Online Gaming to Spur Standardization?
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A broad shift to online gaming in the $9.4 billion video game industry -- widely forecast now that the big three console makers have enabled their machines for online play -- is likely to create pressure to standardize technologies, possibly leading to a new layer on the Internet dedicated to gaming, according to experts.
That, in turn, could lead to a wide-ranging alteration in the complexion of markets ranging from major media and entertainment concerns to advertising and Internet Service Providers, Regional Bell Operating Companies (RBOCs) and telecom equipment makers.
"Long-term, there's a real consensus that massively multi-player online games (MMOGs) are going to be like TV, and you need a real dedicated infrastructure," said David Levine, chief executive officer of Butterfly.net, a company which is attempting to leverage grid computing technology (distributed supercomputing primarily used for scientific research and weather forecasting) for gaming.
The overall video game market is already big business. It racked up $9.4 billion in revenues last year, outgunning Hollywood's box office take of $8.1 billion by a cool billion dollars. According to research firm InStat/MDR, console games accounted for nearly $7.4 billion in revenue in 2001. While the online segment is still nascent, London-based audio/visual media research firm Screen Digest predicts online game revenues will be more than $1 billion by 2006. Currently, the best-known online game in the U.S. is Sony's EverQuest, a subscription-based massively multi-player online roleplaying game that draws 430,000 players worldwide who not only buy the software but pay $13 a month to play in the online realm. South Korea-based NCsoft produces Lineage, an MMOG that boasts more than 4 million subscribers across South Korea, Taiwan, Hong Kong, Japan and the U.S.
According to the Internet Digital Software Association (IDSA), 31 percent of game players say they play games online. That's up from 24 percent last year and 18 percent in 1999. Also, 37 percent of Americans who own consoles or computers said they also play games on mobile devices like handheld systems, PDAs and cell phones.
As Big As Television?
Teens already spend more time on video games than watching television, according to Beth Larson, vice president of marketing for game publisher Electronic Arts. Larson noted that 11.1 billion minutes are spent playing online games monthly -- more time than is spent on e-mail -- and the most popular online games boast nightly audiences that rival those of popular cable television shows.
"These people are choosing interactive media over mainstream media," she said.
That fact, Larson said, has big advertisers, which have traditionally turned to television to reach their customers, worried and looking for new ways to reach out through the interactive entertainment space. The creators of mainstream content are also striving to leverage the medium.
"At a high level, the major media and entertainment conglomerates have realized that they're not leveraging their creative assets online, and that Massively Multi-player subscription games are the answer," Levine said. "They've had bad experiences with game development and publishing in the past, but the online industry is getting too big and too important to ignore. They're starting to look at how to shift the attention of 10 million people from a TV show into an online game for the hour after the show ends. They're looking at how to turn a $300 million movie into $300 million of monthly revenue. They're starting to figure out how to have people really interact within TV shows through their game consoles. Everyone is suddenly realizing that MMOGs are the next big thing. Records then radio then movies then TV, now games. TV wasn't taken seriously by Hollywood for a long time. Now it's our central form of entertainment. Games are next. When the money starts flowing into the industry, all hell will break loose. We're at the point where we haven't invented the dolly shot, or the pan, or the slow fade, much less sound."
Levine said Butterfly.net has already been contacted by media titans like AOL Time Warner and Disney, both of which are searching for ways into online subscription gaming on PCs, consoles, set-top boxes and mobiles as a way to extend their properties. But he said they feel stymied in their efforts by a lack of technology standardization. "They can't decide what a "platform" is anymore." They question whether they should develop their properties for PCs, one or more consoles or mobiles.
Migrating Logic to the Server
Levine's answer is to use the power of the grid to move most of the game's logic to the server, leaving the console and other edge devices to do what they do best: push polygons. From there, game developers would be able to write one set of logic and create one world to which the three big consoles (Sony's Playstation 2, Microsoft's Xbox and Nintendo's Gamecube), as well as PCs and possibly mobiles, could connect.
"Game developers are going to start coming up with great ideas that take advantage of the differences between PCs, consoles and mobile devices: incorporating location-based gaming on mobiles (trading items, tracking clues in the real world), content creation on the PCs (customizing missions, organizing guilds, creating environments) and then bringing it together on the console to get that "strapped in" feeling you get when you're really immersed in a console game."
Much of the standardization is already possible today. For instance, 3D engine software is already largely commoditized. A game developer could license Intrinsic's Alchemy engine and build the art for Gamecube, Xbox and PS2 with one art pipeline and send it to the engines on the three platforms together. Levine said Butterfly.net can help developers take the next step by using the same server code for all three platforms, as well as PocketPC, Palm, Windows, Linux and Mac.
Ultimately, Levine said he sees Butterfly.net taking on a role similar to the one Qualcomm -- developer of the CDMA technology used in most wireless communications networks in the U.S. -- has taken in the wireless market. Qualcomm licenses CDMA to wireless phone and equipment manufacturers.
Levine would like to see service providers running Butterfly.net's software as a layer on the Internet, with companies like Cisco incorporating Butterfly's protocol stack in their routers. However, he also noted that he doesn't see the video game industry settling on a single standard anytime soon. Instead he predicts it will do as the wireless industry has and focus around two or three competing standards (the wireless industry is split between CDMA and GSM).
Service Providers Are Key
In any case, Levine argues that the game industry will have to make room for ISPs in its market model in order to bring its vision to fruition. Currently the game market revolves around game developers, which develop games with funding from game publishers, which market and distribute the games. The hardware manufacturers also have a piece of the action. PC manufacturers have long depended on gamers to move their cutting-edge boxes, while console manufacturers are also some of the world's largest game publishers, moving their consoles as a way to secure revenues through licensing their platforms to developers.
"The service providers must get a cut of the action, or the whole thing will fall apart," Levine said. "They'll evolve to be like the cable MSOs, offering packages of games to subscribers like premium cable channels. Today, 20 percent to 30 percent of their network traffic (cable providers and DSL providers) is gamer-generated, but they don't make anything on the games. Yet they pay for the high-dollar circuits to Qwest, Level3, etc., and pass the traffic on to centralized hosting centers run by the publishers. The publishers then pay for high-dollar access through AT&T, Qwest, etc. So the long-haul carriers (IXCs) are making all the money. I see a whole new infrastructure evolving (which we're working on in the Global Grid Forum with IBM, Cisco, Samsung, etc.), where game traffic can be passed to the appropriate server on any network, and the service providers can bill the publisher for utilized computing capacity. The publishers and service providers will work out interesting marketing deals for regional promotion of games."
Ivan Verbesselt, vice president of broadband entertainment over DSL at Alcatel, agreed. Alcatel, a telecom equipment maker, has shipped more than 20 million DSL lines and is taking a strong interest in the gaming market. "It's rather clear that we have a vested interest in the broadband market continuing to spiral upward," Verbesselt said.
That interest has led the firm to create the entertainment group. "It's not just about the gaming as such," he said. "It's about the content value chain and how that relates to the delivery model itself. The gaming value chain has some significant similarities to the movie publishing chain. But the tipping point for this epidemic is maybe more nearby than for video. Game publishers don't have the hierarchy of distribution. They're much more motivated to go to an online model than the studios are at this point. That gives rise to more creative delivery models.
Verbesselt foresees a mixture of subscription-base services, advanced payment models, loyalty schemes, etc. "All obvious opportunities for revenue sharing between the game publisher and the telco," he said.
Media and Advertising
For the media and entertainment concerns, games are about extending the value of existing intellectual property. While the prospects are attractive, simply translating the content is not enough, according to David Cole, president of DFC Intelligence, a research firm focused on gaming and interactive entertainment.
"You still need a quality game," Cole said. "A license itself doesn't do it. Spider-man did very, very well. Star Wars games have always done quite well. Harry Potter. Games based on James Bond. It's a way to really make something stand out from the rest of the pack."
Advertisers too are looking for ways to turn the increasing popularity of gaming to their advantage. One way is product placement, and EA's Larson said its Sims franchise is perfect for that role, allowing advertisers to place products that have brand relevant results in play. For instance, The Sims Online will feature Intel branded computers that players can buy for their Sims. Playing on the computer increases their Sims' "fun" rating, and the Intel branded computers increase the fun rating much faster than other computers players can purchase.
But despite noting that game players are "extremely tolerant" of rich media ads, Larson echoed Cole sentiments that game play comes before all when she said that EA will only place advertising in games where it is a natural fit.
"Advertising will never drive decisions that we make about titles we make or how to please the end user," she said. EA's vision on this is not to take away from the end user experience at all. It's just not a natural fit in all games."
While there appears to be a strong upside to many players in the game industry to standardization on an online platform, that doesn't mean there won't be opposition to the pressure to standardize. With its Xbox Live service, Microsoft has already made a play to control the back-end infrastructure of online play for the Xbox console. And unlike the PS2, which can interoperate with mobile devices, PCs and other consoles, Microsoft's Xbox will only allow play between other Xboxes without tampering.
"Ultimately, game designers, publishers and gamers will win," Levine said. "Microsoft can only pay off game designers to do "Xbox only" for so long. Sony realizes they can make plenty of money making sure there are lots and lots of great titles for the PS2."
For Alcatel though, as long as online gaming is luring users to broadband, it doesn't make a difference. "Whichever way it goes, we think it's extremely good news," Verbesselt said. "It adds immediately to the perceived value of broadband."