Data & trends 2014 the digital games industry in review joost van dreunen

1. DATA & TRENDS—2014 The online games !industry in review ! ! Joost van Dreunen SuperData Research ! ! Prepared for Game Connection Europe October 29, 2014

2. Joost

3. Market data and research What we do. MARKET-LEVEL DATA 10 YEARS OF DATA 200MM+ TRANSACTIONS 37MM UNIQUE PAYING USERS 50 CONTRIBUTING PUBLISHERS 450+ UNIQUE TITLES 4 KEY METRICS country-level and regional data available regional data available only We take a ‘big data' approach when establishing market size. By analyzing millions of transactions worldwide, we are able to gain both a macro- and micro-level grasp on how digital gamers pay and play. Our transactional dataset goes back over a decade and offers reliable payment insights that we couple with other market data such as device penetration rates, population and spending power to create our proprietary model. We report on key metrics such as monthly active users, conversion rates, average revenue per paying user by both month and year. Our estimates span across six key digital gaming segments, including mobile, social, free-to-play and pay-to-play MMO, PC and console. 6 GAMING SEGMENTS 26 COUNTRIES SuperData | Digital games market intelligence Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com

4. About Who we are. SuperData | Digital games market intelligence SuperData provides market intelligence on the online, digital and mobile games industry. Every month we collect point-of-sale data directly from developers, publishers and payment providers, across six major digital game categories: social games, free-to-play MMOs, subscription-based MMOs, digital console, downloadable PC games, and mobile games. Based on the spending of 37 million unique digital gamers, we are able to provide an accurate reading of the global digital games market, identify key industry trends, offer reliable forecasts, establish market share, and evaluate marketing spend. SuperData offers insight into the next generation of interactive entertainment. Using our proprietary panel of 37 million unique digital gamers, we establish key industry benchmarks such as monthly active users, conversion rates, average revenue per paying user, and title-level revenue estimates. Combined with qualitative consumer studies, customers use our data to evaluate their performance, identify key growth opportunities, assess revenue potential, optimize their efforts, and better understand their audience’s wants and needs. For more information, please visit: www.superdataresearch.com Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com 4

5. Index What’s in here. SuperData | Digital games market intelligence 1 OVERVIEW Index Methodology ! 2 LANDSCAPE Worldwide Digital Games Market, Regions, 2014E Worldwide Digital Games Market Forecast, 2013 - 2017E Digital vs Retail-based Revenue for Major Publicly Traded Publishers, Q1 2010 - Q1 2014 Digital-only Game Company Profiles: King, Nexon, Supercell, NCSoft 3 SEGMENT BREAKOUT Mobile Games Worldwide Mobile Gaming Revenue, 2013 - 2016E U.S. iOS Cost-per-install vs. Average Revenue Per User (indexed), January 2013 - July 2014 Social Games Worldwide Social Games Revenue and Audience Market Share, Regions, 2014E Social Games Revenue and Audience Percent Change, Regions, 2013 vs. 2014 MMO Games Worldwide MMO Revenue (Free-to-play vs. Subscription-based) and Compound Annual Growth Rate, 2011 - 2014E MMO Microrevenue Ratio (Free-to-play vs. Subscription-based), 2014E Worldwide MMO Monthly Active Users (Free-to-play vs. Subscription-based), 2014E Digital PC Games Worldwide Digital PC Market Size, 2013 - 2017E Digital PC Revenue Market Share, Regions, 2014E Average Revenue Per Paying Digital PC Player in the U.S., January 2014 - December 2014E For terminology definitions, please visit http://www.superdataresearch.com/superdata-terminology For an overview of our methodology and data collection, please visit http://www.superdataresearch.com/methodology Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com 6

6. Index What’s in here. SuperData | Digital games market intelligence 3 SEGMENT BREAKOUT (cont.’d) Digital Console Games Worldwide Digital Console Revenue and Audience, 2013 vs. 2014E Worldwide Digital Console Additional Content Spending Metrics, Q3 2013 vs. Q3 2014 !4 OUTLOOK eSports Worldwide eSports Viewers and Prize Money, 2011 - 2014E Largest Prize Pools in 2014 Virtual Reality Virtual Reality Timeline, March 2013 - Summer 2015 ! 4 CONTACT 7 For terminology definitions, please visit http://www.superdataresearch.com/superdata-terminology For an overview of our methodology and data collection, please visit http://www.superdataresearch.com/methodology Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com

7. How do we define “digital games”? Six categories ★ Social network-based ★ Mobile ★ Free-to-play MMOs ★ Subscription-based ★ DLC PC ★ Digital console ! ! More information: http://www.superdataresearch.com/terminology/ Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com

9. SuperData | Digital games market intelligence WW digital games revenue close to $50B in 2014E Digital games revenue increases 15% as Asia’s booming mobile market drives growth. Worldwide digital games market, 2014E North America $12.2 billion Latin America $4.3 billion Asia $18.6 billion ! Europe $11.7 billion Rest of world $2.1 billion Worldwide digital games market forecast $48.8 $51.7 $53.2 $56.0 $42.5 2013 2014E 2015E 2016E 2017E Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com

10. SuperData | Digital games market intelligence Digital steadily rises, outselling retail in mid-2013 Digital games revenue rises above annual retail market lulls for increasingly longer periods. Digital revenues close the gap on Q1 retail as they set out to surpass boxed sales in another Q2. 2013 was the first year digital games outsold retail in Q2, and the trend is set to repeat once again this year as digital revenues continue to steadily climb. The combined releases of next-gen consoles and highly-anticipated AAA games last holiday season gave retail games a record-breaking boost, but with a lack of new hardware to excite consumers, retail is unlikely to see the same magnitude of sales this holiday season. Digital vs Retail-based revenue for major publicly traded publishers 2010 2012 2011 2013 Revenue ($M) 2014 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Digital vs retail revenues from quarterly filings and estimates for: Activision, EA, Ubisoft, Take Two, Zynga, IGT, Glu Mobile, Williams Interactive, GameLoft, Square Enix, Konami, Capcom, Nexon, NCSoft, Disney, THQ. Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com 11

11. SuperData | Digital games market intelligence Digital-only companies shaking up the status quo Mobile and PC gaming goliaths prove there’s room for long-term success in digital. KING Revenue 2013: $1.9 billion Q2 2014: $611 million ! Top games & MAU Candy Crush Saga: 260M+ Farm Heroes Saga: 83M+ ! Founded in 2003 as a social gaming company, King has grown to be one of the most successful digital companies in recent years. Games like Candy Crush Saga and Farm Heroes Saga frequently top mobile and social gaming charts. After the company’s IPO in early 2014, stagnating bookings have left investors uneasy about the company’s financial future. Digital-only game company profiles SUPERCELL Revenue 2013: $892 million !! Top games & MAU Clash of Clans: 110M+ Hay Day: 50M+ ! The Finnish mobile games company Supercell was founded in 2010 and has been noted for its massive success with a famously small team and small portfolio of games. In 2013, Japanese gaming companies SoftBank and GungHo acquired 51% of the company for a reported $2.1B. Like King, Supercell has also seen a leveling-out of its top-ranking games Clash of Clans and Hay Day. NEXON Revenue 2013: $1.5 billion !! Top games & MAU MapleStory: 12M+ Kart Rider: 4M+ ! Korean gaming giant Nexon has been in the industry since 1994 and was one of the earliest major publishers to the free-to-play arena. The company, now headquartered in Japan, has a huge portfolio of games, many of which still perform well despite long tenures. Nexon also runs a pre-paid game card service, Karma Koin, and has made substantial investments in other gaming companies. NCSOFT Revenue 2013: $714 million !! Top games & MAU Guild Wars 2: 3M+ Aion: 1M+ ! NCSOFT was established in 1997 in Korea, and a year later launched its still-active MMO Lineage. The company has seen success in both its free-to-play and subscription-based titles, but recently transitioned some subscription games (Aion) to hybrid free-to-play models. In 2012, Nexon acquired a 14.7% stake in the company. Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com

12. TOP 10 MMOs by Worldwide Revenue for 2014 YTD Rank Title Publisher/ Developer Revenues (millions, YTD) Worldwide Marketshare Rank for same period in 2013 1 League of Legends Tencent/Riot Games $946 11.9% 4 p 2 Crossfire SmileGate/Neowiz $897 11.2% 2 pq 3 Dungeon Fighter Online Nexon $891 11.2% 1 q 4 World of Warcraft Activision/Blizzard $728 9.1% 3 q 5 World of Tanks Wargaming $369 4.6% 5 pq 6 Maplestory Nexon $240 3.0% 6 pq 7 Lineage I NCSoft $178 2.2% 7 pq 8 Counter-Strike Online Valve/Nexon $148 1.9% 8 pq 9 DOTA 2 Valve $136 1.7% 20 p 10 Hearthstone: Heroes of Warcraft Activision/Blizzard $114 1.4% — Worldwide MMO Revenues $7,974 Notes: Revenues shown are for the period January to September, 2014. Ranking based on approximate share of the worldwide market, here defined as the combined revenues (“Worldwide MMO Market Revenues”) for both free-to-play MMOs and subscription-based MMOs categories. All revenue figures are based on the spending data we collect from developers, publishers and payment service providers active in the space, totaling 37 million unique paying gamers across digital platforms. We welcome both questions and comments: www.superdataresearch.com Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com

14. SuperData | Digital games market intelligence Mobile games revenues breach $21 billion Asia’s booming mobile growth pushes worldwide revenues up by almost 20%. Worldwide mobile gaming revenue $17.7B Rest of world Europe North America Asia $21.1B $25.3B $28.2B 2013 2014E 2015E 2016E Worldwide mobile gaming revenues hit $21.1B in 2014E, seeing a 19% increase year-over-year. Asia accounts for over half of the worldwide mobile market. Despite growing revenue and audience figures, mobile still presents challenges to many publishers. As larger publishers conglomerate maintain their control on the top grossing apps, marketing dollars and branding remain major hurdles for small developers. U.S. iOS cost-per-install vs. average revenue per use, indexed* 200 160 120 80 J F M A M J J A S O N D J F M A M J J 2013 2014 Growing marketing budgets drive up acquisition costs. Large publisher spending drives up industry-wide marketing expense, raising barriers for smaller studios, possibly stifling innovation. *Index compares a metric to a particular base month, specifically January 2013, represented by the value 100. Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com

15. SuperData | Digital games market intelligence Devs strategize to compete in maturing mobile market Either by becoming a premium work-for-hire shop, or pursuing their own IP. REVENUE AUDIENCE Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com

18. SuperData | Digital games market intelligence Social gaming still grows, exceeding $8B in 2014E Despite high spending, N. America shows decline as China and LatAm continue to emerge. Emerging social gaming markets China: China is showing tremendous growth in social games as localized sites like Qzone and Sina Weibo continue to increase user engagement. While revenue and audience in Asia’s largest gaming market has jumped since 2013, player preferences are uniquely different from those in the west. A deep understanding of the country’s gaming culture continues to be key in order to drive discoverability and success in this saturating space. Latin America: Brazil, one of the social networking capitals of the world, successfully migrated users from the once dominant Orkut to Facebook, which currently boasts almost 80 million Brazilian users. Along with the rest of Latin America, Brazil has seen social gaming audiences increase substantially in the past few years, although growth is beginning to stagnate. However, social gamers throughout the region are getting increasingly comfortable spending, with the average revenue per paying social user rising above $20 in Mexico, Chile and Argentina, and revenue growing by more than a quarter in 2014. Other Latin America High social spending in North America makes up for Percent change, 2013 vs. 2014E its small share of players. Average spending in North America is higher than any other region at more than $40. Thus, North America is estimated to rake in a quarter of global social revenue by year’s end with only 15% of the world’s monthly active users. While Western Europe boasts spending close to $40, social spending in Eastern Europe comes in under $20, keeping the continent from outpacing North America despite its large player base. 7% 5% -2% -2% 14% 26% 9% 22% 21% *Social gaming audience is measured in average monthly active users. REVENUE AUDIENCE Asia North America Europe Latin America 5% 13% 22% 27% 33% 7% 17% 22% 14% 40% Worldwide social games market, 2014E $8.7B 1.4B REVENUE AUDIENCE* Asia N. America Europe Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com 21

19. SuperData | Digital games market intelligence Free-to-Play MMOs continue to triumph P2P MMOs see sustained declines in revenue and audience in the face of F2P’s growth. Worldwide MMO revenue, free-to-play vs. subscription-based CAGR* 2011 2012 2013 2014E Free-to-play MMO revenue shows 15% CAGR while subscription-based revenue continues to decline. World of Warcraft stands as one of the only sustaining pay-to-play MMOs and, even then, the once triumphant MMO makes less than half of what it did 3 years ago. Meanwhile, more free-to-play MMO gamers are becoming spenders as conversion rises annually and spending has almost doubled since 2011. Free-to-play micro-spending and audience figures dwarf that of pay-to-play. Subscription-based MMOs earn just under 30% of their revenues from additional content sales, unlike free-to-play which sees all of its revenue from these transactions. Thus, pay-to-play MMOs still rely heavily on the dying subscription model and are bleeding players to leading free-to-play games like League of Legends, Crossfire. $8.0B 11:1 Worldwide MMO revenue, 2014E Microrevenue ratio, 2014E Worldwide MMO audience (MAU), 2014E $2.5B *CAGR (compounded annual growth) for period 2011-2014E +15.3% - 5.4% 23 million 370 million Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com 22

20. SuperData | Digital games market intelligence Subscription MMOs recover with content expansion P2P MMOs see sustained declines in revenue and audience in the face of F2P’s growth. Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com

21. SuperData | Digital games market intelligence Digital PC revenue pushes past $6B in 2014E N. America accounts for almost half of revenues and is expected to grow through 2017. 2013 2014E 2015E 2016E 2017E $8.9 $8.0 Worldwide digital PC market size ($ bil) $7.1 $6.1 $5.2 0 2.25 4.5 6.75 9 $50 $25 Full game Additional content *Digital PC is calculated by combining full-game download revenue with additional content revenue. Digital PC revenue market share, 2014E 2% 5% 7% 39% 47% Average revenue per paying digital PC player in the U.S., 2014 $0 J F M A M J J A S O N D Digital PC revenue is expected to reach 11% compound annual growth by 2017 thanks to North America and Europe. Nearly 90% of digital PC revenues come from North America and Europe, and this trend will continue for the next few years. Thus, digital PC growth largely hinges on audience and spending increases in those two markets. Piracy, payment security concerns and stifling government regulations continue to stunt growth in smaller markets like Asia, Latin America and Eastern Europe. Wroervlednwuied e $6.1B • North America • Europe • Other • Latin America • Asia North American spending on additional content is forecasted to reach $36 during the holidays. The North American PC market shows a unique potential for downloadable content since it is the only region where DLC spending rivals and will surpass average full-game spending. Digital marketplaces like Steam makes purchasing digital PC content increasingly easier and secure. A large impetus for increasing digital sales of games and additional content in the U.S. is the growth of the digital gaming marketplace. Steam sales, for instance, are a major indicator for increased online PC revenue in the west. Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com 24

22. SuperData | Digital games market intelligence Digital console sees increases across the board The current console generation’s focus on digital boosts revenue 26% year-over-year. 27 North America and Europe account for almost 80% of digital console revenue in 2014E. North American and European spending makes up for the fact their player bases add up to less than half of digital console players, pushing their combined revenue to just under $2B. Digitally-focused next generation consoles help grow digital console revenue and player base. The importance PlayStation 4 and Xbox One have placed on digital, as well as the increased incorporation of downloadable content (DLC) into console games, have helped boost revenue year-over-year by 26% and audience by 9%. Average revenue per paying user Conversion rate 3.5% 3.8% $16.84 $16.26 Worldwide digital console market Audience Revenue 2014E 2013 Audience Revenue 196MM $1.9B 214MM The percentage of digital console players who purchase additional content has increased by almost 9% year-over-year. More players are swayed toward DLC and microtransactions as they become more commonplace in console games. Almost a year after the release of the PS4 and Xbox One, digital console spending goes up by more than 50 cents. Games like Grand Theft Auto Online paved the way for mobile-like in-game purchases, helping to increase spending by almost 4% since last year. Q3 2013 Q3 2014 Q3 2013 Q3 2014 *Revenue includes full-game downloads, additional downloadable content and microtransactions. Audience is measured as monthly unique users. $2.4B Additional Content Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com

24. SuperData | Digital games market intelligence eSports viewership grows 65% in 2014E As eSports attracts more viewers, total prize money shows 32% CAGR over four years. viewers 2014E 2014E $32 million prize money As more people watch eSports, the stakes get higher 118 million Largest prize pools in 2014 The International 2014: Dota2 $10,931,103 League of Legends Season 4 World Championship $2,130,000 Call of Duty Championship 2014 (Call of Duty: Ghosts) $1,000,000 2011 2012 2013 2014E Commercial brands take notice as eSports sell out stadiums. League of Legends Season 3 World Championships sold out the Staples Center in L.A. in an hour and the ESL One Dota 2 Tournament will be coming to New York’s Madison Square Garden. Large commercial brands are showing increasing interest in eSports while brands like Coca-Cola, RedBull and American Express already sponsor teams and events. Gaming and media companies continue to put forth effort to grow awareness of the space. Riot agreed to increase its support and prize money contributions for League of Legends tournaments, and Major League Gaming and ESPN recently partnered-up to feature Call of Duty: Ghosts in the 2014 XGames. Amazon acquires Twitch for close to $1B, showing the increasing viability of streaming in eSports. Game-streaming service Twitch, the site with the fourth-highest traffic on the internet, currently boasts 55 million monthly viewers and 1 million broadcasters. Amazon, the world’s largest e-tailer, vouched for the massive potential of eSports and streaming by acquiring Twitch for $970 million. Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com 30

25. Oculus revitalizes the promise of virtual reality The Oculus-powered Samsung Gear will be the first commercially viable VR device. June 2014 - Google Cardboard instructions are published. Paired with the Android app, the DIY device creates a VR experience for under $20. Summer 2015 - Projected launch of consumer beta of the Oculus Rift. SuperData | Digital games market intelligence The first commercially viable device, Samsung Gear VR, will be launched as early as October 2014, with others set to follow in 2015. The first attempts at VR devices were in 1980’s and found limited commercial success. However, technical innovations by Oculus VR in 2012 led to renewed interest not only for the gaming industry but other sectors like television and education. Oculus VR ignited the market after crowdsourcing $2.4 million on Kickstarter. The company has since sold roughly 120,000 development kits for its Oculus Rift device and was acquired by Facebook for $2 billion. Virtual reality timeline March 2013 - First Oculus Rift developer kits are shipped. March 2014 - Sony announces Project Morpheus, a VR device designed for the PS4. September 2014 - Samsung Gear VR is unveiled. The device works with the Galaxy Note 4 and will have a library of “original programing”. March 2014 - Oculus VR is acquired by Facebook for $2 billion. Copyright © 2014 SuperData Research. All rights reserved. | www.superdataresearch.com 32

26. “It is an anti-social technology, but we will support it to the extent it’s brought to market and it works for our games.” -- Strauss Zelnick, CEO Take-Two Interactive “VR would need to sell at least 1 million units to be viable for development.” -- Ubisoft VP of Creative, Lionel Raynaud We’ll pay for it!

27. Highlights ★ Digital games market continues to grow, forecast to reach $56B by 2017E ★ Traditional publishers adapting to new markets ★ Digital-only publishers exploit market vacuum ★ Shift in gamer demographic starting to shift market ★ Content always king, business model innovation is key competitive advantage: marketing, distribution, licenses

28. Thanks! ! joost@superdataresearch.com ! @_SuperData @joosterizer

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