Let the Games BeginWill cable and DBS become major interactive players? 5/08/2005 08:00:00 PM Eastern
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)|
|*Compounded average growth rate '04–'08
SOURCE: PricewaterhouseCoopers, Global Entertainment
and Media Outlook, 2004–2008
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
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
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
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
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
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
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
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
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
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
“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
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
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.