Casual gaming revenues to top $1 billion by 2013

Social networking and community features enable gaming companies to expand --

Online gaming companies should embrace social networking and community features as key strategies in continuing the rapid growth of the gaming market, according to international research firm Parks Associates. In its new report Networked Gaming: Driving the Future II, the firm forecasts the market for premium casual games will exceed $1 billion in revenues by 2013.

Parks Associates notes that social and community features can help companies in casual gaming expand beyond their traditional target demographic of women ages 35-54. Offering features such as a persistent identity and integration with social network sites allows companies to maintain their core audience while broadening their appeal.

Game companies should use social networks and gamer communities as marketing and distribution channels for their new and existing games. Gaming has proven remarkably recession-proof, so as companies try to capture subscriber dollars, these offerings will serve as differentiators in a very competitive market.

These features can also build gamer interest and loyalty among the growing number of free-to-play MMORPGs, which will include over 20 million gamers by 2013. The report recommends large game publishers should build cross-platform, gamer-centric networks. Online publishers should also leverage open-platform efforts like Facebook Connect and MySpaceID, allowing users to enter online gaming websites with their social network ID and share their online activities with their network of friends.

Networked Gaming: Driving the Future II analyzes a variety of networked gaming technologies and business models. The report includes company profiles, consumer data, and market forecasts.

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.

It's Official-Nexon Made $30 Million in the U.S. Last Year

I'm in San Jose busy preparing for tomorrow's Parks Associates workshop so I've missed all the live action in Austin. Many interesting articles based on various speeches and panels have been published by Gamasutra and other sites. One that caught my eye is on Min Kim's speech on the Free-to-Play market in the U.S.

I've heard rumors about Nexon's U.S. revenue for a while now and Min Kim went on record to confirm that Nexon's 2007 revenue in the U.S. was indeed $30 million, compard to less than $1 million in 2005, when microtransaction was almost a foreign concept to MMOs in the U.S.

"In 2005, Nexon America’s revenues were around $650,000. In 2006, when they added Paypal as a payment option, sales rose to $8.457 million, based on item sales. In 2007, once Nexon released its Nexon Cash cards to retail stores, revenue jumped to $29.334 million."

Based on my conversation with industry insiders, F2P, microtransaction based MMOs already represent a business worth $150-200 million in the U.S. Nexon is the leader, followed by companies such as Acclaim ($30 million 2008 revenue expected), K2 Network, Outspark, Three Rings, and many other players. Although the market is still much smaller than subscription-based models--WOW alone makes $0.5 billion in the U.S., the momentum is strong. Our consumer data already shows that among non MMO players, interest in a F2P/Microtransaction based MMO is 6 times more than that in a subscription-based MMO. There's no question Warhammer will do well, but it will mainly draw its audience from WOW alumni and dormant MMO players, not fresh blood.

Interest among developers is also very strong. "Min asked his Austin Game Developers Conference audience how many people were developing or interested in developing free-to-play MMOs -- and roughly 70 percent of the audience raised their hands." In addition, large publishers such as EA have also recently introduced F2P games to the western audience.

With a whole generation of kids growing up with F2P games and virtual worlds like Habbo, Webkinz, and Neopets, microtransaction may overtake subscription to become the predominant MMO model in the U.S. in the next five years.

Min Kim will be on my panel next week at the NY Games conference. I'll surely have my chance to grill him and spur some healthy discussion among my panelists, which represent companies from both camps.

U.S. MMORPG Companies Need To Offer More Free Games – Not Subscription Models – To Grow Market

Parks Associates Study Outlines Strengths and Weaknesses in MMORPG Market...

Massive multiplayer online role-playing game (MMORPG) publishers may have to start giving away playing time to attract more players into online role-playing worlds, according to Parks Associates’ Electronic Gaming in the Digital Home II.

This consumer study of 2,000+ U.S. Internet gamers found only power gamers are interested in subscribing to an MMORPG service, whereas social, dormant, and leisure gamers all show significant interest in a free-to-play, microtransaction-based model. The MMORPG market will be difficult to enter with a subscription model at this stage.

Fourteen percent of gamers not currently playing MMORPGs would be interested in playing if they could play for free. Only 2% of gamers from the same group were interested in adopting an MMORPG with the traditional subscription-based model. The good news for MMORPG companies is they can recoup their investment over time through microtransactions, where game publishers and operators make money through sales of in-game items.

The barriers to entry, in terms of time and money, are simply too high for many potential customers, according to Cai. “Free-to-play models offer flexibility, and players can choose how much they want to invest based on interest level and play patterns. Microtransaction models have the best potential to grow the U.S. MMORPG audience.”