Subject: [NEXTEL-1] Wireless Gaming: Finally No Fantasy

From: Marcel <[email-masked]>
Date: Thu, 23 Jan 2003 17:48:45 -0500

JANUARY 22, 2003

 SPECIAL REPORT: THE PROMISE OF CONSUMER ELECTRONICS

 Wireless Gaming: Finally No Fantasy

 As handset hardware and networks improve, carriers see cell-phone fun as the Next Big
Thing for firing up subscribers'
 spending

 Ever since the idea occurred to some programming whiz, wireless online gaming has looked
like one of those goofy Internet
 fantasies that was just too far ahead of its time. For years, cell-phone owners had to
satisfy themselves with Snake, an
 amoebic version of the two decade-old Pac-Man electronic game, in which a line devours
tiny dots on a phone's screen. In
 fact, Snake remained state-of-the-art even after Nextel (NXTL ), which now has 10 million
subscribers, introduced the first
 Java-based phones nearly two years ago.

 Suddenly, however, the technology of wireless gaming is catching up with the concept, and
carriers, phone makers, and
 game developers are jumping onto the bandwagon. Phones with large color screens more
suitable for gaming began selling in
 the U.S. last year. Since then, carriers have also developed back-end systems flexible
enough to bill for individual games.
 And starting last fall, most cell-phone networks became fast enough for games to function
well.

 BIG-NAME INTEREST.  Wireless gaming's potential shows up in the names of the players who
are finally moving in. Big-time
 game developers Sega (SEGNY ) and Activision (ATVI ) have recently launched wireless
titles. Thus, subscribers to No. 4
 wireless service provider Sprint PCS (PCS ) can now play Sega's Monkey Ball, in which a
human guides a monkey through
 colorful obstacle courses.

 Carriers are adding dozens of new games each month, and handset makers are rolling out
new toys for the wireless crowd:
 On Feb. 5, No. 1 cell-phone maker Nokia (NOK ) will introduce the first wireless gaming
console, called N-Gage, which is
 also a cell phone and will appear in stores later this year. "We see [wireless] gaming as
a huge opportunity," says Nada
 Usina, general manager and director of media entertainment for Nokia in North and South
America. Indeed, at the recent
 Consumer Electronics Show in Las Vegas, Microsoft (MSFT ) Chairman Bill Gates predicted
that his company could one
 day build a wireless gaming console to go with its Xbox system.

 Cell phones, however, are where the action -- and profits, likely -- will be first. This
year, No. 2 mobile-phone maker
 Motorola (MOT ) will debut several models that allow users to press multiple keys
simultaneously -- a must-have for action
 play. Today, that's available on only one Motorola phone -- the A830, which retails in
Europe for $1,172 and up.
 Manufacturers such as Samsung are designing their phones to play music or vibrate
whenever a player makes a good or bad
 shot in a game. And all phone makers are offering more embedded games as teasers for the
good stuff that's online. A year
 ago, only 20% of the phones Motorola shipped came with high-quality games. This year, it
should reach 80%, says Alberto
 Moriondo, its director of global entertainment services.

 CELL-PHONE SKATER.  Turns out, the handset makers' main clients -- carriers who resell
the phones or give them away with
 service plans -- are becoming more apt to buy models that have at least some gaming
capabilities. They're also more likely to
 feature such models in their ads, says Moriondo.

 Game publishers are benefiting from this trend as well. Last October, Activision offered
its Tony Hawk Skater 4 game, in
 which players guide a skateboarder through an obstacle course, to No. 3 carrier AT&T
Wireless (AWE ) exclusively for six
 months. In return, AT&T Wireless featured the game in its newspaper and radio ads. As a
result, Tony Hawk became the
 most popular game on the AT&T Wireless network, says David Anderson, Activision's
director of business development
 and licensing.

 The service providers are on board because the market for voice calls has matured, and
average monthly revenue per
 customer has turned stagnant. Carriers hope that gaming will help reignite growth -- and
signs that it might are starting to
 appear. Already, games are by far the most popular type of paid, downloadable content for
Nextel and AT&T Wireless,
 which has been offering the Java-based phones required for such gaming for less than
three months.

 IMPRESSIVE GROWTH?  Gaming should contribute "significant revenue" by yearend, says Scott
Edison, manager of business
 development at AT&T Wireless. Other carriers seem as optimistic: "Very soon, the mass
market is going to wonder what
 they did before [wireless gaming was around]," predicts Jeff Hallock, director of
consumer marketing in Sprint PCS' wireless
 division.

 Plenty of revenue will likely be available to share for outfits that can afford to hang
around for awhile. The number of wireless
 gamers in the U.S. should reach 19.6 million by yearend -- and 112.4 million by 2007,
according to tech consultancy IDC.
 Gaming revenues should grow dramatically as well, it predicts. Total hardware, software,
and services sales will probably hit
 $4 billion, from $366 million, over the same period, estimates IDC analyst Shelley
Olhava. That would be impressive,
 considering that the market for home gaming consoles reached only $9.4 billion in 2002 --
after years of intensive marketing.
 And gaming consoles sell for $200, vs. just $3 to $7 per wireless game.

 Still, wireless gaming has to clear many hurdles to become a money-making machine.
Handset makers and carriers have to
 sort out who'll control the direct -- and highly profitable -- relationships with game
developers, publishers, and consumers.
 And wireless networks have to improve further to allow for the smooth, interactive
experience users have come to expect,
 thanks to offline gaming.

 DEAD-ZONE FRUSTRATION.  Indeed, poor network quality may be the biggest challenge. Today,
many cell-phone customers
 can play puzzles or action games on their handsets. But it's the multiplayer games that
carriers want to flourish -- and drive up
 usage and revenues. At the moment, such play is inhibited by the same dead zones that can
interrupt calls -- and drive a
 gamer to distraction in mid-play. Transmission delays are also common -- and can distort
torrid competition. Nonetheless,
 Nextel is undaunted, and within the next month should introduce Fox Sports On-Field Live
Football, which will let users
 compete over the wireless network.

 In the North American market, gaming devices such as N-Gage will encounter another
difficulty: Lack of technology and
 design standards. Unlike European carriers, which have built their networks around GSM
(global system for mobile
 communications) technology, U.S. carriers use several different network standards. N-Gage
works on only GSM. Since
 AT&T Wireless uses GSM, its subscribers should be able to use the device, but a Sprint
PCS user won't.

 Another issue is the lack of standards in phone design. Today, most cell phones have
different-size screens and are based on
 diverse cell-phone operating systems, as the basic software is called. As a result, Sega
has to make 15 versions of each
 game to reach the entire U.S. market, says Jennifer Walters, director of marketing and
communications for Sega.com. That's
 a headache -- and expensive, too.

 TOO COSTLY FOR NOW?  In addition, for wireless gaming to enter the mass market, hardware
prices have to come down,
 says Joe Laszlo, an analyst with marketing consultancy Jupiter Research. Today, most
phones with color screens cost
 hundreds of dollars, a figure that has to drop to less than $100 for online gaming to
take off. N-Gage will almost certainly
 cost more than regular gaming consoles such as Microsoft's XBox, Sony's PlayStation 2, or
Nintendo's GameCube.

 The problem with that, according to a June, 2002, Jupiter survey of 2,551 gamers, is that
cost is their top priority. To
 succeed, Laszlo adds, N-Gage, whose price Nokia plans to announce on Feb. 5, will have to
sell for less than $200.

 Even at that cost, N-Gage will face fierce competition from the $69 Game Boy Advance and
a new $99 Game Boy SP,
 both from Nintendo, which holds a 98% share of the current handheld gaming market.
Nintendo isn't worried, however,
 because wireless gaming "isn't something Nintendo thinks is a mass-consumer market," says
Perrin Kaplan, the company's
 vice-president for corporate affairs.

 TOUGH SELL.  Finally, carriers and cell-phone makers still have to figure out who'll be
the intermediary between game
 developers and end users. Cell-phone carriers want to license games, sell access to them
to their subscribers, and pocket the
 revenue. By contrast Nokia, which has said it will publish games for N-Gage itself, wants
to persuade carriers to let it sell
 games directly to their consumers in exchange for a share of the revenues. That would
likely be less lucrative for the carriers,
 which would probably resist. Edison of AT&T Wireless says his company isn't likely to
agree to Nokia's terms anytime soon.

 Arriving at a compromise could take awhile. But so far most carriers and cell-phone
makers have been encouraged by the
 market's ramp up. "For us, it's full speed ahead," says Sprint's Hallock. The carrot is
there, dangling for all to see. Now, it's
 just a matter of figuring out how to grab it.

http://yahoo.businessweek.com/technology/content/jan2003/tc20030122_7509.htm

Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/