Think YouTube or MySpace for video games.
Consumer-generated content and social networking sites are major drivers in the online economy. Now video game companies are finding creative ways to incorporate them in the gaming experience and eventually capitalize on them.
From customizing existing characters and soundtracks to building entire games from scratch, consumers-turned-content-creators will be a critical part of what some insiders call “Game 3.0,” the third age of video games.
“It has become an increasingly important aspect of the game-play experience, from something as simple as the interface on the Xbox Live to the more dramatic like what 'Spore' will allow for,” said Edward Williams, managing director and senior research analyst of Leisure & Interactive Entertainment for BMO Capital Markets. “Initially, the primary business model is the impact of increased sales volume in the games that allow for user-generated content. The industry is still working on models that will monetize the use of the creative content aspect of it.”
Hot Topic This Week
And that’s why user-generated content is one of the hot topics at this week’s Game Developers Conference (GDC) in San Francisco. With the $13.5 billion gaming industry’s popular trade show E3 shrunk from 60,000 to an invitation-only event of about 5,000 people, the GDC has assumed its place as the largest forum for the industry, with more than 12,000 attending.
The PC world is no stranger to user-generated gaming, as seen with hits like "The Sims," "World of Warcraft" and "Second Life." Machinima-–the art of making movies in a real-time, 3D virtual environment, using video-game technologies from games like "Halo" and "Quake"--has surged in popularity.
But it’s new terrain for consoles. Broadband-enabled devices like Microsoft’s Xbox 360, Sony’s PlayStation 3 and Nintendo’s Wii are giving developers and publishers the opportunity to integrate user-generated content and the community concept in the console market. And it’s a big one--more than 41% of U.S. households with TVs now also have videogame consoles, according to a recent report by Nielsen Wireless and Interactive Services.
Phil Harrison, president of Sony Computer Entertainment Worldwide Studios, said at a GDC session Wednesday that the company is committed to building out its user-generated and community offerings. "PlayStation Home," expected to launch this fall, will allow PS3 owners to create customized avatars to engage with others in a 3D virtual community and economy, complete with embedded advertising, a la Second Life.
Sony will also offer "LittleBigPlanet," a new community-based game due later this year where players create and share their own levels, and "SingStar," a karaoke game that allows users to create and share videos, which can then be rated by anyone, anywhere, like YouTube.
Built-In Editing Tools
Many games, such as "Band of Bugs" on Xbox Live and Konami's "Elebits" on Wii, already have built-in editing tools that allow players to customize and share levels, characters, maps and more. Game publisher THQ's new PC editing tool lets players add their own maps to existing games and share them with friends online.
Nintendo’s Miis, for one, have taken over the casual gaming world. Wii gamers create the avatars through a simple graphical user interface and share them with other online users, who can use them on their Wii games and consoles. They’ve become so popular that they will star in new commercials in the next few weeks. Miis are currently only usable in "Wii Sports," "Wii Play," and "WarioWare: Smooth Moves," but analysts say the application can be very profitable.
Nintendo is thinking conceptually about business models for its Miis, but there’s nothing definite yet, Williams said.
Microsoft, meanwhile, is appealing to the designer side of gamers. XNA Game Studio Express offers software development tools for users to build games and share them with others for free on Windows and $99 a year on the Xbox 360.
“The industry is at a turning point where people want to build and share console games, without a publishing contract. There’s been a shift in how you get content onto the platform,” said Chris Satchell, general manager of Microsoft’s Game Developer Group. “And as the music and movie industries have shown, if you have a simple user interface that is easy to use, easy to get and cheap, people will be creative.”
Microsoft is taking it a step further, sponsoring what it calls an “American Idol meets YouTube meets gaming” competition to find the best consumer-created games. Winners vie for an Xbox Live publishing contract and $40,000 in cash and prizes.
Benefits for Industry
Insiders say adopting user-generated game content has many benefits for the industry, including finding new talent for its developer workforce, extending the life of games, minimizing rising development costs and generating new ideas.
“Someone may have a great game idea that may be too risky in the professional context but can be done in the user community,” Satchell said. “People are out there who are super creative and super talented but need a great platform and tools to enable them and help them build their great ideas.”
Great ideas that, in turn, can be commercially viable. The Internet has already proven fruitful for console makers. Microsoft has raked in some $27 million in virtual money, thanks to the more than five billion points bought or activated on Xbox Live.
But finding a successful model for user-generated content is still anyone’s game.
“It’s a big market for whichever company can come up with the right way of leveraging it,” Williams said, who pointed to possible advertising models, including traditional in-game ad placement, sponsorships, or running ads before a game.
“The challenge for console makers is how do they make this interesting to advertisers when it’s not like a 30-second YouTube clip,” said Gabriel Ramsey, an attorney in the Silicon Valley office of international law firm Orrick, Herrington & Sutcliffe, who advises video game companies. “They’re poised to make it happen. They know the value of the content and it’s more appealing for advertisers to target a really engaged audience like gamers as opposed to a passive one.”
Face Serious Issues
But a YouTube-like model comes with YouTube-like problems. Console makers could face serious issues from hosting and distributing content created by consumers.
“It opens a whole slew of Pandora’s Box,” Williams said. “If you’ve created a game and a user has modified it in a way that adjusts its rating, how do you deal with that? YouTube does its own censoring, what will the gaming industry do? That raises so many issues for the publisher, the retailer and everyone involved.”
Ramsey pointed to the potential for violating intellectual property rights, but added that user-generated game sites are more credible and controlled than YouTube and are “using more care to facilitate communications between users and people hurt by it.”
Microsoft’s Satchell says his team is working on a model that would allow everyone involved “to take part in the financial success” of valuable content.
“We actually think we have a novel solution to IP infringement issues, that no one has ever seen before, that will get IP holders to get onboard with us,” Satchell said. “We want to get ahead of the problem and are developing a solution that’s better than giving people an email address to complain.”