Video Games Finding Players on Social Networks

"FarmVille" has sure grown a lot of gamers. A new study by The NPD Groupfinds that 20 percent of the U.S. population has played a game on a social network at one point or another. That works out to 56.8 million Americans.

Source: Facebook

Thirty-five percent of those players are new to gaming, having never previously experimented with any form of video game.

Put another way, games like “FarmVille,” “Mafia Wars” and “Happy Aquarium” are as influential for millions of people in this generation as “Pac Man” was in the 1980s.

That’s why the development studios making these titles are a hot commodity these days. Traditional game publishers, media companies and more are investing heavily in social game makers. Disney has set the current bar, last month paying $563 million for Playdom, the sector’s third largest developer. (That price could escalate to $763 million if the unit hits performance targets over time.)

It was a staggering price – one that topped even the $325 million in cash and stock Electronic Arts paid for Playfish (a larger company in the space) late last year. Another $100 million was set aside in that deal for performance bonuses.

The rapid escalation of prices for these companies have some concerned there’s a bubble forming around this sub-industry. That might be, but social gaming as a category continues to grow and it’s attracting the eye of current gamers as well.

"Although 35 percent of social network gamers are new to gaming, it's clear that a lot of existing gamers have been drawn into the social network gaming arena as well," said Anita Frazier, Industry Analyst, The NPD Group. "This impacts both the time they spend with other types of gaming, as well as the amount of money they’re spending on gaming. As more players are drawn into these games, the entire games industry is going to feel, and have to adjust to, the impact."

While free to play, social games are big money makers. NPD finds that 10 percent of players have spent cash for small in-game transactions with these games. Another 11 percent say they are likely to make a future purchase.

That free-to-play model is growing in the traditional video game world as well. Nexon, a Korean company that makes titles such as “Maple Story” and “Dungeon Fighter Online” has found great success by giving away its games and letting users pay for upgrades.

Over the past three years, privately-held Nexon has seen double-digit percentage growth, says Daniel Kim, CEO of Nexon America.

“One of the things we’re really excited about is the Facebook games have broadened the audience for us,” says Kim. “The whole idea of microtransactions is easier to communicate. There are millions who are familiar with them and willing to spend money on them.”

That puts Nexon in a good spot—especially since NPD found that gamers say they’re spending 20 percent less on gaming overall since they started playing social network games. (Year to date, the traditional games industry is 8 percent behind 2009’s pace.)

Social gaming’s footprint could be about to grow even larger. Google is expected to launch a Facebook competitor in the coming months, with a heavy emphasis on gaming.

The search giant invested between $100 million and $200 million in Zynga, the largest developer of social games in July. And earlier this month, it paid $182 million for Slide, maker of “Super Poke Pets” and other titles, and an unknown amount (though whispered to be under $100 million) for Jambool, which runs a monetization platform that developers can integrate into their games to get paid.

At the Game Developer Conference in March, Will Wright, creator of “The Sims,” predicted social gaming could eventually make up one-quarter of the video game industry—though he did stop short of saying whether that would be in time spent or in revenue.

If sites like Facebook keep growing, though, and Google’s coming play in the space (which looks to be a major one) pans out, he might need to revise those numbers.