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  • In-game advertising continues to grow, but industry backs off meteoric projections

    In-game advertising, widely seen earlier this decade as the next big thing for marketers, has predictably felt the pinch of the recession.

    But while other forms of advertising have seen retraction in sales volume, and in some cases historic reductions, in-game advertising has experienced a slower but still existent growth curve.

    Estimates of the size of the developing market for in-game advertising vary widely depending on individual measurement agencies; there exists no de facto industry standard system of measurement. Consensus figures point to the market being worth $120 million to $150 million per year, up from $80 million two years ago. The meteoric projections of growing to $1 billion in total revenue by the 2010-12 time frame, however, are being scaled back.

    Barack Obama’s use of ads in video games
    brought extra attention to the industry.

    “The category continues to grow, but the clock is definitely being set back a bit on hitting that $1 billion mark. It may be another couple years beyond [2012],” said Jonathan Epstein, president and chief executive of Double Fusion, a San Francisco-based agency working extensively in in-game advertising. “But sports in particular still lends itself very strongly to in-game advertising given what’s happening out in the real world with sports and advertising.”

    Similarly, London-based market research firm Screen Digest is projecting a 2014 time frame to hit the $1 billion mark.

    Though the pace of growth appears to be slowing, in-game advertising hit a cultural touchstone last fall, when Barack Obama’s presidential campaign purchased ads in “Madden NFL 09” and several other Electronic Arts titles, with the ads served to connected consoles within 10 swing states including Ohio and Florida.

    A pre-election filing indicated the campaign spent less than $45,000 on the placements, but the small amount of marketing expense — representing a tiny fraction of the $250 million estimated to have been spent by the Obama campaign on TV advertising — garnered nationwide press coverage and a late jolt of affinity among younger voters.

    “It wasn’t necessarily a turning point for the industry, as the growth for in-game advertising had started long before Obama, but it definitely was a great moment,” said Jack Koch, head of marketing research for Massive Inc., the Microsoft-owned company that works with EA, among others, on in-game advertising sales, including the Obama buy. “That effort clearly showed the kind of effectiveness and recall that in-game delivers.”

    Much like more traditional forms of media, in-game advertising agencies are now pushing to expand their category reach beyond more traditional buyers such as automobile, soft drink and telecommunications companies. In particular, spending in the space by consumer packaged-goods companies has more than doubled in the last year, according to Massive research.

    In addition, advertising for gaming within browser-based games and social networks such as Facebook is quickly assuming heightened importance.

    “The big things we’re excited about now are placement in downloadable content, online gaming, tournament sponsorship and the like,” Epstein said. “These are things that are additive [to console-based gaming] and make the whole gaming space that much more appealing.”

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  • No licensing deal, no problem for publishers of these video game titles

    Quick Hit Inc., a Massachusetts-based startup developing an online video football game, doesn’t have a huge marketing budget, an established legacy among gamers or, perhaps most pertinently, a licensing deal with the NFL or players’ union.

    And that suits the company just fine.

    “Would I like to have a license? Sure, who wouldn’t? But that’s probably not going to happen,” said Jeff Anderson, Quick Hit chief executive, referring to the exclusive deal EA Sports holds with the league and union for “Madden NFL.” “But necessity is the mother of invention, and not having a license is definitely not the end of the world. We’ve constructed a very different experience and one we believe will resonate.”

    Midway’s “Blitz” football game is among the
    unlicensed titles to enjoy a strong following.

    The Quick Hit game, due to launch online in September, is a free, ad-supported game that seeks to provide a strong depth of football realism and easy-to-navigate play, though without any official player and team names. Rather, players will name their own squads, just as they would for a fantasy team. The company, formerly Play Hard Sports, has been buttressed by $13 million in venture capital financing and involvement from former Pittsburgh Steelers head coach Bill Cowher.

    The game is just one of a growing number of sports titles now entering the market without licensing deals with sports leagues and their players’ unions. Taking a cue in part from massively multiplayer online (MMO) games highly popular in Europe and Asia, the emerging titles without licensed intellectual property seek to succeed on a smaller economic model while still challenging their larger competitors.

    Among the other recent unlicensed entrants finding broad audiences are “Freestyle,” an online multiplayer street basketball game from South Korean developer JC Entertainment Corp. recently released in North America, and Midway’s “Blitz” football game. The “Blitz” brand garnered a sequel release last year and involved a writer from ESPN’s much-discussed “Playmakers” series and former NFL player Lawrence Taylor. The title, along with numerous other company assets, was recently sold to Warner Bros. Entertainment as part of Midway’s ongoing bankruptcy proceedings, and its long-term direction is unknown.

    The ad-supported Quick Hit football game will launch
    online in September.

    EA Sports, a target of many independent game publishers given its dominant position within sports gaming, now ironically finds itself in a somewhat similar situation with the development of its mixed martial arts title, slated for release next year. The company does not have a licensing deal with UFC, the sport’s dominant entity, and is now in a war of words with UFC President Dana White over what White perceives as duplicity in EA’s intentions for MMA gaming, a charge the company strongly denies.

    EA is pursuing licensing deals with individual fighters, each of whom risks being blacklisted within UFC.

    “IP helps you break through the clutter and rise to the top, but having it is not an excuse for making a bad game. You still have to deliver,” said Peter Moore, EA Sports president.

    Anderson likens the interplay between licensed and unlicensed games to the relationship between TV and movies.

    “We compete with ‘Madden’ but we also don’t,” he said. “We’re both football games, so there’s an obvious intersection there, but ‘Madden’ is akin to going to the movies. It’s an investment, both in terms of time and money, and you have to sort of commit to it. We’re more like TV. We’re there, immediately accessible, a lot quicker to play, and so it becomes a very different thing.”

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  • Taking aim online

    EA Sports’ “Tiger Woods PGA Tour” for gaming consoles such as the Nintendo Wii and Xbox 360 is very much like real golf, true to its aim to be a full-featured simulation, right down to the golf-like swing required for the Wii version. The title is immersive, time-consuming and can be just as frustrating or enthralling as being on the course. And at $60, it’s a lot like a weekend greens fee, too.

    But the online, browser-based “Tiger Woods PGA Tour,” set for public release this fall, presents an entirely different dynamic in terms of both gameplay and economics. The game is strictly Web-based, does not require a console, can easily be stopped and restarted on demand, is designed for quick, more casual play, and carries a multitiered subscription model that allow users to buy as much or as little gaming of “Tiger” as they wish.

    It is in this latter and newer version of “Tiger Woods” where EA and other game publishers, Web site operators and industry professionals see a robust future for the video game industry beyond the console.

    Future online gaming, they believe, will allow for more dynamic game development that breaks out of the traditionally expensive, time-consuming model built strictly around annual physical releases. They think it will attract new gamers outside of the usual demographics and lift video gaming to greater heights with regard to both revenue and cultural relevance.

    “‘Tiger’ in many ways is a pilot program for us, and we’re looking forward to taking a lot of learnings from this, but the core concept above this is fairly simple,” said Peter Moore, EA Sports president. “Consumers want mobile entertainment, on the go, and wherever they are. And that’s something that goes right into our wheelhouse. The PC presents a huge opportunity for us, but not in a traditional packaged-goods format.”

    EA’s connected gaming effort extends well beyond “Tiger Woods.” The company later this summer is introducing an online franchise mode for its hallmark football title “Madden NFL” in which users can manage their teams from anywhere they have Internet access. EA also has developed online versions of “FIFA” and “NBA Street” for the more advanced European and Asian gaming markets, similar to what 2K Sports is doing for its NBA title.

    The racing simulator iRacing boasts more than
    16,000 subscribers and has signed a deal with
    NASCAR to create sanctioned, online racing.

    Other major sports-related entrants into online gaming include:

    iRacing, a high-end racing simulator led in part by New England Sports Ventures Chairman John Henry that recently signed a licensing pact with NASCAR to create a sanctioned online racing series;

    Virtual golf outfit World Golf Tour;

    ActionAllStars.com, a destination designed for fans ages 6 to 14 that includes games from the NBA, MLB.com and the X Games;

    Quick Hit, a free football game that does not use licensed intellectual property from the NFL (see related story) and is due to launch this fall; and,

    ESPNArcade.com, which recently relaunched with a expanded suite of casual, free-to-play games.

    Top 10 sports video games since 1995*
    Rank Title Publisher Release date
    1 Wii Fit Nintendo May ’08
    2 Madden NFL 07 EA Sports Aug. ’06
    3 Madden NFL 08 EA Sports Aug. ’07
    4 Madden NFL 06 EA Sports Aug. ’05
    5 Madden NFL 2005 EA Sports Aug. ’04
    6 Madden NFL 09 EA Sports Aug. ’08
    7 Tony Hawk’s Pro Skater 2 Activision Sept. ’00
    8 Tony Hawk’s Pro Skater Activision Sept. ’99
    9 Madden NFL 2004 EA Sports Aug. ’03
    10 Tony Hawk’s Pro Skater 3 Activision Oct. ’01
    Top 10 sports titles year-to-date
    (through June 2009)
    Rank Title Publisher Release date
    1 Wii Fit Nintendo May ’08
    2 MLB 09: The Show Sony Computer Entertainment March ’09
    3 NBA 2K9 2K Sports Oct. ’08
    4 Major League Baseball 2K9 2K Sports March ’09
    5 EA Sports Active Bundle EA Sports May ’09
    6 NBA Live 09 EA Sports Oct. ’08
    7 Skate 2 EA Sports Jan. ’09
    8 Madden NFL 09 EA Sports Aug. ’08
    9 FIFA Soccer 09 EA Sports Oct. ’08
    10 Tiger Woods PGA Tour 10 EA Sports June ’09
    * All games listed are for video game consoles and do not include titles produced for PCs
    Source: NPD Group

    “This is something us veterans in the business have been talking about for a very long time but is now coming to fruition,” said Dave Kaemmer, chief executive for iRacing, which has more than 16,000 people paying rates ranging from $19 per month to $156 per year to play the game. “There’s been an exponential increase in computing power that’s opened up a lot of this and has made many of the consoles quickly outdated. And the great thing about online gaming is that we’re still only at the tip of the iceberg.”

    Industry shifts

    While sports-based online gaming is now hitting a major inflection point, other genres have long embraced the format, providing some key early lessons. Massively multiplayer online (MMO) games involving role-playing and fantasy, such as what occurs in an offline game like “Dungeons and Dragons,” actually predate the commercial Internet and were previously played as early as the 1970s on more limited, university-based computer systems. The games are typically played using the computer’s keyboard and mouse.

    In more recent years, games and virtual worlds such as “The Sims” and “Second Life” attracted significant global followings online, with the sale of virtual goods becoming a key fiscal underpinning. The MMO concept also quickly translated to soccer, where numerous outfits in Europe and Asia combined the elements of online group play with the rabid popularity of the sport.

    Many of these games, however, did not require significant computing power and were not advanced in their graphics and gameplay, contrary to most console-based sports titles most popular in America. But in the last several years, a continued increase in processing speed and memory has allowed game developers to match their ambitions and consumer demands with achievable reality. Such a factor is particularly important in simulation-based sports titles, where fans are rigidly judging them on their ability to replicate every nuance of real life sports.

    A guest tries out a Wii Fit
    Plus at this year’s E3
    Expo in Los Angeles.
    Fitness games a fad or here to stay?
    The following are results of the Turnkey Sports Poll taken in June. The survey covered more than 1,100 senior-level sports industry executives spanning professional and college sports.
    EA Sports Active and the Wii Fit are examples of fitness-themed video games. Are such games short-lived fads, or do they have staying power? (The same question was asked in the June 2008 survey, and results are compared below)
    EA Sports recently launched EA Sports Active, an interactive fitness-themed video game for the Wii designed to appeal to women. To what extent will games like this increase female interest in video game systems?
    Slightly increase
    43.08%
    Increase
    27.27%
    Not increase
    13.83%
    Significantly increase
    8.70%
    No response/Not sure
    7.11%
    Source: Turnkey Sports & Entertainment in conjunction with SportsBusiness Journal. Turnkey Intelligence specializes in research, measurement and lead generation for brands and properties. Visit www.turnkeyse.com.

    Additionally, online economics have advanced enough to where major titles carrying licensed intellectual property, such as “Tiger Woods,” can now exist online in either a subscription basis, an advertiser-supported free version, or a hybrid of the two. The availability of wireless Internet access, including now on some airplanes, further heightens the importance of high-end online content.

    “You definitely still have to battle the notion that everything should be free online, but there is a general comfort level now to buying things on the Internet and for advertisers to market online,” Kaemmer said. “People are starting to realize that it’s worth paying a price for the right content, and that’s definitely an important shift.”

    But getting from those early-stage MMOs to the current high-end, browser-based games required a key intermediate step: the connected console. For more than a decade, consoles such as PlayStation and Xbox have included Internet connections for group play, game and content downloads, and other material, such as the daily statistical updates now part of EA’s “NBA Live” and other games. The connected console helps open up the notion of video gaming as a more real-time experience and one not simply designed for solitary play.

    Major League Gaming, a competitive video gaming league, early last year re-oriented its business model to one in which online competitions form the foundation of its existence. On a spectator basis, all of its Pro Circuit competitions are distributed online, in part through a partnership with ESPN360.com.

    “I think it’s pretty clear now that single-person playing of a game on a console is simply not the most exciting part of this business. It’s really only a jumping off point to everything else out there,” said Matthew Bromberg, Major League Gaming president and chief executive. “Gaming is simply more competitive, more social, more engaging now, and that all requires being online.”

    Building a business?

    Even as the online business matures, the question remains as to whether online gaming can be lucrative and profitable enough to be self-sustaining and, more directly, whether it will cannibalize the existing physical game business.

    EA, which garners more than $4 billion in yearly revenue, has invested an estimated $300 million into research and development over the past two years around online gaming and is making a big bet that the two gaming experiences will remain different.

    The company’s thinking is that online gamers, at least in the case of “Tiger Woods,” will be older and playing much more outside the home. More generally, early research also suggests that online gamers are both older and younger, and slightly less male, than the traditional, core demographic of males ages 16-29 for console-based games.

    “These are very differentiated experiences we’re constructing. We’ve specifically designed them to be separate and distinct,” Moore said. “So we see very little cannibalization.”

    EA and its competitors need to be correct on such an assessment. NPD Group earlier this month reported that U.S. sales of video game hardware, software and peripherals amounted to $1.2 billion in June, a staggering 31 percent drop from the same month in 2008 and the fourth straight month with a sales decline. Such sales defy the conventional wisdom of video games being a safe haven in the recession as more consumers stay home.

    But some analysts believe that even amid that contracting market, online gaming will continue to gain market share as more content moves off the console and into the computing “cloud,” particularly as those domestic NPD numbers do not include online gaming revenue.

    Lazard Capital Markets analyst Colin Sebastian recently estimated the online gaming market at $11 billion globally, a quarter of the revenue for the entire industry and more than triple the total from four years ago. That revenue, he said, also carries higher profit margins, unlimited shelf space and more economies of scale.

    “A lot of that [revenue] number is overseas and in other genres with games such as ‘World of Warcraft.’ So while it is true that online in the traditional, U.S.-based video games business is more limited, a lot of the growth going forward [across the entire video game industry] is certainly going to come from online,” Sebastian said. “And here, I would definitely expect sports to be on the leading edge of that conversion as it continues to happen.”

    Social media, sports portals

    With the continued rise of social media, many observers also see social networks such as Facebook as an increasingly important destination for online gaming. Similarly, several leading sports portals such as Yahoo! and ESPN have built casual gaming sections within their sites.

    Leading sports portals have built casual gaming sections
    within their sites. Shown above are some of the games
    offered at ESPN Arcade.

    Some of the games are self-developed while third-party outfits such as Zynga and Playdom have built growing businesses for online games played within Facebook and MySpace.

    Similar to stand-alone, browser-based games, the titles existing within the portals and social networks generally have been able to boast better reach among younger gamers and longer engagement periods than many other areas of those sites.

    Additionally, online games in these areas have been buttressed by the usual display advertising and subscription-based business models by integrating corporate brands into the game. ESPN’s photo-matching game franchise, Zoom, for example, incorporates still photos from upcoming movies into the game when a movie studio purchases ads for ESPN Arcade.

    “This has been a big thing for us and allows us to be a bit more creative with advertisers than we can be in other parts of ESPN.com,” said Raphael Poplock, ESPN vice president of games. “Arcade has also been a part of the overall programming strategy for things like ESPNU and Rise since we’re all going after that young male audience.”

    Print | Tags: In-Depth
  • Taking aim online

    EA Sports’ “Tiger Woods PGA Tour” for gaming consoles such as the Nintendo Wii and Xbox 360 is very much like real golf, true to its aim to be a full-featured simulation, right down to the golf-like swing required for the Wii version. The title is immersive, time-consuming and can be just as frustrating or enthralling as being on the course. And at $60, it’s a lot like a weekend greens fee, too.

    But the online, browser-based “Tiger Woods PGA Tour,” set for public release this fall, presents an entirely different dynamic in terms of both gameplay and economics. The game is strictly Web-based, does not require a console, can easily be stopped and restarted on demand, is designed for quick, more casual play, and carries a multitiered subscription model that allow users to buy as much or as little gaming of “Tiger” as they wish.

    It is in this latter and newer version of “Tiger Woods” where EA and other game publishers, Web site operators and industry professionals see a robust future for the video game industry beyond the console.

    Future online gaming, they believe, will allow for more dynamic game development that breaks out of the traditionally expensive, time-consuming model built strictly around annual physical releases. They think it will attract new gamers outside of the usual demographics and lift video gaming to greater heights with regard to both revenue and cultural relevance.

    “‘Tiger’ in many ways is a pilot program for us, and we’re looking forward to taking a lot of learnings from this, but the core concept above this is fairly simple,” said Peter Moore, EA Sports president. “Consumers want mobile entertainment, on the go, and wherever they are. And that’s something that goes right into our wheelhouse. The PC presents a huge opportunity for us, but not in a traditional packaged-goods format.”

    EA’s connected gaming effort extends well beyond “Tiger Woods.” The company later this summer is introducing an online franchise mode for its hallmark football title “Madden NFL” in which users can manage their teams from anywhere they have Internet access. EA also has developed online versions of “FIFA” and “NBA Street” for the more advanced European and Asian gaming markets, similar to what 2K Sports is doing for its NBA title.

    The racing simulator iRacing boasts more than
    16,000 subscribers and has signed a deal with
    NASCAR to create sanctioned, online racing.

    Other major sports-related entrants into online gaming include:

    iRacing, a high-end racing simulator led in part by New England Sports Ventures Chairman John Henry that recently signed a licensing pact with NASCAR to create a sanctioned online racing series;

    Virtual golf outfit World Golf Tour;

    ActionAllStars.com, a destination designed for fans ages 6 to 14 that includes games from the NBA, MLB.com and the X Games;

    Quick Hit, a free football game that does not use licensed intellectual property from the NFL (see related story) and is due to launch this fall; and,

    ESPNArcade.com, which recently relaunched with a expanded suite of casual, free-to-play games.

    Top 10 sports video games since 1995*
    Rank Title Publisher Release date
    1 Wii Fit Nintendo May ’08
    2 Madden NFL 07 EA Sports Aug. ’06
    3 Madden NFL 08 EA Sports Aug. ’07
    4 Madden NFL 06 EA Sports Aug. ’05
    5 Madden NFL 2005 EA Sports Aug. ’04
    6 Madden NFL 09 EA Sports Aug. ’08
    7 Tony Hawk’s Pro Skater 2 Activision Sept. ’00
    8 Tony Hawk’s Pro Skater Activision Sept. ’99
    9 Madden NFL 2004 EA Sports Aug. ’03
    10 Tony Hawk’s Pro Skater 3 Activision Oct. ’01
    Top 10 sports titles year-to-date
    (through June 2009)
    Rank Title Publisher Release date
    1 Wii Fit Nintendo May ’08
    2 MLB 09: The Show Sony Computer Entertainment March ’09
    3 NBA 2K9 2K Sports Oct. ’08
    4 Major League Baseball 2K9 2K Sports March ’09
    5 EA Sports Active Bundle EA Sports May ’09
    6 NBA Live 09 EA Sports Oct. ’08
    7 Skate 2 EA Sports Jan. ’09
    8 Madden NFL 09 EA Sports Aug. ’08
    9 FIFA Soccer 09 EA Sports Oct. ’08
    10 Tiger Woods PGA Tour 10 EA Sports June ’09
    * All games listed are for video game consoles and do not include titles produced for PCs
    Source: NPD Group

    “This is something us veterans in the business have been talking about for a very long time but is now coming to fruition,” said Dave Kaemmer, chief executive for iRacing, which has more than 16,000 people paying rates ranging from $19 per month to $156 per year to play the game. “There’s been an exponential increase in computing power that’s opened up a lot of this and has made many of the consoles quickly outdated. And the great thing about online gaming is that we’re still only at the tip of the iceberg.”

    Industry shifts

    While sports-based online gaming is now hitting a major inflection point, other genres have long embraced the format, providing some key early lessons. Massively multiplayer online (MMO) games involving role-playing and fantasy, such as what occurs in an offline game like “Dungeons and Dragons,” actually predate the commercial Internet and were previously played as early as the 1970s on more limited, university-based computer systems. The games are typically played using the computer’s keyboard and mouse.

    In more recent years, games and virtual worlds such as “The Sims” and “Second Life” attracted significant global followings online, with the sale of virtual goods becoming a key fiscal underpinning. The MMO concept also quickly translated to soccer, where numerous outfits in Europe and Asia combined the elements of online group play with the rabid popularity of the sport.

    Many of these games, however, did not require significant computing power and were not advanced in their graphics and gameplay, contrary to most console-based sports titles most popular in America. But in the last several years, a continued increase in processing speed and memory has allowed game developers to match their ambitions and consumer demands with achievable reality. Such a factor is particularly important in simulation-based sports titles, where fans are rigidly judging them on their ability to replicate every nuance of real life sports.

    A guest tries out a Wii Fit
    Plus at this year’s E3
    Expo in Los Angeles.
    Fitness games a fad or here to stay?
    The following are results of the Turnkey Sports Poll taken in June. The survey covered more than 1,100 senior-level sports industry executives spanning professional and college sports.
    EA Sports Active and the Wii Fit are examples of fitness-themed video games. Are such games short-lived fads, or do they have staying power? (The same question was asked in the June 2008 survey, and results are compared below)
    EA Sports recently launched EA Sports Active, an interactive fitness-themed video game for the Wii designed to appeal to women. To what extent will games like this increase female interest in video game systems?
    Slightly increase
    43.08%
    Increase
    27.27%
    Not increase
    13.83%
    Significantly increase
    8.70%
    No response/Not sure
    7.11%
    Source: Turnkey Sports & Entertainment in conjunction with SportsBusiness Journal. Turnkey Intelligence specializes in research, measurement and lead generation for brands and properties. Visit www.turnkeyse.com.

    Additionally, online economics have advanced enough to where major titles carrying licensed intellectual property, such as “Tiger Woods,” can now exist online in either a subscription basis, an advertiser-supported free version, or a hybrid of the two. The availability of wireless Internet access, including now on some airplanes, further heightens the importance of high-end online content.

    “You definitely still have to battle the notion that everything should be free online, but there is a general comfort level now to buying things on the Internet and for advertisers to market online,” Kaemmer said. “People are starting to realize that it’s worth paying a price for the right content, and that’s definitely an important shift.”

    But getting from those early-stage MMOs to the current high-end, browser-based games required a key intermediate step: the connected console. For more than a decade, consoles such as PlayStation and Xbox have included Internet connections for group play, game and content downloads, and other material, such as the daily statistical updates now part of EA’s “NBA Live” and other games. The connected console helps open up the notion of video gaming as a more real-time experience and one not simply designed for solitary play.

    Major League Gaming, a competitive video gaming league, early last year re-oriented its business model to one in which online competitions form the foundation of its existence. On a spectator basis, all of its Pro Circuit competitions are distributed online, in part through a partnership with ESPN360.com.

    “I think it’s pretty clear now that single-person playing of a game on a console is simply not the most exciting part of this business. It’s really only a jumping off point to everything else out there,” said Matthew Bromberg, Major League Gaming president and chief executive. “Gaming is simply more competitive, more social, more engaging now, and that all requires being online.”

    Building a business?

    Even as the online business matures, the question remains as to whether online gaming can be lucrative and profitable enough to be self-sustaining and, more directly, whether it will cannibalize the existing physical game business.

    EA, which garners more than $4 billion in yearly revenue, has invested an estimated $300 million into research and development over the past two years around online gaming and is making a big bet that the two gaming experiences will remain different.

    The company’s thinking is that online gamers, at least in the case of “Tiger Woods,” will be older and playing much more outside the home. More generally, early research also suggests that online gamers are both older and younger, and slightly less male, than the traditional, core demographic of males ages 16-29 for console-based games.

    “These are very differentiated experiences we’re constructing. We’ve specifically designed them to be separate and distinct,” Moore said. “So we see very little cannibalization.”

    EA and its competitors need to be correct on such an assessment. NPD Group earlier this month reported that U.S. sales of video game hardware, software and peripherals amounted to $1.2 billion in June, a staggering 31 percent drop from the same month in 2008 and the fourth straight month with a sales decline. Such sales defy the conventional wisdom of video games being a safe haven in the recession as more consumers stay home.

    But some analysts believe that even amid that contracting market, online gaming will continue to gain market share as more content moves off the console and into the computing “cloud,” particularly as those domestic NPD numbers do not include online gaming revenue.

    Lazard Capital Markets analyst Colin Sebastian recently estimated the online gaming market at $11 billion globally, a quarter of the revenue for the entire industry and more than triple the total from four years ago. That revenue, he said, also carries higher profit margins, unlimited shelf space and more economies of scale.

    “A lot of that [revenue] number is overseas and in other genres with games such as ‘World of Warcraft.’ So while it is true that online in the traditional, U.S.-based video games business is more limited, a lot of the growth going forward [across the entire video game industry] is certainly going to come from online,” Sebastian said. “And here, I would definitely expect sports to be on the leading edge of that conversion as it continues to happen.”

    Social media, sports portals

    With the continued rise of social media, many observers also see social networks such as Facebook as an increasingly important destination for online gaming. Similarly, several leading sports portals such as Yahoo! and ESPN have built casual gaming sections within their sites.

    Leading sports portals have built casual gaming sections
    within their sites. Shown above are some of the games
    offered at ESPN Arcade.

    Some of the games are self-developed while third-party outfits such as Zynga and Playdom have built growing businesses for online games played within Facebook and MySpace.

    Similar to stand-alone, browser-based games, the titles existing within the portals and social networks generally have been able to boast better reach among younger gamers and longer engagement periods than many other areas of those sites.

    Additionally, online games in these areas have been buttressed by the usual display advertising and subscription-based business models by integrating corporate brands into the game. ESPN’s photo-matching game franchise, Zoom, for example, incorporates still photos from upcoming movies into the game when a movie studio purchases ads for ESPN Arcade.

    “This has been a big thing for us and allows us to be a bit more creative with advertisers than we can be in other parts of ESPN.com,” said Raphael Poplock, ESPN vice president of games. “Arcade has also been a part of the overall programming strategy for things like ESPNU and Rise since we’re all going after that young male audience.”

    Print | Tags: In-Depth
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