Let the Games Begin
Will cable and DBS become major interactive players?
By George Winslow -- Broadcasting & Cable, 5/8/2005 8:00:00 PM
In the intensely competitive game between cable operators, DBS platforms and telcos, interactive games may become the next battleground for new customers and revenue.
| Games People Play | ||||
|---|---|---|---|---|
| U.S. videogame revenue (in millions) | ||||
| 2000 | 2004 | 2008 | Change* | |
| *Compounded average growth rate '04–'08 SOURCE: PricewaterhouseCoopers, Global Entertainment and Media Outlook, 2004–2008 |
||||
| Console | $4,102 | $5,890 | $8,040 | +6.8% |
| PC games | $1,998 | $1,251 | $1,046 | -2.8% |
| Online | $57 | $662 | $3,375 | +51.7% |
| Wireless | 0 | $301 | $2,837 | +82.0% |
| Total | $6,198 | $8,104 | $15,298 | +15.1% |
After all, American men ages 18-34 already spend some 30 billion hours a year playing videogames, and the $9.1 billion U.S. videogame industry is growing at a rate of 15% per year. That should push revenues up to $15.3 billion in 2008, PricewaterhouseCoopers estimates.
G4 cable network founder/CEO Charles Hirchhorn says, “For the generation of 12- to 34-year-old males, gaming is their rock and roll.” And it doesn't look like they are going to stop playing.
That cultural and economic shift in the entertainment industry has already caught the attention of a number of major media companies, notes Geoffrey Mogilner, a gaming analyst at Decatur Jones Equity Partners in Chicago. “When you look at the size of this industry and the amount of time people are devoting to games, it is easy to understand the interest.”
One example of that trend, Mogilner says, can be found at Turner Broadcasting System, which recently announced plans to launch GameTap, a broadband entertainment network that will begin offering more than 1,000 games this fall.
But U.S. cable operators, which have traditionally placed interactive-TV (iTV) applications low on their list of investment priorities, are also getting into the game. “All of the major operators are in the process of making decisions about their iTV plans,” says Peter Schultz, senior director of solutions marketing at ICTV, a firm that helps operators create the infrastructure to provide interactive services. He expects two or three operators to roll out iTV games by year's end, with most of the other large operators following in the first half of 2006. “This is really a turning point for the market,” he says.
Operators hoping to tap into the lucrative videogame business face some tough technological, marketing and legal challenges.
Look Out For Murdoch
Interactive-TV applications are not widely deployed in the U.S., and a variety of technological issues, ranging from the limitations of current set-top boxes to the lack of industrywide standards for middleware, are likely to limit the quality of iTV games in the immediate future.
That will make it difficult for operators to attract the hard-core console gamers who currently produce virtually all the industry's revenues. Most cable and satellite operators currently focus on casual gamers, who have traditionally been much less willing to spend money on games. It is a question of fans versus fanatics.
Business models and regulatory issues also remain open to question. Internationally, most of the revenue from iTV functions has come from gambling applications that are illegal in large parts of the U.S.
Given those problems, Todd Chanko, an analyst at Jupiter Research, remains skeptical: “In general, we are not particularly bullish on the prospects for interactive TV in the U.S.”
Game providers don't like to hear that. While the U.S. interactive-TV gaming market is “very much in its infancy,” it has been a success where it has been tried, says Mickey Kalifa, general manager of PlayJam Worldwide, which provides iTV games to such operations as EchoStar's Dish and Britain's BSkyB. “It is a huge market opportunity.”
In the U.K., for example, News Corp.'s BSkyB had $226 million in revenue from its SkyBet gambling service and another $88 million from SkyActive interactive games in the last half of 2004.
While PlayJam's iTV gaming service competes with many others on BSkyB's platform, Kalifa says that 25,000-30,000 users pay about $1.10 each day to access one of PlayJam's games. “That is a very good business model that we plan to bring to the U.S,” he adds.
Like any good multiplayer game, fear and strategy are also playing a part in the rollout of iTV games in the U.S. “There is a lot of concern among operators that [Rupert] Murdoch will use iTV in the States to do with DirecTV what he's done so successfully with iTV on BSkyB,” says Ron Chaimowitz, CEO of PixelPlay, which provides games for such operators as Cablevision. “A lot of them are moving faster than they would if Murdoch hadn't bought DirecTV.”
Still, some important differences are already emerging between international markets and the U.S. Few operators are currently set up to allow people to play games on-demand for a small price, a model that accounts for about 90%-95% of game revenues in the U.K. Most operators have adopted a strategy of charging monthly subscription fees.
Gambling applications, which account for about 72% of BSkyB's iTV gaming revenues, are also much more limited in the U.S. In recent years, federal prosecutors have used the Wire Wager Act of 1961 to crack down on the $6.5 billion global Internet casino gambling industry, and most legal experts believe iTV applications allowing users to bet on such casino games as blackjack, roulette and poker would also be illegal in the U.S.
Putting Money on the Horses
The Interstate Horseracing Act of 1978, however, allowed individual states to pass legislation legalizing off-track betting on horseracing, and that exemption currently allows residents of at least 30 states to place bets on races through the Internet.
Currently, two channels—TVG, which is available in about 14 million homes, and HRTV, which has distribution in 12 million—allow horseracing fans to watch races and, in states where it is legal, place bets on Web sites run by sister companies. In March, TVG joined with Dish Network to launch an iTV application that allows viewers in 12 states to bet on races using their remote, says Scott Higgins, director of interactive TV for Dish Network.
HRTV plans to roll out iTV betting applications sometime in 2006. EchoStar is also taking the lead in other types of iTV games. Currently, it is the largest provider of iTV services in the U.S., offering 20 iTV channels with news, sports, weather and games on its Dish Network.
Interactive-TV gaming packages from Fantasy NASCAR, KidsWise from PixelPlay, the Buzztime Channel, PlayJam and others cost $2.99-$4.99 a month. The offerings are designed to appeal to a range of demographic groups and target the casual gamer.
“That doesn't mean the games have to be simple,” Higgins says. “They just don't require the amount of time that it takes to master a console game.”
The satellite operator doesn't provide any breakdowns of usage or revenues, but Higgins stresses that Dish has continued to expand its iTV services in recent years, launching the TVG betting service in March and even introducing a karaoke application in April. “We've been committed to interactive television for years,” he says, “and wouldn't be expanding if it weren't successful.”
Cable vs. DBS
For the moment, DirecTV isn't commenting on its plans. DirecTV began rolling out interactive set-top boxes last year and added some iTV games earlier this year. Several sources predict that its major iTV push may not occur until late 2005 or early 2006. But when it does happen, outsiders expect its offerings will mirror the services offered by BSkyB.
That lag time is giving cable operators much needed time to improve on their relatively simple offerings.
Charter started rolling out iTV applications in 2003 and currently targets casual gamers in the 800,000 iTV-enabled homes with relatively simple, free games like solitaire and video poker.
“[Currently,] the set-top box can't compete with the kind of games you would play on a game console,” says Jeff Jay, VP of corporate development at Charter.
Even so, the games have been well received. About 15% of the digital subscribers play the games, Jay says. “We know that they are interested,” he adds, “and we believe there is an opportunity for premium services.”
Cable's most advanced iTV games can now be found on Cablevision, which began offering free games several years ago. Last summer, it became the first U.S. cable operator to launch subscription games services, offering four separate packages, each with six to 10 games, for $4.95 a month; at the NCTA Show, it launched a play-per-day option for $1.95, another cable-industry first.
Patrick Donoghue, Cablevision's VP of interactive television development and operations, says about 20,000 subscribers play about 1 million games a month. “About 5,000 people play one of the demo games each day,” he adds.
That success seems to have caught the attention of other operators. Cox plans to offer free games in five undisclosed markets this summer, and it will begin offering subscription games in 2006. Time Warner Cable is testing iTV games and is expected to launch them in some markets by year's end.
Looking for Hard-Core Gamers
Comcast is expected to follow with iTV rollouts in 2006. The operator is clearly bullish on the gaming area, both in programming—it owns the G4 games channel—and in online operations, which offers subscription and on-demand games.
Comcast's broadband service targets both casual and hard-core gamers, says Charlie Herrin, VP of Comcast Online, business development. It targets casual gamers, families and women with the Play Games service, which includes the Disney Blast, Toontown, Wild Games and Comcast Arcade subscription packages.
In contrast, hard-core gamers, generally men under 35, are served by Game Invasion. It offers on-demand games and a wide variety of news and programming from the G4 channel, as well as promotions for Game Fly, the online game, rental and purchasing service.
“We think of it as a multimedia experience where users can find games, information, news and television clips from G4,” Herrin says. He insists Comcast's on-demand games are as good as those available on consoles, and he predicts quality will continue to improve as broadband speeds increase. That should attract hard-core users and help Comcast's revenue pool.
This multimedia approach carries over to G4. The network has been working with local cable affiliates to promote broadband subscriptions with a “Games Go Better With Broadband” campaign. G4 is developing its own interactive applications.
“Roughly 60% of our audience [83% of those are males 12-34] are online while they are watching TV, which is more than double that of any other network,” says Peter Green, senior VP of programming and production. “As we develop our programming, we are building more and more online components into it.”
So are other cable networks. “A lot of people are looking for ways to expand their brands into the gaming area,” says Albert Cheng, senior VP of business strategy and development at Disney and ESPN Affiliate Sales and Marketing.
Disney, for example, has created broadband subscription games packaged for kids and families, and it is developing iTV offerings. Last year, ESPN inked an exclusive 15-year deal with Electronic Arts (EA), giving the game company exclusive rights to create ESPN-branded games. EA, which also has exclusive rights to games featuring NFL teams, could incorporate ESPN footage into games or even develop iTV or cellphone games allowing users to play along with live sporting events.
Ultimately, says PlayJam's Kalifa, “there is no reason why operators can't offer console-quality games. That could be huge—as big as pay TV.”
You might want to wager on that.
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