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Please see analyst certification (Reg. AC) and other important disclosures on slides 61-67 of this presentation. Emerging Trends in GamesasaService Atul Bagga Senior Research Analyst, ThinkEquity
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Page 1: Login 2011 Emerging Trends in GaaS

Please see analyst certification (Reg. AC) and other important disclosures on slides 61-67 of this presentation.

Emerging  Trends  in  Games-­‐as-­‐a-­‐Service  

Atul  Bagga  Senior  Research  Analyst,  

ThinkEquity  

Page 2: Login 2011 Emerging Trends in GaaS

2

London Liverpool Boston

New York Chicago Minneapolis

San Francisco Doha

Bangalore Mumbai

New Delhi

Geneva

Singapore

Global  Banking  &  Distribu2on  Capabili2es  

Worldwide  reach  and  capabilities  of  the  Panmure  Gordon  Group  • 231  people  located  in  8  offices  in  the  US  and  Europe  • 45  investment  bankers    • 34  research  analysts  covering  over  450  companies  • Over  50  brokerage  professionals  making  markets  in  over  500  stocks  • 20  private  client  and  asset  management  professionals,  representing  $600  million  in  assets  under  advisement  • 135  affiliated  professionals  working  at  QInvest  in  the  Middle  East  • 165  affiliated  professionals  working  for  Ambit  in  India  and  Singapore  

Panmure Gordon Group office locations Panmure associations through QInvest (QInvest is a 46% shareholder in Panmure Gordon & Co.) Panmure associations through Ambit Capital (QInvest is a 25% shareholder in Ambit)

PANMURE GORDON & CO INTEGRITY IN INVESTMENT BANKING SINCE 1876

Quaker Securities A Panmure Gordon Company

ThinkEquity LLC A Panmure Gordon Company

Page 3: Login 2011 Emerging Trends in GaaS

Agenda  •  Games-­‐as-­‐a-­‐Service  

–  Lines  blurring  between  platforms;  Tablets,  Set-­‐top  boxes      –  Innovation  by  startups    

•  Virtual  Goods  –  Perfect  Price  Discrimination  –  Enhance  Community/Curb  Piracy  –  Higher  quality  of  earning  (a)  Predictability,  (b)  Lifetime  Value  

•  Social  Games  –  Vertical  Games  –  Monetization  (a)  Conversion,  (b)  Advertising    –  Platforms  dedicated  for  games  

•  Mobile  Games    –  Rise  of  persistent  games  –  Mobile  an  extension  of  other  platforms  –  Dominated  by  a  few?  

Page 4: Login 2011 Emerging Trends in GaaS

Agenda  •  Games-­‐as-­‐a-­‐Service  

–  Lines  blurring  between  platforms;  Tablets,  Set-­‐top  boxes      –  Innovation  by  startups    

•  Virtual  Goods  –  Perfect  Price  Discrimination  –  Enhance  Community/Curb  Piracy  –  Higher  quality  of  earning  (a)  Predictability,  (b)  Lifetime  Value  

•  Social  Games  –  Vertical  Games  –  Monetization  (a)  Conversion,  (b)  Advertising    –  Platforms  dedicated  for  games  

•  Mobile  Games    –  Rise  of  persistent  games  –  Mobile  an  extension  of  other  platforms  –  Dominated  by  a  few?  

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Top  Companies  By  Revenue  CAGR  (2008-­‐2010)    

Page 6: Login 2011 Emerging Trends in GaaS

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Top  Companies  By  Revenue  CAGR  (2008-­‐2010)    

0%

10%

20%

30%

40%

50%

60%

70%

80%

0% 20% 40% 60%

EBIT Margin

Reve

nue

CAG

R (2

008-

2010

)

Gree Inc.DeNA Co. Ltd.Zoo Entertainment Inc.Gamevil Inc.Perfect World Co. Ltd.mixi Inc.NHN Corp.NetDragon Websoft Inc.Tencent Holdings Ltd.Neowiz Games Corp.NCsoft Corp.Netease.com Inc. ADSChangyou.com Ltd.Kingsoft Corp. Ltd.Gameloft S.A.

Source: FactSet

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Enterprise  Value/Sales  MulEple  U.S.  Video  Game  Companies  Shares    

0

1

2

3

4

5

6

7

Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09

ATVIERTSTTWOTHQI

Source: FactSet

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8

Emergence  of  MulE-­‐Channel  Games-­‐as-­‐a-­‐Service  

FreeFree--toto--PlayPlay

Pay to PlayPay to Play: Upfront Purchase; Subscription

Virtual Goods

AdsPremium Content

Subscription

Others – App Install,

Incentive Marketing

PC Gaming

Console Gaming

Mobile Gaming

Online GamingSocial

Gaming

Multi-Channel Games-As-A-Service

Source: ThinkEquity LLC

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9

Total  Video  Game  Market:  WW  Market  Size  Es2mate    ($  Million)  

Source: ThinkEquity LLC estimates

0

10,000

20,000

30,000

40,000

50,000

60,000

2009E 2010E 2011E 2012E 2013E 2014E

Mobile Games Social GamesOnline - Free-to-PlayOnline - SubscriptionPCConsole

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Total  Video  Game  Market:  WW  Market  Size  Es2mate  ($  Million)  

0

10000

20000

30000

40000

50000

60000

2009E2010E2011E2012E2013E2014E

Rest of WorldU.S.South KoreaJapanEuropeChina

Source: ThinkEquity Estimates

Page 11: Login 2011 Emerging Trends in GaaS

Agenda  •  Games-­‐as-­‐a-­‐Service  

–  Lines  blurring  between  platforms;  Tablets,  Set-­‐top  boxes      –  Innovation  by  startups    

•  Virtual  Goods  –  Perfect  Price  Discrimination  –  Enhance  Community/Curb  Piracy  –  Higher  quality  of  earning  (a)  Predictability,  (b)  Lifetime  Value  

•  Social  Games  –  Vertical  Games  –  Monetization  (a)  Conversion,  (b)  Advertising    –  Platforms  dedicated  for  games  

•  Mobile  Games    –  Rise  of  persistent  games  –  Mobile  an  extension  of  other  platforms  –  Dominated  by  a  few?  

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Price  DiscriminaEon  

Sources: Unless otherwise noted, images on this and the following slides are courtesy of the respective companies’ Websites.

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Price  DiscriminaEon    

Source: Caroline Scott; http://www.explorecrete.com/gallery/album19/donkey http://www.smokymountainparkarabians.com/

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Price  DiscriminaEon  

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Tradi2onal  Models  Represented  Lost  Economic  Value  

Source: ThinkEquity LLC.

§ Traditional gaming models didn’t capitalize on the full spectrum of consumer demand § Game satisfaction and status

were gained by beating levels with skill, not by personalization and purchased status symbols

§ Consumers who were willing to spend more on games weren’t able to, outside of peripherals and merchandise

§ Consumer surplus represented lost economic value for publishers

Supply

Demand

Pric

e

Quantity

All Customers Pay One Price

Some Customers Willing to Pay Higher Prices

Consumer Surplus = Lost Revenue

$50

$

Page 16: Login 2011 Emerging Trends in GaaS

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Limited  Edi2ons  and  Map  Packs  Captured  More  Revenue  

(1) Pricing is approximate. (2) Source: Microsoft.

§  “Limited” and “Collectors” Edition games made headway in price discrimination, capturing additional revenue

§  While this price discrimination resulted in higher revenue, there were still relatively few options available for hardcore gamers

§  Further, these options came at a higher cost for publishers: § Halo 3 “Legendary Edition” box included a

large, physical plastic helmet § Map pack content has high production cost

§  Yet the virtual model was proven: Map packs were only available digitally on XBOX Live, but 25% of players purchased them(2)

§  Map packs had PR hype equal to that of the original Halo 3 release

Supply

Demand

Pric

e Quantity

Halo 3: Standard Pricing(1)

Hardcore gamers could spend incrementally more, if desired

Yet Still, Lost Revenue

$60

Halo 3: “Limited Edition” Price(1)

$75

Halo 3: Map Pack Priced at $15

$90

$

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Virtual  Goods  Enable  Perfect  Price  Discrimina2on  

Supply

Demand Pr

ice

Quantity

§  While virtual map packs and Limited Edition physical media enable partial price discrimination, virtual goods enable perfect price discrimination for social games and MMOs

§  Some “hardcore casual” gamers willing to spend $10k+/month on virtual goods

§  There is no “price” for the game

§  In complex virtual economies, virtual goods (e.g. a $100k space station in Entropia Universe) can generate significant revenue for their owners, representing more of an asset than an expense §  Justifies high end purchases

$23.99

With the true cost of virtual goods close to zero, there is effectively no “supply” curve – goods are readily supplied at all price points

5 Fortune Points

$0.99

One family spent $35,000 on virtual goods in Outspark games

$35,000

$4.99

200 Fortune Points

$39.99

$

Source: ThinkEquity LLC

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Source: http://www.dealbreaker.com/images/entries/Pistol%20Pirate%20Bust.jpg

http://socialjusticenow.files.wordpress.com/2009/01/world-connect-people-community-international.jpg

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Build  Community  

0

10

20

30

40

50

60

70

Mill

ion

World of Warcraft- Global

Subscribers

TLBB -RegisteredAccounts

HappyAcquarium - MAU

Farmville - MAU

Source: Company Reports, DeveloperAnalytics.com, ThinkEquity LLC

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Source: Acclaim

Big    spenders  

Paying  Users  

Free  Users  

Mone2za2on  line  

$1  

$15  

ARPU  

$100+  

Everyone  pays  Everyone  pays  

1  X  

10  X  

PAY  

Ads  Sponsors  

Page 21: Login 2011 Emerging Trends in GaaS

21

Longevity  &  SEckiness:  Avg  Chinese  Gamer  ARPPU  

-

10.0

20.0

30.0

40.0

50.0

60.0

2003 2004 2005 2006 2007 2008

AR

PU

($/Y

ear)

Source: IDC, ThinkEquity LLC

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Game  Spend  As  Percentage  Of  Per-­‐Capita  Income    

Games Spend as % of Per-Capita Income

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

2003 2004 2005 2006 2007 2008 2009 2010E

U.S.

China

Games Spend as % of Per-Capita Income (ex. Food)

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

0.40%

0.45%

0.50%

2003 2004 2005 2006 2007 2008 2009 2010

Source: ThinkEquity LLC

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Players  Willing  To  Spend  More…  

0.08%

0.09%

0.10%

0.11%

0.12%

0.13%

0.14%

Games as % of Per Capita Income

U.S.KoreaChina

Source: National Bureau of Statistics of China, Korea Game Development Institute, EuroMonitor International, ThinkEquity LLC

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…And  The  Vendors  Are  More  Profitable  

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

SNDA GA PWRD NTES CYOU ERTS ATVI THQI TTWO

Operating Margin

ROE

Source: Company Reports, ThinkEquity LLC

Page 25: Login 2011 Emerging Trends in GaaS

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Legend  of  Mir  2  

•  2D  MMORPG,  Martial  Arts,  Adventure    •  Developed  by  Wemade,  operated  by  Shanda  •  Launched  in  China  in  2001  under  subscription  based  model  •  Converted  to  free-­‐to-­‐play  model  in  2005    •  PCU  ~400-­‐500K  

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Mir  2  Revenue’s  Growth  AUer  Model  Change  

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2002 2003 2004 2005 2006 2007 2008

RM

B M

illio

n

Source: Company Reports, ThinkEquity LLC

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…And  ARPPU  Growth  AUer  IniEal  Kneejerk  

0

50

100

150

200

250

300

350

400

2002 2003 2004 2005 2006 2007 2008

AR

PU

(RM

B/Q

tr)

Source: Company Reports, ThinkEquity LLC Estimated ARPPU

Page 28: Login 2011 Emerging Trends in GaaS

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ZT  Online  

•  2D  MMORPG,  Martial  Arts,  Adventure  •  Developed  and  Published  by  Giant  Online    •  Launched  in  2007  •  Free-­‐to-­‐play,  pay  for  virtual  goods  model  •  PCU:  1  million+  

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70%+  Higher  ARPPU  Compared  to  WOW  

020406080

100120140160180

AR

PU ($

/Yea

r)

World of Warcraft ZT Online Source: Company Reports, ThinkEquity LLC

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Top  Players  Pay  20x  of  WOW  ARPU  

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

Top 5% Players 15% Players 80% Players WOW

Source: Company Reports, ThinkEquity LLC

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ARPPU  DistribuEon  Curve  of  ZT  Online    

(20)

-

20

40

60

80

100

120

140

160

- 500 1,000 1,500 2,000

Users ('000)

AR

Pu

($/M

onth

)

Source: Company Reports, ThinkEquity LLC

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Examples  of  MoneEzaEon  

•  Game  Design  (System  for  marriage,  breeding,  parenting,  balance  between  males/females)  

•  Special  In-­‐game  Events  (Valentine’s  day,  New  Year’s  day,  Sports)  

•  In-­‐game  Promotions  •  Treasure  Chest  

–  Special  Bonus  for  Opening  Most  Chests  

•  Chat  &  Response  

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Virtual  Goods:  WW  Market  Size  Es2mate    ($  Million)  

Source: ThinkEquity LLC estimates

0

5,000

10,000

15,000

20,000

25,000

2009E 2010E 2011E 2012E 2013E 2014E

Mobile

Social Network

Online (off-SocialNetworks)

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Virtual  Goods:  WW  Market  Size  Es2mate  ($  Million)  

0

5000

10000

15000

20000

25000

2009E2010E2011E2012E2013E2014E

Rest of WorldU.S.South KoreaJapanEuropeChina

Source: ThinkEquity Estimates

Page 35: Login 2011 Emerging Trends in GaaS

Agenda  •  Games-­‐as-­‐a-­‐Service  

–  Lines  blurring  between  platforms;  Tablets,  Set-­‐top  boxes      –  Innovation  by  startups    

•  Virtual  Goods  –  Perfect  Price  Discrimination  –  Enhance  Community/Curb  Piracy  –  Higher  quality  of  earning  (a)  Predictability,  (b)  Lifetime  Value  

•  Social  Games  –  Vertical  Games  –  Monetization  (a)  Conversion,  (b)  Advertising    –  Platforms  dedicated  for  games  

•  Mobile  Games    –  Rise  of  persistent  games  –  Mobile  an  extension  of  other  platforms  –  Dominated  by  a  few?  

Page 36: Login 2011 Emerging Trends in GaaS

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Mid-­‐session  vs.  Persistent  Games  

0%10%20%30%40%50%60%70%80%90%

100%

AppStore Facebook -Now

Facebook-May, 09

PersistentMid-session

Source: ThinkEquity Estimates

Page 37: Login 2011 Emerging Trends in GaaS

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Console  Games:  U.S.  Market  Size  

0

2,000

4,000

6,000

8,000

10,000

12,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

$ m

illio

n

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Y/Y

Gro

wth

Source: NPD

Page 38: Login 2011 Emerging Trends in GaaS

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Average  Game  Play  Hours  Per  Week  On  Console  

0.0

5.0

10.0

15.0

20.0

25.0

2006 2007 2008 2009

Source: Nielson

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Games  Going  Social  –  What  We  Have  Seen  

•  Facebook  opening  up  a  new  market  similar  to  Wii    

•  55%  of  Facebook  users  play  games  on  Facebook  and  Games  account  for  ~40%  of  page  views  of  Facebook  

•  Facebook  games  not  just  games  but  also  a  mean  of  communication,  a  mean  to  express  oneself  in  virtual  environment  

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Gaming  Versus  Expression  

0

50

100

150

200

250

$ Bi

llion

Video Game Luxury GoodsSource: Bain & Company, PWC

Page 41: Login 2011 Emerging Trends in GaaS

Trends  in  Social  Games  •  Focus  on  Monetization  

–  Conversion    –  Advertising  

•  Platform  maturing    –  IPs  Matter  

•  Social  Games  outside  Facebook  –  Using  Facebook  social  graph    –  New  platforms  

•  Mobile  another  wave  of  disruption  –  Location:  convergence  of  physical  and  virtual  world    

41

Page 42: Login 2011 Emerging Trends in GaaS

Focus  on  Mone2za2on  

42

ARPU/MAU Per Capita GDP MAU/GDP (bps)($ MAU) (US $, 000)

Mixi 0.80 39.7 24 DeNA 4.51 39.7 136 Gree 2.39 39.7 72 Giant 1.27 3.8 402 ChangYou 1.38 3.8 436 US MMO 6.67 46.0 174 US Social Games 0.15-1.00 46.0 4-26Source: Company Reports, ThinkEquity Estimates

Page 43: Login 2011 Emerging Trends in GaaS

Focus  on  Mone2za2on  

43

Source: ThinkEquity Estimates

Page 44: Login 2011 Emerging Trends in GaaS

Focus  on  Mone2za2on  

44

Source: ThinkEquity Estimates

Page 45: Login 2011 Emerging Trends in GaaS

Focus  on  Mone2za2on:  Adver2sing  

45

AdvertisingVirtual Goods -

Indirect PaymentVirtual Goods - Direct Payment

Playdom 5-10% 15% 75-80%Kabam NA 10% 90%Rekoo 10% NA 90%Serious Business 10% 10% 80%

Source: ThinkEquity LLC interviews with the CEOs of respective companies

Page 46: Login 2011 Emerging Trends in GaaS

Focus  on  Mone2za2on:  Adver2sing  

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

WebMD The Knot Yahoo! DemandMedia

SocialGames

ARPU/DAU

46

Source: comScore, Company Reports, ThinkEquity Estimates

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47

Social  Games  Outside  Facebook  

•  Social  feature  no  longer  a  proprietary  of  SNS  •  Users  want  to  stay  connected  with  friends  –  to  brag,  to  

compete,  to  have  a  fun-­‐experience  together  •  Monetization  of  DeNA  vs.  Mixi  •  First  iteration  of  social  games  outside  Facebook  already  

there  •  Next  iteration  of  social  games  with  deeper  integration/

social  games  from  ground  up  –  Imagine  a  social  shooter,  action  game  –  trophy  save  your  real-­‐life  

friend  in  virtual  environment        

Page 48: Login 2011 Emerging Trends in GaaS

As  PlaUorm  Matures;  IPs  Become  More  Important  

48

2009 2006Game Publisher Game Publisher

1 Battlefield 1943 Electronic Arts Geometry Wars Bizzare Creations2 Castle Crashers The Behemoth Gauntlet Midway Games3 Trials HD Microsoft Games Smash TV Midway Games4 Hasbro Family Game Night Electronic Arts Bejeweled II Oberon5 Shadow Complex Microsoft Games Zuma Oberon6 Marvel vs. Capcom 2 Capcom Bankshot Billiards PixelStrom7 Magic: The Gathering Wizards Of the Coast Outpost Kaloki NinjaBee8 UNO Gameloft Mutant Storm Reloaded Microsoft Games9 Worms Microsoft Games Joust Midway Games

10 Peggle PopCap Games Wik: Fable of Souls Reflexive Entertainment

Source: IGN, Majornelson.com

Page 49: Login 2011 Emerging Trends in GaaS

As  PlaUorm  Matures;  IPs  Become  More  Important  

49

Rank Game Publisher Price1 The Sims Electronic Arts $6.992 The Oregon Trail Gameloft $4.993 Need for Speed: Undercover Electronic Arts $4.994 Madden NFL 10 Electronic Arts $4.995 Tiger Woods PGA Tour Electronic Arts $0.996 Assassin's Creed: Altair Chronicles Gameloft $4.997 Flight Control Firemint $0.998 Cooking Mama Taito $6.999 Civilization Revolution Take-Two $6.99

10 Wheel of Fortune Sony $0.99

Source: Apple

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Social  Gaming:  WW  Market  Size  Es2mate    ($  Million)  

Source: ThinkEquity LLC estimates

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2009E 2010E 2011E 2012E 2013E 2014E

AdvertisingVirtual Goods

Page 51: Login 2011 Emerging Trends in GaaS

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Social  Gaming:  WW  Market  Size  Es2mate  ($  Million)  

0

2000

4000

6000

8000

10000

12000

14000

2009E 2010E 2011E 2012E 2013E 2014E

ROWChinaEuropeU.S.Japan

Source: ThinkEquity Estimates

Page 52: Login 2011 Emerging Trends in GaaS

Agenda  •  Games-­‐as-­‐a-­‐Service  

–  Lines  blurring  between  platforms;  Tablets,  Set-­‐top  boxes      –  Innovation  by  startups    

•  Virtual  Goods  –  Perfect  Price  Discrimination  –  Enhance  Community/Curb  Piracy  –  Higher  quality  of  earning  (a)  Predictability,  (b)  Lifetime  Value  

•  Social  Games  –  Vertical  Games  –  Monetization  (a)  Conversion,  (b)  Advertising    –  Platforms  dedicated  for  games  

•  Mobile  Games    –  Rise  of  persistent  games  –  Mobile  an  extension  of  other  platforms  –  Dominated  by  a  few?  

Page 53: Login 2011 Emerging Trends in GaaS

Mobile:  Next  Wave  of  Disrup2on  

53

Source: International Telecommunication Union, NPD

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Smartphone  Market  Poten2al  

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Source: ThinkEquity Estimates

050100150200250300350400450

U.S. Europe

MobileSubscribersSmartphoneUsers

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WW  Smartphone  Installed  Base  

55

Source: Ericcson

0500100015002000250030003500400045005000

2010E 2011E 2012E 2013E 2014E 2015E 2016E

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Skipping  The  PC  Web?  

0

200

400

600

800

1000

1200

Population InternetUsers

BroadbandUsers

MobileSubscribers

Number of Subscribers in India (Million)

56

Source: Telecom Regulatory Authority of India, InternetWorldStats.com

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No  Contract,  Android  =  $150  

Source: www.flipkart.com

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WW  Mobile  Games  Market  Size  Es2mate  ($  Million)  

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2009E 2010E 2011E 2012E 2013E 2014E

Social GamesDownloadable Games

Source: ThinkEquity Estimates

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WW  Social-­‐Mobile  Games  Market  Size  Es2mate    ($  Million)  

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2009E 2010E 2011E 2012E 2013E 2014E

Source: ThinkEquity Estimates

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Agenda  •  Games-­‐as-­‐a-­‐Service  

–  Lines  blurring  between  platforms;  Tablets,  Set-­‐top  boxes      –  Innovation  by  startups    

•  Virtual  Goods  –  Perfect  Price  Discrimination  –  Enhance  Community/Curb  Piracy  –  Higher  quality  of  earning  (a)  Predictability,  (b)  Lifetime  Value  

•  Social  Games  –  Vertical  Games  –  Monetization  (a)  Conversion,  (b)  Advertising    –  Platforms  dedicated  for  games  

•  Mobile  Games    –  Rise  of  persistent  games  –  Mobile  an  extension  of  other  platforms  –  Dominated  by  a  few?  

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 QUESTIONS?  

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Risks  &  Disclosures  COMPANIES MENTIONED IN THIS REPORT:

Company Exchange Symbol Price Rating

Activision Blizzard, Inc. NASDAQ ATVI $11.54 Buy

Akamai Technologies, Inc. NASDAQ AKAM $34.14 Hold

Apple Inc. NASDAQ AAPL $347.23 Buy

Changyou.com Limited NASDAQ CYOU $43.48 Buy

comScore, Inc. NASDAQ SCOR $28.40 Buy

Electronic Arts Inc. NASDAQ ERTS $22.61 Buy

Giant Interactive Group, Inc. NYSE GA $9.37 Hold

Google, Inc. NASDAQ GOOG $535.45 Buy

NetEase.com, Inc. NASDAQ NTES $45.64 Buy

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Risks  &  Disclosures  COMPANIES MENTIONED IN THIS REPORT:

Company Exchange Symbol Price Rating

NetEase.com, Inc. NASDAQ NTES $45.64 Buy

Perfect World Co., Ltd. NASDAQ PWRD $24.99 Hold

salesforce.com, Inc. NYSE CRM $134.38 Hold

Shanda Games NASDAQ GAME $7.15 Buy

Shanda Interactive Entertainment Limited NASDAQ SNDA $49.40 Hold

Take-Two Interactive Software NASDAQ TTWO $16.04 Buy

THQ, Inc. NASDAQ THQI $4.52 Hold

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Risks  &  Disclosures  Analyst  Certification  I,  Atul  Bagga,  hereby  certify  that  all  of  the  views  expressed  in  this  research  report  accurately  reflect  my  personal  views  about  the  subject  securities  and  issuers.  I  also  certify  that  no  part  of  my  compensation  was,  is,  or  will  be  directly  or  indirectly  related  to  the  specific  recommendations  or  views  expressed  in  this  research  report.    The  analyst(s)  responsible  for  preparing  this  report  has/have  received  compensation  based  on  various  factors,  including  the  firm's  total  revenues,  a  portion  of  which  is  generated  by  investment  banking  activities.    ThinkEquity  LLC  makes  a  market  in  Akamai  Technologies,  Inc.,  Apple  Inc.,  Activision  Blizzard,  Inc.,  Changyou.com  Limited,  Electronic  Arts  Inc.,  Giant  Interactive  Group,  Inc.,  Google,  Inc.,  NetEase.com,  Inc.,  Perfect  World  Co.,  Ltd.,  salesforce.com,  Inc.,  Take-­‐Two  Interactive  Software,  THQ,  Inc.,  Shanda  Interactive  Entertainment  Limited,  Shanda  Games,  and  comScore,  Inc.  securities;  and/or  associated  persons  may  sell  to  or  buy  from  customers  on  a  principal  basis.    

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Risks  &  Disclosures  Rating  Definitions    

Effective   October   7,   2009,   ThinkEquity   LLC   moved   from   a   four-­‐tier   Buy/Accumulate/Source   of  Funds/Sell   rating   system   to   a   three-­‐tier   Buy/Hold/Sell   system.   The   new   ratings   appear   in   our  Distribution   of   Ratings,   Firmwide   chart.   To   request   historical   information,   including   previously  published   reports   or   statistical   information,   please   call:   866-­‐288-­‐8206,   or   write   to:   Director   of  Research,  ThinkEquity  LLC,  600  Montgomery  Street,  San  Francisco,  California,  94111.      Buy:   ThinkEquity   expects   the   stock   to   generate   positive   risk-­‐adjusted   returns   of  more   than   10%  over  the  next  12  months.  ThinkEquity  recommends  initiating  or  increasing  exposure  to  the  stock.      Hold:  ThinkEquity  expects   the  stock   to  generate   risk-­‐adjusted   returns  of  +/-­‐10%  over   the  next   12  months.  ThinkEquity  believes  the  stock  is  fairly  valued.      Sell:   ThinkEquity   expects   the   stock   to   generate   negative   risk-­‐adjusted   returns   of  more   than   10%  during  the  next  12  months.  ThinkEquity  recommends  decreasing  exposure  to  the  stock.  

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Risks  &  Disclosures  

Distribution  of  Ratings,  Firmwide      

ThinkEquity  LLC        

IB  Serv./Past  12  Mos.  

   

Rating   Count   Percent         Count   Percent  

BUY  [B]   153   66.20   22   14.38  

HOLD  [H]   76   32.90   2   2.63  

SELL  [S]   2   0.90   0   0.00  

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Risks  &  Disclosures  This  report  does  not  purport  to  be  a  complete  statement  of  all  material  facts  related  to  any  company,  industry,  or  security  mentioned.  The  information  provided,  while  not  guaranteed  as  to  accuracy  or  completeness,  has  been  obtained  from  sources  believed  to  be  reliable.  The  opinions  expressed  reflect  our  judgment  at  this  time  and  are  subject  to  change  without  notice  and  may  or  may  not  be  updated.  Past  performance  should  not  be  taken  as  an  indication  or  guarantee  of  future  performance,  and  no  representation  or  warranty,  express  or  implied,  is  made  regarding  future  performance.  This  notice  shall  not  constitute  an  offer  to  sell  or  the  solicitation  of  an  offer  to  buy,  nor  shall  there  be  any  sale  of  these  securities  in  any  state  in  which  said  offer,  solicitation,  or  sale  would  be  unlawful  prior  to  registration  or  qualification  under  the  securities  laws  of  any  such  state.  This  research  report  was  originally  prepared  and  distributed  to  institutional  clients  of  ThinkEquity  LLC.      

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Risks  &  Disclosures  Recipients  who  are  not  market  professionals  or  institutional  clients  of  ThinkEquity  LLC  should  seek  the  advice  of  their  personal  financial  advisors  before  making  any  investment  decisions  based  on  this  report.  Stocks  mentioned  in  this  report  are  not  covered  by  ThinkEquity  LLC  unless  otherwise  mentioned.      Additional  information  on  the  securities  mentioned  is  available  on  request.  In  the  event  that  this  is  a  compendium  report  (covers  more  than  six  ThinkEquity  LLC-­‐covered  subject  companies),  ThinkEquity  LLC  may  choose  to  provide  specific  disclosures  for  the  subject  companies  by  reference.  To  request  more  information  regarding  these  disclosures,  please  call:  866-­‐288-­‐8206,  or  write  to:  Director  of  Research,  ThinkEquity  LLC,  600  Montgomery  Street,  San  Francisco,  California,  94111.  Stocks  mentioned  in  this  report  are  not  covered  by  ThinkEquity  LLC  unless  otherwise  mentioned.      Member  of  FINRA  and  SIPC.      Copyright  2011  ThinkEquity  LLC,  A  Panmure  Gordon  Company  

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