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March 27, 2003

The Future of Online Gaming By Cade Metz

That gaming console in your living room is more than a toy. It's big business. In-Stat/MDR, the Scottsdale, Arizona research firm, recently pushed a report entitled "Online Gaming Affects More Than You Think." According to the study, online gaming accounted for roughly nine percent of the traffic over the Internet's US backbone in 2002. By 2007, the reports says, online gaming will account for 285 petabits (285 followed by 15 zeroes) per month, and online subscriptions for gaming consoles like the Microsoft Xbox, the Nintendo GameCube, and the Sony PlayStation will bring in $650 million annually.

"Online gaming is a real industry, which will make real money," said Eric Mantion, a senior analyst with In-Stat/MDR. "There are a lot of companies that are working very hard to grow this industry quickly, so odds are, they will help to move things along faster than some expect."

You can now go online with all three of the leading gaming consoles, but at the moment, only Microsoft is trying to turn this into a serious business opportunity. The company's Xbox Live online service offers more than ten titles. It is available over broadband connections only, and requires a 12-month subscription. The X Box Live Starter Kit, which includes a one-year subscription, a headset, and several games, currently sells for about $50.

Nintendo charges $8.95 per month for taking the GameCube online, but offers only one game, Phantasy Star Online Episode I & II, and GameCube users are typically young children, who aren't as likely to go online as teenagers and young adults. "A lot of parents don't want their children wandering around the Internet," says Mantion. Sony lets PlayStation owners go online for free.

PlayStation accounts for the bulk of the gaming console market, and In-Stat's report says that, through the end of 2004, console gamers using free online services will outnumber those using pay services. But by 2005, the report predicts, most consoles will be on the pay-for-play model. "If you look at the economics behind [online gaming]," says Mantion, "you'll see that it's very difficult to give [the service] away for free." This won't prevent people from gaming online. By 2007, according to In-Stat, more than 9 percent of all gaming consoles will be online worldwide, and a far higher percentage will be online in Japan, Korea, and the US, where broadband connections are much more prevalent.

Many people have questioned Microsoft's pay-for-play strategy, but it seems to be working. According to Mantion, Xbox Live already has 350,000 subscribers. "It only had a quarter million as of January first, so it's growing pretty strongly."

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