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Analyst: Online Game Market $13 Billion By 2011
Analyst: Online Game Market $13 Billion By 2011
June 6, 2006 | By Simon Carless

According to a new report from analyst firm DFC Intelligence, the worldwide online game market is forecasted to grow from $3.4 billion in 2005 to over $13 billion in 2011, driven by the increase in broadband households, higher PC penetration and more connected console video game systems.

The abstract for a longer DFC report on the matter, 'The Online Game Market' suggests a growing number of consumer subscription services, the emergence of online digital distribution and increasing acceptance of games as an advertising mechanism as key growth factors. Interestingly, during this time period, North America is expected to challenge current market leader Asia as the leading region for online games.

Despite the strong growth, the leading online game category is expected to remain high-end MMOs that appeal to a fairly small portion of the total user base, according to DFC. "MMOGs have a sophisticated online business model that drives a great deal of revenue for the top products," says DFC analyst David Cole. Other popular game genres like sports, racing and action still derive most of their revenue from retail sales with online game play as a free value add. According to Cole, this is gradually changing as more of these products go online.

DFC also focuses on how digital distribution, an increasingly important aspect, largely works in an online-only fashion, but can also work with the existing retail structure, via such mechanisms as consumers buying retail cards that allow for online digital distribution. Overall, though, it's noted: "Digital distribution and virtual item sales have started to do very well in certain Asian markets and these distribution models are expected to start having increased success on an international basis," says DFC analyst Alexis Madrigal.

In North America and Europe, the casual game category is already benefiting from digital distribution. "Casual games have been the best at attracting advertisers, but they are now finding a great deal of growth from subscription and digital distribution models. Asian markets with products like Kart Rider, and Western products, like Habbo Hotel, are showing how a virtual item purchase model can work for games that have traditionally been advertising or subscription supported," says Madrigal.

On the downside, even with market growth, DFC suggests that many companies are likely to struggle to become profitable. A big problem is that the market is becoming more fragmented among different companies, types of products and markets. The top online games have tended to do very well in one market like Korea, China, or the U.S., but have generally struggled in trying to expand to other markets. Furthermore, traditional video game publishers have not done well in the online game business, and this has allowed for the rise of several online-only game companies that are making the marketplace more competitive for established players.

Nevertheless, major markets like South Korea, China, Japan and the U.S. are all now able to support individual games that do over $100 million a year in just one country. The first big international success in online games, World of Warcraft, from Blizzard Entertainment, grossed over $100 million in each of several different markets in its first year alone.

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