Fun and Games

Image provided courtesy of Microsoft Corp.

In a move to drive demand for their local broadband access and potentially upsell customers to higher tiers of service, key telephone and cable companies are working to expand their roles in the growing online game arena.

More than a handful of public network operators are co-marketing Microsoft Corp.’s Xbox Live online game service, which allows subscribers to play games with each other, talk while they play using the Xbox Communicator headset, and download new content to enhance their games. Those co-marketing efforts likely will be expanded in the near future. Meanwhile, Cox Communications Inc., for one, is testing a cable modem access/home networking service with Xbox Live and related support for the service offered as part of the bundle.

Michael Mott, Microsoft’s business development manager for Xbox and Xbox Live, says his company wants to make it as easy as possible for the 9 million owners of the $179.99 Xbox consoles to purchase Xbox Live and high-speed access for the broadband-only online game service. Just before the launch of Xbox Live in November 2002, Microsoft announced 10 U.S. and three Canadian broadband service providers would support the Microsoft “Xbox Compatible” program. Xbox Compatible broadband service providers announced at the time included Bell Canada, BellSouth Corp., Charter Communications Inc., Comcast Corp., Cox, EarthLink Inc., MSN, Qwest Communications International Inc., Rogers Cable Inc., SBC Communications Inc., TELUS Corp., Time Warner Cable’s Road Runner service and Verizon Communications. Service providers that participate in the program test Xbox Live to ensure it works well over their broadband connections and document that information; and Microsoft educates participating service providers and their customer support people to answer Xbox Live subscriber questions.

As part of this program, companies like SBC have been hawking special promotions tying Xbox Live in with their high-speed access services. For example, SBC recently had an offer in which customers who signed up for one year of SBC Yahoo! DSL and picked up an Xbox Live Starter Kit received a $50 rebate from SBC. Microsoft also plans to release two-month trial cards for Xbox Live. Motts says some service providers may distribute these trial cards to broadband subscribers.

At the same time, Mott says, Microsoft and its partners are looking at how to get customers to climb the value chain — possibly to a higher tier broadband service and/or by adding home networking services, which could include Xbox and Xbox Live installation and support. He says the goal simply is to offer more full-featured services to customers for the benefit of both Microsoft and its broadband service provider partners. Microsoft does not intend to ask broadband service providers for a cut of their revenue related to Xbox Live nor is Microsoft in the position to give anyone a percentage of its online game service subscription fees, he adds.

“I’m focused on actually providing a middleware solution that lives between the service provider and the game publisher,” says Mott. “We are looking at and saying ‘What are the valueadded services we can deliver between the game publisher and the subscriber?’ And we are working in concert with the service providers on this.”

As mentioned, Microsoft and Cox worked together on a home networking trial in the northeast. “We may or may not offer that nationwide as a service,” says Ray Starbird, manager of product development for Cox. He adds in this trial Cox accepted the first call related to Xbox Live customer connectivity concerns.

Microsoft also was set to launch a comarketing trial last month with Comcast Corp. in the northwest, says Mott, who would not provide further details on that trial. Microsoft also has launched new co-marketing discussions related to customer acquisition with Charter, Verizon and a few other service providers, Mott adds.

“We think online services will change games,” says Mott. The worldwide game business, including sales of consoles, games and online services, today accounts for $20 billion in revenue, Mott adds. “If we can grow it by just a couple percentage points, that will be a good thing,” he says.

Of course, Microsoft Xbox and Xbox Live compete with the Sony PlayStation 2 game console. However, on the online game front, Sony basically just sells a converter to online-enable the games and lets publishers define what kind of customer experience they want to deliver, says Mott. Sony didn’t respond to xchange’s requests for an interview for this story.

However, service providers, such as Cox, are working with Sony on online games. Cox’s Starbird says Sony Computer Entertainment America and the cable company have allied to show customers the benefits of online gaming with PlayStation 2. Cox and Sony also are collaborating on how to address online gamer concerns, if users run into problems but are unsure whether those problems are due to the game console, the games or the network connectivity, adds Starbird.

Broadband providers at some point also might consider hosting games or game-related content on servers within their own networks to deliver console- or PC-based gamers games on demand with relatively low latency. “We haven’t done that yet, but when traffic dictates, we can,” says Starbird of Cox. “The network works well for gaming now. But we’ve had the discussion with several companies about the possibility of hosting games on servers in our network.” Online gaming, Starbird adds, “is a tremendously large and exciting market, and we already have a seat at the table by virtue of offering [broadband] access.”

Consulting and research firm In/Stat MDR estimates that by 2007 the online gaming revenue related to Sony PlayStation and Xbox alone will account for $600 million (not including the cost of consoles, which is forecast to be a $650 million business by 2007). The broadband providers won’t get a cent of that new revenue unless they play a more significant role in gaming, says Eric Mantion, senior analyst with In/Stat MDR. “So the issue comes down to [the fact service providers] need to get in the game,” he says, whether they partner with a company like Microsoft to put licensed Xbox servers on their networks or work to make other inroads with these often high-volume users.

Mantion says there are about 32 million online gaming participants in the U.S., although not all of them are subscribers to an online game service. Online game playing also is “exceedingly popular” in other parts of the world such as Japan and Korea, where an online game known as Lineage has at least 4 million subscribers.

Mantion explains there are three basic forms of online gaming: console-based games that tie into services like Xbox Live and online PlayStation 2 games (the top online game in the U.S., says Mantion, is Sony’s EverQuest with 450,000 subscribers); massive multiplayer online games in which subscribers typically pay a monthly fee to participate in games that often involve roleplaying;

and generic PC online gaming (like Unreal,War Craft and Counterstrike), some of which rely on subscription-based services. Yet another form of online gaming happens when people play simple games like Tetris or checkers that are available online for free, says Mantion.

While more games have come available over time to appeal to a larger audience (consider all the games for young girls, for example), most online games seem to attract lower income, males. Mantion says households making $35,000 or less are 50 percent more likely to be involved in gaming than households with higher incomes. However, Mantion says online gaming will flourish even in tough economic times. “Normal gaming is like a book — it’s predetermined,” he says. “Online gaming is like going to a bar or going to a park. You buy the game once and then you get to play it a lot more” and the different players and downloadable enhancements available through online game services make the games seem new every time. Mantion says that makes online gaming a relatively good entertainment “investment” that can be much more affordable than, say, going to the movies.

Speaking of the movies, gaming also is getting new energy from new flicks like “The Matrix,” adds Mantion. While many game reviewers rated “The Matrix” game as mediocre, he says, the game sold about 1 million copies in its first week of distribution.

Even the U.S. Army is involved in online gaming. This branch of the armed forces has been using the online game America’s Army at www.AmericasArmy.com as a recruiting tool, with 1.2 million players recorded to date, says Mantion. “It is a stroke of absolute genius,” Mantion says. “It is the best, most cost-effective recruiting tool ever used.”

Moreover, Mantion says the movies and Army examples of gaming haven’t even scratched the surface of how online games can be used for promotional purposes. Over time, Mantion predicts a shift to advertiser-supported online gaming. This movement got an early shove when Intel Corp. and McDonald’s each paid undisclosed amounts to get product placement within the Sims Online game, he says.

It won’t be long until companies like Ford Motor Co. dealerships begin distributing driving games based on specific automobiles, as one possible example, says Mantion. New gaming middleware will allow customized games like this to be built on the cheap — with as little as a $4 million investment, says Mantion.

A move to ad-supported gaming also could enable online game service providers to abandon monthly charges completely, instead relying on advertiser dollars as their main source of revenue. That, in turn, could make online gaming much more attractive to a wider audience, driving new usage on the network. Free access to these games also could require players to first provide personal information that could be used by advertisers to target marketing, Mantion adds.

Beyond all this, Microsoft’s Mott also notes there is “a lot of conjecture” about how gaming consoles in the future will tie in with music and other video sources to deliver entirely new services, but adds “it’s way to early to talk about that.”