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THE WORLD OF DIGITALKEY SHIFTS IN THE DISTRIBUTION OF VIDEO GAMES

JULIUS CHEN

juliuschen985@gmail.com

DIGITAL’S TIME IS HERE

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More than 2 billion videos

were watched on YouTube... yesterday

30 billion pieces of content were

added to Facebook this

past month

Worldwide IP traffic will quadruple

by 2015

The average teenager sends

4,762 text messages per

month

32 billion searches were performed last

month... on Twitter

DIGITAL’S TIME IS HERE

NPD Group: Digital Business grows 16%, Physical down 21%

“In addition to the $7.09 billion spent in the U.S. by consumers on new physical video and PC game software during 2012, the total consumer spend on other physical forms of content (used and rental) reached $1.79 billion, and content in digital format (full game and add-on content downloads, subscriptions, mobile games and social network games) generated $5.92 billion.”

According to the 2012 Games Market Dynamics: U.S.* report from global information company, The NPD Group

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DIGITAL LANDSCAPE EVOLUTION

1) Increased broadband penetration • Increased internet penetration

o 1.034B Internet users in Asia versus 2.3B Global total.

• Real strategic opportunity to hit a critical mass.• Average connection speed optimum in core markets.

o South Korea: 15.7 MBPS , Japan: 10.9 MBPS o Global average 2.6 MBPS

2) Technology Convergence• Increasingly overlapping technology devices –

between the Computer, Mobile Phone, Tablet, Mobile Console Devices.

o By 2015 media tablet shipments will reach around 50% of laptop shipments and Windows 8 will likely be in third place behind Android and Apple.

o Devices will contain faster two and four-core processors, and with bigger, brighter, higher-resolution screens.

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DIGITAL LANDSCAPE EVOLUTION

3) Evolution and Ease of Digital Payment Methods• Mobile payments• Virtual Wallets• Virtual Currencies• Pay per usage models/Time cards• Subscription models

4) Online activity is increasingly social• Crowd-sourced opinions become more prevalent. • People are increasingly sharing and connecting with each

other which Gartner suggests is a “seamless shift between computing and communicating”.

8 KEY TRENDS FOR DIGITAL DISTRIBUTION IN THE VIDEO GAMES INDUSTRY

Interpreting the change

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BioShock Infinite’s Pre-order on Steam came

with exclusive BioShock Infinite Team Fortress

Characters, Free BioShock and Free

XCOM: Enemy Unknown!

All for US$ 59.99!

1. FROM DAY 1 TO HOUR 1

Digital distribution removes the traditional barrier to buying games — having to drive or walk to a brick-and-mortar retail store and purchase it.

Stores like Steam, a digital distribution front run by Valve, capitalize on impulse buying habits of gamers by making it extremely easy to purchase and immediately begin playing games.

Creative pre-ordering packages makes it extremely attractive to purchase and download online.

Instant Play within first hour of launch: Game files are pre-loaded and users can pre-download a few days before the game is able to activate.

Fanatic gamers are no longer appeased by just getting a game within day one of release. It is now about playing within the first hour.

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2. FROM PACKAGED GOOD TO CUSTOMIZABLE OWNERSHIP

Digital distribution allows unlimited number of variations of each title to be created and sold, expanding its potential audience.

• Single player, multiplayer, downloadable content packs, starter editions, complete editions, free-to-play bonus levels, virtual currencies for in-game items.

• Allows consumers to self-determine how much commitment they want to make to a title/franchise.

• Offer a better value to those who just want to purchase a segment of play or at a windowed period.

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Blizzard took a different direction with its Catacyclsm expansion by catering to newer and lower level players with new content. Traditionally, expansion packs for online games focus on new content for players that have already reached the end of the game.

NBA 2K13 launched mini virtual store allowing users to purchase items for their MyPlayer profile. Coupled

with DLC add-ons, there was a large component of customizable ownership.

3. FROM ONE EXPERIENCE TO EXTENDED EXPERIENCES

Many game developers adding downloadable digital content (DLC) to their gaming titles, in order to enhance the gaming experience and add additional revenue sources.

For the past few years, we’ve seen the AAA publishers take fewer risks on new titles and place bigger bets on those they release.

With this increased focus on the big releases, DLC content becomes increasingly important as a risk management strategy and to drive revenue for an IP. Publishers are also moving to “season pass-like” structures, providing ongoing access to the latest game content at one bulk price.

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Did You know? Since release in Fall 2012, Borderlands 2 launched with 22 DLC Packs.

4. FROM OFFLINE GAMING TO ALWAYS ON GAMING

The term ‘always on’ refers to the connected online nature of gaming.

Leading gaming experiences transition from the typical launch-focused strategy to an evergreen state that remains fresh through regular content updates and incremental platform introductions.

• The key reasons for this shift is to fight piracy, drive in-game trading economies, ease single-player gamers into multiplayer modes for higher/longer player retention.

• We will also see more collaborative development of game-play and associated assets.

• Developers (big and small) will work alongside consumers to produce game titles and create a vested sense of commitment with their players.

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Games like D3 and Simcity were released to be “always online” games.

Games like Little Big Planet started to show deeper engagement with players by allowing them to collaborate in level creation for other players.

5. FROM SINGLE-PLAYER EXPERIENCES TO SOCIAL CONNECTEDNESS

With increased connectivity, more gamers are going for socially engaging experiences.

Multiplayer gaming helps extend the product lifecycle and reduces used-product market by making consumers hold on to their physical box set.

Social leaderboards and hierarchies become key features in platforms/games.

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Steam Achievements, Mobile Game Center Leaderboard, XBOX Live Leaderboard, PSN Leaderboard have all become a central part of one’s gaming experience.

In Korea, multiplayer gaming is a prevalent form of gaming – where Online games lead the market and few PC products become huge hits unless they contain very strong multiplayer components.

6. FROM BUILT-FOR-WW TO BUILD-TO-TERRITORY

Traditionally, games were built in one format and for a WW (US market). Now, by releasing games digitally, there is further opportunity to cater to specific territory needs.

These include multiple languages, different tastes and appetites, different windows (vs consistent release patterns/dates per country) and different platforms which have differing penetration capability.

Games can find homes overseas in many markets and windows apart from the mainstream or major US/UK platforms.

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T2 released GTA III and Civilization Revolution in Korea as Android game – moving into a platform relevant market versus WW release of the iOS versions.

Language patching post D1 distributed via digital channels help grow products in specific territories.

In Japan, releasing on Sony Japan PSN drives more than 10x revenue versus XBOX360.

7. FROM PURE DISTRIBUTION DEALS TO HYBRID BUSINESS MODELS

Platforms’ business models are also starting to become more multi-layered to handle different formats, consumer price points, and windows.

Figital – Finished Goods Retailer & Digital Models Streaming /cloud gaming models Pay per usage/package models Connected TV models B2B Café distribution and Download models

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Sony acquires Gaikai for $380M, a hint that consoles may be going to the cloud.

Gamestop traditional retailer opened its digital channel Impulse and incorporates sales of DLC content into stores. Gamers can also use any accepted form of payment — including used game trade-ins, gift cards — to purchase brand new titles.

OnLive cloud gaming services moves to GoogleTV letting users play console quality games via their TV.

8. FROM PLATFORM SPECIFIC GAMING TO INTEROPERABLE GAMING

As technology converges, mobile and gaming devices are increasingly becoming alike and are sharing the same space.

Whilst viewed as a more spread out competitive space, this becomes opportunities for game companies to create new immersive gaming experiences that are cross-platform.

Game platform owners are taking the competition in stride, creating new devices tailored to a companion relationship that improves the big screen game experience but also offers an on-the-go component too. • The PlayStation Vita and Wii U are the first

announced contenders and we may hear of others very soon.

• Developers and IP-holders creating more content across devices to reach new users and extend the experience for current users.

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Sony will release digital versions of all new games alongside

physical copies so gamers can download

and begin playing games immediately on

its newest portable gaming device, the

Sony Next Generation Portable (NGP).

In Jan 2013, Disney announced the that it plans to launch Disney Infinity globally in June

across a suite of consoles (Wii, Wii U, Xbox 360, PS3), with versions for mobile phones

and tablets, Nintendo's 3DS, and an online PC version to be supported as well.

IN SUMMARY

Digital has produced a whole new language for distribution and business optimization:• Hour 1• Customizable ownership• Extended experiences• Always on gaming• Social connectedness • Build-to-territory• Hybrid business models• Interoperable gaming

Distribution formats, content delivery methods and business innovations must evolve to keep us relevant to the consumer.

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ABOUT JULIUS

JULIUS CHENRegional Director, Digital Business, Take Two Interactive

P&L holder for T2's Asia digital business portfolio and key strategic business lead in developing and ensuring the execution of T2 Asia’s digital business strategy and growth of markets overseeing digital distribution across PC, PS3, 360 and mobile platforms, working closely with T2’s global headquarters Take Two New York to ensure alignment of business objectives and provision of strategic in-market advisory for Asia. Multiplied Asia's digital revenue eight-fold in 24 months.

In charge of deal structuring and business roll-out and optimizations on multiple game digital distribution platforms across Asia - including PC, XBOX, PS3, Mobile (iOS & Android). Key role in driving business development requirements, sales/finance related functions, provision of technical assistance and project management for all Asia digital accounts. Reporting directly to VP Publishing (Asia) and dotted line to VP Digital (Global). Full supply chain of work includes: financial modelling, deal closing for new business, budget and forecasting, sales analytics, platform logistics/operations, legal, market localization & game ratings processes, channel marcoms/promotions and partner relations for our digital sales platforms across Asia.

Launched in-market digital business portfolio with top consumer portals like Amazon Japan, NHN Korea, JoyMoa Korea, Gamer.com Taiwan, Gamer.com Hong Kong etc. Previously, Business Owner of Julius Truffles, Consumer Marketing/Advertising (WPP Group, P&G)

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