The Halo 3 Effect

The blockbuster game's innovative social-networking elements could signal a new approach to video game development

Most of the hype over the Sept. 25 release of Halo 3 for Microsoft's (MSFT) Xbox 360 console has centered on the sales frenzy it will almost certainly inspire. But with all the fanfare over the title's blockbuster prospects, cutting-edge graphics, and twitch-fast gameplay, one factor has been largely overlooked: the game's radical embrace of social networking and user-generated content.

Taking cues from sites such as MySpace (NWS), Flickr (YHOO), and YouTube (GOOG), Halo 3 is one of the first console titles that allows players to collaboratively create and swap content as well as keep tabs on opponents and teammates remotely from the Web—a strategy that could help developers squeeze additional profits from even the most popular games.

"A lot of companies are trying to crack this, to tie their games into a social whole and give people a way to communicate outside the game," says Claude Errera, who runs the popular Halo fan site, "Bungie is on the forefront of the social-networking aspect of console gaming."

This Is Big Business

The Halo franchise is already one of the most valuable in the games business. "It's one of gaming's elite properties," says NPD Group analyst Anita Frazier. The first two titles have sold a combined 14.8 million copies worldwide. In November, 2004, Halo 2 broke records by bringing in $125 million in the first 24 hours of sale. With 6.3 million copies sold, it has become the fifth-best-selling game ever, according to Frazier. Microsoft estimates fans will have spent more than $1 billion on Halo games and related merchandise by the end of 2007.

Halo 3 could sell as many as 3 million copies in its first two weeks on the market, prompting some 400,000 additional game systems to fly off store shelves at the same time, according to Michael Pachter, an analyst with Wedbush Morgan Securities. By July, the game, which costs $60 (but is also available in limited-edition packages for $70 and $130), had already banked a million preorders from eager fans. When the game's developer, Bungie Studios in Kirkland, Wash., previewed Halo 3 in beta earlier this year for registered fans, some 820,000 players logged a collective 12 million hours of online play in just three weeks.

In the fiercely competitive $12.5 billion console market, game developers have shifted from a focus on ultrarealistic graphics to new types of gameplay, much of it cooperative and social. Nintendo's (NTDOY) Wii console, for example, eschewed the more robust (and costly) hardware of systems offered by Sony (SNE) and Microsoft, focusing instead on a motion-sensing control scheme and emphasizing casual, social gaming. It has sold briskly as a consequence, topping the charts this August with 403,600 units sold, compared to Sony's sale of 130,600 PlayStation 3 consoles and Microsoft's 276,700 Xbox 360 units sold.

A New Gold Standard of Play

"This shift in gaming is massively significant," says Brandon Boyer, an editor at the gaming industry site "Nobody in the industry has failed to notice how much time Facebook and MySpace have taken away from gaming."

As a result, Bungie's game designers say they have packed Halo 3 with a suite of features that could change the social dynamics of game playing and, in the process, extend the longevity and profitability of the title. "This is our big play," says Frank O'Connor, the lead writer of the game's new networking capabilities. "Hopefully it'll be the gold standard for a long time to come."

Bungie, which was acquired by Microsoft in 2000, already has experience in fostering vibrant communities around its products. Halo 2, which was designed for the original Xbox but is compatible with the next-generation Xbox 360, is still the most popular game on Microsoft's Xbox Live online service. Of the 60% of Xbox owners who are registered on Live (which has 7 million members overall), 5.5 million have played Halo. Some two-and-a-half years after the game's initial release, Halo 2 still draws 300,000 unique gamers to play online every day.

Fan Feedback Pays Off

According to O'Connor, the new features in Halo 3 are partly the result of something Bungie designers have long been doing: keeping up with fan feedback and tracking how gamers interact with the company's products. In 2003, for instance, a series of Web-based videos titled Red vs. Blue, created by Rooster Teeth Productions, a production company in Austin, Tex., used graphics from the original version of the Halo game. The films' popularity neatly coincided with the growth of video-sharing site YouTube, and each episode got hundreds of thousands of hits. Bungie took notice.

Creating the videos, which fit into a genre called machinima, wasn't particularly easy—and required additional, sophisticated equipment. So for Halo 3, Bungie has built a feature that allows players to create elaborate films from within the game itself. Because the games and films are rendered in 3D, players have full control of the camera, making it possible to move around a given scene's action as it happens. While other recent games such as Electronic Arts' (ERTS) Skate and Burnout series have had similar video capabilities, Halo 3 players using Xbox Live can recommend, share, and view clips with up to four people simultaneously.

"It's a lot of fun," says O'Connor. "It's kind of like Mystery Science Theater 3000," he adds, referring to a cult TV series where a group of friends watch, discuss, and make fun of campy sci-fi flicks on screen.

Another addition inspired by fans' desire to customize gameplay is a map editor, allowing gamers to create their own scenarios and landscapes. Such features have been part of PC games for at least 15 years, including Bungie's own Marathon game series from the mid-1990s. But Bungie's new take on the concept, dubbed The Forge, gives players unprecedented control over a console game and is a first for a Halo title. Using the feature, players can create new areas by reorganizing the game's weapons, vehicles, and scenery. The feature is also unique for its collaborative elements: Up to four players can edit maps at once online.

On Sept. 19, the company took the wraps off the component that ties the new elements together in an easily accessible, online feature similar to MySpace or Facebook. The upgraded version of its site synchronizes the game's new features, allowing players to use an Xbox Live account to track statistics, download saved films and edited levels, and view screenshots posted by others from within the game.

Critics have always held that Halo itself was not much more than an elegant shoot 'em up. "A lot of critics say Halo is not a particularly innovative game—you shoot aliens," says Dan Hsu, editor-in-chief of Electronic Gaming Monthly, of the game's riff on the common sci-fi theme of humans vs. aliens. "But they bring such a fine level of polish to their games—and no one is as ambitious about connecting every piece online."

More Live Bodies

Microsoft hopes Halo's high profile will encourage other developers to incorporate similar social-networking and user-generated elements into their Xbox titles. "The best way to think about Halo is as a showcase for the platform," says JJ Richards, Microsoft's Xbox Live general manager. "I think developers and publishers are going to end up copying Bungie in a number of ways, allowing you to touch the game community without necessarily having to have the title loaded."

The emphasis on social networking and user-generated content could also provide Bungie with revenue streams long after consumers have paid the initial cost of the game. For example, according to Richards, Bungie is developing a subscription-based storage service for players who want to store more saved films and images on than can be accommodated by the 25 megabytes of disk space provided for free.

Bungie could also make money by selling additional maps or items for players to use as props in films or multiplayer matches. "Microsoft has always been very bullish on the idea of so-called microtransactions," adds Hsu. "We're expecting a lot down the line."

Until then, the spotlight will likely remain on the fervently anticipated release of the Halo 3, response to which could put Microsoft in a strong sales lead going into the all-important holiday season. But if Bungie's gambit to merge console gaming with social networking and user-generated content pans out, Halo 3 could stay relevant and lucrative well beyond the initial fanfare.

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