Consoles tipped to bring renewed growth to the online gaming market globally
Posted by Ben on Friday, August 30 2002

London, 29 August, 2002 - The PC online gaming market is a paradox. Although it attracts a growing number of users, it has failed to generate revenues in accordance. However, online gaming is approaching a crucial moment in its short history according to new report just published by independent market analysts Datamonitor (DTM.L). The report, 'Global Online Games, 1st edition', says that while this market has relied almost solely on PC online gaming until now, Internet-connected consoles are right around the corner and hold the promise of launching online gaming into the mass-market. According to Datamonitor, even if console online gaming will not take off overnight, consumers are bound to move inexorably towards consoles. This will be the next battlefield between Microsoft (MFSTq.L),
Nintendo (7974q.L) and Sony (6758q.L).

The market for online games will reach US$2.9bn in 2005
Datamonitor estimates that the online gaming market will grow from US$670m in 2002 to reach US$2.9bn in 2005, mainly due to the fast growth of the console online gaming sector.

From representing the second largest market for online games behind South Korea, the US will climb to the first spot by 2005. Impressively, the US will generate more revenues than the entire Asia Pacific region. Europe will continue to lag behind the US and Asia Pacific, due to its fragmented market, the slower rollout of console online gaming and the overall lower penetration of broadband in households.

Frederic Diot, Datamonitor games analyst and author of this report comments:
"The online gaming market has experienced several false starts in its short history but the launch of the PlayStation 2 and the Xbox online should mark the beginning of a true period of growth. While it is safe to expect teething problems in the short term, once the market embarks on this road, this trend will be irreversible as consumers are bound to be seduced by the promises of massive multiplayer gaming."

Console online gaming will be the next battlefield between Microsoft, Nintendo and Sony
Sony (6758q.L) and Microsoft (MFSTq.L) are the most active regarding console online gaming. Nintendo (7974q.L), true to its cautious nature, is playing a wait and see game. Sony (6758q.L) and Microsoft (MFSTq.L) have adopted opposite approaches to online gaming. Sony (6758q.L) intends to spur consumer demand by not charging players to play online. However, Sony (6758q.L) places the burden of setting up the infrastructure required for online games on publishers and developers. Microsoft (MFSTq.L), on the other hand, will charge players a monthly fee to play online, which could stifle demand, but it plans to handle the infrastructure in the hope of stimulating the number and quality of games available.

"The success of its Xbox Live service will be crucial for Microsoft (MFSTq.L). It is currently third in the console market closely behind Nintendo (7974q.L) but console online gaming could enable Microsoft (MFSTq.L) to differentiate its console and pass the GameCube, which lags behind in this sector", says Diot.

New business models are needed to boost PC online gaming
Currently, most of the PC online gaming revenues come from the hard-core market, composed of die-hard gamers willing to pay to play.

Although this market continues to thrive, the limited success of recent entrants in this sub-market has shown that the audience for games like Ultima Online, is not infinitely expansible.

The real opportunities lie with the large segment of hard-core gamers, who play online-enabled boxed games for free online. Games such as Quake and Counter-Strike enjoy very large user base but these users represent no added revenues for the creators of these games. While publishers and developers have so far contended themselves with allowing their games to be played online for free to encourage usage, Datamonitor believes that a growing number of them will in the future will change their stance. The difficulty will be to attach a fee to a hobby, which has been so far free. Publishers and developers will therefore have to offer new types of services to justify charging users.

Casual online gaming remains an elusive business, where only the few sites that are able to reach a critical mass in terms of user base can pretend to generate significant revenues from advertising. Given the current state of the online advertising market, it is likely that the casual online gaming sub-market will continue to be dominated by large sites. It is likely that advertising will need to evolve towards more complex messages, with users being more carefully targeted with appropriate advertisements corresponding to their profiles.

Diot concludes:
"The games industry as a whole but also ISPs and telcos are waiting for console online gaming to start in earnest. So far, developments have been slow and linked to the will of console manufacturers. Even if publishers and developers are keen to take part in this market, many of them remain cautious about their investments after various misfortunes in PC online gaming. In this context, it is the responsibility of console manufacturers to stimulate publishers and developers by showcasing the viability of their solutions."