|
Online Gaming from a Broadband Perspective
[Back to Birds-Eye.Net Market
Research]
By: Bruce Bahlmann - Contributing Author (your
feedback
is important to us!)
Outline:
- Introduction to online gaming business
- Components of online gaming
- Types of online games
- Benefits sought amongst broadband operators seeking to exploit online gaming market
- Online gaming hardware options
- Proposed plans for online gaming
- Proposed online gaming architectures
- Online gaming market
- Possible revenues and costs
- How to generate revenue from online gaming
- Questions broadband service providers should consider before deploying online gaming
- Gaming options review for broadband service providers
- Conclusions
White Paper:
Online gaming is the product of an
evolution in electronic game development. Through the years, electronic gaming has
increasingly involved the number of human senses engaged during game play where by
stimulating advanced levels of interactivity and sustained interest. Today’s
electronic games and game environments are increasingly personal, cater to a growing
number of interests, and are expanding beyond the confines of which can be classified as
“entertainment” (e.g. simulators used to train pilots).
Traditionally, electronic games have
been associated with small hand-held devices, specialized console boxes (which are
connected to televisions), or software you install on a computer that ultimately provides
some form of entertainment. Regardless of the platform, all of the games represented a
very closed (one-dimensional) form of entertainment because in all cases the opponent was
a computer. Over time, players eventually get tired of competing against an impersonal and
boring computer opponent resulting in gradual loss of interest in playing the game. No
matter how sophisticated the content (graphics, sounds, etc.) within the game, the result
of playing against a computer ends in a relatively short duration of interest from the
game player.
As the electronic gaming industry has
grown, it has reinvented itself many times. Through these cycles of gaming evolution each
game stimulates more senses, is more realistic, and permits more people to play the game
– all in an attempt to engage/attract more people for a longer period of time. Online
gaming is a relatively recent wave in electronic gaming evolution. Through use of the
Internet, any number of people can join a game from all corners of the globe. Online games
also employ a myriad of features that enable them to cater to larger audiences as well as
exploit capabilities of its diverse players and the Internet. As a result, online gaming
is becoming increasingly popular and the associated business that sustains it has seen
significant growth. In 2001, for example, the U.S. sales for hardware, software and
accessories increased 43 percent compared to 2000, according to The NPD Group, Inc.
There are also thousands of game titles to choose from depending on which gaming platform
is being used.
Business Components
Interestingly, with all the
sophisticated hardware, numerous game titles, and improving availability of broadband, the
business of online gaming is less organized. The following entities exist in the business
of online gaming:
· Subscriber – The consumer of the
gaming service and the one who ultimately pays for it.
· Advertiser – The organization who
subsidizes the costs of providing the games or the game content for opportunities to
advertise with the game (e.g. co-branding such as "Toyota Adrenaline”), within
the game play (e.g. a signpost along a speedway track during some game), or ancillary to
the game (e.g. banner within the game web site or on the software box).
· Broadband Service Provider (BSP) –
The organization providing some kind of last mile connectivity to the subscriber. This
organization may also perform the duties of the Network Service Provider/Reseller.
· Network Service Provider (NSP)/Reseller
– The organization that supplies various components of a service. In the case of
gaming, this organization might supply caching, security, authorization, copy protection,
etc. host a gaming service or resell a gaming service provided by some other organization.
· Gaming Content Provider (GCP) –
The makers of the games or content related to games that it uses to resell games along
side its content. These organizations may also perform the duties of the NSP/R and/or the
Gaming Platform Provider.
· Gaming Platform Provider (GPP) –
The makers of the hardware platform either distributed to subscribers by the BSP or
purchased by the subscribers independently. This hardware could be a game console or a
set-top box. These organizations may also perform the duties of the BSP, NSP/R, GCP.
The various overlaps among these
parties make for a very complex group of companies with each provider vying for a larger
piece of the subscriber dollar. What makes this even more difficult is that there are also
independent game sites available out on the Internet which the subscriber can frequent
without the need to interface with any of these providers. Independent game sites may
require the subscriber to obtain the games through retail purchase of the game (or by
download) and then play it over the Internet via either free sites (those run by fellow
gamers) or fee sites (or arcades run by businesses). The fee sites often host a number of
online games and in most cases operate independently of the different providers explained
above. As these gaming sites increase in popularity they challenge the different providers
who have ties back to the BSP or actually promote a completely independent business model
which does not require any BSP involvement.
Types of Online Games
Just as there are different
organizations involved in the distribution of gaming content there are also a variety of
different types of games and payment options. Here are some of the most popular game
types:
· First Person Shooter Games: e.g. Quake3, Half-Life
· Role-Playing Games: e.g. Ultima, Everquest
· Social Interaction Games: e.g. Lineage: The Blood Pledge
· Sports/Action Games: e.g. Basketball, Football
· Community-Based Games: e.g. Majestic, Motor City Online
· Board Games: e.g. Chess, Backgammon
· Casino Games: e.g. Roulette, Craps
· Card Games: e.g. Bridge, Solitaire
These games can either be downloaded
to your computer and played one-on-one against a computer opponent or (in some cases)
downloaded and played against other people on the Internet. Obtaining and playing these
games can involved one or more of the following payment options:
· Free – These games are provided at
no cost to the end user. This freeware can vary from trivial games to more sophisticated
games – but the software (freeware) for these games is generally not very good and so
there is not much demand to play these games. Doom, for example, was a very sophisticated game that
became a blockbuster hit for upstart gaming company Id software after it initially allowed free downloads
of the game which could be then played over the Internet. The success of this game
catapulted this startup into stardom!
· Pay-to-Play Non-Subscription: These
games may be downloaded off the Internet or purchased retail. In either case, a fee is required to obtain the
game. Once the game is obtained however, the game may be played locally or over the
Internet (if supported) free of charge. For example Quake 3 can be purchased retail and then played on
numerous existing free sites on the Internet. In fact, all Quake games (including Quake 3) include a game server that owners of the
software can easily setup and run independently from their broadband connection which has
access to the Internet. The ease at which this can be setup creates hundreds of servers
out on the Internet for these gamers to choose from.
· Pay-to-Play Subscription: These games
may also be downloaded and/or purchased retail. However, after these are installed they
only work across the Internet and require a monthly subscription or a pre-paid game card to continue playing them. Sony’s Everquest for example, supports both monthly
subscription or 90 day prepaid
game card.
This particular online game is one of the biggest success stories for online gaming host
of a couple hundred thousand active subscribers.
The general trend from gaming
companies seems to be moving towards all games becoming Pay-to-Play Subscription based. In
this way, the gaming companies can generate reoccurring revenue from subscribers after
their initial purchase. This reoccurring revenue can help smaller gaming companies not
only achieve instant financial success from developing a blockbuster hit, but also
sustained revenue through the research and development process in coming up with their
next product.
There are essentially two different
types of gaming companies. Those that are established producers of games (such as Electronic Arts, Sega, ID Software,
etc.) and those that are not fully established (independent, or startup). The established
gaming community represents a bulk of the games made available to average consumers. In
terms of the number of games available its probably evenly distributed across established
and non-established however unless non-established games get picked up by an established
gaming producer they rarely reach mass market. As games increasingly move to downloadable
versus retail store purchased there will be more opportunities for non-established gaming
producers to reach mass market. Consumers will see this resulting in a much more diverse
selection of games as well as lower prices.
Jupiter Media Metrix projects that subscription
revenues from online PC games will total $1.5 billion by 2006, while subscription revenues
from connected console gaming will only reach $250 million in the same period.
Interestingly, the slower percentage growth of new PC gamers is mirroring a plateau in new
PC buyers, and this trend is coinciding with a renewed hype and interest in game consoles
such as the Nintendo GameCube, the Microsoft Xbox and Sony PlayStation 2.
Benefits Sought among BSPs in Providing
Online Gaming
Ideally the BSP would like a share of
the proceeds from services their subscribers pay for over the network connectivity they
built and maintain. When BSPs funded the building of networks capable of delivering data
services to their subscribers these data services were specifically targeted at the casual
residential users who wanted access to the Internet. The Internet at that time was a
growing resource of information, reference, and sharing. However many things have changed
since these those days. While the Internet has indeed become the single largest reference
center on the planet, it has also become a growing marketplace of companies selling goods
and services. As the breath and scope of these goods and services increase, so does the
needs of the BSP subscribers. No longer can a model for casual residential Internet use be
associated with the most typical BSP subscriber as the content, capabilities, and needs of
subscribers has changed. A growing amount of business (shopping, banking, investing, work
from home) is transacted over these Internet connections and downloads increasingly
contain multimedia (pictures, movies, sounds, applications, etc.) rather than simple text
and pictures. In addition, multimedia can stream down to the subscriber rather than simply
downloading a single set of static text and graphics files. Streaming (or real-time
downloading and presentation of content) presents one of many challenges for BSP networks
to deliver as it allows individual subscribers to consume large sustained amounts of
bandwidth. As a result, the BSP must either increase the price of their residential
Internet service to maintain profitability while addressing access/bandwidth bottlenecks
or somehow gain visibility to the business transactions conducted by its subscribers to
offset the costs of expanding the capacity of their delivery networks. Therein lies the
challenge with respect to creating an online gaming service for broadband.
BSPs are in the business of providing
entertainment services to their subscribers. These services are uniquely packaged and
priced to meet the needs of their subscribers. When businesses other than the BSPs begin
offering services directly to the BSP subscribers it impacts the BSP’s ability to
cost justify the service of providing general Internet access to these subscribers. There
are other implications including:
· Cost:
While the subscriber may well find bargains for gaming services out on the Internet, the
likelihood of these gaming services being around for a long time is suspect. Independent
(Internet) gaming services as well as those provided by GCP and GPPs must heavily rely on
BSPs to let their subscribers connect to their site and also pay them directly (which may
also be an issue of protecting BSP customers from fraud); subscribers still view the BSP
as responsible for their wellbeing while subscribed to the Internet service they provide.
Although this is the normal process of electronic commerce over the Internet, it may not
be the norm for services competing directly with similar BSP services (should they exist).
It is also likely that the BSP could well provide this service at a lower cost than an
independent gaming site because they already have a core business and can spread the costs
of running the services over several different cost centers. On the other hand, an
Internet based service has the ability to offer the same service to the entire Internet as
opposed to the BSP offering it only to their subscribers -- those capable of paying for a
high speed connection. Higher numbers of subscribers can lower an Internet gaming service
provider’s cost point per subscriber under that of the BSP. Since the real draw of
online games is dependent on a continued supply of active gamers a BSP service may not
generate the same kind of numbers as a Internet based service an thus be less popular or
potentially even flop.
· Quality:
The quality of service received from independent gaming sites may not be consistent or
guaranteed. Independent gaming sites cannot ensure that their content will be provided to
their subscribers in the best possible fashion and completely uninhibited. While BSPs
cannot entirely do this either (due to some last mile bandwidth constraints relative to
some games), they have an overall easier time managing quality as there are less unknowns
(like the transmission quality of the Internet). On the other hand, most gaming sites
already address this and since they have very close ties with GCPs they are able to work
together where possible to make changes to the content distribution characteristics within
each game to maximizes the performance and perceived game play to accommodate lower
connection speeds (thus making the gaming services available to a larger audience). Since
Internet gaming sites draw larger numbers they command a louder voice among GCPs to
address their needs.
· Parental
Control: Managing access to games is a sensitive subject among many families –
thus the need to scrutinize gaming content and limit access to various genre of games is
an increasingly demanded feature among gaming services. While this service can also be
provided by independent gaming services, it is often much more difficult to manage -- all
you need is an account (seldom is a credit card required) to play graphically violent
games. BSPs are in a much better position to manage this as the person responsible for the
account (or billing) is less likely to be a minor. On the other hand, most Internet gaming
services have built their service with this in mind only not all have actually implemented
all the features as yet – in other words, what they have now may only be a small part
of what they are capable. Since parental control denies access to some players this may be
easier to consider once each Internet gaming service establishes itself in the marketplace
or the public forces their hand to implement the features.
· Cost
Restraints: Subscription gaming services can run up quite a tab if left unchecked.
While some services are based on a fixed subscription price (often monthly), newer games
are exploring other billing methods like offering the service for free and then charging
additional fees for certain types of usage, tools, game artifacts, additional features,
help, etc. These additional costs can make certain types of games look more like a 1-900
phone calls and thus subscribers may want to ensure that cost restraints are available to
limit family’s use from running up costs. BSPs have notoriously provided services
that represented fixed monthly costs to their subscribers and as a result their billing
system capabilities have settled into this trend as well. Consequently, services that
represent multiple single billable events evade their operational and billing
capabilities. On the other hand, Internet gaming services are all about next generation
services and billing methods and can support a multitude of gaming service and billing
options.
· Packaging:
Combining gaming with other services can obviously be a convenience for the subscriber as
on a single bill they can pay for all their services and potentially receive discounts
when multiple services are purchased together. The goal of the triple play (offering
voice, data, and video) exemplifies the desire among BSPs to provide all three services.
In fact, as multiple services are offered, BSPs have seen reductions in monthly churn
among subscribers with more than one of their services. On the other hand, Internet gaming
services are being bought up by providers of other online services. In effect, a number of
large Internet companies offer multiple services (e.g. Yahoo can
now provides gaming, content searching, email, news, shopping, etc.) to effectively
package them in a different way by making them all available from one convenient
site/location. Only set-top-boxes provide BSPs with the capability to deliver multiple
services through a single service but that requires the BSP to also offer interactive
television capabilities. Internet gaming services also have the ability to bill by credit
card where as a number of BSPs still cannot.
While it would seem there are obvious
benefits for BSPs to offer online gaming as a service, many of the same benefits also
appear in the competing Internet gaming service provider models. These are important
things for BSPs to keep in mind as they really have very few superior gaming features that
they can provide over those that already exist among the leading Internet gaming services.
Online Gaming Hardware Platform Access
Options
Accessing online games has blossomed
into an increasing array of hardware platform options for gamers. Depending on their
physical location, broadband or narrowband service coverage, and access to gaming hardware
most gamers find they have at least a couple different access options. These hardware
platform access options include:
· Personal
Computer (PC) – The single most popular gaming platform today. All of the top
games are played on the PC and it supports the largest number of game titles available of
any other gaming platform (all game types and titles are available on PC platform). The
array of graphics and sound cards and accessories available on the PC also contribute to
its general popularity. However, the increasing demands of the graphics, sounds, and game
controllers are beginning to compete with the operating system for PC resources which is
giving rise to a market for specialized gaming consoles. The PC gaming platform also
boasts the most customizable gaming environment available where gamers can create
shortcuts, design elaborate game play environments (e.g. preferences, play settings,
appearances, and frequently visited sites), build sites to host their own games, and even
modify the overall game.
· Gaming
Console – The most rapidly growing gaming platform today. Gaming consoles consist
of a hardware platform specifically designed from the ground up for gaming. These consoles
support high end graphics capability, theater sound, high performance game controllers,
HDTV outputs, and a growing list of popular games. Gaming consoles are now becoming
Internet capable and a number of gaming
console vendors are promising to offer their own online gaming sites for these platforms
by the end of 2002. The games available to these consoles tend to be high end
sports/action, first person shooter, role playing games, community based games, and social
interaction games. Other games like board games and card games have not been in high
demand for this platform. This platform is also one of the most protected platforms and
does not boast significant flexibility or customization from the subscriber – no
where near that of PC games. The market leaders in this area include Sony (which controls
70% of the market), Nintendo (which controls 28% of the market), and new comer Microsoft
which controls a meager 2% of the market).
· Set-Top-Box
(STB) – There is growing interest in providing games using various cable and
satellite set-top boxes over using PC and game consoles. This initiative has broad support
from various leading STB manufacturers including Motorola, Pace, Phillips, Scientific
Atlanta, and Sony. Next generation STBs will sport 3D graphics capabilities, faster
processors, more memory, and Hard Disk Drives (HDDs) to provide this capability. Gaming
content providers look at this initiative as just another platform to support and will
port their gaming content over to run on these platforms once demand and capability is
there. Use of the STB is unique over other methods that use either a proprietary platform
(e.g. Gamecube, Playstation, or Xbox) or are installed independently on the PC. Out of
this uniqueness gives BSPs a layer of control they don’t have with PCs and game
consoles. This layer of control is key to allowing the BSPs access to gaming activation,
subscriptions, etc. that they will not otherwise have in the other competing gaming
platforms. The main challenges with regards to these next generation STBs is will they
have enough horsepower to fuel the high demands of multiple applications (e.g. digital
video, HDTV, Video on Demand, and gaming) while remaining affordable to the BSPs. The
price point of these boxes will likely make or break the possibility of STBs also
supporting online premium games. There is also the matter that most all existing STBs
deployed have insufficient resources (processors, memory, graphics, etc.) to support the
demands of premium games and would need to be upgraded. Even STBs just a year old would
need to be replaced to support this capability. There is also the matter of shelf life.
Typically game consoles are only good for a few years where as STBs are good for two or
possibly even three times that long. Since the gaming industry reinvents itself (better
graphics and speedier hardware) every few years this could well leave STBs that hope to
support gaming in the dust.
· Wireless
Hand Helds – The entry of gaming into wireless has the potential to become by far
the largest market for online gaming. Recent Studies indicate that the wireless games
market will be worth $4.3 billion worldwide by 2006, with a consumer base of 53 million
gamers. However, the capabilities of wireless devices such as Personal Digital Assistants
(PDAs) and wireless phones are not yet equipped to handle sophisticated games –
further work is needed to improve media displays, application management, and wireless
data transmission bandwidth before these games will be possible. Until then, subscribers
can play games by using simple text messaging applications, but they're limited in scope
may be more costly as the subscriber would need to pay for air time. Wireless games are
where PC games were many years back. However, as more bandwidth and better portable
electronics become available this gaming sector will close the gap quickly. Many believe
that wireless is the technology earmarked for the gaming console to connect to the
Internet – as broadband interconnections are typically not located near the
television.
Among the different gaming hardware
platforms, the STBs seem to offer BSPs the greatest opportunity to gain access to online
gaming. The other hardware platforms all seem to have a work-around the BSP where by
enabling them to directly connect to their content provider or a proprietary Internet site
specifically designed for the hardware platform (Sony and Microsoft gaming consoles intend
to provide online games in this fashion).
However the shelf life of the gaming
platform must be taken into consideration when exploring the use of STBs for online games.
Sony released its Playstation (PS1) in 1994/1995 and Playstation 2 (PS2) in 2000. Within a
five year period, Sony has revamped their entire gaming platform and as a result none of
the games available for PS1 work with PS2. All other gaming console makers follow this
strategy as the gaming content providers are happy to exploit the new capabilities
afforded to them by the new hardware. Newer PC games are also becoming increasingly
dependent on the latest hardware and software or operating system tools/resources. If STBs
are to be used for online gaming, BSPs will need to either stock the most up to date STB
to keep up with latest gaming applications (an expensive exercise) or force the STBs into
retail where the consumers can dictate which games they can play based on the capabilities
of their current STB. In either case this implies that BSPs or the NSP/R will have to
maintain an extensive library of games available for all these different gaming platforms.
Managing this content will be a monster task if the BSP and/or NSP/R supports multiple
gaming vendors. If you don’t support multiple vendors through a single gaming
service, you may need to install a single vendor gaming solution for each of the leading
gaming platform providers. With these obstacles in mind, competing against a GPP hosting
their own Internet based gaming service specifically designed for their own hardware
platform will be extremely tough – the GPP basically owns a complete vertical market
here and they merely exploit any available broadband connectivity to drive their business.
Proposed Plans for Online Gaming
Unfortunately in the broadband gaming
space there seem to be a number of different plans for exploiting whichever gaming
platform is being used. With very few exceptions, most major gaming platform vendors and
content providers all have their own unique plan and infrastructure components in mind for
delivering gaming (as well as other content) to subscribers. The following vendors
represent a sampling of some the online gaming plans proposed to date:
· Sony
proposes what it calls an “Open Broadband Networking Environment” that features
content downloading, open digital rights management, multimedia messaging, and
compatibility on implementing Ipv6 (apparently all Sony devices are currently equipped
with an IPv6 IP address). The three key elements in the Sony model include its proprietary
Dynamic Network Authentication System (DNAS), proprietary copy & authentication
management system, and the Playstation 2 game console or its own next generation
STB. The focus of this system is not limited to the world of online games rather it is set
to enter the field of music/video distribution through something it calls “Networked
AV” – a multimedia space capable of offering games, music, publishing, and
broadcasting. Sony seems to be offering an alternative to ones video cassette recorder
(VCR) or digital versatile disk (DVD) player.
· Microsoft
proposes its own gaming model only it does not seem to have a formal name for it. This
model incorporates something called “Microsoft-first server policy”. Although
few details are know about how this will exactly work, Microsoft has said that it must
approve all games (but a game could also represent other content e.g. music, video, etc.)
to be run, played, or viewed on their platform as well as any software that must be
downloaded to the X-Box’s HDD. Since the X-Box is the first game console with a built in HDD
and broadband connection (Ethernet) some of these steps are perhaps necessary to protect
the platform from accepting virus ridden code or something that could potentially crash
the operating system*. This approach would allow users of the X-Box to stay within the cozy Microsoft developed
environment when operating all its games rather than going to content specific web sites
to play their games. Other forms of multimedia seem to be possible with the X-Box such as music, video, etc. but no information
(vision) on how that will be addressed is offered by Microsoft at this time.
· Nintendo
does not seem to have any current plans for online gaming. Even though its recent
product the GameCube is outselling both of its competitors
consoles made by Microsoft and Sony, this hardware platform is not broadband capable
– only narrowband capabilities exists using its modem adapter (56k, V.90) for
extending online game play. While Nintendo has said it is still looking at different ideas
to enable the GameCube to communicate with the world outside of the
living room, one executive from Nintendo added that “many of the current business plans for online gaming are
likely to end up in the dot-com ash can...great technology, interesting concept, no
consumers."
· Others
such as Scientific Atlanta says it will integrate broadband interactive gaming,
educational software, and web browsing in its Explorer set-top boxes. Pace is planning on
building STBs featuring 3D graphics, digital-quality sound and full-motion video that
offer consumers the ability to play console quality games online with anyone in the USA,
while at the same time using the latest PVR technology to
`timeshift' TV. However these companies offer few details about a proposed
infrastructure that would be required to support such features. There is also little
information regarding how much these boxes would cost – some estimates claim they
will be in the $600+ range – well beyond BSPs sweet spot of ~$200. Retail
availability & efficiency may be the only way a multifunction STB can achieve BSPs
price point while retaining any kind of usable shelf life for consumers.
*Note when a PC crashes or locks up,
this seems to be meet with some degree of acceptance (albeit negative). However if a STB
or game console locks up or crashes this is all together something different. There are
untold stories of people yanking out cables to their STB and just plugging their TV to the
direct feed or people becoming so frustrated with their game console that they destroy it
and then go buy some other brand. In the case of STBs and game consoles there is little
room for error and these boxes must perform with great consistency and reliability or they
will not be tolerated by their users.
The lack of details regarding GPP
plans for building and launching an online gaming service for game consoles stem from the
fact that this concept is still in its infancy; only the PC platform has approached some
form of maturity in this space. Regardless, there is definitely interest to play games
online only how exactly will the worlds of PC, game consoles, STBs, and wireless
individually (or possibly even together) address and capture this interest. The
consolidation of online gaming among platforms has yet to be fully explained or
understood. As a result, few plans provide details for online gaming services that address
the eventual convergence of these different gaming platforms. Instead, they merely seek to
exploit online gaming over a single platform as a first step towards combining more gaming
platforms.
Proposed Online Gaming Architectures
An online gaming architecture must incorporate the six business components previously
discussed. These include the subscriber, advertiser, gaming platform provider (GPP),
broadband service provider (BSP), network service provider or reseller (NSP/R), and the
gaming content provider (GCP).
Figure 1.0 Free Market Architecture of
an Online Gaming Service
Figure 1.0 shows one possible way
these business components may be assembled to provide an online gaming service. This way
of providing an online gaming service could be considered a free market architecture
because all parties have an opportunity to capitalize on the delivery of the online gaming
service to the subscriber. However, since some of these business components can perform
multiple duties, other architectures exist as well.
Figure 2.0 is an example of a GPP
driven online gaming architecture. Here the GPP manages the gaming service, any and all
content carried over this service, and any and all advertising permitted over this
service. This service highly leverages Internet connectivity provided by the BSP. Beyond
that single dependency, however, the GPP pretty much owns and runs a vertical business of
online gaming using their proprietary game console or STB.
Figure 2.0 GPP based Online Gaming
Architecture
While the architecture in Figure 2.0
is not ideal for BSPs, it is the only architecture that has been described with any
clarity in terms of defining all the infrastructure components and what they are supposed
to do. Figure 3.0 represents one such GPP driven architecture.
Figure 3.0 GPP Infrastructure
Components
In the GPP driven architecture it all
begins with a hardware and software presence in the subscriber’s dwelling. Since a PC
is fairly generic and unsecured, it does not have the same impact as a game console or a
STB – these are the preferred customer presence devices for GPPs. Through these
devices the GPPs can attach to perhaps the most prolific and most used home appliance
– the television. Subscribers interact with the GPP through the STB or game
console’s user interface (typically some kind of browser). The browser then
communicates using common Internet language (HTML/XML) through the STB or game console,
onto the Internet, to the NSP/R or the GPP (they are one in the same in this case). Three
different clusters of servers then handle things from there. First of all, the
authorization and subscription servers provide permission for HDD downloading of the games
or content sought, authentication for renewing subscription or other account information
online, parental lock functions, and time based access (record keeping) function. The
digital rights management servers keep track of what game software is going to which STB
or game console. Most GPPs have placed unique identification information within each piece
of game software (content) as well as each STB or game console. The digital rights
management servers keep track of this identification information as a means to track
usage, subscription, and billing where necessary. The information in the digital rights
management server is important as gaming software or other content becomes increasingly
large to the point where not all of the purchased content will fit on the
subscriber’s STB or game console. Thus it is important to all allow them to download
software they have already purchased if for some reason it no longer resides on the HDD
within their STB or game console – e.g. was over written by another recent download.
Having gaming software available via download permits the GPP and the GCP to continually
provide only the latest (most up to date) software for download while decreasing the need
to imprint compact discs (CDs) with the software; The CD is perhaps the least secure
method of software distribution – not to mention more expensive. Once more, the
digital rights management software could also provide a virtual library of audio and video
titles owned by the subscriber – say good bye to shelves of VCR tapes, DVDs, and
(CDs). In this way, all the shelf space is sparred while the GPP maintains their
subscribers video or music library. The application or content servers provide many useful
functions including providing a carousel for certain types of content to sit in
preparation for global, regional, community distribution, as well as handling individual
gaming content downloads, and hosting numerous gaming servers.
Certainly there are other ways that
online gaming could be supported but without widespread support from both GCPs and GPPs
(the two key players) they may be unachievable. Until that time GPPs seem to be in the
drivers seat promoting their proprietary online gaming services and architecture. Some
GPPs like Microsoft and Sony have gone to the extent of patenting all their online gaming
support and delivery technologies to further deny a more public or open access to their
gaming platform – Microsoft for example, just recently receive a patent for their
digital rights management software (the first such in existence). Unless these patents are
turned in, it may well prevent any kind of converged platform (or free market) type gaming
service – it will at least prevent any such service from building upon any technology
that immediately works or scales. GPP may make the case that since they have spent all
this time and money designing, building, and patenting this technology that they deserve
all the spoils of its profits and needn’t share it – even though they inevitably
will increasingly rely on BSP networks and place increasing demands on them as well. This
could well leave the BSPs in a kind of “profit free wilderness” where many
things seem possible but perhaps as they approach something that works they end up paying
royalties to the GPP who owns the patent rights to that technology.
Defining
the Online Gaming Market, Possible Revenues, and Costs
The market for online gaming is quite
large and continues to grow. Jupiter Media Metrix states that there were 46.7 million
wired computer users at home in the United States who played a PC-based game application
in October 2001, up 10 percent from 42.4 million users in January 2001. Jupiter projects
that subscription revenues from online PC games will total $1.5 billion by 2006, while
subscription revenues from connected console gaming will only reach $250 million in the
same period. Based on these numbers BSPs can project that about 12.9% of its broadband
data subscribers represent potential online gaming candidates.
In 2000, the average penetration rate
for broadband Internet service among the top six cable BSPs was 2.15% of their total
number of homes passed. If by 2006, this penetration rate reaches an average of 5% (among
the top 6 cable BSPs) of their total number of homes passed, that would mean that cable
BSPs may observe about 0.645% of their total number of homes passed as potential online
gaming candidates (once they get connected to their broadband services – if not
already).
For a second tier cable BSP system of
350,000 homes passed and assuming they have built a captive audience among their data
subscribers for an online gaming service, that would mean that once data services were
available to all homes passed and the overall broadband data subscriptions reached 5% of
the homes passed, that there is the potential for up to 0.645% take rate for online gaming
among broadband data subscribers (or about 2,257 possible online gaming subscribers). If
these online gaming subscribers paid $9.95 per month for the gaming service that would
represent a gross revenue of about $269,485 or about $0.76 per year per home passed.
The costs of starting up an online
gaming service may be substantial however. While equipment, etc. can be added according to
need, BSP should initially build their online gaming service to handle at least one fourth
of their projected take rate or 5000 subscribers – which ever figure is higher. From
there, BSPs should budget their setup costs for hardware, software, content, marketing,
and networking to be around $150 per subscriber. There after, your ongoing support costs
for the call center, game content, service calls, etc. that will run BSPs about 55% of
their gross revenue per subscriber per year along with additional costs for technicians to
oversee the equipment and content people to over see the games. At the end of the day, and
in ideal* conditions, you’d break even at about 2,239 subscribers. Which means the
smallest possible BSP system that could implement their own online gaming service would be
one with at least 350,000 homes passed – anything smaller would not be able to make
ends meet. In such a system it would take well into the 5th year of providing
this service before a BSP could see a profit (if initial capital investments were not
figured into expenses).
Note, the ramp up for BSP online gaming
will likely be slow. BSP should expect 5-10% of projected for first year and then double
that figure each year until reaching projected.
It is important to understand that
not every online gaming service will be successful and that some will be more successful
than others. Especially in light of the fact that any gaming service BSPs offer will be in
direct competition with larger more popular online gaming services out on the Internet
(such as those provided by GPPs and GCPs). BSPs may also have problems obtaining rights to
offer some games in a timely manner over their competing GCP and GPP sites. For all these
reasons and more, BSP hosted gaming services will represent (at best) a secondary market
for online games. The first to have a newly produced/released online capable games will be
the GCP and their retail distributors, then the GPP (could also be GCP), and then finally
any secondary market for the game (e.g. BSP). With this in mind, the subscriber numbers
for the BSP will likely never approach that of either the GCP or GPP.
What is interesting about these
numbers is that the GCP and GPP do not have an easy go at this either. Even though they
own the content and leverage BSP provided broadband Internet connectivity GCPs and GPPs
replace the expense of content with their own Internet connectivity that push their
profits out nearly the same as BSPs. Unfortunately, there are few details about these
businesses other than what they charge their subscribers.
Generating Revenue from Online Gaming
Building an online gaming service
that is reliable, attracts subscribers, and provides beyond satisfactory entertainment is
an enormous task. Creating a business model around this service that one can profit from
is perhaps even more difficult. Combining “play” and “business” in
such a way where profits are attainable is truly an art - there is no secret recipe for
success.
In many ways the “business”
of play resembles the “promise” many thought was possible with the initial
Internet boom. Here you have this large market that is expanding by leaps and bounds as
well as some promising ways to extract value from this growing market. However each way is
unique and no company (including Sony and Microsoft) have anything that guarantees
success. Online gaming is a risky business but out of great risk comes the potential for
great profits – or financial disaster.
Online gaming provides a number of
opportunities for revenue generation. Some of these opportunities include:
· Sales
of software – Each new game that is developed and released represents a potential
for revenue from the sales of that software. There are many different ways this software
is sold either through retail channels or direct from the company over its Internet site.
Traditionally this is how all GCPs make their money. However conventional one time fees
for software are beginning to blossom into
numerous other pricing models including pay per use, lease, potentially even pay per time
used.
· Co-branding
of software – Co-branding has been used successfully in naming various landmarks,
stadiums, and sporting events. Only recently has this been accomplished in Gaming.
Microsoft recently used this with its game "Toyota Adrenaline” which featured
Toyota’s latest truck within the game play.
· Sales
of multiplayer online gaming service – Initially created as a means of collecting
revenue for games played online after they have been initially purchased. Some games have
taken this to the next level where these games are actually offered for free and players
must pay as they go or pay for time saving features that they could otherwise obtain for
free if they didn’t want to spend that time playing the game. Games are also
providing markets or trading desks where game articles can be bought or sold for
“play” money which can also be turned in to real money.
· In-the-game
advertising – A way of providing captive advertising within the game. For example
various games may proudly display various brands like Chevy stock cars, Honda all terrain
vehicles, or BMW motorcycles. The location where these games are “virtually”
played may also be a source of revenue within the game. For example, a game may take place
in the Minnesota State Boundary Waters, downtown New York City, or along the Rhine in
Germany – all of which could enhance the city, state, or country’s tourism. The
type of action that is selected for the game may also generate revenue – for example
if some company wants to promote some new sport where their equipment is popular (or
featured) what better way than to provide potential customers with a virtual experience
(from a gaming simulator) before they go out and physically participate. There are also
countless opportunities for displaying banner adds within the game. GCPs may also be able
to sequence these adds or even provide levels of prominence in terms of their visible or
captive display positions to players as they interact within the game.
· Marketing
tie-ins – Made popular by Star Wars, marketing tie ins for games can create a
whole new market for things like action figures, posters, trading cards, sportswear,
sports equipment, etc. Activision’s “Tony Hawk’s Pro Skater” could well start
making a skateboards, gloves, protective pads, etc. all based on the success and notoriety
of its unique computer game. There are also games that either generated movies (like Tomb Raider) or movies that have generated games like Star Wars. In either case, marketing tie-ins provide a
significant revenue boost for GCPs.
There are also a number of other ways
that games can generate revenue after the initial sale of the game. For example id Software
sells something called mission packs for their popular Quake game. Mission packs represent a value add to
their existing shipped product offering the gamer new maps, custom game modifications, new
player graphics (skins), etc.
There may also be a number of ways
the game can generate additional revenue depending on the type of platform the game is
typically played. For example if STBs were made available through retail channels and
supported multiple features based on cost, it would provide the BSP with superset of
service options to provide to its subscribers. BSPs could compare this to the CallerID
service provided by the telephone companies. This is a service provided to consumers at an
additional cost over their monthly service charge which activates features in
sophisticated phones or separate devices available retail. In the same way, BSPs could
leverage this model through advanced services activating additional capabilities in
various retail hardware. This hardware could exist within the STB or other home appliance
– it is unlikely that BSPs would have visibility to any such feature on game
consoles.
Questions for BSPs to Consider Before
Offering a Gaming Service
BSPs thinking about online gaming
should be asking themselves these questions.
Is it more desirable to own and offer
a gaming service to your subscribers (i.e. receive direct value from collecting
subscription revenue), control which services their subscribers can receive without direct
ownership of the service, or merely deliver an Internet service through which online
gaming is possible (i.e. receive indirect value from lowered churn)?
Implications: Owning an online gaming service will
approach $100 per gamer (just for the hardware). Additional funds will be necessary to
hire and keep the highly specialized computer staff to maintain this equipment, maintain
an increasing inventory of gaming software titles, and then either subscription costs of
having another vendor run the content for the site or hire a staff of developers to
constantly seek a new and inviting look to keep gamers interested. Online gaming is
perhaps a lot like Video on Demand (VoD) in that the hardware to run a good service is
very expensive and then at the end of the day you pay a large portion of the proceeds to
the content owners.
Would initial gaming service require
a quality of Service (QoS) component? If so, would subscribers want it, at what cost would
this be, and what would be the payback versus cost of the investment required to achieve
it?
Implications: QoS is often mentioned in the same
breath as online gaming service as a potential means of revenue generation. However unless
the online gaming service being offered falls under the BSP network umbrella, it may be a
very tough sell to the subscriber as QoS is only provided up to a point (BSPs boarder with
the Internet). Since the subscriber seems only willing to pay $9.95 per month for an
online gaming service (which today is entirely paid to the GPP or the GCP), that leaves
little room for the BSP to collect additional funds for any incremental value provided
using QoS. If the BSP believes that they will be able to charge the subscriber a premium
over this amount the average amount they will be able to obtain per gamer per month will
be fractions of a dollar due to the resulting lower take rates by gamers.
Can a single BSP generate enough
active gamers to create its own successful gaming service?
Implications: This is perhaps the greatest unknown
(risk) of building out a gaming service – “if you build it will they come?”
It may well be that the attraction to online gaming will be dictated by social and
economic factors of the BSP subscribers. If the customer profile for online services fits
with the general population of a BSPs homes passed than that might reduce that BSP’s
risk in forging ahead with their own service. But only if that BSP is significantly bigger
than 350k in homes passed.
Is online gaming something that
should be address from a consolidated BSP standpoint rather than individual BSPs going it
alone?
Implications: BSPs stand to gain the most from
working together on a mutual or standardize approach towards online gaming. The risk of
working on a standard is that it will take significant time and will not represent
anything close to the best of breed technology as any technology used would need to be
freely available. Within one year (or by the end of 2002) all the GCPs and GPPs will have
some form of online gaming effort in production or in the works. Much beyond 2002, this
market will begin shaking out the online gaming companies with weak business models and
further strengthen the subscriber base of the market leaders. If the BSPs are late to the
game (i.e. post 2002) their window of opportunity and for success will be significantly
smaller than it is in 2002.
Note even successfully navigating
these questions will not guarantee success in online gaming. Each BSP should evaluate the
revenue potential versus risk before proceeding into this highly volatile service.
Review of Gaming Options for BSPs
There are a number of different
options available to BSPs wanting to offer an online gaming service to their subscribers.
The scope of options available depends on the resources, equipment, and capabilities of
the BSP. The following options are available for BSPs regarding online gaming and are
listed in order the ease at which they can be implemented.
Option 1: Do Nothing – A
very simple decision with no gain, but most importantly, no risk or financial loss. If the
BSP doesn’t have the minimum number of homes passed or their average subscriber
profile does not match those attracted to online gaming this could be the best option. The
option of electing to do nothing permits the subscriber to access online gaming services
through the BSP’s network thus providing inherent value to the service they offer to
the subscriber. In other words, these BSP subscribers can browse the Internet,
send/receive email, … and play online games from their computer.
Option 2: Charge by service
activation – In this case the BSP activates or deactivates access to the online
gaming service(s) by changing the port filtering on the subscribers network access point
(e.g. cable modem). Implementing this feature may cause some strain on the BSP because it
further limits what their existing subscribers can and can’t do with their connection
to the Internet based on the amount they are willing to pay. This is one of the easiest
way for BSPs to immediately begin charging for access to Internet (online) gaming
independently of what GCPs and GPPs offer their online gaming subscribers.
Option 3: Charge by the bit
– A more generic approach to option 2 where by subscribers are not charged by the
individual services they use on the Internet but rather by the amount of information or
bandwidth they consume. This is a difficult model to price as every subscriber uses the
Internet differently – BSPs may want to explore combining options 2 & 3 for more
accurate billing scenarios. However, at the end of the day all subscribers download
information as well as send information. By keeping track of the bits and charging
accordingly, the BSP can extract the maximum possible value out of all services because
the billing model is based on consumption rather than a flat rate for all you can eat type
of service. Using this option allows BSPs to possibly even charge a premium for valuable
upstream traffic and a much lower price for downstream traffic. Metered billing is a way
that BSPs can extract the maximum revenue out of the subscribers that starve them of the
bandwidth in least supply. This option may also be difficult to sell to the subscribers
who have become used to the all you can eat flat rate billing model.
Option 4: Online Gaming Enabled by
Streaming Data
– There is a concept of using interactive streaming software technology to enable
consumer PCs to play CD-ROM-quality games in real time and to rent popular software
titles. Similar to the distribution of VoD, this technology uses streaming to deliver
gaming content to subscribers. Nickelodeon Online provide such a service for a weekly
rental at $4.99 or in a monthly Game Pack for $14.99. As with VoD the challenges for the
BSP in providing this service is the up front cost of equipment and software and then
continued costs of obtaining content (gaming titles). Would be nice if VoD equipment
served both purposes. There is also the question as to the future of the PC as the
preferred gaming platform. PC gaming use is leveling off where as use of consoles for
games is gaining popularity. This option closely resembles reselling of content that BSPs
use for analog and digital video content.
Option 5: Build, maintain, and sell own
online gaming service
– Building ones own online gaming service provides the ultimate flexibility in
offering a gaming service. However, building the online gaming service can be very complex
and involve significant capital investment. It also requires hiring a number of very
specialized and skilled people to run it properly. These people do not represent an
abundant, easy to find, or hire resource. In fact, BSPs may need to lure these people away
from already established GCP or GPP online gaming establishments. Once the hardware and
personnel have been obtained, the success of this service will be dependent on attracting
new online gamers as well as luring avid gamers away from the GCP and GPP online gaming
sites, implement complicated billing scenarios, and survive at least a few years of
negative profits before any such service can break even. Since no universal online gaming
service exists for all gaming hardware platforms, this may require the BSP to host
multiple gaming systems to achieve any kind of saturation.
Option 6: Service quality aspects of
game play –
This option involves implementing and or deploying equipment that can enable QoS and/or
Multiple Protocol Label Switching (MPLS) to enforce a set of data traffic throughput and
priority policies over certain types of applications like online gaming. The technology
that provides this is relatively new and while it increasingly becomes mainstream it is
not all together clear how much value this brings to the service – especially how
much more is this kind of service worth over not insuring any kind of quality. Since QoS
can only be provided for services within a BSP’s network, it requires that the BSP
own and operate their own online gaming service before QoS can provide any useful value to
the subscriber. One might argue that if online gaming requires QoS to work properly, why
then would this service be a value add rather than a necessary component required to
deliver the service.
Option 7: Combine either options 2/3
with option 5 or combine options 2/3 with options 5 & 6 – While offering a
service like online gaming to the subscriber in a very high quality fashion is desirable,
it is unclear whether the additional delivery cost that results from all the added
complexity would provide a clear road to profitability any sooner than the other options
mentioned. One might argue that if the subscriber has to pay for higher quality services
they will either do so or go somewhere else that simply ensures quality (rather than
provides it only as an additional cost option).
Option 8: STB Driven Online Gaming
- STBs represent the most familiar hardware
platforms for BSPs. The possibility of this platform also supporting online gaming would
appear to best leverage the current skills and knowledge of the BSP and thus represent an
attractive option for BSPs to consider. Unfortunately, there is a lack of information
available on these advanced STBs in terms of unit cost, actual performance, shelf-life,
game titles available, and necessary back office components. If the cost of these STBs
could reach the $200 mark, their performance remains in check with those of high end game
consoles, sufficient numbers of game titles are available for the unit, and the average
shelf life exceed 5 years the STB has a serious shot at becoming an economical gaming
platform for BSPs. Unfortunately, that is quite a lot to ask of a STB and thus the ease of
implementing this option is more difficult.
Selecting which option is right for
the BSP may require additional research by the BSP to determine their current operational
support system (OSS) capabilities. Options 2-8 will require numerous OSS features to
support online gaming. If the BSP would like to bundle or package online gaming services
with other services such as data, voice, or video services these will also require
additional OSS features and support.
Conclusions:
Certainly online gaming represents an
enormous market. By 2005, Forrester Research Inc. predicts that nearly 50
million households will take part "pervasive gaming" -defined as broadband
gaming with multiple real-time players and added TV, movie, and music hooks. About 43.5
million will do so through advanced gaming consoles and 6.3 million via a digital TV
set-top boxes. Hardware revenues will top 9.4 billion by 2005 with software and content
revenue hitting 16.9 billion. BSP interested in capitalizing on online gaming have a
wealth of options available to them. These options range from permitting network access to
these games to hosting their own gaming service.
The risk for a BSP to build their own
online gaming service is high. Even if the BSP purchases all the equipment it would need
to build and provide a gaming service there is no guarantee that the gamers will come.
Luring gamers to a site requires great content (games), superior performance, features
uniquely aimed at gamers, and perhaps the most difficult of all an understanding of the
gamer mentality. In other words, you can’t just run a gaming service with regular
people – you need specialists who know games, are tuned in with the latest trends,
and can continually work to make the gaming service as dynamic as possible. BSP are also
at least a year behind most established Internet gaming service providers. With this
running start, it may well be all the Internet gaming service providers need to stay ahead
of BSPs wanting to enter this market. At the end of the day, which ever service provider
can attract (and keep) the largest number of gamers will continue to win the lions share
of the market.
Instead of entering into the rat race
of seeing who can build the best online gaming service and attract the most subscribers,
the BSPs are in a unique position to capitalize on the growing demand and success of
online gaming by managing the access to it or reselling the game content (much like they
do with video content). When combined, options #2 & #3 provide BSPs with one possible
wining online gaming strategy. This strategy is simple -- drive up broadband data service
revenues through subscribers’ increasing demand for access to new services and
bandwidth. This strategy also employs the least risky of all options afforded to BSPs
while lighting the way to a rosy online gaming venture. Another attractive option (#4) for
BSPs is to resell gaming content which requires use of a third party distributor who can
provide the technology and back office equipment to enable subscribers to securely
download and play games. This strategy is perhaps more complex as the BSP needs to factor
in the distributor, content owner, and possibly the enabling technology provider before
profits can be realized.
Readers who use this information for investment purposes do so
at their own risk! Opinions expressed are just that and not based on
insider information or information otherwise obtained illegally.
Check out these other Birds-Eye.Net papers/products regarding
Online Gaming:
Can Birds-Eye.Net help you or your Company?
Receive your Birds-Eye.Net articles and white
papers hot off
the presses by adding our RSS feed to your reader.
|