Gaming's Becoming a Big Deal
PC game sales in 2005 totaled $1.4 billion. The casual games industry generated annual income of just less than $1 billion. Annual console game revenue is above $10 billion, which famously exceeded the value of tickets sold by U.S. movie theaters last year. And yet the games industry is feeling some frustration, and part of that, they feel, stems from the cable industry.
For all the glory of showing up Hollywood, the games industry is not making more money than the film industry. Hollywood has many revenue sources beyond the box office, which produces 25 percent of revenue. DVD, PPV and VOD bring in another 50 percent of revenue, and sales to premium channels and then to broadcast networks balance out the other 25 percent.
The PC and console segments of the game industry have the initial release (95 percent of revenue), then a price-reduced "classics" window. Casual games companies can sometimes charge per-download fees, but casual games are frequently offered free to service subscribers.
Game companies are looking to increase the number of outlets and release options. Specifically, they want to be able to have customers download games on demand, and gain access to games though subscriptions, both of which would work best if facilitated by service providers. Game manufacturers seem optimistic cable operators will soon become more active providing games, but to date, few MSOs have.
For starters, MSOs, at least since the days of the Sega Channel, have not been able to run PC or console games on TVs. The vast majority of the set-top boxes (STBs) operators have installed are not equipped with the processing power or the memory to do so. The expense of boxes powerful enough to run PC or console games has been prohibitive.
The average STB can, however, run casual games. Casual games are vastly smaller than console games (hundreds of kilobytes to a few megabytes, vs. hundreds of megabytes to gigabytes), are more easily transmitted over even the most bandwidth-constrained channels, and are small enough to be stored in STB memory. Providing casual games on TVs could therefore be the basis for a viable service for MSOs, but for a technological hitch.
Though most set-tops are capable of running most casual games, the set-top market is fragmented. A game that runs on set-top A is unlikely to run on set-tops B, C, or D, unless the game developer rewrites it to run on those other platforms, and that's expensive—usually prohibitively so.
The solution to that problem is to have a common mediator between games and the different set-tops they'd run on. That's one goal of the OpenCable Application Platform program, a CableLabs-specified middleware system. Software applications, including but not limited to games, interface with the OCAP middleware, running in blissful ignorance of the set-top hardware. As of today, only one major operator has deployed a significant number of OCAP-enabled boxes.
In short, cable operators are interested in providing games directly to set-tops, but for the variety of reasons enumerated above, providing them has ranked behind some of the industry's other priorities, including digital simulcast, digital video recording (in the set-top and on the network), switched digital broadcast, VoIP, targeted advertising and VOD.
But there are several indications that gaming is climbing the priority list.
Several major operators have thrown their weight behind OCAP and intend to roll it out by the end of this year (see CED, May 2006, p.22). That should pave the way for the deployment of casual games on STBs.
"We're excited about OCAP," says Alexander Libkind, president of Zodiac Gaming, noting that EchoStar Communications, one of Zodiac's customers, uses middleware from OpenTV Corp., which eases the porting process. OCAP, similarly, will let companies like Zodiac write a game once and rest assured that every operator with OCAP-enabled systems will be able to deploy them.
Cablevision Systems, another Zodiac customer, has been making casual games available through OCAP-enabled set-tops for about a year and a half. Cablevision offers several game packages that subscribers can access for $4.95 a month each.
Casual games with simple graphics are
easy to deploy and proving to be popular.
Source: Buzztime Entertainment.
Real Networks helps service providers to provide casual games to high-speed Internet customers for operators such as Comcast.
"The games channel is one of the more frequented areas on their sites, second only to e-mail," says Julie Pitt, general manager of the RealArcade online game service. Comcast offers RealArcade on its portal, and considers it one of the stickiest areas of the site.
Comcast is also offering IGN Entertainment's premium Game Invasion service—with PC/console games aimed at hardcore gamers—for free to subscribers who upgrade to the 8 Mbps cable modem service tier.
Comcast and other operators are also beginning to offer games-on-demand—a service sometimes uncomfortably referred to as GoD. Comcast's GoD service is powered by Exent Technologies.Competition: More than a game
And if there is one compelling reason why more operators will get more involved with providing games soon, it's this: some of cables' rivals have recently begun pushing games.
EchoStar is adding a new pay-to-play games service called DishGames featuring casual games that EchoStar is sourcing from PixelPlay. RCN Corp., also in partnership with Exent, offers a subscription service called RCN InterAction that offers 150 PC games for downloading for $14.95 a month.
Verizon launched its Verizon Game Network (VGN) last September. GameSpot manages on-demand downloads to subscribers' PCs, while Exent provides a game streaming technology. VGN has three GoD packages, with subscription fees running from $4.95 a month to $14.95 a month.
Verizon is also promoting the speed of its FiOS network with a series of game tournaments. It began a Half-Life 2 Deathmatch tournament in June that will conclude at the end of this month.
Finally, companies like Microsoft and Intel are looking to cozy up to consumers' TVs with "media" devices, and if they shove aside the set-top box, so be it. Microsoft is attempting this with its Xbox game console, and Intel is doing it with its Viiv line of PCs. Like Verizon, RCN, Comcast and others, Intel is working with Exent to make Viiv machines play PC/console games on TVs.
Although game services will not make as much money as VOD, they are being driven by competitive forces. "One—you've got competitors coming in. Two—developers like Electronic Arts, Microsoft, and Sony are developing online games and portals. And three—for cable it's a great out-of-the-box experience. It's a fun, free, easy way to click on the set-top box. It's great training for other interactive applications," Lam explains.
"We believe just as cable got involved with movies, it should get involved with games," adds Nick Mellios, CEO of GoD provider Yummy Interactive. Yummy is able to track usage and playtime on its games, so that service providers could even set up gaming as a metered service.
Others note that subscribers could easily end up racking up enormous bills on a metered game service, so that approach should be taken with caution.Choosing your targets
The most attractive audience might be hardcore gamers, usually males 18-to-24 years old. This is a group highly valued by advertisers, especially because there are so very few other avenues to reach them.
But it's an error to target only that group. Half of all gamers are women, according to Yoav Tzruya, COO of Exent Technologies. More than two-thirds of all teenagers play video games, and though rates drop off through successively older age groups, they don't trail off nearly as severely as generally expected. Half of all 25- to 34-year-olds play, and more than a third of those who are 50 years or older do as well.
"Gaming is mainstream. If you assume it's just 18- to 24-year-old males, that's the wrong model and you'll build the wrong offerings," Tzruya said.
The right offerings include a range of games and game types. "You cannot educate the market with just premium games. I doubt cable TV would have been successful if at first only HBO was available. You need to have free content too," Tzruya said.
That starts with free games—typically a selection of casual games. A free casual game service also serves as a retention tool, whether it's on the PC or on the TV. Free games can also act as an appetizer, whetting the appetite for games customers have to pay for.
Free game play is especially important in the U.S. because American operators cannot offer gambling, which has fueled the immense popularity of game services in Europe and elsewhere.
U.S. operators might have a way around that with an approach Buzztime has used for years with its trivia games in bars and restaurants. The service operator could reward game players with points that can be redeemed for prizes or services.
Playing for points is less compelling than straight gambling, says Libkind, but it could still be a viable approach. Libkind notes that the legality of playing for points that can be redeemed for prizes on a service provider's network is still being investigated.
The ultimate goal remains getting PC/console games on the set-top. Tzruya says Exent is working with several set-top box manufacturers (which he declined to identify, but one can assume they are among the usual suspects) to figure out ways to make STBs capable of playing more sophisticated games.
Tzruya says STBs can run PC/console games with the addition of a modest amount of hardware at a modest cost, and that such boxes are imminent. Some of the next generation of STBs "will be able to participate in providing a high-end, 3-D videogame experience," he says.
Buzztime's experience with cable operators shows that casual gamers like playing in groups, and they like playing with others. The Buzztime Channel is making good use of the upstream afforded by cable by allowing geographically dispersed viewers to play with/against each other in trivia contests, and in games like billiards and Texas Hold 'em poker.
As much as the cable industry needs to match its competitors' package of services, MSOs prefer to out-do their rivals. In comparison to the DBS companies, cable still has a more robust back-channel, and STBs better suited to hosting games. However, that edge might be leveled off, as EchoStar's and DirecTV's relationships with satellite-based broadband service provider WildBlue mature.
Cable might have less of a technological advantage over the telcos' FTTx networks. But there is an opportunity to excel on a service level, Exent's Tzruya says. Value can be added by doing more than just providing access to game titles (what Tzruya derides as the catalog approach).
An example of a company trying to go beyond that is Turner Broadcasting, with its GameTap service, which not coincidentally is also enabled by Exent. Turner is providing content that is complementary to games (played on the PC), including features, game tips, game information, upcoming release dates and more.Follow the money
Even if MSOs find they cannot charge for casual games—and even if they offer PC/console-type games for free—there are still opportunities for selling advertising. In fact, advertising could be the key to the success of a gaming service. By one estimate, over 50 percent of the revenue brought in by casual games today comes from advertising.
Beyond traditional ads, however, is a more flexible option: product placement. Billboards and signs can be part of the landscape within a game environment, and it's possible to insert products, as well as put logos and messages on in-game objects.
Game companies can build advertisers into their games. Buzztime, for example, designs its games with ad opportunities in mind. But Exent has a technology that allows service providers themselves to insert product placements into games, of both the casual and PC/console sorts.
Yummy's Mellios suggests an alternate revenue stream could be built around providing expansion packs to PC/console games. Service providers could offer new levels, characters, weapons, and other objects.
In the meantime, though, Exent's Tzruya recommends cable operators take advantage of the broadband speed advantage they now enjoy over DSL competitors and start facilitating the downloading of high-end games to PCs to attract hardcore gamers now, because that advantage won't last too much longer.Generating a quality experience
On the hardware side, operators will have to create some new rules for their policy servers, and if they don't have policy servers, they'll have to investigate installing some. Hardcore gamers playing multiplayer online games have zero tolerance for dropped packets and network latency. Policy servers, in tandem with the PacketCable Multimedia (PCMM) architecture, could be made to to manage game-related traffic on cable networks.
Some game companies aren't waiting for service operators and are seizing that bull by the horns themselves. Yummy recently cut a deal to combine its games platform with PCMM-qualified policy servers from CableMatrix Technologies. The combination allows users to initiate play while additional content is downloaded in parallel from the broadband service provider's portal. The policy server minimizes interruptions resulting in an enhanced, seamless, on-demand gaming experience.
Things are moving fast, and though the cable industry has an opportunity to excel at providing gaming services, they might not be able to dither about it. For example, people are already using mobiles phones to vote on American Idol or to predict what the quarterback will do next in NFL games—and cable companies are getting nothing out of that process, Buzztime's Lam notes.
"If you integrate mobile with the set-top and put it all on the TV, that's the best experience you can get," he says, "but game companies are not going to wait around for the cable industry to make things happen."