Consoles Gather Troops for Questionable Online War

Electronic Gaming Business, Sept 24, 2003

The console battle for online supremacy is only in its very earliest stages, but is it clear yet that this is a war worth winning? As hardware sales start to plateau in this stage of the product cycle, both Sony and Microsoft seem to be betting big on using online play to extend and broaden the appeal of their hardware and keep gamers interested as they await the PS3 and Xbox 2 sometime in 2005 or 2006. But after quick initial adoption of the PS2 Network Adaptor (more than 800,000 sold), and more than 350,000 Xbox Live subscriptions, no one really can say whether networked game playing on consoles will register with a broad base of users in this or the next generation of hardware.

The rivalry between Microsoft and Sony is a battle now of two very distinct technical and revenue models for online play. Xbox Live charges $49 annually for player access, controls the network and the user and, publishers complain, gives little back to third party game makers. Microsoft argues that the more closed approach assures interface consistency and quality of service for the platform. Sony, on the other hand, offers its network to gamers free of charge and lets game companies like EA run online play themselves and create any subscription plans they like. Don't expect this to change, because despite the public announcements, networked console play is still in R&D, says David Mercer, senior analyst, Strategy Analytics. "In these early stages, both parties will likely continue on different paths as they learn how the market's going to work."

Electronic Arts, which has about a dozen titles currently running on the PS2 network, famously refused to adopt the Xbox model several months ago, dealing Microsoft a blow. An EA spokesperson confirms however that the company remains a loyal partner with Microsoft and continues to negotiate for a more favorable Xbox Live deal. "We wouldn't describe it as a major blow to Microsoft not to have EA support," says Mercer, "but it would clearly help in the long run if it did."

Microsoft, which historically has been very willing to invest billions in order to buy market share, recently announced very aggressive title bundling, discounting, and international offerings to encourage Xbox Live in the face of Sony's EA-fueled and free alternative. On Sept. 30, Microsoft planned to expand Xbox Live to Australia and several major countries in Europe. According to reports, as of June, Xbox claimed 50,000 European Xbox Live subscribers in eight existing venues and Sony claimed about 25,000. As in the U.S., Microsoft is bundling online-capable games and Xbox Live free trial periods with its console this Christmas. Xbox Live also will come to Korea, where online PC game play is virtually epidemic but where Microsoft has sold less than 40,000 Xboxes compared to almost 400,000 PS2s, according to the Korea Times.

Will They Come?

While there has been impressive initial enthusiasm for online play among core audiences, the real potential for networked consoles remains an open question. EA says it has been surprised by the number of PS2 network adapters that sold through, and the publisher had 500,000 customers sign up for online play of its console titles last year alone. Within a month of releasing NCAA and NFL football titles this August, EA has garnered another 250,000 registrants. Peak simultaneous use has reached 7,000. "Online was always more likely to grow steadily as the industry matures, the products evolve, and as the audience begins to understand what online can add to the gaming experiences," says Mercer. "We remain convinced that online will become an increasingly accepted element in console gaming and that new forms of interaction will emerge to encourage new users to go online."

The real test of online appeal may come after Christmas when a broader range of network enabled titles like Medal of Honor, Need for Speed and Lord of the Rings demonstrates how much online game play appeals to a wider range of demographics. Not surprisingly, EA has no plans to develop online-only console titles, because the company continues to see single player and in-home head-to-head play as the key drivers for these platforms.

For its part, Sony claims that 780,000 PS2 owners have online capability, although it does not say precisely how many are playing across its network. Like Microsoft, the company rhetoric involves understanding and appealing to the "mass market," although much of the interest in PS2 network gaming has revolved around its hard core SOCOM tactical warfare title. In addition to its partnership with EA Sports, its strongest potential driver of a broader base is the recently announced bundling of MMOG Final Fantasy XI (Square\Enix) with its long-promised PS2 hard drive. Set to release in early 2004, the success of this pairing could more clearly indicate the depth of interest in console online play.

Clearly Microsoft is banking heavily on the network model having broadbased not niche appeal. At the European X03 Xbox show this month, vp of marketing and sales for Xbox, Peter Moore announced that Microsoft was determined to "smash the myth" that online play is for cloistered geeks and that the company was about to launch a major marketing effort promoting Xbox Live as a social activity for all. "Online is essential to the video games industry," he told the BBC.