Video Games: Not Just for Consoles, PCs Anymore

Video games are rapidly making a move into the online arena, which has many
firms in the space salivating at the thought of establishing recurring
revenue streams in a market that has already surpassed the Hollywood box
office in terms of annual revenues. Many PC games already offer online
options, and the big three console makers are pushing to bring their
players online, but both groups may be facing competition from a new
direction: set-top boxes which offer on-demand gaming.

UK-based Pace Micro Technology Thursday unveiled its new IPTV home
gateways: set-top boxes which allow telecommunications and IP broadband
service providers the ability to deliver “advanced PC-style video games
with full 3D graphics and stereo-sound” without the need for video game
consoles or PCs. Pace said service providers can use its gateways to
provide on-demand access, through television, to everything from simple
card and board games to 3D multi-player titles. In addition, the gateways
offer access to core IPTV capabilities such as true and near
video-on-demand, e-mail, Internet browser services and karaoke-on-demand.

“The market opportunity for games-on-demand in the TV space could quickly
grow larger than the initial PC-centric services offered by broadband
operators and products like Pace’s IPTV gateway range will be critical in
realizing this vision,” said Ben Keen, director Screen Digest, a London-based
research firm focused on audio/visual media.

Indeed, the video game market is big business. It racked up $9.3 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, 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.

Pace has partnered with games system provider G-Cluster and Thirdspace, a
developer and integrator of open standard video server systems and client
software, to power the new capabilities of its DSL4000, IP500 and IP400
gateway family.

G-cluster processes games on its server platform, which then transmits
sound and images to players’ set-top boxes in real-time using MPEG streams.
IP providers can install G-cluster’s gaming systems directly to their
server head-ends. If they have already deployed Pace’s IPTV gateways in
customers homes, this will allow them to provide the new services without
resorting to engineer installation visits.

Customers can plug joysticks and game pads into existing expansion ports on
Pace’s IPTV gateways.

But while Pace aims to bypass the console-makers and PC gaming firms,
competitors are not sitting still. Sony Computer Entertainment Europe
Thursday announced that the Network Adaptor which turns its PlayStation 2
console into an online gaming platform will be available in European retail
channels in Spring 2003. Sony launched
the Network Adaptor
in the U.S. in August. Its strategy is simply to
provide players with the ability to go online with their consoles.
Customers will have to find their own service providers, and it will be up
to game publishers to provide the infrastructure to support their games
online. The Network Adaptor, which costs about the same as a PlayStation 2
game, offers both ADSL and cable broadband connectivity, and comes with an
online-enabled game as well as a utility disk.

Microsoft, which plans to launch its Xbox Live network on Nov. 15, has taken a different tack. To
access the service when it launches, gamers will have to buy a $49.95
starter kit, which includes 12 month’s worth of access to the service and a
headset kit for voice communications. Through the service, Microsoft will
provide network connectivity and the underlying infrastructure for game
publishers. Microsoft announced last month that it will throw the switch on
Xbox Live in the UK in March 2003, followed by other European countries.

Nintendo, whose strategy resembles Sony’s, unveiled its online add-ons
Wednesday: a mobile for dial-up Internet access and a network adaptor for
DSL or cable connectivity. Each goes for $35.

Finally, RealNetworks continues to pursue its own niche
with its RealOne Arcade service — a pure Internet play. On Thursday it
signed an exclusive distribution agreement with Flipside, operated by
Vivendi Universal Net USA Group. The agreement gives RealOne Arcade users
access to Flipside’s cash and competition tournaments, which allow players
to wager when playing online games of skill, including puzzle, logic,
arcade and other games.

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