The $120b video game industry employs some of the brightest creative and technological minds. While this marriage of creativity and technology was bringing enjoyment to the masses, Microsoft Xbox’s royalty process meant that game publishers faced some unique challenges due to legacy technologies limitations.

The gaming industry serves over 2.7 billion consumers worldwide. This is enabled through partnerships between gaming platforms such as Xbox and thousands of publishers, developers, authors, designers, production houses and distributors. These relationships are all key in maintaining a high-quality product and attracting the best talent and creators to the platform.

Microsoft Xbox’s legacy system for securing and managing royalty processing was cumbersome, taking 45 days to access validated financial information about royalties earned.  Along with paperwork, this was not giving the best experience to many game publishers, especially the ones with small businesses and limited resources.

EY and Microsoft wanted to help the gaming industry play fair, so the team asked themselves: could blockchain be a game-changer for the gaming industry?

Microsoft Xbox and EY worked together as one team to help deliver a transformation. Microsoft and EY teams’ joint capabilities and suite of digital solutions became a game-changer, helping Microsoft Xbox reduce the manual effort and the operational hours associated with processing royalties for publishers through automation of the royalties processing, starting to transition off the legacy system. 

Smart contracts encode game creators’ IP rights

The first step in refreshing Microsoft’s legacy systems was to onboard royalty contracts onto blockchain in the form of digital contracts. The legal terms were then encoded in the blockchain network in the form of smart contracts. By opting in, industry participants can review and validate that onboarded digital contracts are the same as the royalty contracts in a confidential manner.

An automated solution that brings down operational costs

Building on the foundation of contractual transparency, the team focused on providing improved transparency to the game publisher for the royalty processing — a major pain point for Microsoft Xbox. The existing system of processing and distributing royalties was plagued by loads of reviews and tedious manual processes.  Automation of the system sped up the process, reduced the effort and provided more transparency to participants, while at the same time maintaining a high degree of privacy and confidentiality between Microsoft and the game publisher.  A user-centric interface adds a simple, well-designed interaction layer to the royalty distribution system for game developers.

Near real-time purchase records show game creators what they have earned

While smart contracts were used to accurately and transparently process the royalties for Microsoft Xbox’s partners, the next step was to securely and transparently share the information with them in near real-time, cutting access to royalties from 45 days to 4 minutes.

Providing near real-time access to data greatly improves the process’s effectiveness, and insights that lead to a more enriching experience for the partners,” Tim Stuart, Xbox Chief Financial Officer at Microsoft.

As consumers purchase Xbox games, other merchandise and digital content, the smart contracts apply the encoded contractual logic and instantly calculate the royalty. This information, when ready, is then sent to each participant who has a node, creating an immutable record of transactions and royalty obligations in a secure and confidential manner. Not only does this provide creators peace of mind, it allows them to record financial transactions daily, it can also vastly improve their forecasting and reporting capabilities.

The technology solutions implemented in this project — including instant transactional details — led to profound benefits for Microsoft Xbox and its partners. It seamlessly connected these parties and enhanced their experience.

The blockchain solution integrates closely with game creators to give Microsoft Xbox an infrastructure that helps them manage and reward game publishers and creators. Creators now have more trust in the process and can focus on creating new games.

“By implementing a blockchain-based network and streamlined royalty processing, game publishers and Xbox benefit from a more trusted, transparent and connected system from contract creation through to royalty settlements,” Luke Fewel, General Manager, Global Finance Operations at Microsoft. The new solution enables a 99% improvement in processing time and is fully integrated with ERP for automated invoicing and recording accounting entries. It enables near-100% real-time royalty statements for game publishers, 40% plus operational effort reduction and eliminates reconciliation needs.

This technology will help transform the future of entertainment.