An overview of the transition from 2011 to 2012 for the Video Games market. Exploring the increasing importance of social gaming, virtual goods, digital distribution and decline in traditional games retail. Created by Philip Driver
2011 Transition to 2012 for the Video Games MarketPhilip Driver
2011 – What happened • Everyone got hacked, especially Sony • Sega, Codemasters, Square Enix, and Steam were all hacked, but the attack on the PlayStation Network, took the service offline for nearly six weeks and grievously damaged their reputation. • Nintendo slashes profit forecast, 3DS bombs • After first-quarter financial the company slashed its profit forecast by 82 per cent, sending its stock into free-fall. This was followed by the 3DS price-cut - a massive 40 per cent reduction just four months after launch. • EA goes after digital…big time. • $750 million paid for PopCap - can be seen as evidence of a price bubble in the social gaming space (Zynga, achieved an IPO worth $1 billion). Steam Hack Update • EA targets $40m in digital revenues. 13/02/12: Steam released a statement that hackers may have obtained a copy of a file containing payment transaction details dated 2004-2008. This backup file contained user names, email2011 In Review: Console & PC: GamesIndustry.biz addresses, encrypted billing addresses and encrypted credit card information.
Recession? What recession? 2011 Public Video Games Numbers • Total value of all public game companies • $111.2 billion. • $39.7 billion PC and console (not including Nintendo) • $37.6 billion from online • $17.3 billion from Nintendo • $11.8 billion from mobile • In June 2011, the global video game market was valued at US$65 billion • Oh yeah , that recession…. • GAME Group agrees new financing terms, predicts £18m loss for year. Overseas business up for sale. • HMV renegotiates with banks to secure future. • THQ report losses of $56 million. • Sony Consumer Products report $1.099bn Q3 loss, projected $2.9 billion for 2011.Avista Partners Report 2011
2011 UK Video Games Chart •ELECTRONIC ARTS was the only publisher to have two games that sold over 1m units with its FPS Battlefield 3 (No.3) selling 1.3m copies since its October launch. As a result, EA was comfortably the biggest publisher of 2011, and in total had 20 games in the Top 100. The UK 2011 Video Game Charts: MCV Magazine
Numbers, numbers, numbers (UK)> Activations Modern Warfare 3 sold over 3.1m units > Black Ops Sols 3.26m the year before.> However….Adele sold 3.7 million albums > Music still a major player even if industry in turmoil.> FIFA 12 meanwhile shifted 2.44m games, 50,000 more copies than FIFA 11.> Q4 Focus> Eight of the 2011 Top Ten were released during the final three months of the year.> 51 per cent of the UK trade’s annual revenue was generated during this period.> The only two games not to have been released during Q4 and still break the Top Ten were Zumba and ROCKSTAR’s L.A. Noire, which is also the highest charting new IP. The game was released in May. The UK 2011 Video Game Charts: MCV Magazine
UK Market• 3rd year of consecutive drops• No new consoles or significant industry upheaval. •The overall UK video game market was worth £2.52bn in 2011 (UKIE figures) •A year-on-year drop of 13 per cent from £2.88bn in 2010 and a third year of decline. •In 2009 the UK market was worth £3.31bn and in 2008 it reached a record value of £4.034bn. •However these figures are just for physical goods! The UK (and US) has no digital charts. The UK 2011 Video Game Charts: MCV Magazine
• Origin now a major force in games • Steam Sales Double [Again] in 2011 retail. • Year-over-year unit sales increased by• Origin has over 9.3 million registered more than 100% for the seventh straight year. users. Since its June 2011 launch it has generated over $100 million in • Catalog of over 1,800 games. revenue. • Over 40 million accounts.• Star Wars is the fastest-growing • During the 2011 Holiday Sale Steams subscription MMO ever, has sold simultaneous user number eclipsed the 5 over two million copies, and has over million players mark. 1.7 million active subscribers. • Steam do not release financial results however Forbes estimates:• 40% of all Star Wars: The Old Republic sales made through Origin. • Valve still employs only 250 staff, and “per employee” is allegedly more• Origin is now a retailer for other profitable than Apple or Google. publishers such as: Warner Bros, • Estimate worth of $2-$4 billion. THQ, Capcom, Trion, CD Projekt and Robot Entertainment. • Of the $4 billion US PC market, Steam is said to hold a “50 to 70 percent” market share.
EA Digital Business • In 2011 EA as a whole sold $1 billion of digital goods across Origin, mobiles, consoles and social networks. • EA Digital business has grown by about 40 per cent year-on-year. • EA digital revenue now a third of boxed sales. • EA was the number one game publisher in the Apple App Store in December • PopCap -- which joined EA in August 2011 has grown revenue by 30 percent on a trailing-twelve-month basis • Mobile revenues were $70 million, up 19%EA Press Release
Social Games, Mobile & Apps – Money Talks• Zynga generated $445m for Facebook in 2011• Zynga accounted for 12 per cent of the $3.7bn revenues facebook took in 2011.• This news pushed Zynga’s value up to $1.3 billion.• Capcom’s mobile revenues increased 68% to $52.6 million in the last quarter 2011• Gameloft revenue from smartphones and tablets climbed 64 percent year-over-year to $25.4 million in Q4 • 41% of the Paris-based company’s 47 million euros ($62 million) in quarterly revenue. • Gameloft’s 2011 sales came in at 164.4 million euros ($217 million), up 17 percent from a year earlier.• According to Popcap – 71% more people play social games today compared to 2010 – 120m players in total• 26% of social gamers used real-life money to purchase in game goods, compared to 14% last year. An 86% increase and a total of 31m people.
Virtual Goods Market • Virtual goods are non-physical objects purchased for use in online communities or online games. Virtual goods have no intrinsic value and are intangible by definition. Wikipedia definition • However….. The Dutch Supreme recently upheld the theft conviction of a youth who stole another boy’s possessions in the popular online fantasy game RuneScape. Judges ordered the offender to perform 144 hours of community service. This suggests that legally the items are property and tangible. • The US virtual goods market is forecast to hit $2.9 billion in 2012 with the global market estimated at anywhere between $6 and $16 billion. • In 2010 a virtual space station in the game Entropia Universe sold for $335,000. • Free to play is the most rapidly growing sector of video games • Top Facebook and free-to-play games convert approx. 3-10% of players to paying customers. Facebook gamers spend an average of about $29 monthly, free-to-play gamers about $21 monthly. • Incidental and occasional gamers on new console games spend $24 to $27 on average. • Issues around the ownership of virtual items are likely to become a future litigious issue.Spend data from Parks Associates “Trends in Digital Gaming: Free-to-Play, Social,and Mobile Games” Report.
Payment methods for virtual goodsSample of 2,221 PlaySpan Marketplace, Facebook via Spare Change, and UltimateGame Card gamers
Digital Future? • 67% of the UK games development sector is working either exclusively or in part on network gaming – mobile, massively multiplayer, social and online gaming. • Only 33% of UK game companies work exclusively on retail games. • 71% work on both network gaming and retail. Just 19 per cent of these new UK games development businesses work exclusively on retail gaming. • Network gaming is projected to grow at 21 per cent every year between 2009 and 2015 (versus retail gaming which is falling by over 3 per cent per year over the same period). • Network gaming grew in 2010 to represent 44 per cent of the global video games software market. • 80 per cent of new start-ups between 2010 and 2011 are independent developers. • "TIGA’s new research shows that in the UK digital distribution is in the ascent and retail is in sharp decline.”TIGA 2012 Report - The trade association representing the UK’s games industry
• Kickstarter.com is an online threshold pledge system for funding creative projects, also known as “Crowdsourcing”.• Kickstarter have had over $125 million dollars pledged and more than 15,000 successfully funded projects since 2008.• Double Fine wanted to make a modern day point and click adventure game, a genre long considered dead. Knowing that no investors would ever risk money on this kind of venture they decided to try to raise the money independently• They originally requested $400K, which they raised in 24hrs.• Double Fine Adventure’s Kickstarter project has raised more than $1.6 million on Kickstarter and it shows no signs of slowing down.
But what does it all mean?• Standard Video Games retail is in full decline.• Publishers are now looking for new revenue opportunities away from the traditional model, mobile, massively multiplayer, social, online gaming, cloud gaming and digital distribution.• Social and mobile gaming continues to rapidly expand, possibly creating an unstable bubble.• You will have more ways to play and pay for games: PC & Console but also phones, tablets and smart TV,s.• Predictions: • Mainstream publishers will look to solidify and expand their digital operation at the expense of standard retail. Many will not survive the transition. • We will see an explosion of independent developers looking to go direct to consumer and take ownership of their own sales. • Origin will begin to directly compete and take market share from Steam. • Several large video games/media high street retailers will go bust or be bought.
Game OverAbout the Author: Philip Driver is a digital distribution, online retail and marketing expert specialising in the field ofvideo games.A video games industry veteran of nearly ten years he lives in the UK and finds that having children really gets in theway of playing Skyrim.You can follow him on Twitter http://twitter.com/PobiWan