Sony Leads in Quest to Win Subscribers in Online Games

For the people at Sony Online Entertainment, the question is: Can there be life after “EverQuest”?

“It consumes my life, being concerned about moving off ‘EverQuest,’ ” the unit’s president, 35-year-old John Smedley, told me last week in his San Diego office.

Not that Sony Online’s franchise massively-multiplayer fantasy game shows signs of fading anytime soon. The company says the game’s base of about 500,000 subscribers has grown by 16% this year. Those members each pay Sony a monthly fee of $12.95 to assume virtual personas and join other players in teams of adventurers roving about an imaginary world of heroes, sorcerers and monsters.

That’s rapid growth for an entertainment medium that scarcely existed at all five years ago and that is dramatically different even from its closest cousins in the video and computer game market. Unlike video games, which lend themselves to solitary play, the online games promote -- even require -- teamwork and communication, often among players who may know each other only by their online names and characters.

Because these games are always being played by someone somewhere, they also have a life of their own; while one player is offline, his or her fellows may be organizing a dragon raid or suffering through a virtual rainstorm.

“What makes the experience so different is its persistence, the idea that it’s playing even when you’re not,” says Charles Hirschorn, founder and chief executive of G4 TV, a computer-gaming cable channel that offers a show devoted to massively multiplayer games.

Sony’s Smedley places the potential online gaming market at 1.5 million in the U.S. and 3 million worldwide, but presumably there’s a built-in limit to how large any one game can grow. As insurance, Sony has invested millions of dollars to keep “EverQuest” fresh while trying to develop new online offerings. It has released seven “EverQuest” expansion programs to carry players to new worlds within the virtual realm, and assigned a large team of programmers to continually add new environments and challenges to the existing game.

That attention to detail has made the company the leader in online multiplayer gaming. Sony Online claims more than 750,000 members overall and hopes to grow to 1 million members by early next year, counting subscribers to “EverQuest” as well as a stripped-down online version playable via Sony PlayStation 2 consoles; a futuristic first-person shoot-’em-up game called “PlanetSide”; and Station.com, an omnibus site offering strategy games of the tank-and-space fighter ilk. “Star Wars Galaxies,” a multiplayer game Sony developed and hosts for LucasArts, claims an additional 275,000 subscribers.

At 1 million members, Sony’s subscription revenue of $155 million a year would still be a drop in the videogame bucket, which is estimated to generate $25 billion a year worldwide. But the lure of its potential growth and its potentially permanent stream of monthly subscription fees is powerful.

Sizable Investment

Online games, however, demand a level of investment that companies without Sony’s global heft might find daunting. Smedley says Sony Online, which was launched in 1999, recorded its first operating profit only this August. As the huge upfront investment gets amortized, however, the unit should be able to record a continuing operating margin of 15% to 20%, says Yair Landau, a vice chairman of Sony Pictures Entertainment who supervises Sony Online as president of Sony Pictures Digital.

Growing this business clearly means developing games in new genres, which has not proven easy. Although home-computer technology has evolved exponentially, the core online gaming experience has never strayed far from the fantasy role-playing game, of which “Dungeons and Dragons” is the classic model and “EverQuest” the most sophisticated iteration.

To a certain extent that’s because the genre has the virtue of familiarity. “Everyone knows the archetypes,” says Sony Online spokesman Chris Cramer. “Everyone knows that if you’re a big guy with a sword you’re a warrior, if you’re an old guy with a pointy hat you’re a wizard and if you see a dragon you have to kill it.”

The genre also lends itself to the forming of teams and partnerships, which encourages the quasi-anonymous community-building that fans say they find so attractive about online play. Sony executives observe that no one can succeed in “EverQuest” as a lone wolf: “You can’t bring down a dragon by yourself,” says Landau. “You have to get together with others.”

With the exception of “Star Wars Galaxies,” which comes with its own built-in fan base, few other games on the market appear up to challenging “EverQuest.” “PlanetSide,” which Sony rolled out in May and now has about 70,000 subscribers, doesn’t appear destined to broaden the online market beyond a core male audience.

Like “EverQuest,” the game encourages the forming of teams, although they tend to find themselves dropped into high-adrenaline firefights rather than engaged in painstakingly organized communal dragon attacks. “We don’t even have to measure PlanetSide’s demographics,” Smedley says. “It’s all male.”

In fact, trying to appeal to non-testosterone tastes in this field is risky, as Redwood City, Calif.-based Electronic Arts Inc., a leading game company, discovered with “The Sims Online.” The Internet-only launch of its popular computer simulation title prompted as much high-profile anticipation as a Schwarzenegger movie premiere. A cover story in Time even termed the release, with the magazine’s customary circumspection, as a “daring collective social experiment that could tell us some interesting things about who we are as a country.”

Well, yes. It told us that we weren’t interested in paying 10 bucks a month for the privilege of being bored out of our skins. Within a few months of the underwhelming game’s introduction, Electronic Arts was blaming its dismal sales and subscription rate for the bulk of a $70-million write-down it recorded in the first quarter of this year. Expected at first to be the company’s “flagship online subscription offering,” “Sims Online” did so poorly that EA hastily canceled its plans to roll out a bunch of similar games.

Segment Still Elusive

One can imagine that Sony Online executives suffered profoundly conflicting emotions as they witnessed the unfolding debacle. On the one hand, the Sims launch hobbled their biggest online rival. But it also underscored the troublesome fact that women remain as elusive a quarry for computer gaming companies as men are for TV programmers without the NFL. Scott McDaniel, Sony Online’s marketing chief, says he considers “Sims Online” “a huge success” because its audience was 60% women. Of course, any “success” that all but drives its parent out of a business category deserves to go into the dictionary as the very definition of “Pyrrhic victory.”

Therefore it’s unsurprising that Sony has focused much of its new game development effort at extending the “EverQuest” franchise with “EverQuest2,” which is due out early next year. Hoping to ensure that the new game doesn’t cannibalize the old one, the company stresses that it’s not a sequel but a sort of spinoff, and that the original game will continue to evolve.

But Sony does hope the new game will solve at least one of the hurdles limiting the expansion of the original’s audience: its difficulty. “EverQuest” has been around so long that its story line, virtual environment and even jargon have developed to the point that the uninitiated find the game almost impenetrable. The result is that about 70% of new subscribers are introduced to the game by friends; that’s lucky because novices get instantly lost without experienced guides, but unfortunate in that it stunts the game’s growth potential. The designers of “EverQuest2” have consciously aimed to make the game more intuitive, so as not to discourage newcomers.

But that doesn’t solve another potential problem, which is the demographic effect of a subscription fee.

Landau likes to compare Sony’s subscription model to cable television, particularly premium services such as HBO. He argues that the comparison makes an online subscription look like a bargain.

“The average ‘EverQuest’ player plays 20 hours a week,” he says. “That’s 80 hours a month. How much value is that per minute versus HBO?”

But one cable subscription can serve an entire household, with as many different programs available simultaneously as there are TV sets in the house. A single “EverQuest” subscription allows only one user to manipulate one virtual avatar. And while most cable viewers keep their subscriptions going for years, Sony says its average “EverQuest” subscription lasts 10 months -- an indication that it competes with other entertainment media with recurrent claims on the pocketbook.

Fees Limit Reach

The monthly charge skews the online audience toward older players who are more likely than, say, high schoolers to have access to the necessary income stream. The company has tried to counter that effect by selling prepaid three-month subscription cards through retailers, but Smedley says his audience “sweet spot” remains the tail end of college and the first income-earning years.

That’s a volatile period in many customers’ lives. Tellingly, Scott McDaniel, Sony Online’s marketing chief, observes that when customers cancel, it’s usually because “something changed in their life -- their computer broke, or they got engaged.”

Still, Landau is betting that online gaming will ultimately grow to be a widely accepted mode of entertainment, as natural as going to the movies or settling in front of the TV.

“In its history, video gaming has constantly run into situations where people say, ‘How can it expand its audience?’ And it constantly does. It’s now a multigenerational experience. People my age [39] have grown up with gaming on PCs and consoles. Some in the next generation have never known a PC that’s not connected. For them, noting that your computer game is multiplayer is, well, ‘duh.’ ”

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Golden State appears every Monday and Thursday. Michael Hiltzik can be reached at golden.state@latimes.com.