Subscriptions from online games are now bringing in $1bn a year in the US, according to a report by the NPD research firm.

Its data cover massively-multiplayer PC games (MMOs) such as World of Warcraft, casual games and console services such as Microsoft’s Xbox Live.

NPD gave the top five MMO games as World of Warcraft, then Runescape, Lord of the Rings Online, Final Fantasy XI and City of Heroes.

Top online gaming sites were Pogo.com, followed by RealArcade.com, Bigfishgames.com, Gametap.com and Disney.com.

Video game publishers are increasingly looking to online and recurring subscriptions to give themselves extra, steadier revenue streams compared to the lumpy retail sales of games.

Activision will achieve that balance with the merger with Vivendi’s games division by mid-year, combining its powerful game franchises with World of Warcraft from Vivendi’s Blizzard studio.

In its fourth-quarter earnings report on Thursday, Activision followed in the footsteps of Electronic Arts and THQ in announcing it would begin recognising a substantial amount of net revenues and cost of sales from online-enabled games over a service period, expected to be six months beginning the month after shipment.

“I still think that the bulk of Activision revenues will come from the sales of retail products, Blizzard is a different situation,” Bobby Kotick, chief executive, told me.

Activision had a blow-out quarter and year. Revenues for the fiscal year to March 31 of $2.9bn were up 92 per cent, helped by the success of its Call of Duty 4 combat game and the Guitar Hero III rhythm game. Fourth-quarter revenues were up 93 per cent at $602.5m even though no new titles were released.

“The one thing I think we are starting to see is new users,” said Mr Kotick.

“You are seeing the older demographic and some younger consumers coming in. The type of content like Guitar Hero is more broadly appealing, production values are better - the developers of Grand Theft Auto did a brilliant job - and the physical interface is improving with products like Guitar Hero and the Nintendo Wii. All this is driving new consumers and I think that will continue.”

The queues for Grand Theft Auto IV, which went on sale at midnight, seem justified judging by the rave reviews for the latest game from developer Rockstar Games and its publisher Take-Two.

“Rockstar’s magnum opus is a modern-day masterpiece that could change the way the world views videogames,” said Gamespy.

Its New York-based location “Liberty City is nothing less than one of the greatest videogame worlds yet conceived,” said IGN.

“I now know how film critics felt after screening The Godfather …Grand Theft Auto IV doesn’t just raise the bar for the storied franchise; it completely changes the landscape of gaming,” said Game Informer.

Metacritic, which provides a weighted average score for games based on a wide range of reviews, has rated the PlayStation 3 version of the game as a perfect 100 and the Xbox 360 version as a 99.

The industry average for video games is around 68, with Nintendo games scoring highest at an average of 75, Sony following on 74, then Take-Two on 73 and Electronic Arts on 72.

Metacritic is widely quoted by the industry and the Mature-rated Grand Theft Auto franchise’s excellence has to be one big reason why EA has bid $2bn for Take-Two.

At its analyst day in February, John Riccitiello, EA chief executive, expressed his disappointment that EA’s Metacritic average had dropped 5 points in five years from 77 to 72.

He set a target for its fiscal 2011 year of reaching an average Metacritic score of 80.

EA is this year building better games than it has ever done, he believes, but just imagine the boost to those averages the addition of Rockstar would give.

We’re still a long way from Home.

Sony has just admitted that its virtual-world interface for the PlayStation 3 is going to arrive at least a year later than first expected.

Sony announced Home with an impressive demonstration at the Game Developers Conference in San Francisco in March last year.

With stunning graphics and simple controls, Sony showed how players could create avatars and experience games, movies and chats with fellow players through a far more sophisticated interface than Second Life or Microsoft’s Xbox Live.

However, a demo is easier than a full implementation and Sony appears to have underestimated the amount of development work needed.

Beta testing began last April, but a full launch planned for the autumn was then postponed to this month. Now Sony says an “open beta” service will launch this autumn.

“We have come to the conclusion that we need more time to refine the service to ensure a more focused gaming entertainment experience  than what it is today,” said Kaz Hirai, president of Sony Computer Entertainment.

The news is a disappointment after Sony appeared to be making a recovery with the PS3. Some big games are expected to boost console sales, starting with Gran Turismo 5 Prologue this month, exclusive to the PS3.

Home’s delay will not hit any financial projections though. Its revenue model was unclear and its only impact so far has been the wow-factor of Sony coming up with something genuinely innovative after being in the shadow of Nintendo and Microsoft.

Unfortunately, the continuing delays are turning wow into oh-oh.

Virtual online worlds may seem more fashionable these days, but The Sims, an eight-year-old computer game that simulates life, has just sold its 100 millionth copy.

The Sims was only expected to ship in the hundreds of thousands when it was launched in 2000, but it has become the best-selling PC game of all time for its publisher Electronic Arts.

The Sims, The Sims 2 and numerous expansion and “stuff” packs have built up the numbers, as well as releases on other platforms such as mobile devices and consoles.

There still seems plenty of life left in the franchise. The Sims 3 is due next year as is The Sims The Movie. There is a casual games site, The Sims Carnival, about to be launched and a karaoke site, The Sims On Stage.

EA has made The Sims one of four divisions or “labels” in the company to help it grow globally. It is already available in 22 languages and 60 countries. Nancy Smith, president of the division, says the game has appealed to a wide demographic and 50 per cent of players are female.

While there is a thriving online community sharing content, she says The Sims is different from virtual worlds.

“On the PC, it’s really a single-player experience. Players create these stories and raise these generations of families. When they want to share, they come to the community, like an artist putting on an exhibition.”

For a viewing, check out the thousands of videos on YouTube. A Sims version of the pop star Lily Allen, for example, features in an in-world music video for her hit Smile. Even though it is sung in hard-to-fathom Simlish - The Sims own language - it has been viewed 4m times.

For the record, The Sims lies in overall third in franchise sales, behind Nintendo’s plumber Mario, on 200m and counting, and its Pokemon, with 165m in sales.

The clicking habits of Google’s US users continue to cause concern.

For the third month in a row, the number of “paid clicks” (or impressions on adverts) in the US was little changed in March from a year ago. That is according to data from comScore that started to seep out late on Tuesday (the information is given first to analysts before being made public officially later.)

Overall, for the first quarter, Google’s paid clicks rose only 2 per cent, despite a big jump in the number of searches in the same period.

How much of this is due to Google improving the quality of its market by weeding out low-value or unintentional clicks (which could lead to an off-setting jump in revenue per click,) and how much does it reflect a cyclical downturn? John Aiken at Majestic Research says he things it’s 75 per cent cyclical (and at least one Google executive has hinted that economic weakness is an issue.) If so, that could hit the entire internet sector. The results will be out on Thursday.

Humour and ingenious gameplay are giving small independent game developers a fighting chance against the big-budget efforts of the major video game publishers.

At least that was the impression left by Nintendo’s Wiiware demonstration for the gaming press in San Francisco today.

Wiiware is a new downloadable game service for the Wii, similar to Microsoft’s Xbox Live Arcade service. It was launched last month in Japan and arrives in the US on May 12. There is no date yet for Europe.

Gamers can buy the games with Wii points and small developers benefit from not having the prohibitive costs of packaging, marketing and distribution to retail stores.

Nintendo said today that start-ups like San Francisco’s 2D Boy were the quintessential indie developers that Wiiware was designed for.

Kyle Gabler and Ron Carmel left Electronic Arts to start the company and still work out of local coffee shops.

They have come up with a physics puzzle/construction game called World of Goo, where Goo balls can be linked together to create towers and bridges and complete tasks.

The Goo balls have zippy, optimistic, endlessly striving personalities and are unaware of the unhappy destination they are heading for at the World of Goo Corporation.

“The game is a metaphor for the horrible interactions we have had with publishers so far,” Kyle told us.

A second presentation was made by Telltale Games, a four-year-old company started by two LucasArts veterans in its old base of San Rafael in the Bay Area.

Its Strong Bad’s Cool Game for Attractive People is the first episodic content for Wiiware. The game is based on the very funny Strong Bad character and others created by online animators Matt and Mike Chapman at Homestarrunner.com.

Five monthly episodes will be released containing dialogue-based puzzles and lots of retro mini-games such as Snake Boxer 5, where a low-polygon-count boxer punches a snake.

Wiiware seems to encourage a level playing field for developers. Looking around the demo room later, the indie games’ simple graphics matched up well with some surprisingly rudimentary ones from bigger publishers, in particular, Boom Blox, the first game to come out of Electronic Arts’ collaboration with the movie director Steven Spielberg.

It’s all “in the game” play, to paraphrase EA’s catchphrase.

The video game publisher THQ must be feeling a little like WALL.E, the robot title character in the next Pixar game it plans to release in sync with the animated movie this June.

WALL.E is left behind on earth to clear up the trash after all the humans have left, just as THQ faces a solitary future after the galactic mergers of Activision with Vivendi and potentially Electronic Arts with Take-Two.

THQ would be left among the rubble in the US as the only other significant third-party publisher (THQ’s $1.5bn market capitalisation is six times that of the persistently underperforming Midway Games.)

EA has argued that Take-Two ($1.9bn market cap) is sub-scale and unable to compete effectively in a world where truly global marketing and publishing operations are needed to maximise the revenues from hit games.

By that measure, THQ is sub-scale, but it’s an argument that Brian Farrell, THQ’s chief executive, tried to refute when I met him in San Francisco last week.

“The truth of the matter is that we do have scale,” he said.

“We have 2,000 people in product development on three continents, we are in every market, we put out 147 Skus [versions] of Ratatouille.”

“There are disadvantages to being overly large as well, we can can say: ‘Do you want to be number 30 in a bigger publisher’s roster or be in our top 10 - it’s a big argument with licensors.”

Mr Farrell says THQ and France’s Ubisoft would be left in the $1bn-$2bn market-cap range if both mergers take place and everyone else would be “sub-scale”.

THQ has hit a rough patch in the past few months. In January, it said games, including Stuntman and Ratatouille had underperformed, other games were being cancelled and its Concrete Games studio was being shut down.

“We have a very disciplined review process, [Concrete Games] wasn’t making progress and we had to make a tough call. It’s probably the first studio we’ve closed, but it’s all about talent and the management of that talent,” said Mr Farrell.

He has positioned two experienced executives to monitor production values and processes and is upbeat about the new games that reviewers were let loose on at a San Francisco event.

I had fun with Red Faction:Guerrilla, a game that allows you to demolish a building piece by piece with a hammer, and de Blob, a Nintendo Wii game where you can literally paint the town red. Saints Row 2, due in August, also looked impressive and Pixar’s WALL.E may well sell better than its Ratatouille. Making an engaging game about a rat that likes cooking was a tough one, Mr Farrell admitted.

Interoperability between different social networks should not only empower users but also boost widget makers who can aggregate their audiences and increase revenues.
Mytopia, launching today as a “social gaming community”, is a case in point.

It allows users to come onto its network and play games with one another whether they are within Facebook, MySpace or Bebo. Users of Apple Dashboard Widgets, iGoogle Gadgets, Microsoft Vista Toolbar Widgets and Yahoo Widgets can also join in.

Casual games are the focus, with Sudoku, Chess, Backgammon, Bridge, Dominoes, Bingo, Texas Hold’em and Blackjack initially available.

“The idea was to create a digital playground that would appeal to the largest demographic - the very fragmented Web 2.0 world out there,” says Guy Ben-Artzi, chief executive of the Israeli company, which is rebasing itself in Silicon Valley.

He says the company has tinkered with Google’s Open Social and Facebook’s APIs to enable its network and it did a lot of work on the infrastructure so that everything could be managed from a central location. The grouping of the games in a sophisticated interface with chat features and an online shop represents a next step in the maturity of the widget industry, he says.

Mytopia will use social networking profiles to help target ads, although Mr Ben-Artzi says this is restricted to age, gender and location - such as a 35-year-old man in London receiving relevant ads. Users around a poker table are likely to see a different advertiser’s logo emblazoned on the green baize depending on their demographic, or they can pay $5 a month and the ads will disappear completely.

You’ve probably heard of Guitar Hero, the best selling game from Activision that puts a guitar-shaped peripheral in gamers’ hands and lets them play along to well known rock songs.

Guitar Hero has surpassed $1bn in retail sales in North America, sold 16m units worldwide, enlivened countless parties and prompted Guitar Hero nights comparable to karaoke ones in clubs and bars across America.

However, you’ve probably never heard of Patent Number 5,990,405 filed by the Gibson Guitar Corporation in 1999 for a “system and method for generating and controlling a simulated musical concert experience.”

The patent document describes it as a virtual-reality device where a guitar player could wear a head-mounted 3D display equipped with speakers and be given the simulated experience of playing a real concert with other musicians. It envisages the invention as a source of entertainment for professional and amateur musicians or as an aid for guitar makers in selling their products by allowing prospective buyers to recreate a concert atmosphere.

The system does not seem to have made much progress. I could find no mention of it among the current product listings on Gibson’s website and the company’s spokeswoman was travelling and unavailable for comment today.

But Gibson wrote to Activision in January alleging that Guitar Hero simulates a musical concert experience in a similar way to the device in the patent. It said it should obtain a licence for the patent or stop selling all versions of Guitar Hero and its peripherals.

In response, Activision filed a complaint in a Los Angeles court this week seeking a judgement that it has not infringed the patent.

The background is that Activision’s RedOctane subsidiary, publisher of Guitar Hero, signed an agreement with Gibson in 2005 to feature several of its famous models, such as its SG and Les Paul guitars, in the game and as peripherals.

They have featured in Guitar Hero I, II and III, but no agreement has been reached for any further titles.

Activision’s senior litigation counsel, Mary Tuck, wrote to Gibson this week saying it “knew about the Guitar Hero games for nearly three years, but did not raise its patent until it became clear that Activision was not interesting [sic] in renewing the License and Marketing Support Agreement.”

She said this suggested Gibson was not acting in good faith.

Gibson has yet to respond but, with millions in future licence fees at stake, a heavy legal riff of its own seems likely.

Around 10 per cent of Xbox 360s have been suffering from that irretrievable breakdown known as the “Red Ring of Death”, according to the warranty company SquareTrade, although the figure could be much higher.

The problem forced Microsoft to take a charge of more than $1bn for the cost of repairs in its last financial year, but the company refused to reveal what percentage of its consoles were suffering from the failure.

In a blog note, SquareTrade reports a 16.4 per cent failure rate for 360s based on 171 claims made on a sample group of 1040 Xbox warranties that it sold between April and July last year.

There were 102 Red Ring of Death hardware failures among these, with overheating thought to be the main cause.

SquareTrade notes its report only tracks its test group for six to 10 months and “once this same test group is tracked for 24 or 36 months, the fail rate is certain to go up.”

However, Microsoft extended its own warranty to three years for red-ring failures at the time of its writedown last year, so SquareTrade may not be seeing many of the breakdowns that are continuing to occur.