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State of the Game Industry 2008

State of the Game Industry 2008



State of the Game Industry 2008

State of the Game Industry 2008



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    State of the Game Industry 2008 State of the Game Industry 2008 Presentation Transcript

    • State of the Game Industry 2008 GameOn Finance Conference - October 2008 - Wanda Meloni President DFC Intelligence San Diego, CA DFC INTELLIGENCE P R O P R I E T A R Y
    • The Interactive Entertainment Industry Total Worldwide Market - $47 Billion in 2008  Console Games: $27 billion in 2008  Older systems still make up a large part of market - PS2, Xbox and GameCube account for about $15 billion in revenue but that is getting ready to decline because industry is going into a 5 year transition period  PC Games: $9.5 billion in 2008 with the majority coming from online games/MMOGs  Portable Games: $8.5 billion for 2008 projected to grow to about $10 billion by 2012  Emerging markets: more portable devices, connected consoles, online distribution, micro-transactions, user- generated content, gaming with social component DFC INTELLIGENCE P R O P R I E T A R Y
    • Total Worldwide Interactive Entertainment Industry $50,000 $45,000 $40,000 Console Online $35,000 PC Online $30,000 PC Games Portable Software $25,000 Portable Hardware Console Software $20,000 Console Hardware $15,000 $10,000 $5,000 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -3- DFC INTELLIGENCE P R O P R I E T A R Y
    • The Console Market Lose Money on Hardware, Make Money on Software  Microsoft and Sony have been willing to take a hardware loss of $100+ per unit  Hardware manufacturers receive royalties based on every software unit  manufactured Amounts to about 15% of retail price, it puts all the risk is on third-party developers  A single title can change it all  A single hit title can secure a system  Microsoft ambitious but remains weak in Asia  Recent moves are designed to shore up its chances but still no guarantee  Early start, strong online and more Japan developers  When will Microsoft make money?  Nintendo doing better than expected  For the first time consumers that grew up with Nintendo will be buying systems for their  children Could be a strong second system and do well with 25-35% share  Sony has a lot to lose because it will be very unlikely that they can maintain their  67% market share Still likely to maintain 40-50% market share  PS3 not expected to break-even  DFC INTELLIGENCE P R O P R I E T A R Y
    • PC vs. Console Market  Consoles are bigger market overall no matter which way you slice it except for… MMOGs, casual games, and advergaming   The console market and PC market are not mutually exclusive domains They are each unique domains of specific types of gamers and gamer behaviors  (e.g. modding, MMOGs are PC, fighting games are console) Where PC gaming and console gaming was mutually exclusive was in the domain  of retailer and publisher allocation of limited resources  PCs have until now not been living room devices HDTV changes that a bit but the future of media center PCs and gaming isn’t  certain  PC gamers are older, more affluent, and tend to focus on a few big titles that they play religiously  The PC is always a center for innovation and that is what keeps it alive  Consoles are gaining on areas that have been exclusive domains of PCs Wireless and home networks coupled with user created content may eventually fuse  the world of PCs and consoles together -5- DFC INTELLIGENCE P R O P R I E T A R Y
    • Total PC Games: Retail Plus Online Total Worldwide PC Sales by Region: 2004 - 2010 $12,000 $10,000 $8,000 Asia /ROW Europe $6,000 NA $4,000 $2,000 $0 2004 2005 2006 2007 2008 2009 2010 -6- DFC INTELLIGENCE P R O P R I E T A R Y
    • PC Game Play Expands Beyond Retail  Retail Sales of PC Games Have Declined but the Overall Market is Stronger then Ever  New Models Dominate  Online Games: $6.5 billion in PC online games in 2008  Subscriptions: Games like Everquest, World of Warcraft and City of Heroes get $50 at retail + $15 a month  World of Warcraft: worldwide success with over 11 million users  Digital Distribution: growing download option for games  Advergaming: Top free casual game sites attract 200,000+ simultaneous users  Top PC games like The Sims series and Half-Life can have retail sales similar to top console games.  Similar Trends are Likely to Occur as Console and Portable Systems go Online DFC INTELLIGENCE P R O P R I E T A R Y
    • Content is King Content, Content, Content:  Franchised/Branded  Original  User-Generated Major Trends:  Game content is “interactive” unlike film content which is linear  Game content needs to be real-time, created with real-time tools and open platforms  Move towards use of procedural content, in combination with hand- generated content  The tools are changing – more middleware is being used  Mod tools and easy-to-use consumer level tools necessary -8- DFC INTELLIGENCE P R O P R I E T A R Y
    • Online Game Markets Worldwide Forecast Worldwide Online Game Total Market - $7.6 Billion in 2008 Revenue: 2001-2012  Forecasted to reach $13 billion by 2012 $14,000  This market is fragmented among many companies and markets $12,000  Compare with Nintendo and Sony $10,000 who have total combined game related revenue of $10-15 billion a in millions year $8,000  Much of online game revenue and $6,000 play is still from single player games  Even digital distribution can still have $4,000 a strong physical retail component $2,000 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 PC Online Console Online -9- DFC INTELLIGENCE P R O P R I E T A R Y
    • Online MMOGs Total Market - $3.5 Billion in 2008 Worldwide MMOG Revenue: Massively Multiplayer Online Games  2001-2012 (MMOGs) have been dominant revenue generator via subscription model A handful of successful games with big  focus on Fantasy Role-Playing (MMORPG) $6,000 Western markets: Big growth started  with Ultima Online (1997) and $5,000 EverQuest (1999), average subscription costs rise from $10-15 a month $4,000 East Asian markets: Pay-per-use  models and games like Lineage, Mu, in millions Legend of Mir, Fantasy Westward $3,000 Journey Top games can last 5-10 years  $2,000 World of Warcraft was first big international  hit with over $300 million in revenue first year $1,000 MMOGs could come to consoles, Final  Fantasy XI is already a success $0 01 02 03 04 05 06 07 08 09 10 11 12 More niche MMOGs: Runescape, EVE  20 20 20 20 20 20 20 20 20 20 20 20 Online, Puzzle Pirates Potential to add digital distribution models  MMOG Revenue to traditional subscription model - 10 - DFC INTELLIGENCE P R O P R I E T A R Y
    • Casual Games Worldwide Casual Online Game Total Market - $1.5 Billion in 2008 Revenue: 2001-2012 True mass market products with  some portals reaching over 20 million users $3,000 Casual Games have broadened the  demographics, especially older women and working adults $2,500 Some big name products like Tetris  and Bejeweled, and star developers like BigFish ($100 million in revenue $2,000 2008) and PopCap in millions Model was free advertising supported  $1,500 but is going towards adding digital distribution and subscription $1,000 Digital distribution model is “try  before you buy” 1% conversion rates mean 1 million  $500 downloads to break even $20 price point is probably too high  Emerging revenue opportunities:  $0 Console systems (Xbox Live Arcade)  01 02 03 04 05 06 07 08 09 10 11 12 20 20 20 20 20 20 20 20 20 20 20 20 Skilled games  Mobile games  Casual Game Revenue - 11 - DFC INTELLIGENCE P R O P R I E T A R Y
    • Genre Comparison Casual Games Team: 25 members  Cost: $75k - $300k  Production Time: 6 months  Platform: PC primarily, some console starting  AAA Games Team: 100 members  Cost: $15 - $30 million to produce + $40 million for marketing  Production Time: 24 – 36 months  Platforms: Multiple necessary - Consoles, PC, Online  MMOGs Team: starts with 100 members and can move up to 450 by launch  Cost: $15 - $25 million for high-end + $500,000 annually for servicing  Production Time: 3 – 5 years  Platform: PC  - 12 - DFC INTELLIGENCE P R O P R I E T A R Y
    • Business Models are Changing…  Free to play: big trend in Asia  Advertising in games: $937 million by 2012 Advertising on casual game sites  Corporate sponsored games  Product placement in games  In-game advertising in high-end retail titles with online connection   Digital Distribution: $5.6 billion by 2012 Has become a key model in Asia to avoid piracy problems. In Western markets it  has been mainly used for casual games (with small file size) and products that can not get retail distribution Great supplement to retail, makes it model of choice for retail games with free  online play Will not eliminate traditional retail for full games except in rare cases (Valve)  Update/add-on/extra, user created content: mods/Sims 2, virtual items   More subscriptions  Micro-transactions - 13 - DFC INTELLIGENCE P R O P R I E T A R Y
    • Emerging Trends  Households that play games on multiple systems  A single consumer plays games on the PC, console and portable system and exchanges information between platforms  Game systems are always connected which expands business models, distribution and consumption choices which may start to shakeup established industry structure  Large scale success requires diversity: of platforms, products, markets and business models  A truly global business  Asian business models go to the West  Console systems and Western brands start to penetrate Asia  Both large global brands and solid niche markets DFC INTELLIGENCE P R O P R I E T A R Y
    • Regional Tastes… Key Lesson: Each market has its own idiosyncrasies  North America: Strong diversity, sports titles critical, largest market, emphasis on realism and first-person perspectives and action titles.  Europe: More like N. America than Japan. More cost conscious, traditionally last market to get console. PC gaming is strong especially in Germany.  Japan: Size of console and Japanese oriented content is critical, cuter more abstract titles are big deals, and Japanese company support.  Korea & China: MMOGs especially because they avoid piracy issues. Real-time strategy in Korea as well. RPGs in China.  Mobile Phones: Much bigger in Korea, Japan, and Europe than U.S. - 15 - DFC INTELLIGENCE P R O P R I E T A R Y
    • Game Industry Sales by Region Game Sales in 2004 10%  North America: Clearly the N. America 13% key market. Europe 44% Japan  Europe: High prices have ROW limited sales.  Japan: Declining in 33% importance, but PC, online and portable are becoming more important. Game Sales in 2010  ROW: Asia is exploding on 16% PC online game side and N. America Europe 37% could become important for Japan 13% console systems. ROW 34% - 16 - DFC INTELLIGENCE P R O P R I E T A R Y
    • Game Industry Forecasts by Region Total Worldwide Entertainment Market by Region - 2004 to 2010 $50,000 $45,000 $40,000 Asia/ROW PC $35,000 Eur PC NA PC $30,000 ROW VG $25,000 Jap VG Eur VG $20,000 NA VG $15,000 $10,000 $5,000 $0 2004 2005 2006 2007 2008 2009 2010 - 17 - DFC INTELLIGENCE P R O P R I E T A R Y
    • Think Globally – Act Regionally U.S.A. - “Regional Proficiency Clusters” San Francisco – platforms: PC, Sony, Nintendo, new technology, funding opportunities  Seattle – casual games, Microsoft  San Diego – affiliate studios, online gaming  Los Angeles – movie franchises, branded content, Japanese subsidiaries  Raleigh/Durham – middleware, online gaming  Austin – Audio and music, online gaming  New York, Boston – starting to see more growth in these regions  Australia Brisbane – strong academic influence, regional gov’t. provides incubatator program  Scandinavia Norway  Sweden  Emerging Countries  Asia – Korea, Singapore, China alone has 30% growth annually  India – 78% growth annually - 18 - DFC INTELLIGENCE P R O P R I E T A R Y
    • Canada’s Game Industry Montreal has:  3D  +80 game companies  Infrastructure: localization services, outsourcing  Affiliate game studios: EA, Ubisoft Vancouver has:  +100 game companies  Strong military connection, casual gaming, closest proximity to Asia  Strong affiliate studios Growth of Regional Proficiency Cluster Requires:  Attraction of like interests in region  Schools fostering interactive media = Strong employment pool  Incentive programs for startups: incubators, collaboration programs - 19 - DFC INTELLIGENCE P R O P R I E T A R Y
    • For More Information: Wanda Meloni President DFC Intelligence wmeloni@dfcint.com (858) 780-9680 - 20 - DFC INTELLIGENCE P R O P R I E T A R Y