Tracking market information and making use of the data is thought to be essential to the growth of game development, moderator Michael Pachter, Senior Research Analyst of Wedbush Morgan Securities suggested in his opening remarks, as E3 sessions wound down on Thursday, May 11, and prominent analysts met for the panel: “World view: Analysts take the measure of the global marketplace.”
David MacQueen, Content Analyst of Mobile at Screen Digest, detailed the European market. Screen Digest is one of the largest media-focused firms with 25 analysts tracking games. Their Online Intelligence services deliver market-by-market data, as well as forecasts and in-depth reports.
Handhelds, excluding mobile, are currently driving the retail growth of the games software market in Europe. The UK is the largest games market in Europe and third largest in the world.
However, each European territory has different trends. For example, PlayStation 2 sales grew in UK, Italy, and Scandinavia last year. As MacQueen reported, last year’s European console hardware sales were well down in 2004 due to the announcements of upcoming next-gen consoles. A similar situation remains in Q1 2006, despite the beginning of the next-gen console releases. PlayStation 2 still outsold Xbox 360 in Q1 2006. The first 4 months of sales of Xbox 360 have only exceeded the original Xbox launch sales in Europe. “Overall, we are expecting HW sales to peak higher in the next generation, because the consoles are launching closer together,” said MacQueen.
Meanwhile, the European casual online games market is growing strongly. The prize based pay-per-play design is growing the fastest, although most of these companies are U.S.-based. There are over 1 million subscribers in Europe – more than all other Massively Multiplayer Online game (MMO) subscriptions combined.
The initial mobile gaming came from Japan and Korea, but according to MacQueen, growth in Europe over the last 2 years has been remarkable. He believes that Japanese and Korean shares of the growing global market will diminish. Western markets already accounted for over half of the global mobile games market last year. In 2004, mobile gaming was a $1 billion industry, with expectations of growth to $8.5 billion in 2010. Europeans spent $520 million downloading mobile games in 2005. Notably, $192 million of those sales went back to the publishers, meaning that the majority of revenue is being retained by networks.
MacQueen predicts that mobile and online sales will push the European games market above $9 billion in 2007. He warns, though, that digital downloads are being tempered by a combination of the reliance on retailers and the current lack of bandwidth pace to match size of content. He sees small downloadables charging ahead.
“The sky is falling!” cried Anita Frazier, Entertainment Industry Analyst at The NPD Group. NPD is a global provider of industry-leading sales and marketing information, including features such as a monthly tracker in video games, which is augmented by topical pieces. According to Frazier, console transitions have had a rough beginning in the U.S. Retail sales have been flat over the last four years, but these numbers only include retail.
However, the U.S. has the largest installed base in history of gaming, with over 100 million current and next-gen consoles. In Frazier’s statistics, 44% of GameCube owners and 40% of Xbox owners also own a PlayStation 2, implying that although this bodes well for selling multiple consoles to a buyer, video game console penetration is still below 40% in US households.
Additionally, males are still the main recipients. About 80% or more of the sales go to males. Game Boy Advance captures the highest amount of female buyers, although buyers of all consoles remain predominantly male. When looking at players, though, the numbers in female involvement jump. For example, 43% of GBA and 35% of GameCube players are female.
“Is the ‘core’ really the core?” Frazier posed. The common demographic, Frazier argued, is often referred to as the 18-30 year old male. Although 18-34 year old players take up 42% of the player base, 27% of buyers are aged 18-3, and 23% are 9-12. These numbers suggest to Frazier the notion of “gamer moms” and “gamer dads” playing games with their children.
In the U.S., 50% of sales happen in October, November, and December. Frazier feels sales in these months will either make or break a game. When questioning buyers about why they are buying games, 60% replied “for no special occasion” in Q1, but in Q4 60% responded “holidays.”
Despite the dim look of the console market, there is still hope for high sales in other areas. “The potential for mobile gaming is huge,” Frazier said. There are 140 million game capable phones used in the U.S. The market is far from saturated. 67% of cell phone users said they are not interested in games on cell phones and 27% play, but there are also 47% wireless subscribers who own a phone capable of games, and these numbers continue to change in the favor of mobile games. The market primarily consists of puzzle games at 58% and card games at 43%.
Similarly, online gaming offers new opportunities. Roughly 33% of U.S. 13-44 year olds play games online. The PC dominates online play at over 75%, and puzzle/arcade/card/word games consist of over 70% of that PC online play. 60% of gamers said they are willing to pay to play.
Frazier sees the U.S. as experiencing growing pains and holds out hope, since there are markets far from saturated with untapped potential. Female players and gamer parents are open audiences, and there are more avenues to reach gamers. “The market is changing,” Frazier concluded.
“If you don’t have casual content, you don’t have an outlet for growth at all,” Hiroshi Kamide, Analyst at KBC Securities, started off when talking about the market in Japan. He quickly launched into the dismal state of Japanese game economy.
Currently, Japan has a $10 billion game industry, but it has been in decline for the last four or five years. It peaked at $14 billion during the release of PS2. Overall, the Japanese economy has been pretty poor. Second hand exchange is taking over the market.
“PC gaming hardly exists in Japan,” Kamide stated. Mobile games have grown just under $1 billion, but the market is fully saturated. Meanwhile, online games haven’t quite taken off. The online game market remains steady at $1.4 billion, which is fairly respectful, but not when compared to other Asian markets.
In order to survive, companies are merging, including console companies. As the industry is in decline, development costs are going up. They are desperately, in Kamide’s opinion, trying new areas to stay afloat, such as the mobile, online, and toy markets, but without much improvement.
“The saving grace could be Nintendo’s DS and Wii,” Kamide said. DS has been successful as an all access platform, due to pricing and creativity. Kamide continued, “You need products like that to win Japan.” 150,000 units of DS were sold in just one month in Japan, while the PSP only sold 30,000 units in that period.
Nintendo has carved out a new audience using the Brain Training games, and a demographic of parents and kids playing together has emerged. Kamide predicts that the Wii will do much better than the GameCube, since it is strategically correct to tap into pulling gamers back in or getting new people involved. He sees DS as the precursor, and DS has done very well in Japan.
Kamide is not completely without hope for the Japanese market. “Mobile carriers have infrastructures and don’t swallow up a lot of the game revenue,” he said. Success comes for simple and cheap games that are “different, novel, interesting.”
“Korea is the most saturated online game market,” expressed Antonio Tambunan, Associate Director, Head of Asia at Bear Stearns Asia. Forecasts from Bear Stearns show that most revenue — 84% in 2006 and 79% in 2007 — will rely on successful penetration of the Korean market.
The Korean market is dominated by online games. Around 70% of Korean households, at 11 million users, have access to broadband. Revenue from online games is expected to reach $844.6 million by 2009. Tambunan pointed out: “Slowing growth means more cannibalization.”
When taking statistics, Tambunan makes sure he gets numbers on gamers, not accounts. MMO Role Playing Games (RPGs) remain at the top of sales, most prominently Rohan
. Although he feels this does not mean Rohan
can’t be replaced, the Korean market is clearly directed at the popularity of MMOs.
The market is increasingly price sensitive and creating its own economy. Tambunan is interested in looking at off-the-grid gamers, as well as farmers. Off-the-grid gamers imply theft of client-server technology. Users will take code from MMOs and create their own servers, then either get a nominal fee or let people pay for free. Farmers often run numerous accounts with bots and sell the gold or items acquired for money. These areas are important to assess when entering the Korean online game market.
In order to compete in the Korean market, developers must be prepared for competition. Tambunan continues to put emphasis on the role of the gamer in the market. The interests and know-how of gamers, he believes, will influence the success or failure of newly launched titles in Korea.
“China is an exciting and challenging market,” began Lisa Cosmas Harrison, Found and Managing Partner of Niko Partners, LLC. Harrison outlined the opportunities and challenges in China. Demands from gamers and internet cafés tell a more complete story than just statistics on peak concurrent users. Urban disposable income is rising, which has encouraged PC and broadband penetration in the home as well as internet cafés.
Challenges are intrusive to the success of the game market in China. Piracy of packaged games with both illegal copies and illegal downloads has devastated the market. The government has no fewer than 16 ministries, bureaus, offices, and other bodies regulating the video game industry and promoting healthy gaming and domestic development. For example, China’s government has implemented a fatigue system to limit the hours of play. In addition, development talent is scarce and requires more training and more years of experience.
Despite the challenges, there is a massive audience to tap into. There were 27 million gamers in 2005, and Harrison predicts there will be 63 million by 2010, brining $1.8 billion in online revenue alone by 2010. She expects the arrival of online console play to back the boosts in numbers.
The top 3 online game operators made 50% of the online game revenue in 2005: Shanda, NetEase, and The9. Unfortunately, a Top 10 title is not necessarily making good money – #10 can have as few as 50,000 PCUs. When gamers were surveyed about what they play at least 50% of the time, 66% said online, despite the publicity of China’s gamers that would suggest 100%. 27% of these online players use Bittorrent.
“Gamers want casual and premium casual games,” advised Harrison. In 2005, the majority of gamers were playing casual games. MMO popularity is down, possibly due to the addition of 10 million new players. Most want free downloads of PC offline games. Harrison added that Bittorrent has hurt even the pirates. Cute style and other “soft” games are popular. 27.7% of gamers in cafés are female, and most game to interact with friends.
“The big operators may control most of the market now, but things change. Operators merge, close, get bought out, get a lucky break,” said Harrison. Government approval is hard to predict, and as such, China is still in need of a world-class leader. Due to a lack of appropriate education and training in game development in China, the market needs experienced professionals.
Business models are evolving. China started with packaged software, but piracy won. They moved to prepaid cards for online games, both hourly and monthly, and now even those are sold online. Afterwards, casual games were offered for free, which bled over into offering free MMOs and premium casual games with revenue gained from the virtual economy and special account services.
As changes evolve games, the market opens as well. 43% of gamers go to internet cafés to be with friends, and more genres are catching on. Foreign games can also succeed. “There’s a $2 billion market waiting for you in 2010,” Harrison ended.
Opportunities exist in the worldwide market, but require research and strategic planning. Using information from analysts can help determine the most profitable direction to head in when beginning a software or hardware venture, speakers concluded on points of the diverse game market in this informative panel.