Nearly one-fifth of active gamers in the U.S. spend money on virtual items

The gaming business is undergoing a major shift away from subscription models as virtual items become a larger part of its economy, reaching almost $6 billion worldwide in microtransaction revenues by 2015, according to international research firm Parks Associates.

Gamers are investing real money in virtual items in Farmville, World of Warcraft, and other online games, to the point they are filing lawsuits to establish ‘ownership’ of these virtual goods. The enormous player base, availability on multiple devices, and the introduction of instruments such as Facebook Credits contribute to growing revenues.

The Parks Associates’ new report Online Gaming: Global Outlook finds 19% of active gamers in the U.S. spend money on in-game virtual items. In contrast, subscribers to premium online game services decreased from 35% in 2008 to 28% in 2010. Publishers of social games, like Zynga, have seen revenues explode as larger percentages of their customers opt to pay for virtual items. The same trend is visible for massively multiplayer online games, where companies such as Nexon America have managed to reach millions of dollars in revenues from microtransactions.

It is becoming increasingly difficult to justify subscription fees. Thanks to social games and free-to-play MMOs, both casual and hardcore players have the option of playing quality games online for free. The virtual-items model that has proven so successful in Asia is finally generating significant revenues in North America.

GDC Online 2010 - The Short Course

After an exciting week at GDC Online, the online game developer's conference (Oct 5 – 8, Austin, Texas), I must confess that I am both exhausted (they are a very social set) and impressed with where the industry is headed. Although the misconception is still alive for some, online gamers do not all look like escapees from a Wayne’s World casting call. Au contraire; most online gamers look like, well, you and me. Depending on the gaming genre, you may now find yourself rubbing elbows with young professionals, stay at home moms/dads or your own middle-aged, albeit still youthful, parents while playing online (so...best to avoid too many in game discussions of your misspent youth).

It is a whole new world out there. And that world is getting bigger, thanks, in part, to online social gaming (who knew that virtual cows, crops or mob hits could be so much fun?) and mobile gaming. This is not to say that the traditional MMO is out, for there were many bright, shiny, new, beautifully crafted full-fledged massively multi-player games on display at the event. The graphics of these offerings were incredible and the game play was definitely designed to appeal to a wider audience.

It was an educational week for me and I am thankful to everyone who took the time to meet with us, offer an introduction or simply share their time. I am especially grateful to the other members of our panel, How Economic Context Affects Game Development from Start-Up to Grown-Up Companies, as well to the Canadian Consulate General Trade Commission that helped to put it together. I also appreciate the time and patience of the Metaverse Mod Squad group who were always on hand to answer questions and put things into perspective.

I am looking forward to the next gaming conference (E3, in June 2011), where I hope to add to the useful information garnered at this one, including:

• The mobile game development cycle is far shorter than the traditional game development cycle;

• Children are highly accomplished multi-taskers online; some having the ability to squeeze, on average, 11 hours of game play, social networking and media downloads into only 7.5 hours; and

• Game developers are oddly obsessed with zombies. Truly, they love unleashing them on other characters, sending them through obstacle courses, blowing them up, leaving them in odd places and giving them day jobs that require them to carry a briefcase in their cold, dead hands.

NY Games Conference

It's raining cats and dogs here in NYC and the presence of all the presidents from around the world makes the traffic even worse. I'm staying dry inside in the Jewish Museum of Heritage, attending the NY Games Conference. BTW, the President of Iran is staying at the Ritz, which is next door to the museum, how ironic.

I just finished my panel on Online Games and MMORPGs, which followed John Smedley's Keynote (John is the CEO of SOE-Sony Online Entertainment). During John's keynote, he showed a lot of the interesting stuff they are working on, including Free Realms and DC Universe. What is interesting about Free Realms is not just the target audience, which is a lot younger than the WOW and EQ players, but also the business models and openness of the game. It's free to play, microtransaction based. It's more akin to a gaming-centric virtual world than an MMORPG. RPG is just one of the element of the game-it does have quests, guilds, monsters to fight, etc. In addition, it also have a variety of other types of genres, including puzzle, card, chess, racing, hidden objects, and soon a soccer game. It's flash based and highly accessible. The launch date is January 2009. SOE started developing Free Realms in 2005, so it's four years in the making. John also stressed the high production value of the game and during my panel discussion, he revealed that now the team behind Free Realms is 70+. I asked about the development cost, he won't tell me a number but did say it's easily north of $20 million. Other interesting tidmits during his keynote:

• He showed two people getting married at an EQ Fanfair event in Vegas last year, which was hilarious. I believe he said SOE's CFO also found his love through EQ.
• He also mentioned that Vivox, the VoIP tool in EQ, is being used by more than 70% of the gamers.
• Station voice allows EQ players to dial in from a cell phone into the game through voice or text.
• John's a self-identified geek who grew up with Dungeons and Dragons.

Back to my panel. I had a great lineup.

• Fernando Paiz, Executive Producer, Turbine
• Jon Radoff, CEO, gamerDNA
• John Smedley, President, Sony Online Entertainment
• Matthew Bellows, VP, Consumer Strategy, Vivox
• Jonathan Strietzel, Co-founder/CCO, Big Stage Entertainment
• Min Kim, VP, Marketing, Nexon America

Some key takeaways:

• Freemium games really took off here in the U.S. in the last couple of years. Nexon along is $30 million last year just in the U.S. The popularity of Nexon Games really took off after cash cards appeared at Target last year. Many of the incumbents, including SOE, are also diversifying into other models, including Freemium. Microtransaction models, which account for about 15-20% of the MMO market in the U.S. today, might outgrow subscription-based MMOs in just a few more years.
• The kids space is getting crowed, with many Virtual Worlds and MMOs popping up. Channels, production value, service, and brands will be important differentiators.
• MMO companies, in addition to business model diversification, also need to cater to different demographics, not just the traditional players, who are more likely to be male and 18-34. Turbine and SOE both have 80% male among their existing players.
• Console will become increasingly important. All SOE games in the future will be both PC and PS3, and potentially other platforms. Turbine is betting on the console as well. Nexon is also examining the platform. SOE has modified its MMOs for the console so that the interface is more friendly for the game controllers. All the panelists agree that console will help expand the market, not cannibalizing PC revenue. They also agree that there won't be a cross-platform MMO between PS3 and Xbox 360.
• Maintaining a dual currency system, one earned, and one purchased, is very important for successful Freemium MMOs.

I'm trying to get some notes on the panel from the reporters and bloggers in the room. Stay tuned.

Warhammer Approaching 400,000 subscribers?

So I've been following the launch of Warhammer with great interest. It's heralded as the best MMORPG since WOW by gaming press. More than 1 million gamers played the Beta and EA shipped 1.5 million units to retailers. Judging by these numbers, the game has done quite well. Its Realm vs. Realm play appeals to many MMO fans. During launch, I got calls from several reporters covering the story. My key points were: 1. the game might be the most successful since WOW but nobody can really shake WOW's dominance; 2. Warhammer will mainly appeal to idle MMO players, not fresh blood; 3. The next wave of new MMO adopters will come from Freemium/Microtransaction-based MMOs. My stance hasn't changed.

EA and Mythic haven't announced any subscriber numbers. However, Gamasutra run a lengthy interview today with Mark Jacobs, Mythic's founder and GM and he leaked out some valuable information.

"Gamasutra: How are Warhammer's numbers?
MJ: We should figure it again, but as of [Thursday] night, we had more people playing the game at the same time in North America than we ever had in Dark Age of Camelot. We have the numbers now to back it up -- so it's not just, "Well, you guys had a nice head start."

No -- we now have more than Camelot ever had, by about 50 percent. That's a significant increase. When you also look at our downtime -- only one patch in almost seven days -- that's a pretty tough record to beat when you look at the launches of every other MMO, including WoW. Especially WoW.

Gamasutra: Can you give that figure?
MJ: No; publicly-traded company. Wish I could. But I can say it was about 50 percent higher than what we had in Camelot."

It's public knowledge that DAC had 250,000 subscribers at peak and the highest peak concurrent was around 50,000, plus or minus. I guess we could assume approximately 75,000 peak concurrent for Warhammer Online. Using a ratio of 1 to 5 PCU to players, we have approximately 375,000 players but using a 1 to 8 ratio, we have 600,000. Since it's a new game and most people are playing off the free month, the ratio should be on the lower end. So I guess it's realistic to assume about 400,000 or so are playing Warhammer Online. Comments welcome. We won't get these numbers confirmed by EA, since it's a "publicly-traded" company...

Big Fish Getting Bigger

Big Fish Games, a leading casual games company, today announced that it had acquired Thinglefin, an MMO developer also based in Seattle. More precisely, Big Fish is acquiring the team of talents, including company founder Toby Ragaini, who was the lead designer for Matrix Online and Asheron's Call, and co-founders Jeremy Friesen and Ryan O'Rourke, who worked on MMOs for Monolith and Sony Online Entertainment. Thinglefin was founded to develop a casual MMO game, which will be free to play, microtransaction-based web game.

Big Fish Games has been in super growth mode for the past two years and all the growth so far has been organic. Apparently company executives are trying to find some good use of the pile of cash they've accumulated from innovative games and business models. Big Fish Games is one of the few vertically integrated casual gaming companies in the space, with development studios, publishing divisions, and its own game portal. In our recent report, Casual Gaming Market Updates, we mentioned that the casual gaming industry is diversifying along several dimensions, including game genres, target audience, and business models. This will be a good acquisition for Big Fish. They cannot just rely on the traditional try-before-you-download and web-based advertising models, which are still growing and generating a lot of revenue for them, partially due to their new affiliate models and growing audience reach; they need to invest in new growth areas, such as f2p MMOs. Several f2p MMOs are already having success in the United States, including Korean exports such as Maplestory and local online gaming companies such as K2 Network and Gala-Net, which are importing Korean content. MMOs tend to have appeal among both male and female gamers, which will help Big Fish tap into new demographics. Also web-based f2p games are cheaper to develop and can grow audience very quickly due to its accessibility. In the post-WOW era, it has become extremely difficult to develop a competitive subscription-based MMO and f2p MMOs are becoming more popular.