Electronic Gaming Business: Casual Gamers Are the Toughest Nut to Crack, Er, Monetize

If the gaming industry is so smart and stylish, then why can't it figure out how to make more money off of the tens of millions of Americans who actually engage this hobby? Much like the Internet of the mid to late 1990s the dirty little secret of the fashionable video gaming industry is that the overwhelming majority of its audiences are enjoying the content for free.

From Solitaire and BlackJack players to online Bejeweled junkies, the major portals are choked with adult gamers who play for hours a week and never add a penny to the industry aside from ad revenue made by gaming portals off of their presence. The thirty- and forty-somethings that log into MSN Game Zone and Pogo multiple times a week represent a massive market that is only being exploited incrementally, and no one seems to know precisely how to unlock this treasure chest in a major way. In fact, in our reading of recent industry figures and the latest research from Jupiter, making substantial revenues off of the casual gaming market, especially on consoles, is going to be a very steep hill for this industry to climb.

And it turns out that these "casual" gamers are anything but casual about playing. In its recent brief, "Casual Game Genres: Challenges and Strategies for Bridging Audiences," Jupiter Research discovered that casual gamers are every bit as intense as the supposed hard core. In a July 2003 survey of more than 2,000 consumers, Jupiter and Ipsos-Insight found that console game players spend an average of 4 hours a week gaming, precisely the same amount of time as casual gamers on a PC. In fact, when the "PC Casuals" are broken out by income and gender, it is clear that the most dedicated part of this audience is women, who play these games on average 5 hours a week, and those with above average income (5 hours a week for players in households with $35,000 to $74,000). Maybe "casual" is a misnomer here.

The most frustrating rub to all of this ravenous not-so-casual game playing is the abysmally low rate at which people pay to play. According to Jupiter/Ipsos-Insight, only 5% of these online players have played a pay-to-play game online in the past year and only 4% have paid for a downloadable game. Fully 76% are playing either ad-supported portal games or downloadable demos.

The good news is the industry can only go up from here. The market for these games is so vast that converting even a small percentage of players into paying customers can be profitable because the development costs are so low. Jupiter estimates that a typical break-even point for a casual title costing $50,000 to $200,000 to produce is about 50,000 units.

According to a break-out of RealNetworks' latest financials, for instance, the media network's RealArcade division of downloadable games had revenue of $12.2 million in the past year, up from $7.8 million the previous year. RealArcade claims to have sold 2 million titles since 2001.

The Console Problem

Moving adult men (but mostly women) into the mainstream of game buying consumers remains the elusive goal of an industry forever yearning to be a mass medium and in need of a broader base and more predictable, varied revenue streams. Jupiter analyst Michael Gartenberg advised game companies not to aim for casual gamers on consoles by simply dumbing down existing console genres. "Casual games focus on creating engaging reductionist frameworks rather than rich world and realistic simulations." This is really about diversion, not the deep game experiences that rule hard core designs.

Gartenberg wisely recommends that casual console designs not rely on plot development but instead provide gamers with quick in-and-out game play where incremental goals and a sense of accomplishment are satisfied quickly.

This is all well and good theoretically, but the bigger problem for this industry is not making a game for casual gamers on a console. The real issue is social: whether consoles ever can present an inviting platform for non-core players. The hardcore aura around consoles is a very hard rep to reform, and most casual gamers in any household we have seen are much too intimidated to use the same machine the kids use for Halo on a game of Slots. Getting mom to buy an Xbox in order to play Bookworm on her TV is a leap we doubt the hardware manufacturers can make.

The point is not that casual gamers will not play their games on a TV. The wild success of ITV gaming in Europe and in some test markets here (see EGB Jan. 28 "ITV"), demonstrates that casual games have a place off of the connected PC. Game publishers might be better off targeting the casual market on other devices like mobile, PDA and ITV.

In recent published statements, Microsoft executives seem to think that the online component will open up consoles to casual gamers in the same way the Internet grabbed them. We don't think so, unless Sony and MS make a monumental effort to reposition their machines as family-friendly devices that do not repel mom and sis. The portals nabbed casual gamer interest by capturing users as they were in the process of doing something else online. Go ahead and bundle Atari classics with a PS2, but asking the puzzle or simple arcade player to go out of her way to purchase a console in order to play something that is already available and free online is doomed to failure.

Unless game and hardware companies invest in alternative marketing channels that address this non-core audience with messages aimed at shifting perceptions of the console that probably is already in their homes, then the effort to monetize casual gamers will be just as fruitless in the next 10 years as it has been in the last 10.

Contact: Contact: Michael Gartenberg, 800/481-1212