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 Market
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.
Meanwhile, IDC has projected that online
gaming will grow nearly 50 percent each year for the next few years, with
U.S. revenue climbing from $210 million last year to $1.8 billion in 2005.
Jupiter Research’s numbers are
nearly in-line. It calls for U.S. revenue to climb to $2.55 billion by 2006.
And In-Stat/MDR said it believes wireless gaming will grow to $2.8 billion
worldwide by 2006.
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.”
