Do You Got Game?

Are service providers getting their share of the proceeds?

Games of all kinds are moving onto the network. They are delivered, played and even discussed in real time. All this means that, more than ever, games are an opportunity for service providers to find new customers and deliver new services to an audience eager for new online experiences.

Game consoles are now as fully networked as PCs have been for some time and are extending to the networked world with online chat while playing games, online services for gamers and even VoIP so gamers can talk while playing.

At the same time, PC games have broadened their offerings making use of networked communications, adding services that range from simple, one-person games available as pay-per-view downloads to online multiplayer games that can involve tens of thousands of players simultaneously.

“Both the major MSOs and major telcos are paying a significant amount of attention to the gaming phenomenon, trying to figure out how they can monetize the trend,” says Michael Cai, director of broadband and gaming for market research firm Parks Associates.

“Some are providing games-on-demand services. [Users] pay subscription fees and get access to back-catalog PC games. Some of them are providing services to core gamers, such as matchmaking or keeping score. Almost all major telcos have a strategic plan for games.”

The simpler games requiring almost no learning curve and little investment of time are called the “casual” segment by the industry. Typical is a current favorite, Bejeweled, which is popular with women.

Online services for casual gamers include Electronic Arts Inc.’s Pogo Club game service, which has more than 1 million subscribers, who pay about $5 per month to play. There are other advertiser-supported casual games on the Internet. And games are a staple of the major portals, such as Yahoo! Inc.’s Yahoo! Games, MSN Zone and America Online Inc.’s AOL Games.

For the core gamers, there are online console game services from a number of players. Microsoft has more than 2 million subscribers worldwide using its service, paying $50 per year to play against other gamers.

For the massively multiplayer online gamers, also part of the core-gamer segment, the games are often a mainstay of players’ social lives. While they joust and slay dragons, they also tend to form long-term “communities” where members communicate online to share game experiences. Ongoing participation in these games may require a monthly fee of as much as $50, and 10 to 20 hours of play time per month to make a meaningful experience. The largest of these games right now is World of Warcraft, a little more than a year old and reportedly with 5 million subscribers worldwide.

The core-gamer services almost require a broadband connection to participate fully in games. The Xbox requires broadband, and massively multiplayer games provide a much better experience with broadband. For casual games, such as those on Yahoo! or AOL, most need only a dialup connection, although that can make it slow going.

Mobile is its own subset of the online gaming world, and is developing rapidly. More prevalent in Europe and Asia, interest in these relatively simple games is starting to pick up in the United States.

Today many mobile games fall into the casual category, being downloadable single-player games, often trying to ride the coattails of a popular movie or console game. Even new multiplayer mobile games are rather simple, such as Bejeweled or multiplayer poker.

“Now most of the games are pretty poor,” says Cai of Parks Associates. “They are using franchise names from either a hit movie or a console or PC game. They try to remake that game, but the model does not really work very well with the small screen and crappy graphics. Consumers lose interest quickly ... sometimes they don’t play for even 20 minutes.” Another issue is that the handset has to always be connected without interruptions, and have multiplayer support. “They need a better strategy than single-player downloadable games.”

One opportunity is games on demand. Cai says half of the major service providers already are offering or planning to offer games on demand in the near term. He says subscribers to games-on-demand services pay $10 to $15 per month and can access 200 to 300 or even more games. These include Comcast Corp., RCN Corp. and Verizon Communications Inc.

Games on set-tops, such as those provided by cable companies, are not yet a big area, because most game playing is happening between consoles and PCs, says Mike Wolf, principal analyst of broadband at ABI Research. Still, he says, some are looking to build game applications that work on digital set-tops. One is called Zodiac Gaming, based on the Java standard, for the cable industry.

Some operators already are looking beyond games on demand to other services. Verizon has an offering for more enthusiastic gamers in a partnership with GameSpot, a service of CNET Networks Inc. Called Game Sender, for $8 per month it gives console gamers the ability to set up their own online servers (for faster game performance in online play) and to find others playing the same game.

Performance can be a big draw for the serious gamers. “Some gamers will pay for a lower-latency broadband connection,” says Wolf. “If you use Xbox Live over Comcast it may have disruptions and lag. Sometimes you get thrown out of the game. If [a service provider] can assure that they will not experience game lag, I think a percentage of online gamers will pay a premium for assurances from the broadband provider of better performance.”

Also, linking players locally could be valuable, not only for building community but also to reduce latency. “I have heard that Xbox Live can group people geographically automatically,” says Wolf. “If you get a guy in Tokyo, the millisecond-type of twitches will really notice delay across large geography.”

Whether online game services of all sorts will prove to be a gold mine, or even a steady revenue stream, for service providers is still very much an open question. Revenue figures are hard to come by, analysts admit, though the trend is positive.

The popular Bejeweled game

“People are paying more to play over the net than for any other type of content,” says Cai. “Because of the popularity of iTunes from the consumer perspective, revenue from consumer music services is catching up with gaming, but gaming is still the money generator. But that doesn’t mean that operators are getting a piece of it.”

“The serious gamer tier is probably their golden opportunity because the number of online gamers is going to grow,” says Wolf. Other than that tier, a broadband provider “on the casual game side probably can continue to grow that business and make the set-top more of a platform or have things like Tetris for download.” Microsoft also offers downloadable games through its Xbox Arcade service, “and they are getting a lot of demand for 10-meg games,” says Wolf, such as a popular one called Geography Wars. The success was surprising “and spoke to the potential of downloadable games,” Wolf says.

There is no reason for service providers not to partner with game providers and offer downloads, says Wolf. Using services, such as Turner GameTap, subscribers can buy from a library of hundreds of games. “They could buy the games for $15 to $20 a month and could offer them to customers, sending out marketing e-mails and get a cut.” Service providers often use monthly billing to market services, he adds, so why not do gaming?

Case Study: Verizon

A screenshot of VGN’s gaming service

Jason Henderson, games product manager for Verizon Communications Inc., won’t be home playing Counter-Strike tonight. He’s off to a “LAN center,” a storefront with networked PCs and consoles where serious gamers pay $3 per hour to play against each other in a high-performance facility.

The ILEC is doing a promotion for its Verizon Game Network (VGN) service with Valve, developers of Counter-Strike, today’s hottest console game, by giving away T-shirts and CDs. Valve is today the only major game developer distributing games online, and Verizon is supporting that with high-speed downloads.

High-speed downloads are just one of many Verizon game services. In fact, the telco is tackling online gaming on almost every front. And Valve is just one of many partners that Verizon is engaging for both promotions and cooperative services. The company is doing marketing with iGames Inc., a large organization that runs marketing events at LAN centers. Verizon is sponsoring what are called “ladders,” which are game contests structured like tennis tournaments with companies such as Valve and hot graphics chip maker NVIDIA Corp. Other partners are Cyberathlete Professional League (CPL), an organization that runs large events where contestants play action games against each other for large prizes. Verizon also supported the group’s “Quake” tournament in December and now provides network infrastructure for its online arm, the Cyberathlete Amateur League, a sort of minor league for the CPL.

Verizon’s two main services are Verizon Games on Demand, a low-cost service with downloadable games, such as My Little Pony and Diner Dash, aimed at casual gamers and families, and Verizon Game Network, where customers pay for access to servers and content for console or PC games that they already own.

The Verizon Game Network includes client software that provides not only an easy way to find partners and game information online, but also includes IM and VoIP so gamers can communicate as they play. “I see on-net people asking for a good VoIP for PC games,” says Henderson. A gamer may play online using a server provided by Blizzard Entertainment (a top game site), but they still can use our VoIP client and get the latest updates and patches on the VGN.”

Verizon’s FiOS service has a 15-megabit speed option that is appealing to gamers. But, while the company will provide a good pipe, Henderson wants to offer “unique ways to access content and unique ways to access community.” Verizon provides “a unique network on which to enjoy those services so we can sell to people outside our service,” says Henderson.

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