Gamers looking to hit the jackpot online

By : |December 28, 2000 0

Timna Tanners

LOS ANGELES: It may be all in fun for online video game players, but
cyberspace is serious business for the leading developers.

Top developers are betting on huge returns from online gaming, with the most
optimistic forecasts expecting almost a quarter of all games will be played
online by 2002.

It makes sense. Surfing the Net or playing games is already a key pastime for
millions of households, and Forrester Research has predicted online games will
attract more than 18 million players by 2001, with revenues exceeding $1.6

The top developers, however, have different strategies.

Sony Online Entertainment and Electronic Arts aim to draw serious gamers as
well as casual Web surfers to their sites and charge monthly fees for more
sophisticated games.

Electronic Arts, whose Ultima Online role-playing game has proven to be a
hit, has a comprehensive site planned to lure gamers with parlor card games and
free demos.

Smaller competitors like THQ Inc., have a more modest approach and are eyeing
wireless gaming, while Activision Inc. so far is sitting on the sidelines.

“No one’s figured it out yet, the killer app (application), the model.
It’s virgin territory,” said Brian Farrell, president and chief executive
of Calabasas Hills, Calif.-based THQ.

Make-believe worlds
Not all of the top game makers are convinced that online gaming will meet the
most optimistic forecasts.

Activision chief executive Bobby Kotick sees games requiring more widespread
high-speed Internet access – more bandwidth in more homes – to make it in the
mass market.

“For us to get enthusiastic in terms of the mass market is not going to
happen until 2004. There’s not a big enough installed base (of high-speed
Internet access),” he said in an interview earlier this year.

Some of the success stories so far have been the online virtual worlds
dominated by Dungeons-and-Dragons style medieval worlds. Gamers on average play
for 20 to 30 hours a week and pay monthly rates of almost $10., majority owned by No. 1 independent game developer Electronic Arts,
has about 200,000 players on its role-playing game called Ultima Online.’s next move is to offer online spin-offs of its hottest-selling PC and
console brands, charging monthly fees. Sport games will be available online in
early 2001, followed by an online thriller called Majestic, and The Sims, in
which gamers create and play with characters they control.

As proof of the competitive nature of online gaming,’s 4-year-old
Ultima Online game already has been overshadowed by more popular upstart
competitor EverQuest, launched in February 1999 by Sony Online Entertainment.

The division of giant electronics and entertainment company Sony Corp. was
built mostly around its acquisition of the EverQuest creators. The game has
300,000 members and has developed a cult following, with thousands of characters
and items on sale at Web auction site eBay, for as much as $3,500.

“We think EverQuest has been as close as you can get to having a killer
app in such a fragmented market,” Sony Online Entertainment Chief Executive
Kelly Flock said. “We believe a lot of the hard core gamers have fallen by
the wayside and we’re seeing more first timers.”

The game has been making money, but Sony Online Entertainment has been
reinvesting most profits.

Sony Online has also announced, with LucasArts Entertainment Co., the
formation of a virtual “Star Wars” world, to be unveiled in 2002.


Will they pay to play?
Despite some doubts as to the viability of monthly subscriptions online,
Electronic Arts chief financial officer Stan McKee is confident.

"I think we’ve proven when you build a community, it has stickiness and
people will stay and play and pay for it. I think the subscription model is
absolutely proven," he said.

Supporters of subscriptions point to how cable television has lured viewers
to pay extra for TV programming. Naysayers argue it is unproven online and
difficult for the traditionally young players of video games.

"The first thing that goes in a recession is magazine subscriptions.
That could affect the model," said Frank O’Connor, editor in chief of
online entertainment Web site

With players paying $25-$50 just to buy the software and then sending in
monthly fees, the virtual worlds might seem like cash cows. But these fictitious
medieval lands require modern billing systems, site maintenance and customer
service. They also require regular upgrades to keep "hard core"

But subscription fees have nonetheless proven that they can outshine
advertising revenues.

"Sony entered the business predicated on the assumption that advertising
revenues would be the model, and along came EverQuest and indicated an entirely
different model," Sony’s Flock said.

Yet advertising is still a mainstay with both traditional banner ads and TV
commercial-style ads as games download.

Have games, will travel
Firms also are mulling sponsorships, so logos and brands could begin appearing
on billboards during game play.

THQ is exploring a different revenue model, called WWF With Authority, using
its World Wrestling Federation (WWF) license and a virtual deck of cards.
Players compete with cards, challenge other players and can buy extra cards for
a fee.

THQ also is betting that online gaming will travel. The company already makes
games for mobile phones and recently signed a joint venture with Siemens AG.

"What we see down the road is a single device as a telephone, organizer,
for Internet access, and that can be used to play games," THQ’s Farrell
said. "We think simple games on wireless devices will be a huge
market."’s Mark Blecher disagreed: "At the end of the day, we think people
would rather play quality games on their PCs then small poor quality games on
hand-held devices."

(C) Reuters Limited 2000.

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