The Funeral of WoW Gold

Ned and I co-authored this article for the March issue of the Consumer Electronics Association’s Vision Magazine. It focuses on trends in the growing games industry. We hope that it will be a starting point for a discussion here on our news portal, as well as in person at our upcoming LA Games Conference on April 28-29, 2009. Just a reminder to register early - you get $250 OFF regular price if you register by March 15. And who doesn’t need to save money these days?

Incase you haven’t noticed revolutionary change is sweeping through the media landscape. The aristocracy of old media - the media moguls, studio heads and record label executives - have seen their power and influence challenged by wiz kids in their dorm rooms and a new class of savvy executives and entrepreneurs focused on games and online entertainment. While revenues from DVD sales continued to fall in 2008(a year that saw the entire home video market decline in value by 5.5%to $22.4 billion according to data from market research firm Digital Entertainment Group), U.S. video game sales rose to $21.33 billion, bolstered by a record-breaking $5 billion month of December (according to sales data compiled by market research firm NPD Group).

At Digital Media Wire’s upcoming
LA Games Conference (www.lagamesconference.com),presented in association with the Consumer Electronics Association, hundreds of top media and games executives will gather to take a closer look at the sometimes troubled relationship between “old media” and” new media,” and will examine how these two groups can best work together to the create compelling and profitable entertainment enterprises for the future. Here are five trends that will be front and center at the event:

1. The Battle for the Digital Living Room: When it comes to hardware, the battle for the digital living room is expected to shift into high gear in 2009. Game hardware sales for2008 came in at $7.81 billion, an 11% increase from 2007 and accessories rose 14% to $2.57 billion. At the same time, the CE industry saw Blu-ray spending increase threefold, to $750 million, in the wake of Sony Blu-ray’s victory in the format war over Toshiba’s HDDVD. Now the question on many people’s minds is, with consumers clearly spending more money on game hardware, will they use their Xbox or PS3 to gain access to other forms of entertainment than games? Microsoft is placing a big bet they will. Xbox Live now lets you stream movies from Netflix directly to your TV and chat with your friends, putting Microsoft in direct competition with cable companies and Telco providers.

2. Hollywood and Games: As games companies have grown more powerful, they have started to question the value of paying high license fees to Hollywood to use characters and themes from popular movies and music to develop video games. Instead, they recreating their own narratives like the Xbox game Halo or Grand Theft Auto IV and even starting their own record labels like Electronic Arts has done with its ArtWerk Music Group. The studios are responding by starting their own games divisions and even looking at making their movies and TV series seem more like video games like “The Dark Knight.” But, is there enough money to go around? These issues will be discussed during a special “Game Convergence” track.

3. Madison Avenue and Games: As games have grown in popularity, Madison Avenue’s fascination with the industry has increased, spurring new opportunities for advertisers and brands to reach consumers through the games, virtual worlds and social networks. Even Barrack Osama used advertising in video games as one of the means by which he reached out to your people in what was considered by many to be an almost flawless presidential campaign. So how are brand marketers and their agencies navigating this space? What advertising campaigns work in games and online communities? How are consumers reacting to ads in games? How are advertising executives working with game developers? What are the opportunities and challenges in incorporating advertising and brands into games and online communities? On the other side of the coin, how can game companies generate revenue and free mass advertising by incorporating digital game content into brand advertising? These arête issues at the heart of the discussion as marketers begin to shift marketing budgets from traditional media to new media.

4.Power to the Third Screen: Another interesting development is in the area of mobile games, already a multi-million dollar industry. While there are more cell phones in the world then there are televisions endgame consoles combined, mobile games has long been considered the ugly stepchild of the games industry. With increased focus on the challenges that need to be collectively overcome for the industry to progress to true mass market phenomenon, the conference will feature a special session on innovation, pricing, new devices, marketing and distribution models for mobile games. Is the phone model the way of the future? Hoare the operators working to make mobile games to really take off? Whatfactors are driving and hindering the industry? How is the mobile gamesmarket working with successful online games and brands to grow the mobile games market? Is a licensed game or branded title needed to succeed in the current mobile games market? The conference will explore these issues and more.

5. Games of Tomorrow: Next Generation MMOGs and Virtual Worlds: The success of the massively multiplayer online games genre is undeniable. According to research from Strategy Analytics , MMOGs generated $1.5 billion in subscription revenues worldwide in 2008 and are expected to grow to more than $2.5 billion by2012. With more than 11.5 million monthly subscribers, World of Warcraft (known as “WoW”) is currently the world’s largest MMOG and has driven others, like Electronics Arts, to launch their own MMOGs hoping to cash in on the phenomena. In a much anticipated panel, game industry heavyweights working on MMOGs and virtual worlds will share their view sand predictions on the future of this market. What can we expect for the games of the future? What platform is best suited for this form of ocial gaming? Which aspects of gaming will remain constant? Is the evolution of gaming in countries such as Korea and China a sign of things come?

For more on what is happening in the robust games industry, don’t miss the opportunity to attend the upcoming LA Games Conference at the Hollywood Roosevelt Hotel on April 28-29, 2009,and join the discussion about the future of the fastest growing entertainment medium in the U.S. Are you game?

The word going round the net is that yet another high-profile site has been hacked. It’s the same old story, with the same old advice. This week’s quote comes from Trend Micro, although I’m pretty sure you can guess what it is already…

“In the meantime, it you are a Telegraph subscriber and are concerned about the safety of any other online accounts you may have I would encourage you to change your passwords on those other accounts, and of course on the Telegraph web site.”

Isn’t it about time the industry got its act together and found something better than passwords? It’s all well and good to say that we should have some convoluted, one-off password for every site, but the more online services we use, the more painfully obvious it should be to everybody that this just isn’t going to happen. I know that I can’t keep a hundred different codes in my brain at every waking moment, especially when it’s something used as rarely as a bank’s security code, or a random website’s idea of a ‘memorable date’ that the bad guys can’t simply look up on a rainy Sunday afternoon.

The mere idea that we should all be able to do this is craziness itself, the equivalent of the world gathering around to make devices specifically intended for three-armed people on the grounds that hey, it might work for someone out there. People aren’t perfect. The path of least resistance is always the easiest to walk. It’s borderline terrifying that Blizzard has better security for World of Warcraft characters than most of the world’s banks have for their customers accounts. And it’s past time for a change.

Taking another page out of World of Warcraft

’s “how to keep you hooked on our game” playbook, Warhammer Online has just launched a new Recruit-A-Friend program. Players will receive game time and in-game rewards if they manage to get friends to become paying subscribers.

For every new subscriber you recruit, you’ll receive 30 days of free game time. If you sign up two friends, you’ll receive a free in-game pet: the Imperial Hunting Hound for Order characters and the Warlord’s Fell Hound for Chaos characters. If you manage to get four friends to subscribe, you have too many friends to be a real MMO player you’ll receive an exclusive magic item: the Rod of Service (Order) or Collar of Servitude (Chaos). Both of these item grant a 5% bonus to group experience and renown. It also enables the wielder to temporarily raise another player’s level to within two level of himself - presumably so you and your newly-subscribed friends can go questing together.

New players or former subscribers who haven’t played in over 60 days are both eligible for the recruiting program. Recruits will be sent an email containing a link to the 10-day free trial program, which began last week. The recruit must become a paying subscriber within 30 days of the invitation for the recruiter to receive the rewards. The in-game rewards will be awarded retroactively for any recruiting you’ve done in the past.

Recent reports have THQ’s Dawn of War II, released on February 19th (20th for European gamers), claiming the number one spot in sales this week. Which is no surprise seeing as how its prequel was a smash hit for fans of the Warhammer 40K universe when released. Though, coming in above World of Warcraft: Wrath of the Lich King this month is no small feat.

For those unfamiliar with the series (shame on you), Dawn of War is a real-time strategy game based on Games Workshop’s grim, sci-fi universe of Warhammer 40K. Players engage in large scale combat that revolves around accumulating requisition points, as opposed to gathering minerals or other hackneyed RTS conventions. Numerous expansions to the original game allowed for several unique races to choose from, such as the awe-inspiring Space Marines or the bad-ass Necrons. All in all, it was kind of a big deal for Warhammer geeks such as myself.

With Dawn of War II, changes have been made from the original game’s design; though, for the better it seems. Its lead designer (THQ) attests that “Dawn of War II. . . takes everything that was great about the original and combines it with the best that Company of Heroes had to offer. . .”

Pwning this month’s sales charts definitely indicates that most of this title’s fans are more than pleased. Truth be told, it’s difficult to not like a game that has come so far in such a short amount of time (even if slaughtering Tyranids with +1 assault marines isn’t necessarily your cup of tea).

Washington City Paper contributor and Huffington Post staffer Ryan Grim reports that the Office of National Drug Control Policy is taking the War against Fun in a new direction:

“Getting high affects your brain in ways that may directly influence your gaming ability,” warns the Drug Czar’s Web site, citing the impairment of “many of the skills required for winning a background, defeating an opponent, [and] beating games.”

To dramatize how bad a stoner can be at video games, the site interviews a computer-generated character who laments the demise of a gamer friend of hers. “I used to have a good time with Lyle. We made a good team. He had skill. He had swiftness,” she says. “Well, he used to, anyway. Then our last fight, Lyle decided to get high. And it was simply: sayonara skill, sayonara swiftness.”

Pot reduces hand-eye coordination for activities like driving, ladling baked-potato soup, and self-loving, and a quick search didn’t turn up any science that would prove or even suggest that the opposite is true for video games. But the hacks at Above the Influence left out one key data element in their analysis: Many gamers who smoke were smokers before they started playing video games. I once watched a level-60 (the highest level achievable at the time) World of Warcraft player take a hit from a 6-foot bong without coughing. He held that hit for a good 30 seconds then let it out very slowly through his nose. The guy was rather unexceptional in almost every other activity, save for those 6-footer hits and his WoW record.

So while taking up smoking after you’ve been playing video games for years might throw you off, taking up video games after smoking for years just means that you’ll learn to play the game differently. In neither scenario are you guaranteed to suck at video gaming in general, especially since different genres require different skill sets.

I hope the Drug Czar’s silly bit of agitprop inspires some dude in a labcoat to test the above assertions; perhaps s/he will discover a novel and counterintuitive trend, kinda like the one about how gamers are fitter than the average American.

We reported last week that Kaneva, after being relatively quiet for a year, had passed the 1.5 million registered users mark and was now making a push for brands. Kaneva, which combines 2D social networking and 3D virtual environments, aims to let brands tap into a mainstream audience. One touted benefit is the focus on the real world that Kaneva includes; another is the mix-and-match approach to social networking.

“Kaneva is a social entertainment world that is really focused on the fusion of traditional social networking and 3D virtual worlds/ There are plenty of people out there that love the 2D world, but there’s this emerging 3D place and companies are trying to figure out the magic formula,” explained Chief Revenue Officer Jeffrey Longoria. “The focus is now to provide that fused environment for brands looking to find a unique engagement model for their fans. Virtual worlds have been emerging onto the scene for a few years now, but most people don’t understand them yet. That’s really what we’ve been working on.”

Longoria declined to say how many active users Kaneva has or what the split was between the 2D social network and 3D virtual world, but according to the company’s demographics, only 33% of its users are younger than 17. The bulk of the remainder (37%) is between 18 and 25. 56% are between 18 and 34. The world skews towards women (54%).

Users are also fairly active, amassing 6 hours/week per member with average session times of 30 minutes. They’ve also uploaded over 1.1 million pieces of media, ranging from photos to games, and created over 26,000 communities.

Longoria says the 2D experience is a funnel for the 3D, but that Kaneva has spent the last year working to make even that appealing to a mainstream audience.

“There are technology barriers that we’ve been working over the last year—we’ve reduced our client size from the hundreds of megabytes range to the 30 megabyte range.” he explained. “The second side is that there are a myriad of machines out there that support high-end gaming and millions of polys to low-end machines. We believe we have a client that addresses the top-to-bottom needs. But we’re delivering a casual experience. Kaneva’s not going to go out there and compete with a World of Warcraft.”

For brands and advertisers, Kaneva is offering a range of sponsorship options. At the low end, roughly $5,000, brands can introduce branded goods into Kaneva. At the next higher level, they can get a branded hangout with the look and feel of the brand, but no significant customization. The high end includes completely custom-built destinations, which could range into hundreds of thousands of dollars

While virtual worlds, especially for adults, have suffered an advertising backlash in the last two years and ad budgets are being cut overall, Longoria says that a range of options, unique combination of 2D and 3D, and engaged audience should prove attractive.

“I believe we are definitely in difficult economic times for everything, whether you call it engaging with new brands, sponsorships, or advertising. Traditional advertising is under a lot of heat right now for how it interacts with the virtual world.The best thing we can do right now is provide good value at good price points for people that want a good entry for their brand can,” he explained. “The interesting thing is that the engagement of the item in the world is really what we’re promoting. It’s not so much the impression as the engagement. “

Kaneva is just now beginning its push for new brands, though it still boasts some previous work as well. TBS, for example, launched a one-year deal to promote its television offerings in Kaneva. Longoria didn’t discuss the activity of the destination, but said that Kaneva continues to support the build and that he expects TBS to “continue to be a good partner.”

Elsewhere, Kaneva is already in discussions with some brands and hopes to launch new sponsorship campaigns over the next few quarters.

“It’s across the board,” Longoria said of potential sponsors. “Of you just look at Kaneva in general, obviously it focuses on a certain type of brand that I think would have a lot of appeal. People build homes and communities in a real life fashion. If you can imagine walking into a community built for millions of dollars, what sort of furniture or items would you expect in there? What about in a community or home designed for a few hundred thousand? Likewise, if you walked into a hot nightclub with people lined up around the corner, you’d expect certain items in there.”

LI HUA makes a living playing computer games. Working from a cramped office in the heart of
Changsha, China, he slays dragons and loots virtual gold in 10-hour shifts. Next to him, rows of other young workers do the same. “It is just like working in a factory, the only difference is that this is the virtual world,” says Li. “The working conditions are hard. We don’t get weekends off and I only have one day free a month. But compared with other jobs it is good. I have no other skills and I enjoy playing sometimes.”

Li is just one of more than 100 workers employed by Wow7gold, an internet-based company that makes more than $US1.5 million ($A2.3 million) a year selling in-game advantages to World of Warcraft (WoW) players. Customers may ask for their avatar’s skill level to be increased (“power levelling”), or for a virtual magic sword or precious ore to be obtained. As one player puts it: “Where there’s a demand, China will supply it.”

For thousands of Chinese workers such as Li, “gold farming” is a way of life. Workers can expect to earn between $US120 and $US180 a month, which, given the long hours and night shifts, amounts to as little as US45¢ an hour. After finishing his shift, Li is given a basic meal of rice, meat and vegetables and falls into a bunk bed in a room that eight other gold farmers share. His wages may be low, but food and accommodation are included.

These virtual industries sound surreal, but they are fast entering the mainstream. According to a report by Richard Heeks at Manchester University, an estimated 400,000 Asian workers are now employed in gold farming in a trade worth up to $US1 billion a year. With so many gamers now online, these industries are estimated to have a consumer base of 5 million to 10 million, and numbers are expected to grow as internet access widens.

The gold farming industry may be about playing games, but these companies take their work seriously. At Wow7gold, a sophisticated division of labour splits workers into different departments, including production, sales, advertising and research. What’s interesting in this “virtual” business is that traditional concepts of “men’s work” and “women’s work” still apply. While young, largely unskilled “playbourers” such as Li spend their days toiling in the virtual field, highly skilled female graduates receive higher salaries working in customer service.

Eva Yuan is one such operator.

A 26-year-old graduate who speaks three languages, she has been working in the white-collar departments of Wow7gold for more than a year. Each day she helps more than 100 customers, placing orders and answering queries. “Most of our customers are from America, but they are people of all ages and careers,” she says. “The biggest transaction I have seen was one person who bought 100,000 gold, which costs $US3000 to $US4500. For me this is a lot of money, but for them it is not.”

After leaving university, Yuan was unable to find employment in the “real” economy. Now, the $US375 she makes each month at Wow7gold allows her - with a bit of help from her parents - to support her one-year-old son.

“We face unemployment in some areas and China has a large population, so the challenge is severe,” she says. “These companies provide employees with a place to live and money to earn. When I came, there were just 100 employees, now there are over 130. This is a new and innovating area for the economy”.

I ask Yuan whether she thinks her job is worthwhile. “Everything that appeals to some people in the world needs some people to produce it. We are allowing people to buy what they want, and we care about that.”

Last year, the Chinese Government acknowledged the rising importance of gold farming by introducing a 20 per cent tax on the industry. But regulations on working hours, salaries, holidays and medical fees have not been extended with it. Yuan may be proud of her job, but she admits the long, unregulated hours are taking their toll. “The Government should lay down the law. I would consider staying if conditions improved, but the game world is not a real career for me,” she says.

With no regulatory oversight, the working conditions in gold farms vary greatly. Yuan is one of the lucky ones. Anthony Gilmore, an independent filmmaker, has been investigating the industry for a documentary he is making, Play Money, which he hopes to release by the end of the year (playmoneyfilm.com). He has collected footage of companies in the middle of nowhere, where bunk beds sprawl alongside computers in the middle of freezing and dirty offices. Thousands of kilometres away, Western consumers are driving these industries, pumping hard-earned cash into products and services that exist only in fantasy lands. I ask Jamie el-Banna, a 24-year-old gamer from Britain, what makes him spend his money on these sites.

“The reason people buy gold is the same reason they pay people to wash their car - they would rather spend money than do it themselves,” he says. “You could spend time farming gold, say, 20 real-life hours. Or you could go to work for two hours and earn the money to buy the gold. If I’m playing, I want to play, not do boring tasks. Go back some years, and a job involving a computer was a skilled job. Nowadays, keyboards and mice are the new ploughs and shears.”

But does he ever consider the conditions of the workers supplying these services?

“I don’t think about the workers. I think about the product. I’m sure the wage that gold farmers are paid is low. Manual labourers in Third World countries probably earn a similar amount, but I doubt you would ask someone this kind of question if you saw them drinking a cup of coffee.”

Nearly all gold farming takes place in developing countries, and about four-fifths of production is in China. The jury is out on whether this industry is spawning a new generation of “virtual sweatshops” or whether it is a big opportunity for countries seeking to develop through the hi-tech economy.

Heeks, an avid gamer himself, believes “development agencies and governments need to wake up to gold farming”.

“It’s big business - hundreds of thousands of Asian workers; hundreds of millions of dollars - that has been flying under the radar,” he says. “We need to start paying attention to these opportunities.”

There are worries the financial crisis will hit gold farming, but Heeks believes the industry is likely to grow as the number of online game players rises. WoW’s subscriptions went from 10 million to more than 11 million in 2008, and Wow7gold’s profits rose during the same period. Far from seeing a decrease in the downturn, gold farms may profit as the less well-off turn to the virtual world for a cheaper alternative to going out.

“Gold farming looks to be anything but a here today, gone tomorrow blip,” says Heeks. “In fact, gold farming may be a glimpse of a much larger future of international, network-based development where life, work and commerce become ever more immersed in cyberspace. We could be seeing, in short, the emergence of ‘development 2.0′.“