Casual games get serious

LOS ANGELES--Imagine if all Hollywood cranked out was action movies.

You'd have theaters packed with young men, but people who'd rather steer away from action flicks, including many women, would find something else to occupy their time. That's basically the problem the video game industry has had--until recently.

The game industry appears to have found its answer with so-called "casual games," a category of software-based entertainment that includes word and puzzle games, board games and even some classic arcade titles. While not new, the casual-games industry is enjoying a renaissance driven by advertising dollars and the ubiquity of mobile devices.

"The video game industry year after year is exceedingly good at pumping out action films," says Alexis Madrigal, an analyst at market research firm DFC Intelligence. "Casual games are a step in the direction of coming up with (the equivalent of) comedies and romantic comedies."

Casual games like "Bejeweled" and "Zuma" still don't attract much attention at the annual E3 trade show here. While people will wait for half an hour or more just to see a short trailer for big games that in some cases are months from release, casual games are little-mentioned and hard to spot on the show floor.

But what casual games lack in hipness, they make up for by being cheap to make, addictive and highly profitable.

The North American market for casual games is expected to grow from an estimated $281 million in sales this year to $1.15 billion in 2011, according to DFC. Globally, thanks to the popularity of these games in China and Korea, the market is already closing in on $1 billion in annual sales.

Several trends are helping push casual games out of the margins and into the forefront. Advertising has emerged as a key revenue opportunity for games, and hard-core games reach only one of many demographics that advertisers covet. Also, casual games tend to be small and have minimal processing needs, making them ideal for mobile devices, particularly cell phones.

As a result, some pretty significant tech companies have become big players in the field, including Microsoft, RealNetworks and well-known gamemaker Electronic Arts, which has amassed more than a million subscribers to Pogo.com, its online casual-game service. Smaller firms that specialize in casual games have also managed to draw a significant base, including MiniClip and Big Fish Games.

"It shows there is room for companies that are willing to innovate and push hard," Madrigal said.

After the dot-com bust caused many advertising-backed ventures to fold, casual games felt the effects.

"When the Internet advertising market bottomed out after the bubble burst, it really hurt casual gaming," Madrigal said.

When advertising rates went through the floor, though, the survivors in the industry shifted to making money by selling games that could be downloaded to the PC, typically for $20 or less. "Necessity brings invention," Madrigal said.

RealNetworks got into the market about six years ago as it was looking to expand beyond media software. Bits are bits, the company figured.

Initially RealNetworks targeted hard-core gamers who played games like "Doom" and "Quake" and tried to get them to pay to play games online.

"It was abysmal," said Senior Vice President Michael Schutzler. "It did not go well at all."

Going casual on consoles
At the time, gamers were used to buying games, not paying monthly subscriptions to play online. Plus, the technology wasn't ready to provide the massive bandwidth that serious gaming would entail.

"The pipes were too thin," Schutzler said.

Almost on a whim, RealNetworks tried putting up a simple puzzle game, and it sold well. The company revamped its marketing, drafted a new business plan and scoured the market for all the little games it could find. In 2004, the company spent $36 million to acquire GameHouse, a developer specializing in puzzles and other small games.

Last quarter, RealNetworks earned $18 million in revenue from casual games--more than 20 percent of the company's overall revenue--and Schutzler sees plenty of growth ahead. "We're just in the early days right now," he said.

Meanwhile, RealNetworks, like many in the casual-games space, is focusing much of its attention on moving beyond the PC into mobile games. Last year, the company paid $15 million for a mobile-game specialist, Mr. Goodliving.

Casual games are also starting to make an impact in the console arena. Though small downloadable games aren't the main incentive for most people to spend hundreds of dollars on an Xbox 360, Microsoft is touting them as a significant bonus to its system.

Nintendo, too, has talked about tapping its stable of classic titles to help boost interest in its forthcoming Wii console.

And now, with advertising making a big-time comeback, casual games are taking on growing importance.

Traditional games appeal to a very lucrative segment for advertisers--young men--but a lot of advertisers want to reach other segments of the population. Most importantly, casual games allow advertisers to use the medium to reach women.

For example, two thirds of those playing at MSN Games are female, with RealNetworks drawing upwards of 60 percent women.

"People that don't even think of themselves as gamers are playing these games," Schutzler said.

Of course, there are also plenty of men who aren't into games. Indeed, while the current market for casual games has tended to draw more women, there are efforts to draw in more men as well.

For example, deodorant maker Degree antiperspirant has sponsored a free online Texas hold 'em game on MSN Games. In addition to the expected cadre of on-screen ads, the Degree for Men logo is prominently displayed on the game table and card-backs, as well as on-screen ads.

Microsoft has had a significant casual-games business for at least a decade, following its 1996 purchase of Zone.com. In some ways, the company's involvement in the realm reaches back even further, says Chris Early, studio manager for Microsoft's casual-games unit, noting that the solitaire game built into Windows is really the forerunner of casual computer gaming.

"It's the most started app in the world," Early said.

But with their newfound aim at the advertising business, casual games have become far more strategic. Casual games are also likely to figure prominently in the Live Anywhere strategy announced Tuesday by Microsoft Chairman Bill Gates.

Gates touted a vision in which games can be started on a PC or Xbox and then picked up on a mobile phone. For now, though, such play would only be possible with casual games.

"Frankly, I don't want to play 'Shadowrun' on my phone," Early said.

One of the challenges for all types of in-game advertising is figuring out the balance of where, and how many, ads to include, Schutzler said. "You can't put too much advertising in the game without destroying the game."

One of the nice things about casual games, he said, is they tend to have natural breaks, like television shows, where commercials are less disruptive than say, halting a live-action game.

With action games, much of the focus is on product placement. Hence, Microsoft's decision earlier this month to buy Massive, a small company whose engine places advertising right in the middle of video games, often on billboards.

But while such impressions are important, casual games offer opportunities for more distinctive brand advertising. In addition to TV-style commercials and banner ads, the cost of such games is low enough to allow sponsors to offer free games that are tinged with their branding throughout. Tyson Foods, for example, offered a version of "Bejeweled" in which the game's standard jewel icons were replaced with poultry-themed graphics.

Casual games are another way to reach men who aren't hard-core gamers, Early said. Microsoft this week announced that it had struck deals with several game makers of yesteryear to bring titles like "Root Beer Tapper," "Paperboy" and "Pac-Man" onto the Xbox 360.

Older arcade games feature many of the same characteristics of other casual games--easy to play for a short time and familiar, with low processing needs. "It's easy to hop in to 'Frogger,'" Early said, groaning at his unintended pun.

It appears, Early said, that even the hard-core gamers are spending significant time playing some of the casual games available through the Xbox 360's Live Arcade.

"I think that's been as big a surprise as anything else," Early said.