May 12, 2006 4:00 AM PDT
Casual games get serious
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You'd have theaters packed with young men, but people who'd rather steer away from action flicks, including many women, would find something else to occupy their time. That's basically the problem the video game industry has had--until recently.
The game industry appears to have found its answer with so-called "casual games," a category of software-based entertainment that includes word and puzzle games, board games and even some classic arcade titles. While not new, the casual-games industry is enjoying a renaissance driven by advertising dollars and the ubiquity of mobile devices.
"The video game industry year after year is exceedingly good at pumping out action films," says Alexis Madrigal, an analyst at market research firm DFC Intelligence. "Casual games are a step in the direction of coming up with (the equivalent of) comedies and romantic comedies."
Casual games like "Bejeweled" and "Zuma" still don't attract much attention at the annual E3 trade show here. While people will wait for half an hour or more just to see a short trailer for big games that in some cases are months from release, casual games are little-mentioned and hard to spot on the show floor.
But what casual games lack in hipness, they make up for by being cheap to make, addictive and highly profitable.
The North American market for casual games is expected to grow from an estimated $281 million in sales this year to $1.15 billion in 2011, according to DFC. Globally, thanks to the popularity of these games in China and Korea, the market is already closing in on $1 billion in annual sales.
Several trends are helping push casual games out of the margins and into the forefront. Advertising has emerged as a key revenue opportunity for games, and hard-core games reach only one of many demographics that advertisers covet. Also, casual games tend to be small and have minimal processing needs, making them ideal for mobile devices, particularly cell phones.
As a result, some pretty significant tech companies have become big players in the field, including Microsoft, RealNetworks and well-known gamemaker Electronic Arts, which has amassed more than a million subscribers to Pogo.com, its online casual-game service. Smaller firms that specialize in casual games have also managed to draw a significant base, including MiniClip and Big Fish Games.
"It shows there is room for companies that are willing to innovate and push hard," Madrigal said.
After the dot-com bust caused many advertising-backed ventures to fold, casual games felt the effects.
"When the Internet advertising market bottomed out after the bubble burst, it really hurt casual gaming," Madrigal said.
When advertising rates went through the floor, though, the survivors in the industry shifted to making money by selling games that could be downloaded to the PC, typically for $20 or less. "Necessity brings invention," Madrigal said.
RealNetworks got into the market about six years ago as it was looking to expand beyond media software. Bits are bits, the company figured.
Initially RealNetworks targeted hard-core gamers who played games like "Doom" and "Quake" and tried to get them to pay to play games online.
"It was abysmal," said Senior Vice President Michael Schutzler. "It did not go well at all."
Going casual on consoles
At the time, gamers were used to buying games, not paying monthly subscriptions to play online. Plus, the technology wasn't ready to provide the massive bandwidth that serious gaming would entail.
"The pipes were too thin," Schutzler said.
Almost on a whim, RealNetworks tried putting up a simple puzzle game, and it sold well. The company revamped its marketing, drafted a new business plan and scoured the market for all the little games it could find. In 2004, the company spent $36 million to acquire GameHouse, a developer specializing in puzzles and other small games.
Last quarter, RealNetworks earned $18 million in revenue from casual games--more than 20 percent of the company's overall revenue--and Schutzler sees plenty of growth ahead. "We're just in the early days right now," he said.
Meanwhile, RealNetworks, like many in the casual-games space, is focusing much of its attention on moving beyond the PC into mobile games. Last year, the company paid $15 million for a mobile-game specialist, Mr. Goodliving.
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