Gaming companies take aim at online profits
Published: 14 May 2004 11:50 BST
Game publishers and hardware makers are confident that consumers want online gaming. Now if they can only figure out a way to make money from it.
Unlike previous editions of the E3 game trade show, this year's event in Los Angeles had few launches of high-profile online games for the PC, a market dominated by fantasy games such as "EverQuest" and "Star Wars Galaxies".
On the console side, publishers say they're happy with consumer acceptance of new online gaming services but need to find a business model somewhere between the current extremes of free online play and games that require monthly subscriptions.
The answer for most is mini-transactions, small purchases that would allow game players to pay a few cents to download a slick new piece of armour for a roleplaying game or a new map for a shooting title.
Andrew House, executive vice president at Sony Computer Entertainment America, said market expectations have already been set by the first wave of online console games, and consumers will have to be eased into the idea of paying extra for online assets.
"Our belief is that consumers expect basic head-to-head multiplayer online play to be included in the game they buy," he said.
Rather than the regular fees many publishers had hoped for from online gaming, financial success will depend on offering little extras. Sony is working on payment and billing systems to allow such transactions, which should begin appearing over the course of the next year, House said.
"The subscription-based model is inherently self-limiting," he said. "The preferable model, we think, is based on downloadable content and mini-transactions. You'll see the fruits of that emphasis from us over the next year."
Bruce McMillan, executive vice president at leading game publisher Electronic Arts, endorsed the notion. "I think you need to have a flexible business model," he said. "Some gamers will pay extra to get the Cadillac version of a game, while the people who buy the packaged goods will get some basic ability to go online and play head-to-head."
But McMillan said making money from console online gaming is more likely to happen when PlayStation 3 and the next Xbox hit the market in a few years. "Our goal with this generation of hardware...is really to sell packaged goods now."
Microsoft is already working the online angles, though, with the Xbox Live online gaming service for its Xbox console. The software giant has more than 800,000 subscribers paying $50 a year for the service, which allows access to online portions of more than 100 games. Steady growth in subscribers and strong subscription renewal rate shows gamers will pay for content, said Microsoft vice president Peter Moore.
"The subscription business is a tough one to be in, because you've got to manage things 24/7," he said. "I think we've done a good job of that and finding new ways to deliver value to the consumer."
Microsoft will take a step toward mini-transactions with Xbox Live Arcade, an upcoming service that will allow customers to download arcade-style games for a typical price of $10 or less. Beyond that, smaller chunks of downloadable content will require tweaking the Xbox Live transaction system to allow efficient processing of small transactions, Moore said.
"Micro-transactions are something we have to figure out, and we will," he said. "I think it's our job to build the service, both for consumers and for our partners. It's like we own the shopping mall, and our business is to build out the facility and take care of the infrastructure so the businesses inside can prosper."
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