A Quick Overview of the Video Game Business Mark DeLoura - VP TechnologyMarch 4, 2008

Games Then

Games Now

Delivery Platforms Then

Delivery Platforms Now

Genre Spread

Then: Simple sports games.

Now: action, adventure, fighting, platform, shooter, role-playing, simulation, strategy, sports, racing, flying, music-based, puzzle, party, and massively multiplayer games.

Style Spread

Then: Just games.

Now: Core games. Casual games. Serious games.

Culturally Relevant

Worldwide

Well, almost worldwide...

Source: NPD Group, www.npd.com

A Big Business

2007 Market Stats US Retail Sales: $18.85 billion▪ Hardware: $7.04 billion▪ Non-PC Software: $8.64 billion▪ PC Software: $910.7 million▪ Accessories: $2.26 billion

Box Office: $9.7 billion DVD: $23.5 billion Rentals: $7.5 billion

Retail SalesHardwarePC Soft-wareNon-PC SoftwareAc-ces-sories

Source: NPD Group (www.npd.com) and vgchartz.com

Hardware Sales (LTD)

Global Wii: 21.97 million Xbox360: 17.27 million PS3: 10.52 million

U.S. Wii: 7.38 million Xbox360: 9.15 million PS3: 3.25 million

Global

WiiXbox360PS3

U.S.

WiiXbox360PS3

Source: NPD Group (www.npd.com) and vgchartz.com

Handheld Sales (LTD)

Global NintendoDS: 67.71 million Sony PSP: 31.49 million

U.S. NintendoDS: 17.65 million Sony PSP: 10.47 million

Global

DSPSP

U.S.

DSPSP

Source: Vgchartz.com

Software Sales

2007 Top Titles Halo 3 – 4.82M Wii Play – 4.12M Call of Duty 4 – 3.04M Guitar Hero III – 2.72M Super Mario Galaxy – 2.52M Pokemon Diamond – 2.48M Madden NFL 08 – 1.9M Guitar Hero II – 1.89M Assassins Creed – 1.87M Mario Party 8 – 1.82M

Source: mmogchart.com

The Juggernaut

World of Warcraft (Blizzard Entertainment) Released December 2004 Expansion pack January 2007▪ Fastest selling PC title of all time: 2.4M WW in

24 hours 10 million subscribers worldwide▪ USD 14.95/month

2007 revenues: $1.1 billion

Source: www.activisionblizzard.com, www.eatake2.com

Mergers and Acquisitions

Activision / Blizzard (Vivendi) merger Proposed December 2007 Activision market cap: $8.01 billion Vivendi Game valuation: $8.1 billion

Electronic Arts / Take-Two acquisition Proposed February 2008 Electronic Arts market cap: $15.12 billion Take-Two valuation: $2.0 billion

The Industry Structure

Platform Manufacturers Publishers Developers Service Providers

Platform Manufacturers

Nintendo Wii, GameBoy Advance, NintendoDS

Sony PlayStation3, PSP

Microsoft Xbox360

Produces the hardware, and software development kits

Controls flow of software onto the platform Manufactures the software for a per-unit royalty

Publishers

Electronic Arts, Activision, Ubisoft, THQ, Take-Two, Sega, SCi, Square Enix, Namco Bandai, Vivendi, Capcom, Konami, NCSoft, Disney, Atlus, LucasArts, Midway, ...

Manage and fund creation of games by developer studios

Work with platform manufacturers Conduct sales, marketing

Developers

Thousands of studios Most well-known: Epic Games, Id

Software, Valve Corporation, Blizzard Entertainment

Invent and produce games

Service Providers

Art providers Middleware tools Motion capture houses Music providers Testing houses

Used to reduce costs, reduce time, manage headcount more efficiently

How a Game is Developed

Developer creates game concept Game idea is pitched to many

publishers A publisher funds the game through

to completion Publisher works with platform

manufacturer to produce Publisher conducts sales, marketing Finished product distributed to

retailers Developer receives royalties...

Hopefully!

Development costs

Handhelds cheapest DS: $250K - $500K PSP: $500K - $1.5M

Consoles more expensive Wii: $4M - $8M Xbox360/PS3: $8M - $15M

PC variable depending on quality, genre Casual: $100k-$500K High-end AAA: $8M - $15M MMO: $50M+

Multi-platform development License costs

Example cost scenario

PS3/Xbox360/PC AAA title, North America + Europe (EFIGS) Development: $20M Marketing: $10M Title MSRP $50, to retailers at $35 Platform manufacturing and royalty: $10 = $25/unit to publisher

$30M outlay, $25/unit requires 1.2M unit sell-through

Industry forces

Each advance in technology increases development costs PS1: $2M - $5M PS2: $5M - $10M PS3: $8M - $15M

With each new generation, must sell more copies per game, or sell for a higher price

Multi-platform, multi-territory titles More outsourcing Less innovation

Questions, comments

Mark DeLoura mdeloura@satori.org www.satori.org