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videogame_idate_nove.. - Digiworld Summit


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									                                                                   9th Video game Executive seminar, Digiworld Summit 2010,
                                                                              Idate, Montpellier, November 18, 2010

                                                      Born digital/ Grown digital
                                     An overview of the video games industry

                                                                                    Jean Paul Simon

by Marc Bogdanowicz, Giuditta de Prato, Claudio Feijoo, Daniel Nepelski, Jean Paul Simon.

The views expressed are those of the presenter and may not in any circumstances
be regarded as stating an official position of the European Commission.
Neither the European Commission nor any person acting on behalf of the Commission
is responsible for the use which might be made of this presentation.
                       The JRC Research Institutes

Institute for Prospective Technological Studies
- to provide customer-driven
support to the EU policy-
making process

- by developing science–based
responses to policy challenges

- having both socio-economic
and scientific /technological

Mapping the industry
Two cases in disruptive technologies
      On line games
      Mobile games
Future EU competitiveness
 Strong industrial policies in leading
 countries…outside the EU

Mapping the industry

              Source: Funcom
               Born digital/ Grown digital

 A young industry,
 But already a growing share of the media and content
 The global video game market is estimated at some 45
  to 50 billion €,
 and is expected to grow four times faster than the media
  and entertainment market to which it belongs.
       The former one is expected to grow by almost 70% to over 60 billion
        euros by 2013, whereas the latter one is expected to grow by only 17%.
          The video game market already outgrew the cinema market in the UK .
 The main engine for growth in the media and content
       Even if (still) relatively small
                          The industry structure

 An oligopolistic of structure of the market/ High entry barriers
       In the handheld market, two big players: Nintendo and Sony.
       Three main actors in the console market: Microsoft being added.
 The structure of the industry is still a work in progress:
       The relative position of each player in the value chain is not stabilized (hardware
        producers, game developers, publishers, software producers)
          Publishers and platform hardware owners tend to dominate
          The high initial fixed cost for developing video games make the publishers the financial
           operators of the industry
 One of the disruptive trends is the emergence of new actors
  coming from different businesses, or the short-cutting of
  existing actors in oligopolistic position.
 With emerging opportunities, new companies might become
  essential intermediaries in the video games value chain,
       such as on-line portals (Google, Yahoo, pogo.com),
       internet service providers,
       or even Telecom Services or Telecom equipment manufacturers companies (e.g.

 The emergence of on-line video-games and of
  mobile gaming is likely to shift this market
 Online and wireless video games are already
  expected to increase most, surpassing off-line PC
  games, handheld video games, trailing only
  console games in the medium-term future.
Technology: the wild card

                            Source: Eli Noam

Case study 1: On line games
E-lab for the future of e-services?

                               Source: Funcom
                                       Global view: revenues generated by/on the Internet:
                                                          (Private Consumers)


Source : A.T. Kearney analysis, 2010
                              Global view: growth perspectives by/on the Internet :
                                                  (Private Consumers)


Forecast 2008-2013

Source : A.T. Kearney analysis, 2010
                             Business models in (re)construction

               Main revenues          Secondary revenue       Additional revenue options:
               models: retailing      options: advertising    value added apps
                                                             - Virtual items
                                                             - Micro transactions
Developers                         - In-game advertising
                                                             - Game extensions
& Publishers
                                                             - ….

& Portals                          Portal Advertising

& Retailers

What is changing?
  Actors:            new role of portals
                     new opportunities for studios

  Value chain:       re-organisation:
                     - disintermediation: developers closer to users,
                     - re-intermediation: new actors, portals

  Business models:   different sources and distribution of revenues?
  Demand:            wider age range, higher number of users,
                     social networks, communities..

  Technologies:      not technology driven, but technology enabled..
                     Technological disruption is possible..

Case study 2: Mobile games
A case in the convergence

                              Source: Eli Noam
                           Market data and prospects

 Mobile gaming is one of the fastest growing segments
  in mobile creative content industry
    Market segment              2007 (B €)   2008 (B €)   2013 (B €)

                                                                           Source: own compilation of industry data
    TV advertising               128         129                129

    Internet advertising         40          46                 67

    Recorded music               25          23                 20

    Video games (total)          33          40                 56

    Console games                19          23                 31

    Online games                 5.3         6.2                11

    Mobile gaming                2.1 – 4.1   2.6 – 6            4.8 – 12
                  Techno-economic models

 From “walled gardens”: vertical integration with
  the mobile operator taking centre stage
       failed due to demand pressure to enjoy an unrestricted, wide and
        innovative choice of content and applications.

 To “platforms” within the mobile ecosystem:
       offering on a common set of hardware, software and techno-
        economic specifications
       Reduces transaction costs and development costs.

 Two contrasted examples
       The success story of the Apple App Store: the true mobile game
       Nokia, then pioneers and now trailing behind
The business models
                            Mobile gaming:
                  an industry in quest of its next stage

 Mobile gaming is not mature yet.
 There is room for many innovations:
      From a technology perspective, the possible innovations are
         They are fundamentally related with adding new sensors in and
          around the mobile device,
         and bridging the real and virtual worlds.
      From a business perspective, the traditional business models
       could be complemented with advertising and value-added
 The main potential disruptions in mobile gaming
  lie in the leverage of context and the social
 A new panorama opens whereby mobile users take
  on new roles of service delivery:
      as creator of content and as a source of innovation

 High potential growth of the mobile gaming market
 However some challenges for mobile game
      The heterogeneity and current fragmentation,
      The absence of standards,
      As a consequence the mobile gaming ecosystem is evolving
       towards a collection of "open, but not open" approaches;
      The lower entry barriers for the development of games in each of
       the mobile platforms in comparison with other game platforms:
         have caused a proliferation of small mobile game software

Future EU competitiveness

                      Source: Funcom
                           A strong demand

 EMEA is the biggest market for video games
      France, Germany, Italy, Spain and UK, in 2009, accounted for 15.2
       billion dollars nearly 30% of the global video games market (PWC 2009).
 In 2008, PC games market accounted for 2,559
  million US dollars in the EMEA area
      against 789 million US dollars in North America.
 The North America is the biggest market for console
  and handheld video games.
 The EMEA region is the second and the Asia-Pacific
  region third largest market for console and
  handheld video games.
      However, the console game sector is the biggest component of the
       EU market
             Strengths/ weaknesses

 The EU benefits from a rich milieu of developers
  and an important population of middleware
 The EU is strong on telecom services especially
 This may provide the necessary conditions for
  the competiveness of the EU videogames
 But may not be sufficient to overcome the
  weaknesses in publishing and segments of

 The EU is nevertheless seen as a "hotbed" for
  games development overall
        A numerous population of highly creative small development
 and may become even more important as the
  national markets are still unevenly developed,
  leaving room for more growth.
       As underlined in the European Competitiveness Report 2010, the
        EU still does not have a clear comparative advantage in the fast-
        growing video games sector,
       but has nonetheless made considerable progress.

 Strong industrial policies in leading
  countries…outside the EU
               It’s time…..

…to drive a stake through that idea
Source: Blair Levin, Aspen Institute
                      What are others doing? (1/3)

 Quebec claims a 600% growth in the games business since 2003
  and shows an impressive track record: the creation of 7,000 jobs,
  over 90 companies, international leaders for the most part.
        Quebec is now the fifth development cluster in the world.
                   What are others doing? (1/3)

 South Korea provides a parallel success story.
 The domestic games market grew from 3 trillion
  KRW (approximately 2 billion Euros) in 2001 to
  nearly 9 trillion KRW in 2005
      but was hit by a recession in 2006 and 2007
      The market grew again in 2008 with a 30% growth rate.
 The SK government involvement took place as
  online gaming was progressively recognised as
  a serious industry and the industry was already
  growing successfully.
      This feature is rather unusual in the Korean environment where,
       historically, industries are "kick-started by governmental work".
      "This is significant in the development of Korean industry, as this
       is the first time Korean companies represent the pioneer in a
       major market". (J.H. Wi (2009)
                   What are others doing? (1/3)

 And now India
 India is now seen as a leading destination for high
  end, skill-based activities.
 As a consequence, the Indian animation industry
  is estimated to grow at a CAGR of 22% and gaming
  industry is estimated to grow at a CAGR of 49% by
       Source: The Animation and Gaming Industry in India – A report by
        Ernst & Young, August 2009 updated March 2010.


               Source: Karl M. Kapp
                     Main outputs (1)

 The video games market is growing, not only in
  value but also in audiences.
 The demand has changed under pressure from
  a variety of factors such as
      technological ease,
      the emergence of social computing and communities,
      and the supply of simple and short games.
 capturing an until-now unsatisfied demand
  across age categories, socio-economic classes,
  or gender
 In other words, this industry goes more and
  more mainstream
                      Main outputs (2)

 The digital native is growing fast
 and may become one of the lead engine for
  growth for the entertainment segment
       Paving the way for new immersive form of entertainement?
 As well as the living lab of the digital economy
       with important spillover effects to other sectors,
       while creating a favourable environment for the development of the
        cultural and creative sector.
 On-line and mobile videogames offers two major
  cases in disruptive technologies enabling
  innovative business models within the broader
  realm of the emerging eServices domain.
       Most of the expected growth will come from on-line and mobile games
                        Main outputs (3)

 There is the room and the means for Europe to
  grow large global companies rapidly in the video
  games arena.
 However this may require some intervention or at
  least more focused attention.
      Most of the segments are faced with difficult access to funding and,
       as could be expected, little willingness from potential finance
       providers to take risks.
 The new digital agenda may open up some new
                   Some policy options?

 Promotion of the EU Standardization of middleware (APIs)
       to facilitate the portability of game software over multiple platforms,
       so as to increase the market opportunities for SMEs,
       and a more competitive game market.
 Public support to private venture capital to finance game
 Creation of a European network of EU Game Software
  enterprises to advise Universities and training centres
       in order to adapt e-Skills curricula of Universities and permanent training of
        employees to the needs of EU Game Software enterprises,
 Improvement of the collection of sectoral statistics on
  Gaming Software in the framework of e-Business Watch.


                     Available at:

IPTS publications page:
                                                The COMPLETE Project

The report is part of the COMPLETE Project (2007-2010):

Objectives: Analyse the future competitiveness of the EU ICT sector in emerging ICT technologies.
COMPLETE aims at producing 6 reports, focused on the future industrial European competitiveness
                                                           in the following emerging technologies:
                                                           WEB 2.0,
                                                           Video Games Software
                                                           Embedded Software in automotive
                                                           Semiconductor design with DG INFSO.

COMPLETE is co-financed by JRC-IPTS and DG ENTREPRISE and INDUSTRY of the EC.

Related Publications and more information at:     http://is.jrc.ec.europa.eu/pages/ISG/COMPLETE.html
More on the Information Society (IS) Unit:        http://is.jrc.ec.europa.eu

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