Head of Consumer Electronics & Digital Entertainment Practice at IDATE
In 2013, hardware & games will represent 60 billion EUR in revenues, against 53bn EUR in 2012
Despite the profound changes that are going through it, the global market for hardware & video games will grow up from 2013 to attain 79 billion Euro in 2016. This study follows the development of key indicators for the sector over five years and makes an appraisal of the key markets: Home consoles - Handheld consoles - Offline games - Online games - Mobile phone games.
Following the recent announcements at the CES 2013 can we believe in a recovery of the hardware market in short or mid-term?
In 2012, the home consoles market segment (hardware and software sales) could generate 37% of total video game revenues. Given the regular growth of the online games and mobile platform games market segments, the home console segment is expected to shrink in the coming years. Let us recall that the latter accounted for nearly 60% of total market revenues in 2004. In spite of the arrival of a new generation of consoles, resulting in double-digit growth over several years, the home console segment will account for a "mere" 41.1% of the total global market by 2016.
Three factors are bringing about a shift in the home consoles market segment:
1. The arrival of Nintendo's Wii U, its first new generation console – pending the likely release of competing devices by Microsoft in 2013 and Sony Computer Entertainment in 2014 – is without a doubt the most pivotal event as the year approaches its end. Like its big brother, the Wii U will deliver a new gaming experience to the fickle and much sought-after consumers, be they experienced or casual gamers. This machine introduces pioneering features, and there is no doubt game designers will put them to use and conjure up new gameplay. Nintendo's machine should prove to be a winner. Yet it is still too early to know whether the Wii U console will enjoy the same degree of success as the Wii.
2. Competitors Sony and Microsoft will be paying particular attention to the Wii U's sales figures, given how off-guard they were caught by the Wii's success.
They now realise that their health will be determined by the level of innovation they bring to the gaming experience. The question remains as to which part of the console they will focus their innovation efforts on. 4K resolution could be an option, although this would require that gamers replace their TV sets, and 4K home cinemas are still quite pricy. The most likely path would be to beef up their machines' ubiquitous and multiscreen functionality, and rethink the interaction peripherals with an emphasis on voice recognition and motion sensing. As for infrastructures for delivering services, they have no choice but to invest in the cloud as done by Sony Computer Entertainment, which acquired Gaikai for USD 380 million in mid-2012.
3. According to IDATE, revenues from digital sales via home consoles will reach EUR 2.9 billion in 2012. These include video games, video and music. This represents one fifth of all turnover generated by the sale of content for platforms. By 2016, IDATE reckons that income from the digital sale of content via home consoles will account for 60% of income generated by these platforms.
Project Manager Laurent Michaud
Laurent Michaud is the Head of Consumer Electronics & Digital Entertainment Practice. Laurent acts as project manager for market reports on the rise of Smart Home, Game, Music and Electronics. He adresses technological, industrial and strategic issues through a point of view of innovation. He provides his clients with expert technical-economic analysis of strategic issues relating to consumer electronics and entertainment.
> More information available at: www.idate.org
Head of consumer electronics & digital entertainment practice, IDATE
Each year IDATE conducts studies on video games and accompanies enthusiastic project developers who rub shoulders with a market that will make them no concessions. Laurent Michaud, Head of the Consumer Electronics & Digital Entertainment practice at IDATE shares it takes on this in the article below.
It is now nearly 12 years that I have observed the sector with the eyes of a player and economist. We have dealt with all the issues that have made the news: we are going to cover our third home console marketing campaign, in the early 2000s we studied massively multi-player games, the advent of video games on mobile phones, then Occasional Gamer, in-game advertising, the App Store phenomenon, Serious Gaming, cloud gaming, games on smart TV, social gaming... In the background, dematerialisation remains the common denominator for all of them.
Alongside these studies, we have helped nearly forty project carriers by providing expertise regarding the techno-economic feasibility of their games, the industrial positioning of their company, their internationalisation strategy, construction of their business model, design of their outline business strategy...
These 12 years in practice enable me to draw some conclusions on what we are experiencing today as a crisis in the growth of the on-line games sector and a more acute crisis that could become a reality for certain traditional actors (those who develop games on physical media).
Video gaming is in crisis and the companies affected are not the least known: Gameforge, BigPoint, Zynga, but also THQ, Sega, Turbine to name only those... and I am not mentioning the myriad of small companies not really known for the big hit, which were formed to develop games for mobile phones, tablets or on Facebook and which are struggling to obtain a return on quite modest investments in a market where supply is abundant and it is difficult to differentiate oneself.
What are the causes of this crisis, beyond the effects of increased competition? I count four:
1. The video game evolves in phases of growth and decline determined by the life cycle of the hardware. Game consoles register their activity in physical cycles of at least six years. We are currently experiencing a downward cycle, a transition phase between two generations of home consoles characterised by income from the sale of games for these machines down by 12% between 2011 and 2012 and by 20% for the turnover generated by console sales.
2. We observe massive player support for Free2Play on smartphones, tablets, social networks, in games on browsers or MMOs and soon on smart TVs. Controlled inflation of the price of games for home and handheld consoles maintains the income for this segment but basically players demonstrate to us that the model of the future is Free2Play, of which these are some eloquent examples:
- The British studio BossAlien published CSR Racing and quickly recorded a monthly turnover of $12 million,
- According one of its directors, the Norwegian studio Supercell recorded a turnover of $500,000 per day with Clash of Clans,
- When there is no income, there is always the level of "monthly active users" that shows the attractiveness of games carried by the F2P model - 32 million for League of Legend from Riots Games (no profit conversion rates available), 50 million for Farmville 2 (with, according to observers, a conversion rate of around 2%).
- An unprecedented wave of MMO games is passing from a subscription payment model to Free2Play: Aion from NC Soft, Age of Conan from Funcom, Star Wars, The Old Republic from EA, Gotham City Impostors from Warner Interactive, DC Universe from SOE, City of Heroes Freedom from NC Soft…
Not to subscribe to this model supported by a large majority of players may constitute a medium-term risk for publishers.
3. In the on-line games market segment the crisis generates its effect on the first generation of developer-publishers. After a successful first game, these companies have recorded considerable and sometimes dramatic growth as regards their income and size of workforce. They now encounter difficulties with their "second game" which struggles to achieve the support of players who had been seduced by the first. However, the on-line games market segment will continue to record a two-figure growth up until 2016. IDATE estimates that the on-line games market will increase from €15 billion at the end of 2012 to more than 23 at the end of 2016 and will eventually represent a little less than 30% of the global market which could rise to €60 billion. If the market continues to grow at that rate it is value creation that will very largely make up for value loss. This observation underlies reasoning on the, as yet inexhaustible, capacity of the Internet to allow innovative game experiences.
4. In the on-line games environment, the operational risk of a game rests synthetically on four elements: content, business model, technical services, marketing and communications. These four pillars necessary for success rest themselves on new skills: community management, collection, processing and analysis of usage data, business and pricing strategy, industrial intelligence... These tasks are often underestimated by development studios more inclined to create content than conceive its publishing, marketing etc.
Thus, the economic rule "adapt or perish" was never more true than today in the games industry, and never has this rule applied as rapidly as today. Production times for terminals are being reduced on many platforms (mobile phones, tablets, social networking and browsers): as a result, the "time to market" is very short as, at times, is the time that separates the developer from failure.
This statement is difficult to hear: the developer, as Peter Molyneux said so well in a recent interview on Games Industry International, "is not supposed to make games for money. He is also reluctant to talk about monetisation." The games sector is recent and, since the industrialisation of the development market segment in the mid-90s, the job of the studio has been to create a games experience, not to take on board its commercialisation, carry out its marketing or pricing. This role is still regularly seen as falling to the editor. Today you, large and small developers, should know that that era is past and that your job also consists in selling, if not in integrating upstream of the production chain some thoughts relative to the marketing of the game.
A few reasons for bounce-back
If the crisis is real, the video games sector knows how to rebuild its declining segments, renew entertainment experiences, innovate; blaze a trail beyond the beaten track. This character trait offers some grounds for hoping to see the sector rebound in the very short term.
Here are four good reasons for bounce-back:
1. The next generation of home consoles
I am not dealing at length with the arrival of new home consoles that will boost the industry and, in 2015, hardware included, represent 40% of its income.
2. The promise of games on mobile platforms
Neither am I referring in detail to what games represent on mobile platforms, smartphones and tablets that seem particularly well-behaved in terms of market and complementary, even symbiotic, uses. This segment will hold a share of some 15 % of the market up until 2016 as against some 11 % of the income accruing to games on handheld consoles.
I will, on the other hand, insist on my two crazes:
3. The smart TV game
The arrival of the television connection changes the conditions of use for this terminal. Potentially it introduces a level of interactivity that makes it no longer a passive-consumption device. The connection promises enriched experiences regardless of the nature of the content - audiovisual, social, commercial, entertainment or informative.
In this context, the video game could be an accelerator for the market development of interactive applications on smart TV. It will demonstrate its effectiveness by providing a convincing user experience (with an interaction-immersion accessory, voice recognition and motion detection), based on a viable business model.
Games on on-line TV already seem to be taking five directions:
i) The downloading of occasional games on the set-top box from the ISP. In France, Free offers such a service on its Revolution box in partnership with TransGaming:
ii) Games synchronised with live-broadcast audiovisual programmes. Visiware, (through its PlayAlong offer) synchronises the television viewer, who can be a virtual contestant, with more than 800 games and live-broadcast programmes worldwide.
iii) The deployment of an application used by the television manufacturer or by a third party such as Google: EA has just announced, and it went more-or-less unnoticed, that two of these occasional games were available on Samsung's smart TV and controllable by the South Korean company's Galaxy phones. These are Game of Life and Monopoly.
iv) Cloud gaming is a technology that can home-deliver streamed games via the Internet on a connectable TV. The games consoles were also quick in response as Gaikai, one of the most promising cloud gaming service providers was acquired by Sony Computer Entertainment in early July for 380 million USD.
v) Access to games via social networks: Facebook is a platform of omnipresent coverage, found on most connectable devices (tablets, smartphones and computers). It is also available on smart TV and will provide access to the games catalogue that it offers on computer.
These guidelines lead to or induce convergence, better collaboration between the television actors (channels, programme producers), telecommunications and Internet actors (Internet access and service providers), consumer electronics manufacturers and video games actors. It operates at the technological, content and economic level and in any event it opens a new market segment, especially with the arrival of EA.
4. The ubiquitous or continuous game
Today, one can distinguish three types of ubiquity in video games.
- The first is a ubiquity of service: the ranking, challenges, friends' games list etc. are ubiquitous. We find this feature on Game Center or Facebook.
- The second is a ubiquity attached to games. Boostr, developer and publisher of the Urban Rivals game with 25 million players, sets its strategy on ubiquity. This game is available on social networks, tablets, smartphones and on its website. I have single access available, which gives me the possibility of playing indiscriminately on any one of these four single platforms that I pick up according to my wants and the terminal that I have at hand. I also play Football Manager quite a lot, but I open a different game on each platform, which breaks the continuity of the game experience.
- The third is a ubiquity carried by connected objects. This ubiquity took shape in October 2011 under the game name Activision Skylanders. This game is based on action figures equipped with NFC technology and interacting with the home console and the game. These small figures are placed on a pedestal and are recognised and displayed on the screen. They keep in memory the experience gained during the game until the next connection to another console. 30 million figures have been sold to date worldwide.
In conclusion, video gaming is experiencing successive crises, which, in the end, are technological and industrial adjustments related to its strong ability to innovate and recreate: to me these adjustments seem necessary for a sector that, finally, seems soon set to reach economic maturity.
Responsable de la practice Digital Home & Entertainment, IDATE
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Head of Consumer Electronics & Digital Entertainment Practice IDATE
Internet-ready device sales will reach 1.6 billion units worldwide in 2015
Montpellier, 15 January 2011 – CES 2012 closes tonight at Las Vegas. An edition widely focused on Connected Devices and Smart TV. Directly associated with these emerging technologies, DigiWorld IDATE provides readers of its recently published market report “Digital Home & Connectable Devices” with a detailed inventory of the internet-ready device market: TVs, set-top boxes, home & handheld game consoles, DMA/DMR, DVR, desktop and laptop computers, smartphones, tablets, etc. It also includes market figures up to 2015, along with a series of case studies that supply the foundation for a strategic analysis of the issues facing industry players, and innovative applications that will help further the deployment of the digital home.
“Even before the connected television has become ubiquitous, the TV today accounts for more than 20% of connectable devices sold, in particular thanks to the popularity of game consoles. By 2015, most televisions will be able to access the Web directly through built-in connectivity capabilities”, says Laurent Michaud, Head of the Consumer Electronics & Digital Entertainment Practice at IDATE. “The emergence of digital home solutions has been spurred in part by game consoles and in part by devices dedicated to managing content and providing access to the Web. By providing access to content that is stored or distributed in the cloud, connected TVs, ISPs’ new-generation set-top boxes and now tablets are the new driving forces in the digital home’s development.”
Three innovative connected devices
The emergence of digital home solutions was enabled in part by game consoles and in part by devices dedicated to managing content and providing access to the Web. By providing access to content that is stored or distributed in the cloud, connected TVs, ISPs’ new-generation set-top boxes and now tablets are the new driving forces in the digital home’s development:
- The connected TV. Although theoretically enabling access to a broader range of services, it is driving a higher degree of integration, especially of user interfaces and the accessories involved in user-device interaction. The proliferation of proprietary solutions naturally limits the influence of the app store model which has been so instrumental in the rise of the smartphone. This segment is still waiting for a “crossover” player capable of imposing an efficient end-to-end solution that combines the device, the user experience, an app store, video products and a payment solution.
- Thanks to their mastery of managed solutions, ISPs can get new-generation STBs into their customers’ homes which are more in sync with the TV viewing experience. The set-top box can also easily take on additional functions such as gaming, Web browsing, an app store, etc. Because of the market’s potential and ISPs’ desire to continue to invest in acquiring new customers, the STB could eventually become a solution capable of housing all of the functionalities of the digital home.
- Multimedia tablets mark a decisive step in the creation of a fleet of personal multimedia screens.
In 2010, half of all devices sold were internet-ready
In 2010, close to 560 million connectable devices were sold around the globe: mobile phones, touch-screen tablets, Blu-ray players, multimedia gateways, multimedia hard drives, video game consoles, televisions, IPTV set-top boxes… which represents just over half of all device sales that year.
More than 300 million of these devices are portable (game consoles, tablets, smartphones) and internet-ready, either independently or over a home network. Smartphones alone account for 45% of connectable devices sold in 2010.
There were a total 1.3 billion connectable devices in use at the end of 2010, which accounts for over a third of the deployed fleet of CE devices.Breakdown of global connectable CE device sales by type of device, in 2010
Source DigiWorld IDATE
The TV’s connectivity enabled by digital multimedia boxes, and especially game consoles
In terms of sales, digital multimedia boxes are the prime vector for the TV’s connection to the Web. They account for 8% of connectable device sales in terms of units, and for close to 50% of the devices sold that supply a connection to the Web, well ahead of the connected TV (18%).
PC and mobile phones dominate the connectable device market by a wide margin, with the TV coming a distant third.
Even before the connected television has become ubiquitous, the TV today accounts for more than 20% of connectable devices sold, in particular thanks to the popularity of game consoles.Breakdown of the global installed base connectable CE devices by type of device, end of 2010 Source DigiWorld IDATE
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