Popularity of online games accelerates into top gear
By Maija Palmer
Published: March 23 2007 02:00 | Last updated: March 23 2007 02:00
As Sony launches its PlayStation 3 games machine on to the European market, it is clear a that key factor in the console wars is what the machines can do online.
This month Sony unveiled with great fanfare Home, an online 3-D world where PS3 users can design a character, furnish a room for it, chat with other players and buy music, films and games.
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The company is keen for gamers to log on to its online Play-Station Network and is offering free copies of the Blu-Ray disc of Casino Royale to the first 500,000to sign up.
It is also issuing an upgrade that makes downloading games easier.
Sony is attempting to catch up with Microsoft, on whose Xbox Live online service users can buy games, chat with others and play against them. The site boasts 6m users.
Nintendo's Wii also has an online portal that offers web chat, news, weather reports and games to download.
Console companies are connecting their machines to the internet to grab a share of an internet gaming bonanza from which the PC games market has benefited.
"Casual" internet gamers - particularly older women who enjoy playing shortpuzzles and logic games online - have been identified as a fast-growing newgames market.
Revenues from casual games worldwide totalled $953m ($1.9bn) in 2006, up from $713m in 2005 and $228m in 2002, according to estimates by the research group DFC Intelligence.
In addition, online multiplayer role-playing games have recently started to become mainstream. These have been popular in Asia for several years, but figures from Screen Digest this week showed that the market for so-called "massively multiplayer online games" outside Asia hit $1bn for the first time in 2006.
Much of this growth is down to the success of a single product, World of Warcraft, a fantasy role-playing game by Blizzard Entertainment, a division of Vivendi Games. This highly successful game has more than 8m paying customers and generated revenues of $471m last year.
Vivendi is looking at bringing out more online multiplayer games, starting with Freestyle Street Basketball, which allows people to challenge each other to basketball games online.
Electronic Arts, the world's largest games publisher, is jumping on the bandwagon. This week the company announced plans to buy a 19 per cent stake in Neowiz, a Korea-based online gaming company, for $105m.
EA partnered with Neowiz last year to put its Fifafootball game online and saw huge uptake, with more than 4.4m registered subscribers to date.
"That's almost 10 per cent of the population of South Korea," says Gerhard Florin, head of EA's international operations. "These are unbelievable numbers. Five years ago the Asian online market was not there, but it was estimated to be worth$2.5bn in 2005."
EA is looking to launch other online games with Neowiz and hopes to bring the model to Europe.
Others are also investing. Last month, in the UK, Virgin Games and Game Domain International announced plans to create an "iTunes" for the games market, an online platform that would allow games from a number of publishers to be downloaded quickly and easily by gamers.
Console makers do not want to miss out. Phil Harrison, head of Sony's worldwide games studios, sees selling games online as a way to reach new consumers who do not frequent games retail stores.
He also sees it as a way to generate new revenues from advertising. Advertisements can be placed within online games themselves as well as in the Home 3-D space.
"Our user base is an elusive band that is not watching network television,"Mr Harrison says. "The response from advertisers has been phenomenal. Unexpected brands have been beating our door down."
Above all, the online services have become a way for consoles manufacturers to differentiate their products in a tough market.
Getting exclusive games used to be a key part of the battle between consoles, but exclusives are now rare.The cost of developing games for the new consoles has doubled to about $15m-$20m, and gamespublishers accordingly want to hedge their bets byreleasing games on multiple platforms.
Instead of exclusive games, console makers are creating exclusive "online" extras. Microsoft, for example, is releasing extra content for the popular Grand Theft Auto racing game that can be found only on the Xbox Live service.
"In today's world, exclusives will be reduced," says Neil Thompson, head of Microsoft's Xbox division in northern and eastern Europe. "More and more it is the online aspect that will drive differentiation."
Copyright The Financial Times Limited 2007
Pricing strategy leaves room for discounts later
By Maija Palmer in London and Mariko Sanchanta in Tokyo
Published: March 23 2007 02:00 | Last updated: March 23 2007 02:00
Pricing strategy will be a key issue for Sony's PlayStation 3 console, which enters the European market as by far the most expensive of the new generation of games consoles - priced at €599 ($799), compared with about €250 for Nintendo's Wii and €300 for a basic version of the XBox 360.
Sony justifies the price by arguing the PS3 is not just a games console but a "home entertainment hub" that can connect to the internet, display photos, play music and includes a high-definition Blu-Ray disc player, retail prices for which start at about £500 ($980). At the same time, it is clear Sony is positioning itself for price cuts later in the year.
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European PlayStation fans were outraged last month when Sony announced they would not be able to play many of their PlayStation 2 games on the new PS3 because the company had removed the microchip that enabled backwards compatibility.
Alex Kwiatkowski, analyst at Datamonitor, said removing the chip would make it easier for Sony to cut prices before Christmas.
Overall Sony is thought to be planning to halve the number of components.
The PS3 prototype had 4,000 [components] but now a shift to 2,000 is in the pipeline, said Yuji Fujimori, analyst at Goldman Sachs. "Past history shows that a halving of the price results in quadrupled volumes." He expected a €100 price cut before Christmas and a further €50 before Christmas next year as a result of cutting the component numbers.
He said the price cuts would result in a wider operating loss to Y70bn ($592m) from Y60bn at Sony's games unit in the fiscal year starting April 1.
Copyright The Financial Times Limited 2007
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