 Hey everyone, welcome back to Nintendo Prime. I know I'm not on camera at this moment. We're having an issue with our camera lens, one of our lenses. We have a few of them, but whatever. We'll get it all sorted out today. I'm not too worried about that. I didn't want to wait on this because the industry is changing. It's ever evolving. And we have a letter from the president of Square Enix talking about the evolution in gaming, things coming up that are going to matter at some point. Even for us as Nintendo Switch owners, it's going to impact us as well. And I wanted to talk about it and some of my trepidations about it. I'm by no means an expert in most of this stuff, but I do have my own opinions. Before I get into it, I've got to remind you that any new subscribers from now, all the way through January 27th, get an opportunity to win $100 in cash. So yeah, be sure to hit that subscribe button if you would like. Beyond all that, we're also giving away three copies of Pokemon Legends Arceus. To enter, all you have to do is go click on the viral sweep link down in the pinned comment or in the description. All right, let's just get right into this letter from the president from Square Enix itself. It says January, came on January 1st. This was a New Year's letter publicly posted. And it says, I would like to begin by wishing everyone a happy New Year. The metaverse was a hot topic in 2021 inspiring a lively global conversation first about what the metaverse is and then about what sort of business opportunities it presents. Against this backdrop, Facebook changed its name in October to meta, serving as evidence of the concept is not a mere buzzword but here to say the metaverse garnered so much attention in 2021, it was dubbed the metaverse year, which is really interesting. The whole metaverse thing is basically made up and Facebook isn't changing the name of Facebook, they changed the name of the parent company, gets a little confusing in there. It's basically this web 2.0, sub-existence of like the controlling powers. It's dumb guys. I honestly think that this is more of a marketing play than anything, but that's my opinion on the whole metaverse aspect. You guys can obviously correct me or voice your opinions on this down in the description, but again, let's get to how this affects gaming. So I attribute this in large part to advances in extended reality, XR technology and increasing prevalence of the cloud and 5G because 5G makes gaming better. That's what Verizon tells us. See what I mean? A lot of marketing crap. More sophisticated blockchain technology and other technological evolutions that have taken place in a variety of fields over the past several years. That is because these advances are giving rise to services that fall under the metaverse umbrella. The metaverse will likely see a meaningful transition to a business phase in 2022, with a wide range of services appearing on the scene. As this abstract concept begins to take concrete shape in the form of a product and service offerings, I'm hoping that it will bring about changes that have a more substantial impact on our business as well. This doesn't sound too promising. It's basically saying that as people figure out how to profit off of each other, essentially is what this sounds like to me. Another term that gained quick currency in 2021 was NFT or non-fungible token. The advent of NFTs using blockchain technology significantly increases the liquidity of digital goods, enabling the trading of a variety of such goods at high prices in sparking conversations the world over. I see 2021 not only as a metaverse year one, but also as NFTs year one. Given that it was a year in which NFTs were met with a great deal of enthusiasm by a rapidly expanding user base. However, we do observe examples here and there of overheated trading in the NFT based digital goods with somewhat speculative overtones. Regardless of the observed value of the content provided this, obviously is not an ideal situation. But I expect to see eventual right sizing in digital good deals as they become more commonplace among the general public with the value of each available content corrected to their true estimated worth. And I look for them to become familiar as dealings in physical goods, which is basically a way of saying, look, physical goods have a value, right? You go to a store and you buy a bottle of pop. Now, you don't open that bottle of pop, you just hold on to that bottle of pop. But later down the line, you had that bottle of soda with you, it's in your vehicle, and there's somebody, you know, that's thirsty outside, looks like they could use a drink and you have this bottle of soda. Now, a lot of us would say, hey, that bottle of soda cost us, you know, anywhere from $1.50 to three or four bucks, depending on where you're at. And, you know, if this person's really, really that thirsty, unless we're selfish prick assholes, we'll probably just give them that bottle to drink no big deal, right? But in this case, let's say you're not that kind of person and you're willing to give that bottle to them, but you want to charge them for it. And obviously because you paid, let's say in this case, $3 for that bottle of pop, you wanna make profit on it. You don't wanna just get back what you paid for it because that just doesn't make sense to you as a business person. You bought a digital good and then you sold that good for the same amount of money, you made no money. Same thing here, there's no gain there. There was no point to that purchase, you know, for you if you didn't get something out of it. So, because, you know, just being a good person isn't enough to get something out of it, you sell it to them for $4. Okay, it's only a dollar profit, not a big deal. You know, they could have went to a store, but maybe it was just more convenient to get it from you. What they're trying to say is the idea of reselling something physical that you own like that, and that's a really extreme example. We can be talking about old phones when you upgrade phones and selling them online. They're saying that selling of digital goods which they're claiming have inherent value is going to be commonplace like physical goods, which as an example, you get, say, a new skin in $4.9, or let's not even go, yeah, you know, let's go with a new exclusive skin in Fortnite that you paid money for. You now, and by the way, I don't know if Fortnite's going full into NFTs, but this is just a rudimentary example. And you own that skin. Let's say that skin is some weird alien unique thing, because it's probably not gonna be a copyrighted skin because that will be widely available. It's going to be some unique looking thing. So you have this unique looking skin. You didn't actually make this thing, but it doesn't matter, you got your hands on it, you want it in a randomized card pack or something online, cool, whatever. So you have this unique skin that you paid X amount of money to open some random pack. So this is, by the way, microtransactions and all that still existing in their current form, the gambling aspect still existing in their current form, not really changing, but now you might get something that's a unique skin and you might be able to sell that on a secondhand marketplace and get more than your money back. And because it's such a unique rare skin, the price of it could be anywhere from $5 to $10,000. Now keep in mind, when the person buys that skin, let's say you get that unique skin and you end up making significant profit out of it. So you sell it for 100 bucks, but you got it out of like a $5 little unopening random online digital pack, right? So then you sell it for 100 bucks, that seems like a crazy good deal for you. The difference is, you didn't sell anything that's tangible. When that person is not on their phone, not playing the game, they have nothing. If the grid goes down, if the game servers go down, the game crashes, you have nothing. You have what amounts to a change of color with maybe a few little details for a virtual character that does not exist. This is key to remember. Trying to treat digital goods like their physical goods when you can't control your access to those goods, let alone control how long those goods remain valuable. It's kind of weird, right? To compare that to something tangible that regardless of power, regardless of anything, you still own it. You know, the electricity goes out and you can't charge your phone, you still have a phone. It still has some sort of value to somewhere else to someone who has access to electricity, right? Like there is still value in something tangible, but they're trying to argue here that they think it'll be trading and have values that are just like real physical products in the digital space. And if you're wondering what this sounds like, it sounds exactly like what you think it sounds like. The point of NFTs, the point of this blockchain technology being used, which decentralizes everything, is to take advantage of other people, to make money off of things that have no tangible real-life benefit to anybody. Think about that for a moment. That's what Square Enix here is talking about, how this can be as commonplace as physical goods which have a tangible something involved with them versus something that doesn't actually exist. It's a bunch of zeros and ones on a computer. Let's just remember this in the back of our mind when we're talking about value here. It's weird, right? It's ripe for being abused and it's currently being abused in the few products that are using it. Moving on. To address these changes in our business environment, the medium-term business strategy that we unveiled in May of 2020 identified AI, the cloud and blockchain games as new domains on which we should focus our investments. And we have subsequently been aggressive in our R&D efforts and investments in those areas. In the AI space, we have established Square Enix AI and Arts Alchemy Company LTD in March of 2020 to pursue development efforts in the wider field of entertainment AI rather than being constrained by traditional concepts of gaming AI. The firm's research and development efforts focus primarily on natural language processing, world models and simulation technology. These efforts will help us develop the games that we release into the world and enhance their overall quality, but it's not all. By incorporating the output of these research and development efforts into virtual avatars and elsewhere, we plan to apply that output to a wide variety of content and provide relevant technology to other companies with a view of leveraging research and development efforts across our entire digital entertainment business. I don't really have a problem with that. That's just going in advancements on AI to help with different things. I'm not, you know, some people might be afraid of future AI overlords and all that or hate the AI that runs Google and YouTube and stuff. I get it, but this stuff doesn't really bother me. This is just taking advantage of the natural evolution of technology to help make stuff in the future. I don't think there's a problem with that. This is the one part of this that the president of Square Enix is talking about that doesn't actually bother me. Moving on, it says we are exploring potential efforts in the cloud space from two primary perspectives. The first being leveraging cloud technologies to distribute content. And the second being developing content that offers customers new forms of excitement and able by the cloud's attributes. More telecommunication infrastructure is being built as exemplified by expanding 5G coverage, which, look, I like 5G, can we stop acting like it's like God's gift to mankind? There's so many limitations with it, like such as your house with a wall interrupting the signal. Like, come on, anyways. Devices are also making performance gains as these trends continue. I believe that the content we provide will become more accessible, making it more likely that our customers will discover enjoyment as we gain new touch points with them. Leveraging cloud technologies is extremely effective as a means of making our content and services uniformly available and as a catalyst for creating new forms of excitement that expand beyond the content development capabilities for which we are known. As such, we will be making Apple investments in cloud space. This is just a long-winded way to say they think cloud gaming is going to be huge in the future and they're investing in it, which, again, so is Microsoft, so are a lot of companies. So again, natural evolution of technology. I think 5G is sort of irrelevant for this. I understand that you can cloud game on 5G, you can also cloud game on 4G LTE. The point is it's sort of irrelevant. It's just this is modern technology and you're taking advantage of it. All right. Now, I realize that some people who play to have fun and I love how it's air-quoted, play to have fun. Before I move on, what's the point of video games to entertain us, whether the entertainment is happy, sad, serious, it evokes a bunch of emotions. It's kind of like when we watch TV shows and movies, right? You can go across the entire emotional spectrum, but the base goal is entertainment. We enjoy it to a certain degree. So say you like watching a lot of sad movies. There's something you inherently enjoy about watching those sad movies, which is a little bit of fun for you. Fun comes in many different forms. So the whole quoting, play to have fun, it's the entire point of video games. But we're gonna see why that's quoted because now a new point to play in video games is gonna be coming up here. It's a point that technically exists in some forms, but moving on. So I realize that some people who play to have fun and who currently form the majority of players have voiced their reservations, not just reservations, outright distaste, towards these new trends, and understandably so. However, I believe that there will be a certain number of people whose motivation is to play to contribute, by which I mean to help make the game more exciting. So I can give one example where this does happen. Roblox, Minecraft as well, but Roblox. People can go in there, play Roblox or free, make little games, and people can go play them. Squid games, been available in Roblox for months now. Like, there are different things like this that already exist in the content creation realm. But you can argue Mario Maker 2, some people love to make levels, but not play them. Some people love to play them and not make them. It kind of all works together to make a nice community. So this does already exist. This isn't a new concept. This has been around forever. The Halo Forge back in the day, this isn't new. The idea that some people like to build things and some people like to play things is not a new concept. That's not unique here, okay? But this is what gets weird about it to me. Traditional gaming has offered no explosive incentive to the latter group of people who are motivated strictly by such inconsistent personal feelings as goodwill and volunteer spirit. How about you enjoy it? Let's think about it like this. Why does anyone make videos on YouTube, on YouTube channels that don't make money? We have a podcast channel that doesn't make a dime. Has it made me even a single penny that podcast channel? So why does it exist? What's the point to it? It's for goodwill, right? Out of the kindness of my heart. No, no. It's to organize my content because I enjoy being able to centralize the podcast. It makes sense from a logical perspective and from a fun perspective. I just went over, some people love creating levels. It's fun. They don't need to be incentivized to do something they enjoy. If you have to incentivize them, that means they don't fundamentally actually enjoy doing it. When you talk about, oh, for personal feelings and goodwill and volunteer spirit, that's what nobody thinks that. They make it because they enjoy me. Why do I make YouTube content? Because I enjoy making it. This is dumb. That's not why people do it. They do it for fun. The same reason they play the games for fun is the same reason they make the stuff inside the games in these making modes. For fun. This is fun to them. They're not just doing it out of the kindness of their heart or for volunteer purpose. No. This is a GitHub. This is coming from the president of Square Enix who says that that's what he presumes the people in that space are doing. This fact is not unrelated to the limitations of existing user-generated content. User-generated content has been brought into being solely because of individual's desire for self-expression and not because of any explicit incentive existed to reward them for the creative efforts except for the joy of the creation. You make things for fun. You play games for fun and if games offer you an ability to make things, you make them for fun. There's also, by the way, been several instances such as on Steam where you can sell your modifications for actual real-world money. So even then, there's already been situations where you can sell your mods, sell access to your content that you create. Like this already exists. This isn't new. We don't need NFTs to do this. To act like that's the only way forward to make, for people to make profit off of their creations is really disingenuous because there's already ways to do it and they're acting like those ways don't exist but they already exist and they're being used long before NFTs were even a thing. Well, moving on. I don't want to be fair here. I'm not an expert on NFTs. So it says, all right, I see this as one reason that there haven't been any major game-changing content that were user-generated as one would expect. Is Square Enix unaware of the PC modding community? We have an entire DLC add-on for Breath of the Wild that exists that's utterly fantastic and almost better than Nintendo's official DLC. That was made for free by a user. Content like that exists everywhere. This isn't new. How long has Skyrim been modded to that? Like, this isn't new. Major game-changing content. You're right. When someone has a game-changing content idea and they have the capabilities to make it, they go make a video game. They make their own game and sell it. It's called Independent Studios. I am totally confused here. So, however, with advantages in token economies, users will provide with explicit incentives. It's called profiteering. Thereby resulting not only in greater consistency in their motivation, you know, because motivation doesn't go away when the driving force is actually how much money you can make rather than the quality of what you're making. Because you might say, oh, there's a direct correlation. How many YouTube channels have blown up and gotten big and big and big and sometimes the quality of the content is going down and down and down because they're less motivated to make that content because they're not enjoying it as much, but they continue to do it because they're making money. So, it's a money-making thing for them. It's no longer about doing it for the fun of it and because of it, the quality suffers and overall, you end up with a worse product because once profiteering's involved, typically things don't actually get better. They get worse. Now, I'm not saying that there shouldn't be a way to make money. I'm a YouTuber. I make money on YouTube, but I don't need an NFT type system for my videos to make money off them and they don't need that for that content either. They could just encourage these companies to create an open marketplace where you're able to sell your modifications to anybody, not just a single person who owns a digital. No, they could just buy the mod for five bucks. Five dollars, real cash, buy the mod. Nope, we have to involve the blockchain, have to involve NFTs because that's the real incentive. I believe that this will lead to more people doing them, devoting themselves to such efforts and to greater possibilities of games growing in exciting ways. From having fun to earning, to contributing, a wide variety of motivations will inspire people to engage with games and connect with one another. It is blockchain-based tokens that will enable this and by tokens, I think they mean like Bitcoin, stuff like that, why they can't just take cryptocurrencies beyond all of me maybe because they're afraid of the negative connotations that can come along with it. I don't have an issue with cryptocurrency, by the way, guys. I'm not like anti-crypto at all. So you invest your money where you want, do what you want, mine if you want, I really don't care. We're just talking, I'm talking about the effects on gaming, not the effects on like personal finances and how you, if you wanna put your money in a bank versus putting it in Bitcoin versus whatever you wanna invest in or earn money in. You do you. By designing viable token economies into our games, we will enable self-sustaining game growth. It is precisely this sort of ecosystem that lies at the heart of what I refer to as decentralized gaming. And I hope that this becomes a major trending gaming going forward. If we refer to the one-way relationship where game players and game providers are linked by games that are finished products as centralized gaming to contrast it with decentralized gaming then incorporating decentralized games into our portfolio in addition to centralized games will be a major strategic theme for us starting in 2022. The basic and elemental technologies to enable blockchain games already exist. And there has been an increase in the societal literacy and acceptance of crypto assets in the past few years. We will keep a close eye on societal shifts in the space while listening to the many groups of users that populated and ramp up efforts to develop a business accordingly with an eye to potentially issuing our own tokens in the future. So they're gonna consider their own cryptocurrency token. That could never go wrong. And they're talking about how gaming is too centralized because we have finished products. Instead, they have a reason to release unfinished products that require users to generate the content for it to make it a worthwhile experience. And then those users are making money through NFTs and digital tokens basically creating a system where it's no longer about playing the game. It's about making as much money as you can and that can affect the ability to actually enjoy what apparently will be an incomplete game unless you have infinite money to keep buying more shit. Then you might be like, don't buy anything. It's a free to play, but then you can, you're right. It's a free to play game that has nothing to do unless you spend money. I'm scared for the future of gaming. Let's finish this letter off because we're almost done here. So there are lifestyles have changed and we are learning to coexist with COVID-19. Against that backdrop, I believe in the new technologies and concepts that I've discussed and the changes that it will bring to our business environment will provide us with numerous opportunities to enrich people's lives through digital entertainment, which is at the core of our business. This at the same time means that we are seeing the beginnings of further leaps forward for our business. We remain committed to creating, developing and providing world-class content and we will contribute to the happiness of society and its people by offering new forms of excitement. I wish you all the best for 2022. Yusuke Matsuda, president and representative director of Square Enix Holdings Company, LTD. So, guys, I'm scared. Is anyone else scared for the future of gaming right now? It's not a cloud gaming that, oh, if physical games go away, yes, that sucks. But also I'm not scared of cloud. I'm not scared of digital. I'm not scared of AI and all that. What I am scared of are things that fundamentally change the way we interact with games in a way that is built completely around users profiting off other users. Think about that for a moment. It's no longer enough to just have fun playing a game. It's no longer enough to be passionate about creating user-generated content. Now we need not only profit off that user-generated content, but do so in a way that's likely going to lead to that being the primary focus of the entire community is how can we best profit off of others? How can we take advantage of the children? Take advantage of those Roblox players out there and get them to spend oodles and oodles and oodles of money? Because now Roblox is suddenly not that much fun if everything that's fun in the game has pay walled and pay gated and then beyond all that, let's say someone buys X content. They now own that content and nobody else might be able to enjoy that content except that one user unless they resell it. That's what NFTs are about. It's not about you buy something and it's for everyone, you buy it and you own it. Nobody else has access to it unless they buy it from you. It's a profiteering scheme. Everything talked about in this letter is solely built around the fact that the only motivating factor that matters for user-generated content is the ability to make money off it and without it, user-generated content is a shit show. Except it's not. Except the primary reason people make user-generated content isn't about being generous. It isn't about anything other than doing it because it's fun. Minecraft is an entire game built around the idea that people like having fun building and making shit because it's fun enough. People don't wanna have to spend money on user-generated content like this. That's the push, the entire pushback is the whole idea you're talking about Square Enix sounds like hot garbage. It sounds like all it is doing is incentivizing the abuse of gamers. More than we're already abused with microtransactions. Remember, we're already abused with that. We're already abused with loot boxes. So we're already being abused. And what is happening is Ubisoft, EA, Activision, Square Enix are latching onto new technologies coming out that's gonna further enable not only them, but now the users themselves to abuse consumers, to abuse the players. Let that sink in. We want microtransactions to go away. We want loot boxes to go away. We don't want more ways to nickel and dimus. Oh, but if you buy an NFT digital thing, you can risk. Okay, so now you're just making me have to give a shit about the actual value of a digital good so I can maybe make some money off it and suddenly that's not why I'm playing the damn game. I'm not playing the game for money. Now there are people that do play games for money and they stream them and all that, but totally different space. This to me is just baffling. This to me makes me fundamentally worry about the future of gaming and we have heard this not just from Square Enix, but from everybody else. There have been very few people who have spoken out against it. Bill Spencer is one such person who has said he has a lot of trepidations about this whole concept. Not that they're gonna block it on his platform and block the games that use it, but he definitely doesn't sound like he's gonna be like pushing Microsoft to be fully diving into the stuff anytime soon. They're also focusing on Game Pass so they kind of have their own little vision and goal. They're working on there and they wanna obviously keep people as happy as they can. Nintendo obviously hasn't talked about this much and I don't wanna expect them to because to imagine Nintendo taking advantage of something that requires the internet like this when they already suck with the internet. Yeah, as Nintendo fans we probably don't get a real breath of the wild to or future Mario and Metroid games using this anytime soon, but it doesn't mean that won't happen someday. Just like, you know, hey, Nintendo didn't charge for online until they did. Nintendo might not, you know, didn't do paid DLC until they did. Nintendo didn't do Microsoft transactions until they did. Hello, Fire Emblem heroes. You know, Nintendo didn't do X, Y, and Z until it happened. So yeah, this could impact Nintendo in the future. This could impact the whole of gaming. We hope it doesn't. We hope that these games are left on their own with their tiny communities that keep trying to profit off one another until it all implodes on itself because people realize they're buying shit that doesn't actually exist. But what are you gonna do? What are you actually going to do? Now, some people might argue against me saying that NFTs make some sense like when you own video clips. Like, as an example, I have certain copyrights over my videos, right, which you can argue those copyrights and those protections are NFTs and people can buy licensing agreements from me in order to reuse my video content. This is totally fair and a totally interesting way to look at NFTs and I think video content is one thing where you can argue that exists because within those videos, while it's digital goods, it's usually a visual representation of a tangible thing. It's not a digital zeros and ones hat. If you have, example, clips of NFL games, that's something tangible that actually happened and that clip is just capturing that moment, right? If you have my videos here, you're capturing my voice in that moment let alone whatever visuals I present to you or whether I'm on camera and then you're actually capturing my physical presence in a digital form. I think that has some value with NFTs and has some value to go around here that we could discuss in some form or way because a lot of that already has value due to copyright. So value's already been assigned just due to the law to stuff like that. So I think NFTs and stuff can make sense for something like that to maybe decentralize how we deal with that. So it's not the government giving it value, it's consumers, it's the fans, it's the corporations that created the clips. However, that's because we're talking about digital product that is capturing something real and physical that existed outside of that product. I'm physically talking in real life right now. This is happening even though you're not in the room to hear it. Yes, someone typed on a computer and clicked the mouse and used some brush strokes on a screen to create a digital good. That digital good isn't a representation of something tangible that happened in real life. It's not like that hat existed and then got shoved through a screen. It never existed in the first, my voice, my talking exists whether or not my microphone is on. So that hat doesn't exist outside of a digital space. That memory that happened, that moment that happened in an NFL game, it happened in real life, it's tangible. People saw it, players did it, they experienced it. I'm not trying to devalue digital goods. I live in a digital good space. I provide digital goods to you guys. I just think there's a massive overvaluing by these video game companies on this because they can profit off it. Cause you think Square Enix is gonna release a game that makes them no money. You think they're gonna put out an incomplete game that requires to have user generated content and let's say it's free to play. So they can get as many players in right away as they want. And that they're gonna make no money off that, cost money just to have the game available online on their servers. So do you think they're not gonna make profits off that? Oh, if they're not doing it through season passes, micro transactions and loot boxes, which I'm sure loot boxes would be part of it, but let's say they're not, how do you think they're gonna make money? Oh, off the transaction of the user generated content. In other words, they're gonna provide tools for people to create content and then they're gonna profit off that content while it allows the user to profit off that content, which sounds good if it's done in the way that it's already being done where people can sell mods and all that on Steam. This already exists. We don't need the blockchain and NFTs to do it. But the fact that they mentioned it in the context of NFTs and blockchain and mentioned that user generated content cannot exist without this. We're not getting the big leaps forward. What big leap forward? We have entirely new video games being built off of old video games. I, what leap forward do we need? If it's so grand that you want an entire game which you can kind of do in Dreams, go make an indie game. Go make an independent game and make some real money. I don't know. Let me know what you think about this down in the comments below. Are my fears real or not? I know this video went longer than I planned but you know what, that's what happens when we're talking about something that to me is extremely controversial. Thank you guys so much for tuning in and I'll catch you in the next video.