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Games industry becoming a broadcast model like TV in 40s
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Sat May 24, 2008 6:58 pm Reply and quote this post
The games industry is becoming a broadcast mediasimilar to the way that the movie industry transitioned to televisionin the 1940s, says Wild Tangent founder, chairman and CEO Alex St John.
"Theinternet is allowing the games business - which is a remarkablysuccessful business considering how bad the business model is - into abroadcast model where you see enormous scale of efficiency and verymass market appeal of gaming," he told investors at Wedbush MorganSecurities' Management Access Conference.
St John said the sizeof the games business was very interesting "considering that the basicvalue proposition for most games is to tell the consumer 'Buy this boxfor USD 60, sight unseen...or go to hell, I don't want your money.'"
Television,in contrast to movies, allowed for an impulse consumption of contentwith a mixture of subscription, pay per view, and advertisingsupporting it - turning it to become a mass market media.
Moviesdidn't die off, but the growth just occurred in broadcast media. Thesame thing is happening with the games industry, according to St John.
WildTangent - the fourth largest game network in the US, fifth largest inthe world. and the largest privately-held game network according tocomScore - makes about half its revenue from people who buy games orvirtual currency.
The other half of its revenue comes from the 98-99 per cent of the audience who plays for free, sponsored by advertisers.
"Iexpect that, within a few years, any gaming business model that isn'tmaking at least 50 per cent of its revenue from advertising is probablyleaving half the money on the table," St John said.
"Because whatwe've learned is that the advertising market is exceeding eager tosupport gaming. The problem has been getting games into a businessmodel that's possible for them to do that.
The thing we've donevery successfully is sell games not on a "Hey, you own this for $60"basis, but buy selling people tokens that allow them to spend thetokens across all the games on our service on a per play basis."
StJohn pointed to the USD 60 price of Halo 3 as an example, estimatingthat the person who buys the game at that price might play it a hundredtimes. Had that person been charged USD 0.60 per session, the publisherwould have made the same amount of money - but the publisher would havealso picked up those people who walk away from a USD 60 price tag, butwho are happy to pay USD 0.60 to try the game.
"So the content appeals to a broader audience, it has more customers and you make the same money from it."
"Andat USD 0.60 a play, an advertiser can sponsor it - just as Pepsisponsors iTune songs. Because at USD 0.99 a song, Pepsi can buy youyour music. At USD 15 an album, they couldn't. And so it dramaticallychanges the economics of the games industry."

Contributed by Editorial Team, Executive Management Team
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