Cable's cool to hot games: MSOs take it slow even though games like EverQuest attract players and generated revenue

Cable World,  Feb 5, 2001  by Richard Cole

• E-mail
• Print
• Link

It doesn't sound possible. At least 300,000 people pony up $25 to $50 each for a game on compact disc. Then they pay an extra $10 a month to use that CD-ROM to go online and play the game with fellow fans.

Yet that's exactly what Sony has done with its wildly popular EverQuest role-playing game. Throw in Electronic Arts' Ultima Online with 200,000 participants and the other multiplayer "men in tights" games, and an estimated 1 million people in the United States are paying to play online monthly to a tune that Forrester Research projects will hit $1.6 billion this year.

Nothing better underscores the potential of the $20 billion-a-year interactive gaming business, a figure projected by DFC Intelligence to grow to $30 billion or more during the next five years.

Cable operators, so anxious to invade the video store and push into phone booths, have been taking a wait-and-see attitude toward the video game arcade, despite what looks like a rich revenue stream.

So why aren't cable operators rushing to embrace what looks like a sure cash cow?

You'd think Time Warner Cable, for one, would be plunging into the creation of an interactive game channel.

After all, the MSO already knows how popular games can be. It tested interactive games on its Full Service Networks in Orlando, Fla., in 1995 and 1996 and helped create the ill-fated Sega Channel, which spokesman Mike Luftman says was ahead of its time.

Yet gaming is not even on its agenda for 2001.

"Interactive gaming is something that is very attractive to customers, but right now our focus is on our movies-on-demand business, which we're in the process of launching," Luftman says. "We see the interactive gaming business as coming on a little later down the road."

Instead, Time Warner Cable is more than happy to let new parent America Online handle interactive gaming. It's an area AOL itself has struggled with, turning its gaming channels over to Electronic Arts' EA.com.

Gaming isn't a complete no-brainer. Just ask Sega, which last week said it was slashing prices and phasing out production of its Dreamcast console in the face of overwhelming competition from PlayStation and the coming Xbox from Microsoft.

Sega also signed a deal last week with British set-top box maker Pace Micro Technology to create an on-demand system that would download game software to a hard disk in a unit that would also include a personal video recorder.

Andrew Wallace, Pace SVP-worldwide marketing, says the box was originally designed for cable, but the company decided to broaden its use to datacasting. So far, no MSO on either side of the Atlantic has shown interest in the box, which won't be available for at least a year.

Nevertheless, many executives at computer manufacturers, Web sites and tech companies tout games as the shortest path to profitability.

Games have evolved into the strongest force pushing young consumers to the Internet, with 22 million Americans 18 and younger citing gaming as their chief reason for going online.

Advertising for online gaming Web sites alone will hit $150 million this year, The Yankee Group reports. Consumers bought 6.4 million video game consoles last Christmas season, just behind the VCR as the most sold electronic device.

"Gaming is the No. 2 most popular application for the PC" after general Internet use, says Michael Goodman, senior analyst for The Yankee Group.

Once gameplayers go online, a desire for better interactivity leads in an obvious direction -- broadband, says Jeff Brown, spokesman for top game producer Electronic Arts.

"We think it's coming. We think consumers will like it, and we think gaming will be the killer app that gets people to go for broadband," he says.

This despite Electronic Arts' reluctance to put its eggs in the broadband basket, which it does not expect to grow as quickly as many others in the industry insist.

Electronic Arts does believe in online games at any speed. The company's CEO John Riccitiello boasts that by this summer, online games that plunge players into cyberworlds where they can virtually exist, marry and die will "start to look like legitimate competition for TV."

While few naysayers expect the interactive gaming bubble to burst, experts have a hard time agreeing on where it will ultimately find a home -- the personal computer, game consoles, online servers or interactive television.

For the moment, console games have surged to the fore, taking about 75% of the market, in part thanks to the push for Sony's PlayStation 2 and hype over Microsoft's upcoming Xboxand Nintendo's GameCube, both of which are due later this year.

Consoles have a big advantage over the competition -- people will pay for them. A recent report from Cahner's In-Stat Group estimates sales of game consoles will nearly double by 2004, with online gaming posing little threat to the console-based gaming market.

"In most consumer homes you're going to TV for entertainment and a PC for productivity," says David Cole of DFC Intelligence, adding that people are reluctant to shell out hundreds of dollars more for either just to play games.