Massively multiplayer online games and virtual worlds

In document A Digital Gaming Strategy for Malta (Page 50-53)

Chapter 2.2: Major games industry sub-sectors

2.2.4 Massively multiplayer online games and virtual worlds

We define MMOGs as online games that support hundreds or more concurrent players in a constantly available, shared virtual game world. We deliberately differentiate MMOGs (standalone games) from social network games (played on social networks) even though many SNGs share the same characteristics as MMOGs. MMOG games services are refreshed continuously by companies who usually monetise their own customers directly via subscription, microtransactions and, to a much lesser degree, advertising. Whilst the majority of such games are role-playing games (MMORPGs), strategy games, sports games and virtual worlds (where gameplay is of secondary importance to socialisation, communication, community and creativity) are all popular. The core MMOG audience is 15-35 year old males although the majority of virtual worlds target young children (6-12) and there is also a vibrant market for MMOGs (such as RuneScape and Dofus) primarily aimed at tweens to mid-teens. MMOGs may have been pioneered in the west but the Asian MMOG market is now several times larger and growing at a faster rate.

High-end MMOGs are the most expensive and highest risk form of games development often necessitating 4+ years of development by a large team with more diverse skills than is found in other forms of games development. Development budgets in the high tens of millions of dollars for such games are not uncommon and one or two will have exceeded $100m before launch. However the potential returns from this market are also substantial with many Asian companies generating 50%+

profit margins from rapidly growing nine figure revenue levels. These high-end games are all download titles (typically free but sometimes retailed or network retailed) and contrast with browser MMOGs, typically developed in Flash, which rarely cost more than $1m to launch but can attract larger freemium user bases. Due to the openness of the platform and size of addressable market, almost all MMOGs are PC based although there are a tiny number of console MMOGs launched and in development.

Value chain and role descriptions

The following companies perform roles in the value chain:

Independent studio: Privately-owned games developer that creates games for self-publishing or for third party publishers. Work-for-hire MMOG development does exist but is rare. Most independent MMOG studios work on their own MMOG IP.

Publisher studio: Although there are numerous dedicated MMOG publishing firms with no internal development, the majority of MMOG publishers have internal development teams.

Rights Holder: Creators or owners of format rights such as film studios, television producers and broadcasters, media licensors, print publishing companies and (rarely) games publishers that license IP to games companies in this sector.

A DIGITAL STRATEGY FOR MALTA

Portal/Publisher: A company specialising in financing development, and promoting and maintaining destination web sites for consumers to access its portfolio of games. Many have their own internal studios.

Distributor / Aggregator: Either a company that specialises in distributing games content across a network of sites or owners of high traffic sites that promote content from other sites. 12

Online fulfilment provider: Companies that provide the transactional back-end for sites that charge consumers directly for games or games services. Such companies identify and authenticate payers, validate their payment methods and process direct payments or deposits into electronic wallets.

Key trends

The following are the most important trends in this sub-sector:

 Asia dominates the global market: The Asian MMOG market represents around three quarters of the global MMOG market by value and houses most of its largest companies. MMOGs have found a natural home in Asia as most countries have little or no competing indigenous console or handheld markets to speak of, have high PC usage (in computer cafes and at home) and good network connectivity. With extremely high piracy rates for boxed PC games, developers have sought to provide forms of gaming that are accessible to the mass gamer market whilst being piracy proof. MMOGs fit this bill perfectly and have exploded in popularity over the last decade. Korea led the early charge but China over the last three years has overtaken it to become not only the biggest MMOG market in the world but also one that still has huge growth potential. China operates protectionist policies severely limiting the potential of overseas companies to operate in their country.

 The rise of browser gaming: MMOGs developed in Flash and Java have proliferated in the last five years, in part due to the enormous success of German MMOG specialists such as Bigpoint and Gameforge who have proven that the increased accessibility of native browser technology more than compensates for its technical limitations and can attract tens if not hundreds of millions of players. Coupled with freemium and microtransaction models and extensive localisation into territories where high-end PCs in the home are uncommon, browser gaming has grown to become a major part of the MMOG market by value and an even greater part by release volume due to their relatively small average development costs.

 The rise of microtransactions in the west: Microtransaction MMOGs were a rarity in the western market four years ago but have proliferated rapidly since then. 65% of all MMOGs launched and operational in the west today derive some or all of their revenue from microtransactions13. Their ascent is inextricably linked to the growth of browser MMOGs, virtual worlds and, in particular, Asian MMOGs but their use has been spreading to high-end download games too. Microtransactions are still more widely used (and popular) in Europe than North America. However, as microtransactions have become increasingly ‘proven’ in North America, microtransactions will eventually become the standard for all high-end western MMOGs even if they are operated in conjunction with subscriptions.

12 Since MMOGs require constant connections to the game servers to authenticate players, track and record their progress and reflect relevant player actions to all players in their virtual vicinity, the role of network distribution is critical. Since per-player bandwidth requirements are minimal (typically under 100KBPS), bandwidth is important in aggregate only and needs to meet peak concurrency requirements that rarely last more than a few hours per day. Latency is more important, mainly to reflect other player actions with the minimum of delay (high latency can render an MMOG unplayable). Network distribution choices are broadly based on self-hosting (suitable for smaller regional MMOG publishers only although some of the largest MMOG publishers have built their own massive server farms in key parts of the world) and co-location. The latter involves running servers on third party networks such as TeliaSonera which are sufficiently widely distributed geographically to ensure low latency for all players and large enough to cater for potentially bursty MMOG bandwidth requirements.

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INDUSTRIAL TRENDS AND OPPORTUNITIES

 The rise of freemium: Although freemium MMOGs (where some parts of a game are only accessed via payment but the rest is permanently free) have existed since the late 1990s, they have experienced a major surge in adoption in the last four years. The vast majority of the c. 400 titles launched in the last three years have been freemium which has resulted in 86% of all MMOGs launched and still operational in the west today being freemium14. Freemium can be applied to all MMOG types from subscription and microtransaction games to browser and client download titles but it radically alters an MMOG’s business model. Whilst dramatically increasing the accessibility of a game and, as a result, its player base, freemium also requires the paying minority to cover the costs of the free majority. It is a potentially tricky financial balancing act but one that the leading companies have been able to generate substantial revenue and margins from. Freemium is rapidly becoming a competitive necessity although some forthcoming hard-core MMOGs will continue to use mandatory subscription or microtransaction models.

Brief profiles of 4 leading companies

Blizzard: A subsidiary of Activision, Blizzard is a specialist PC games developer that developed the most successful MMOG of all time, World of Warcraft (WoW), a fantasy MMORPG. WoW was launched in 2004 and quickly smashed through historic MMOG sales records defying industry logic and even internal expectations. It became the first game to generate over $1bn in a single year (2008) for its publisher and has continued to do so at very high margin since then (generating $1.4bn in 2010,

$1.2bn from WoW). Until recently, it was the single biggest MMOG company in the world employing well over 2,500 people, the overwhelming majority of whom work on WoW. WoW’s success can be attributed on the company identifying and improving the most successful features of existing MMOGs, eradicating all of the worst features and producing not just an extremely polished game but an extremely polished service that appealed to light as well as heavy MMOG players. WoW’s business model is subscription based in the west and microtransaction-based in Asia but it also sells incremental content and services in the west which has allowed it to increase revenues per user even as its overall paying user base has stagnated over the last 2 years. Blizzard has announced that it is to make WoW freemium, offering the first 20 levels for free and is developing a new MMOG due in 2013, both of which will undoubtedly propel revenues.

Tencent: Tencent is a major Chinese telecoms and media company whose games division is the Chinese MMOG and, more broadly, online games market leader. With its most recent quarterly network games revenues exceeding $550m, Tencent is now the world’s largest network games company overall. Tencent’s online games operations are very skewed towards MMOGs but also includes casual online gaming on portals, mobile, social and instant message networks. It operates an array of internally developed, and externally commissioned and licensed MMOGs all of which are freemium and supported primarily by microtransactions. Its peak concurrent games usage is 7.7m and targets a predominantly young male user base but also females and children. Surprisingly, Tencent has achieved all this with an almost exclusive focus on China. However it has begun an international expansion of sorts, paying a reported $400m to acquire US MMOG developer Riot Games in early 2011.

Nexon: Nexon is the Korean MMOG market leader with 2010 revenues of over $870m. It is also one of the oldest MMOG companies in the world having begun life in 1994. Nexon was not only one of the first MMOG developers but also one of the first to use microtransactions and freemium. Like most major Asian MMOG companies, its success has been built on the back of a large and ever growing portfolio of titles although 2004 and 2005 proven critical years for the company with the release of

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A DIGITAL STRATEGY FOR MALTA

several MMOGs (MapleStory, Mabinogi and Kartrider) that were to become major domestic and international hits. Kartrider, a cartoon kart racing MMOG featuring highly customisable karts and characters, was the most significant of these attracting over 230 million players worldwide. Nexon has been steadily expanding overseas with extensive licensing revenue from China and Japan and a US office which handles its North American MMOG launches. Nexon recently moved its headquarters to Japan in preparation for a flotation on the Tokyo Stock Exchange.

Sony Online Entertainment: SOE is a division of Sony Computer Entertainment and the one-time MMOG market leader. SOE has existed since the mid 90s but only released its first MMOG, Everquest, a fantasy MMORPG in 1999. Everquest, like WoW after it, smashed both sales records and industry preconceptions to gather some 450,000 paying subscribers at its peak. Everquest fared strongly for many years but suffered as direct competitor WoW’s popularity grew. SOE followed Everquest up with a number of titles, including one based on the Star Wars universe, but none that got close to Everquest. Despite this, SOE remains one of the biggest MMOG publishers in the west and is included in this list because it is also one of the only ones to launch and make a commercial success of a console MMOG (DC Universe for PS3).

List of key genres

RPG, strategy, shooter, racing, card

2.2.5 Social network games

In document A Digital Gaming Strategy for Malta (Page 50-53)