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Gaming Future Has Room to Grow: Executives

LOS ANGELES -- Panelists, keynote speakers, and Jupitermedia moderators mulled over many aspects of the online gaming industry Tuesday at Game Market Watch Conference.

There was no question among those in attendance that within the rapidly expanding arena of the gaming industry there is both room to grow and a great deal of money to be made. Approximately $11 billion dollars, says Jupitermedia research, by the end of 2003.

Gaming is also the fastest growing entertainment category, with 60 percent of Americans involved on some level with a video game.

But the bad news for online gaming, according to Mike Quigley, vice president of marketing for Redwood City, Calif.-based Electronic Arts (EA), a publisher of interactive entertainment gaming software for PCs and entertainment systems, is that online gaming is still a small market overall and there are many obstacles and high costs associated with the creation, launch, and survival of a gaming business.

In many cases only deep-pocketed companies like Sony , Microsoft , or Nintendo can afford to enter the space with any confidence.

"Launching a new gaming platform alone can cost a company upwards of several billion dollars," said Michael Gartenberg, research director for Jupiter Research.

"Once you look under the hood, you realize there is a lot of investment required to be successful in this space," said Quigley.

  • Stand-alone online games like massively multiplayer (MMP) games that are either sold via retail or on a subscription basis.
  • Online parlor games that are free, fee-based, or wager-based.
  • PC download games.
  • Wireless games, which are generally single player games that are preinstalled on a handset or available for download.
  • PC-based multiplayer or single player games via the Internet or a LAN.
  • Console-based multiplayer games that include peripheral options for Internet connectivity, including Microsoft's Xbox and Sony's PlayStation2

But one thing was blatantly clear to many business executives at today's conference: online parlor games may be consistent money makers in their own right, but MMP games are the cash cows of tomorrow's online game world and will eventually fuel industry growth.

"They are a natural evolution as consumers demand increasing interactivity," said Quigley. "People want to play games against each other, they want 24/7 access to these games, and they appreciate the companies who can offer them this."

A Mouse in the House
Even traditionalist Walt Disney Company and its online division Disney Online is placing its bets on the MMP genre.

Ken Goldstein, the overseer of all the creative, technical, and marketing aspects of the Disney brand online including the development of disney.com, familyfun.com, and movies.com, thinks that the market is ready for more family-style MMP games, and that there are scores of new players outside of the established hardcore gamers that can be brought into the MMP fold.

Disney recently released ToonTown, a secure, child-safe MMP that Disney hopes will leverage the PC-based gaming environment and tap into a huge and lucrative new market.

"There is a sizeable category waiting to happen," said Goldstein. "And because it's about a subscription-based service, it's about incremental monthly revenue. An online game is always alive and provides a huge creative advantage."

To make ToonTown more accessible to gamers, Disney Online sealed a deal this week with AT&T to use its PrePaid Web Cents Service as a secure payment alternative to help bolster subscription sales for ToonTown.

A Disney/AT&T specialty card, soon to be available in retail stores nationwide, will enable non-traditional gaming consumers to more easily pre-purchase a subscription to Disney's ToonTown without having to make a major commitment on the spot, said Goldstein.

Achieving a workable payment structure has been a challenge for many other online gaming companies whose typical target demographic are unable to make online purchases with a credit card.

According to Jupiter Research Senior Analyst Jay Horwitz, game publishers have not yet fully tapped into the teen market due in part to obstacles around payment options, and because a large majority of the female teen market is being overlooked when it comes to the availability of appealing gaming content.

But regardless, says Horwitz, this is still the aspect of the gaming market to watch closely. While teens account for less than 10 percent of the U.S. population, they represent a whopping 20 percent of the console video game market.

"Teens still drive the industry and represent the future of the industry," said Horwitz. The 13-17-year-old age range of potential gamers still contains under-exploited sub-segments that have not yet been pulled into the gaming fold.

"Companies that can capture both the imagination and wallet of this group will claim an important audience for today and tomorrow," said Horwitz.

The Big Three
As for which mega players will survive in tomorrow's game console evolution, one group of panelists believe the market race among the three major platforms: Sony PlayStation2, Nintendo, and Microsoft's Xbox will eventually give way to a winner.

Nintendo won major kudos from the panel for its industry tenacity, despite a particularly cruel holiday season and an even more uncertain one to come. Although one panelist speculated that as the competition margin becomes even narrower, the popular maker of the GameCube and GameBoy would eventually exit the hardware market and stick to just making software.

Sony's PlayStation and PlayStation2 were tapped by the group as the most likely to maintain the lead in the console industry, especially after dominating the market for two generations in a row and remaining lean and mean enough to survive another one.

And while the Xbox and the Xbox Live Service has garnered somewhat of a cult following, it has not had the same market penetration as its two competitors, and in many ways it is unclear to market analysts where the Microsoft console is headed.

In determining who the market leader is, said one panelist, "It's a battle for the living room," the epicenter of family entertainment and the only place where either Sony or Microsoft will ever see incremental growth, especially with their online components.

According to Don Daglow, president of Stormfront Studios, it's all a matter of where you play your games, and whether you choose a console or a PC as your gaming vehicle. Or both.

"In many ways the PC is regarded as a work tool and is kept in the den, or other parts of the home," said Daglow. "But the gaming device or console is typically kept in the living room, and right now, that's where the console can be found."

In the mid-1990s, revenue in the console market began to outpace PC revenue by 2-1. Today, that number has grown to 4-1.

"PC's retain a role for high-end gaming, but the bulk of those are simpler games as opposed to serious games played by console generations," said Joe Laszlo, an analyst for Jupitermedia.

According to Mark Friedler, CEO of Gigex, Inc., PC's for gaming have gotten a bad rap when it comes to time consuming downloads and game set-ups. But PC's are also more low-tech and have a lot more blockbuster potential, said Friedler.

"I'm bullish on PCs, but the console guys have done a better job of creating more robust gaming options," said Friedler. "Growth will happen on all platforms if they are dumbed down, made simpler, and deliver the experience faster."

All the panelists agreed that in some form or another over the next few years gaming consoles will take on increased functionality that could include DVD players or some bundle of converged technologies.

"When the set-top box and the console blur together, that will be the future of home entertainment," said Laszlo.

When asked for his version of the future of online gaming, Quigley said future trends will involve increasing gaming applications for the household, expanding MMP options beyond niche games and into a broader mass market, and an overall migration of casual online games to fee-based environments.

As for mobile gaming, which many game executives see as still being in its infancy, Quigley said his company EA is in "active negotiations with all the major players in the handset and service side of the industry."

But until there is more compelling content available and until the underlying technology is securely in place, the verdict is still out on the mobile gaming platform.

The Game Market Watch Conference is produced by Jupitermedia, parent company of this Web site.