Online Console and Handheld Gaming Services Will See Game Downloads Replace Subscription Fees as Dominant Segment, says ABI Research

Business Wire, April 3, 2006

OYSTER BAY, N.Y. -- According to a study by ABI Research, the online console gaming market is expected to migrate from its current subscription fee model to one in which game and content sales make up the majority of revenue. The technology market analyst forecasts that the overall market for gaming downloads for game consoles and handhelds will grow from less than $1 million in 2005 to over $3.8 billion by 2011.

Today's online console market - where Microsoft has an early lead with its well received Xbox Live service - is rapidly moving away from a largely fee-based model to one in which online content sales become the main business focus. The introduction of new gaming services from Sony and Nintendo that feature online gameplay as part of a free tier will help shift the overall market focus, and in the long run may require Microsoft to adjust.

"Sony's new Playstation Network Platform - which will launch with its Playstation 3 console - and Nintendo's Wi-Fi Connection service for its Nintendo DS and Revolution, are changing the market for online console and handheld services," says principal analyst Michael Wolf. "With both of the dominant handheld gaming platforms and two of the next generation consoles doing away with fees for the majority of online gameplay, consumers will come to expect online multiplayer gaming as a core component included with the purchase of the game."

As online gameplay moves to a free service model, game and content delivery will become the new focus. Microsoft's revamped Xbox Live, with its Live Arcade and Marketplace, has already increased take rates among those willing to pay for online gaming content. Sony, which plans to deliver game content through its PNP network, and Nintendo, with its Virtual Console game download service, will increase momentum in the online game download market.

"Online gaming for consoles and handhelds is entering its golden age," says Wolf. "While some online console gaming services, such as MMOGs, will continue to require monthly or annual fees, the clear direction for the future is content delivery. Advertising will also become an increasingly important business component as the number of online gamers increases dramatically over the next few years."

"Video Game Hardware, Software and Services" provides analysis of all hardware game platforms, software markets and online services gaming markets. It forms part of three ABI Research subscription products, Mobile Devices Research Service, Consumer Electronics Research Service and Digital Media Distribution and Management Research Service.

Founded in 1990 and headquartered in New York, ABI Research maintains global operations supporting annual research programs, intelligence services and market reports in automotive, wireless, semiconductors, broadband, and energy. For information visit www.abiresearch.com, or call 1.516.624.2500.