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Which platform is winning the online war?

By on June 28, 2010

Last week, I posted about the market forecasts for online games in 2010. I focused on new versus old gaming, and looking at different market sizes.

Today, I’d like to look at the market share of the three different console manufacturers, and where Lazards (who provided the forecasts) think they are going.

PSN, XBLA and WiiWare revenue forecast in 2010

Online Console revenues table
Online Console revenues pie chart

Microsoft is clearly winning the online revenue battle according to these forecasts from Lazard. In fact, the figures may be conservative according to some numbers from Oliver Chiang at Forbes, who estimates that Microsoft is making over $1.2 billion in 2010 from subscriptions and virtual goods.

Microsoft’s XBLA revenues surpass $1.2 billion

Xbox Live logo

There are two components to Microsoft’s online revenues: subscriptions and sales of virtual items. At E3, Chiang was told a surprising fact by Dennis Durkin, COO of Microsoft’s Interactive Entertainment Business: Xbox Live’s transaction business is now bigger than subscription revenues from the Gold business.

That’s not all games revenue, though. The transaction business includes sales of movies and music (which I don’t count as virtual goods), as well as clothing accessories for avatars (which I do count).

Virtual goods are bigger than subscriptions. How big are XBLA subscriptions?

Chiang’s calculations are as follows (you can see his full explanation at Microsoft’s Xbox Live Is Making Boatloads Of Money On Virtual Goods):

  • Microsoft has 25 million Xbox Live members worldwide (the last confirmation I saw from Microsoft, in February 2010, was 23 million members of Xbox Live, but I may have missed an announcement)
  • 56% of those users had upgraded to Gold membership in February 2008, according to the Seattle Pi. Chiang uses 50% for his calculation, which leads to an estimate of 12.5 million Gold members
  • At $50 per subscription, that’s $625 million in revenue from Xbox Live Gold subscriptions

These calculations validate Lazard’s forecasts. If Microsoft is making $625 million from subscriptions and virtual goods are now bigger than subscriptions (although not all virtual goods should be counted as online games revenue), Microsoft making $1 billion a year from Xbox Live sounds about right.

Nintendo isn’t even trying

Wiiware logo

Nintendo isn’t even trying to generate online revenue. It’s only generating around $100 million (more accurately, between $45 and $149 million, given that Lazard rounded to the nearest $100 million.) from online services. It has only 8% of the total online gaming revenue of the three hardware manufacturers.

It’s not even as if casual players won’t pay for online games. In 2009, virtual worlds and casual MMOs generated $1 billion, online casual games $1.2 billion and social networking games $0.7 billion. (See my original blog post on the Lazard forecasts). That’s $3 billion that casual gamers spent online, and Nintendo got less than 5% of that market with the most popular console in the market.

Sony is playing catch up

PlayStation Plus logo

Lazard forecast that Sony will start closing the gap. It will increase its share of online console revenues from 25% to over 30%. And these forecasts were made before Sony announced the launch of PlayStation Plus, Sony’s answer to Xbox Live Gold.

Sony has Home (an under-exploited resource that Sony mistakenly sees as a marketing channel, in my view), a successful PSN business that is much more friendly to independent developers than XBLA and now PlayStation Plus. It should be able to start closing the gap with Microsoft.

But the sad truth is that online console revenues are forecast to be less than 10% of the total online market in 2010, and only a little bigger than PC download revenues. Come on, console manufacturers, isn’t it time to be a little more aggressive?

(Thanks to Games.com and Margaret Wallace for the links to Microsoft’s virtual goods success)

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
  • deftangel

    So by virtual goods, are Forbes including the commission they make from sales of DLC, Xbox Live Arcade games etc?

    For the Xbox Live Indie Games it's usually a 30% cut, I'm sure that varies a bit on XBLA. At any rate, I would venture the majority of their non-subscription revenue must come from this area, especially with Modern Warfare map packs selling at the reported levels. By comparison, the Avatar marketplace hasn't been going quite as long