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

Infrastructure needed(Development platforms, computing power, Design elements, know how, Distribution channel or media etc)
Software Infrastructre and technology

Infrastructure & Technology

Hardware

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

Hardware

Software

Game themselves (From activision, Ubisoft, Rovio)

Gaming Industry Overview

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
Country Canada USA UK Sales (USD) 1,724,000,000 14,348,000,000 2,684,000,000 Per capita revenue(USD) 56.1 52.1 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 billion USD 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)
1. 2. 3. 4. Benefits for Game Licensors The game content was streamed to end users, the end-users did not get the game code Delivering the game content virtually also made second-hand markets impossible In Cloud Gaming service, older games can be available at a lower price (corresponding to secondhand markets) In virtual store, shelf space costs nothing video-on-demand service providers set-top box manufacturers middleware software providers 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 Provides access (a website) for the end-users within games-on-demand service, enabling users to log in and select games of their choice Actual game is executed on an operators server, all that is needed from a client computer is the ability to decompress a MPEG stream Service is independent of operating systems

2.

Value Adding Mediators

1. 2. 3.

3.

Network Operators
1.

4. 5.

Portals
1.

End Users
1. 2.

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 endusers 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-clusters 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-clusters 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-clustersmarketing 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-clusters 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-in2009-2010-8#ixzz2sCGuvOdE

Chinese Gaming Industry

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

Introduction
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

Barriers and Drivers

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

Drivers
Demand condition and Cost Industry Structure Export Conditions

Drivers
Demand Condition and Cost

Approx. 70% of Chinas Internet users below 30 Online games much cheaper than console/PC based Widespread broadband access Inclination towards domestic games
Government support to local online gaming industry More than 150 online game operators Wide distributing and marketing network Gaming giants entering the market

Industry Structure

Contd..
Export Conditions
China is worlds biggest exporter of ICT products Licensing games to foreign companies Huge Chinese population overseas

Business Model
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

Impact of Online Gaming in China

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

Contd..
Social
Negative impact on health, education, and productivity Risk of cybercrimes due to more exposure

Japan gaming cluster

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

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 Japan

Parameter China Government Regulations High piracy rate Global business models does not work in China Youth Population Cheaper than console/PC based games Government backing Subscription based Prepaid Cards Sale of add ons and ads Inculcating Nationalism Growth of the ecosystem Japan Slow adoption Limited Funding Aging Population Specialized Training Highly competitive market In game ads Virtual Merchandise High level of Innovation Global Recognition

Barriers

Drivers

Business Model

Impact

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

Game Platforms Content

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

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

Consumers Traditional Media Social Media

Who Age groups developed from children to teenager to young men/women now Why Motivational Fantasy, Challenge, Curiosity Psychological - Arousal, Competition, Diversion, Social Interaction

One directional communication TV, Print etc To create buzz

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

Physical Distribution Digital Distribution Related Content Consumer Societies

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

Increased profit margins due to reduced production and distribution costs Reduces resale market Access to consumer usage data

Industries which can provide inspiration for games Film adaptations Technology Infrastructure

Blogs, Internet groups

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
Traditional
Fixed Price and Unlimited time Online Games Periodic subscription fees

Freemium In-Game Advertising

Advergaming

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

Game features third-party brands as an integral part of content

Other Game Related Aspects - 1

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 - 2

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

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