The Halo 3 Effect

The blockbuster game's innovative social-networking elements could signal a new approach to video game development

by Matt Vella

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Most of the hype over the Sept. 25 release of Halo 3 for Microsoft's (MSFT) Xbox 360 console has centered on the sales frenzy it will almost certainly inspire. But with all the fanfare over the title's blockbuster prospects, cutting-edge graphics, and twitch-fast gameplay, one factor has been largely overlooked: the game's radical embrace of social networking and user-generated content.

Taking cues from sites such as MySpace (NWS), Flickr (YHOO), and YouTube (GOOG), Halo 3 is one of the first console titles that allows players to collaboratively create and swap content as well as keep tabs on opponents and teammates remotely from the Web—a strategy that could help developers squeeze additional profits from even the most popular games.

"A lot of companies are trying to crack this, to tie their games into a social whole and give people a way to communicate outside the game," says Claude Errera, who runs the popular Halo fan site, Bungie.org. "Bungie is on the forefront of the social-networking aspect of console gaming."

This Is Big Business

The Halo franchise is already one of the most valuable in the games business. "It's one of gaming's elite properties," says NPD Group analyst Anita Frazier. The first two titles have sold a combined 14.8 million copies worldwide. In November, 2004, Halo 2 broke records by bringing in $125 million in the first 24 hours of sale. With 6.3 million copies sold, it has become the fifth-best-selling game ever, according to Frazier. Microsoft estimates fans will have spent more than $1 billion on Halo games and related merchandise by the end of 2007.

Halo 3 could sell as many as 3 million copies in its first two weeks on the market, prompting some 400,000 additional game systems to fly off store shelves at the same time, according to Michael Pachter, an analyst with Wedbush Morgan Securities. By July, the game, which costs $60 (but is also available in limited-edition packages for $70 and $130), had already banked a million preorders from eager fans. When the game's developer, Bungie Studios in Kirkland, Wash., previewed Halo 3 in beta earlier this year for registered fans, some 820,000 players logged a collective 12 million hours of online play in just three weeks.

In the fiercely competitive $12.5 billion console market, game developers have shifted from a focus on ultrarealistic graphics to new types of gameplay, much of it cooperative and social. Nintendo's (NTDOY) Wii console, for example, eschewed the more robust (and costly) hardware of systems offered by Sony (SNE) and Microsoft, focusing instead on a motion-sensing control scheme and emphasizing casual, social gaming. It has sold briskly as a consequence, topping the charts this August with 403,600 units sold, compared to Sony's sale of 130,600 PlayStation 3 consoles and Microsoft's 276,700 Xbox 360 units sold.

A New Gold Standard of Play

"This shift in gaming is massively significant," says Brandon Boyer, an editor at the gaming industry site Gamasutra.com. "Nobody in the industry has failed to notice how much time Facebook and MySpace have taken away from gaming."