Multiplayer titles amass multimillion-dollar might

Last year, MMO game licenses generated over $110 mil

With the bow of Internet-connected vidgame consoles like Xbox 360 and PlayStation 3, the burgeoning business of massively multiplayer online games is poised for massive growth.

Once the exclusive domain of the hardcore, high-end PC set, MMOs now play host to thousands of gamers simultaneously worldwide.

Last year, 2.7 million MMO game licenses were sold, generating more than $110 million — up from just $17.7 million in 2000 — according to vidgame tracking service NPD Group.

The games are still rooted in role-playing, dragon-slaying fantasy worlds, but the field is rapidly expanding to encompass more genres, like strategy, and broader audiences, like casual gamers and kids.

“I think within two years (console games) will be 50% of our revenue,” says John Smedley, president of Sony Online Entertainment, one of the MMO market’s leading players.

Starting out in 1999 as the publisher of the wildly successful “Everquest” online franchise, Smedley’s unit now is busy completing the network backbone for Sony Computer’s PlayStation 3 (set for a November debut), while also developing new games and laying the infrastructural trackwork to connect MMO players across the U.S. and around the world.

Retail sales of MMO games like Blizzard Entertainment’s “World of Warcraft,” Disney’s “Toontown Online” and LucasArts Entertainment’s “Star Wars Galaxies: An Empire Divided” topped $110 million last year, accounting for 10% of all PC game sales, according to NPD. Those sales are just for the basic software on disc; some publishers rake in more revenue by charging monthly subscription fees of $10-$20 for optional online play, as well as selling downloads of new game levels or character accessories.

On Sony’s Station Exchange auction site, “Everquest II” players can sell access to virtual game elements for real money. At press time, items up for bid ranged from a $10 piece of armor to a $1,225 character ready for use with the game’s 70th level. (Transactions are made via PayPal with a credit card; Sony pockets a listing fee and 10% of the final sale.)

Then there are the evergreen in-game advertising opportunities that more modern-day MMO titles can present, for everything from soda to summer blockbusters.

“You’re talking about an (annual) revenue stream that’s now in the multimillion-dollar range on a per-game basis,” Smedley says.

Internet-connected consoles spell an even greater opportunity for publishers to establish MySpace-like MMO communities within the vidgame industry’s most lucrative market segment. The early success of games like Take 2 Interactive’s “Elder Scrolls IV: Oblivion” for Microsoft’s Xbox 360 has companies excited to build MMO components into an increasing percentage of console titles.

But the burden of long-term customer support continues to bar many developers and publishers from making a go with an MMO.

Sony, which handles back-end operations for its own online games (including “The Matrix Online,” which it bought from Warner Bros. Interactive last year) as well as others (including LucasArts’ “Star Wars Galaxies”), retains some 300 customer service staffers alone, with 180 of the employees in India.

“We do a large amount of in-game customer support that’s very labor-intensive,” says Smedley, noting that his staff will often spend as much as 20 minutes helping a user with a particular problem.

What’s more, server snafus and support dropouts can quickly alienate players. Vivendi Games-owned Blizzard, which produces MMO market leader “World of Warcraft,” acknowledged late last month that some of the game’s monthly subscribers had been shut out due to a hiccup in the company’s automated billing system. Users attempting Blizzard’s recommended work-around reportedly overwhelmed the company’s customer service; the incident has left bloggers wondering whether “Warcraft” has grown too big for its back-end britches.

“We know MMOs do exceptionally well on PCs, and that’s not going anywhere,” notes NPD analyst David Riley. But while the likes of Sony drive MMOs into the console space, the business proposition will remain risky for smaller developers. “Especially on the next-gen consoles,” Riley says, “there’s a huge development cost. There has to be some proof of demand.”

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