Is multiplayer a threat to the gaming industry?

Wedbush analyst Michael Pachter says multiplayer can reduce overall game revenue because players spend too much time with those titles.

Call of Duty: Modern Warfare 3 is a cash cow.
Call of Duty: Modern Warfare 3 is a cash cow. Activision

Is multiplayer gaming actually causing more harm than good?

Speaking to Wired U.K. in an interview published yesterday, Wedbush analyst Michael Pachter said multiplayer games tend to be played for much longer than single-player titles. Therefore, gamers are spending less time shopping for other titles, thus reducing the industry's overall revenue.

Pachter went on to tell Wired U.K. that a typical single-player campaign generates $2 of revenue per hour per user -- a measure, apparently, of total play time divided by the game's cost. However, when one takes the same calculation and applies that to a popular multiplayer game, revenue drops to about 12 cents per hour per user, according to Pachter.

"It's crack," he told Wired U.K. "The average Call of Duty user plays ten hours a week of multiplayer."

Though Pachter's point is well taken, his comments don't appear to consider the many other revenue opportunities generated from popular multiplayer games. Developers are fully aware of the potential revenue losses that can arise from their online-multiplayer experiences and sell everything from new levels to maps to additional weaponry to expand their revenue opportunities.

In an e-mail correspondence with CNET, Pachter acknowledged that "downloadable content mitigates the losses" companies might see from extensive multiplayer use. However, he argues that the 25 million people who bought Call of Duty: Modern Warfare 3 "spent an average of $72" on the game and downloadable content. Considering the average person played 500 hours of multiplayer, Pachter says, that means the average revenue was 14 cents per hour.

"When the game was single-player, they paid $60 for 30 hours of play, or $2 an hour," Pachter told CNET. "Last I checked, $2 is a lot more than 14 cents."

Pachter's remarks to Wired U.K. don't seem to account for the revenue that can be generated off subsequent games launched after a title becomes popular for its multiplayer experience. For example, even though Call of Duty players spend a long time with the game's multiplayer version, they also line up every fall to buy the newest iteration at launch. Better yet for the game's publisher, Activision, sales rise every year.

Last year, Call of Duty: Modern Warfare 3 generated $1 billion in sales in just 16 days . Its predecessors, Call of Duty: Black Ops and Modern Warfare 2, needed 60 days and more than two months to reach that milestone, respectively.

And though games are more expensive than ever, developers often spend quite a bit creating the first title, and watch costs start to fall with subsequent launches. The reason? The foundation of the title is already in place, and in many cases, little enhancements to graphical quality are made. Developers can build on what they've already created and improve margins.

Simply put, while multiplayer games might be hurting the industry in some ways, the trouble isn't nearly as worrisome as Pachter might claim. Multiplayer games are contributing quite a bit to today's console and PC markets.

"Of course Call of Duty sells more because of multiplayer, and of course Activision isn't going to do anything to screw that up," Pachter says. "The point is that the industry would be better off if the 500 hours spent on CoD was spent on single player games at $2 per hour, generating $1,000 of value instead of $72. This is one of the big drivers of declining packaged goods sales, and is the reason all of the publisher stocks are trading at historically low multiples.

"There is a business model problem, not a consumption problem," Pachter told CNET. "They are giving away too much value for free."

Update, 10:19 a.m. PT: adds Pachter's comments to CNET.

About the author

Don Reisinger is a technology columnist who has covered everything from HDTVs to computers to Flowbee Haircut Systems. Besides his work with CNET, Don's work has been featured in a variety of other publications including PC World and a host of Ziff-Davis publications.

 

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