Current Watch
Archive

 


E-business Watch
Tracking the online media to bring you the key e-business trends

September 15, 1999

Turning viewers into players:
 Computer games move into the entertainment mainstream

In the same way that personal computers were once viewed as a stand-alone technology, computer games have traditionally been perceived as an individual, somewhat isolating experience. However, like the PC before it, the computer game is re-emerging as a networked product, and the implications of this transformation will be felt across the entire entertainment industry.

Traditionally, computer game usage has been dominated by a small, but intensely loyal group of hard-core gamers. This demographic is quickly changing, however, as online games attract new, more casual game players. By enabling interaction between players, online games contain a more social element than their stand-alone counterparts. They also allow for a wider range of genres such as board games and trivia games.

These new players watch less television and fewer movies, shifting the balance in the entertainment industry. Already, the interactive entertainment industry, which includes PC games, video console games and online games, rivals the film industry in size. Revenues have increased by more than 25% in each of the last two years, reaching $5.5 billion in 1998 (all figures in U.S. dollars). Sales of video and computer games units increased by 35% in 1998 to 181 million units, the equivalent of two games for every household in the United States. In comparison, movie box office receipts only grew by 7.7% in 1997 and 9.2% in 1998.

  Who are the players?

43% of online gamers have been playing for less than a year
75% are over 25

40% have household incomes of more than $60,000
88% have at least some college education
Female game players are more likely than male players to play online (53% to 46%
Most popular online games: quiz & trivia (31% of online gamers), card games (24%), board games (22%), action games (19%)

Source:  Interactive Digital Software Association

Most of this growth in interactive entertainment has been fueled by traditional computer games. However, as online games begin to capture a larger share of gaming revenue they will only accelerate the shift away from more passive forms of entertainment. International Data Corporation estimates that there are 6 million households playing online games. Driven by the opportunities for collaboration and head-to-head competition, online game penetration is estimated to reach close to 20% of U.S. households with PCs by 2002.

Early ventures into online gaming have been remarkably successful. Online role-playing games such as Electronic Arts, Ultima Online and Sony's EverQuest have attracted large and committed audiences. In Ultima, a role-playing game, players interact with each other through the detailed characters they develop. These characters lead complex and surprisingly realistic lives in the medieval-based fantasy world -- fighting battles, opening businesses and attending social functions; some players even choose to have their characters marry. Ultima's 125,000 registered users average an incredible 19 hours per week online.

However, online games aren't just attracting those who are willing to devote several hours a day to a complex game. Most portals now offer their own version of free, java-based games that can be played in a shorter time. Yahoo and Microsoft offer versions of classic board and card games such as Chess, Backgammon and Hearts. Each attracts upwards of 20,000 on-line gamers at any one time.

Although the business models of online games are in their early stages, software developers clearly understand that their future lies in the development of online games. Of the 1900 new software titles unveiled in 1999 at the Electronic Entertainment Expo -- the industry's showcase event -- one-third featured online capabilities.

Traditionally, people gathered to socialize and play cards and board games. As the quality of online multi-player games improves, people are rapidly discovering new ways to socialize and entertain themselves. Game sites that can capitalize on this trend will grow to be become vertical portals, adding more ancillary services and e-commerce offerings such as e-mail, instant messaging and related entertainment products (all of which exist now). As today's youth -- those who have grown up playing video and online games -- mature, we should expect to see games move to center stage on the Web as they become central to the social lives of the next generation.

In the short term, it is clear that game software companies will continue to earn the bulk of their revenues from stand-alone products. However, in the longer term, few industries will benefit more from widespread broadband connections than the interactive entertainment industry. For on-line retailers such as Dell and Amazon, faster connections bring few benefits. For computer game developers, on the other hand, fast and reliable connections allow for real-time game playing in forms we are only beginning to understand. As the technology, bandwidth and products improve, expect to see on-line gaming, and companies that serve this market, take on new importance in the Web economy.

 

E-Business Watch is published solely for informational purposes and is not a solicitation or an offer to buy or sell any stock, mutual fund or other security. E-Business Watch does not attempt or claim to be a complete description of the markets or developments referred to in the material. All expressions of opinion are subject to change without notice. The information is obtained from sources which IEC considers reliable, but has not independently verified such information and does not guarantee that it is accurate or complete. The E-Business Watch is not intended as investment advice.