GamesBeat: There’s sort of a new world there, right? A new degree of openness?

Smedley: I think there is. There’s all kinds of great games on all these phones, and that’s awesome. For us, we’re a Sony company, and we’re focused on Sony devices and PCs. We’re the PC gaming group within Sony. We do iPhone and Android companion apps now. What I think is amazing about this is, games are starting to get sort of outside the game. The meta-game is becoming important. What we want to do is bring gameplay that you can do while you’re at work or whatever. But actual, real gameplay, not just, hey, let me look up the statistics on a gun. That’s nice, that’s a feature we have, but that’s not cool. That’s what I like about this. I’m a total geek.

GamesBeat: How do you sort of set expectations for something like this? Is anything with a 2 after its name going to get 80 percent of the first game’s audience?

Smedley: I think in this case, I’m open to more like 20,000 percent of the first game’s audience. For real. The reason being, we brought the first one out in 2003. MMOs in general were still in their infancy. Remember, this was pre-World of Warcraft. The only two big games at that point in time where Ultima Online and EverQuest. EverQuest was still going way up. So we introduced it. Nobody had ever seen an MMO FPS. They didn’t know what to make of it, and the graphic quality was good for its time, but it wasn’t the time for it. It felt like it was a little too early. Now, it’s just the opposite. We’ve got the feeling of a modern-day shooter combined with an MMO. We’ve nailed it.

GamesBeat: But the sci-fi thing seems like a tough genre that still has yet to have its breakout hit online.

Smedley: Yes and no. Look at a game like Halo. There’s some really popular sci-fi stuff. But we’re first and foremost.

GamesBeat: Richard Garriott’s Tabula Rasa was more like the last big sci-fi MMO effort, and that failed. [Trion’s Defiance hasn’t launched yet.]

Smedley: Yeah. The difference between that game and this is: This is a shooter; this is an FPS; that’s all this is. It’s all playver versus player. There is no player versus environment in this. We’ve built in these very deep features for coordinated gameplay. Much deeper than you’ll see in any other game. We’ve got platoons that let you form together squads of 10, and you can get 10 squads of 10 together, you have a platoon of 100 people playing together. Then you have an outfit of 500 to 1000 people, which is like a large clan. It really is taking what’s traditional FPS gameplay and expanding it to a very large level. We think gamers are going to like that.

GamesBeat: What have you learned about, say, monetization in free-to-play now?

Smedley: Interesting. We’ve gotten pretty good at it, because we’ve had the experience, starting with Free Realms and Star Wars: Clone Wars Adventures. All of our games are free-to-play now except Vanguard, which is about to go. We’ve already announced that. We learned what to do and what not to do. I feel pretty comfortable saying we don’t sell power. We don’t believe in that. We sell convenience and we sell cosmetic stuff. I think what we’ve learned is not to push the audience into a place they don’t want to be. I think the best thing to do is ask our players that question, but I feel like we’ve nailed the line and not crossed it.

We took a lot of inspiration from a game called League of Legends. PlanetSide in particular is actually modeled very closely after their monetization system, which I like. It’s simple. It’s free to play your way. If you want to pay, you pay; if you don’t, you don’t. We want you to be able to play the complete game without missing any features. Completely. That’s the direction we’re going as a company. We’re not there with every single game we have, because even thought they’re free-to-play, some of them have more traditional content models. For example, EverQuest, EverQuest II, we still sell expansion packs. That’s because that’s what that user base is sort of used to. The next enterprises won’t monetize that way. We’re focused on not dividing the user base based on content in free-to-play.

GamesBeat: Is there some kind of pattern that’s clear yet? For Zynga, two to three percent of their audience monetizes. And yet among their games, they have a wide variation. Maybe three or four of them really monetize well, and then a bunch of them don’t. There’s almost a suggestion there that design really matters when it comes to monetization. Or it’s just that there’s a casual level that sort of monetizes here, and a hardcore level that monetizes better.

Smedley: It is a mix. What we see is, kids are hard to monetize. The older they get, the better people monetize. So for example, in our adult games, EverQuest, EverQuest II, we get a $31 average revenue per paying user. Our strategy has been to bring in gamers of all ages, and the reason that we’re doing that is because, you know, similar to restaurants, for example. Like at McDonald’s: They have stuff for younger people all the way on up. We want people to get into SOE games when they’re young and stick with us, because we have so many great games. The monetization is better in some games than others, but what we’re finding is we’re getting better at knowing what to sell.

GamesBeat: Does it make sense to funnel people into one game and try to monetize them in another?

Smedley: Our strategy is that we have different games for different people. Our hope is that as people try one game, they may find another game later on that they like even more. So what we try to do is monetize each game to the audience that we have there. Sometimes that means we forego trying to make money on a certain aspect of a game that we have longer-term plans for. This decision on content, I gotta tell you, is not a small one.

Here’s a clear differentiator between us and a Modern Warfare or a Battlefield, both of which are incredible games that I play personally. They have downloadable content (DLC) that they sell. We sell DLC in our game, DC Universe Online. That’s great. In PlanetSide 2 we’re making a conscious choice not to sell maps. Why? Because we want the community to stick together. If you look at Battlefield 3 or Modern Warfare 3, or actually the time immemorial of FPSes, here’s what happens. Everybody plays the base game. DLC comes. 80 percent pick that up. DLC comes. 70 percent pick that up. And so on and so on. Two years later, you don’t know what map packs people have and it ends up costing quite a bit in terms of how you get into the ones that people are playing, because you have to buy various DLCs. But for us, with a persistent game world, we don’t want to split up people. We need them in there, because the community doesn’t work without that. It’s pretty basic.

GamesBeat: Does the free-to-play side change the way you organize the size of the team? Or how often you’re going to update the game?

Smedley: It doesn’t. It’s free. There’s this notion out there about free-to-play, but not only does it not change the size of the team, we’ve also got to keep content coming at a fast pace to make this work. What separates you from the competition is our ability, or any other free-to-play company’s ability, to keep consumer interest. My personal opinion is that free-to-play is probably the most capitalistic, true form of capitalism there is in gaming because it is pure. The game works or it doesn’t. There’s no gimmick. Our marketing team is incredible, but it’s a lot harder. Basically, they can bring people in the door, but if they don’t spend a dime, that’s 100 percent on the game. If you’re selling the box, you can build up hype around the box and make a lot of money that way. This is a different paradigm now.

GamesBeat: And then the ads side of the business, is there anything…?

Smedley: Not for us right now. I don’t want to say we’ll never do it. The way I put it is, “Would I want to see it?” Sticking an ad at the top of one of our websites… We may have ads for our own games, but not ads for stuff, or selling…it’s just not us. Not saying we’re opposed to it, we’re just…. It doesn’t really fit in with what we do.

GamesBeat: The business seems to be maturing a little and getting more predictable.

Smedley: It is. Yeah. And it’s getting to the point now where we sort of know what to expect from our games. It’s funny. With PlanetSide 2, our expectations have been getting higher and higher. We started out with this. We almost made a free-to-play version of the original, which basically meant putting in a store and not charging for subs. As we got it on, using Forge Light, redoing it, deciding to make it PlanetSide 2, our expectations raised. I’m super excited to see what…I mean, the shooter market is one of the biggest out there. I’m excited to see how we nail that.

GamesBeat: It’s a year since the hackings of Sony Online Entertainment’s security system. Is there any sort of fallout that’s lasted for a while?

Smedley: The fallout was a very important lesson learned. We got taught that lesson the hard way. But I feel like we’re better for it. We are more prepared, we invested a lot of money in security, and we invested a lot of resources in it. To be very blunt, we felt very strongly that we were prepared before. It’s funny when you look at hacking. We were violated; it was flat-out illegal. These dudes were bad people, and we weren’t alone in this. It still feels really bad. We felt horrible for our users, and we felt like we let people down. But I gotta tell you, it wasn’t for lack of trying. We were very careful. We were being attacked at the time very heavily with distributed denial of service (DDoS) attacks. We’re much more confident that we’ve got this under control now. We feel good about that. It was an expensive and important lesson. Not one I care to learn again.

GamesBeat: It seems like this was part of some larger cultural war for digital assets. Just what, exactly, rights are in this digital world…

Smedley: It is an interesting discussion, and… I think probably one of the biggest personal lessons that I learned is that the amount of preparation that you have, and pitting the sophistication of your preparation against the sophistication of the people out there. The Internet is a wonderful place, and it can be a dangerous place. We are so much better prepared, guns drawn, so to speak. We’re definitely cognizant now of how big this is.

GamesBeat: It’s like you’re playing a shooter game. [laughs]

Smedley: It really is. It opens your eyes and you go, wow, there’s a lot of really bad dudes out there. As time goes on, you’re seeing more and more of this stuff. I was just blownaway, the summer of hell last year. Just company after company after company. It definitely was a good wake-up call. I’m actually happy — Not happy that it happened at all — but I’m happy that it gave us that very guarded look at the world now.

[Photo credit: Dean Takahashi; image credits: SOE]

GamesBeat 2012 is VentureBeat’s fourth annual conference on disruption in the video game market. This year we’re calling on speakers from the hottest mobile, social, PC, and console companies to debate new ways to stay on pace with changing consumer tastes and platforms. Join 500+ execs, investors, analysts, entrepreneurs, and press as we explore the gaming industry’s latest trends and newest monetization opportunities. The event takes place July 10-11 in San Francisco, and you can get your tickets here.