Game Changing

‘Call of Duty: Black Ops’ was launched on 9 November 2010 and has since been billed as the ‘biggest entertainment launch in history.’ It pulled in over a million concurrent Xbox Live players on its release date; during its first 24 hours of availability, it generated $360 million in revenue and sold over 5.6 million copies in North America and the UK. Gaming then is more than big business: it’s an essential part of everyday life for a vast section of the global population. Online gaming now takes up 10.2% of all US internet time, surpassed only by social networking, according to Nielsen. Stats website Online Marketing Trends says that the online gaming market is now worth more than $15 billion. Last year, 20 million players spent a staggering 17 billion hours on Xbox Live – that’s more than two hours played for every person on the planet – and there are 40 million registered Playstation Network accounts.

No matter which way you look at it, it’s an awful lot of premium bandwidth.Online gaming companies are exacting  consumers of capacity: in a world where the delay between pulling the trigger and firing the shot can be a matter of virtual life or death, they want the lowest possible latency. Small wonder, then, that there are carriers who have made it their business to serve the connectivity needs of this sector.

TeliaSonera International Carrier (TSIC) was one of the first major telcos publicly to recognise the potential of the gaming business and to articulate a strategy to target the industry. It has enjoyed a long-standing relationship with Blizzard Entertainment since 1999, providing internet connectivity for both ‘World of Warcraft’ and the Battle.net online gaming service in Europe.

TSIC’s UK account director Tim Brady says: “We’ve found that not all gaming customers are the same, so we have adopted a nuanced approach. We have to keep on our toes and pay careful attention to their requirements.”

Justin McAleer, the company’s VP of strategy and business development, adds: “The sector is not monolithic. Certain customers like to hold on to their technology and do as much as possible themselves, taking facilities and colocation from us; while we have others who are more focussed on their role as creators and marketeers and whose approach is completely different.”

These comments are borne out by recent research from Deloitte, which predicts that in 2011 the global computer and video games industry will continue growing but from a more diverse set of revenue streams (see box, ‘Changing models’). The industry is forecast to generate $52 billion in software revenue in 2011, 6% higher than in 2010, while hardware is predicted to generate only $13 billion, a decline of 19%.

Alastair Kane, VP of gaming at Level 3, comments that the nature of the gaming market is undergoing big changes. Similar to TSIC, Level 3 has worked with the gaming industry since the business first began to move online. Kane says the move is opening up new vistas for the gaming industry. “We’ve had the advent of social gaming. The classic gaming market has been aimed at the 20-something male and has not really touched the female and youth markets, but social gaming is taking it to a mass-market appeal. Broadband penetration around the world is increasing. Massively multi-player online games (MMOGs) are upgrading to HD and 3D. Gamers are moving their business models online and developing business models that call for more online interactivity: it’s creating more traffic around the world.” There’s no one-size-fits-all solution.

“There’s a greater diversity of need,” Kane says. “We’ve got some markets maturing and new business in others.” An absolutely essential element is a reliable low-latency network. The launch of a game is a huge global event, and network reach and the ability of the network to scale are also critical factors.

Also necessary is a robust and scalable content delivery network, which is as close to the user as possible, and which can distribute the load and deliver the required performance to the user.

TSIC’s network, according to Brady, has a peering capacity which passes 1.6Tbps and its data centre facilities have high density racks with blade servers delivering rack power of 17kW, when the industry average is 2kW. Along with latency, quality of network is important, says Kane, especially as gaming companies move to monetise their businesses online through initiatives like subscriptions and in-game adverts. “You need a good download manager at the front end,” he says. “This helps to provide monetisation models for the future and improves the quality of the experience.”

Kane adds: “You need to be able to provide a wide range of products and services: CDN and storage, the ability to launch new games and patches, and add-on services like content analytics.”

The ever-increasing demands on thenetwork from gaming, video on-demand and the like will ultimately force many operators to rethink the way they manage their networks. Mervyn Kelly, EMEA marketing director at Ciena, agrees. He says: “While today’s networks do, by and large, manage to carry the gaming-related traffic, its growing strain on the infrastructure will undoubtedly force operators to take it into consideration in their long-term network evolution. Access and edge portions of networks will likely need to adapt first, with initiatives and technologies such as FTTH and LTE already making their way to the forefront of the discussion. Core networks, however, will also need to evolve, as online gaming joins other drivers like video on-demand or cloud computing that create ever-increasing bandwidth demand.”

Network design is of supreme importance, says Chris Gallon, head of systems at Fujitsu Telecommunications Europe: “A network operator looking to support gaming and gambling well has to pay close attention to network design to support the low-latency transport services they require.” Gallon suggests that operators define the minimum access speed required for the low-latency service and define clearly how much low-latency traffic is to be permitted and how it is to be identified.

“To realise the low-latency service, the operator may well use quality of service (QoS) marking, traffic prioritisation and policing within their network,” says Gallon. “Low-latency traffic is marked with an appropriate priority and placed in high-priority queues within the network equipment at contention points. The network operator must avoid contending low-latency traffic (even though web traffic for example may be highly contended).

They may also wish to carefully engineer their network to ensure low-latency traffic is constrained in where it is switched/routed. The network operator will also have to pay close attention to the vendor equipment that they and their peer network deploy to ensure that policing, shaping and QoS mechanisms in each network work well together.”

It might appear then as though working with the online gaming industry is a business that is solely the preserve of the Tier 1 operators, with their international scalable networks. Certainly, online gaming is not a business appropriate for every carrier. Of course, not every game is global and there are specialist niches, such as regional games and games in specific languages which mean that smaller carriers may get a look in. But these are just crumbs compared to the feast for carriers with large scalable networks able to cope with the demands of big game launches.

Brady at TSIC says that the carrier finds that the ‘softer’ skills around its product mix for gaming companies are as important. For example, carriers need to understand the huge sensitivities that surround a product launch – and these aren’t just network-based. Demand for ‘Black Ops’ was so high that one gamer refused to wait and broke into a pressing plant a few weeks before release, stealing a handful of copies of the game. Just a few days before the game’s release, a games store in Baltimore was held up at gunpoint and 100 copies of the game were stolen.

Around the launch time of a big game, the company will put the network on ‘code orange’, ensuring for example that there are no works scheduled to take place around its facilities that might affect service and that any questions which arise from customers are immediately escalated.

“These gaming companies are full of scarily intelligent, driven people,” adds Brady. “They are used to a high performance from each other and they expect it from their partners as well. We know they’ll compare our network engineers with the guys in their offices and if we don’t match up we won’t last long. They want our brain power as well as our network.”

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Changing models: games go online and on sale

Deloitte, in its TMT Predictions for 2011, predicts that an increasingly large percentage of games revenue is likely to come from monthly subscriptions, peripherals and fees for services, as well as in-game purchases and advertising in the free-to-play (F2P) and ‘freemium’ markets. Deloitte forecasts that the total revenue from these relatively new sources could be as high as $10 billion, or 16% of total games revenues, by the end of 2012, and over time could represent 50% of all revenues for the industry. Deloitte says the existing PC and console games business is confronting various challenges such as software piracy, and the development of a greater number of computing devices, many of which do not have the hardware to support conventional high-end games. There are also concerns that the console refresh cycle, which has averaged five years, is about to lengthen into a 10-year cycle, as existing games are not yet putting stress on the hardware capabilities of existing consoles. Console makers hope to bridge the gap by introducing add-on features such as motion control, camera peripherals and 3D. Three major technological drivers – powerful portable devices such as smartphones; ubiquitous network connectivity; and social gaming – are transforming the industry and creating new sources of revenue. As these revenue streams emerge, the industry should see growth that is both more stable and more profitable. Also, the global audience of gamers will likely continue to expand rapidly, primarily due to an increase in casual gamers on consoles, the web, social networks and, most recently, smartphones and tablets. However, worldwide games revenues are forecast to grow more slowly than the number of gamers: revenue per gamer is expected to fall. Only a few years ago, very few gamers were connecting to the internet. But today Deloitte says that an estimated 53-78% of US gamers use a connected console to play multi-player online games, download new content and converse with other players while gaming. Connected consoles are also used as PC substitutes for applications such as streaming video. The benefits to the gamer of a connected machine are enormous, but the benefits to the games industry are even greater: the arrival of connected gaming has reversed the growth in piracy. As more of their customer base gets connected, games publishers are likely to see expanding contributions from online revenue sources: micro-payments from selling additional levels, characters and costumes; online stores; and possibly realtime ads placed in games, although this has not been a big market so far. Also, some high-end games are being sold as monthly online subscriptions. Cloud gaming or gaming as a service (GaaS), where the entire game is hosted on a game server in a data centre and the user only runs a thin client locally, has yet to catch on. However, it could become a significant revenue source for companies that have customers with fast internet connections. Even people with relatively low-powered netbooks or small, cheap thin-client devices that can be connected to TVs should be able to enjoy consolelike experiences. The fastest growing games segment will probably continue to be free-to-play and ‘freemium’ games, where basic game play is free, but a premium is charged for add-ons that enhance the game experience. Many subscription games are converting to F2P and seeing their revenues increase by 100% or more. Total F2P revenues in 2009 were about $2 billion; in 2011, that number could reach $5 billion. The upshot, according to Deloitte, is that the gaming industry will likely see smoother revenue streams, higher revenues and profitability, and massive user growth. And the mix of people who play games is likely to shift in many ways: age, gender and income, among others.

Gambling on the network

Online gambling makes similar demands on the network to gaming. It’s a business with large revenues that requires networks to handle surges in demand; it’s global; and it needs a low-latency, robust network. Lee Myall, UK regional director at Interoute, comments that the advent of online gambling has expanded the customer base hugely; at the same time, the market itself has expanded by widening its remit and taking bets that are not sports-related. Last year also saw the first of the betting smartphone apps. Online gambling companies have sprung up in jurisdictions where attitudes are perhaps more ‘flexible’ and where there is little or no duty to pay. In Europe, these are typically Malta, Gibraltar, the Isle of Man and the Channel Islands, so there is quite a distance between the server and the customer. “It’s massively time sensitive,” says Myall, whose company Interoute is involved in online gambling on a couple of fronts: its sister company Go is based in Malta which is the base of a number of online gambling companies, and a number of online gambling customers buy capacity from it. “Imagine the loss of revenue if service wasn’t available. We need to have the right capacity in the right geography at the right time.” The online gambling industry is at the mercy of changes in local legislation, as Mark Dewar, partner at law firm Simmons & Simmons, points out. The UK government for example, he says, is coming to the end of a consultation process that could see offshore gaming companies required to obtain a UK-specific licence on top of the licence it has in the country where it operates.