Online Gaming: The Next Broadband Growth Driver? (V)

I’ve questioned in the past whether the US really wants broadband, and I think that the lack of a killer app, not availability, is what prevents widespread adoption. A comment made by a reader, a keynote speech by Sony (SNE), and an article in the WSJ helped crystallize some thoughts I have had.

China is regulating the amount of time children under 18 can spend playing online videogames. When China steps in to start regulating a runaway trend you can be sure it is starting to reach critical mass.

From the WSJ article:

Now, as part of an experimental effort to treat kids that it worries are addicted to online videogames — a $650 million business in China this year, by some estimates, and growing rapidly — the government is asking the gaming companies responsible for 80% of the market to change their software so that minors will be limited to five hours of play a day. After the third hour, the game’s rewards are slashed by 50%. China will require players to use their national I.D. numbers to sign onto games. Kids seeking to feign adulthood by faking their I.D.s will find all their equipment and experience points deleted.

In a keynote Wednesday (excellent Slashdot link) at the Games Developer Conference in San Jose, Phil Harrison outlined the future of Sony Corp's Playstation 3 (PS3) strategy and confirmed a November 2006 launch. Here are some incredible stats on Sony’s previous generation console, the PS2:

• 100 Million units of hardware
• 1 Billion units of software sold
• 632 Software Titles
• 60% overall market share

The online game “World of Warcraft” has over 6 Million subscribers globally. That isn’t 6 Million people “have tried the game” that’s 6 Million people play every week. The population of Ireland is only 4 Million. A Spanish version is in the works. It’s not available in mainland China, and it only runs on the PC platform. In short, a lot of market exists to be tapped.

World of Warcraft is published by Blizzard Games, which is owned by Vivendi Universal (V). I’ve never seen nor played World of Warcraft, and I can’t say I am up to date on the whole gaming scene.

However, even with these large numbers it feels to me that we have yet to see gaming go mainstream. How many adults do you know that play videogames? How many adults do you know that watch movies?

Contrary to the popular belief that videogames have overtaken movies, they are still just a fraction of global revenue. From Wikipedia:

Once a niche market and considered by some as a curiosity in the mid-1970s, the video game industry took in about USD$31 billion worldwide in 2004. Contrary to the popular belief, the video game industry is not bigger than Hollywood. The US film industry as a whole made about $44 billion in the same year, and the worldwide film industry is worth an estimated $200 billion per year. Game industry figures also include the sales of hardware, which skews the data favorably in popular comparisons, but in fact software sales account for less than 20 billion dollars per year worldwide, showing the game industry is about 10-12% of the size and worth of the film industry.

It will be interesting to see how the online gaming business can evolve to capture a broader audience. Readers of this blog probably don’t game (though their children probably do), and that will change. As more people start gaming online with consoles or PC’s, expect to see the adoption rate of broadband jump just as it did when illegal file sharing drove deployment.

I’ll discuss the implications on broadband providers in a future article.