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    Game Time

    Prepaid online gaming cards are a winning profit center -- for the right retailers.

    Tapping into the growing popularity of online gaming, 7-Eleven Inc. expanded its selection of prepaid gaming cards late last year to 30 SKUs.

    The nation's largest convenience store operator responded to triple-digit sales increases in the segment, as kids and teens purchased and redeemed the cards for virtual currency or points.

    From aggregate or universal cards, which allow players to choose from thousands of participating games, such as Zynga Game Network's popular YoVille or Mafia Wars social games, to monthly subscription cards for players of massively multiplayer online games (MMOGs), the online gaming card business is growing at a very fast pace.

    U.S. sales of "virtual goods" reached $1 billion in 2009 and are projected to grow to $1.6 billion in 2010, according to InsideVirtualGoods.com. This projection doesn't include game subscriptions, music purchases, digital downloads and other forms of digital content.

    7-Eleven stores carry cards priced $5 to $50. Along with universal virtual currency, the chain sells Microsoft Xbox Live subscription and point cards, Sony Playstation Network cards ($20) and Nintendo Wii point cards ($19.99). Microsoft Xbox subscriptions retail for $7.99; three-month cards sell for $19.99; and 12-month subscriptions are tagged at $49.99.

    The chain also partnered with Kwedit Inc., a provider of alternative payment systems, to let online gamers buy virtual goods. Consumers pay for digital content and virtual goods using Kwedit Direct and Kwedit Promise. Kwedit Direct creates Kwedit Slips, paper "invoices" that consumers print and bring to participating stores, where they are scanned at the register and where payment is accepted. Kwedit Promise allows consumers to "Play Now. Pay Later," by receiving digital content and virtual goods from online publishers in exchange for promises to pay later. (The amount the consumer may promise to pay in the future increases as they pay off previous Kwedit Promises.) Kwedit Promises can be paid off using Kwedit Slips at their local 7-Eleven stores.

    The online game card industry, estimated in the hundreds of millions of dollars in sales each year, has grown exponentially, due in part to the growing popularity of MMOGs.

    Customers who already have purchased the client games from big box stores or downloaded free games and want to make micro-transactions with gaming cards, find c-stores and other small-format stores, such as chain drug, much more convenient, according to Dave Etling, vice president, product development for Incomm, a card supplier based in Atlanta. Incomm recently leveraged its position in the online gaming card market by acquiring Zeevex, developer of the Zeevex Xtreme Game Card, which can be redeemed for tokens used in many different online games.

    "They bike, skateboard or walk to the store to pick up their gaming card and snacks," Etling said. "Often the kids are using their own money to pay for the cards."

    Indeed, unlike iTunes and some other prepaid items, gaming cards are most often purchased by the user, not by someone as a gift, Etling noted. "I'd say at least 80 percent of purchases are for self-consumption," he estimated.

    In the convenience channel, prepaid gaming cards sell best at the $10 price point, where other channels may sell more $20 SKUs, Etling said, and convenience store retailers may see a 10-percent to 15-percent margin on the cards.

    In the very hot area of social gaming, with games including Farmville, Mafia Wars or YoVille, a player spending $1 to $2.50 per month would be significant, and very active players would likely spend more.

    According to one estimate posted on the Lightspeed Venture Partners blog in June 2008, successful MMOGs may see $1 to $2 in monthly average revenue per user. Some industry watchers estimate users of free online games spend $6 to $12 per month. Those playing games requiring a subscription, such as World of Warcraft, may spend $15 a month. (Estimates on how much gamers spend on virtual items and fees vary wildly, depending on the game and how "user" is defined.)

    As the market expands, more players are jumping into the gaming game. Last June, Cumberland Farms launched Coinstar E-Payment Service's prepaid online gaming cards in its 500 locations. Coinstar partnered with leading online game companies, such as Aeria Games and Rixty Inc., to offer more than 15 products providing flexible online spending options. Coinstar's cards may be used for Facebook and MySpace applications, online gaming, MMOG titles, virtual world items and universal online spending.

    Since the launch, 80 percent of Coinstar's retail customers, accounting for several thousand locations, added the online gaming cards to their mix, the company said.

    Prepaid online gaming cards are a relatively new item at Corpus Christi, Texas-based Stripes stores. "This year we saw an opportunity to bring new customers into the prepaid category by aggressively expanding our online gaming card selection," Chris Switzer, category manager, told Convenience Store News. "Initial results have been positive. I believe that once we establish the category with our consumers we will see healthy growth."

    The chain sells $10 to $20 cards and merchandises them on an endcap display with other prepaid cards. Offering 11 SKUs of various types of cards, Switzer said an upcoming analysis of the mix may change the offer as he sees which are connecting with customers, who are typically teenagers or young adults.

    Despite these promising early results, growing sales may be a challenge for smaller, regional chains, Etling warned, since there may not be enough online game enthusiasts in a specific area to support more than a few national retail locations selling the cards. The concentration of game users generally follow population trends, with the most in Los Angeles and New York, then Florida and Texas following, he said.

    Others see the market differently. "It's only been a few years for the prepaid gaming market category to emerge and retailers are learning to promote it to consumers," according to Tim Pechmann, president of GMG Entertainment, a game card provider based in Santa Monica, Calif., who oversaw Target's entry in the gaming card segment a few years ago. "It's too early to say only certain types of cards or certain types of retailers will succeed. It's about understanding who your consumer is and offering games that are played by people with the demographics of the shoppers in your stores."

    Teens who go to virtual worlds to socialize and play games, such as Gaia and Meez, are much different demographically than players of MMOGs or social games, he noted.

    Whatever the strategy, suppliers agree: online gaming cards need to be promoted and properly merchandised. Simply putting them in with other prepaid products is a losing proposition.

    "The game operators are doing their job by driving consumers into retail, but nothing is more frustrating for them to have the cards not on the peg," Etling said.

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