At issue are how hardware and software makers will make money from online games, how they will exploit the growing population of broadband Internet users while accommodating those still using dial-up connections, and what shape online console games will take in the coming year.
The answer to the latter, at least for now, is that console games will work a lot like PC games when it comes to online features: You'll buy a disc with at least a couple versions of the game, including a multiplayer mode for players connecting online, usually through servers maintained by the software publisher.
Software publishers will provide the online extras not because they'll make extra money from them but because they'll be necessary to remain competitive, according to game company executives interviewed by CNET News.com during the Electronic Entertainment Expo (E3) here.
Leading makers of game consoles such as Microsoft, Sony and Nintendo are now focused on putting Internet connectivity into upcoming systems, either by building it in or offering it as an add-on. Executives of those companies at E3 on Thursday engaged in some light sparring over how much this move will change the industry.
Online content is "going to be part of the game itself," said Luc Vanhal, CEO of Vivendi Universal Interactive Publishing, which sells PC and console titles such as the "Half-Life" and "Diablo" series. "We're not really looking at it as a separate revenue stream right now. It's a service we're providing."
All of the 15 to 20 games Microsoft expects to be ready for the Xbox when the system launches Nov. 8 will have online and offline modes, executives said. And Sony's first forays into online gaming--upcoming PlayStation 2 games such as "Twisted Metal: Black"--will be similarly multimode.
"We're looking at it, at least for the present, as an extension of the offline experience," said Kaz Hirai, president of Sony Computer Entertainment America. "All the games are great entertainment experiences in an offline environment. Now we can offer another option that's fun and really embraces the gamers' interests."
Once developers get used to including online components in their designs, however, look for ideas that move console gaming beyond disc-based software and provide avenues for software publishers to establish ongoing revenue sources that could help insulate them from the industry's boom-bust cycles.
"The same way that people are willing to pay for premium cable channels, as long as they get 'The Sopranos,' we have to give customers compelling reasons to want to pay for online games," Hirai said.
"There are a lot of different distribution models that could work for different games," said Seamus Blackley, Microsoft's chief technical officer for Xbox. Players of sports games might pay periodic fees to belong to leagues of virtual athletes, he speculated, while action gamers might pay for new levels to download.
Revenue from role-playing games?
Role-playing games hold the promise of enticing players to pay monthly subscriptions fees for access to the online virtual world, as with the popular "EverQuest" online community. Vanhal says he sees great potential in that area for Vivendi's new franchise based on J.R.R. Tolkien's "Lord of the Rings" novels.
"I think the Tolkien universe is quite well-suited for that kind of gaming and could really extend the concept to a much wider audience," he said.
That's thinking big, however. Online gaming on consoles may well mirror PCs, where the vast amount of online game playing consists of simple, chat-friendly efforts such as blackjack and checkers. That's because most folks still depend on pokey dial-up connections, which don't support anything much more complex than a nice board game.
And making money off such simple games is a dicey proposition at best, especially as the market loses faith in advertising-supported online content.
"It's going to be a very competitive market," Mark Herman, general manager of Lycos Gamesville, said during a panel discussion. "You're going to be competing with people writing games in a garage somewhere, who may not care about making money off them."
And there are those who think there's not much of a business proposition at all in online games now. Peter Main, senior vice president of Nintendo of America, defended the company's lack of online plans for its upcoming game console, saying the demand just isn't there.
"We're about here and now," he said during a keynote address Thursday. "We aren't trying to cram that (online gaming) down anyone's throat--developers or game players--until there are products that make it compelling."
Brian Farrell, CEO of publisher THQ, largely agreed, saying in an interview that limited penetration of broadband connections makes online gaming a less-than-compelling proposition for now.
"We're convinced people don't want to play online games--they want to play games online," he said. "That means they want the same quality of experience they get playing offline, but playing against a human opponent. We can't yet deliver that to consumers from a technology standpoint. We don't have the bandwidth."