How Rec Room looks at the metaverse opportunity

Nick Fajt, CEO of Rec Room, is one of the contenders to run the metaverse.

The social virtual world hit more than 82 million lifetime users since it started in 2016, and it is available across platforms including Oculus, iOS, Android, PlayStation, Xbox and Steam. The metaverse opportunity isn’t a small one. McKinsey & Co. estimated it could hit $5 trillion in value by 2030.

Now the company is testing its Rec Room Studio, a Unity-based plug-in that lets players tap more professional tools to create their digital spaces inside Rec Room. I spoke with Fajt in a recent interview about this and the potential for generative AI to change the business as well.

We also talked about the metaverse and whether it will be open or closed. And he offered his views on ownership of digital assets, and what users really care about.

Here’s an edited transcript of our interview.

GamesBeat: What is Rec Room up to now?

Nick Fajt: The biggest thing we’re up to now is just trying to make it as easy as we can for people to build great content and get it distributed to as many people as possible. We’ve been working on all types of tools for creators to help them build the content they want to go build and monetize that content. Some of them are making a living off this.

Probably the biggest tool in our arsenal that’s about to go out is Rec Room Studio. It’s a plug-in built around Unity. What’s unique is it allows you to use industry-capable tools–if you’re familiar with Unity you can go in and use it. But the magic happens when you press Publish in Rec Room Studio. Typically in Unity you bundle up your app, submit your app to the app stores. But with Rec Room you can bundle up your app, press Publish, and within two or three minutes, the room you built is live on Xbox, PlayStation, Oculus, Pico, iOS, and Android. We think the immediacy of publishing and the ability to push that content across platforms is unique.

Our goal isn’t to pull in developers who are using iOS or something like that. Really, our goal is to give this capability to people who are right now not capable of building games or getting something shipped on something like the PlayStation. We can help them build their idea and get it out to millions of people.

GamesBeat: I didn’t want to go too much into fantasy land just yet, but I do wonder about this whole generative AI movement and the combination of that with user-generated content. Is this right up your alley? Do you think some other things might have to happen first before that becomes really useful? Is generative AI possibly going to be useful very soon?

Fajt: I think it will be a powerful tool sooner rather than later. I think it will still take a human to wield that tool, but what you’re seeing is it’s just becoming easier and easier for people to build compelling content. Whether that’s an image or an avatar or a poem, you’re seeing generative AI step into a bunch of these. But there’s still a human giving prompts and contextualizing what comes back. My suspicion is that’s what a lot of this will look like.

The thing we’re really excited about because of locking in with Unity and doing a plug-in there–as these tools become capable in the rest of the ecosystem, you have a path to bring that directly into Rec Room through Unity and Rec Room Studio. But my suspicion is that you’ll see some stuff in the next year or two in the UGC space around generative 3D content. Right now what we see is just 2D. But I don’t feel like we’re that far away.

GamesBeat: I saw an experimental one with Ready Player Me and their avatars, where they’re going to use DALL-E’s generative AI to create clothing for the avatars. All you have to do to generate it is some kind of text prompt. “I want bees on a yellow background on my jacket.” It’ll generate that. They call it experimental now, but it seems to work better than if I were to try to draw bees on a canvas to put on a jacket. In that sense it feels like some of this is already here, but then there’s probably a lot more potential down the road.

Fajt: Of course. The analogy I keep hearing and attaching to is the calculator. The calculator came along and dramatically changed what the average human could do. But there’s still a human sitting there behind the calculator putting in the equations, contextualizing the output, and coordinating with other humans who are also using calculators. You’ll see the same thing with generative AI. You’re still going to see humans initiating the prompts. They’ll contextualize the data that comes back. They’ll combine that with other creative tasks they’re doing to build something interesting. I can see somebody using it for building terrain in Rec Room someday. Perhaps building custom avatar clothing. That doesn’t seem outside the realm of possibility to me.

GamesBeat: Right now, what level of competence would you say creators need to do successful Rec Room projects.

Fajt: We think that if you can play Rec Room, you can build Rec Room. That’s the promise we’re trying to make to people. If you’ve played a game like Minecraft, we think a lot of those principles should apply here. We have a tool called the Maker Pen, which is a very user-friendly way of getting into the creation space. That tool can lead you all the way up to Rec Room Studio in Unity.

It’s not one path or the other. You can build something with the Maker Pen. You can pull that room into Rec Room Studio and edit it there. Or you can build something in Rec Room Studio, push it into Rec Room, and keep editing it with the Maker Pen. We see it as a spectrum, from very approachable for someone who has never touched a 3D tool before, has never programmed anything, all the way up to, hey, these are professionalized tool sets. We use Unity to build Rec Room. We use Rec Room Studio to build rooms in Rec Room. We want to give the same tools we’re using to creators as well. We just want to make sure we have that path where, you’re curious about creation and you can go in and be successful.

GamesBeat: Do you have some new numbers on how many creators there are now?

Fajt: We broke 1 million creators in a single month. I think the numbers we were sharing were–we had seen more than 60 million users last year. Nine million were in VR. Just the VR users spent 218 million hours in Rec Room last year. That means the average VR user spent more than a day in Rec Room.

We think the VR space is very interesting. We think it’s still growing very strongly. There’s a group that it really resonates with. We don’t see any signs of that slowing down at all. The thing that makes us excited about those numbers is we’re probably one of the largest VR apps, if not the largest VR app, by total users out there. But you can see that the Rec Room ecosystem extends quite a bit further than VR. You can come in through VR and hang out with your friends regardless of which device they have. You can build a compelling room, and you’re not limited to the VR audience. You can share with the entire world. Anyone with a smartphone can check out that room you built. We think that’s powerful. We think that’s what creators want. They want a large audience. They want to be able to reach across platforms.

GamesBeat: As far as ways for people to get paid or just gather attention, what’s happening on that front? With Roblox you see that pyramid, where 8 million people have created something, but there’s a top tier of people who make tons of money or have lots of traffic. Does it look similar for you, that breakdown of users who strike it big?

Fajt: I don’t know the specifics of their business, so it’s hard for me to compare. The thing we see in Rec Room–the reasons people are creating content, it’s a wide range. It’s more like YouTube. A lot of people post to YouTube where the goal is not necessarily making money. The goal might be reaching an audience, or seeing a creative vision fulfilled.

The thing that we are excited about in Rec Room, I think we paid out three times more last year than we did in the previous year. We can keep moving on that trend this year. There are people who make very real dollar amounts. I think we can keep improving that. As we grow, we want to keep an eye on what that payout curve looks like. Is it logarithmic? Is it linear? What we’ve found right now, our goal is just–groups of people can come together, get into Rec Room, and make a living building content if that’s what they want to do. If they just want to realize a fun idea, there’s still a path to that, and we’re excited for them to do it.

GamesBeat: How do you keep a balance around bringing in professional developers to do something and make that available to everyone, versus letting the community create?

Fajt: There’s nothing we’re doing to stop professional developers from coming in. The way we think about our tools, though, is really, how can we build the best tools for the creators we have right now? Even when we’re thinking about something like Rec Room Studio, that was a request that our existing creators had. How do I import these 3D assets? How do I use Unity’s terrain editor? How do I build these shaders? Something like that.

That was the group we wanted. We had a great group of creators. How could we allow them to achieve more? How could we raise the ceiling they were bumping into? We felt Rec Room Studio was the right way to do it. That was the impetus. If external creators are very excited to come in and check it out, we won’t stop them. But really we think about the creators we have now first and foremost. That’s the group that has access to it right now. The top creators with good moderation standing are the ones who have access.

GamesBeat: Is there a particular game that’s been the most successful along those lines? I think Showdown was very popular, the Western one?

Fajt: Yes, we built that. Really, the best way to make sure your tools are great is to dogfood them yourself. We are constantly using our own tools to try to build great pieces of content, just to make sure that we understand the challenges and limitations of the tools, so we can make them better for creators. We’re working on a game right now with Rec Room Studio. It’s a horror-themed game, but that’s all I can say right now. We think our audience is going to get a kick out of it. We hope to launch it with a bunch of new tools that now allow creators to emulate some of the systems we’ll put in the new game. It’s really about us building content to move the ecosystem forward.

GamesBeat: I think Rec Rally was another one that was in-house? Is it still just a handful of these titles versus doing larger numbers?

Fajt: We’ll probably make a single-digit number of these per year. Maybe two or three per year was where we looked to get to. It’s not about the games themselves. It’s about making sure–if there’s a game we think creators want to make and it’s not currently possible, let’s go build it and figure out all the tools that we need to have there. We can launch the game and the tools at the same time. That’s the way we think about it. We want to have great games, but also great tools that creators can take to expand the ecosystem after we’ve launched.

GamesBeat: Can you surmise some things about player behavior during the different stages of the pandemic? I remember that in 2020 everybody was worried and scared, but we had 30 percent growth in users for almost everyone. Then that slowed down in 2021 to more like 10 percent or so. We have a real slowdown now, maybe driven by recession or whatever else, but I see more of the mainstream game companies stalling out right now, and only occasional unique stories. Roblox’s continued growth is unique amid the pullback that others saw when players started going out more again and socializing. Is there a read you have on some of the player behavior and how it maps to different attitudes people have had in the last few years?

Fajt: The enduring trend that I’ve seen is that gaming is eating the consumer internet. If you were exploring the internet 10 or 15 years ago you were using a browser. Or when I was a kid I was using AOL Instant Messenger to meet other people. Today that happens in video games, social video games. Video games are about a lot more than just jumping from platform to platform or shooting in first-person. Video games now mean events. They mean music. They mean fashion. They mean dating. They mean creativity. They mean after-school jobs. All of these things are now happening inside of games. We’re seeing that the pandemic probably shifted an entire generation’s worth of behavior in that direction.

I think that’s going to persist. The funny thing that I think about, going back to AOL Instant Messenger, my dad didn’t use instant messaging at work. But when my generation grew up, now everybody’s using Teams and Slack for work. They’re using Discord with their friend groups. It’s the way that you communicate. I think you’ll see the same thing happen in games. A whole generation is using video games and video game-like experiences to socialize. As they grow up, that behavior is going to stick.

GamesBeat: If that’s true, then I guess we may not have to worry so much that we have a temporary downturn. Maybe it’s a recession-driven downturn, but you would still expect the audiences to grow if this was an inexorable force. I think what we have in the last six months is some weakening, at least across the larger video game space.

Fajt: It depends on who you are and what you’re doing. During a recession, I think consumers are looking for cost-effective forms of entertainment. Free-to-play games are a wonderful way to do that. You might see that consumers are more sensitive about hardware purchases. You might see a slower hardware update cycle. The other thing you probably see when you talk about a slowdown, if you were a very aggressive UA-driven game, if that was your growth engine, then my guess is that’s where the pullback is coming from. If your goal is to grow organically through social word of mouth, I think that growth persists and maybe only gets stronger during a recession. People are looking for cheaper forms of entertainment with the devices that they have.

GamesBeat: Does this kind of cycle cause you to change anything about Rec Room’s strategy? Do you double down on certain things?

Fajt: The way we think about it is how we can double down on making our creators as successful as possible. Especially during something like this time. People are looking for low cost ways to entertain themselves. People are looking for outlets to be creative, to let off steam. Some people are looking for ways to make additional money. If we can make our creators successful, a lot of those things become true. That’s what we put first and foremost. How can we help our creators build the content that’s in their heads and help them reach as large a group of people as possible?

GamesBeat: Where do you stand on how large a fee to take from any revenue related to what players create? There’s been a huge amount of discussion around that ever since Epic sued Apple.

Fajt: The way we look at things, for these platforms, they have costs. Sony and Apple have costs. What they’re requiring to be on their platform, that’s what we’re willing to do. As far as our own platform, it’s an interesting balance. We want to make sure we pull in enough so we can continue to upgrade Rec Room, its moderation, and its servers. We want to make sure our team is paid, and also make sure the creators are getting a fair amount.

We’re experimenting with a lot of different paths to help people be successful. It’s not simply what you earn with your room. We’re rolling out a system called Room Rewards, where we’re putting out essentially bounties. We’re saying, “Hey, we would love to see a room that’s doing this. We’ll pay this much to make that happen.” Really what we’re doing is recognizing that one size doesn’t fit all for these things. How you help people understand the systems that are there, how you help them be successful doing the things they want to do.

GamesBeat: What does the road map look like for the things you want to do to help the creator community grow? What else are you signaling?

Fajt: They’re going to see a whole bunch of new tools when we launch our new core game. They’ll have a lot more control over authoring their own interactions. We think we’ll give them a bunch of systems that help them build stickier rooms that have more progression in them. We’re excited about those two things. Obviously we think Rec Room Studio is huge. It gives them a whole new palette of tools to work with.

Rec Room Studio, we want to make sure that’s a continuation of the tools we’ve already built. We want to make sure that it locks in really wonderfully with the circuit system we built and the Maker Pen. We want to make sure that these are a spectrum of creation. You can move back and forth easily and fluidly and build in the way that you want. It’s really about making sure that all those tools fit together nicely, so that the output is higher quality visuals, higher quality interactions, higher quality meta-systems. That’s the goal, making sure that all the pieces you would expect are there.

GamesBeat: How many people do you employ now?

Fajt: I want to say it’s about 250 full time. Then there’s quite a large moderation and support staff as well.

GamesBeat: Are you getting much benefit from AI in your own business? Do you use AI for moderation?

Fajt: We have a pretty nifty setup for voice. We use a real time voice moderation system that’s looking for violations of our code of conduct and flagging those without any human involvement. It’s been really helpful for scaling up our moderation efforts, especially making sure that it reacts in real time. For many of these gaming systems, it’s great to have a Report button somewhere, but it means another player needs to take an affirmative action and write up a report. You need to have a human that reviews the report. By the time all that happens, minutes or hours could have passed. You might have someone inside the game causing a lot of havoc in that time. The promise we see with AI on both the voice side and also some of the room moderation side, you can catch things in real time before any damage is done.

GamesBeat: What do you think about how open the metaverse can be or will be, given there are some standardization efforts getting started? The Linux Foundation has their Open Metaverse Foundation, things like that.

Fajt: One, we don’t use the term “metaverse.” As soon as you use the term, the next question you’re going to get asked is, “Well, what is the metaverse?” Oh, you’re a metaverse company? What is that, anyway? Honestly it’s probably creating more confusion than it needs to.

Our view with Rec Room is that we want to be as valuable to our creators as possible. If our creators are telling us they want something, we’re very open-minded on that. The beauty of Rec Room Studio and our partnership with Unity is it creates an avenue for people to bring in concepts from outside of Rec Room. Right now, all the content in Rec Room is built with the Maker Pen. By opening up the path to Unity, we allow for a much wider range of content to come into Rec Room.

People create this false dichotomy between open and closed. The answer is that there’s no truly, all the way open system. There’s no truly closed system. My guess is, whatever emerges here, there will be some standards. There will be some things that don’t move around.

GamesBeat: The way I interpret it is whether or not people will own the things that they create in a given world. Whether they can bring things in from some other place or take things out to some other place. Those seem like basic principles of interoperability.

Fajt: It’s hard for me to know. I remember there was this whole debate happening around music. Do you own your music? And it all went away. Is anybody carrying around a giant hard drive of MP3s anymore? No, we all just subscribe to Spotify. No one asks me if I own my Spotify music or if I don’t.

It’s foolish to think that I, or another company, will figure this out. Consumers will vote with their preferences and their wallets. They will tell us what they want, and the companies that listen to them will survive. The companies that don’t listen will not survive. That’s how I think about it. Let’s listen to our creators and our customers. Let’s see what they tell us about what they want.

GamesBeat: What takes up a lot of your time right now? What do you delegate, and what do you do that’s more just you right now?

Fajt: I spend a lot of time going through and looking at our top-performing rooms to try and understand what they’re doing, how we’re helping them, and how we might be letting them down. Sometimes I go into these rooms and think, “Oh, they clearly want to do a certain thing, but we’ve made it very difficult for them to do that.” I’ve spent a lot of time in all the Rec Room Studio rooms people have published to understand what’s working well and what’s not.

I spend a lot of time chatting with other companies. We want to do partnerships with other brands, to help them understand what it could be like to have the NFL in Rec Room, or have the NBA in Rec Room. Mattel has been wonderful in helping us try out some of their brands in Rec Room. We’re starting to understand what those things look like. We’re always staying in touch with the hardware manufacturers as well, learning about what we can be helpful for whatever they have on the horizon.

And I spend a lot of time hiring. That’s a big part of what we do. I know a lot of people are pulling back. At Rec Room we have a lot of roles open, probably at least 15 right now. We’re hiring a lot of core engineers to help us make Rec Room run on a wider range of hardware. I spend a lot of time doing that. If you’re excited about what it means to have truly cross-platform user-generated content, it’s a really different, unique problem set compared to what you’ve encountered elsewhere in gaming. It’s full of very fun, very challenging problems. We’d love to have more help, so if you’re interested, check out recroom.com/jobs.