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20th March 2003

With hundreds of millions -- and eventually billions -- of dollars up for grabs, online gaming represents a budding new industry, which is just beginning to spread its wings, reports In-Stat/MDR.

The high-tech market research finds that while online gaming won't take over the world, even a moderate number of gamers (such as 10% of the game consoles), playing for relatively short periods of time (5 hours a week), would consume more than 5% of all of the American Backbone Traffic by the end of 2003.

Inset is Eric M. Mantion, Senior Analyst and the author of the report.

"Online gaming is a real industry, which will make real money, and has some fairly significant consequences for the companies involved," says Eric Mantion, a Senior Analyst with In-Stat/MDR. "The biggest risk to any company that is even marginally affected by online gaming is to dismiss it out of hand or put plans on the backburner until they think it matures. There are a lot of companies that are working very hard to grow this industry quickly so, odds are, they will help to move things along, faster than some expect." Of all the companies out there, In-Stat/MDR reports that Broadband Service Providers are at the most risk for not only missing an opportunity for additional revenues in the long run, but also having their networks being negatively affected by this online gaming trend, in the short run, if they don't act soon.

In-Stat/MDR has also found that:

-- In 2002, it is estimated that roughly 9% of the traffic sent back and forth over the US backbone was due to online gaming. As the number of gamers climb, the amount of time they spend online will also grow. At the same time, as the performance of gaming silicon gets better, this will naturally create an environment where faster connectivity
is needed. Microsoft's Xbox Online service is already a broadband only program, so this will likely be one of the big areas where high throughputs will yield a truly stunning experience.

-- All three of the major console makers have some kind of online gaming strategy. By far, Microsoft's Xbox Live program is the boldest. It is currently the only one that mandates a yearly subscription, but it is also a broadband only program that is likely to pay dividends long term.

-- The combined data throughput for both paid and free online console gamers will top 285 Petabits a month by 2007. At the same time, the paid console subscriptions will bring in just under $650 Million. However, as it currently stands, none of that money will end up with the broadband providers that are handling these hundreds of Petabits of additional data.

-- While free online console players will out number the paid through to 2004, in 2005, that trend is expected to be reversed as other console makers adopt the "pay-to-play" model.

-- The online console market will see a 9% average penetration rate by the end of 2007. Places with high broadband access, such as the U.S., Japan and Korea, are expected to have higher than average penetration rates.