Online game sites find their lucrative market among middle-aged
Seattle Times technology reporter
It's not the spiky-haired teen who knows the cheat codes to the latest shoot-'em-up game, or the college kid who spends too much study time playing online football.
It's their parents.
Baby boomers are emerging as the group most willing to spend time and money on Internet games, paying $15 to $20 a pop to purchase a downloadable title. Many first learned computer gaming by playing "Solitaire," and with the Internet have branched out to online billiards or "Scrabble."
This new breed of gamer is the foundation for a quickly growing industry. IDC estimates that sales of downloadable Internet games will reach $52.7 million this year, and by 2007 it will grow to $762.6 million. In addition, experts say, cellphones and other mobile devices will create a new market for online gaming as the technology improves.
The Seattle area is a center of power in the business. Microsoft and RealNetworks run some of the Internet's most popular gaming destinations, and development companies like GameHouse, WildTangent and PopCap are creating some of the hottest titles.
It wasn't always this way. No one knew how to sell games online at first, and developers testing the waters a few years ago targeted players of console systems that connect to the television.
But Internet games are simpler and less advanced than console games — mainly because of the limitations of connecting online — and the high-tech-gamer crowd wasn't interested. Turns out another crowd was: men, and particularly women, 35 to 55 years old.
"It's a completely new game-buying audience that's different from the traditional market," said Alex St. John, chief executive of WildTangent, a Redmond-based online game publisher. Last week, WildTangent launched WildGames.com, a Web site with dozens of games.
St. John said he made his gaming site friendlier and more accessible to reach out to the women and men who are not traditional gamers. WildTangent also launched such new games as "Polar Bowler," a bowling-on-ice game featuring a sunglasses-wearing bear.
One level of "Polar Bowler" can be played free, and an expanded version costs $19.99. Many game sites follow this model, offering a free preview or a downloadable "demo" version of a game and selling a more advanced download that can be played when the computer is not online.
Blockbuster sales not needed
Only about 1.1 percent of the people who download trial versions of a game actually end up paying for a full version later, said Schelley Olhava, an analyst with IDC who studies the industry.
But that's enough to keep some developers happy, particularly because it might cost only about $50,000 or $60,000 to create a game. At $15 a pop, for example, it would take only 4,000 buyers to reach a break-even point.
That's quite different from the high-stakes console-gaming business, where a sophisticated game can cost tens of millions of dollars to develop. If the game is a flop, the money is lost.
RealNetworks sells about 185,000 games a day across its network of Web sites, according to Andrew Wright, vice president of the company's games division.
"The downloadable game space is where most of the money is being made now, and it's certainly where all the growth is," he said. "It's a very successful area."
RealNetworks lets customers download games free and play for an hour, and then asks them to make a purchase. Nearly all the games were developed outside the company, and RealNetworks takes a chunk of the purchase fee as payment for distribution.
Some of the most popular online games can bring in $5 million to $10 million in revenue, Wright said, and even the average ones can hit $1 million in sales.
Jostling for dominance
The promise of sales is drawing dozens of companies to the business, crowding the field for the well-established players.
"I cannot believe how much competition has come to the market in the last 12 months," said Ron Powers, director of business development at Seattle-based GameHouse. "It's been pretty incredible."
GameHouse launched its first two games in 2001 on its own Web site, and sold 5,000 copies in the first weekend, Powers said. Now it sells about 80,000 games a month, including about 20 titles it developed in-house.
More than three-quarters of GameHouse's customers are women, Powers said.
"I hate taking potshots at my gender, but for the most part I think the male player is looking for high stimulus," he said. A female player wants more of a cerebral challenge, he said, and also tends to play as a way to pass the time for 15 or 20 minutes.
Powers expects there will be consolidation in his business, simply because there is too much competition out there for what is still a relatively small pool of consumer money.
"We're getting to the point of it saturating the market, even though the market is growing very rapidly," he said.
Some of the largest gaming portals are planning big changes to their sites, experimenting with new technology and business models in hopes of persuading more people to pay to play games.
Microsoft's Zone.com, one of the oldest online gaming hubs, plans to expand its subscription game services to include more titles. Right now, it has subscription plans for a handful of games, such as "Bridge Club," in which members can play bridge in game rooms and tournaments for a $9.99 monthly fee.
The site is rolling out additional premium services, and is considering one that builds on its exclusive license to the "Wheel of Fortune" game-show property, said Don Ryan, Zone.com's studio head.
The challenge with these services is creating a game where the content is updated often enough and is so vibrant that it feeds on itself, he said.
All of the major instant-messaging companies are also introducing games to their services. MSN Messenger users can play checkers and other games with each other as they chat, and more than half of the people doing so live outside the United States, Ryan said.
"It's really taken off," he said. Zone.com is looking to sell downloadable games and subscriptions to those users, he added.
America Online is working furiously on adding games to its AIM instant messenger service and expects to release a final product early next year, said Matthew Bromberg, general manager of the AOL Games division. The company tapped WildTangent to help develop some games and released a beta version about two months ago.
The AIM messenger service is free, but AOL has some ideas in the works for making money on the games, including selling subscriptions and downloads, Bromberg said.
Online gaming is the second-most-popular activity on AOL, after checking e-mail, in terms of time spent, Bromberg said. The company recently restructured its relationship with game publisher Electronic Arts and is planning to add titles from other companies in January.
The Yahoo! Web portal ran the most popular game site in October, hosting 11.57 million people who each played for nearly two hours over the month, according to Nielsen/NetRatings.
Online pool is by far the most popular game, with at least 40,000 people playing simultaneously every day, said Dan Hart, general manager of Yahoo! Games.
"I think people like the physics of the game, the simplicity of the game and the way it's rendered," Hart said. "It's hard to say exactly why it's so popular, but people love it."
Yahoo! offers about 100 games in its subscription-based service, and users can get unlimited access for $15 a month. Some of the most popular games on the site are published by Microsoft Game Studios, including "Rise of Nations" and "Dungeon Siege."
And while it might seem ironic that Microsoft and Yahoo! — two fierce competitors in the Web portal business — would partner on games, in this business everyone is working out deals with everyone else. Yahoo! was very comfortable working with Microsoft in this area, Hart said.
"We are interested in getting as many great PC games as we can into the system," he said.
As Internet game companies turn their focus to the cellphone and wireless-device market, the business is likely to become more incestuous.
"We're competing with each other at one level, but on another level we need each other," said St. John at WildTangent. "We're all trying to reach everybody's audience."
Kim Peterson: 206-464-2360 or firstname.lastname@example.org
Correction: This article on online gaming incorrectly stated that RealNetworks is selling 185,000 games per day across its online network of game sites. People download that many games from RealNetworks' Web sites, but not all of those downloads turn into sales.
Copyright © 2003 The Seattle Times Company