100,000 Amusement Machines Online In U.S.

Posted On: 1/18/2006

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America's music and games business today includes roughly 100,000 networked machines. Currently the Arachnid network alone communicates to 36,000 dart games in the field. The downloading jukebox manufacturers have now surpassed 20,000 connected machines between them. On the U.S. video front, Incredible Technologies reports about 25,000 golf and hunting games are networked. Merit reports 7,500 online games. Based on confirmed figures from earlier years, VT estimates JVL Corp. now has over 1,000 games online and Global VR has some 3,000 games online.

Does 100,000 machines online sound impressive? In some ways, it is. But before we get too busy patting ourselves on the back, let's step back and look at the larger context.

According to the Yankee Group, a Boston research firm, about 3.5 million U.S. gamers play a new type of video game on their PCs. This type of product is called "massively multiplayer online games," or MMOGs.  Yankee Group says "recent hits like World of Warcraft, with 1.5 million players, proves there's a hunger for such games. And a successful online game means a steady flow of profits. That's because gamers pay a subscription fee to keep playing. Those fees, usually around $15 a month, can add up to far more than the $50 price tag for the game software."

That's just the beginning. The Associated Press reports that "750,000 players use Xbox Live, each paying $50 a year to be able to play against people elsewhere and download updates. Sony says it has sold 2.4 million of its $40 network adapters that enable Playstation online gaming, through broadband or a dial-up connection. By 2008, 40.2 million gamers worldwide will be going online with video game consoles, says market research firm DFC Intelligence."

How seriously should our industry take such trends? Let's see how leaders in other industries are responding to the online phenomenon. Last October, Bill Gates wrote one of his once-per-decade "Big Picture strategy memos" to Microsoft's leadership. Gates declared that Internet services are the wave of the future. He warned that even huge, powerful Microsoft was "at risk" if it didn't get on the bandwagon. Gates' purpose was to set off alarm bells to ensure that everyone understood the market's new reality, and to ensure that his team is clearly focused on a new survival strategy.

Meanwhile, media wizard Rupert Murdoch is singing from the same hymnbook. Murdoch is chairman and CEO of News Corp., the five-continent, multi-media empire that owns everything from DirectTV to Fox News, Fox Movie Studios, The London Times, The Sun, National Geographic, and many more. Murdoch recently said the Internet is not only the biggest communications revolution of the last century; it's bigger than the printing press. He also cited a recent Carnegie Institute report on media patterns of consumers between 18-34 (precisely the demographic that buys and plays the most video games). This group is fast abandoning non-networked media in favor of online technology. Murdoch followed up his statements by putting his money where his mouth is. He spent billions to acquire some successful online companies. (Of course, Murdoch's various companies already controlled plenty of online real estate before.)

The key entertainment trend of the past 20 years is the progressive liberation of digital content from bulky physical containers. Video games moved from dedicated units...to PCB kits...to CD-ROM updates...to downloadable files. Music moved from 45rpm records...to CDs...to downloadable MP3s. Online video games like Sony's Everquest, and online music revolutions like iPod, show clearly what the next stage of this progression looks like.

Somebody should write a variation on Bill Gates' "alarm bell" memo for this industry. Come to think of it, that's what this editorial is. The music and games business is long overdue for some deep strategic thinking about how to adapt, innovate and survive. Either we get online in a big way, and fast -- or we will be mowed over by competition from other industries.