30. Iteration

Happy New Year everyone and welcome back to my blog and the partially mysterious stories surrounding the game industry. I tried to write an article for Evan´s new international game business magazine called Interactive Age and the current state of the European online game industry.

In order to determine the future of this very lucrative emerging future market, politcal action will have to be taken in order to create the legal frameworks where technical infrastructure is becoming less and less the issue. Up until now though there are a number of considerable difficulties in the market which I tried to address in my article.As I am rewriting my article to give it another easier to digest spin, I felt like publishing what I initially wrote anyways, here on the VirtualEntertainmentSpaces VES blog.

With the upcoming 5th ETSI (European Telecommunications Standards Institute) Security Workshop 2010 coming up next week in Sophia Antipolis, a small city in the South of France, lots of significant security lacks are going to be discusses out of which I find the user verification procedures the most decisive ones. You will see how this will develop soon on this blog.

The title of the article I wrote is the Tiger and the Monk, due to the fact that Korea used to be called an emerging tiger state. With Korea being the 8th biggest exporting economy in the World in 2009 the tiger status doesn´t merely apply anymore. But there are more tigers and other tigers that one might come accross, especially in the international game industry...



The Tiger and the Monk – New Perspectives on the European Market for Online Entertainment

By Peter C. Krell (President at PEEIA and PEOGA)

One morning, I walked up a hill close to Nowon Dong in Seoul and look down on the city. The sourrounding silence was overwhelming. With my head diving into the fresh air, I started to realize: Games used to be like books. And this era now seems to be coming to an end. Today, games are becoming to be more like social services, constantly in flux, consisting of thousands or millions and bazillions of arbitrary objects which are abstract in nature. Mathematical logic being read by machines to produce interactive images humans can interact with. The way we can switch arround these adjustable objects which themselves consist of bits and bytes which pronouce algorithms that lead to what most of us perceive as entertainment reach far beyond what former gold master discs and far beyond their entertainment purpose only. In other words, the static gold master stages of the past that used to determine the traditional gaming industry have come to an end. It´s like someone all of a sudden invested film whereas most people were used to photographs only.

Online games are games that remain constantly in flux. They can change. And the companies offering online entertainment content can change. And most importantly the people playing these games can change. And their desire tends to change quickly. Updates are needed. Updates are provided. Communities are formed. Services are getting offered. Grey markets emerge. And still players might get bored easily, and one of the key necessity to keep them interested in the game is a.) constantly new game content. And b.) players. Because today, it is the gamers that bring the value to the games. And they themselves and their behavoirs in the virtual entertainment spaces are going to be perceived to be game content to other players. And this is a development publishers can no longer neglect.

Now with would be all fine and nice. And if all online games would be commercially gated communities like World of Warcraft where players pay to play, Korean online games might have never made it big. But like they say, the Lord moves in mysterious ways and so did online games quicker than the industry was able to admit or to realize. After the Korean online game company M Game invented the item sale business model in Korea, other companies from around the world started adopting the same business model. This led to the emergence of companies like Bigpoint and Gameforge in Germany for instance. Both companies have developed a spezial expertise in what we call Browser Games. Browser Games are games that can be played by players without downloading any plug-ins. Just an ordinary computer which can run a browser and an internet connection will be enough to play the game. Today both mentioned companies are claiming to have up to a hundred million registered users each. These users can all play for free and chose to pay for in-game items that give them special timely limited well balanced advantages over other players playing the game.

This same business model can also be found in games like Mafia Wars which are called Social Community Games because they run inside Social Community websites like Facebook, Myspace, MeinVZ and many others. Some of these games were reported to feature more than 20 million gameplays a day. Through special notification systems being implemented in Websites like Facebook, social community game developers and publishers today can provide the advertisement industry with completely new, accurate and reliable user behavoir metrics. This development might lead to long term changes in the overall spends of global corporations and a shift in media budget allocations. Even though one has to admit that particularily in Europe these budgets are constantly shrinking away due to continuous financial crisises and their effects.

Nevertheless, some people already got the idea. Past evidence shows for instance NBC buying Bigpoint, EA buying Playfish or media companies like Burda, Axel Springer and France Telecom all getting active in the online entertainment space. And there are many more. With increasing sales of online based entertainment and more and more lay-off at classic game development studios the future direction seems to be clear: the future is online of course.

In the afteramth of the Second Life hype some people seemed to become more interested in reality for a while when they started to realize every time they picked up their Smart Phone that through mobile devices gaming finally might become ubiquous and with developments in Geomapping and other so called Augmented Reality Games, one tends to realize that there is no turning back.We already live in a fairly augmented realtiy space which provides us with various kinds of online entertainment and increasing ways to interacted with other human beings in the world.

The future though remains to be in the clouds. And the new buzzword of the hour seems to be Cloud Computing. Whether streaming games on demand or MMOs in a browser, what ever it may be, if the Cloud hype continues, we will soon witness the rebirth of the Mainframe concept on a new level of iteration of selected interconncetedness. Interconnceted datacenters might determine guarded community Ethernets which might replace or be an alternative to the World Wide Web one day. Recent developments in China point into this direction. (And as a matter of fact these ideas were all already on the table prior to the 9-11 events in the early summer of 2001 when German Sun Microsystems engineers first mentioned the emergence of large scale Smart Grid application and infrastructures a World Wide Data Grid accordingly at the International Supercomputing Conference (ISC) in Heidelberg. These ideas for an open information infrastructure were than put to halt after the terror incedents.)

But whether or not there is going to be a European, Chinese or whatever country Ethernet as an alternative to the Root-A -Server version of the current World Wide Web remains to become a politcal question after technologically speaking option will be given soon.

And whether small innovative infrastructure technology companies like Kalydo or Overinteractive will gain enough momentum to make it big before their growth options may be limited by political regulation, is another questions companies have to deal with when asking themselves whether or not it is interesting for them to invest in online game development skills. Many companies in Europe and other parts of the world do not have the knowledge how to develop and operate an online game title profitably. Due to an early investment into the infrastructure development by Korean government officials, Korea became the number one leading country in the world for online entertainment, having the quickest high speed internet infrastructure in the world.

Even if the nature of the internet is going to change in the future Korean online entertainment know-how will remain cutting edge for generations to come. Europe and other markets in the world considered by Korean online entertainment standards, remain to be classified as developing countries due to the lacking technolocial and political infrastructures. Now the European Union likes to change that.

But the situation is manifold one. And the question is where to start at. Some companies argue that it is unnecessary to engage in developing online games in Europe because the market changes too quickly for them to recoup the investments in a given time period. This is also true due to differing existing game preferences by users in each territory and already high quality game standards in Asia and the US. Therefore any larger commitment in the region of online game content development bares enormous risks which companies do not likely to take, especially during financially unstable times. That is why European companies and other companies from other parts of the world try to limit themselves at this stage and prefer to travel to Korean game industry events, in order to search for affordable online game content licences, they can try to successfully profitize in Europe or other parts of the world likewise. Even this strategy is risky, with all the given the deficits in today´s European online entertainment space.

These European deficits are to name a few:
• insufficient bandwidth,
• difficulty to distribute large online game clients due to the lack of obiquous high speed internet penetration
• a missing user verification system,
• the lacking aceptance for credit cards among Europeans in general,
• a bazillion emerging alternative payment solutions,
• telecommunication operators who have not understood the market potential of developing strategies for gaming communities and therefore fail to understand the potential of the gaming business, and other entertainment businesses to this point, because they mainly like to focus on selling units and devices,
• differing national jurisdictions like differing taxation laws and youth protection standards,
• age protection enforcement,
• user data security to prevent fraud and money laundry.
... and others.

The companies who are involved with online games in Europe at the moments mainly are SMEs (Small and Mediumsized Enterprises) with considerably low or no expertise in operating online games effectively so that their generated revenues get anywhere close to the revenues Asian online games are generating in their home countries. One might argue, that some bigger entities are being represented in this market, the general expertise level is rather low, this may be partically also the case due to lacking effords in terms of marketing and thus lacking user acceptance. Even though the situation is on the verge to change.

But, in order to make the online game licence fees more affordable, many European online game companies like to stress the fact that the European market for online games was a tough one, and would be far to dangerous for any Korean or other Asian company to enter by themselves. At the same time the European Union officials do not understand online games that well. And most European online game companies from the private sector like to use any advantage they might get over their competitors by not sharing too much information about their business with each other or especially government officials likewise. Therefore PEOGA has been thrown back far from its original agenda by its very members in the intial stage due to political dances which were being danced in the beginning. Writing White Papers was no option, especially when looking at all the risks and a market situation where one mover in the market might become the biggest player.

In Korea a different picture can be seen: The international online game events are mainly being organized by Korean government agencies, a practice that would be unthinkable in Europe, a region which traditionally leaves such endevours to association which are being controlled by the private sector. After millions and millions being spend on government agency activities, like inviting huge groups of people to participate in their international events and creating their own events people with private consultancy backgrounds have started to question the efficiency of Korean government agency activities in really helping the Korean gaming companies to expand their business to other countries abroad. Some have also argued that the lack of strategy corresponds to the lack of understanding which the main deficits are which hinder Korean online game companies from being really successful in the West.

Some also critize that the Korean government agencies were destroying the market for market information in Asia by distributing any relevant market information for free or for such low charge that private sector companies can not compete. The general accusation runs that the Korean government agencies were being driven by a strong desire to control this area for political reasons. If one audited the government agencies effectiveness though the result would be clearly that their effords do not pay off in the end. One of the reasons why this is the case is that many problems reside in other territories that government agencies can not control.

This pretty much reflects one of the main differences between Asia and the West.
In the West information is costy and delivered through private sector research companies. In Korea and other Asian countries this informations is being passed around for free.

The race against windmills is taking place on many levels though. Developing the Pan-European entertainment infrastructure of the future is a two fold story. Technological infrastructure is only one side of the coin. The flip side which seems to be at least as important is the development of the right political infrastructure parallel to this. This is what we at PEEIA (Pan European Entertainment Infrastructure Association) and PEOGA (Pan European Online Game Association) like to focus on. We as an NGO like to help building the necessary bridges between companies, and between companies and legislators and government agencies. And also bridges between the East and the West. Like international minds bridges.

We understand the needs of high risk capital investments within low knowledge political environments with competitors with deep pockets lurking around the corners almost everywhere. The general hope is that the democratic decision making process in the European Union will not be lead by misinformation, ignorance and prejudice but by the rather oposite, and therefore we try to deliver the necessary facts which might cater the needs of regulators and private sector companies alike.

One general misconception might be that bandwidth and ping rate issues alone are not the main hurdle to be taken anymore. Once technological hurdles will be taken politcal questions emerge. And political decision making like anywhere else relates closely to a manifold of social and cultural contexts. It may be in the interest of online game companies in Europe to bring down and limit the risk. Political issues like age protection and addiction issues, money laundry as well as future competebility and general media literacy may be others regulators should be well aware of in order to develop new European laws which will be able to deliver a framework which will stimulate the area further.

In doing so, balancing will be key: European online game licencees need to get their licences at a fair price, and foreign entertainment companies should be able to enter Europe with their entertainment content, likewise. This is what EU Commissioner Vivienne Reding´s 2006 guideline which lead to the 7h Framework of the European Union intended. Now new perceptions may be needed where money can be earned on all sides without risking the well being of the people at the same time either.

We at PEEIA (Pan European Entertainment Infrastructure Association) like to stimulate the development of the technological and the political infrastructure of a sustainable future of entertainment in Europe which is of course going to be online.

Age protection debates of the future are going to be debates about age protection enforcement which include the necessity of a Pan European user verification system similar to Korea. The development of such a system is both technologically challenging as well as politically demanding. We belive that the develpment of such a system may be one of the key prerequisites in making the European market a profitable and sustainable one. Without such a system the European Union might be light years away from generating a secure and sustainable market for online business.

Sometimes European regulators tend to get mad. This might involve unforseeable risks for certain companies. Like Intel and Microsoft for instance, both got sued in Europe for business practices which were deviant to European jurisdiction.

Whether or not Europeans are increasingly sensible when it comes to propagandistic pro war game content or bored by repetitative same old Fantasy game plots remains to be an issue of personal preferences. Cultural trends in Europe may differ. One day some European citizens might also start to think about how climate change and gaming go together. Will there be green gaming one day? Who knows...

Another question of course would be why didn´t Robby Williams never make it big in the USA? The answer is: Because cultural differences continue to reign supreme. Even today.

Will the gadget hype come to a natural end soon, or how many Rock Band discs will one buy before bying a real instrument? Will one ever buy one?

The French Philosoper Jean Baudrillard stated that the simulation sometimes signifies more that the reality it depicts. The hyperreal displaces the real. And than there is the reality of the game. The reality of the virtuality. The realness of the hyperreal. And than we start thinking: If reality really killed the video star, one could argue that one might resurrect oneself in the reality of virtual entertainment spaces. Arguably so.

Now looking out of my Berlin appartment window, there seems to be a spritual dimension to all of this. And all of a sudden I realize how strange it is to watch a TV documentary about a Monk in Thailand who one day in his monastery decided to live together with a wild tiger, he never tamed. Although living in constant danger risking his life, his positive attitude about his life and his displeasure to chase away the tiger knowing that outside the monastery the tiger would get killed by hunters who fancy his fur, he decides to take the risk. And this is how the tiger and the monk teamed up in order to survive. And even though the tiger could kill the monk easily, he doesn´t. He prefers to get fed cooked chicken instead.

www.peoga.eu
www.peeia.eu