Eliane Alhadeff | 08/08/07 SERIOUS GAMES, SERIOUS MONEY: A SIZEABLE MARKET

Serious Games Overview Serious Games Go Mainstream Background Development Market Drivers Business Environment Market Size Market Dynamics by 2012 Business Models

Background

Development

Market Drivers

Business Environment

Market Size

Market Dynamics by 2012

Business Models

Background 1997 - Marine Corps used Software Inc.'s "Doom" for training 2002 - U.S. Army released America's Army free online download More than 5 million registered users US government and military turned to SG for two reasons: lower costs and improved quality of user experience

1997 - Marine Corps used Software Inc.'s "Doom" for training

2002 - U.S. Army released America's Army

free online download

More than 5 million

registered users

US government and military turned to SG for two reasons: lower costs and improved quality of user experience

Computer games cost significantly less than a large-scale simulator Games by their nature are competitive, fast moving and entertaining Over the last three years: experimentation has evolved into a full-blown market opportunity Government agencies are being joined by a long line of SG users: schools (both K-12 and universities) and Fortune 500 Background (cont.)

Computer games cost significantly less than a large-scale simulator

Games by their nature are competitive, fast moving and entertaining

Over the last three years: experimentation has evolved into a full-blown market opportunity

Government agencies are being joined by a long line of SG users: schools (both K-12 and universities) and Fortune 500

Development USA Academics recognize the potential scope of SG and conferences sprang up Since 2004, annual Serious Games Summits have been held Games for Change Conference promotes games for the social good Games for Health Conference covers both games for patients and games for health care providers MSU announces the launch of a master's degree in SG design

USA

Academics recognize the potential scope of SG and conferences sprang up

Since 2004, annual Serious Games Summits have been held

Games for Change Conference promotes games for the social good

Games for Health Conference covers both games for patients and games for health care providers

MSU announces the launch of a master's degree in SG design

Development Europe Early 2007, inaugural board meeting of the new trade body ANGILS - a non-profit-making organization based in the UK, aimed at promoting the growth of the SG market Originally founded in 2003, has now repositioned itself as the only European-based networking trade association for SG and emerging technologies A £3 million Serious Games Institute in Coventry, West Midlands, is currently under construction and will be fully operational by the autumn of 2007

Europe

Early 2007, inaugural board meeting of the new trade body ANGILS - a non-profit-making organization based in the UK, aimed at promoting the growth of the SG market

Originally founded in 2003, has now repositioned itself as the only European-based networking trade association for SG and emerging technologies

A £3 million Serious Games Institute in Coventry, West Midlands, is currently under construction and will be fully operational by the autumn of 2007

Development Latin America Notice of at least one educational SG in Brazil that simulates an enterprise environment Brazil is an untouched market with demographics consistent with SG proposition Worldwide Funding starting to become available from foundations, governmental agencies, non-profits and venture capitalists. Universities encouraging students to produce SG for academic credit

Latin America

Notice of at least one educational SG in Brazil that simulates an enterprise environment

Brazil is an untouched market with demographics consistent with SG proposition

Worldwide

Funding starting to become available from foundations, governmental agencies, non-profits and venture capitalists. Universities encouraging students to produce SG for academic credit

Market Drivers A number of converging market and demographic factors are resulting in increased interest in using SG in areas such as education, health, ecology, public policy, science, government and corporate training A number of corporations are taking the first steps and commissioning SG development recognizing they need to consider this approach to provide more effective learning content There is now an emergent supply chain for Serious Games

A number of converging market and demographic factors are resulting in increased interest in using SG in areas such as education, health, ecology, public policy, science, government and corporate training

A number of corporations are taking the first steps and commissioning SG development recognizing they need to consider this approach to provide more effective learning content

There is now an emergent supply chain for Serious Games

PricewaterhouseCoopers' Media Outlook Report forecasts major growth for the video game sector worldwide By 2011, the worldwide gaming market will be worth $48.9 billion at a compound annual growth rate of 9.1% during the five-year period. They handily exceed the 6.4% advance that PwC eyes for the overall entertainment economy during the period. Its data include consumer spending on games, but not on hardware and accessories Business Environment Key growth engines will include online and wireless games, new-generation consoles, as well as in-game advertising

PricewaterhouseCoopers' Media Outlook Report forecasts major growth for the video game sector worldwide

By 2011, the worldwide gaming market will be worth $48.9 billion at a compound annual growth rate of 9.1% during the five-year period. They handily exceed the 6.4% advance that PwC eyes for the overall entertainment economy during the period.

Its data include consumer spending on games, but not on hardware and accessories

Key growth engines will include online and wireless games, new-generation consoles, as well as in-game advertising

In the U.S., online and wireless games should see the biggest gains through 2011. Online will expand from $1.1 billion market last year to $2.7 billion in 2011, and wireless will double from $499 million to $1 billion In-game advertising will be a key spark for U.S. gaming revenue, growing from an estimated $80 million last year to $950 million in 2011 Asia Pacific should remain the region with the highest overall spending on gaming during the period and reach $18.8 billion in 2011. Despite its leading size, its 10% average annual gains will only be exceeded by the combined region of Europe, the Middle East and Africa (EMEA), which is pegged for a 10.2% compound annual gain and set to remain at No. 2 in worldwide gaming Business Environment (cont.)

In the U.S., online and wireless games should see the biggest gains through 2011. Online will expand from $1.1 billion market last year to $2.7 billion in 2011, and wireless will double from $499 million to $1 billion

In-game advertising will be a key spark for U.S. gaming revenue, growing from an estimated $80 million last year to $950 million in 2011

Asia Pacific should remain the region with the highest overall spending on gaming during the period and reach $18.8 billion in 2011. Despite its leading size, its 10% average annual gains will only be exceeded by the combined region of Europe, the Middle East and Africa (EMEA), which is pegged for a 10.2% compound annual gain and set to remain at No. 2 in worldwide gaming

Current Status For 2006, PwC's preliminary estimates are for the U.S. gaming market to have expanded 10.6% to $9 billion, and it expects the first-ever jump beyond the $10 billion mark this year to about $10.4 billion. Worldwide game spending jumped 14.3% to $31.6 billion in 2006 and should rise 18.5% to $37.5 billion this year, according to the preliminary data. The overall gaming audience continues to expand and become somewhat more female and older than in the past thanks to casual games and games becoming an "important part of culture" Business Environment (cont.)

Current Status

For 2006, PwC's preliminary estimates are for the U.S. gaming market to have expanded 10.6% to $9 billion, and it expects the first-ever jump beyond the $10 billion mark this year to about $10.4 billion.

Worldwide game spending jumped 14.3% to $31.6 billion in 2006 and should rise 18.5% to $37.5 billion this year, according to the preliminary data.

The overall gaming audience continues to expand and become somewhat more female and older than in the past thanks to casual games and games becoming an "important part of culture"

My conservative estimate: the Serious Games Market would be ranging between $200 - 400 million per year There is now an emergent supply chain for Corporate Serious Games, with a number of corporations commissioning SG development, which could easily make available additional $ 400 - 600 million per year. The same applies to Healthcare providers (e.g., training for surgery, for emergency medical response, and for managing surgical teams), bringing the overall figure for the Serious Games market close to $ 1.5 billion in 2008 Serious Games Market Size

My conservative estimate: the Serious Games Market would be ranging between $200 - 400 million per year

There is now an emergent supply chain for Corporate Serious Games, with a number of corporations commissioning SG development, which could easily make available additional $ 400 - 600 million per year.

The same applies to Healthcare providers (e.g., training for surgery, for emergency medical response, and for managing surgical teams), bringing the overall figure for the Serious Games market close to $ 1.5 billion in 2008

As Serious Games are Gaining Solid Traction in Europe and the video game industry is finding more and more business outside the entertainment sector, this figure could rise to $ 2 billion shortly Although this is small potatoes in comparison to the total videogame market, the Serious Games segment has been showing healthy double-digit growth over the past five years, and shall accelerate rapidly as it is getting a foothold in the corporate market. Serious Games Market Size (cont.)

As Serious Games are Gaining Solid Traction in Europe and the video game industry is finding more and more business outside the entertainment sector, this figure could rise to $ 2 billion shortly

Although this is small potatoes in comparison to the total videogame market, the Serious Games segment has been showing healthy double-digit growth over the past five years, and shall accelerate rapidly as it is getting a foothold in the corporate market.

Result of a market survey with all key stake-holders across the supply chain, include the revelation that the majority of corporations, learning suppliers and established SG suppliers foresee ‘learning games’ not only being adopted but becoming mainstream by 2012 Also a resounding 100% of corporations surveyed see the value of using game-based learning within their organizations Market Dynamics for SG used in Corporate Learning in Europe by 2012

Result of a market survey with all key stake-holders across the supply chain, include the revelation that the majority of corporations, learning suppliers and established SG suppliers foresee ‘learning games’ not only being adopted but becoming mainstream by 2012

Also a resounding 100% of corporations surveyed see the value of using game-based learning within their organizations

Attitudes are changing and understanding is deepening on the subject These include: a changing staff profile - the MTV generation is being replaced by the ‘digital native’ generation – and a need for simulating more complex systems Market Dynamics for SG used in Corporate Learning in Europe by 2012 (cont.)

Attitudes are changing and understanding is deepening on the subject

These include: a changing staff profile - the MTV generation is being replaced by the ‘digital native’ generation – and a need for simulating more complex systems

SG have been doing extremely well with the hype building At the early stages of the SG movement, they were made available to users free of charge or distributed within the client organization: no sales revenue stream for the developer SG are now successfully being developed and deployed all over the world and for a variety of applications MMO, single player, mobile, PC, hand-held or even console, SG deliver by utilizing leading-edge technology, design and skills to address intractable issues that defense agencies, engineering organizations, and first responders have... Serious Games Go Mainstream

SG have been doing extremely well with the hype building

At the early stages of the SG movement, they were made available to users free of charge or distributed within the client organization: no sales revenue stream for the developer

SG are now successfully being developed and deployed all over the world and for a variety of applications

MMO, single player, mobile, PC, hand-held or even console, SG deliver by utilizing leading-edge technology, design and skills to address intractable issues that defense agencies, engineering organizations, and first responders have...

...whilst corporations and schools are finding them invaluable as learning content … and NGOs and marketing organizations find that their message are conveyed in a more productive – and enjoyable way In the commercial arena, SG is going mainstream. More and more companies are announcing a significant increase in their annual revenue derived from the SG contribution, whilst some of them report they made more in revenue from its serious side than from its entertainment side Serious Games Go Mainstream (cont.)

...whilst corporations and schools are finding them invaluable as learning content … and NGOs and marketing organizations find that their message are conveyed in a more productive – and enjoyable way

In the commercial arena, SG is going mainstream. More and more companies are announcing a significant increase in their annual revenue derived from the SG contribution, whilst some of them report they made more in revenue from its serious side than from its entertainment side

The SG market will not be as easily formed as the commercial games market was The market is much more B2B oriented, where the majority of projects are "work-for-hire" or single-use efforts like those seen in traditional business software industries. Unlike B2C, organizations are slower moving when adopting new paradigms Nevertheless, SG developers see a lot of room for growth in their marketplace Business Models For SG Segment Moving Beyond Work-For-Hire

The SG market will not be as easily formed as the commercial games market was

The market is much more B2B oriented, where the majority of projects are "work-for-hire" or single-use efforts like those seen in traditional business software industries. Unlike B2C, organizations are slower moving when adopting new paradigms

Nevertheless, SG developers see a lot of room for growth in their marketplace

SG used to lack the budgets of entertainment games and were made for a fraction of the cost and time of games for the entertainment market, with budgets in the range of $400,000-$1 million being typical, and a development time of perhaps a year However, budgets for certain applications seem to be increasing. We’re now seeing some SG being budgeted in the $10 million range, and above Growing budgets may translate into a growing demand for private equity funding, mostly because the predominant model in SG so far has been "work-for-hire", which do not leverage on economies of scale Business Models For SG Segment Moving Beyond Work-For-Hire (cont.)

SG used to lack the budgets of entertainment games and were made for a fraction of the cost and time of games for the entertainment market, with budgets in the range of $400,000-$1 million being typical, and a development time of perhaps a year

However, budgets for certain applications seem to be increasing. We’re now seeing some SG being budgeted in the $10 million range, and above

Growing budgets may translate into a growing demand for private equity funding, mostly because the predominant model in SG so far has been "work-for-hire", which do not leverage on economies of scale

Early adopters have been focusing heavily on advances in design, pedagogy, and technology and sparingly on business development models As the field grows, however, it experiences a wider variety in business development models, moving away from the work-for-hire one Potentially, every education program, every curriculum, could be reshaped by the use of SG Shaping SG from a movement into a viable and growing market, requires new business models that accommodate new ways of doing business, and raising capital, distributing, and selling product Business Models For SG Segment (cont.)

Early adopters have been focusing heavily on advances in design, pedagogy, and technology and sparingly on business development models

As the field grows, however, it experiences a wider variety in business development models, moving away from the work-for-hire one

Potentially, every education program, every curriculum, could be reshaped by the use of SG

Shaping SG from a movement into a viable and growing market, requires new business models that accommodate new ways of doing business, and raising capital, distributing, and selling product

Original Sources Gaming Our Way to Our Better Future Serious Games Market Size April 01, 2004 Ben Sawyer Emergent Use of Interactive Games For Solving Problems is Serious Effort 2004 Ben Sawyer Animation World Magazine Serious Games, Take Two December 16, 2005 Games for Learning: Serious Entertainment April 26, 2006 The Serious Games Fund Raising Fandango Serious Games Source January 10, 2007 Serious Games Summit DC 2006

Gaming Our Way to Our Better Future

Serious Games Market Size

April 01, 2004

Ben Sawyer

Emergent Use of Interactive Games

For Solving Problems is Serious Effort

2004

Ben Sawyer

Animation World Magazine

Serious Games, Take Two

December 16, 2005

Games for Learning: Serious Entertainment

April 26, 2006

The Serious Games Fund Raising Fandango

Serious Games Source

January 10, 2007

Serious Games Summit DC 2006

Original Sources Essential Facts About Games and Court Rulings Top 10 Industry Facts January, 2007 Entertainment Software Association Corporate Learning Games in Europe Market Challenges & Opportunities for Serious Games Used in Learning to 2012 February, 2007 APPLY Group – Market Research Division Western World MMOG Market: 2006 Review and Forecasts to 2011 March, 2007 Screen Digest 8th Annual Edition of PwC’s Global Entertainment and Media Outlook PricewaterhouseCoopers June, 2007

Essential Facts About Games and Court Rulings

Top 10 Industry Facts

January, 2007

Entertainment Software Association

Corporate Learning Games in Europe

Market Challenges & Opportunities

for Serious Games Used in Learning to 2012

February, 2007

APPLY Group – Market Research Division

Western World MMOG Market: 2006 Review and Forecasts to 2011

March, 2007

Screen Digest

8th Annual Edition of PwC’s Global Entertainment and Media Outlook

PricewaterhouseCoopers

June, 2007