When it comes to broadband gaming, it looks like the cable industry will be playing for keeps.

Exent's delivery platform
Exent's delivery platform powers around
2,000 high-end PC games including the three
shown: Civilization III, Prince of Persia
and Serious Sam.
And why not? It's pretty much consensus among industry analysts that the online gaming market will blow up (in a good way) over the coming years.

Accounting for $353 million in subscriptions and sales revenue in 2003, the market will triple to more than $1 billion by 2008, forecasts the Yankee Group, in a recent study. Throw in advertising revenue and the figure could approach $4 billion, says research firm InStat/MDR, a sister company to CED.

That's hefty growth for a sector that's quickly shedding its label as a niche market, and it's no surprise that cable operators are positioning themselves to grab a piece of that pie. Armed with high-speed pipes and a gaming-friendly PacketCable Multimedia (PCMM) architecture looming on the horizon, it's fair to say that cable definitely has gaming on the agenda.

"Collectively, we have a lot of interest in the [gaming] segment," says Michael Lee, vice president of strategy and development for Canadian MSO Rogers Cable. "It's natural for us to be in this business."

Rogers offers a gaming service to its broadband subscribers via a portal partnership with Yahoo!. The arrangement gives Rogers high-speed customers complete access to Yahoo! Games, a package that includes an array of free casual titles and a range of higher-end subscription and premium products for powerful PCs.

Rogers Cable / Yahoo! powered portal
Rogers Cable’s games service comes
courtesy of its Yahoo!-powered portal.
Lee says it's too early to judge the customer reception or the revenue potential for the service, but his company has "high hopes." He added that Rogers is working with Yahoo! and other segments of the industry to determine how to expand its gaming service to accommodate the market's potential.

Many other operators, including those that offer gaming services and those that don't, are at a similar point–examining the market and formulating strategies.

Lee expects the cable sector to start realizing the potential for gaming by the middle of next year and for more widespread deployments to follow. The time is ripe, he says, for cable to jump into gaming as broadband subscriptions reach critical mass and networks are better designed and more efficient than ever before.

Variable targets

But what form the market will take when it manifests isn't so clear. There are many different ways providers can make money off gaming services, and a near equal array of demographics to which they can appeal.

The average console gamer, for example, is a male, age 26. The average casual Internet gamer, by contrast, is a female, age 38–this according to Michael Goodman, senior analyst for the Yankee Group. And let's not forget the kids and their particular affinity for gaming.

In terms of the way MSOs can sell their services, there's the direct, games-on-demand option, which so far has been the mode of choice for providers such as Rogers, Comcast Cable and RCN. There's also the potential for partnerships with console makers such as Microsoft (Xbox) and Sony (PlayStation 2). Most MSOs at this point offer broadband services compatible with the Xbox Live service, explains Jennifer MacLean, director of sports entertainment and gaming at Comcast. With PCMM, however, cable providers can do one better, guaranteeing quality-of-service (QoS) to gamers... for a price.

Most likely, the market will grow to encompass all these options on some level, because they each afford the provider unique opportunities, MacLean says.

On-demand and subscription gaming

Comcast has been taking the games-on-demand route for more than a year now, launching its initial offering in July 2003 via a partnership with RealNetworks' RealArcade service. RealArcade is a desktop client that manages and aggregates a variety of games. Its library consists of around 80 Web-based titles, and 240 that can be downloaded and purchased, according to Paul Delzio, RealNetworks' senior director of broadband systems and solutions.

Cablevision set-top games
Cablevision runs a set-top games platform
for its iO digital service customers.
The service, already on board with Comcast and Cablevision Systems (and with two more "major" MSOs coming soon, Real executives promise), targets casual gamers. The early results show that it is catching on.

MacLean says Comcast RealArcade has received hits from "hundreds of thousands" of users in its first year of availability.

But Comcast hasn't stopped there. In May, the MSO broadened its games menu via a partnership with Exent, offering a range of higher-end PC titles designed to appeal to a market of more hardcore players on a subscription basis.

In this scenario, Comcast's partner, Exent, provides a special player that handles game downloads to customer PCs using secure digital rights management (DRM) technology. Exent's library consists of around 2,000 titles, obtained from agreements with publishers and aggregators. About 60, including games such as Civilization III, Dead Man's Hand and Neverwinter Nights, are available to Comcast customers.

Subscribers pay a monthly fee of $14.95 for access to as many games as they want. The games can be downloaded or streamed, allowing customers to play them almost immediately after beginning the download.

MacLean says the service has received a good reception early on, but would not provide specific numbers.

Yoav Tzruya, vice president of products and markets strategy for Exent, says the service's typical penetration rates are 2.5 to 3 percent if it is marketed as a premium service, and jumps to 8 percent if it is packaged as part of a service bundle. As the numbers indicate, bundling the gaming service can bring providers a considerably better return.

It's always easier to persuade consumers to purchase a service when it's less obvious they're paying for it–hence the difference between gaming as an integrated part of a consumer's cable bill and gaming as a separate bill altogether. "The ability to bundle is another opportunity that shouldn't be understated," explains Sharon Wienbar, a director with Bank of America's Venture Partners.

Currently, Comcast offers games-on-demand as a premium service. RCN, another Exent partner, has taken the integrated route. RCN's interACTION Games service, launched in March, offers subscribers roughly the same number of titles as Comcast with unlimited availability for a monthly rate.

Elad Nafshi, the company's director of Internet and phone product management, would not reveal revenue figures or penetration rates for the service since its introduction, but says RCN is "very pleased with the results."

Exent's Tzruya shed more light on the revenue potential of the service, noting that profits are driven in one of two ways: hands-off or turnkey.

In the hands-off approach, Extent licenses its platform for a fee and the provider handles all the work beyond that, including setting up the interface and reaching agreements with content publishers. In that case, publishers usually take an approximate 40-percent cut of the profits accrued by the service, and the broadband providers get the rest.

In the turnkey approach, which is used in some variation by both Comcast and RCN, Exent provides the platform and the content and does the additional work needed to set up and manage the service. In return, Exent gets 100 percent of the end-user fees, and in commission and royalties, pays around 40 percent to publishers and 20 percent to the providers–and possibly more if the provider takes on more responsibilities.

In addition to profit, games-on-demand services also provide operators with an important differentiator that can reduce churn and encourage customers to use their high-speed connections more and perhaps push them to upgrade their service levels, Tzruya says.

Nevertheless, Tzruya admits online gaming is still an early-stage market and is afflicted with the problems typical of that status. Among the issues: content publishers remain reluctant to make all their titles compatible with the service and possibly damage their off-the-shelf retail efforts, and broadband providers aren't doing all they can to advertise it to users.

RCN's Nafshi says that situation will ease as more operators start offering services–with competition feeding the market's growth.

"If you look at the digital transition of gaming, it's like VOD five years ago," he says. "Piracy is a great concern, [as is] cannibalizing established traditional distribution networks." But, like VOD, "usage drives content, and content drives usage," and the content will come when the subscribers come calling for it, Nafshi says.

PCMM: Injecting QoS

One development that might spur more MSOs to take an even more active role in gaming services is the impending introduction of PacketCable Multimedia.

Conceived specifically with the IP-services revolution in mind, PCMM taps the DOCSIS layer to inject QoS. It works by allocating bandwidth to users based on specific applications. In the case of gaming, users with access could jump on a high-bandwidth title, and the server, in turn, would recognize the initiation of the gaming session and reserve what's required to create a latency-free session.

With the emergence of VoIP, games aren't necessarily first and foremost on the MSOs' agendas today, but they will be a "very important app in this space," says Ed Delaney, vice president of business development for Camiant, an emerging policy server vendor. PCMM, he adds, will be a "big differentiator for cable because DSL can't offer this service."

It also opens up a whole new area of revenue potential for the market by allowing cable operators to effectively sell bandwidth by guaranteeing QoS. Bandwidth is really the fuel for online gaming–particularly high-end games–and an adequate supply of it can make all the difference in terms of the smoothness of a gamer's experience.

In this case, cable operators could get a slice of the gaming pie without offering content-based services of their own. Instead, they can fortify the online gaming experiences already offered over the Web by giving customers a better, more adaptable pipe.

Companies such as Ellacoya Networks and Camiant create platforms that analyze bandwidth usage for more efficient structuring of the network. They are next applying the PCMM platform in order to expand the capabilities of their products.

Ellacoya, for example, has developed a PCMM-based Multimedia Service Manager (MSM) that plugs in as a software module to its existing 16000 and 4000 Series Switch platforms. The platforms give operators additional visibility and control over the traffic in their networks, and when the MSM is installed, they also enable the PCMM QoS functionality for dynamic control of bandwidth.

Ellacoya's MSM also improves the PCMM capability by adapting it to work with peer-to-peer services, notes Benoit Legault, Ellacoya's vice president of marketing.

Classic PCMM, he explains, is designed for server-based content delivery, signaling a DOCSIS QoS request via an application manager to a policy server, which in turn signals the cable modem termination system (CMTS) to provide the requisite bandwidth.

But peer-to-peer applications, such as Xbox Live, for example, don't use servers and thus pose problems for the classic PCMM set-up. Ellacoya's MSM solves these problems, Legault says, by becoming an application manager "that works for any application," auto-sensing the peer-to-peer applications as they come off the network.

Ellacoya's PCMM implementation isn't out on the market yet, but will likely begin market trials this fall with broader deployments occurring next year, Legault says.

At that point, he expects operators will be ready to offer game-specific tiers of service. "High-end gamers spend $60 to $75 per month on stuff other than gaming consoles," he says. "These folks will be ready to pay $5 to $10 per month to make their experience better."

Goin' casual

Although PCMM will place a focus on high-end games, more casual titles will certainly play a role in cable's gaming future.

To get an idea of the sheer breadth of the casual games' market, consider that anyone who plays computer solitaire is a casual gamer, as is anyone who plays games on their mobile phone.

"That's the low-hanging fruit for cable," says Goodman of the Yankee Group. "Low bandwidth, low stress, simple to learn, difficult to master."

Adds Wienbar: "The economics of producing casual games are quite compelling. The highs are not as high, but the lows are not as low, and the overall return is very good."

Another enticing aspect of casual games is their ability to adapt to a range of platforms. They can be a profitable offering served up traditionally over the PC, but they can also conform to a set-top environment.

The set-top presents an interesting forum for games, because consumers can access them with a simple click of their remote, and play them from the comfort of their couch, without having any need to get up and turn on the PC. Set-top games also offer a competitive advantage over DSL providers.

Schematic / Xbox
Schematic partnered with Xbox to design
the interface for its arcade platform.
Cablevision recently launched a set-top gaming service for its iO digital cable subscribers. The service, developed with the help of interface-designer Schematic, offers a range of casual titles for $4.95 per month. Schematic is working on a similar interface for an Xbox Arcade service, which will offer casual games on the Xbox console.

ICTV Inc. also markets a casual games platform for cable set-tops. According to Peter Schultz, the company's director of solutions marketing, its HeadendWare platform works with 80 percent of the casual games out there without modifications. The only trick, he says, is screen size and that the game needs to be navigable with arrow keys.

ICTV's product has been slow to be adopted by MSOs, but Schultz says he's optimistic for the market to come. "It's going to be worth it to the cable providers," he says, adding that it will be easier to reach casual game consumers through their TVs.

Schematic President Richard Titus envisions the set-top as a viable platform for hardcore gamers, as well, with the potential for facilitating new massive multiplayer online games (MMOGs). "I picture a world where an 'Everquest' on a set-top could be a very compelling experience," he says, referring to the hit from Sony Online Entertainment.

There are still questions about how much revenue casual games can generate. Casual gamers, though perhaps a larger demographic, aren't as willing to shell out the big bucks for games as their hardcore counterparts.

Case-in-point: Since the introduction of RealNetwork's RealArcade service a little more than two years ago, around 100 million demo versions of the games have been downloaded, but only around 2 percent of those have actually been purchased, Delzio says.

Nevertheless, Wienbar says the profits are there to be had, whether through $5-per-month subscription models such as Cablevision's, or through games that are free, but advertising-driven.

Of course, that isn't to say MSOs should pick casual games over hardcore–or hardcore over casual. As Rogers Cable's Lee says, they are two distinct markets. "You don't graduate from Scrabble to Grand Theft Auto."

Ultimately, how MSOs adopt and evolve their gaming strategies is still up in the air, as the market remains deep and complex with numerous tangents to pursue.

What's more clear is that online gaming is primed to take off with or without the help of MSOs. So the cable industry can either sit back and give up its pipe without taking a cut, or–via PCMM or games-on-demand or casual games or some other innovation–jump in and help itself to a piece.