Games industry becoming a broadcast model, says St John

The games industry is becoming a broadcast media similar to the way that the movie industry transitioned to television in the 1940s, says Wild Tangent founder, chairman and CEO Alex St John.

"The internet is allowing the games business - which is a remarkably successful business considering how bad the business model is - into a broadcast model where you see enormous scale of efficiency and very mass market appeal of gaming," he told investors at Wedbush Morgan Securities' Management Access Conference.

St John said the size of the games business was very interesting "considering that the basic value proposition for most games is to tell the consumer 'Buy this box for USD 60, sight unseen...or go to hell, I don't want your money.'"

Television, in contrast to movies, allowed for an impulse consumption of content with a mixture of subscription, pay per view, and advertising supporting it - turning it to become a mass market media.

Movies didn't die off, but the growth just occurred in broadcast media. The same thing is happening with the games industry, according to St John.

Wild Tangent - the fourth largest game network in the US, fifth largest in the world. and the largest privately-held game network according to comScore - makes about half its revenue from people who buy games or virtual currency.

The other half of its revenue comes from the 98-99 per cent of the audience who plays for free, sponsored by advertisers.

"I expect that, within a few years, any gaming business model that isn't making at least 50 per cent of its revenue from advertising is probably leaving half the money on the table," St John said.

"Because what we've learned is that the advertising market is exceeding eager to support gaming. The problem has been getting games into a business model that's possible for them to do that.

The thing we've done very successfully is sell games not on a "Hey, you own this for $60" basis, but buy selling people tokens that allow them to spend the tokens across all the games on our service on a per play basis."

St John pointed to the USD 60 price of Halo 3 as an example, estimating that the person who buys the game at that price might play it a hundred times. Had that person been charged USD 0.60 per session, the publisher would have made the same amount of money - but the publisher would have also picked up those people who walk away from a USD 60 price tag, but who are happy to pay USD 0.60 to try the game.

"So the content appeals to a broader audience, it has more customers and you make the same money from it."

"And at USD 0.60 a play, an advertiser can sponsor it - just as Pepsi sponsors iTune songs. Because at USD 0.99 a song, Pepsi can buy you your music. At USD 15 an album, they couldn't. And so it dramatically changes the economics of the games industry."