Gaming Industry Overview

• The origin of video games- Lies in early cathode ray tube-based missile defense systems in the late 1940s

• Gradually video games diverged in to different platforms

Arcade• Post 1971• Golden age (78-86)

mainframe• Pre 1970• Less relevant now

consoles• Nolan Bushnell• Ralph Baer• 1977 onward

Personal Computer• Microprocessor• Convenience & cost

Handheld & Mobile• 2005 onward• Mobility,convenience

Gaming Industry Overview

Infrastructre and technologyHardware Software

• Infrastructure needed(Development platforms, computing power, Design elements, know how, Distribution channel or media etc)

Infrastructure & Technology

• Mobile devices(Smartphones, Tablets)• Consoles (Playstation, XBOX, OIYU)• PCs• Handheld( PS Vita, Nintendo DS)

Hardware

• Game themselves (From activision, Ubisoft, Rovio)Software

• Compound annual growth rate of 9% since last 25 years

• Valued at 65 Billion USD in 2011

• Characterized by growth, high degree of innovation and dynamics

• Trend towards technological convergence

• Industry is oligopolistic in nature

• Trend towards online and digital distribution of games

Top 3 nations by sales volume

Gaming Industry Overview

Country Sales (USD) Per capita revenue(USD)

Canada 1,724,000,000 56.1

USA 14,348,000,000 52.1

UK 2,684,000,000 44.6

CLOUD GAMING• In the near future nearly 65 percent of new products from established software firms will be

delivered as SaaS services, and nearly 85 percent of new software firms entering the market will be built around SaaS service composition and delivery

• Cloud services have already exceeded a market volume of 50 billionUSD and are growing annually by 20 – 25 percent - Gartner

• Cloud Gaming provides interactive gaming platforms and games-on-demand services

• Cloud Gaming companies licenses game content (PC or console games) from the firms that have rights to the games, such as game publishers or game developers

• These licensed games are converted to a gaming platform(operated by a network operator) and delivered to the players’ set-top boxes or PCs through the internet

• The processing of the game is dealt with on the server side, and sent to the players (end-users) through video streaming technology

• Users can play a game without downloading and installing it onto a device

Value Network of Cloud Gaming Companies - 2005

1. Game Licensors (Publishers, Game Develpoers)– Benefits for Game Licensors1. The game content was streamed to end users, the end-users did not get the game code2. Delivering the game content virtually also made second-hand markets impossible3. In Cloud Gaming service, older games can be available at a lower price (corresponding to second-hand markets)4. In virtual store, shelf space costs nothing

2. Value Adding Mediators1. video-on-demand service providers2. set-top box manufacturers3. middleware software providers

3. Network Operators1. Gaming platform and game content provided to the network operators who had the infrastructure (a pre-

existing customer base, computer centers, broadband capacity, etc) that was needed to deliver games-on-demand service to the end-users

4. Portals1. Provides access (a website) for the end-users within games-on-demand service, enabling users to log in and

select games of their choice

5. End Users1. Actual game is executed on an operator’s server, all that is needed from a client computer is the ability to

decompress a MPEG stream2. Service is independent of operating systems

2010• Change in target group (end-users) from PC and Internet Protocol Television (IPTV) users (in

2005) to solely IPTV users (in 2010) . This as the consequence of increasing competition in the computer game markets, where simpler games have increasingly become free for the end-user.

• Heavy’ players, those who play more complex games, tend to buy games from a store, and they are willing to invest in game consoles and other equipment

2010• G-cluster started to focus solely on the IPTV market, in which it is possible for end-

users to play games through a television connected to a broadband network• G-cluster developed its product further, offered a ready-made product for the network

operators. This product included components that had previously been provided by value-adding mediators or by network portals, such as an invoicing system and a user interface (menu) that enabled users to select the games from its virtual games store. By including these components within the product, the network operators became less dependent on third parties

• Over a period of five years, G-cluster had come to know the network operators better, and thus it could more readily make direct contact with them

• The change in the target customers, from PC users to IPTV users, and the individualized menu, made it possible to remove portals from the value network

• G-cluster started to cooperate with a large well-known server manufacturer. This provided mutual benefit value to both firms

• Increased G-cluster’s marketing and sale resources, due to the fact that the server provider already knew network operators around the world, and was conducting business with them

• G-cluster’s technology within its servers, the server manufacturer gets added value, and this is something it can use when selling its servers to network operators.

• The change in the target customers, from PC users to IPTV users, and the individualized menu, made it possible to remove portals from the value network

• G-cluster started to cooperate with a large well-known server manufacturer. This provided mutual benefit value to both firms

• Increased G-cluster’smarketing and sale resources, due to the fact that the server provider already knew network operators around the world, and was conducting business with them

• By including G-cluster’s technology within its servers, the server manufacturer gets added value, and this is something it can use when selling its servers to network operators

Changes since 2005:-

• Entertainment Software Association (ESA) has released a new report, conducted by Economists Incorporated, called Video Games in the 21st Century, which found that the computer and video game industry contributed $5 billion to the U.S. economy last year

• ESA also found that the entertainment software industry's real annual growth rate from 2005 to 2009 exceeded 10 percent, which is actually more than seven times the growth rate of the U.S. economy as a whole

• The computer and video game industry directly employs more than 32,000 individuals, a number that has increased by nearly 9% annually since 2005

• The six states with the greatest number of entertainment software industry employees were, in order, California, Texas, Washington, New York, Massachusetts and Illinois

http://www.businessinsider.com/video-game-industry-added-5-billion-to-us-economy-in-2009-2010-8#ixzz2sCGuvOdE

• Introduction• Barriers and Drivers• Business Model• Impact of Online Gaming in China

Chinese Gaming Industry

• Online games have become a dominant pastime and entertainment in China

• Chinese gamers more inclined towards online games than console, PC, handheld games

• Massively Multiplayer Online Role Playing Games (MMORPGs)

• Online gaming moving towards mobile and IPTV models

• In game currency forms an important part of the gaming arena

Introduction

• Barriers (before 2001)– PC/Console based game dominance– High Piracy Rate– Government Regulations

• Drivers– Demand condition and Cost– Industry Structure– Export Conditions

Barriers and Drivers

• Demand Condition and Cost– Approx. 70% of China’s Internet users below 30– Online games much cheaper than console/PC based– Widespread broadband access– Inclination towards domestic games

• Industry Structure– Government support to local online gaming industry– More than 150 online game operators – Wide distributing and marketing network– Gaming giants entering the market

Drivers

• Export Conditions– China is world’s biggest exporter of ICT products– Licensing games to foreign companies– Huge Chinese population overseas

Contd..

• Online gaming time on prepaid cards• Subscription based online account led to

reduction in piracy• Purchase of prepaid cards from merchants• Dynamic pricing and selling add ons

Business Model

• Political– Facilitated the expression of nationalism – Collaboration of CCYL (China communist youth leagues) with

gaming companies– Use of online games to fight corruption Eg. Incorruptible

Warrior• Economic / Business

– Prospective medium for advertisements• Simulated experience by automobile companies

– Growth of related networks Eg. IPTV– Rise in Exports

Impact of Online Gaming in China

• Social– Negative impact on health, education, and

productivity– Risk of cybercrimes due to more exposure

Contd..

Japan gaming cluster

• birth of the gaming industry can be traced back to the 1970’s

Cluster Map for console gaming

Characteristics of console gaming cluster map

• The console manufacturers acted as the center of gravity for this industry and the related constituents have been built around this centerpiece.

• The existence of the electronics cluster contributed to the technological strengths of the console manufacturers.

• Game studios became partner to console manufacturers.• The console gaming cluster has strong ties with other

content related industries such as animations, comics, and character toys .

• Minimal, if at all, participation of the government. • The Console manufacturers drove the cluster and built the

platform for the industry to advance.

Analysis for console gaming

Social Gaming

• It combines elements of social networks – such as the ability to interact with friends – with casual games that are simple and easy to play for everyone

Social gaming cluster map

Characteristics and how it is different from console gaming cluster map

• At the center of the social gaming cluster in Japan are the social gaming platform providers. The two dominant social gaming platform providers in Japan are GREE and DeNA .

• GREE and DeNA are focused exclusively on providing social games on mobile phones.

• Development cost for a social game is much lower than that of a console game, entry barrier in the market is lower.

• There are strong network effects with social gaming platforms – Direct network effect– Indirect network effect

• Usually free to play, and are monetized through in-game purchases and advertising.

• Absence of electronics cluster in social gaming cluster map.• Absence of distributers and retailers.• Venture capital as financing source.

Recommendations for the Japanese Gaming Industry

• Look for acquisitions and international expansion opportunities.

• Make more and more people know about japanese culture.

• Simplify stock option plans in order to attract venture capitals.

• Strengthen the regulating body.• “Social gamification” of console games.• Create a winning platform

Comparing China and JapanParameter China Japan

Barriers• Government Regulations• High piracy rate• Global business models does not work in China

• Slow adoption• Limited Funding• Aging Population

Drivers• Youth Population• Cheaper than console/PC based games• Government backing

• Specialized Training• Highly competitive market

Business Model

• Subscription based Prepaid Cards• Sale of add ons and ads

• In game ads• Virtual Merchandise

Impact • Inculcating Nationalism• Growth of the ecosystem

• High level of Innovation• Global Recognition

Video Game Industry

• Fastest growing and most exciting category of mass media

• High degree of innovation and dynamics• Annual growth rate of 9-15%• Revenue - $67 bn for console, H/W, S/W

$14.8 bn for virtual goods

Value Chain

• Home Consoles – Xbox, PS, Wii• Portable Systems – Nintendo DS, PS portable• Smartphones with OS as Android, iOS

Game Platforms

• Highly heterogenous• Experience and Technical Quality major factors• Interaction with H/W platforms

Content

• Who – Age groups developed from children to teenager to young men/women now

• Why – Motivational – Fantasy, Challenge, Curiosity Psychological - Arousal, Competition, Diversion, Social

Interaction

Consumers

• One directional communication – TV, Print etc• To create buzz

Traditional Media

• Two way communication• Consumers can share quality related information• Games played on social media networks with friends• Update scores of games played offline on social media accounts

Social Media

• Traditionally distributed on physical disks• Ratio of physical to digital dropping and less profit margins

Physical Distribution

• Increased profit margins due to reduced production and distribution costs

• Reduces resale market• Access to consumer usage data

Digital Distribution

• Industries which can provide inspiration for games – Film adaptations

• Technology Infrastructure

Related Content

• Blogs, Internet groupsConsumer Societies

Economics of Industry• Market Structure

Oligopolistic Handful of big players account for most of the overall market

• Direct Network Effects – Large consumer base increases utility of game MMOG - Quantity and the Quality of the user network determine the degree of

pleasure and satisfaction

• Indirect Network Effects – Two sided market between H/W producers and Game Producers Singlehoming - Exclusive S/W content Challenges – Backward compatibility in new consoles Customer Equity

Business Models• Fixed Price and Unlimited time• Online Games – Periodic subscription feesTraditional

• For Smartphones and Social Networks• Games are free, but play is restricted to a certain time period or a

certain range of in-game actions• In-app sales – Additional characters or Equipment• Challenge - Identification of critical threshold

Freemium

• Two-Sided market between Advertisers and Customers• Product placement an important factor for success• Dynamic In-Game Advertising - Online ads based on geographic

locations, player’s behaviour etc

In-Game Advertising

• Game features third-party brands as an integral part of contentAdvergaming

• Related Content– Games related to other industries– Successful and innovative games have been adapted for other

entertainment media, such as books and movies– Game producers have adapted existing entertainment brands such as

movies, television series, novels, comics, or toys to generate awareness and interest

– Instances of creative combinations of both approaches – Eg: Temple Run

• Supporting Technologies– Recommender systems : generate personalized predictions about

product appeal by filtering the past behavior of, and preference statements from, consumers

– Cloud Technology : enabler for gaming industry

Other Game Related Aspects - 1

• Society– Results of certain recent studies indicate that violent video games lead to

aggression and hostile expectations– Counter view is that playing violent video games does not influence aggressive

behaviour– No evidence at all exists that links video game consumption with societal

violence– Negative consequences of playing games : excessive multitasking behaviour,

attention problems, addiction– Beneficiary influences of games : increase social involvement, reduce

depression

• Piracy– Critical issue for all entertainment industries– Computer games more vulnerable, console games are less vulnerable– Digital Rights Management : more relevant in games than music and movie

Other Game Related Aspects - 2

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