Back to the future of TV gaming

Something is stirring in a backwater of the games market – gaming on connected TVs. The market leaders have raised money; London-based PlayJam and Paris-based Visiware booked $5m and €5m respectively, while US-based TransGaming acquired Oberon’s connected TV division for $7m.

One analyst group forecasts that this sub-$100m market will grow to $1.6bn by 2016, making it one of the fastest growing games markets ever seen. What’s reinvigorating this formerly moribund market, why did it fail last time, and what opportunities and challenges does it face this time?

Gaming on TVs was the next big thing a decade ago, as cable and satellite operators shipped ‘powerful’ new set-top boxes to tens of millions of pay-TV subscribers.

Consumers played casual games in gaming channels or walled gardens using TV handsets. Play rates and revenues started high as British/European operators heavily marketed well-known titles like Tetris. New companies started up and analysts anticipated multi-billion dollar market values.

OVER THE SET-TOP

But within two-to-three years, the global market’s revenues had plateaued at under $100m, a small fraction of forecasts.

What happened? Set-top boxes had been overhyped but under-specced, with multiple operating systems and hardware variations making porting hard. Payments were patchy for cable operators and revenue shares low on satellite.

With only a few games channels, the supply of original IP games dried up, often leaving cloned or poorly ported games.

Consumers, facing crashing set-top boxes, lengthy lag, handsets inadequate as games controllers and sometimes terrible UI, logged on and played in much lower numbers than anticipated. Most interactive TV games companies without dedicated channels either died or pivoted to more viable platforms.

The few survivors held on with low tens of thousands of monthly subscribers, a market that couldn’t support more than a few companies.

Perhaps the biggest killer of iTV gaming was the rapid growth of accessible alternatives for smart TV gaming’s core audience of older females and young children.

Downloadable, browser, social, mobile and then smartphone/tablet games were simply higher quality, free to try and eventually play, lower friction and accessible in volume.

As companies mount a fresh assault on smart TVs shipping in their hundreds of millions, similar hurdles must be overcome.

The power of the technology is less of an issue, but lack of storage and fragmented platforms still are. Poor user experience of laggy, patchy, unlocalised and inaccessible app stores with absent customer service continue to put off consumers.

Manufacturers have released little data on actual usage, presumably because it’s a gloomy picture. This is far from the transparent commercial environment where rocketing monthly active user data could trigger a gold rush of developers.

TV handsets are still inadequate as game controllers, compatible gamepads are scarce and TV manufacturers’ development of multiple different motion controllers presents as much of a development challenge as an opportunity for studios.

Payment systems are still in their infancy and the potential of social and freemium is there, but who will invest in developing a viable eco-system at scale complete with quality content, social graphs, transparent data and low friction payments appropriate to different territories and demographics?

A CLEARER PICTURE

With gaming only one of multiple initiatives on their slates, TV manufacturers’ commitment looks a little patchy.

LG is moving in the right direction, and Sony plus Gaikai may presage a concerted push to bring high quality streamed gaming to its televisions, but it’s a fragmented picture, particularly for market-leader Samsung with substantial app store variations geographically.

The reborn smart TV games channels, flush with VC cash, are building end-to-end platforms, but it remains to be seen if they can generate sufficient volume.

Google and Apple may yet invest to open this market and develop the appropriate commercial and content eco-systems, but distribution is a challenge. Meanwhile, Microsoft is innovating in this area, for example with the TV/games mash-up between National Geographic and Relentless.

Perhaps the hardest issue to solve – attracting players from social and mobile alternatives – may be more intractable. For most, connecting TVs is just another piece of latent functionality that remains unused.

We need reasons to start playing frequently, and it’ll probably take more than an Angry Birds port. Play rates are still low and an average connected TV game’s monthly sales currently peak in the low thousands, with averages well below that.

Unless games providers and app stores can find a key that unlocks mass market adoption, history could repeat itself.