Video Game Industry

History

Some Numbers...

• 65% of US households play

• 80K employees directly, 250K in US

• 9 games per second

• Average player age is 35, 40% female, 60% male

• 778 titles released in 2009

• 2009=$19.6B in US ($10.5B H, $9.1B S)

• $18.5B in 2010; $76B by 2013

Compared to other Industries

• Recorded music= $17B global

• Movie ticket sales= $29.9 B global

• Book sales= $35.9 B in US

• Newspapers ad revenues= $37.85B in US

• Magazine ad revenues= $19.45B in US

• Cable Revenue= $89.9B in US

• Global video game market= $46.5B-$55B

Digital Games

• Console

• Handheld

• Computer

• Arcade

Arcade?

The Big 3

• Xbox:

– 24.3%, $58B (17% of Microsoft)

• Nintendo:

– 1889, 47.4%, $18.9B

• Playstation:

– 28.8%, $10.7B/$79 B

The Big Three Are???

• Horizontally Integrated???

• Vertically Integrated???

• Diversified???

• Synergism???

• Market IS???

Hardware

• Online Play

• More than just a game player

• Accessories/Peripheral market

• “Loss Leaders”...not Nintendo!

• Play exclusive/3rd party games

• Planned obselesence, 5-10yrs

• New hardware sales=Software demands

• Royalty Structure....

Development

• $10M for one platform, $18-28 for multiple

• Get advance, 2-3 years, 20% avg. of sales profits

• First Party: internal teams

• Second Party: publisher's concept/license/contract

• Third Party: develop and sell. Hired by publishers on contract basis. Advance/Royalty system.

• Publisher's and creative control/Franchising

• Consolidation to compete w/ Big 3 or Big 5

• Gamers As developers

Publishing

• Marketing/Promotion/Sales

• Main Investors in game/Retain IP

• Franchising/Branding... “Hit Driven”

• Product Placement or IGA...$1B, Demo???

• Licensing content

• Publishing license to console manufacturer ($5-8 per game manufactured)

• Distro= store, ship, and sales

Publishing

• Nintendo

• Activision Blizzard/ Vivendi Games $5B

• EA $4.2B

• Ubisoft $1.4B

• Take-Two Interactive $968M

• Sony #6, Microsoft #10, MTV Games #14, WB #16, Disney #17, LucasArts #20

Synergism

• Cross-industry licensing

• Super Mario

• Tomb Raider

• Harry Potter/LOR

• Star Wars/Indiana Jones Legos

• Reproduction?

• DJ Hero

Retail

• “Real Estate”

• Antagonism with Publishers/Distro

• Gamestop 21% of market, Wal-Mart, Best Buy, EB Games, Game Crazy

• $2.5B used market, most profit$

• Holiday season=50% of sales

• MDF (Marketing Development Funds)

$60 Game Cost Breakdown

• $15 to retail

• $7 to returns, “price protection” and MDF

• $4 to distro as shipping and COG

• $7 to platform royalty fee

• $27 to publisher, 10-70% paid to 3rd party developer against advance

• Every game sold $12 is lost to piracy or used games (Pub/Devel hate used games!!!)

• In-house/Vertical integration???

Intellectual Property

• Piracy: $3.5B on hard goods

– 2007, $945M Nintendo

• Royalty System

• Open Source Games/ Self Publishing

• Mergers and “Acquisitions”

• Licensing

• Essentially videogames are ALL IP!

Market

• -8% in 2009 in 3 largest markets

• “Family Entertainment” genre #1

• Console= 60%

• PC= 16%

• Mobile= 4%

• Portable= 11%

• Online Subscription= 8%

• “The ESA offers a range of services to interactive entertainment software publishers including a global anti-piracy program, business and consumer research, government relations and intellectual property protection efforts. The ESA also owns and operates the E3 Expo.”