Online awaits upgrade

Next generation machines led my Sony & Micosroft key to growth

In online gaming, the phrase these days is very much wait and see.

For Microsoft and Sony, online opportunities with their Xbox and PlayStation 2 are gaining steam but largely seen as test runs for the fully broadband-enabled Xbox 2 and PlayStation 3, skedded for release in 2005 and 2006. And in the PC world, online play has yet to break out beyond the hardcore fantasy lovers who spend an average of 22 hours per week in massively multiplayer online role-playing games.

“This is really table stakes for these companies,” says Jupiter research director Michael Gartenberg. “It’s setting the stage for the next generation of consoles when broadband connectivity becomes a core feature.”

In the console world, Sony and Microsoft have adopted significantly different approaches. While market leader Sony allows publishers to set up their own online communities and pricing, Microsoft organizes all of its Internet ops through its Xbox Live system, which allows players to use a single log-in and support structure for all their online play.

While Xbox Live generally gets better reviews from players, usage roughly tracks Sony’s lead in the overall console market. Xbox Live claimed around 750,000 subscribers as of December, while Sony said 2.6 million PlayStation 2 users were online in March. And PS2 is the only platform so far to attract No. 1 publisher Electronic Arts.

According to JupiterMedia, rev from online console gaming will be over $200 million this year and is projected to reach nearly $1 billion by 2009.

Online PC play is more than double the size of consoles, with $449 million of revenue this year. But as gamers continue to migrate away from PCs, that figure is expected to grow much slower than online consoles, with the two crossing paths in 2007.

Industry has yet to find a hit that comes close to Sony’s “Everquest,” as exemplified by the high profile failure of “The Sims Online.” While casual games with free online components have blossomed, everyone is hoping for the recurring subscription revenue that has made “Everquest” such a huge moneymaker.

That’s what’s drawing companies like Microsoft, VU Games and Warner Bros. Interactive into the market with the upcoming “Vanguard: Saga of Heroes,” “Worlds of Warcraft” and “The Matrix Online.” And if none of those hit, there’s always “Everquest 2.”