The Bu$iness of Games LATAM Sept_2011

The Bu$iness of Games September 23, 2011 – Mexico City

Justin Berenbaum Theseus Games, Inc.

Agenda A Perfect Storm

◦ The Effects

Retail by the Numbers

◦ The Retail Model(s)

◦ Where We Were

◦ Where We Are

◦ Where We’re Going

The Social Market

Mobile

Trends

Conclusion

◦ Take-A-Ways

◦ Fortune-Telling

Questions 2 Theseus Games, Inc.

A PERFECT STORM

Theseus Games, Inc. 3

A Perfect Storm – 2009 to 2011

• U.S. economy in recession spilling over into the world economy

• Beginning of a steady and long decline in retail software sales

• Dramatic rise and adoption of iPhone and then Android (mobile apps)

• Meteoric rise of Facebook

4 Theseus Games, Inc.

The Effects

• Apple convinced people content (apps) should be “free”

• Facebook / Zynga – Virtual goods through micro-transactions

• Free to play MMO’s and Virtual Worlds


The Effects

• Dramatic rise in the adoption of digital distribution

• The big word “CLOUD”

• Going from Product model to “Service” model


RETAIL BY THE NUMBERS


Traditional Retail Model


Wholesale (Gross Revenue to Publisher)

$48.00

Cost of Goods (Includes 1st Party Royalty)

-$8.00

Variable Sales & Marketing (Commissions, MDF’s, etc.)

-$9.00

Gross Profit Per Unit $31.00

Licensor Royalties - (if any)

Developer Royalties - 20% of Gross

Profit

Model seems OK, assuming you can move most of your units at full MSRP

Retail Price = $60.00

Used Game Retail Model


Used Price $55.00

Maximum Trade-In Value -$30.00

Revenue to Publisher -$0.00

Gross Profit Per Unit to GameStop $25.00

Good for Consumers – Maybe Good for Publishers – Doubtful

Good for Developers – Yeah right!

The Rise and Fall of Retail


$5.1 $6.3 $6.9 $6.6

$9.4 $10.3 $10.0 $9.9 $10.5

$12.5

$18.0

$21.4 $19.7

$18.6

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

U.S. Videogame Industry Revenue (in Billions) Retail Only, Subscriptions and Digital Distribution Excluded

Source: NPD?

Platform Breakdown


6%

10%

9%

43%

6%

11%

15%

Total U.S. Games Spend (in Billions): 2010 $24.7 (-2% vs 2009)

Consoles: $10.6 (-29% vs ‘09)

PC/Mac (boxed): $2.1 (-19% vs ‘09)

PC/Mac (download): $2.5 (+60% vs ‘09)

Mobile Devices: $1.6 (+46% vs ‘09)

MMOs: $2.7 (+27% vs ‘09)

Casual game portals: $3.7 (+34% vs ‘09)

Social networks: $1.5 (+66% vs ‘09)

Source: Newzoo, 2010

Traditional Platform Trends


Console 2008 2009 2010 2011–YTD*

4,365,219 4,738,151 5,910,598 5,471,806

12,154,986 8.912,394 8,320,295 5,536,184

5,363,229 5,288,667 7,220,353 6,513,403

14,765,991 15,065,468 10,596,169 5,644,388

7.802,298 5,698,096 5,149,101 4,098,014

Total 44,451,723 39,702,776 37,196,516 27,263,795

Worldwide Hardware

Source: VGChartz – *Through September 18, 2011

The Not So Pretty Picture


10%

27%

12% 33%

18% 20%

20%

24%

21%

15%

2008 2011

Worldwide Hardware Market Share

Source: VGChartz

Retail Down but Not Out

14 Theseus Games, Inc. Source: DFC Intelligence & Gamasutra

$19.3

$29.9

$37.9

$29.7

$27.0 $24.6

$17.5

$20.0 $18.5

2010 2013 2016

Hardware Games Sales

Retail Games Spend

Digital Games Revenue

$66.5

$76.9 $81.0

Worldwide Game Revenue (in Billions)

THE SOCIAL MARKET


The Social Epidemic

Source: http://www.pamorama.net/2011/01/30/65-terrific-social-media-infographics/ 16 Theseus Games, Inc.

The Rise of Facebook – December 2009

Global Domination

Source: http://www.pamorama.net/2011/01/30/65-terrific-social-media-infographics/ 17 Theseus Games, Inc.

Unstoppable Force


Audience Growth on Facebook Position Country July 2011

(millions of users)

12-Month Growth

ALL 712.4 33.5%

1 United States 151.4 16.8%

2 Indonesia 38.9 33.3%

3 United Kingdom 29.9 11.2%

4 Turkey 29.5 64.2%

5 India 29.5 23.4%

6 Mexico 26.8 51.5%

7 Philippines 25.3 42.3%

8 France 22.7 16.6%

9 Italy 21.2 77.6%

10 Brazil 19.8 16.0%

11 Germany 19.5 48.9%

12 Canada 16.6 6.6%

13 Argentina 15.6 33.2%

Source: http://gold.insidernetwork.com/facebook

Position Country July 2011 (millions of users)

12-Month Growth

14 Colombia 14.6 30.1%

15 Spain 14.4 26.4%

16 Malaysia 11.2 34.8%

17 Australia 10.6 60.3%

18 Thailand 10.4 13.5%

19 Taiwan 9.9 32.1%

20 Venezuela 9.1 26.4%

21 Chile 8.5 18.6%

22 Egypt 7.9 54.4%

23 Poland 6.4 56.4%

24 Peru 6.3 59.2%

25 Pakistan 4.8 59.6%

The Social Games Market

600M Active Facebook Users

Social Game Players 318M (53%) 258M

60M (19%) Addicted Players


Facebook Social Game Metrics

Source: Lightspeed Research – September 13, 2010

Extrapolates to: 712MM users, 377MM Social Game Players, 72MM addicted.

Behind the Numbers


Social Game User Characteristics

Have up to 10 friends playing the same social games as them

55%

Have invited their friends to join them

59%

Play on a mobile device 12%


A Marketer’s Dream


Have a Facebook account

75% 63%

Social gamers have responded to some kind of marketing activity to get game rewards

39%

Social games are “more likely” to buy products from a brand/company that has sponsored or advertised in a social game

26%

Social Game Metrics for Marketers


The Local Opportunity


MOBILE


The Mobile Landscape

Android OS 50%

Apple iOS 25%

RIM BlackBerry OS

15%

Microsoft Windows

Mobile / WP7 7%

Palm / Web OS 2% Symbian OS

1%


Smartphone Market Snapshot – Recent Acquirers

Source: The Nielsen Company, March 2011, Nielsen Mobile Insights, National

Mobile Market Shift

61%

35%

39%

65%

January 2011 June 2011

% Revenue from Freemium Games

% Revenue from Premium Games

25 Theseus Games, Inc. Sources: iTunes App Store, Flurry Analytics, Flurry Analysis

Revenue Generated U.S. App Store Top 100 Grossing Games

A Deeper Dive

22%

32% 29%

14%

3% 5%

16%

49%

28%

2%

13-17 18-24 25-34 35-54 55+

Relative Time Spent Playing Relative Money Spent

26 Theseus Games, Inc. Sources: iTunes App Store, Flurry Analytics, Flurry Analysis

Mobile Freemium Games

Age Group (in years)

TRENDS



ACQUISITION

The 800 Pound Gorilla

Applies to games on any platform. How do you attract customers?

Brand is Everything


Brand

Console

PC

Smartphone

Tablet

The Ecosystem

Gaming Key Trends

Customer Acquisition Costs (CAC) - Rising Game Development Costs (Including Mobile & Social)– Rising

“Viral Effect” (K or K-Factor) – Falling

The 80-20 rule has become 95-5 or more

Importance of Brand

Casual Core


A Rapidly Maturing Market Means

CONCLUSION


Take-A-Ways


Do small things really well / Don’t reinvent the wheel

Find Partners

Be relevant for your target market

Build a relationship with your customers

Take-A-Ways

33 Theseus Games, Inc. Not sure who to attribute this to, but it is very accurate

My Crystal Ball


Retail finding a way to be relevant

Android Market Place Economy evolving

Small innovations will drive big money

Call of Duty Outsells Battlefield - Brand Wins

QUESTIONS?


THANK YOU! – MUCHAS

GRACIAS!


Justin Berenbaum President Theseus Games, Inc. [email protected] Twitter: scslug

All research, trademarks and trade names are ™ and © their respective owners.

mailto:[email protected]

APPENDIX


Playing the Game


ACQUISITION

MONETIZATION

$ / User LTV > CAC

Non-Viral User Sources FB Ads, Offer Walls, Display Banners, Cross Promotion,

Fan Pages, Others

Refine Marketing / Create New

Opportunities

Viral User Sources Wall Posts, Streams, Invites, Email, Others

RETENTION

K

Revenue Sources Virtual Goods, Offers,

Advertising, Merchandise, etc.

Social Game Revenue Funnel

Social Definitions Customer Acquisition Cost (CAC): Total dollars spent

acquiring each new customer from all sources. Engagement / Customer Retention: How long someone

plays your game and how often they come back.

Monthly Average Users (MAU’s): The total number of unique users your game has on a month by month basis.

Daily Average Users (DAU’s): The total number of unique users your game has on a day by day basis (these users are the most likely to spend money on your game).


Social Definitions

Monetization ◦ ARPU – Average Revenue per User: Total revenue divided by your

total user base.

◦ ARPPU – Average Revenue Per Paying user: Total revenue divided by

the total number of users who paid for anything in your game.

“Viral Effect” (K or K-Factor): How much is your game

spread by users. A higher K factor can help reduce your

customer acquisition costs.

Life Time Value (LTV): Total value of a user over the lifetime

of that user. How much money did your customer spend

playing your game before they stopped.


Retail Display of Game Cards

Retail adoption has already occurred. They are seeking ways to derive revenue from the virtual space.


The Bu$iness of Games LATAM Sept_2011

Entertainment & Humor

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