Online Business Heats Up

Both Microsoft and Sony have been bandying around a few online service numbers of late, in what is fast becoming a significant competitive front in the battle for living room domination.

In early January, Aaron Greenberg, Microsoft’s director of product management for Xbox 360 and Live, casually mentioned that the Xbox Live service had accrued 17 million subscribers and that the company had acquired three million of those in the last three months of 2008 alone.

This boost in member numbers followed the company’s double whammy of the launch of the New Xbox Experience and the Xbox 360’s second price cut of the year. At the same time Greenberg also repeated Microsoft’s E3 assertion that it had generated revenue of over $1bn through Xbox Live, which, on the face of it, looks impressive.

While Microsoft boasts such numbers, SCEA has responded with some of its own, citing 17 million PlayStation Network registrations by the end of 2008. At first glance this may seem to place Sony’s PS3-based online operation on the same sort of level as Xbox Live. However, this PSN registration number represents lifetime to date rather than active users, and also includes unique PSP-related registrations as well as multiple accounts held against different email addresses by the same user.

Indeed, a comparative active PS3-based PSN account total for Sony is understandably considerably less than Microsoft’s 17 million Xbox Live subscriber base considering the relative console installed bases and how established Microsoft’s online service has become.

So if we’re talking about an addressable market of 17 million subscribers for Xbox Live alone, sales of game content through consoles must be substantial, right? Actually, sales of download games across 360, PS3 and Wii represented only one percent of a combined packaged and download console game market in 2008.

And a large majority of the $1bn spent on Xbox Live services and content was in the form of subscription payments for Gold-level membership rather than sales of games. There’s obviously a long way to go before we can write off retail domination of the videogame market. Not only that, most of the current download revenue comes from non-retail arcade, independent and back catalogue titles anyway – content that won’t make it to high street shelves.

As such, these download sales can mostly be considered incremental to and not a replacement for the packaged game market. Even so, there will come a point when gamers have access to a wide catalogue of premium retail-equivalent content and feel at ease with the download-buying process for these much larger-file games.

At this point the console manufacturers’ transition to competitive retailers will be complete and these platforms will provide substantial direct competition to the high street or online packaged-game retailer. Sony can currently be considered the most aggressive in pursuing this goal – the experimental releases of Gran Turismo and Warhawk are the marks of a company that is eager to see direct distribution of its content, and the improved margins this will deliver, come to fruition.

Aside from full game downloads, online consoles enable content owners and console manufacturers to introduce new online business models and content experiences to the gaming audience. While the availability of expansion packs for games – including map packs for titles such as Call Of Duty 4 and Halo, and song packs for Guitar Hero and Rock Band – have been with us for some time, and allow for a more persistent gaming experience from standalone packaged titles, I feel it is only a matter of time before we witness the introduction of service-based and on-demand game entertainment experiences through consoles.

We are already seeing these services from the console manufacturers themselves – Home from Sony and
Primetime from Microsoft. And we can expect major thirdparty publishers to start to get in on the act and reach the next stage in their ongoing transition from product-based companies to service providers before long.

Piers Harding-Rolls is Screen Digest‘s Senior Games Analyst.