Videogame Makers Turning To Online Products And Services

Videogame makers are increasingly turning to online game services to provide a steady stream of revenue as the industry continues to struggle with weak consumer spending.

Companies including Electronic Arts Inc. (ERTS) and Ubisoft Entertainment SA (UBI.FR), are selling digital maps, extra levels and other downloadable content that complements their big hits. The products allow the companies to generate additional sales around their core products. Digital products also come with thick margins, as most of the development work has already finished for a game.

Other companies, such as Activision Blizzard Inc. (ATVI), are selling games that require subscriptions in order to play. Those subscriptions have generated a predictable amount of regularly recurring revenue.

"Consumers no longer want to play games that aren't online, that don't have community or that don't offer additional content," said Frank Gibeau, the head of EA's game division, told Dow Jones Newswires. He says online sales make up more than 20% of the company's overall revenue.

The growing importance of online revenue marks the changing priorities of the videogame industry. Already, big videogame companies have winnowed their product lines to focus around only the biggest and most high-profile games. Now, they're trying to expand the revenue generated by those titles through online content and services.

In the Americas and Europe, more then 30 million people play games online using Microsoft Corp.'s (MSFT) Xbox 360 and Sony Corp.'s (SNE, 6758.TO) PlayStation 3 consoles. That's more than four times as many people as were playing in 2007, according to Wedbush Securities analyst Michael Pachter. The number grows to the hundreds of millions if you include people playing games on PCs, or through websites such as Facebook.

"It extends the life of games," Pachter said. "It's a way to milk more money out of them."

Of course, not every company is trying to entice people to play together online. The new Wii U console by Nintendo Co. (NTDOY, 7974.OK), scheduled for release sometime next year, will have Internet capabilities, such as an online shop for game content. But the Japanese company has said it will not build a social network like Microsoft's Xbox Live or Sony's PlayStation Network, although it will let gamers connect to networks run by software partners.

Nintendo, however, is the exception. During the Electronic Entertainment Expo at the Los Angeles Convention Center this week, many companies were touting their online gaming prowess.

Activision drew crowds for its "Call of Duty: Modern Warfare 3" war simulation game, which will include services to let players fight against each other online. EA's "Star Wars: The Old Republic" online game was also popular. Both games, which are due to hit store shelves later this year, are expected to have downloadable content for sale following their release.

-By Ian Sherr, Dow Jones Newswires; 415-439-6455; ian.sherr@dowjones.com

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