Q&A: Analyst Michael Cai

One technology analyst says interest in games-on-demand is slated to spike--with more ISPs and publishers readying new offers.


Delivery of game code over the Web got a boost last week with news that Atari had teamed with Exent to deliver a number of its titles directly to broadband households via the Web. While not the kind of news that makes a diehard Ninja Gaiden fan take notice, with services like Valve's steam and now Atari's Atari on Demand available to broadband-equipped gamers, the practice is looking less and less Neanderthal.

As a recently published Parks Associates report suggests, availability, the games-on-demand target audience, and the quality of games being offered is set to change. “Although most games-on-demand services offer small-footprint Internet games and back-catalog retail PC games, the quantity and quality of these games are improving,” said Michael Cai, an analyst with Parks.

Cai is predicting that current levels of household subscribers to such services will climb from current levels of around 100,000 to more than 2 million by 2007. His report says that it's not just the Ataris and other game publishers that are creating new games-on-demand (GoD) options for gamers, but also the ISPs that are pushing the GoD agenda to "leverage their subscriber base, increase the stickiness of broadband services, and generate additional service revenues," says Cai.

According to Cai, 14 percent of all US broadband households are interested in gaming-on-demand services, which provide the ability to stream or download games and game demos to PCs and consoles. Unsurprisingly, online gamers show a greater interest in GoD. The study indicates that more than 50 percent of online-game-enthusiast households show measurable interest in games-on-demand.

GameSpot spoke with Cai shortly after the Parks study he penned, titled "Entertainment on Demand: Online Gaming Services," was released.

GameSpot: What genres are natural fits for the sector?

Michael Cai: Due to the lack of new-release front-line games, I believe that family orientation can be important in this early market (proprietary games from Disney or Cartoon Networks, for example). Since households might be paying, they want multiple genres to satisfy all family members. However, for an a la carte downloading model, any core new-release games are suitable, as long as gamers are informed of the option and see real advantages to using the online channel.

GS: Is there any place in the model for the core-game enthusiast?

MC: Well, we have to watch Valve in order to determine whether there can be a future in distributing new-release games. Retail-channel conflict is still an inhibitor for getting new games to core gamers. Nobody wants to offend Wal-Mart. Nonetheless, we did find that a lot of “game-enthusiast” households were extremely interested in GoD services--more interested than casual- or moderate-gamer households.

GS: To what degree do you see ISPs leveraging games to secure subscribers?

MC: Games are very sticky. We also found from our research that gamer households are willing to pay more for bandwidth and other entertainment content. However, they have to find a way to differentiate their content offerings. If everyone offers the same games, [there's] nothing to differentiate, right?

GS: In the area of managing digital rights, who are the companies to watch in the GoD space?

MC: It seems that companies such as Exent and Trymedia are both solving the digital-rights-management issue well. Trymedia has a very unique approach.

GS: Just to set the stage, who are committed players in the space currently?

MC: Examples include nonfacility-based service providers, such as Yahoo! Games on Demand, Real Networks (RealArcade), and Gamemania (in Canada), and facility-based service providers, such as Cablevision and RCN. Game publisher Atari recently announced a deal with Exent to distribute back-catalog games. We will see more coming into play during the rest of 2004.

GS: Can you briefly explain the difference between facility-based and nonfacility-based broadband service providers?

MC: Facility-based service providers are DSL providers or cable MSOs (Multiple Systems Operators) who own the pipelines, [like] companies such as SBC or Comcast. Nonfacility-based [providers] are companies such as Yahoo!

GS: Who are the companies providing the technology?

MC: Solutions-vendors such as Trymedia (who also owns Trygames), Exent, Stream Theory, Valve Software, and G-Cluster are a few. Exent and Trymedia are making splashes lately.

GS: If there is one, what's the weak link in the GoD model?

MC: Aggregating good content and marketing to the right audience might be challenging. There are also debates regarding which is better, streaming or downloading. Both have their own set of advantages and disadvantages, of course.

GS: What level of revenues are you projecting for calendar year 2004?

MC: I actually shun away from forecasting revenues, since the market is quite small now, and [there are] a lot of uncertainties regarding business models, so it's hard to estimate an ARPU, or average revenue per unit amount. However, my projection for GoD subscribers--not users--for year-end 2004 is 300,000 households, compared to 110,000 households at year-end 2003. Hope this helps.

GS: Do you think the move by Atari will send a signal to other publishers that now is the time to develop a proprietary GoD service?

MC: All that I can say is that many AAA publishers are continuing their investigations in this market. The shrinking retail shelf for PC games is a headache. They have to find ways to extend release windows and [must] distribute their games through multiple channels.

GS: Does Atari do this to make serious money? If not, what are the reasons behind such a move?

MC: You have to direct this question to Atari. Atari is charging $14.95 a month for 37 games, while Yahoo! Games is charging the same price for more than 200 games, including many games from Atari. I don’t really understand how Atari differentiates its service. It is likely a strategic move.

GS: How serious are the digital-rights-management (DRM) issues? Do DRM issues constrain the growth of the GoD model?

MC: As I hinted earlier, I don’t think DRM is a big issue. Exent and Trymedia both do great DRM, and the fact that many publishers distribute their games through Yahoo! signals that the solutions are robust.

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