Digital Sky already has a $200 million stake in Facebook.
These kinds of social games are new to the gaming community this year. They are aimed at nontraditional gamers who might not log in for more than five minutes each day. Traditional online games, like Blizzard's hugely popular World of Warcraft, make their money through subscription fees and software sales. Social games are free to play.
Zynga, the largest producer of Facebook-based "social games," created the wildly popular FarmVille.
Like Hollywood, the current video game market is based on blockbusters. Games like Call of Duty: Modern Warfare 2 and Grand Theft Auto 4 took years to make. Both surpassed $500 million in sales their first five days on the market.
Social games are based on a business model that makes more games cheaper and quicker, meaning more opportunities for the next big thing. They've already caught on quickly in Eastern Europe and Asia, and Digital Sky is betting they will do just as well in the West.
"People did not believe that this Chinese model of micropayments and social games was real," Yuri Milner, Digital Sky's CEO, told The New York Times. "I am pretty convinced this market will have tremendous pick-up on the Western side of the world."
Three years ago, the Nintendo Wii shook the video-game world by turning new demographics into gamers with small, addictive games and intuitive controls instead of hulking, immersive epics. Social gaming continues that trend by further simplifying game play and eliminating upfront costs. Digital Sky's investment, along with EA's acquisition of Playfish, proves that the big players are beginning to take notice.
Larger companies have been using microtransactions for years now, particularly Bethesda Softworks, which gave gamers the option to pay $2.50 to put armor on a horse in its Oblivion game. But using microtransactions as primary income is a new idea in games, and it may be coming at just the right time.
According to market researcher NPD, video game sales dropped 19 percent from October 2008 to October 2009. Small companies like Zynga are proving to be more adaptable in an uncertain economy, and they are able to use Facebook as a platform to reach millions of potential customers in much the same way a traditional developer uses a console.
Zynga and other social game companies have novelty on their side now, but in a mushrooming market, they will likely have to hoe much harder to create the next FarmVille.
