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State of the Game Industry 2008
1. 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
2. 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
3. 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
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4. 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
5. 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
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6. 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
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7. 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
8. 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
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9. 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
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10. 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
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11. 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
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12. 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
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13. 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
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14. 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
15. 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.
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16. 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%
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17. 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
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18. 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
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19. 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
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20. For More Information:
Wanda Meloni
President
DFC Intelligence
wmeloni@dfcint.com
(858) 780-9680
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