Game industry begins online experiment

Sony on Aug. 27 will begin selling network adapters that will let its PlayStation 2 game consoles tap into existing Internet connections, pushing video games into an uncertain online future.

Sony is keeping initial expectations modest for PS2 online gaming, expecting to ship a total of 500,000 network adapters to a worldwide audience of more than 30 million PS2 owners by the end of the year. Sony executives, game publishers and analysts all anticipate several years of experimentation as the industry looks for online gaming approaches that will resonate with consumers. While analysts see annual revenue from online gaming reaching $1.8 billion by 2005, consoles will account for a small fraction of that, with subscription-based PC games such as "EverQuest" dominating into the near future.

Studies by game makers and independent researchers conclude that most game console owners have never tried online gaming via a PC. So it will take some time just to find out what works for the mainstream consumer that the console audience typifies, said David Cole, president of game industry researcher DFC Intelligence.

"For the vast majority of console gamers, it's going to be a new experience," Cole said. "I think it's going to be a lot of experimentation about what that audience finds attractive. I think you'll find the next year or two is going to be an education experience for developers. I would characterize it as a trial phase, kind of the last part of R&D."

Who will foot the bill?
The financial challenge posed by online gaming is likely to be one of the biggest hurdles. Unlike Microsoft's Xbox Live service for its game console--under which the software giant will maintain all network infrastructure and collect subscription fees--Sony is leaving the details to game publishers.

Individual publishers will be responsible for maintaining the resources to put their games online, and--at least for now--they'll be doing it for free. The 15 or so PS2 titles expected to go online by the end of the year all will offer Internet play as a free add-on to traditional single-player games.

Sony won't directly profit from online gaming, either. The company is waiving royalties for any paid online services that eventually emerge for the PS2. Aside from games it publishes, Sony's financial payoff for online gaming is largely limited to any extra hardware sales such gaming inspires.

That's a business proposition that's likely to leave many game publishers, particularly smaller houses that haven't invested in online PC gaming, on the sidelines. Besides Sony-published titles, initial online titles come from established PC game makers such as Electronic Arts and Sierra Entertainment.

"I think you'll see that support for online gaming really varies by how much infrastructure the publisher has already built," Cole said. "I think it's probably going to take a few success stories before the smaller publishers feel more comfortable taking the risks and making the investments."

Kaz Hirai, president of Sony Computer Entertainment of America, said business and infrastructure approaches will vary as publishers try to figure out the online landscape.

"Each publisher is going to have an approach that makes sense for them," Hirai said. "Someone like Electronic Arts--where they already have a big online infrastructure--I don't know that they're going to need to invest much to get their PS2 games online, whereas smaller Japanese publishers may need to make some adjustments."

Microsoft has criticized Sony's online approach as a bad deal for game publishers and consumers, who will have to juggle separate online identities and buddy lists for every game they play online. "We sort of think of their approach as 90 percent do-it-yourself and 10 percent good luck," John O'Rourke, Microsoft's worldwide marketing director for Xbox, said of Sony's online plan.

Your server or mine?
Sierra has taken one of the most innovative infrastructure approaches with "Tribes Aerial Assault," the upcoming PS2 version of its popular PC shooting game. The game utilizes the PS2's modest processing power to turn the machine into a mini-server, capable of hosting up to 15 other players.

"The PS2 handles that kind of server load really quite well," said producer Chris Mahnken. "If we had made the original decision to make it a 64-player game, the PS2 probably wouldn't have had the power to handle that. But 16 players is well within the hardware."

The client-server approach is similar to that used for many PC shooting games, including Sierra's hugely popular "Half-Life" and its offshoots. Besides reducing Sierra's back-end investment to a few servers needed to match players, thus making it economically feasible to offer online play without an extra charge, the method promises a more stable environment for players, Mahnken said.

"It makes sense from a business standpoint, because if we provide a ton of servers for everybody else to come join, we have to maintain those," Mahnken said. "And it brings some nice scalability to it--it pretty much automatically regulates itself. If we sell 20 times more units than we anticipated, we're not running out to get extra servers online."

Sega, whose pro football and basketball games will be among the first online titles for the PS2, will stick with a more typical infrastructure model in which central servers manage all online activity. Online gaming gives the company a chance to exploit the $100 million it invested to build SegaNet, the online gaming network originally created for the company's now-defunct Dreamcast console.

"It's the same technology we've been using for two years, so we're really confident we have the infrastructure to support these games," said Charles Bellfield, vice president of marketing for Sega of America

Bellfield said one of the advantages of the central server approach is that it allows the publisher to offer fresh content via the Internet connection. Basic online play for the company's "NFL2K3" and "NBA2K3" will be free, but planned premium services such as tournament play and player rankings will likely carry a subscription fee.

"As we launch our sports online content this year, we're providing a base service for free," Bellfield said. "But as we introduce new services next year, there will be paid services. There's obviously a big market for people who want to play sports games. We think that's a good market to introduce people to online gaming and eventually introduce them to the idea of paying for online services."

Sega also has "Phantasy Star Online," a role-playing game (RPG) that helped establish SegaNet and that Bellfield expects will do well as a subscription service for the Xbox and Nintendo's GameCube. "RPG consumers are used to a certain element of pioneering business models," he said.

Schelley Olhava, game industry analyst for research firm IDC, said she expects most publishers will turn to subscription models to drive revenue from online gaming. But it will take time to convince consumers it's worth their time and trouble just to hook up their consoles to an Internet connection, let alone get them to pay for content.

"I think the issue with the console space is just getting enough people to play the games," Olhava said. "What needs to go on is an education process about why playing online is different and how it enhances the experience."

Olhava said successful marketing will spur other game publishers to give online a try, with many choosing to use hosting services such as GameSpy to keep online investments minimal.

"A lot of publishers don't want to be on the forefront of this, because they don't see a reason to take the financial risk," Olhava said. "And when they do decide to go online, they're going to look for an easy way to do it. There are a lot of options if I'm a publisher and I don't want to invest a lot to get online."

"In the PC world, you're used to the fact that every once in a while the PC crashes or a server goes down," Olhava said. "With the console, you expect to push a button and it works."

Cole added that one advantage publishers of consoles games have is that they get to start with a clean slate, as opposed to a PC audience, whose expectations have been shaped by a plethora of free, advertising-supported games.

"On the console side, they are used to paying for any type of game activity," Cole said. "I don't think they have that PC expectation of people giving stuff away."