He has predicted it, Activision has denied it – but now outspoken US games analyst Michael Pachter has published his most detailed argument yet as to exactly why he believes Call of Duty: Black Ops will offer an additional paid-for multiplayer component.
Multiplayer online game play is as strong as ever, with an estimated 15 million people spending an average of 10 hours a week playing games such as Call of Duty Modern Warfare 2, Halo 3, Battlefield Bad Company 2 and Red Dead Redemption,” he said in a note to investors.
While downloadable content (DLC) sales have been strong (we estimate that Activision has sold 8m map packs at $15 in the first half of the year), revenues from DLC are insufficient to offset the declines in packaged goods sales resulting from the online multiplayer time vacuum created.
In our view, it is likely that multiplayer online game play will continue to be offered for free, but we expect the publishers, led by Activision, to devise a way to extract value from consumers who are playing online.
We estimate that four billion hours of game play have been spent on Call of Duty Modern Warfare 2 online multiplayer alone. 20 million game purchasers would have spent around 250 million hours finishing the single player and co-op campaign modes. The incremental 3.75 billion hours spent playing online multiplayer dwarfs this figure, and represents the equivalent of 15 full-game equivalents that were not purchased from any publisher.”
That's not it, though, Though Call of Duty: Black Ops will be the beginning, Pachter thinks a number of 2011's biggest titles will ask for an online subscription.
The premium services that we expect to be monetized are the sale of virtual goods, the opportunity to play in tournaments, the maintenance of achievements, the creation of ladders and leader boards, and access to value-added content,” Pachter added.
We are not sure which direction that monetization will take, but expect to hear about future plans for charging for premium services some time between this earnings cycle and early 2011. We think that scheduled releases like Call of Duty Black Ops, Medal of Honor and Halo Reach, and unscheduled releases like Grand Theft Auto 5 all will contain the opportunity for gamers to pay more to the publishers. While we don't think that anyone will be compelled to pay for premium content, we think that it is highly likely that the content will be offered for a fee, and that as a result, fewer hours will be spent playing these games for free than has been spent on their prior versions.”
Critics of Pachter's theory argue that customers who have become accustomed to years of free console multiplayer will react in horror at the introduction of a new fee-based structure. Even if that is the case, the analyst argues that the model remains sound.
Charging for premium content is important for two reasons: first, it should drive higher revenues and profits for the publishers who charge; and second, it is likely that the creation of premium content will limit the number of hours spent playing multiplayer games for free, thereby disaggregating a large number of consumers who will likely begin purchasing packaged products again,” he explains.
At the margin, we expect somewhere around half of the current 15 million online game players to pay something for premium content, and expect the other half to play fewer hours online if the free experience is slightly less robust in the future. Should the 7.5 million people who choose to pay generate only $5.00 per month (around 11.5 per hour), publisher revenues and operating profits would increase by $450 million; should the other 7.5 million people purchase only one additional game per year to make up for fewer hours spent online, publisher revenues would grow by another $450 million.”
Pachter then goes on to conclude that the introduction of such fees could actually emerge as the catalyst that lifts gaming out of its current market slump.
We think that premium online multiplayer content will be the event that turns the negative tide of industry sales around,” he blieves. In our view, investors value recurring revenue streams far more than those from hit driven” packaged products sales, and we think that once a premium service is established, likely by Activision, other publishers will quickly follow suit.
As we said above, we do not think that charges for premium content will be mandatory, and we expect the publishers to continue to provide some form of online multiplayer for free. However, we think that the opportunity to charge something is too great to be overlooked by the publishers for much longer, and we expect to see Activision lead the way by creating a new system some time before the end of the year.”