Webs.com, formerly Freeweb.com, yesterday announced the launch of a publishing network for gaming applications on social platforms like Facebook. Called the Social Gaming Network, it will tie together games under one banner and circulate players across the applications. The name of the enterprise is a little confusing: it’s a network of “social games,” yes, that roll out over a social network. Gah.

The accessibility of Facebook for developers has left us flooded with Vampires and Zombies and Walls and Pokes — at this point, a little content corralling comes as a relief. But while games like Scrabulous, based on the enduring board game Scrabble, remain very popular, many of the other games tend to provide shallow experiences that quickly get tiresome after the novelty wears off. How do developers get around that?

Perhaps by continuing to build new games. And that’s where leveraging the connectedness of the games on SGN could come in handy, because you can add a new game into the rotation when an older one wears thin. Warbook — which now boasts 1 million installations — has almost 150,000 daily active users, according to CEO and co-founder Haroon Mokhatarzada. When those users start getting bored, SGN could introduce other games in the portfolio and advertise them to current Warbook users: Street Race, for example, which quickly became the most active application on Facebook the day of its release. What will be the next flavor of the month? As long as SGN remains smart about what games it develops or acquires, it’s possible they can continue to build and grow an audience.

Another unique value of the network touted by its founders is that players can interact with other players outside of their friends’ lists. The game becomes a way to meet other people and to potentially make new friends. And while the applications are currently restricted to Facebook, Mokhatarzada says the company plans to roll them out across other social networking platforms. “For the first time, people will be able to communicate with people outside their network,” Mokhatarzada said. “The game is agnostic.”

But to what end? Would communications with other users increase the stickiness of these games or enhance the features of social networks overall? Isn’t the point of joining a gated garden that you don’t have to interact with random users with whom you have nothing in common? Why would I want to attack a random stranger’s Warbook kingdom? One of the advantages to having a friends list is that it can buffer you from the unpleasant anonymity of the Internet and provide a layer of meaning to your actions in what is, in essence, a very simple game.

Having raised $11 million in Series A funding last year, Webs.com remains upbeat about capturing revenue solely from advertising — including targeted advertising, sponsorship opportunities and product placement. But Mokhatarzada admits to some uncertainty with the model. “There are real opportunities now,” he told me on a phone call. “No one knows exactly how it will shake out.” Advertising in casual or social games is still an unknown, and there is a lot of competition for ad dollars. SGN will have to prove that a network is more than the sum of its parts.

It’s not entirely clear yet how Vivendi’s plan to take a controlling stake in Activision, unveiled Sunday, will shake up the games industry. But the $18.9 billion deal will not only merge the maker of World of Warcraft with the owner of Guitar Hero, but will create a video game company, Activision Blizzard, that surpasses Electronic Arts in terms of revenue.

It certainly gives EA (ERTS) something to think about, and some analysts are wondering if EA will look for a buyout from a large media company. What’s more likely is that EA will look for other acquisitions. Raph Koster, who started a company that bridges the web with virtual worlds, notes that EA seems to be moving towards global media concerns while Activision (ATVI) has been “doubling down on traditional gaming.” It will be interesting to see if EA starts eyeing music, TV, film, and other entertainment options.

Also affected is The9 (NCTY), which operates World of Warcraft for Blizzard in China. Shares of the Chinese gaming operator, in which EA holds a 15 percent stake, slumped in Monday trading as analysts worried that the deal may delay contract renewal negotiations next year.

Activision CEO Kotick said in one interview that he’s counting on Blizzard’s strength overseas to help carry other Activision brands — such as Guitar Hero — to Asia. Blizzard is also working on Starcraft II, a brand that remains very popular in South Korea.

With Vivendi (V), Activision also gets the support of its music division, Universal, to potentially bolster licensing deals for Guitar Hero. Harmonix benefited greatly from its partnership with MTV in this regard for their competing music game, Rock Band.

Kotick — who will be CEO of Activision Blizzard — is quite open about his ambition to lead the world’s largest game company. It could all be very good news for the smaller studios. It gives them some breathing room and opens up the possibility of being acquired by the new company, or by EA. And it may attract new investors, those who have cooled on the rising share prices of the soon-to-be even bigger big guns.

The mobile gaming market was supposed to be huge by now. Clearly that hasn’t happened. And although the jury is still out as to whether this sector will grow or fizzle, as games on cell phones face competition from all kinds of other media, some analysts are resolutely predicting a slowdown.

But John Carmack, the creator of such hardcore IPs like Doom and Quake — the man who practically founded the first-person shooter genre in games — has been talking up the new mobile division of his company, id Software. In this way Carmack is following in the footsteps of id co-founder John Romero, who started the mobile games maker Monkeystone Games in 2001. But back then, the mobile games market was in its infancy, and after three-and-a-half years, Romero quietly shut the studio down. Carmack, on the other hand, has been waiting for the market to stabilize, and he’s not only working on games for mobile phones but for other devices as well — among them Nintendo’s handheld DS and Nintendo’s Wii.

As popular as id’s games are, they have traditionally appealed to the most hardcore corner of the market — the guys (and they are almost always guys) who shell out for the latest graphics card and like to overclock their PCs. These are also the type of guys who scoff at Nintendo’s family-friendly devices, who would die before ever touching a casual game — especially one made for a mobile phone.

Anna Kang, wife of Carmack and head of id Mobile, notes that Nintendo DS gamers also tend to be younger than those who stick to PC or console titles, so there is some worry that the M-rated violence that is such a hallmark of both Quake and Doom may not find enough eligible players on new platforms. Carmack and Kang are going to have to go looking for customers outside of id Software’s base for this new venture.

Is it a sign that the hardcore market is drying up? Well, I wouldn’t go that far, at least note yet. It’s true that pure PC gaming has been a niche market for a while, and the console market is crowded with competition. The fact that Carmack is going to platforms usually defined as “casual” is just another indication of the trend towards catering to a different type of player who wants a different kind of play. But he may not be able to capture these gamers solely by relying on the power of id’s IPs. He’ll have to adapt them to new tastes. Doom for All, perhaps? How about Everybody Quake Now!

Last week saw a veritable explosion of launches and news centered around companies that are merging social networks, cash payouts and gaming. It’s the new frontier, apparently. Anyway we had trouble keeping them all straight and we figured you may have, too, so here’s a brief roundup of the newer players in this space.

iWON

Kickplay

Moola

Wipido

Two acclaimed boutique game studios recently released music-based games for the iPod, and I hope they are pioneers of a new frontier. The iPod interface offers such intriguing possibilities for play style, and with 100 million versions of the iPod sold, the install base is quite large! NanaOn-sha’s Musika and Harmonix’s Phase both import songs from your playlist and can both be purchased through the iTunes music store — but that’s where the similarity ends.

Musika, a word-matching puzzle game, fails to live up to the standards set by NanaOn-sha, the studio that arguably did the most early work on music games, especially with its charming, groundbreaking cult hit, Parappa the Rapper. The gameplay in Musika, disappointingly, has almost nothing to do with music. As you listen to each song, you watch for letters to materialize on the screen. If the letter matches one of the letters in the song’s title, you hit the center button. That’s it. It’s not a music game; it’s a memory and perception game — and not a particularly compelling one.

Chris Kohler’s interview with creator Masaya Matsuura reveals that Matsuura had doubts as to whether or not players would find a rhythm game for a handheld platform too taxing on their concentration. I hope Phase will change his mind and encourage him to explore rhythm-based play again.

Phase, a rhythm-matching game, is an impressive debut, but ultimately promises more than it fulfills. (A quick disclaimer: my band contributed a track to the demo playlist for the game; we get no money or residuals or anything from it, it’s merely a friendly donation.) The game analyzes songs you import into the playlist to spit out patterns that you match by tapping areas of the scroll wheel and the center button, using visual cues that will be familiar to fans of Guitar Hero or Amplitude. Hard mode is, be warned, quite hard, and some songs are easier than others. I had tremendous fun on four-to-the-floor rock and dance tunes like Electric Six’s “Danger! High Voltage!” and Andrew W.K.’s “Girls Own Love.” but failed miserably on Dolly Parton’s “Hard Candy Christmas.”

It’s a solid, high-quality game, but perhaps a little too derivative of other Harmonix titles. I’d like to see the company really branch out in this area, innovating not just in genre, which they have done brilliantly, but also in the way that players interact with music, especially in the visual representation of that interaction. I believe in you, guys. Now go make the next one!

The market for online games in China shows no signs of cooling off as NetDragon, an online games developer, this week reported a nearly 2,700 percent profit increase, to $35.8 million, over the same nine-month period last year.

NetDragon’s earnings growth is based on three popular titles: Conquer Online, Eudemons Online and Zero Online. The boom, more generally, of millions of PRC citizens coming online and the resulting increase in player base helped send NetDragon’s profit margin higher by 5.8 percent to 94.5 percent in the period ended Sept. 30.

China’s online game market reached $803 million in revenues last year, according to local media. Research firms are predicting that revenue will easily break $1 billion in 2008, and continue to grow. Given that online games took in $3.8 billion in revenue globally last year, China’s piece is a pretty big slice of the pie.

There are growing opportunities for foreign-developed games in this market, too — just 60 percent of the market is made up of domestically developed and operated games. Western-developed World of Warcraft has made a significant impact there, signing on 1.5 million new players in just the first month of its release in 2005; as of March 31 of this year, its registered accounts in China totaled 7.5 million. The game’s Chinese operator, The9, is one of the three biggest online game companies in the country, after Shanda Interactive, which licensed the Korean-developed mega-hit Legend of Mir 2in 2001, and NetEase, with their popular MMO, Westward Journey.

Jack Myers posted a rather long article this morning chronicling the trials of a 13-year-old girl who recently had her avatar stolen in the casual anime-styled MMO Gaia Online. While it’s true that there are now virtual characters with virtual possessions that translate into real dollars, the article sensationalizes a problem that is hardly new. The scam is known as phishing, and it remains one of the surest ways to part a fool with his password.

But the dynamics do change when there are kids involved. Although companies warn all players against giving out their passwords, minors who go on to get scammed present a special PR problem. No one wants unhappy kids complaining on message boards and, even worse, to the press, and companies will have to start going the extra mile to ensure greater security measures in user accounts.

When it comes to protecting you from your own gullibility, exactly how much responsibility lies with the company? Well, when we’re talking about kids — little people whom we don’t allow voting rights or legal independence — then the company, I’m afraid, bears infinite responsibility, especially in the eyes of the parents who are allowing their kids to play.

There is a psychological aspect to all of this as well. Virtual spaces are also real spaces, and real things happen in them. Real feelings get hurt. Julian Dibbell famously demonstrated this in his seminal essay, “A Rape in Cyberspace.”

What happened to the girl who had her Gaia Online avatar stolen felt like theft because it was theft, and she went through feelings of violation similar to real-life theft victims. The emotional attachment to virtual spaces intensifies the need for companies to court children as players very, very carefully.

We all love the Wii — gamers, game developers, marketers — in theory, anyway. But mine has been collecting dust since the spring, and the ardor of developers has cooled as well.

Sure, there was Metroid Prime — an excellent game, the first solid shooter for the console, but decidedly not the type of game that will please those housewives and grandfathers featured in Wii’s much-touted advertising campaign. The same goes for the charming but hardcore Super Mario Galaxy, due to be released in North America on Monday. But there are nearly 5 million Wiis out there in North America alone, and 13.5 million worldwide. What are all those Wii owners going to play?

Here are three ways Nintendo can bring the Wii back to the party this winter:

1. Launch third-party titles that appeal to the casual gaming sector. Eidos CTO Julien Merceron warned today that if third-party titles don’t sell well this holiday season, developer support for the platform could falter. That’s actually fine — get the heavy-hitting major studios out of there and make room for some indie development, for studios working on casual games, and for ports of popular PC titles. Bring those types of titles to the Virtual Console. Make some of them free. Just get people excited about the console again.

2. Explore more robust community features. In an effort to maintain market relevance (I presume), Nintendo today announced a nifty little feature called “Check Mii Out.” Miis, for the uninitiated, are the cute avatars that represent you to your friends’ lists via the console’s WiFi connection. “Check Mii Out” comes off a bit like a “Hot or Not” for the geek gamer set — browse through the avatars, select ones you like, and stalk them — er, add them to your “favorites” list. It’s a step in the right direction, but a mere baby step. Wii needs to do something really unique here to set it apart from PlayStation Home and Xbox Live. Give the players more ways to interact with one another.

3. Make Wii Sports 2 — please! Spruce up the graphics. Add a fun off-road racing game (Excite Truck proved you can use the Wii remote as a very effective steering wheel.) Badminton could also work, but what about fencing, or better yet, kendo? Sharpshooting could also be fun.

Wii, you know I love you. That’s why I’m telling you all this. It’s called tough love, baby. Don’t neglect that casual market you worked so hard to carve out.

For anyone out there who remains unconvinced as to how important the casual gaming market is, the latest report by the Casual Games Association may help change your mind. The casual games industry rakes in $2.25 billion a year, according to the org’s latest research, with growth estimated at a whopping 20 percent.

As the report outlines, over 200 million people play casual games on the Internet each month. And it’s the only sector of gaming that reflects an appropriate gender balance: The ratio of men to women is nearly even, at 48.3 percent to 51.7 percent, respectively, yet 74 percent of people who pay to play casual games are women. In other words, casual gaming is an area of enormous potential for the gaming industry…if only the industry can avoid some potential pitfalls along the way.

Don’t mistake potential for actual money on the table. Chris Morrison over at VentureBeat does a good job separating the two by comparing the scope of casual gamers to enthusiasts (a market that rings up $20 billion a year in revenues). Nine million accounts on World of Warcraft and six million accounts on Xbox Live are, after all, small potatoes compared to the 200 million suggested in this report, but at least Blizzard and Microsoft (MSFT) can count on predictable revenue from every one of their subscribers. And don’t forget, too, that the most popular online hardcore game may still be Counter-Strike, which last year averaged 200,000 simultaneous players at any given moment on Valve’s game delivery service, Steam.

It’s also good to keep in mind that the money generated from casual gaming doesn’t always go directly to a developer or publisher. Solitaire, which according to the report is the most popular casual game, is a free application that only indirectly profits Microsoft. Casual games are still making baby steps towards acquiring a captive audience and drawing a steady stream of income from it. There are still a lot of unhatched eggs out there.

Furthermore — and this is an issue of taxonomy endemic to reports like this — what exactly is “casual gaming”? It’s odd that casual gaming gets its own special category when, in fact, it’s a behavior pattern than reflects the way most people play games. Most people play even “hardcore” games casually — 20 minutes at a time, for example, or as a way to relax and socialize with friends. Do we speak of “casual film-goers” or “casual sports fans”? Is casual a genre — or an approach?

The moniker seems to betray a little bit of contempt; and when I attended a panel at >play, the digital media conference at UC Berkeley last week, even the casual-focused panelists joked that casual games were “not just for old women.” Alice Taylor has a great take on this, by the way, in her post, “DUH: Men play casual games too.”

But casual isn’t winning across the board — at least, not yet. The panelists in the talk also warned that without truly compelling new software this holiday season, the Wii stands to lose some of its luster and risks winding up as “a short-term win” rather than a true agent of disruption. We need something with which to update Wii Sports.

Games could see a PR backlash, too, with the increase in casual MMOs for children, which is challenging sometimes reluctant parents to pay up for subscriptions or virtual items, while at the same time drawing criticism from some sectors as being too consumerist. Club Penguin is only the latest hot player in a group that includes heavy hitters like Mattel and its Barbie property, as well as Sanrio’s virtual world, populated by Hello Kitty and friends, which is currently under development.

Finally, with all this talk of the importance of social media and the social environment enabled by web 2.0 technologies, we have yet to see a true convergence of the casual games space with online social spaces. Sure, sites like Kongregate have a social aspect — but only in the portal framework. Where are the casual MMOs that take advantage of all that the best of social networking has to offer, from Facebook to Flickr to Twitter?

The 20 percent growth rate is certainly exciting. How long such a trajectory can be sustained, however, depends on how well the casual gaming industry can respond to the challenges of a changing marketplace — and how successfully it can keep developing content that inspires the gaming community.

Outspark, a San Francisco-based casual games publisher with offices in Seoul, South Korea, launched its North American games portal yesterday. Like Nexon’s South Korean-developed MapleStory, Outspark games will be free to play — in addition to advertising built into the games and the portal, the company will rely on micro-transactions of virtual goods sales to generate revenue.

Their first game, Fiesta, published by OnsOn Soft in Asia, is an MMO currently in open beta. Outspark, which secured $4 million in funding earlier this spring from Altos Ventures and Doll Capital Management, plans to work with other developers to publish community-oriented multiplayer casual games as well.

I put a few questions to CEO Susan Choe and Chief Studio Officer Nick Foster yesterday to get a better sense of the company’s plans.

The micro-transaction model has been shown to be very successful in South Korea, where Outspark also has experience, but has been slow to take off in North America. Why do you think that is and why do you think it’s time to launch this revenue model here?

SUSAN: The micro-transaction model was slow to gain traction in North America
due to a lack of payment solutions like those readily available in Asia.
The response of North American gamers, however, to this type of game and
item sales model has been tremendous and forms the basis of Outspark’s
initial releases. Our expertise in running global portals like Yahoo (YHOO)
and leading game product management at companies including EA (ERTS), Nexon,
Blizzard and NHN will help us continue to deliver great results.

What demographic do you see as your primary target and how will you reach it?

NICK: Outspark’s initial target demographic is the youth market, specifically
those between the ages of 13 and 24. Friendly, socially driven games
appeal to all ages, however, and we’re attracting a diverse community of
people looking for a different style of play than can be found in
conventional console or hardcore games.

Your competition, in my view, is not necessarily World of Warcraft
but socially rich Web 2.0 apps like Facebook and YouTube (GOOG). How will your
products compete — or integrate — in that space?

SUSAN: Outspark’s goal is to provide a socially active virtual playground for
online gamers. By providing games that players genuinely want to spend
time in and building a community around that shared experience, Outspark
can be a good partner for socially rich Web 2.0 companies by providing
their communities with additional engaging activities.

You talked [in the release] about Outspark as a “platform.” Can you tell us more
about that?

NICK: Outspark understands online gaming and the human drivers that make game
communities successful. We’re combining our expertise in global
entertainment with an understanding of virtual item sales and good game
design. Outspark’s goal is to find media partners and work with them to
apply this holistic “platform” approach to help build additional
channels for their IP, around which online communities can grow.

The Wall Street Journal this morning is reporting that Microsoft (MSFT) and Google GOOG) are both pressing Facebook hard to close an advertising deal that would give the winner the right to broker ads for the site outside of the U.S. in conjunction with its planned international expansion. WSJ believes that the deal will also come with a nice little minority stake in the startup, which has been valued at as much as $15 billion.

While it’s not surprising that all the big boys want to get it on with the belle of the social networking ball, the question is, will they know what to do once they score?

Facebook is not the Internet — it’s a more intimate environment, a gated opt-in social community of loose trust networks. Clumsily inserting the standard keyword-based advertising model may not be effective. Users are already trained to ignore the usual ad placement areas on a site, and if a tide of tacky ads floods Facebook, we could see an exodus of users seeking virgin territory.

On the other hand, the relationship management aspects of Facebook could provide an unprecedented opportunity for innovation in advertising, if Google or Microsoft is up for it, but it will involve an evolution which, so far, neither company has demonstrated. Imagine leveraging the power of the trust networks to personalize recommendations, to draw lines between users, and further strengthen the bonds they already have with one another, promoting the social aspects of the site rather than disrupting them. Here’s where all the little Facebook apps could become supremely useful. “Your friend Jack sent you a mojito for Happy Hour. Thank him — with a BACARDI mojito!”

It will be in Facebook’s best interest to choose a dancing partner wisely — one who will take care of what’s important, and not muck things up with two left feet.

These sites, in alphabetical order, offer food for thought with posts that will widen your perspective on the interaction of business and design in games, particularly in the realm of casual gaming.

1. Brinking by Nabeel Hyatt. Nabeel is a serial entrepreneur, currently co-founder of Conduit Labs. He shares insights into the intersection of virtual worlds and social web space.

2. Game Tycoon by Dave Edery. Dave manages the worldwide portfolio of games for Xbox Live, and is a research affiliate at MIT’s Comparative Media Studies Program. His blog ranges over a variety of game-related topics, but often considers the future of game development and distribution.

3. Games*Design*Art*Culture by Greg Costikyan. Greg is no-holds-barred and always smart and funny, although you may find yourself in vehement disagreement.

4. Guardian UK Games by Aleks Krotoski. The most mainstream-friendly on this list, Aleks covers games from cultural and consumer perspectives.

5. Jay Is Games by Jay Bibby. Jay and his writers post links to new casual games with thorough write-ups, including reviews and walkthroughs.

6. Kim Pallister by Kim Pallister. Kim works on strategy for Microsoft’s casual games division. His writing is sharp and often provocative.

7. Lost Garden by Daniel Cook. Dan explores his own game design ideas as well as the product development. His most well-known article is Nintendo’s Genre Innovation Strategy.

8. Ozymandias by Andre Vrignaud. Andre is another smart Microsoft guy sizing up the competition with interesting posts on the PS3 and the Wii as well as on the future of digital distribution, trends in gaming behavior, and games research.

9. Water Cooler Games by Ian Bogost. The author of Persuasive Games writes about serious games – games with a purpose.

10. Zen of Design by Damion Schubert. Damion is a designer at BioWare Austin, where he’s working on their unannounced MMO. He writes about MMO design decisions and the landscape of MMO development.

You can follow our gaming coverage by visiting here or subscribing to our games only feed.

Earlier this month, MCV discovered that Google (GOOG) had filed for patents related to interactive entertainment. Today Tiga, the trade association for videogame creators in the UK and Europe, said that a product marketing manager from Google Adsense will speak at the group’s day-long “Working with Games” conference next week. There have been rumors that Google was casting a covetous eye on videogames at least since Google bought Adscape back in February. Now the picture is getting a little less murky, it seems, as Google heads out to make contact with videogame developers, publishers, and trade organizations. They’ve got some catching up to do but hey, they’re Google, and that means any competition they provide will need to be taken very seriously.

While last week some called the popularity of the Wii a bubble that was on the verge of bursting, retailers are admitting that supply may, for the second year in a row, fail to keep up with consumer demand.

So what’s going on here? There seems to be an odd disconnect between consumers and developers. Consumers still want the Wii, clearly, but third-party developers may be getting tired of the Wii’s uniquely challenging development environment. And their reward? Slumping software sales. So what do consumers want to Wii for?

I’m not sure, but I’m guessing it’s part curiosity, part faith — faith that Nintendo will continue to deliver software that is as fun as Wii Sports, as high-quality as Legend of Zelda.

Though others have hinted at it in the past, Radiohead’s move to offer its latest album, “In Rainbows,” as a direct download — for a price set by the consumer — is a first among high-profile bands. It’s also a watershed moment in the music business, and one the game industry would be foolish not to pay attention to. The lesson is simple, really: Create a fair and consumer-friendly way to free the media.

Consumers Want Freedom

Consumers now want the freedom to use their media as they wish. When it comes to music, they want to listen to songs in their cars, on their PCs and on their living room stereos. They want to create mixes and playlists and share them with friends; to rip apart songs and create mashups. They want to customize their experience of music.

Part of the push is a backlash against harsh DRM technology. As Yahoo’s (YHOO) Ian Rodgers recently commented, “If the licensing labels [offering] their content to Yahoo put more barriers in front of the users, I’m not interested…I won’t let Yahoo invest any more money in consumer inconvenience.” Apple (AAPL) is experimenting with DRM-free music for iTunes, and Amazon (AMZN) last month launched the beta version of its MP3 download store with 2 million DRM-free songs.

In gaming, region encoding is perhaps the worst offender — the consumer doesn’t want to have to buy a Japanese PlayStation just to play Japanese import games. Don’t make her do that.

Creators Want Control

The other side of the equation are the artists who, like Radiohead, have become fed up with having to funnel their product through the Byzantine process of publishing on a label, only to get, more often than not, royally screwed. Why would any artist choose to sign away their creativity like that? Because until recently, there was little choice. But then came the wave of independent labels and the rise of the indies, and concurrently (not coincidentally) the explosion of the digital download. Now artists can choose not to sign, even if they don’t have the draw of Radiohead. Independent musician Jonathan Coulton, for example, has been quietly building his one-man music business for two years.

Is this a route that independent game studios can take? Well, many of them already have. Valve, makers of the highly acclaimed first-person shooter Half-Life, have their own distribution label, called Steam, in addition to a retail distribution deal with EA (ERTS). For indies, sites like Kongregate offer revenue-sharing programs for content creators. GameTap, the subscription-based streaming game service, has launched an Indies label. And venues like the Independent Games Festival (IGF) increasingly raise the profile of talented game developers and small studios, allowing them a greater degree of access to both consumers and to deals with publishers on their own terms.

The Big Platform Problem

But the game industry also has its own unique obstacle: the lack of an agnostic, standard platform for game software. For instance, I want to play the outstanding downloadable game, Everyday Shooter (see the lovely trailer), from 2007’s IGF winner Jonathan Mak. But I can’t, because it’s only available through the PlayStation Network, and I am not about to drop five hundred bucks to play one downloadable title.

This sort of platform lock generates some of the biggest behind-the-scenes battles between publishers and developers in the wrangle for exclusivity, and creates painful development headaches for studios trying to produce multiple SKUs of a product on time. And while Microsoft (MSFT) has created tools like XNA to facilitate development, the game creator can ultimately only reach the percentage of the market that is the install base of the platform.

If Downloads are Loss Leaders…

Another problem is that games make the bulk of their revenue through game sales. Kim Pallister, who works on strategy for Microsoft Casual Games, noted this when I asked him what he thought games could learn from the music industry. “A really interesting thing is to think about the ‘If it’s all free, the money’s in concerts/live performance’ angle for music. Is there an equivalent for games?” The answer, of course, is that there isn’t — at least not yet.

Game developers are looking for it, but it’s a process, one that is expressed by what marketing analyst Seth Godin refers to as the “mediocre middle.” These are the mediocre members of the music industry that sit between the innovators and the winners, waiting and watching to see what will happen. The same is already proving to be true in gaming: The indies have jumped to digital distribution because they couldn’t get deals with publishers; and Valve, like Radiohead, has the clout to innovate without fear and with less risk. Everyone else is waiting, and watching.

The question now is, how will the publishers respond? As Radiohead singer Thom Yorke said to Time Magazine,
“I like the people at our record company, but the time is at hand when you have to ask why anyone needs one.”

On the heels of ECD Systems CEO Jack Hart’s article exploring the methods of growing revenue for casual games, IGA Worldwide said it has signed an in-game advertising deal with casual games publisher Merscom. Chapel Hill, N.C.-based Merscom makes downloadable titles for the PC, as well as Nintendo DS games — the kinds of games that might experience pressure to grow ever more polished (much like the giant console games did) as competitors try to one-up each other with better graphics and better sound design, thus necessitating higher budgets and schemes like in-game advertising.

How casual games will deal with advertising content is still up in the air. In-game advertising has worked beautifully for some titles, but of course it’s all about context — seeing Best Buy (BBY) signs in the world of GTA III makes sense; seeing them in World of Warcraft, not so much.

There is a reluctance to repeat the mistakes of others. At Casual Connect conference in Amsterdam earlier this year, Microsoft (MSFT) Casual Games’ studio manager Chris Early cautioned against going crazy with in-game ads. “If we get to the point of getting like commercial television on cable channels where ads are so intrusive of the experience,” he said, “then people won’t play anymore.”

Very true. And right now the market for so-called “casual games” is bifurcated. We have, essentially, two groups, with some blending in between: On the one hand we’ve got pay-to-download games, usually installed to a PC, although Xbox Live Arcade games install to your console. The bulk of revenue in this camp comes from purchased downloads, and its consumers have demonstrated more sensitivity to in-game advertising. There’s also the sliver of retailed games — again, same in-game ad sensitivity problem. In the second camp are all those free web games on Pogo.com, Kongregate, and other sites that rely mostly on good old-fashioned page views to sell advertising. There is some room here for in-game advertising, but implementation is tricky. Each game, often designed by an independent developer, would likely have to have ads customized to fits with its theme.

And then there are micro-transactions, honed to perfection primarily by casual MMOs like MapleStory and Habbo Hotel, although some titles on Xbox Live Arcade are experimenting with pay-to-download additional content as well. Is there any reason that micro-transactions can’t edge their way into both downloadable games and to free web-based games? The fact that I actually spent a real U.S. dollar on Facebook to send someone a gift — and I am a rational person! — seems to suggest that there is a future for eking out a little bit of money, bit by bit, from casual gamers, especially on sites like Kongregate where it could be tied to the social networking aspect. (“Buy your customized leaderboard for $1.00, feature it on your blog” or “$1.00 to challenge a friend head-to-head” — anything that adds persistence to the network.)

Hm, these are thoughts to bring up with the people who are currently in the trenches of casual game development and publishing. How far have they gotten in making revenue models as innovative as some of their titles?