MMOG PUBLISHERS CONJURE UP NEW BUSINESS MODELS, ONE SIZE NO LONGER FITS ALL

By Paul “The Game Master” Hyman

Once upon a time, video gamers typically bought massive multiplayer online games (MMOGs) for, say, $50 at retail, played them online for 30 days for free, and then subscribed for $15 per month for continued access to the ever-changing game world.

Indeed, MMOG publishers counted on that ongoing revenue stream for both their profits and to support the 24/7 service they provided, which became increasingly costly as their subscriber base grew.

But no longer.

In a world where TV is sometimes free, often not, and, pay-for-view can be really, really expensive, publishers are finding, too, that one MMOG business model no longer fits all. Especially since, with so many new MMOGs entering the marketplace, there is a need to differentiate one from another -- not only through their content but also through some pretty creative pricing schemes.

Just last month, Shanghai-based Shanda Interactive Entertainment loped the price tags off two of its once-popular MMOGs -- Legend Of Mir II and The World Of Legend" -- and announced that, from hereon in, play is free. Free, that is, unless one wants “premium services,” including online competitions with such prizes as extra-powerful weapons or virtual coins. In effect, Shanda has given up the 35 RMB (approximately $4.50 U.S. ) per gamer per month that the company used to charge.

There is, of course, a method to Shanda's madness. While, at one time, the four-year-old “Legend Of Mir II” was the most popular MMOG in China , by current standards its graphics are outdated. The number of average concurrent players has slipped to 233,000 in 2005's third quarter from 381,000 in the previous quarter, due in part to the introduction of Blizzard's Entertainment's hugely successful, world-class MMOG, "World Of Warcraft," into the Chinese market in June. Free play, Shanda hopes, will attract gamers, a percentage of whom will find “premium services” enticing.

“We expect to go back to charging for basic playing time for ‘Dungeons & Dragons,' the 3D MMOG we will be launching the second half of next year,” explains Donglei Zhou, Shanda's director of business development. “But, in the meantime, our older MMOGs are losing some of their stickiness. So, instead of hanging around and waiting for these older games to lose more and more users, we proactively changed the revenue model and, as a result, expect the user base to pick up again as we attract users away from the competition.”

And because Shanda's plan is to grow from online game operator to interactive entertainment media company, it believes that it is in its best long-term interest toexpand its user base. Shanda's goal is to attract gamers, and then, when they're online, sell them books, movies, music, and other forms of digital entertainment as well.

HELLO GUCCI, GOODBYE GAP

In fact, when “Dungeons & Dragons” launches, Shanda's current pricing policy will morph into an even more profitable one -- there will be a charge for “premium services” plus a basic monthly fee. “Just as in real life,” Zhou says, “we expect that once people start consuming luxury goods -- once they start buying Gucci -- they may never be able to go back and buy Gap anymore.”

Closer to home, Sony Online Entertainment (SOE) -- which now offers EverQuest,
EverQuest2, Star Wars Galaxies, PlanetSide," and The Matrix Online -- has an eye on the “no subscription fee” model for MMOGs and likes what it sees, not for anemic titles that may need rejuvenating but for fledgling titles. In fact, when it releases its next, unnamed MMOG at the end of 2006, gamers will, indeed, play for free.

“We're calling it the ‘velvet rope' approach,” says John Smedley, SOE's president. “The core game will be free, but there will be certain services that you can get for a small fee. Basically, we think we can monetize the game that way and reach a much broader audience.”

In fact, Smedley doesn't even plan on charging the usual $50 for the retail game itself, usually referred to as the “client.” It will be a small, gratis download.

“The goal here is to just give the game away, invite the gamers in, and get them playing,” he explains. “And then, as they get further and further into the game, start saying things like, ‘Hey, here's something you can buy if you'd like. Interested?”

The potpourri of choices might include an “item database” where the gamer could peruse the virtual items in the game and view the ones he doesn't own yet, or a “Station Player” option that allows the gamer to see his character on a Web page and show it off to his friends. Or there might be a fee for teleporting between two major points in the online world rather than taking the time to “walk” there.

“They are all ways of monetizing around the game without actually charging for the core game,” Smedley says. (Smedley chose not to reveal any details about the forthcoming MMOG, other than it will be an online role-playing game.)

But he doesn't believe this “free model” will work for every MMOG, and the trick for the successful publisher will be to determine correctly which business model will work with which game.

IT'S THE CORE OF THE BUSINESS

“We don't think it's smart to go with only one business model,” Smedley says. “That's bad business. We want to have both a variety of games in different genres -- whether it is space or fantasy or whatever -- and a variety of business models to appeal to different customers. The difference between MMOG publishers and other game publishers is the scale of the investment -- some of the bigger MMOGs cost upwards of $30 million to build. So how you monetize the game is extremely relevant; it's the core of the business.”

For example, he says, a game that appeals to a younger demographic which typically doesn't have their own credit cards will benefit from the “free model”; their parents will be much more receptive to buying premium content that sells for just pennies. “A game that charges a $15 monthly subscription fee is going to scare that audience off,” Smedley adds.

Meanwhile, in order to attract more subscribers, LucasArts is not only making alterations in the content of MMOG “Star Wars Galaxies,” but is changing its business model as well. (LucasArts is the game's publisher, SOE its developer.) Last month, the game's pace was kicked up a notch, combat was made simpler, and over 100 new story-driven quests were added.

At the same time, LucasArts made the first 10 levels of the game available for free digital download. If, after 10 days, the gamer wants to continue playing, rather than having to go to a retail store to shell out $19.99 for the “starter kit,” they can just click to continue -- after using a credit card to pay for the first month's subscription fee of $14.95.

“We're saving them both the $19.99 and the hassle of going to retail, and making it much simpler to keep playing the game,” says Nancy MacIntyre, senior director of “Star Wars Galaxies.” “Some people liked the free trial period, but not enough to motivate them to go out and physically buy the product. So we've eliminated that barrier and, hopefully, eliminated the drop-off.”

MacIntyre believes that, over the long haul, the monthly subscription model will disappear from the MMOG market and will evolve to the selling of virtual items, an in-game economy, and the selling of premium services. But, she says, not immediately.

“Not all games are set up around the buying and selling of items, which would make it very difficult to take a game like ‘Star Wars Galaxies' and make that transition,” she says. But, she adds, when “Star Wars Galaxies 2” is developed -- perhaps in 2008 or 2009 -- things will be different. “If we were starting to build ‘Star Wars Galaxies' today, we would absolutely consider building it from the group up with premium services.”

One additional model, pioneered by Oslo, Norway-based Funcom exactly a year ago, is an advertising-supported program; gamers can join MMOG "Anarchy Online" for free and watch streaming real-time advertisements throughout the game, or pay $14.95 a month to play a greatly expanded version -- and have the privilege of turning off the ads if they wish. Funcom reports that the model is working so well that it is extending the free version of the game into 2007.

“It's still too early to say how successful this model will be in the long-term,” says Trond Aas, Funcom's president and CEO. “It's important to point out that we didn't exchange our primary revenue from subscription to ads; players who want access to our expansion packs must still pay a subscription fee. However, as development coasts soar, Funcom believes that ads in games are here to stay as it enables extra revenue drivers without interfering or hindering gameplay in any way.”

While gamer reaction to in-game ads is still a murky subject, clearly publishers are considering them as another revenue stream. Shanda's Zhiu, for example, reports that the company has spoken to several ad-serving companies and is now weighing its options.

“Now that a percentage of our gamers are free users, the potential of incorporating some advertisements into the game may not raise too many objections,” she says. “So that is definitely an opportunity.”

SELLING ADS LIKE CBS

In the MMOG “PlanetSide,” Sony has already integrated in-game ads. But, unlike Funcom's policy, gamers still pay a subscription fee. “The ads are an additional revenue stream for us,” says Smedley. “In the future, I can see us building an advertising business where we're selling ads almost like CBS sells an ad inventory for its shows.”

And, at NCsoft North America, CEO Robert Garriott predicts that, in terms of in-game advertising, “I think we will be there shortly.” Its parent, South Korea-based NCsoft, publishes, among other titles, two of the three most popular MMOGs in the world – “Lineage” and “Lineage II” (the third being “World Of Warcraft”).

“But the most important thing is making sure that the advertising is consistent with your game,” he adds. “Medieval fantasy role-playing games -- which is the biggest category of online games -- don't readily lend themselves to Coke ads. However, we have a whole lot of products coming out that will lend themselves to in-game ads, especially if it's done in a way that actually adds value to the game. Much research shows that when players walk around an environment and see, say, a Nike or a Red Bull ad, it adds a flavor to the game that makes it more realistic.”

It is generally acknowledged that South Korea is the market leader when it comes to new MMOG models, and it is there, according to Garriott, that MMOG activity “has truly reached mass market. “One out of every five households in Korea has a ‘Lineage' account and another one in five has a ‘Lineage II' account,” he reports. “The U.S. is really far behind, but it's growing.

“I predict that there will soon be a whole variety of MMOG models from which different gamers will be able to choose based on each game's cost-benefit tradeoffs,” says Garriott. “Our goal as an industry must be to provide those different options to allow gamers to purchase their games in the manner that's most attractive to them. It's not going to lead to cheaper gaming because these are very expensive games to build. But the consumer is going to have lots of choices and, ultimately, that's what helps markets grow.”

LucasArts' MacIntyre likens the future of the MMOG gameplaying experience to vacationing on a cruise ship: “You get onboard and you're entitled to a bed to sleep, a pool to relax in, and all the food you can eat. There's no extra charge for any of that. But, if you want a tropical drink or to go on a kayaking adventure at the next port, you pay for those extras. I believe that's the most likely way MMOGs are going to go.”