Nestor Arellano

 Last week, Vancouver-based game studio Propaganda Games laid-off 70 workers after the firm was shut down by parent Disney Interactive Studios. Prior to this, Propaganda already had to let go of 100 people last October when Disney decided to abandon development of a new console game based on its Pirates of the Caribbean movies.

Increasingly, big studios have began focusing attention on social games which in the last two years have emerged as yet another segment of online gaming that threatens the reign of packaged and console based entertainment.

The two main factors that make social games attractive to investors, publishers and game developers is their relatively low cost of development and gigantic potential user base.

While a top tier console video game such as Assassin’s Creed would probably cost around $18-30 million to develop for multiple platforms today, developing games for Facebook, other social sites and mobile devices like the iPhone cost about $30,000 to $300,000 only.

Experts at the recently concluded GameOn Finance 2011 conference in Toronto estimate that there were about 57 million units of the current generation game consoles in the United States in 2009. 

PC-based social network games had 109 million monthly active users (MAU) for the same year in the U.S.

 

  A new generation of game developer outfits is racking up huge revenues in the online gaming space. Games played on social networking sites such as Facebook and Myspace. Zynga’s Farmville has more than 61 million monthly users. Pet Society from Playfish has over 21 million monthly users and there are about 16 million monthly players of Playdom’s Mobsters on MySpace and Facebook.


These numbers are certainly encouraging for start-up game developer outfits looking to get a piece of the social game action. However, the arena is not without challenges, chief among them is how to make money out of the games.

While console game developers make money through the sales of actual games, social game makers turn a profit when players snap up virtual goods associated with the games: Need a machinegun to finish off someon in Mobster? No problem, buy one online with your credit card of Paypal account.

Major players in the social gaming market are estimated to be making more than $800 million all together through the sale of virtual goods.

According to Pier Harding Rolls, head of games at research firm Screen Digest , of the 57 million game consoles sold in the U.S. translate to no less than $7.5 billion in revenues. The PC-based social game market in the U.S. for 2009 was worth $250 million. “That means online game revenues are 30 times smaller that that of traditional console games,” he said.

“Making money out of the ‘freemium model’ is not all that easy considering that its not all that easy to predict what game will be a hit in a market based on getting as many players hooked as possible,” he said.


With social net users being a very fickle market, there’s really no telling where the next Angry Bird’s will be coming from or for that matter, how long will the current Angry Bird’s popularity last. A cheap distribution channel and very low price of entry guarantees that there won’t be any shortage of competition.

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Nestor is a Senior Writer at ITBUsiness.ca. Follow him at  on Twitter, read his blogs on ITBusiness.ca Blogs and join the ITBusiness.ca Facebook Page.

 

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