Summary
Electronic Arts is demonstrating that they are serious about getting back into online gaming. Microtransactions will supplement subscription-based services, but digital distribution will not replace the retail channel. New methods of acquiring data will have to be devised to accurately measure video game sales.
Analysis
The BusinessWeek article is really about two trends emerging in the computer gaming industry that supplement each other: micro transactions, and digital distribution.
When online gaming began to emerge as the future of computer and video games in the late 1990s, EA looked to be in a good position. They were successful, had good brand recognition and a large stable of popular titles, and in 1997 had launched Ultima Online, one of the first subscription-based massively multiplayer online games, and they had several more MMOGs in development.
But in the early part of this decade EA stumbled. At the height of the dot-com bubble in March 2001 they spent $40 million to buy Pogo.com, an online casual games portal that was supposed to fund itself via the Internet advertising model so popular at the time. This proved to be a mistake when the dot-com bubble collapsed. In 2001 and 2002, they launched 4 new MMOG titles: Majestic, Motor City Online, Earth & Beyond, and The Sims Online. All of them failed to meet expectations, and only The Sims Online is still in operation today with less than 50,000 monthly subscribers. EA's flagship franchise, Ultima, languished after they closed the Origin studio. Two highly anticipated sequels to Ultima Online, UO2 and UXO, were cancelled before they were released. EA appeared to have lost interest in the MMOG market.
But with the stunning success of Blizzard's MMOG World of Warcraft in 2004, all that has changed. In the past few years EA has acquired two independent MMOG development studios, Mythic Entertainment and BioWare (via VG Holding Corp). EA now has at least three subscription-based MMOGs in the development pipeline. They are going head-to-head in the MMOG space with the newly formed Activision Blizzard.
Microtransactions are an alternative to the subscription-based model that can be applied both to MMOGs and regular online gaming titles. It has become increasingly popular in Asia, and gaming companies in North America are now adopting the practice. Traditionally, this was not possible with video games since they were self-contained on a personal computer. But with gamers now having Internet connectivity 24x7, companies can now connect these games to content servers that can deliver customized content on an individual basis. Microsoft is actually the leader in this field via its X-Box Live Marketplace, but now other game companies are developing their own networks and technologies to support microtransactics.
At the same time, the emergence of digital distribution as a valid channel for delivering games has also spurred the development of such networks. The increasing spread of broadband has now made it practical to offer gamers complete games downloadable over the Internet. Here, delivery systems such as Valve's Steam have led the way. Via this channel, publishers can now own the customer directly, without mediation by the retail channel, and can associate them with a specific account to deliver them content: not only the games they buy online, but customized content within those games subject to microtransaction fees.
Having said all of this, however, the retail channel is not going away. The vast majority of consumers still purchase games on discs in boxes at retail outlets, and the entire industry of developers, publishers, distributors, and press is set up around this mechanism. It will take time for the industry to shift to digital distribution as the standard model. Companies like the NPD Group, who provide sales figures on gaming titles to the industry, will have to develop new methods of acquiring data; currently they only capture a portion of retail sales and don't measure digital distribution nor online revenue from microtransactions or subscription-based services.
