Online consoles fuelling new business models

9 Aug 2007

Revenue derived by video gaming consoles connecting to the internet will show the strongest growth in the gaming sector over the next few years, analyst firm IDC has forecast, with revenue derived strictly from connected consoles expected to grow from US$981m (€713.6m) in 2007 to US$10.5bn (€7.63bn) in 2011.

IDC predicted that the success of console vendors and many third-party publishers will depend on their ability to adapt to new business models enabled by the growth of this sector.

By the end of 2007 online console revenue will represent 2.5pc of the total global videogame market revenue, including console and handheld hardware and software revenue. By 2011, revenue from connected consoles will represent 18.6pc of total market revenue, IDC estimated.

“Gamers’ use of connected consoles is expanding the business opportunities and cash flow this console cycle,” said Billy Pidgeon, program manager for consumer markets: games at IDC. “This emerging sector has huge potential. Getting gamers online and enticing them to spend on content and services is crucial for vendors and publishers.”

Each of the three consoles released in the current videogame console cycle – Microsoft’s Xbox 360, Sony’s PlayStation3 (PS3) and Nintendo’s Wii – is capable of connecting to the internet out of the box and each has onboard storage for downloaded content. In addition to primary traditional hardware and software sales, connected consoles now support three additional business models: premium subscription fees, paid downloadable content and advertising.

In IDC’s study, the revenue derived from online consoles is separate from online PC game revenue and from the traditional retail-driven videogame hardware and software revenue.

IDC anticipates that although subscription revenue for premium online services and games will grow from US$476m in 2007 to over US$2.4bn in 2011, its share of online console revenue will decline from 48.5pc in 2007 (already down from a high of 86.5pc in 2006) to 23.2pc by 2011.

Downloadable content consisting of games and game-related items, which at US$35m in 2006 represented a 13.5pc market share of online console revenue, will become connected consoles’ primary revenue source in 2007, growing from US$493m in 2007 to US$7.2bn in 2011, when it will make up 68.6pc of online revenue.

Advertising revenue from sponsored services, in-game ads and product placement in connected consoles will reach US$12m this year, the first year of significant online console ad spend, IDC said. By 2011 advertising revenue will grow to US$858m, representing an 8.2pc market share of online videogame revenue.

By Niall Byrne