Game Landscape & The Future

Game Landscape & The Future Andi S. Boediman Chief Innovation Ofﬁcer Mojopia andisboediman@gmail.com www.ideonomics.com

Global Game Market Video games has exceed movie box ofﬁce.

Global Games Market  2001: $27B  2003: $40B (source: Forrester)  2008: $61B (source: CITL) Genre Platform Number of Players Strategy & Role Playing (RPG)  Console  Single Player (SP) – Individual game Sports & Extreme Sports experiences on a single console or Playstation (Sony) PC. Retail Business Model. (e.g. Nintendo) Action/Adventure Playstation 2 (Sony)  Multi-Player (MP) – Groups of 2-64 Xbox (MSFT) players hosted by a single server. Racing Games are a set length and high- Game Cube (Nintendo) twitch. Subscription Business Model. (e.g. Xbox Live) Shooters  PC Based  Massively Multi-Player Online Games Family Entertainment/Children  Handheld – (MMOG) Thousands of people play on a hosted server game Game Boy(Nintendo) environment. Games are running Fighting 24/7. Subscription Business Model. Game Boy Advance (Nintendo) (e.g.Everquest) Simulation

$1 Of Every $4 Spent On Entertainment Is On Video Games Video Games 24% DVD Purchase Music Concerts 26% 17% DVD Purchase And Rental Includes Movie & TV Show DVD Purchase DVD Rental Music (Recorded) Includes Music CD, Music DVD, Digital Downloads, Ringtones, Tracks For The Cell 7% Phone Video Games Includes Game Discs & Downloads Music (Recorded) 16% Movie Tickets 9% Source: The NPD Group / Entertainment Trends In America

Global Game Summary • There is not that much difference in market tastes around the world for mobile games. That being said, there are few games that work well for all global markets • Focus now is on networked games and other 3G type content • Female gamers making up a bigger % of users monthly • No matter how good game is, proper marketing support essential • Fast gameplay better than slow gameplay. Also, in general, arcade games easier to market than puzzle or board games • If at all possible, brand your game • Operators becoming much more picky about which games they offer. This means differentiation and uniqueness to markets a key for companies to make money: • Branding • New genre of game for a certain market • Different look and feel in playability • With new phones coming out faster than ever, ability to port quickly becoming more important • Mobile gaming business slowly getting bigger. However, expect rapid consolidation globally in the near future • Mobile games to look like Xbox and PS2 games • Developers should focus less on game volume and more on quality • Almost 90% of successful games have beautiful graphics, and main character of game should be visually appealing

PC Game Market BROAD PLATFORM Where there are just over 100M current generation console owners there are over 1B PCs in use globally. In many markets like China, the presence of Internet cafés makes online gaming accessible to virtually anyone. NICHE MARKET However, while PCs are more prevalent than game consoles, PC gaming has a few limitations. Including MMO and other digital distribution / pay to play revenue streams, the PC Gaming Alliance pegs the total PC game market at $10.7B. Sources: Company data, Hudson Square Research

Mobile Phone Trends BRICKBREAKER Global market for mobile phone games reached an estimated $3.5B in FY09. Growth in the industry appears to have fallen short of earlier expectations. Limitations of handset technology, and a generally restrictive distribution mechanism likely explains the shortfall. iGAME Apple is solving two key hurdles to mobile phone gaming: 1) customizing every game for every device; and 2) distribution challenges. The iPhone/iPod Touch appear to be signiﬁcantly altering the mobile phone game market. Still, control mechanics limit the scope of games that can be effectively played. For instance, using tilt to control games tilts the screen away from the player's ﬁeld of vision. And, using onscreen virtual buttons that leverage Apple's touch sensitive screen also reduces the available space for depicting the game itself. Sources: Company data, Hudson Square Research

What’s Driving this Growth ? • Increasing availability of digital content, and input/ output devices to take advantage of digital content • Next Generation game consoles • Mobile Phone handset upgrades • The convergence between Hollywood & Silicon Valley • Broadband penetration - global households up from 82M to 320M, 31.3% CAGR • Key technology innovation & industry adoption of open standards and exponential reductions in storage, processor & networking costs

Online Games is seeing significant growth. Worldwide Online MP and MMP Games Revenue US$40,000,000,000 $31.4 B US$30,000,000,000 CAGR = 49% (2000 – 2008) US$20,000,000,000 US$10,000,000,000 US$0 2000 2001 2002 2003 2004 2005 2006 2007 2008

MMO Game Trends WOW DOMINATION Prior to the introduction of World of Warcraft (WoW), the market for MMO games was limited to a few million players, but since 2004, the market has grown to 17.9M subscribers, with WoW holding a 64% share. Over the last two years there have been several high proﬁle MMO game launches, though none of those appear to have established a material subscriber base, and two of those, Tabula Rasa, and Hellgate London shut down within a year of launch. Because of the network effect (as the product base grows, the product becomes more useful to any one individual), we believe WoW is likely to maintain its leadership position for the foreseeable future. We estimate MMO revenues totaled $1.5B in FY09, up from $1.4B in FY08, although we note that market research ﬁrm DFC pegs the total online gaming market at $5.7B. Sources: Company data, Hudson Square Research

Online Games is growing world-wide • Worldwide - Game-savvy new generation leading the market • Grow up with interactive entertainment, more comfortable with technology than any generation in history (source: IDSA) • Over 15 Million people in the US & Europe will pay $1.4B to play online games by YE 2002 (source: Datamation) • Advertising revenue will be 30 % of the market; bulk of revenue to come from subscriptions • Asia Pacific • 25%+ of the WW $40B market in 2003 is in Asia Pacific (source: ABN Amro) • Early adopters due to broadband push in Japan and Asia Pacific • Korea largest single market for MMP play. • The Chinese say there are more people playing online games in china than Korea has people. But they overlook the fact that the Chinese are playing KOREAN GAMES!! • Americas • 40% of US homes will have a video game by year end 2002 (source: Carmel Group) • US on line games revenue predictions range from $4.5B to $5B in 2005 (inputs: Forrester, Accenture) • Europe • UK considered proving ground for on-line console services; France/ Germany lead total console market); Germany largest broadband market • 27.5% of the WW $40B market in 2003 is in Europe (source: Forrester) • 12.7 M European homes will have the technology to play on-line console games by 2005, with 50% expected to subscribe to online games.

Online Games - Industry Snapshot • Revenue vs. expense challenges • Online games can cost as much as a movie to create • Online games can earn as much revenue as a movie • Changing business models • Industry moving from software development model to media/entertainment model • Risk & cost is driving fragmentation • Increasing game complexity • Higher quality graphics, realism - drives up cost, code complexity • More complex game play - drives up development & test time • Collaboration, voice, etc become expected features - creates barriers to entry • Eroding barriers between what’s real and what’s virtual (in-game pizza?) • Game device fragmentation • Multiple major consoles companies: Nintendo, Sony, Microsoft • PC’s, PDA’s, phones - and hybrid devices - more every day • Connectivity challenges • Low bandwidth (phones, some PC’s); vs. broadband required for xBox • Broadband has widely varying penetration - US vs. Korea • Piracy, Digital Rights Management

US & Canada Europe Rest of Asia-Paciﬁc • If at all possible, brand your game • Europeans prefer simple and easy to • Revenue somewhat correlated to total understand games such as recognizable population of a country, not size of • US carriers do not require exclusivity for board games to classic shooting games carrier games so easy to launch the same game with multiple operators • Over 90% of carriers use Java platform, • Risque content matter not acceptable, as thus distribution of a game easier than it is several countries hold devout religious • Gamers are heavily inﬂuenced by PS2, X- in other areas beliefs Box and other console games • Language not a big an obstacle as would • Many operators looking for 3G and • US & Canadian gamers less advanced be expected, as English is tolerable for networked games as opposed to simple than those of Asian or European gamers most countries standalone games • Be ready to port your game for both • Network games in high demand at • Trend of popular games being more and BREW and Java to achieve maximum European carriers as well as traditional more similar to console games as well as coverage RPG-like ones being gender neutral Korea Japan China • Koreans are highly advanced gamers, as • Heavy saturation, most advanced game • China Mobile just recently launched their evidenced by the huge following of players, many quality game companies: paid game service, so too early to collect MMORPG games such as Starcraft, toughest gaming market in the world precise information about games Lineage, and Ragnarok. Console games still slow to take off • Although ‘F1’ market have the most • Shooting games, RPG, and ‘Chinese- handsets in Japan, it’s the ‘M2’ market style’ games are doing well • Overall, Koreans love cute characters, that actually buys and plays mobile games bright graphics, and humorous game titles • However, most games currently just • Porting job consists of at least 5 or 6 mobile versions of existing PC & arcade • Men prefer PC-like & MMORPG games, different phones per carrier. Also SDKs are games where as females enjoy casual puzzle almost entirely in Japanese only games. Female gamers make up a good • Good ‘people relations’ essential to getting 40% of mobile gamers • Network and 3G games in full swing for games launched in all carriers • Board games enjoying a revival thanks to • There are many handsets out in the so-called ‘board game rooms’. Most • Many popular games have look and feel of market (~240 million) but few phones can console games play color games (less than ~10%) network games also board games

US Game Market Branded games and music is the driving force for game market in US.

Top U.S. Interactive Software Publishers and Key Titles While the Industry Leaders Command a Large Portion of the Entertainment Software Industry, the Industry is Fragmented and Numerous Small, Privately-Held Players Exist 2008 Top U.S. Interactive Entertainment Software Publishers 1 1 Based on U.S. Retail Sales Publisher Top Brands (U.S. Sales 2008) * % of total company U.S. sell-through attributable to top ten brands Source: Wall Street research 38 Studios: Rhode Island Economic Development Corp.

Industry Trends and Drivers Trends and Drivers  Broadband penetration to the home, enabling digital distribution and online gaming.  More powerful PCs and laptops at lower prices.  Better graphic processors, more disc space, etc.  Improvement in quality of games, often with social elements (VoIP, text chat, etc.). Current  Longer console lifecycles. Drivers  Growth in adoption of smart phones and other handheld devices that support gaming applications.  Changing demographics: The web-literacy rate among the target audience has been growing constantly.  Macroeconomic weakness and uncertainty, which impacts consumer spending, advertisements and investment.  Piracy: Illegal file downloading / disks. Inhibitors  Free content available on the Internet, which lowers demand for premium titles.  Platform incompatibility: Some hardware cannot play select software.  High bar to produce sophisticated titles; costly and time-consuming to develop. 38 Studios: Rhode Island Economic Development Corp.

U.S. Interactive Entertainment Versus Other Entertainment Sectors The U.S. Interactive Entertainment Sector Has Grown Substantially Since 2003, While Other Entertainment Sectors are Approximately Flat to Slightly Down U.S. Entertainment Sectors ($ in Billions) Source: Wall Street research 38 Studios: Rhode Island Economic Development Corp. 3

Interactive Entertainment Market Demographics Although Interactive Entertainment Consumption is Well Distributed, Time Spent by 8- to 18-year-olds is Growing Dramatically Interactive Entertainment Market Segmentation by Demographics (2009)  55% of the interactive entertainment market is comprised of 6% Males older than 45 2% males aged under 45. Females older than 45  Women now represent 40% of game players and 48% of 8% Females under 18 game buyers.  Within the younger demographics (ages 8 to 18), time spent 36% consuming video and computer games has increased Males 18 to 45 dramatically over the past 10 years. 19% Males under 18  Video games use has increased from 26 minutes a day to 1 hour 13 minutes in a typical day.  Video games present 11% of media time allocation. 29% Females 18 to 45 Media Use Over Time (8- to 18-year-olds) Media Time Allocation Among 8- to 18-year-olds 1 19% of time is spent playing computer games Notes: Total media exposure is the sum of time spent with all media. Multitasking proportion is the proportion of media time that is spent using more than one medium concurrently. Total media use is the actual numbers out of the day that are spent using media, taking multitasking into account. Source: IBISWorld, January 2010; Kaiser Family Foundation, January 2010 38 Studios: Rhode Island Economic Development Corp. 4

Interactive Entertainment Software Market by Genre Growth in the Family / Children Segment has Been Driven by Music Themed Games Such as Rock Band and Guitar Hero U.S. Interactive Entertainment Software Market by Genre 2008 U.S. Interactive Entertainment Software Market by Genre Source: Wall Street research 38 Studios: Rhode Island Economic Development Corp. 5

Online PC Gaming in the United States U.S. Online PC Gaming Subscribers and Purchased Digital Game Downloads The market for online PC gaming continues to advance, with more than 190 million Americans, or approximately 60% of the population, forecasted to play some kind of online PC game by 2014. Core business models include premium monthly subscriptions mainly associated with virtual worlds and Massively Multiplayer Online Games (“MMOs”), paid digital downloads, and advertising and micro- transactions (i.e., sub-$5 virtual item purchases). U.S. Online PC Gaming Revenue Digital game downloads (i.e., purchased full game and add-on downloads) are expected to grow the fastest, reaching 237 million downloads in 2014, a 36.9% compounded annual growth rate from the 49 million in 2009. U.S. online PC gaming revenue is expected to reach $9.5 billion in 2014, a CAGR of 22.6% from 2009. Source: IDC, March 2010 38 Studios: Rhode Island Economic Development Corp. 6

Rise of MMOs in the United States Strong Growth in Massively Multiplayer Online Games is Expected to Continue U.S. Premium MMO and Casual Subscriptions (in Millions) .7% : 28 GR CA The number of paid monthly subscriptions .8% (including MMOs and casual gaming CAGR: 26 subscriptions) has historically grown at a CAGR of 27% and is projected to grow rapidly at a CAGR of 29%, from about 18 million in 2010 to nearly 49 million by 2014. U.S. Premium MMO and Casual Subscription Revenue ($ in Millions) 0 .9% :2 GR Revenue from MMO and casual subscriptions CA is projected to double, increasing from $2.0 billion in 2010 to $4.2 billion in 2014. % 25.8 CA GR: Source: IDC, March 2010 38 Studios: Rhode Island Economic Development Corp. 7

Women Love Mario! U.S. Total Video Games Dollar Share Female As Recipient, 12 Months Ending 3/08 Nintendo Platforms: 60% Of Revenue All Other PlayStation 3 Wii PlayStation Portable PlayStation 2 Xbox 360 Nintendo DS Source: The NPD Group / Consumer Tracking Service

The Music Genre Has Exploded 17.0M 1229.6M YTD 2008 +264% Units +375% Dollars 4.7M 3.1M 258.5M 2.7M 1.6M 132.2M 103.7M 48.6M 2003 2004 2005 2006 2007 Units Dollars Source: The NPD Group / Retail Tracking Service

Beyond Guitar Hero and Rock Band 5.1M YTD 2008 +112% 228.7M Units +126% Dollars 2.9M 2.7M 2.4M 122.4M 103.7M 101.1M 1.6M 48.6M 2003 2004 2005 2006 2007 Units Dollars Source: The NPD Group / Retail Tracking Service

China Game Market A young market with internet cafe as main distribution channel.

China a Vast but Hard to Tap Market NO CONSOLE MARKET Largely for fear of piracy, ﬁrst party platforms have largely ignored the Chinese game market. Because consoles are often sold at a loss with proﬁts made from software and royalties, the degree of piracy in China makes the console market effectively untenable. INTERNET / GAME CAFÉ BOOM With a low rate of PC ownership, the Internet café has become the primary distribution point for games in China. According to Pearl research, China’s online game market rose 63% Y/Y in CY08 to $2.8B. But, China is banning foreign investment in online games. YOUNG MARKET According to Pearl, 70% of China’s 298 million Internet users are under the age of 30, and 65% of those have played online games. Sources: Company data, Hudson Square Research

Online Game Type • MMORPG(Massively Multiplayer online Role Playing Game) (ex: Chinese Hero. Lineage, Huang Yi Online, World of Warcraft) • Strategy: Team work strategy (ex: Sango Online) • Competition: race game or shoot game (ex: CS online) • Casual game: gambling game or game for fun(ex: porker. Mahjong) Competition Casual game Strategy MMORPG Strategy Casual game Competition MMORPG Source: The NPD Group / Consumer Tracking Service

Casual Game Simple games for the mass

Casual Games Sample Matching Time Games Management Games Hidden Object Games

Casual Games Lessons • Everyone will buy games on the Internet if they’re designed to appeal to cater to their interests • Online, games need to be at the right level of difficulty appeal to the intended audience • Work with portals to achieve a large enough audience to generate enough transaction for profitability • The success of Xbox Live Arcade shows that hardcore gamers work on consoles too • The logic of light-weight MMOs: • 6 or 7 figure budgets (initially) • Free to play, upsell with status items (clothing, leaderboards, furniture, etc.) • Far shorter development times • Modest technical complexity • 10-20% of your audience will pay

Runescape • Browser-playable, traditional fantasy MMO • 9 millions active players • Of which 1 million pay $5/month for premium services • Plus advertising revenue • Player acquisition largely by word of mouth

Club Penguin • Flash minigames aimed at kids held together with a virtual world metaphor • Free to play • $6/month premium membership for status items • Key distribution arrangement with Miniclips • #1 free game site on the Internet, >40m monthly uniques • Receives 50% of lifetime revenue from users who join CP via Miniclips • Sold to Disney for $350m

Mobile Games in Japan As the most challenging mobile market in the world, Japan got various new trends.

Japan’s main Social Network Service Players Mixi DeNA(mbga) Gree Users 18M 15 M 16M FY08 Rev $121M $196M $139M ARPU $0.60 $1.09 $1.04

Casual Games in Japan Blending the lines between pre- installed and downloaded apps “Pet Calendar” by Success A fun little rump Very simple game formats popular in Catch poop falling from the pink print magazines throughout Japan bum at the top of the screen One engine gets refreshed with new This game spread virally like puzzle content everyday wildﬁre in Japan much like Free download includes a couple of “gnome bowling” on the US ‘net trial puzzles but you can register directly within the appli for more “Shit Panic” by Nekozone “Pencil Puzzler” by Cybird/ K-Lab/Sekai Bunsha

Brand Extension: TV Game Show • “Very very proﬁtable” • Mobilized web games • Game rules mimics shows • Monthly game packs add new answers, puzzles “Jeopardy”, “Wheel of Fortune” by Sony Pictures Digital Entertainment

Multimedia Composition • “Text to picture” engine • Type in text message (eg SMS) • Send to funmail shortcode with your targets address • FunMail engine picks images to match your text • Sends as EMS/MMS/… based on recipient “Funmail”

Multimedia Composition • Use SanRio’s “Hello Kitty” to send messages to your friends. • You can choose what outﬁt she wears and different compositions “Kitty Mail” by Imagineer

Trend: Game Packs - bundling • New games every month to stop unsubscribing • For $1/month take up to three games • Using Tetris to bring people in and other games to keep them “Petit Appli” by G-Mode

Trend: Multiplayer games • Ranked #3 on docomo’s game pack menu • Good variety of games including board games and sports like Billiards • Packet fees are still very high and ICPs don’t get a cut, so little motivation to get users rack up huge packet fee bills. • Example: a game of othello will cost 50cents per player • Korea is much more ﬂourishing for multiplayer where the biz model supports CPs “Table Game Jam” by G-Mode

Trend: 3D Games “Chokobo” by Square for Mitsubishi • Docomo regards the ‘505’ handset as a PlayStation 1 • Currently many japanese game companies are porting hit 3D PS1 titles to mobile • RidgeRacer was the pack-in game for the PS1. Different makers are “Psychic Force” by Taito bundling games with their handsets.

Trend: p2p networking • Create your own virtual aquarium, bring up ﬁsh and then beam exchange them with your friends! “Aqua Mode” by Moss/Bandai Networks

Cross Media: link to Web • Play on PC • Pay via Mobile. • Purchase virtual objects using Premium SMS • Multiplayer Graphic Chat “Habbo Hotel” by Sulake

JooJoo: Social Game Portal Games Social Entertainment Virtual Goods Social game portal • Raise pets with your friends • Non-realtime Battle games with other users • Paid gifts and other virtual items • Write blog articles to raise your in-game level • Your avatar shows up in games and also on your blog and home page

Operation: events, goods, community, metrics • In social games the post-launch service operation is a critical success factor. Pikkle has deep experience in running these services. Japanese users also expect a high-level of customer support. We also know how to build activity in the fan communities around our games. Hina Matsuri Halloween Christmas Easter eggs “Girls Day” Japanese Limited period virtual fes1val goods

Monetizing the Social Games Consumable items Offer walls and afﬁliate ads Gifts with hidden contents! Bundling and special offers

Operation: events, goods, community, metrics • The mobile phone is a PlayStation! • Almost identical to the PlayStation version: Devil Car and Easter Eggs! • Created a new high 500yen price point for premium content • Blockbuster - the most expensive mobile game yet • 100,000 downloads sold! • The SH53 handset sold 500K units, so we achieved 20% penetration

Package: Monthly Rental Ridge Racer Taiko No Tatsujin Appli Carrot One game / PPV One game / sub Unlimited games /sub $5 / single payment $3 / month $3 / month Pay-Per-View Subscription All you can eat

Game Lifecyle • Just like a game center, different games serve different purposes. The service needs the right mix… • Big brand titles like Ridge-Racer act as “acquisition” apps, bringing in new customers in and convincing them to join the service. • Evergreen “Killer Apps” like Pac-Man just keep people playing constantly month after month. • Games like table-games have a lower but constant play factor. These are the “retention” apps that keep people subscribed to the service after they join. • This is just a brief snapshot but of course you need to keep adding new titles to maintain people’s interest in the service… • Business model affects product development decisions: • Pay-Per-Download motivates “take the money and run” ﬂash branded apps • Monthly Subscription motivates long-term playability and better value-for-money.

On the small screen: the brand is King On mobile, branded games hugely outsell unbranded • The tiny mobile phone storefront gives just an instant for consumers to decide which game to download • Well-known games win every time • Namco is a giant in the Japanese game industry with group consolidated turnover of $1.4BN in 2002 Killer Brands… Namco games have inspired a range of books This banner for Pac-Man had such strong recognition eagerly taken up by fans. that it won the D2C award for best mobile advert. Even people who did not grow up with Pac-Man immediately recognized it as a fun game.

Docomo Weekly Guide • Very high trafﬁc mobile site which is a guide to what’s new on i-mode • A way for the carrier to include more “editorial opinion” than just straight popularity rankings • Introducing “what’s new” • Special Feature • Sites that use new tech or handsets • Emoji graphics • Tips and Tricks • Single Banner ad • From this “weekly guide” you could foresee Docomo’s stance like “contents magazine”. • Docomo will never be a CP on their own to enable an even ﬁeld for the content providers

Trend: mobile charts • Site Ranking creates a fair competitive ﬁeld • Different carriers rank their games in different ways – number of subscribers, page accesses, or revenue. Docomo games categories: Games 1 >  Game pack  Mini game  total 26 sites  RPG  Communication  Sports Table games  simulation Games 2 >  Variety  mail games  quiz  nurturing  adventure,  novel  character  general

Mobile games boost ARPU! • Voice ARPU is falling everywhere, but data is rising • Games create significant data traffic – the second “S” curve • Our well known brands are helping operators attract a mass- market mobile game audience and launch their data services Launch of the 503, japan’s first java capable 9000 mobile phone helped Namco subscriptions to take off and now similar Java launches are happening all over the world. 6750 4500 Launch of the 503 – first java phone DoCoMo: Voice ARPU is falling while Data is rising 1999 2250 2000 2001 2002 0 2003 data ARPU voice ARPU Source: Docomo Source: Namco

Andi S. Boediman andisboediman@gmail.com www.ideonomics.com

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Game Landscape & The Future

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Game Landscape & The Future — Presentation Transcript