Analysis: Sony's breach a hiccup to online game phenomenon

NEW YORK Mon May 23, 2011 4:41pm EDT

A picture shows the brand logo of a Sony Playstation at Sony's flagship store in Berlin, April 27, 2011. REUTERS/Thomas Peter

A picture shows the brand logo of a Sony Playstation at Sony's flagship store in Berlin, April 27, 2011.

Credit: Reuters/Thomas Peter

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NEW YORK (Reuters) - When service was finally restored to Sony Corp's PlayStation Network earlier this month, millions of customers rushed back to it, impatient to get back to battling friends in sports or shooter games.

It was hardly the response many had expected after a major security breach, one that shut down Sony's games network for nearly a month in the United States and exposed the personal information of more than 100 million customers.

While the Sony incident has made headlines and produced lawsuits, it has also made clear that security worries are not about to derail the up-and-coming online gaming industry.

"Some gamers are more concerned about the lack of online access than a personal information breach," said Ted Pollak, portfolio manager of the video game industry focused Electronic Entertainment Fund.

Pollak said that for many online gamers their connection to the multiplayer experience, playing games with friends over the Internet, is a significant part of their life and having it taken away is no small matter. It is analogous to a sports fan not being able to watch sports on television.

To tap into that passion, video game publishers are pouring millions of dollars into their online offerings. Some virtual worlds, such as World of Warcraft, are already teeming with 12 million players.

"Online gaming is still in the hyper-growth phase," said Sterne Agee analyst Arvind Bhatia. "Even if Sony's breach makes online gaming suffer a bit from this, we won't notice it because growth rates are so strong."

Sony estimated on Monday that the outage caused by hackers who broke into the system and stole personal information from users will cost the company $170 million in profit this year. The network is still offline in some markets.

But Sony's financial pain is small compared to what the video game publishers are raking in from online games. Activision Blizzard said its revenue from digital channels reached $428 million last quarter while Electronic Arts reported its digital revenue was $211 million last quarter and should increase by 20 percent next year.

UNFAZED BY HACKERS

Sony is far from the only games service to deal with security problems.

In 2007, Microsoft Xbox Live Service faced criticism for being a hotbed for phishing attacks, which occur when users fraudulently pose as players' friends to extract sensitive information from them. Microsoft now lists guidelines for its users to follow, including common sense tips such as not sharing passwords and keeping physical addresses private. (Read them here: bit.ly/jHCLfG )

More recently, Square Enix, which makes popular online game "Final Fantasy," said in May that websites for one of its units, Eidos Montreal, had been attacked by hackers. More than 25,000 email addresses were stolen along with 350 resumes of job applicants.

Online gaming has taken measures to protect customers -- particularly their credit card information. Microsoft and Sony both sell prepaid cards for their online networks at stores such as GameStop Corp.

The cards were introduced so parents could let their children play games online without having them put their credit card information on the Internet. Today, they create a measure of protection for all users.

Nexon, a privately held company that specializes in online games, said it introduced prepaid cards in 2007, and saw a "gigantic lift" in sales.

"Our philosophy on payments is that we want you to pay the way that feels natural for you," said Min Kim, Nexon's vice president of marketing.

Kim said that people scared of fraud are more likely to turn to prepaid cards, which are sold in stores such as Target and Rite Aid.

"Sony's incident is unfortunate, but it's not going to stop people from going online," Kim said.

GameStop, the world's largest retailer for video game producers, still expects digital content to be one of its fastest-growing sales areas, company president Tony Bartel said in a recent interview.

While some gamers might think twice before heading online again, Sony's public struggles with security on its game network may have raised the profile of online gaming, he added.

Before the Sony breach, Bartel said many people had no idea there were 100 million people on Sony's game networks.

Sony's breach "raised awareness that there's a huge group of gamers out there and there's nothing but growth ahead." Bartel said.

(Editing by Paul Thomasch and Tim Dobbyn)

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