Interview with David Cole from DFC Intelligence
What research methodologies were used in putting together this report?
The Online Game Market 2004 was prepared by utilizing a variety of primary and secondary research techniques including over 200 telephone, email and personal interviews; analysis of market surveys, trade journals and company literature; extensive database searches; and DFC Intelligence's original compilations and analysis based on 10 years of covering the market.
Did any of the findings of this report run counter to your expectations? What were some of the most noteworthy surprises?
The biggest surprise with online games is diversity. Compared with the traditional video and PC game industry, online games offer much more diversity in types of games, consumer base, more business model options and a more international appeal.
What trends do you see emerging in the next few years in the online games space?
On a general basis, growing broadband penetration is key to growth in the online game space. The good news is that the next few years are likely to see substantial growth in broadband penetration and with that natural growth in online games. The biggest specific trends are likely to be 1) better efforts at getting consumers to pay for the game content, including casual games; 2) more products launched on an international basis; 3) better efforts to adjust product content, business models and distribution methods for individual regions of the world; and 4) the growth of console online games.
Often, 'casual' and 'downloadable' games are used interchangeably, even though one term describes the gameplay and the other describes the distribution method. What terminology did you settle on in this paper for referring, in terms of gameplay and distribution, to the various types of games covered?
For downloadable games we note that all types of games can be downloaded. However, the downloadable game business today has focused more on casual downloadable games because it is currently much more feasible. Many casual games are simple 20 MB or less downloads, whereas the more robust games you find in stores generally range from several 100 MB to several gigabytes. These are hefty downloads even on a broadband connection. There is also the challenge of local storage, because even with huge hard drives on today's PCs, games can take up a lot of space. Thus, much of the recent action has focused on the casual downloadable products. Nevertheless, in the report we are careful to stress that ALL types of games are downloadable.
Do you think that consolidation will take place within casual, downloadable game market as it has in the traditional game industry? If so, what form will it take?
In many ways it already has. You have key distribution points like Yahoo, MSN, AOL, Pogo, etc and key technology providers like Trymedia. These are the companies that act as the gatekeeper to the consumer masses. Just like in the traditional game industry you have 1,000s of developers that find to get their product distributed they must work with a handful of key players. What will be interesting to see is whether distributors try to also act as developers. If they do, does that mean other distribution sources will not distribute their content? For example, Real Networks acquired developer GameHouse. Is this more like Electronic Arts buying a game developer or is it more like Best Buy buying a game developer and publishing their own games? I don't think the market has yet answered that question.
What did you learn about player demographics and the various types of online games (MMO, downloadable, play-for-cash, etc)? Are there strong correlations between, say, distribution method and demographic?
I would not say that there is a strong correlation between distribution method and demographic. The main correlation is between type of content and demographic. MMOG games seem to appeal to more of a teenage, young adult audience that is primarily male. Of course, this may be mainly due to the fact that they almost always tend to have a fantasy, Lord of the Rings like theme. An online version of a sports game like Madden football is likely to appeal to the traditional audience for Madden football. The casual games (whether free, downloadable, pay-for-cash) have been widely noted for their ability to bring in a demographic unknown to the video game industry, women in their 30s and 40s. Of course, the distribution method should match the demographic. You generally don't try and sell video games at a furniture store, just as you probably wouldn't try and advertise Doom III on a site targeted towards pregnant women. However, I strongly believe the demographic is going to be driven by the content and distribution is just about getting in front of the intended demographic in the most effective way.
How are online game publishers/distributors finding new players/audiences?
I think the best way companies will gain an audience is simply by the growing number of broadband connections. Broadband significantly increases online usage and is especially attractive for online game play. This will result in a natural increase in online gamers. Thus the main challenge may not be finding new users, but getting more revenue per user. There are already services that have tens of millions of regular users and regularly have 200,000 or simultaneous users. These services don't necessarily need new users if they can figure ways to maximize revenue from existing users.
Do you think service providers and telecom companies will become more involved with the online games industry in the near future? How so?
Online games are one of the great "sticky" content categories. They could be a major reason that many consumers would subscribe to one service over another. Nevertheless, few service providers have tried to make online games a distinguishing feature. This may change, but game producers shouldn't hold their breath. One small sign of how things may change was in 2003 when EA and AOL rewrote their online games contract. Previously, EA had paid AOL a "carriage fee" to get their games on AOL. Under the new 2003 contract AOL is paying EA a "programming fee" in order to get EA online games on their service. However, these are baby steps and it is safe to say that most service providers are fairly ignorant or aloof when it comes to the importance of games.
How do you see online console games fitting into the larger online games picture? Do you think there will be a market for casual online console games in the near future?
The console systems introduce new online game categories, namely the type of games consumers play on consoles. These include sports, racing and other types of action titles. Many first-person shooter games are likely to do well on consoles. What remains to be seen is whether a market for casual online console games will emerge as it has on the PC. My guess is that it probably will, especially for casual arcade action games. Companies like Activision, Atari, Midway and Namco have already found there is a market for repackaging their old arcade games. These games have the potential to become substantially more appealing when they are brought online and consumers can compete for high score, prizes, etc. On top of that, it is low-hanging fruit that doesn't require a major investment. However, this is likely to only one small segment of the overall console online game business.
How have distribution channels evolved in recent years? Which types of distribution seem to have the most promise for developers?
Online distribution is perhaps just as challenging as retail distribution. It is a numbers game where the key is to get the product in front of as many consumers as possible. This means working with multiple distribution points/portal services. Developers can't just assume that if they build it and put it online consumers will come. In many respects screen space is even more crowded then shelf space. And getting consumers to notice a product is only the first step. By some indications, only one in fifty consumers that download a sample version will purchase the full version. Under that ratio a million consumers would have to try your product just to get 20,000 in sales.
About David Cole
David Cole is the founder and president of DFC Intelligence. DFC Intelligence provides market research and strategic planning services and is now recognized as a leading independent information provider for the interactive entertainment industry. Mr. Cole has personally consulted with leading telcos, entertainment studios, software publishers, developers, investment firms and consumer electronics manufacturers. Since 1994, Mr. Cole has been one of the most widely quoted analysts on video games, computer software and the Internet. Mr. Cole has a BA in economics and industrial relations, as well as a JD from the University of North Carolina.
About DFC Intelligence
DFC Intelligence specializes in market research and strategic analysis of issues in the worldwide PC game, video game, online game and multimedia industries. They began covering the industry in 1993 and published their first report in 1995. DFC Intelligence reports include historical analysis and trends, 5-year scenario-based forecasting, company profiles, insights, opinions and detailed sector analysis. Over the past ten years, DFC Intelligence has built a proprietary database of market information, both public and private. They provide reports for primary research providers such as the NPD Group. Their analysis is based on solid industry sales figures, coupled with insights based on years of experience tracking every major aspect of the interactive entertainment industry.
For more information about DFC Intelligence, go to www.dfcint.com.