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Online Game Rental Services Coming of Age

17 Oct, 2003 By: John Gaudiosi

The online game rental business has quietly grown into a solid niche, following the business model established by online DVD rental giant Netflix, and could impact video stores that have grown game rentals as a significant portion of their business over the past several years.

RedOctane claims to be the first online game rental company to venture into this new territory. RedOctane VP of marketing Dean Ku said his online business launched around the same time as Netflix in August 1999.

“We started our business focusing on PlayStation and Dreamcast games, and we've grown our catalog of next-generation games to 1,800 titles, which are rented by several thousand members,” said Ku.

RedOctane charges members $18.95 per month to rent two games at a time under its G2 Plan and $39.95 for up to five games at a time under its G5 plan.

The basic business model of free shipping to and from a consumer's home and a monthly pricing structure is shared by all the online game rental players. There are no late fees, and many of the sites sell used games for a slight discount from retail (usually $4-$5 off). Games can be ordered at any time and usually arrive within one to four days, depending on the site. But unlike the online DVD rental business, there's more at stake when ordering stock of $50 games.

“With DVDs, you can at least base your orders on box office receipts,” Ku said. “With games, which are twice as expensive as a movie DVD to begin with, you have to know the games business to judge how deep a particular title needs to be. For established game franchises, this isn't as challenging, but for the many original titles that enter the market, there's little room for misses.”

How much room there is for this online market is also a question, as it's nearly impossible to track how large a segment of the overall rental market it is today. One thing's for sure, it's growing larger, at least in the number of players.

“There are about 29 million next-generation consoles in the U.S. and at least 15 million active gamers, which is a nice-sized pool to operate from,” said Jung Suh, VP of content and strategic alliances for Gamefly. “This business is definitely in its infancy, but there's room for two to three players.”

Gamerang opened its doors in late September aimed at a new segment of gamers -- the family. While most of the existing players, like Gamefly, focus on core gamers (males ages 12 to 35), Gamerang was started by parents who grew tired of paying game rental late fees or driving kids to the store only to find the newest games rented out.

“Our kids are under 16, so they can't drive to the store and get the games they want,” said Cynthia Neiman, Gamerang EVP of marketing.”We've made the site family-friendly by letting parents set up a user profile that blocks ‘Teen'- and ‘Mature'-rated games, if they want.”

The site has multi-tiered pricing, including a single monthly membership for $14.95, a double monthly membership (two games at a time) for $19.95 and the ability to add additional family members at $7.95 per month. The site also offers a free 10-day trial.

For now, the online game rental business is still open territory for larger startups (like Gamefly, started last November) and smaller ones (like Triggerfingers, started last February). While Gamefly is a publicly owned company, Triggerfingers is an operation out of a home. The two-brother venture has about 100 monthly subscribers and 1,700 games. They need at least 600 subscribers to break even on their investment. “We offer a two-week free trial of our service, which includes rental of hardware as well as software,” said Chris Twogood, president of Triggerfingers.

DeepShark president and co-founder John Clark said his company has amassed a subscriber base of 1,500 members in its first six months. The service plans to expand to game sales as well as rentals -- a practice common with most players in this space. DeepShark charges $18.95 per month for two game rentals at a time. “It's a booming market with room for new business,” Clark said. “Just look at Netflix, which has more than a milion subscribers.”

“With games costing $50 a pop, consumers don't want to make that kind of investment without trying it first,” said Gamerang's Neiman. “There are plenty of games that my kids rent and beat and then never want to play again. Online game rentals can end up saving families a lot of money.”

As for Netflix, a spokeswoman said it has no plans to enter the online game rental business. In addition, the company has not decided what action, if any, to take on the patent it has for both the online rental of games and DVDs.

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