Free online games out to sink pirates
Big picture: Companies such as Ubisoft (Assassin's Creed and Tom Clancy) are combating piracy with new browser-based free-to-play titles. Photo: Jonathan Alcorn
Video game makers who once steered clear of emerging markets to avoid getting ripped off by copycats are returning with free online offers to make money from customers willing to pay for add-on features.
Electronic Arts, whose Command & Conquer is ranked by researcher NPD among the top five best-selling PC franchises of all time with more than 30 million copies sold since 1995, will make the game free online next year. Ubisoft Entertainment, known for Assassin's Creed and Tom Clancy, introduced seven browser-based free-to-play titles at the gamescon event in Germany last month.
Free games with extras that cost often less than $US1, a model pioneered by Zynga, are poised to push sales in countries where disposable income is low and piracy has hurt revenue. Latin America, Africa and the Middle East made up 6 per cent of the industry's almost $67 billion in revenue last year, according to researcher IDATE DigiWorld.
"With the growing availability of mobile devices and PCs, the number of potential customers is rapidly expanding, especially in emerging markets," said Frank Gibeau, head of labels at Electronic Arts, the world's second-largest game developer by revenue. "The free-to-play model makes our games accessible to these audiences."
Gamers in emerging markets are more likely to use a handset than a recent Microsoft Xbox or Nintendo Wii games console. More than half of US households own a current- generation console, according to research firm Nielsen. Ownership in emerging markets is around 30 per cent t of the level of that in Western countries, said Peter Warman, chief executive officer of researcher Newzoo.
"Emerging markets are where the growth is," said Jan Ten Sythoff, a British-based analyst at Pyramid Research.
In many countries, people don't often buy games, according to the Interactive Software Federation of Europe. In Eastern Europe, 81 per cent of gamers had played free online games in the previous three months when questioned in spring 2010, while 51 per cent hadn't bought or been given a game in the previous year.
Those gamers may be willing to pay for in-game items or skills, new content and maps. The purchase of a fashionable lamp in Electronic Arts's Sims Social, where gamers can lead a second life in a virtual village, costs about 91¢ in a virtual currency that may be purchased with real money, while a designer rug is about $1.60.
Ubisoft, based in France, and founded 25 years ago by the Guillemot family, sees the model as a way to overcome piracy and attract new players.
"Online games are a way to stay in connection with players and tie them to our products," said Geoffroy Sardin, Ubisoft's chief of marketing and sales. "It is a service that adds value to gaming and thereby incentivises players not to get our games through illegal channels."
To avoid piracy, game developers only enable social and interactive features, such as chat windows and multi-player modes, once a player is registered with the digital distribution platform. Web-based games can only be played if the user is connected with the game's server.
In China, revenue from all video games is expected to grow to $9.2 billion by the end of 2014, up 39 per cent from last year, according to Pearl Research.
There is little data available about sales lost to piracy in emerging markets. In the US and Canada, piracy is estimated to cause $3.5 billion of lost revenue every year for the computer-game industry, according to the Entertainment Software Association of Canada. That is about a fifth of total sales in the US last year, based on data compiled by NPD.
"Many companies tried to enter emerging markets in the '80s and '90s and failed because of piracy," said Allison Luong, managing director of Pearl Research in San Francisco. "With online gaming, they have managed to grow the markets into billions of dollars."
The global market leaders are following the lead of smaller competitors, which pioneered the online model of cheaper, relatively simple games that reach profitability more quickly.
Zynga, the biggest developer of games played on Facebook's social networking site, had revenue of $1.14 billion last year. By comparison, Ubisoft had €80 million ($100 million) of online sales during the last fiscal year, out of total revenue of €1.06 billion. Electronic Arts had $1.2 billion of online revenue, with total sales of $4.1 billion in the last fiscal year.
Zynga raised $1 billion in its initial public offering in December 2011. The San Francisco-based company, which makes money by selling virtual goods, produces the four most popular games on Facebook, including city simulation game The Ville, with 60.6 million monthly active users, according to recent data from AppData.
Other start-ups are also grabbing their share. New York-based FreshPlanet's Song Pop, a free song-guessing game, is available for Facebook, where it has about 15.8 million users. About half of daily players of the game are from Latin America.
Such competition means that success in the online market isn't guaranteed for Electronic Arts and Ubisoft. While the companies traditionally relied on sophisticated blockbusters - which cost tens of millions of dollars to make, meaning there were fewer rivals - they now face a slew of little competitors willing to settle for smaller profit.
"Electronic Arts and Ubisoft have made reasonable progress in increasing their exposure to the online business," said Christopher Hickey, a London-based analyst for Atlantic Equities LLP. "Considering that the online market is already a crowded place, digital markets represent not only opportunities but threats - intense competition and low barriers to entry may impact profitability."