Germany leading Europe in online games

Growing Euro market hot topic at Gamescom, Aug. 18-22

COLOGNE, Germany -- In the video game business, Germany has often been slow to adjust to new trends, but the country is leading Europe in the industry's fastest-growing segment: free-to-play online games.

These games, which make money by charging players for virtual goods such as clothing and weapons, are big business. Researcher DFC Intelligence forecasts the U.S. and European market for such virtual items will grow to more than $3 billion by 2015 from $800 million in 2009.

Understandably, online games will be a big topic at Gamescom, Europe's largest industry trade fair, which runs Aug. 18-22 in Cologne.

Among the biggest free-to-play companies are American -- led by Zynga Inc., Electronic Arts' Playfish and Playdom, which Disney acquired last month for up to $763 million. But Germany is home to two rising giants: Hamburg-based Bigpoint and Gameforge, headquartered in Karlsruhe. The duo demonstrated their international clout this year by securing the online gaming rights to two of the biggest science fiction franchises of all time: "Battlestar Galactica" and "Star Trek."

Bigpoint's massively multiplayer online (MMO) game based on the "Battlestar" TV series will launch this October, starting with a 30-day exclusively platform on the Syfy Network's website, Syfy.com.

Gameforge plans to launch its first "Star Trek"-themed games on Facebook in the U.S. and Germany next year. The company has beamed aboard "Star Trek" experts Denise and Michael Okuda, authors of "The Star Trek Encyclopedia" and technical supervisors on several "Star Trek" movies and TV series, as consultants and contributors.

Between them, the two German firms boast around 250 million online users. Highly profitable, they are expanding fast.

"If there is one area of the gaming industry where Germany is a frontrunner it's in online/browser games," says Frank Sliwka, director of the European Games Development Conference, which runs ahead of Gamescom next week.



Online gaming is particularly attractive because while sales of traditional packaged games for consoles and PCs is stagnating, the online gaming market is booming.

"Our revenues topped €100 million ($130 million) last year and we are forecasting double-digit growth for the next five years," Gameforge CFO Christoph Jennen told THR.

Established videogame companies in the West had been slow to embrace the free-to-play business model, long a standard in Asia. Instead, most tried to copy the subscription model pioneered by "World of Warcraft," a fantasy MMO which charges users a monthly fee to play. But many now are figuring they can make more money giving their games away and charging for online goods. Warner Bros. increased profits for its online title "Dungeons & Dragons Online: Eberron Unlimited" by making it free-to-play and plans to do the same for its "Lord of the Rings Online" game. Sony Corp. has done the same with "EverQuest II." launching a parallel free-to-play version of its flagship fantasy game.

"The subscription model only works with the very top titles, the handful of international blockbusters," Jennen says. "For everyone else, free-to-play makes a lot more sense. You have to keep barriers to entry low enough to build the critical mass you need."

Critical mass is something both Gameforge and Bigpoint are struggling to achieve as the first wave of consolidation sweeps through the online gaming world. The two German firms have U.S. outlets and are acquisition-hungry. Bigpoint recently acquired Berlin-based Radon Labs, designers of the fantasy franchise "Drakensang" and Bigpoint CEO Heiko Hubertz has announced plans to buy up other development studios -- German and international -- in the coming months.

Gameforge recently bought a majority stake in publicly listed developer Frogster, maker of MMO hit "Runes of Magic" in a deal that values Frogster at $85 million. Jennen says the acquisition is just the beginning.

The real question is whether Bigpoint and Gameforge will themselves soon be bought out. Bigpoint is currently owned by NBC Universal's Peacock Equity Fund (35%), U.K.-based GMT Communications (35%) and Bigpoint management (30%). Gameforge remains independent, with only a 20% minority stake held by equity group Accel.

But watch this space. Bigpoint is reportedly in buyout talks valuing the Hamburg company at between $300 million to $400 million. Investors are thought to be circling Gameforge.

"It will be hard for them to stay independent," agrees Frank Sliwka. "You can be sure a lot of companies around the world have their eyes on them."
comments powered by Disqus