The number of US and European online games players will grow to 15m by 2002 from 2m today, according to a new Datamonitor report Online Games and Gambling, 1998-2002: Turning potential into profit. Between 1998 and 2002, the combined US and European market will increase from $67m to $1.4bn. By Beatrice Arnfield Although around half […]
The number of US and European online games players will grow to 15m by 2002 from 2m today, according to a new Datamonitor report Online Games and Gambling, 1998-2002: Turning potential into profit. Between 1998 and 2002, the combined US and European market will increase from $67m to $1.4bn.
By Beatrice Arnfield
Although around half of all online games services charge for gameplay, the majority of players unsurprisingly opt to play for free at popular sites such as Microsoft’s Internet Gaming Zone and Sony’s The Station. As free players currently outnumber paying players by 3:1, services are increasingly looking to generate revenues and profits from online advertising and e-commerce. As a result, by 2002 access charges will fall to 30% of revenue compared with 90% today. The emergence of new online games industry business models is being driven by three factors: competition, consolidation and the entry of giants such as Microsoft, Sony and News Corp into the market. In the longer term, the roll-out of interactive digital TV and modem-equipped games consoles will help make online gaming a mass market, pushing revenues to $1.4bn by the end of 2002, 70% of which will be generated in the US. Over the last year, the complexion of the US online games market has dramatically altered. Microsoft, SegaSoft and Sony have all launched large predominantly-free games services, raising expectations of what can be expected at no charge, driving down access fees and making it increasingly difficult for early entrants to continue making charges. Other entrants include News Corp subsidiary Kesmai; Electronic Arts through its subsidiary Origin’s Ultima Online site; and WON, Cendant’s recent contribution to online gaming, which capitalizes on the strong developer content of its subsidiaries Sierra and Berkeley Systems. In Europe, where the online games industry is at an earlier stage than in the US, large companies are also showing an interest. BT’s Wireplay service has been up and running for over a year, and ICL has recently launched GamesZone, a pan-European games service based in London, Munich and Stockholm. Despite the stiff competition that these large groups represent, small niche operators building communities of gamers around popular titles and concepts will continue to thrive, says Datamonitor. Examples include DWANGO in the US, which hosts its service outside the Internet to guarantee latency, and proprietary content provider Simutronics. However, lacking the financial backing of big corporations with deep pockets, gaming services with large numbers of players to support and high overheads may find it increasingly tough to sustain the necessary levels of investment in technology and content to keep players coming back for more.
The rush to increase player numbers by offering a good proportion of services free of charge has proved to be a double-edged sword. While the profile of the industry has been raised, prices have been forced down to unsustainable levels, suggests Datamonitor. In an attempt to address this issue, more and more services have been seeking to augment revenues from other sources, such as advertising and merchandising, and to differentiate themselves from the rest of the market with innovative and superior customer service strategies, community functions, technology and content. Services with strong brand names of their own have started to tap the potential of online advertising. Another strategy has been for services to establish premium zones within their site and to attract users to these areas from a large established base of free players. As technology improves and content broadens, Datamonitor expects charging for such services to become easier to administer. Moves by the big corporate operators to set their services on a solid commercial footing are good news for the whole industry. Microsoft, Sony and SegaSoft are already beginning to charge for premium services, and Electronic Arts has indicated that it will charge for online use of its sports titles in the future.