PSP World

Online Gaming Spearheading the Convergence Race

Virgin Media and Sky's recent handbag swinging has brought the term 'convergence' back into sharp focus. Virgin's recent merger with the cable company NTL, now sees it presiding over a vast media and technological empire that encompasses digital TV, broadband, cable and mobile phones, on demand content and online gaming. Meanwhile in another galaxy not so far away, another battle wages on between two super powers in the never ending saga of the 'console wars'. Notably Sony and Microsoft. With Sony's global launch of the PS3 now complete with the console's European debut last week, the gloves in the next generation console fight are now decidedly off, and possibly the most strategically important area is the online gaming market.

What we are witnessing here, is not only device convergence, but also service convergence. With Sony's recent launch of its 3D online community, where PS3 users can buy music, films, and games, chat with other users, furnish their 3D room, and of course play games, they are notably trying to play catch up with Microsoft's Xbox Live service, which boasts a massive 6 million users. Even Nintendo, had already made their online presence felt with Wii Online. Online gaming is becoming increasingly important for next generation console manufacturers. Just as other media and technology companies such as the aforementioned Sky, Virgin Media, and NewsCorp battle for a stake in the highly lucrative online advertising market, console manufacturers, will be placing more and more focus on their online services. Thus, a merger between these two types of companies is fairly likely. Its only a matter of time before the other big players such as Sky start to appear through mergers and buy outs, revolutionising the whole online gaming arena as we know it. Already UK Virgin Games and Game Domain International announced plans last month to create an online market from which gamers can download titles from a number of publishers.

In a sense console companies are now taking their machines online to grab a share of the online gaming market which has traditionally been part of the PC gaming community. Casual gamers, such as older women playing puzzle and card games is a fast growing new market with estimated revenues of $1.9 billion for 2006 according to DFC Intelligence. Moreover, online multiplayer role playing games have become increasingly popular in the West, with the muliplayer online game market outside of Asia hitting $1 billion for the first time in 2006. This growth is down to many of the games you'll find on our sister site MPOGR.com, such as Vivendi's World of Warcraft which took a massive $471 million last year (Source: FT).

According to the FT, Vivendi plan to bring out more multiplayer games including Freestyle Street Basketball, and Electronic Arts will be buying a significant stake in the Korean online gaming company Neowiz for $105 million. This partnership already bore fruit last year when EA and Neowiz put Fifa football online which has seen over 4.4 million registered users to date. EA also plans to bring other Neowiz online collaborations to Europe.

“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.”

Understandably, the big guns in the console world want to ensure they are spearheading this shift in direction. Phil Harrison not only sees the online games market as a way to connect with those customers who don't visit retail stores, but also a way to tap the online advertising market through virtual spaces such as Sony's Home and from within the online game itself.

“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.”

What we are witnessing here is that the online services have become a way for console 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 games publishers accordingly want to hedge their bets by releasing 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 (Source: FT).

“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.”