributing artists may all be entitled to a share of revenue or a payment based on a transaction for a game sold through the Xbox network. While managing rights and royalties, in this case, has typically been challenging and nontransparent, Brody noted that smart contracts written on the blockchain can automate this process: "Smart contracts implement unique logic for each agreement and, over time, extend the network from publishers onwards to developers and contributing artists."

According to Brody, EY and Microsoft have already managed to reduce the cycle time for this process by 99%. Other benefits achieved from Microsoft’s blockchain platform that is currently in production include accelerated contract digitization for faster contract creation; seamlessly generated and integrated invoices connected with enterprise resource planning applications to quickly record royalties; generated accounting capabilities; and incorporated compliance standards that are required for the solution to function as a financial system of record.

Brody further remarked that he is confident in the enormous value creation that will result from Microsoft’s blockchain network for royalties management. Fewel further explained that the goal of this solution is to continue expanding upon Microsoft’s blockchain network, which is already being used for a variety of business use cases including a recently released wellness tracing app geared toward travelers.

Fewel added that blockchains have the most impact when there is a network effect and when enterprises can easily share information: “We see many other use cases for blockchain including tracking and accounting for fixed assets, and vetting and managing supplier information.”

How will this impact the gaming industry as a whole?

While a blockchain network can ensure transparency, trust and faster payments, the question remains of how this will impact the billion-dollar gaming industry outside of Microsoft’s network.

Robby Yung, CEO of Animoca Brands — a gaming development platform specializing in blockchain games — told Cointelegraph that a blockchain network for gaming royalties is indeed interesting, given the benefits it can provide:

“A solution such as this reduces the time it takes for contracts to be paid, simplifies self-service content creation and reduces costs. Generally speaking, this is a good thing. That said, while it's great to see further blockchain adoption in the gaming industry, back end payment processing is not necessarily what will capture developers' imaginations about the potential of blockchain.”

Yung further mentioned that as long as the owner of the intellectual property is comfortable with the agreed-upon terms, the business case for blockchain is apparent when it comes to royalties management. However, he pointed out that it must also make financial sense for game developers: “The key will be if Microsoft can provide the kind of plug and play tools for developers that will provide enough of a value proposition to offset cutting Microsoft a slice of the royalty pie in exchange.”

Another interesting point to consider is how this solution will fare with nonfungible tokens, which have become a major element of the blockchain gaming ecosystem and are often traded on secondary markets.

Sebastien Borget, president of the Blockchain Game Alliance — an organization helping to advance blockchain in the gaming industry — told Cointelegraph that digital assets such as NFTs can usher in a new era for additional engagement between content producers, gaming platforms and developers, as well as their audience: “In my opinion, NFTs have the most potential of all since they can enable royalties to be redistributed to the IP holder on every secondary trade between users.”

Borget pointed out that the blockchain solution from Microsoft and EY only serves as a document management solution for the gaming industry. While it solves major pain points, Borget mentioned that it doesn’t create new business opportunities for content creators. NFTs, however, are capable of expanding a content creator's reach, as these digital assets represent unique art, music, collectibles and more that can easily be traded between users.

While these points from the gaming community are certainly valid, Fewel believes that the biggest challenge is getting businesses to adopt a new technology like blockchain:

“We are doing things that have never been done before, but by being customer obsessed and applying a growth mindset, we remain focused on the end goal of providing transparent, compliant, automated transactions between Microsoft and its partners.”