Making A Play For All Those Non-Players

For 20 minutes every day, stock options administrator Christine Zwerling becomes Flo, a former desk jockey who is on her way to building a restaurant empire. Zwerling, 34, has become addicted to Diner Dash, a $20 downloadable game from publisher and Web site PlayFirst Inc. "I never would consider myself a gamer," she says. "Yet I do play games."

Zwerling has a lot of company: an estimated 56 million adults worldwide who may not care when the next Madden NFL Football is released but who still want a little game time. Call them the casual gamers: a set of folks loosely defined as those who have broadband but play less frequently -- and who want less complex games -- than the much smaller hard-core gaming crowd.

Suddenly, everyone from RealNetworks Inc. (RNWK ) to Time Warner Inc. (TWX ) is eagerly pursuing these part-time players. In September, Yahoo! Inc. (YHOO ) revamped its game portal to make it more attractive to casual gamers. And on Oct. 3, Time Warner subsidiary Turner Broadcasting System Inc. plans to launch a Web-based games channel called GameTap; a few weeks earlier, Time Warner took a $7.5 million stake in games publisher Glu Mobile. "Casual games attract more females and an older demographic," says CEO Greg Ballard of Glu Mobile. "They have a lot of money and not a lot of time."

On the face of it, the casual gaming market hardly looks like the best place to score big. Users typically get to try out casual games free of charge -- which is not the case with games sold at retail. Then, if they like them, they can download the games from the Web to a PC or mobile device for anywhere from $2 to $20 apiece. Analysts say that only 2% of the people who check out casual games actually wind up buying them.

Despite those dismal numbers, however, growth is coming fast. From about $350 million today, revenues could grow to $1 billion by 2008, predicts JupiterResearch analyst Michael Garternberg. Much of that growth is expected to come from game-happy Asia. Fat margins help make this business an even better draw. Casual games are typically much simpler than the more realistic games favored by computer game addicts. As a result, they cost only about $50,000 to develop, compared with as much as $20 million for the games sold at retail. If a game hits big with just a fraction of the big group of casual gamers out there, the low overhead provided by Web distribution means that a company can rake in 90% margins with each sale, says JupiterResearch's Garternberg.

That prospect has many companies jockeying to establish a strong presence in hopes of grabbing a bigger share of the pie down the road. "We expect to see other major media companies enter the space relatively quickly as soon as they understand how to play," says Dennis Quinn, Turner's executive vice-president for business development.

Web portals are already setting up what they hope will be one-stop shops for casual gamers. Yahoo and Macromedia Inc.'s Shockwave, for instance, aggregate games from other sites such as PlayFirst and WildTangent Inc.

By doing so, they win twice over. Publishers say the large portals often demand 50% of every $1 a customer spends. And because Yahoo and others bring more customers to their sites, they can demand higher rates from advertisers trying to reach those customers.

Increased competition among the game industry heavyweights and small fry could have some unintended consequences. As with the shoot-'em-ups that are taking place in other parts of the games business, software development costs could skyrocket as rivals try to steal the limelight with hot new games, thus spoiling those juicy margins. But with the market expected to balloon to 80 million players by 2010, companies may soon be more addicted to casual games than the customers they're trying to reach.

By Cliff Edwards in San Mateo, Calif.

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