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Borrowing from cable, game cos. seek subscribers

Thu, 12/01/2011 - 11:40am
Liana B. Baker, Reuters

Video game companies want to turn gamers from one-time purchasers into subscribers who generate a steady and predictable revenue stream to boost business and protect against economic uncertainty.

That was the message from top video game executives, including Activision Blizzard Chief Executive Bobby Kotick, Take Two Interactive CEO Strauss Zelnick and THQ Inc CEO Brian Farrell, who spoke at the Reuters Global Media Summit this week.

Despite being forecast to grow 5 percent to $67.2 billion next year, the video game market has seen slumping sales of its core console game products, while social gaming companies such as Zynga have grabbed the attention of investors for their blistering growth.

Seeking to steal a page from the cable television model, traditional video game companies are trying to guard against falling victim to poor economic environments by finding attractive ways to get users to pay monthly fees for games.

"The big win there is you have a consumer base that pays you the subscription fee each month ongoing. That's a very different revenue model for a video game company, when you have this monthly subscription revenue rather than a one-time purchase," said THQ's Farrell.

The subscription concept for gaming isn't entirely new. For years, gamers have been doling out monthly fees to play Activision's "World of Warcraft" and other multiplayer games that can played together by thousands around the world simultaneously.

What's new, however, is that for the first time companies are using this business model with other genres like shooter and sports games.

Activision unveiled a $50 annual subscription service for its "Call of Duty" franchise that offers features such as new game content every month.

The service, which is called "Call of Duty: Elite," has already signed up 1 million paying subscribers since it came out on Nov 8.

Earlier this year, Electronic Arts came out with a $25 per year program that lets consumers get early access to five sports games and offers discounts on new content.

Activision's Kotick told Reuters that his company has invested "tens and tens of millions" in its "Elite" offering.

While it is a big upfront investment, the company is betting it will help boost margins over the long-term and become a business like "World of Warcraft," the seven-year-old franchise that has delivered $1 billion in sales some years.

Industry executives said they are watching Activision's performance with the service closely to see if the business model can work for more kinds of games.

"They are experimenting with 'Call of Duty,' and we watch with interest to see how that will play out," said Take-Two Interactive's Zelnick. "I've said for years the holy grail of our business is to take a packaged goods release and turn it into a subscription model."

When the "Elite" service was first announced, some game blogs lit up with criticism that Activision was trying to squeeze even more cash out of its most loyal customers. But Kotick said serious gamers are happy to pay $50 over a full year to get new content every month.

"In a difficult economy, if you can start giving flexibility

to consumers about how they pay, you are going to have a more satisfied consumer," he said.

(Editing by Peter Lauria and Steve Orlofsky)

Posted by Jason Lomberg, Technical Editor

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