Growing Online Game Market Tests the Web

PORT WASHINGTON, N.Y. (TheStreet) -- More people are playing video games online, but that doesn't mean there's room for everyone.

A survey released last week by market research firm NPD Group said the average number of hours spent online playing games each week increased 10% to 8 hours from 7.3 a year ago. The survey also found that 20% of all games purchased were digitally downloaded. A report from TNS Intelligence and Gamesindustry.com found that massively multiplayer online games like Activision Blizzard's ( ATVI) World of Warcraft accounted for $3.8 billion in gamer spending last year, with 46 million gamers playing these epics.

That's great, but is there any money in it and, if so, is there enough bandwidth to keep cable providers from taking a big chunk?

"The installed base of video game systems continues to grow, the platforms available to play games continue to expand, and the options for content acquisition have never been greater, especially online," said NPD analyst Anita Frazier in a statement. "And yet, effective monetization of many forms of online gaming continues to be a topic of much debate and discussion within the industry."

Apple ( AAPL) and Microsoft ( MSFT) are benefiting most from growth in online gaming. Among online gamers, 85% play on computers, while 48% use the Xbox 360 and its Xbox Live network. Sony ( SNE) and Nintendo are still playing catch-up, with 30% of gamers using each system to play online, but the real slowpoke is the Internet itself.

Last month, Federal Communication Commission Chairman Julius Genachowski said he intends to bring 100 megabits per second of broadband to 100 million American homes by 2020. Cisco ( CSCO) said on Tuesday that its new superbad CRS-3 Internet router will offer 12 times the capacity of its predecessor, and would soon be available to providers including AT&T ( T), Verizon ( VZ) and Sprint Nextel ( S). This mean a faster future, but it also means that speed isn't here yet.

Cablevision ( CVC) offers a plan that allows customers to download 100-plus megabytes per second for $100 a month, and Comcast ( CMCSA) will soon launch a similar service. However, these companies have discussed limiting the amount of bandwidth customers use, drawing worries from Netflix ( NFLX) and other companies that stream content to consumers. For fans of multiperson, real-time games who are usually the first adopters of any new online gaming technology -- especially much-hyped 3D games -- talk of bandwidth caps can prove worrisome.

This isn't stopping new providers and game services from taking the plunge. Google's ( GOOG) proposed high-speed Internet service would provide an alternative to cable suppliers. Valve, the game company responsible for the Half-Life, Portal and Left 4 Dead series, recently announced that its Steam online gaming service will expand in April to include Mac OS X gamers. On June 17, the online gaming venture OnLive starts streaming games to Mac and PC consoles for $14.95 a month plus game fees. Electronic Arts ( ERTS), Ubisoft, THQ ( THQI) and 2K Games ( TTWO) have already signed on, adding the games Assassins Creed 2, Mass Effect 2 and Price of Persia to the OnLive cloud.

Will these sites and developers necessarily hold an edge over casual online gaming sites like PopCap, MumboJumbo, PlayFirst or even Facebook and MySpace? As they say, there's a reason they play the games.

-- Reported by Jason Notte in Boston.

Jason Notte is a reporter for TheStreet.com. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, The Boston Herald, The Boston Phoenix, Metro newspaper and the Colorado Springs Independent.

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