Sony's other games unit makes push in new direction

Sony has a long and colorful history of failure on the Internet, but there has been a bright spot.

4 min read
Sony has a long and colorful history of failure on the Internet. But there has been a bright spot, one Sony operation--Sony Online Entertainment, based in San Diego--has built a legitimately innovative and successful Internet business.

Think of it as Sony's other video game operation. The ups and downs of the company's famous PlayStation division are well known, as it struggles to maintain its dominance in home consoles over Microsoft and Nintendo. But tucked within the relative obscurity of Sony Pictures Digital Entertainment, the online entertainment unit has grown into a profitable business with revenue in the $150 million range (the company does not break out exact results for the division) by creating and publishing a variety of subscription-based online computer games.

The problem is that the company's first huge hit--EverQuest, released in 1999--remains its only genuine blockbuster, with around 250,000 users. (The company used to report subscriber figures, but stopped a few years ago.) A competing online game, World of Warcraft, made by Blizzard Entertainment, of Irvine, Calif., has, meanwhile, practically reshaped the game industry by attracting an enormous 8 million paying users around the world.

So Monday, Sony Online intends to unveil its plan to retake leadership in online gaming by unveiling three new games in development. More broadly, the new games represent an attempt to broaden the company in four major ways: diversifying its business model, expanding the demographic profile of its customer base, moving into the console market in addition to making games for PCs and increasing its presence in Asia.

"Right now our revenue is almost all subscriptions," John Smedley, the unit's president, said in an interview. "In two years, we would like to see no more than 50 percent of our revenue coming from subscriptions, and five years from now we think less than 10 percent of our revenue will come from subscription sources."

At the same time, Smedley said he wanted to diversify his customer base, which is 85 percent male and 32 years old, on average. Women have become the major driver of the casual games business (games like Bejeweled and Bookworm), and Smedley wants a piece of that action.

"We want to get our average age lower, probably into the low 20s, and I'd really like to see the gender breakdown go to 50-50 or even slightly more women than men, to reflect real life," he said.

Sony Online's new direction can perhaps be seen most clearly in a game the company intends to announce Monday called Free Realms.

In general, Smedley wants to replace subscriptions with a combination of microtransactions, advertising and what he calls the "velvet rope" approach. All three concepts may come to bear in Free Realms, which the company hopes to release on PCs this coming winter and on the PlayStation 3 next summer.

While the company's traditional fantasy and science-fiction games have been aimed at a hard-core male audience, Free Realms is basically aimed at children, especially girls. The game will be free to play in general, but will require paid membership for access to special zones and activities (hence the term "velvet rope"). In terms of microtransactions, players will be able to buy virtual in-game items like pets and clothing a la carte. And there may also be advertising inside the game.

To reach out to girls, Smedley realized he had to hire more women. The creative director and art director on the game are now women.

"I just can't explain to a 30-year-old single male why 10-year-old girls like horses," he said. "We were trying to figure out what pets to put into Free Realms and before, the lead designer was a guy and he definitely wanted things that could fight. And when we got more women on the team, it was like 'No, no, no. We need puppies and horses in there.'"

The company also recognizes that among hard-core gamers there is a bit of fatigue with the elves, dwarves and orcs that seem to populate the dozens of fantasy-based online games. So in its first game for the PlayStation 3, called The Agency and due next summer, Sony Online is branching out into a relatively untapped genre for online games: spies and commandos.

"Think of it as '24' meets Counter-Strike meets 'Alias' meets James Bond," Smedley said.

His boss, Yair Landau, vice chairman of Sony Pictures and president of Sony Pictures Digital Entertainment, said: "We are clearly moving beyond men in tights with broadswords. Women in cocktail dresses and stilettos and men in tuxedos with silencers is a very natural place for Sony Online to be expanding."

Another natural place for Sony Online to expand is Asia. Online PC gaming (as opposed to consoles plugged into televisions) has become the main form of gaming across Asia outside Japan, especially in China and South Korea. In fact, World of Warcraft has more subscribers in China than in the United States. Sony Online, however, has had practically no presence in Asia, primarily because EverQuest just does not appeal to Asian gaming tastes.