Game makers look at online future

LOS ANGELES - It may be all in fun for online video game players, but cyberspace is serious business for top developers, who are betting on huge returns from online gaming.

The most optimistic forecasts are for almost a quarter of all games to be played online by 2002.

It makes sense. Surfing the Net or playing games is already a pastime for millions and Forrester Research predicts online games will attract more than 18 million players and revenues topping NZ$3.6 billion in 2001.

But the leading developers have different strategies.

Sony Online Entertainment and Electronic Arts aim to draw serious gamers as well as casual Web surfers to their sites and charge monthly fees for more sophisticated games.

Electronic Arts, whose Ultima Online role-playing game has been a hit, has a comprehensive site planned to lure gamers with parlor card games and free demos.

Smaller competitors like THQ Inc. have a more modest approach and are eyeing wireless gaming, while Activision Inc. so far is sitting on the sidelines.

"No one's figured it out yet, the killer app (application), the model. It's virgin territory," said Brian Farrell, president and chief executive of California-based THQ.

Not all of the top game makers are convinced that online gaming will meet the most optimistic forecasts.

Activision Chief Executive Bobby Kotick sees games requiring more widespread high-speed Internet access - more bandwidth in more homes - to make it in the mass market.

"For us to get enthusiastic in terms of the mass market is not going to happen until 2004. There's not a big enough installed base (of high-speed Internet access)," he said.

Some of the success stories so far have been the online virtual worlds dominated by Dungeons-and-Dragons style medieval worlds. Gamers on average play for 20 to 30 hours a week and pay monthly rates of almost US$10.

EA.com, majority owned by No. 1 independent game developer Electronic Arts, has about 200,000 players on its role-playing game called Ultima Online.

EA.com's next move is to offer online spin-offs of its hottest-selling PC and console brands, charging monthly fees.

Sport games will be available online early next year, followed by an online thriller called Majestic and The Sims, in which gamers create characters they control.

As proof of the competitive nature of online gaming, EA.com's 4-year-old Ultima Online game already has been overshadowed by more popular upstart competitor EverQuest, launched in February 1999 by Sony Online Entertainment.

The division of giant electronics and entertainment company Sony Corp. was built mostly around its acquisition of the EverQuest creators.

The game has 300,000 members and has developed a cult following, with thousands of characters and items on sale at Web auction site eBay for as much as NZ$7,900.

"We think EverQuest has been as close as you can get to having a killer app in such a fragmented market," Sony Online Entertainment Chief Executive Kelly Flock said.

"We believe a lot of the hard-core gamers have fallen by the wayside and we're seeing more first-timers."

The game has been making money but Sony Online Entertainment has been reinvesting most profits. The company has also announced, with LucasArts Entertainment Co., the formation of a virtual "Star Wars" world, to be unveiled in 2002.

Despite some doubts as to the viability of monthly subscriptions online, Electronic Arts Chief Financial Officer Stan McKee is confident.

"I think we've proven when you build a community it has stickiness and people will stay and play and pay for it. I think the subscription model is absolutely proven," he said.

Supporters of subscriptions point to how cable television has lured viewers to pay extra for programming.

Naysayers argue it is unproven online and difficult for the traditionally young players of video games.

"The first thing that goes in a recession is magazine subscriptions. That could affect the model," said Frank O'Connor, editor in chief of online entertainment Web site DailyRadar.com.

With players paying US$25-$50 just to buy the software and then sending in monthly fees, the virtual worlds might seem like cash cows. But these fictitious medieval lands require modern billing systems, site maintenance and customer service. They also require regular upgrades to keep hard-core gamers.

But subscription fees have nonetheless proven that they can outshine advertising revenues.

"Sony entered the business predicated on the assumption that advertising revenues would be the model, and along came EverQuest and indicated an entirely different model," Sony's Flock said.

Yet advertising is still a mainstay with both traditional banner ads and TV commercial-style ads as games download. Firms also are mulling sponsorships, so logos and brands could begin appearing on billboards during game play.

THQ is exploring a different revenue model called WWF With Authority, using its World Wrestling Federation (WWF) license and a virtual deck of cards. Players compete, challenge other players and can buy extra cards for a fee.

THQ also is betting that online gaming will travel. The company already makes games for mobile phones and recently signed a joint venture with Siemens AG.

"What we see down the road is a single device as a telephone, organizer, for Internet access, and that can be used to play games," THQ's Farrell said.

"We think simple games on wireless devices will be a huge market."

EA.com's Mark Blecher disagreed: "At the end of the day, we think people would rather play quality games on their PCs than small poor quality games on hand-held devices."

- REUTERS

Links:

EA.com

Sony Online Entertainment

THQ

DailyRadar.com