NFTs, or Non-Fungible Tokens, are a form of tokens that is fast becoming popular as they offer collectors the chance to buy, trade, and sell unique digital items. NFTs can be used to represent video game characters, digital art, digital items, or other physical objects that are non-digital. They are also called ‘crypto collectibles. This is because they are scarce and impossible to replicate, like real-world collectibles.
The first game to use NFTs was Cryptokitties, which was one of the most successful games in the Ethereum blockchain. CryptoKitties is a game where users breed and collect digital cats. It became immensely popular within the blockchain community at the end of 2017, leading to a surge of transactions on Ethereum’s blockchain. CryptoKitties became so popular that in December 2017 it caused a 32% slowdown in traffic in the blockchain.
Because NFT’s are mostly paired with games, trading platforms for them are now beginning to appear globally. Game companies can start implementing NFTs in their businesses and fundamentally change the way their games work. One such company is Konami, which can be used as a real-world example of the potential use of NFTs. In Yu-Gi-Oh! Duel Links players can buy and trade digital cards in order to create their own decks. These cards can then be used to play against other players in order to win prize money. Yu-Gi-Oh! has a developed fanbase and brand globally making it ripe for NFT implementation.
Potential NFT Revenue Streams
Konami is in the business of content creation and brand development. As content creators for the game, they release cards. As brand developers, they help host tournaments, work with hobby stores, sell merchandise, etc. Right now, Konami’s Yu-Gi-Oh! Duel Links offers a platform that is well suited for NFTs because the game already offers digital collectibles. Konami can develop the following NFT revenue streams for Yu-Gi-Oh! Duel Links:
Konami can list their Yu-Gi-Oh! cards as digital collectibles, NFTs, and sell them to players individually or in thematic packs, like starter decks or duelist decks.
Konami can build royalty fees on their code implementation of NFTs for any secondary sales done on the blockchain.
Konami can expand their Yu-Gi-Oh! Duel Links to include a peer to peer marketplace for secondary sales to increase revenue from secondary sales.
Konami can allow top players or Yu-Gi-Oh! influencers to sell their decks and charge a percent from their sales.
Increased player engagement due to NFTs would allow Konami to build its Yu-Gi-Oh community and brand that it can leverage for future Yu-Gi-Oh! releases.
Konami can leverage their platform to advertise their other products/merchandise as well as do affiliate marketing for Yu-Gi-Oh! Influencers.
Strategy and Implementation
In implementing NFT revenue streams, Konami will need to make decisions on the following: blockchain used, developer team, NFT code, scarcity, sale logistics, distribution timeline, content creation, user experience, marketing, Duel Links migrations.
Blockchain used, developer team, NFT code
In considering what blockchain to use, Konami would likely not choose the Ethereum blockchain due to concerns with scaling. Konami would need to decide whether this project would be taken on with in-house development or contracted development. If Konami follows NBA Top Shot’s lead, they could work with contractors like Dapper Labs. When deciding on what NFT standards or functions to implement in the code itself, Konami would likely choose to make it so that the code can be updated over time so that updates can be rolled out as needed.
Scarcity, sale logistics, distribution timeline, content creation
Konami has been selling Yu-Gi-Oh! products since the late 1990s. Because of their experience with past sales and content creation, Konami is in a good position to make choices in these areas.
User experience, marketing, Duel Links migrations
Konami could integrate the Duel Links mobile app with the digital wallet for users to purchase NFTs. It could also display the owner history of the NFT and show the certificate of authenticity of the NFT on the app. Similar marketing strategies used previously by Konami could be used to promote an NFT release. While marketing, Konami may choose to stay away from using the NFT term in its primary advertisements as the term is confusing for most audiences. Following NBA Top Shot’s lead, they may choose an alternative way to market the product. While NBA Top Shot used the concept of collecting a moment in history, Konami’s marketing time would need to find language appropriate to the developed Yu-Gi-Oh! brand. For sale logistics, they could use strategies like setting up an auction for certain releases and limiting the registered buyers to further stimulate the interests and draw attention. Konami would also need to make decisions about how to handle past ownership in Duel Links with future ownership. One option is giving players the opportunity to migrate their previous collectibles to an updated NFT version.
Key Performance Metrics
Digital entertainment segment makes up around 53% of Konami’s total revenue in 2019 fiscal year and the segment grew 36% compared with the previous year. One of the driving forces of the growth comes from the mobile game Yu-Gi-Oh! Duel Links, which has surpassed 300 million downloads by the end of 2019. A large scale Yu-Gi-Oh! Duel Links tournament was also held. As such, one of the key performance metrics of incorporating NFT into Konami’s business model is the growth rate of the digital entertainment segment. As NFT will probably be used first in the mobile game, the number of users and downloads of Yu-Gi-Oh! Duel Links also serves as an important indicator of NFT’s role in brand development and marketing. A more direct performance measure is the revenue from the Yu-Gi-Oh! Duel Links platform.