Online gaming industry seeks golden key

The lure of pay-for-play online gaming services is making itself felt among console and game makers. But the problem is how to make them--and how to make them profitable.

David Becker Staff Writer, CNET News.com
David Becker
covers games and gadgets.
David Becker
7 min read
LOS ANGELES--Online gaming via consoles may well revolutionize the game industry and the Internet--just don't hold your breath.

That's the consensus from leading game software executives at the Electronic Entertainment Expo (E3), the game industry's main trade show. While they applauded efforts by Microsoft, Sony and Nintendo to add online capabilities to their game machines, they said it will be years before online console games attract a paying audience big enough to support such services.

"Online gaming is a parlor trick at E3 this year," said Jeff Brown, vice president of corporate communications for leading game publisher Electronic Arts. "This is not a real business. This is not going to be a real business until 2004 or 2005, and by then you're going to have a new generation of consoles."

Meanwhile, publishers of online games for PCs--an already established market--are looking to take that market from niche status to the mainstream.

In regard to consoles, Bruno Bonnell, CEO of publisher Infogrames, said online gaming won't begin to catch on until more homes have broadband Internet service, which is why he's taking a slow approach.

"We don't want to start too early, too big," Bonnell said. "We just don't think there's a business there yet.

"The online push is like surfing," Bonnell added. "If you get too far behind the wave, you miss it. If you get too far in front, it will crash down on you."

Microsoft has assembled by far the most ambitious online plan. The company announced Monday that Xbox Live, a subscription online service for the Xbox, will launch this fall. The service, which will work with any broadband Internet connection, will be the only way for Xbox owners to access online content. Third-party publishers who want to put their games online will have to supply them to Microsoft and let the software giant run them.

Sony and Nintendo are taking more open approaches, with each company planning to sell a network adapter that will allow the PlayStation 2 and the GameCube to connect to the Web through dial-up and broadband Internet services. It will be up to game publishers to put their titles online and figure out how to make a profit.

Publishers have greeted the plans with mixed reactions. Electronic Arts quickly threw its support behind Sony, announcing an online version of its "Madden Football" franchise for the PlayStation 2.

Luc Vanhal, president of Vivendi Universal Publishing, the gaming arm of the media conglomerate, said the Microsoft model is more likely to appeal to companies that have not made significant infrastructure investments in online PC gaming.

"For the publishers out there who have nothing online, I think Microsoft is a wonderful opportunity," Vanhal said. "They're giving you a (complete setup) that means you don't have to worry about infrastructure or billing or security."

Vivendi already has a sizable online operation, however, for PC games from its Blizzard and Sierra studios. Vanhal said he's in no rush to embrace Xbox Live.

"With Microsoft, it's very early, and I need to understand their model better before I commit anything to it," Vanhal said. "I need to understand what protection the publisher is going to have to make sure their franchise is presented correctly. How do I know they won't undercut my game by promoting something else to my customers?"

The cost of freedom
Infogrames' Brunnell expressed similar reservations. "Sony's approach is freedom, freedom, freedom, which sounds better to a publisher like us," he said. "But the cost of taking advantage of that freedom is huge. Most of the publishers aren't going to be able to handle it.

"Microsoft sounds like Mr. Bill Gates imperator, controlling the network and allowing us access," Brunnell continued. "It's a practical issue--if you can't afford to build your own network, at least Microsoft is giving you an option."

Lawrence Goldberg, executive vice president of game publisher Activision, said there are plenty of ways to get online without building your own network. He noted that the company partnered with online game service provider GameSpy to make "Tony Hawk Pro Skater 3" the first online game for the PS2.

"We're not looking to be an online infrastructure company; we're looking to make great games," Goldberg said. "Somebody has to do all the back-end stuff, but we're going to leave that to the experts."

Don Coyner, Microsoft's director of marketing for the Xbox, said the Xbox Live approach makes sense for a lot of reasons besides giving game companies without online investments an easy way to plug in to the Internet.

Gamers will have an easier, less frustrating experience by having one sign-in name and password to access whatever games they want to play. And having everyone on the same service means gamers will be more apt to find friends they want to play against, an especially critical issue for the early stages of the service, when many individual games are likely to be lightly populated.

"The ability to find people you want to play with is critical," Coyner said. "We surveyed a lot of gamers, and the idea of one place where everything happens really appealed to them."

Coyner said that while Microsoft understands publishers of varying sizes are likely to have different reactions to the prospect of Microsoft "taking care of all the hard work" to put games online, competitive concerns are exaggerated.

"The whole idea we're taking away their customer is ridiculous," Coyner said. "If you're playing LucasArts' 'Star Wars Galaxies,' it's their game. We're just the service you use to get there."

Kaz Hirai, president of Sony Computer Entertainment of America, said Microsoft and some game publishers are making a mistake by thinking online gaming needs to produce revenue from the start. Console and software makers need to coerce customers into trying online gaming, he said, and slapping fees on services will just make the task that much harder.

"I think the first thing we need to do as a platform company is expose PlayStation 2 customers to the fact that online gaming is fun and exciting," Hirai said. "The best way to do that is to take some of the franchises people are familiar with in the offline space--'Madden Football' is a great example--and expand them with online play.

"I think a lot of content will move to a pay-for-play model, but you can't do that right away. The barrier to entry has to be as low as possible."

Fantasy to reality
In the PC arena, publishers are looking to expand an existing base.

Fantasy role-playing titles such as "Ultima Online" and "EverQuest" have already attracted sizeable audiences willing to pay access fees. These games, though, are still considered niche products. For online gaming to really take off, analysts say, publishers need to offer products with mass-market appeal.

The leading contenders for that breakthrough role are LucasArts' "Star Wars Galaxies," a massive role-playing game based on the George Lucas universe, and "The Sims Online," a multiplayer version of the smash PC game. Electronic Arts plans to release "The Sims Online" this fall and expects to have 400,000 subscribers by the end of its fiscal year, next March 30.

"We love the people who play (EA's) 'Ultima Online'--that's shown (that) persistent online worlds can work as a business model," said EA's Brown. "But how many medieval fantasy games does the market need? It's like when TV started--what would have happened to that industry if all the networks had shown nothing but westerns for the first five years?"

Other publishers are offering less grandiose plans to expand online gaming. Ubi Soft and Cyan Worlds, creator of the hit "Myst" series of PC games, announced plans to create an online version of "Myst" that they expect to mirror the original game's broad appeal.

NCSoft's medieval role-playing game "Lineage" is the most popular online game in the world, with more than 4 million subscribers, mostly in Korea. The company hopes to court a worldwide audience with "City of Heroes," a multiplayer game where players create their own superhero based on comic book archetypes and set forth to rid a vast online world of evildoers. The game is scheduled for release early next year.

Unlike most online game publishers, who require consumers to buy a boxed software product and then pay monthly subscription fees, NCSoft gives away its client software and regular updates, relying strictly on subscription revenue from customers who decide to keep playing the game.

"We've got a challenge in re-educating the U.S. market, getting past the stigma that just because we give it away for free, (that doesn't mean it's not) a top-line game," said NCSoft marketing director David Swofford. "But this model makes so much sense--you get rid of the retail aspect and go straight to the customer."

Wizards of the Coast, creator of "Magic: The Gathering," a trading-card based game with 7 million players worldwide, expects to go one step further by eliminating subscription fees. The company will give away the client software and online service for "Magic Online," set to launch next month. As with the offline game, Wizards will make its money selling cards--in this case virtual cards with digital signatures stored on company servers--that allow players to make new moves in the game.