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Emerging gaming biz upends playbook

Videogame Insiders Report 2013

It’s easier than ever for gamers to get their fix, whether playing “Words With Friends” on a plane, “League of Legends” for free online or the latest “Call of Duty” on Xbox or PlayStation consoles.

Figuring out how to maximize revenue on these platforms is a lot more challenging. Last year, the overall videogame market declined again, despite blockbuster launches of “Call of Duty: Black Ops II” and “Halo 4,” surging digital sales and the arrival of Nintendo’s next-generation Wii console for the holidays. Microsoft and Sony are expected to follow suit with new consoles before the end of the year, potentially splintering the market further.

“Ten years ago, you made a boxed product that might be played between 8 p.m. to 12 a.m. and maybe on the weekends,” says Chris Early, vice president of digital publishing at Ubisoft. “What we’re seeing now is because of the change in hardware and (mobile) devices, we have more access to the player’s time that we can use to engage the player’s mind. So how do we make those experiences and brands relevant at other parts of their day, which might involve a different piece of hardware in their hands?”

One way is to make complementary experiences on various platforms. “Our strategy is largely ecumenical about distribution and platforms,” says Strauss Zelnick, chairman and CEO of Take-Two Interactive Software, who points out his company has released new and catalog titles for smartphones and tablets. “We aim to be wherever consumers want to be entertained and provide them with experiences that are perfectly suited for each specific platform.”

Christian Svensson, senior vice president of strategic planning and business development for Capcom, says the traditional side of the business can and should learn from the emerging mobile sector. “There are keys to success in these areas that will become essential for us to master if we’re going to continue to be successful even within our traditional core business,” Svensson says, citing the need to understand real-time metrics and nurture strong community development. “So perhaps as important as the direct revenue contribution of these sectors, will be the ongoing corporate cultural changes that they will impart to our whole organization as we become more experienced with them.”

There are more than 67 million Xbox 360 units in people’s homes, as well as 64 million PlayStation 3’s and 96 million Nintendo Wiis. Apple has sold more than 85 million iPhones in the U.S. alone (as well as 34 million iPads).

Android numbers are a bit harder to pin down, since there are so many different providers, but Samsung sold 21.25 million phones and 1.4 million Galaxy Tab and Galaxy Tab 10.1 tablets in a two-year period between mid-2010 and mid-2012.

The free-to-play movement, which has been incredibly successful in Asia, is quickly becoming a force in the North American market as well. “League of Legends,” a free to play multiplayer battle game, has some 32 million monthly players.

And Sony Online Entertainment, which once required players to pay a monthly subscription fee for its massively multiplayer online games, has recently converted all of its titles to a free-to-play model. The action has resulted in a 300% increase in new players for “EverQuest 2,” a 125% increase in item sales for “EverQuest” and a 350% bump in registrations. “Planetside 2,” its most recent release, has more than 1.6 million registered users — with 750,000 logging in to play every week.

“Sometimes you make a decision and you’re like ‘Oh God, let’s buckle in and hope everything goes well.’ That’s how it was with free to play,” says John Smedley, president of Sony Online Entertainment. “Now we look back and wonder ‘How did we ever survive before this?’ Living in a world where retailers control your software was horrible.”

Cloud-based gaming, still in its infancy, is showing some promise. While OnLive seemed to be the early leader, striking deals with Google TV and Vizio, the company suffered a setback last year when it abruptly fired all of its employees, transferred ownership to a new company and moved forward with a skeleton crew.

Insiders later reported the company consistently failed to make money and was burning millions of dollars per month.

Competing service Gaikai, however, got a boost when Sony purchased the company for $380 million in July — and the technology could be included in future PlayStation models.

For all the growth on the mobile side, there’s no denying the power of potent console games. “Call of Duty: Black Ops II” grossed $1 billion in 15 days in November, shortly after “Halo 4” outpaced previous installments in the franchise with $220 million in first-day sales. Clearly, there’s still life left in console games.

Says Zelnick: “The paramount factor in capturing any audience is to give them an incredible entertainment experience that is worthy of their time and money — regardless of the platform.”

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