Author: by Staff

Analyst Colin Sebastian is estimating that online game revenue has now reached $11 billion as part of a $44 billion worldwide video game market, with 2009 as the "year the pace of change accelerated." With titles such as World Of Warcraft now bringing around $1 billion in revenue yearly to Activision Blizzard, it's easy to see why one of Sebastian's takeaways from E3, in a new analyst note, was: "Internet moving from sideshow to part of the main event." The Lazard Capital Markets analyst particularly commented of this shift: "With roughly one billion Internet users worldwide, the gravitational pull of the Internet is driving publishers to integrate online content and services more explicitly within and on top of traditional games. As consumers have already demonstrated a willingness to pay to access interactive entertainment, we believe that video games are an important part of the migration of content “into the cloud.” In fact, video games account for the largest portion of paid online content, well ahead of other forms of content, such as movies/video and newsprint. We estimate that online video games will generate more than $11 billion in revenues this year, up from $3 billion in 2005, and account for roughly 25% of industry game sales worldwide. In this respect, we continue to believe that the Internet is emerging as an important growth driver and content platform, weaving together communication, information, commerce and entertainment. In addition, 2009 may be remembered as the year in which the pace of change in media consumption accelerated, while 2010 and 2011 may bring improved monetization and mass market adoption of web-based applications and digital content, in particularinteractive entertainment." Elsewhere in his E3 analysis, financial analyst Sebastian also looks at what increased Internet-based operation could mean for the major publicly traded video game companies, explaining: "For video game publishers, the Internet platform not only provides room for additional revenue streams and higher ARPU, but also greater operating leverage and economies of scale. On one hand, the Internet offers enormous efficiency, evening the playing field in content production and distribution, and offering unlimited shelf space. [A pictured comparison of profit margins between] U.S. and Chinese game companies [with online-only Chinese firms at much higher profit margins] partially illustrates the difference in margin profile of online, packaged goods and hybrid models. Over time, we believe that better “Internet economics” should provide software publishers with higher growth multiples."