Of the 172 million systems sold in the last generation of consoles*, an estimated 5 million gamers ventured online — representing just three percent of the market. But wouldn’t you know it, each and every major console circa the early 2000s was capable of online play (some better than others).

By comparison, there are currently 26 million “next-gen” consoles in households (11M Wiis, 11M 360s, 4M PS3s). As of August, Microsoft’s Xbox Live claimed more than 7 million active users, including paying and free silver account users that aren’t privy to online multiplayer.

Last year April Sony reported some 1.3 million+ online users for its free PS3 platform while Nintendo’s Wii has seen around 1 million online users based on a limited number of supporting games (currently only two titles). Add them up, and online console users currently represent about 34 39 percent of all console owners -– a 31 42 percent rise.

So it appears that online gaming is, in fact, a staple for consoles, just as Microsoft hoped (they are the only console maker charging for online multiplayer) and prevailing Internet-thinking suggests.

Not so fast.

That estimated 34 39 percent will likely decrease with time. Early console adopters are largely made up of tech-savvy, core gamers; the ones that are more prone to game online. Additionally, the system driving the most growth in the console industry (read: Nintendo’s Wii — by a long shot) has the most underdeveloped online system when compared with the soft-selling Xbox 360 and PS3. Seems those Wii gamers don’t mind the absence of a super hi-tech matchmaking system coupled with potty-mouthed VoIP chat.

Need further proof? Take the Xbox 360′s newly released BioShock. In less than a week, it’s become the fourth-highest rated game of all time (96/100 average review score), according to Game Rankings. It will likely go on to sell millions of copies, and yet it doesn’t contain a smidgen of online support. Not a drop. Perhaps online gaming isn’t that important to consoles after all.

Granted, this isn’t to say that online play is undesired by any means (I personally enjoy a good beating online), only blown out of proportion by a myopic group of hardcore journalists, gamers, and select console makers. In short, online gaming is just a value-add, an extra feature, a bonus mode for certain games — nothing more, nothing less. Just ask Nintendo.

* 115M PS2s, 24M Xboxs, 22M GameCubes, and 11M Dreamcasts

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New and enhanced features include automatic TiVoToGo, which starts encoding TV shows as soon as they are transferred to your shiny Mac; batch DVD conversions that compress multiple DVDs into a single, four-hour 4.7GB disc; and “pause” and “resume” functionality so you can watch a quick YouTube video before you forfeit the majority of your processing power to the conversion/burning program.

Popcorn 3 also supports optimized video encoding from Mac, DVD, and TiVo to a broad range of devices including iPhone, iPod, Apple TV, BlackBerry, Xbox 360 and PlayStation 3.

The application ships with a new preview mode to ensure granulized satisfaction before burning an entire movie to DVD. The latest edition of Popcorn also supports Elgato’s Turbo.264 codec for faster video encoding, Dolby Pro-Logic II, and comes bundled with disc labeling software. Popcorn 3 retails for $50 to newbie owners, or $30 (upgrade) to previous Toast and Popcorn installers.

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The publisher, Kwari Ltd., also promises to throw gambling into the online gaming mix. “All money paid in to the game by players is won out of the game by players,” the company said in a statement.

Doesn’t the house take a cut? Assuming Kwari doesn’t use in-game advertising, we’re not sure how this boat will float. Executing one emerging business model is hard enough, but Kwari’s going to have to deliver on three new ideas: pay-for-ammo, real-time shooter gambling, and in-game advertising.

To play, gamers allegedly set up anonymous profiles linked their respective checking accounts. For reasons unbeknownst to us, the company claims anonymity is necessary once money enters the gaming equation. As a result, Kwari is said to represent “the birth of anti-social networking” — whatever that means.

Players are matched by skill level. They then select an agreed-upon game stake, ranging from a penny to a dollar per hit. “Every time a player hits another, money is decremented from the target’s stake and added to the shooter’s,” explains the publisher in a press release. “In a way, the player’s money stake mirrors their in-game health, except it’s exchanged from one player to another.”

It should be interesting to see how Kwari develops over the coming months, though their commercial ambiguity has us doubting an actual launch.

Kwari officials were not immediately available for comment. In fact, their PR firm, Kohnke Communications, was hired just yesterday and were unable to disclose those details by press time was hired just yesterday and without knowing themselves how their client plans on turning a profit, spokesman Eric Gonzalez said in a phone interview.

A public beta sign-up is currently available at the game’s official Web site.

Update, 9/19: Clarified Kohnke’s position during post publication date.

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As described at E3, DGamer will let kids chat, trade items, and acquire online achievements using in-game avatars. Disney claims that anything done on DGamer via the Nintendo DS will also be done online through a designated portal at Disney.com and vice versa, for what they call “complete synchronization.”

Little else of the online community was shown, but the move clearly shows Disney’s interest in simultaneously banking on the rise in popularity of both the DS community (40 million strong) and kid-themed social networks like Webkinz, Club Penguin, and BarbieGirls.
According to division president Graham Hopper, DGamer will be safe for children and will include tight integration with existing Disney IP, including Pixar, though no specific properties were mentioned. The service comes bundled with every Disney DS game, and launches with the release of The Chronicles of Narnia: Prince Caspian in May 2008. It’s unknown if non-DS owners will be able to create a DGamer account online.

Since 1994, Disney’s video game division has quietly grown to 700 employees while publishing in-house games and licensing its IP to other game makers, such as Cars from THQ and Kingdom Hearts from Square Enix. The company now calls gaming a long-term priority and expects double digit growth over the next few years.

It plans to invest $130 million in product development during 2007. The division just acquired Junction Point, the Austin studio of respected, innovative designer Warren Spector, which suggests Disney Interactive is interested in more than standard family fare. (Donald Duck meets Deus Ex?)

While I like the idea behind DGamer, I don’t trust Disney to pull it off. Still, assuming the company leverages that solid IP like it should, kids just might flock to it.

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There’s no need to be coy; Nintendo’s Wii is directly to blame for the recent surge in interest of casual gaming and its much larger audience outside of hardcore gamers. Interestingly, that reality is transcending consoles, something that is sure to excite independent developers looking to avoid unfavorable licensing terms. Highlights from the E3/casual gaming convergence after the break.
Electronic Arts, the world’s largest video game publisher, dedicated its entire press conference to what it suitably called its Casual Games division. The 60 minute media showcase not only profiled several games for Nintendo’s hugely successful Wii, but mobile phone software and Internet-based games as well. The company called casual gaming “the fastest-growing area within all of gaming.”

Ubisoft, world’s third largest game publisher, did pretty much the same at its presentation, spending a sizable amount of time (roughly half) on what it called its Games for Everyone initiative. In addition to showing several new Wii games, the company displayed its new line of My Coach games for Nintendo’s DS, including My Word Coach, My Spanish Coach, My French Coach, and My Life Coach, which aim to offer self-help training while simultaneously entertaining busy adults. Ubisoft expects its casual games unit to drive 20% of total revenues this year, more than double what it did last year. Considering the success of the similarly-themed Brain Age for the DS, that’s a plausible estimate.

Even Microsoft promoted its upcoming line of “family-oriented” games, complete with a big-buttoned controller similar in look and feel to a Wii remote sans motion-sensing technology, while Sony showed off casual titles like EchoChrome, basically a black-and-white perspective puzzle game. On top of that, Midway, Activision, 2K, and THQ all touched on casual games, be them for consoles, mobile phones, or web browsers.

But the sustainability of casual games’ is still being questioned despite their recent popularity.

“Nintendo seems to be the one company that’s expanding the gaming market, but there’s some cause for concern there because who they’re attracting is the casual gamer,” said analyst Van Baker in an interview with Reuters that also examines the rising popularity of casual games. “That’s something that someone picks up and does for 15 to 20 minutes and then they put it aside. The question is, in three months or six months, is the Wii going to be sitting in the corner forgotten?”

But that same argument was being made only months after Nintendo launched Wii last November, and here we are nine months later and it’s still running circles around the competition, namely Xbox 360 and PS3. Nintendo’s newly announced WiiFit, easily the most disruptive showing this year (though technically not a game), will predictably only deepen the company’s reach– not to mention its pockets.

With the biggest names in gaming fully behind both audience and content expansion, the casual play extends far beyond just core gamers and their systems now. Did I mention everyone’s invited?

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Nintendo today announced a new indie developer platform for its widely successful Wii console, likely to launch in early 2008. Dubbed WiiWare, the service is said to enable developers to create smallish, new games via download on the motion-controlled system.
“WiiWare brings new levels of creativity and value to the ever-growing population of Wii owners,” Nintendo president Reggie Fils-Aime said in a press statement. “Independent developers armed with small budgets and big ideas will be able to get their original games into the marketplace,” he added. Details about the upcoming projects and prices have yet to be determined.

This isn’t the first time downloadable games have graced consoles, however. Both Microsoft and Sony currently offer downloadable games on their Live and Network platforms respectively, though their indie friendliness has been questioned due to the high cost of development and strict license regulations.

Nintendo claims the possibilities of its service are “limited only by the imaginations of developers,” but the company conveniently omits the fact that Wii only houses a tiny amount of internal flash memory (512MB). System owners and developers will therefore need to explore other external storage options depending on how large the games end up being.

Still, the news is significant for several reasons. First, it reminds us that you don’t need the most technically advanced product to build a loyal community; only one that interests people. As a result, Nintendo will now be able to create a new sub-economy of users on top of its existing 8.5 million Wii base. Second, it shows that Nintendo appreciates the current trend of nano-type projects like MySpace Widgets, Facebook Apps, and any other company that sells to a community of a million plus members.

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So in an effort to cut through the hype and glean some context, here are the most popular MMOs in terms of active users or subscribers, based on publicly available data. These titles may or may not be games, but the medium has expanded far beyond Tolkienesque fantasy worlds. They all are Mac-friendly/Web-based with exception of Guild Wars.

1. World of Warcraft, released 2004 – 8.5 million subscribers.
While Habbo is giving Blizzard a run, the numbers generally support WoW as the biggest MMO in the world. Important qualification, though: only 4 million are based in the West and monthly subscribers, while its 4 million Chinese players only pay roughly 4 cents an hour to play it in Internet cafes.

2. Habbo Hotel, released 2000 – 7.5 million active users.
The Finland-based “social game” MMO popular with teens and growing fast. Look out, Horde!

3. RuneScape, released 2001 – 5 million active users.
A Java-based MMORPG operated by Jagex Ltd. with over nine million active free accounts. Boasts one million paying customers. Fancy that.

4. Club Penguin, released 2006 – 4 million active users.
MMO for the kiddies developed by New Horizon Interactive. The game shares similarities with other social environments like Habbo Hotel.

5. Webkinz, released 2005 – 3.8 million active users.
Here’s a novel idea: create beanie baby like stuffed animals, assign them a unique ID, then create an MMO portal in which kids can spend even more time using your product. When kids graduate from Club Penguin, they go to Webkinz (or so I’m told.)

6. Gaia Online, released 2003 – 2 million active users.
Not quite an MMO, not quite a social site, but founder Derek Liu has openly stated the networks desire to focus on social gaming. Forums make up 30% of the current site activity.

7. Guild Wars, released 2005 – 2 million active users.
Another MMORPG made by the popular NCsoft out of South Korea. No Mac love here, but a lot of active users.

8. Puzzle Pirates, released 2003 – 1.5 million active users**.
Published by Ubisoft and developed by indy king Three Rings, Puzzle Pirates merges casual games with a rising interest in pirate culture. Puffy shirt aside, it’s working like a charm.

9. Lineage I/II, released 1998 – 1 million subscribers.
Published by South Koreas NCsoft, Lineage was once the most popular MMO of its day. At one point total active users peaked at 3 million. A Western release in 2002 mostly fizzled.

10. Second Life, released 2003 – 500,000 active users.
No introduction needed here. Created by Linden Lab, this virtual world features a rabid fan base, inflated numbers, a high influx of corporate doppelgangers, and lots of digital genitals. First life optional.

Other popular MMOs are sure to exist, particularly new-comers and non-localized Asian games that are sure to grow. Also, this list reflects popularity alone, not necessarily revenue models, though World of Warcraft is performing well on both counts.

For all intents and purposes, the most popular MMOs represent an estimated 50-75% of the total MMO market (30-60 million active users.) Is that enough attention to justify MMO’s recent surge of attention? Maybe not all of the hype, but definitely a large portion of it. And who wouldn’t want a piece of Blizzard’s reoccurring pie or another revenue model with a similar install base?

Interestingly, however, it’s apparent that no single business model is winning out. Subscriptions work well for MMORPG games like WoW that are more akin to crack cocaine than mere entertainment. But what about other non-game MMOs? How will companies bank on consumer attention in those areas? One thing’s for certain: with all the popularity surrounding MMOs several new business models are sure to flourish in the coming years, as it’s not just about games anymore.

*Of Western origin or with a localized presence here. “Active users” based on most recent monthly log-in figures when available. Subscriber numbers are not necessarily a reflection of active users. Figures compiled from Wikipedia (excluding, to the best of my knowledge, free trials, beta users, and web visitors without accounts.) Virtual Worlds News also referenced; Habbo figures taken from company spokeswoman, Second Life figures from most recent published stats. Special attention was given to notable MMOs in terms of where they stack up when looking at the numbers in addition to their popularity and/or high profile (i.e. Second Life.) Amendments and additions welcome.

** Update, June 15th: Puzzle Pirates active users are actually 200,000, according to company CEO Daniel James. With no single tracking authority or qualitative filtering, this list was bound to be controversial. Other MMO candidates named in Comments include Bots, Neopets, Final Fantasy XI, City of Heroes, Virtual Magic Kingdom, Lord of The Rings Online, along with others, many of them considered and rejected, others not. All will be considered in an update to this list.

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Jim Greer, former Technical Director at Pogo, like EA thinks that there is a big business to be made out of casual games, and raised a million dollars for his new start-up, Kongregate, which aims to be the YouTube of games, offering free, ad-supported Flash games and an online community to increase the site’s stickiness. After the break, Greer talks revenue model and numbers.

What’s so YouTube about Kongregate

‘YouTube for games’ is really just the attention-getter for people who don’t know that much about the space. What we really are is a community for web gamers and developers. Current web game sites don’t do community right, if at all. If I beat a game on Miniclip or AddictingGames, I don’t take anything with me and can’t even see the other people who are playing it as well.

Kongregate by the numbers

Page views for March were 2.4 million. That’s up from 400K in February. Registered users are in the low five figures – until recently the only incentive to register was to socialize. Now that we have persistent rewards for playing games, we’re seeing much better registration rates. Right now we have 483 games, and they’re coming in at a rate of 40-50 per week. Those are from 224 developers.

Leveraging Ad Revenue

The participation rate for YouTube is somewhere around 2%. That means 98% of the users came there to view videos, not upload them. If our participation rate is around .05%, it doesn’t really kill us. Good games are something you play for hours. A good viral video you watch for two minutes. So we can have a lot fewer games and have plenty of entertainment value…

(To encourage user-generated content), most other sites pay developers a small one-time license fee. They make a lot of money and they don’t share it. We think we can inspire love from our developers, both because they like our community, and because we treat them well… By default, all developers receive 25% of the ad revenue generated from their games… [But] it’s possible for a game to earn 25%, 35%, 40%, or 50% of ad revenue (depending on performance).

Unlike YouTube, users can’t share games on other sites and blogs (yet), but this is something Greer believes is “less of a blockbuster strategy than it was for video.”

All this sounds promising, but unlike other proven online communities, making a enjoyable Flash game takes a lot more time and talent than, say, uploading a funny video, and that barrier limits Kongregate’s content stream. So what’s it going to take for Kongregate to become the number one online game destination? “Much better virality than we have right now,” says Greer. “I’m very happy with where we’ve come in the six months since we founded the company. I think we can do a lot in the next six to twelve.”

You can follow Kongregate’s saga on Greer’s blog.

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“There are no plans currently to bring this service to the US,” said Sony’s Dave Karraker in speaking to GigaOM. Bummer for the 7.4 million PSP owners living here. Sony had offered Skype connectivity to the owners of Mylo, a communicator type device, that has vanished liked the Yeti.

BT has a deal with Wi-Fi sharing service FON, and this service could play nicely with BT’s longer term plans. Om had reported that “the senior management of the British incumbent carrier was pretty bullish on the whole notion of dual-mode phones and municipal wireless. They talked about their Fusion strategy quite excitedly.” This deal with Sony will possibly allow BT to realize its ambitions to provide voice services over Wi-Fi networks.

To accommodate the four-year deal, Sony will be shipping VoIP-enabled PSPs with the necessary preloaded software (video here ). No word yet if the new PSP will include a much rumored face lift. BT also said the service would later support landline and mobile phone calls over multiple networks.

Since first launching in December of 2004, more than 24 million PSPs have been sold worldwide with 8 million in Europe. We’d be surprised if Sony and another telco didn’t eventually launch the same service stateside. Then again, we wouldn’t be shocked if it failed to materialize either.

Nintendo once showcased a VoIP service called DSpeak at E3 2004, but the service was never commercialized. Rather, it is now used for many popular DS games as a multi-player VoIP feature on the company’s Wi-Fi network.

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Make no mistake about it, though the PS3 trails far behind and the Wii isn’t a direct competitor, the 360’s position as the HDTV-powered next gen champ is far from assured. The console has sold 10 million units to date since first launching 18 months ago, and claims six million online members to its Live service. It is hard to say how many of those are paying members, and how many are part of trial or some giveaway.

Still, those numbers are impressive, but just to put them into perspective, 10 million 360 owners represents only 6% of the total number of consoles sold last generation, and six million registered online users is tiny in comparison to the total gaming population. Granted, it’s still very early in the traditional 5 year life cycle of consoles, but the trajectory isn’t promising. Despite Xbox Live boasting the largest online console community to date, it doesn’t appear to be gaining ubiquitous traction, at least not yet.

Enter Halo 3, the jewel in their gaming crown, and the franchise the company hopes can not only boost online membership to higher levels, but bait gamers into purchasing additional downloadable content such as movies, music, TV shows, and episodic game content.

Of all 360 exclusive titles, Halo 3 is the one best positioned to do that.

How well did it succeed? We attended the Microsoft’s event at Foreign Cinema where we were treated to an open, hands-on session. The party atmosphere wasn’t very conducive to intimate gaming, but the game experience is classic, proven Halo. It plays slightly faster than previous editions, which makes frenetic gameplay situations that much more intense. There’s new vehicles and weapons, including a sweet cannon turret and missile launchers that slow down your player, but spew massive damage on your enemies. I especially liked the ginormous laser blaster with equally imposing damage. Microsoft showed off three new multiplayer levels, two of them set in two, outdoor environments, lush but limited in expansiveness. The other map was an annoying sandpit level reminiscent of Return of the Jedi. Overall, the visuals were a bit underwhelming, at least in their current state.

“It’s not going to win any awards,” said one attendee at the event, accurately critiquing the game in terms of innovation. In market terms, this suggests a game that’ll keep its existing audience, but probably not do much to expand it. Or for that matter, gain the 360 any extra edge in Microsoft’s bid to become the main digital distribution channel of the next gen living room.

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Gamers that continue to play above the three-hour mark will only receive half the normal points up to five hours. After the five-hour mark, players receive zero points in addition to an annoying message every 15 minutes that reads: “You have entered unhealthy game time, please go offline immediately to rest. If you do not, your health will be damaged and your points will be cut to zero.”

Keeping in mind I’m no World Of Warcraft player, the “three hours a day will keep the doctor away” system seems generous, especially for youngsters. My democratic roots from an American upbringing, however, take issue with the whole government mandate thing. It just doesn’t feel right.

Still, even here we regulate unhealthy drug use including alcohol levels and prohibition of cigarettes and booze from minors; something video games have been likened to, however justified. Therefore, the question largely remains whether or not game addiction significantly damages an individual’s health beyond repair like that of addictive narcotics. But of course, where do you draw the line (e.g. incessant TV watching)?

While a bummer for kids trying to level up in a short amount of time, how will the “game fatigue system” affect Chinese adults? “The system will only target minors who lack the self-discipline to control their playing time,” said state official Kou Xiaowei in the China Daily report linked above. But the new rule requires that every online player, regardless of age, register using their real identity; something that could negatively affect the bottom line of game makers in the country. “This will scare away many adult and young users,” said analyst Liu Bin of BDA China, also in the Daily report.

So will the “anti-online game addiction system” work? Maybe a little. Official statistics show that more than 85% of online Chinese gamers are over the age of 18. You gotta believe a large number of them are playing more than three hours a day. So perhaps even adults “lack the self-discipline to control their playing time.” Start ‘em young, I guess.

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It is a wily move by Microsoft – after all, to instant message someone you would need a QWERTY keyboard-based device, which no surprise, Microsoft will start selling later this summer at an undisclosed price as an attachment to existing controllers.

Unless the first 10 million 360 adopters upgrade their controllers, don’t expect ubiquitous IM use from them. Even then, it’s unlikely what is being sold as a game machine will transform into a secondary messaging box over night – if ever.

In the interim, gamers will need to rely on the cumbersome on-screen virtual keyboard to communicate with friends. Yeah right – trigger happy gamers are going to do that.

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