The report released Monday predicts that subscription revenue from online console games will total $250 million annually by 2006, compared with $1.5 billion for online PC games. About 12.3 million of the 79 million households with game consoles will have them connected to the Internet by 2006, according to the report.
Console makers are investing heavily in the Internet, with Microsoft planning to launch an online service for its new Xbox console in mid-2002 and Sony due to release network adapters for its PlayStation 2 around the same time, followed by an online game network for the PS2. Nintendo has been more hesitant with online plans for its new GameCube.
Jupiter analyst Billy Pidgeon said the success of such efforts will hinge largely on the growth of broadband Internet access, necessary to deliver the smooth game-play and easy setup that console gamers expect. About 23 percent of U.S. homes are expected to have broadband access by the end of this year, with the percentage increasing to the low-40s by 2006--just around the time a new generation of game consoles will arrive.
"The persistence and speed of the broadband connection is going to be really important to the gamers," Pidgeon said. "I think Microsoft and Sony realize this, and they're going to make their paid online services very easy to get going."
Console manufacturers and software publishers have touted online connectivity as a critical advance in the industry, expanding the game experience for customers and injecting a steady stream of subscription revenue into a notoriously cyclical industry.
For the time being, though, most online game revenue will come through the PC, where role-playing games such as Sony's "Everquest" and Microsoft's "Asheron's Call" already are posting impressive numbers. The upcoming release of multiplayer games based on the "Star Wars" and "Lord of the Rings" franchises will help expand online gaming to a broader audience, Pidgeon said, but the real challenge will be to make money off casual players who account for the bulk of the online game audience through simple advertising-supported games such as blackjack and checkers.
"The mainstream is getting more interested in the premium games, but they're mainly playing Web-based games like cards that have a chat component as well," Pidgeon said. "That's the big challenge, to get the casual gamer to buy games, both packaged goods and online games."
As far as console competition, Pidgeon predicts Sony will keep its No. 1 position in the market, with Microsoft and Nintendo battling for No. 2 in a race that could be determined by how well they court or acquire software developers. Customers surveyed for the Jupiter report identified availability of exclusive games as the No. 2 factor, behind cost, in deciding which system to purchase. Pidgeon predicted console makers will buy up more software developers and strike more creative--and costly--deals with third-party publishers to ensure their hit games aren't available for any other console.
"It's definitely going to drive investment in first-party publishing," he said. "We're going to see more investment by all three companies in software developers, and some of the publishers are going to be angling for better deals as far as developing games for specific platforms." related: