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The Next-Gen PC games market: online is changing PC gaming forever

February 2006

According to NPD sales data, the US PC games retail market fell 14% in 2005 to $953m. This represents the sixth consecutive year of decline and has left the market at exactly half the size it reached at its peak in 1999 and back at a level last seen in 1993. The decline has, to a great degree, been self-perpetuating. The more the market has declined, the less willing publishers have become to commit development investment towards it.  Without this investment, the volume of major PC releases has declined thus precipitating further market erosion and triggering further reductions in development investment etc…

So what has happened to the PC games market and where has all the “lost” revenue gone?

The easy answer is the MMOG market and some have even suggested that the dynamic growth of this market equals and even exceeds the shortfall in PC retail sales. Others have pointed to digital distribution. However, none of these assertions are supported by the facts.

The core games digital download market, as analysed in the October issue of Develop, is still microscopic in size. The MMOG market has certainly contributed to the decline of PC retail sales but whilst the Western MMOG market grew a remarkable 45% in value in 2005 it was still worth only $637m, a long way short of the $950m drop in US retail sales alone since 2000.

The continued growth of console gaming has undoubtedly contributed to the migration of some gamers away from the PC. However, I do not believe that the number of PC gamers in Europe and North America has declined at anywhere near the rate that the retail market has and I believe many publishers are failing to understand the dynamics that are now shaping the market and which account for much of the rest of the decline.

PC gamers are already concentrating on a smaller number of games, spending more time playing them and buying fewer new games as a result. The average subscription period for an MMOG is around 9 months during which time the game will dominate players’ gaming time. MMOGs achieve this because they demand an investment in financial terms as well as hours of play. However, it is not just MMOGs that elicit this sort of concentration. Limited player online games (LPOGs) such as the Counter-Strike and Battlefield series have become huge devourers of players’ gaming time. At any stage of the day, over 300,000 players in the West are participating in LPOG tournaments managed through GameSpy alone. Add in other service providers and the figure could easily top 500,000 concurrent players, a number that is similar to the number of concurrent Western MMOG players online at any one time and yet this vast LPOG playing time still represents a cost-base only, not a revenue stream.

I believe that these dynamics are stimulating a fundamental metamorphosis and that, partly inspired by the success of Xbox Live’s micro-billing and service-led model we will witness, over the next 3 years, the emergence of a Next-Gen PC games market that is based more around the provision of ongoing services than the sale of products. And I am not just talking about MMOGs.

I think that the MMOG and LPOG worlds will increasingly merge as LPOGs adopt greater gameplay persistence (allowing, for example, stat and asset accumulation, episodic content and scenario continuity) and MMOG game designs increasingly cater for shorter, more easily-consumed bites of gameplay (further lowering barrier to entry and broadening their appeal). Add in the growing willingness and means to distribute content online, and the widening acceptance of subscription-based gaming and it is not difficult to envisage publishers starting to charge subscriptions for their LPOGs. They may not be able to charge a full MMOG subscription rate, but at least they will be better able to monetise the growing usage of their products.

I believe PC gamers are ready for it, and a few developers are already preparing for it, but are the publishers willing to back it?

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