Video games. Summary 348. North America 354. For Press Use only. Europe, Middle East, Africa (EMEA) 365. Asia Pacific 380.

Transcription

1 Video games Summary 348 North America 354 Europe, Middle East, Africa (EMEA) 365 Asia Pacific 380 Latin America 392

2 Summary Market size and growth by region The video game market in North America, EMEA (Europe, Middle East, Africa), Asia Pacific, and Latin America will expand from $58.7 billion in 2011 to $83.0 billion in 2016, growing at a 7.2 percent compound annual rate. Asia Pacific, with three of the top four countries in the world, is the largest region, at $24.3 billion in 2011, and is projected to be the fastest-growing region during the next five years, increasing 10.3 percent on a compound annual basis to $39.7 billion in Online games and wireless games, the fastest-growing enduser components of the video game market, constitute a larger share of total spending in Asia Pacific than in other regions and consequently have a greater influence on growth. EMEA, the second-largest region in 2011, with $18.0 billion, is projected to grow by 4.8 percent compounded annually to $22.8 billion. North America is projected to increase from $15.1 billion in 2011 to $18.6 billion in 2016, growing by 4.3 percent on a compound annual basis. Latin America is projected to grow to $1.9 billion in 2016 from $1.3 billion in 2011, a 7.2 percent compound annual gain. Video games The video game market consists of consumer spending on new console games (including handheld games), personal computer games, online games, and wireless games as well as video game advertising. The category excludes spending on the hardware used for playing the games. Retail purchases of games are included in either the PC games or console games category. The online game category includes microtransactions, which are players purchases of accessories and additional game content that enhance the gaming experience. Oftentimes, online games are first purchased at retail and then played online. When these games are then played online for a subscription fee, the subscription fee is counted in the online game category. Market size and growth by component Global console games, the largest category, at $27.5 billion in 2011, will expand at a 2.1 percent compound annual rate to $30.5 billion in PC games will continue to decline, decreasing at a 1.9 percent rate compounded annually to $3.1 billion from $3.5 billion in Online games and wireless games will be the fastest-growing end-user categories, with compound annual increases of 13.3 percent and 10.1 percent, respectively. Online games will total $31.4 billion in 2016, and wireless games, $14.2 billion. As a result, online games will replace console games as the largest gaming category in Video game advertising will increase from $2.2 billion in 2011 to $3.7 billion in 2016, growing by 11.2 percent on a compound annual rate. Principal drivers The shift to online and wireless games will hurt the console game market in the near term, although new games being marketed for the current generation of consoles the Wii, the Xbox 360, and the PlayStation 3 (PS3) with improved motion-sensory technology, which changes the game-play experience and brings in a wider range of players, will limit declines. The Wii U is the only next-generation console that has been officially announced, though next-generation consoles from the other manufacturers are likely to be introduced over the forecast period, spurring sales of games that take advantage of the new technologies, although a dip in sales is to be expected during the generational transition period for static consoles. The latest handheld devices the Nintendo 3DS and the PlayStation Vita, which are primarily gaming consoles will also continue supporting the market for console/handheld games. Deteriorating retail sales of games are hurting retail stores. If this pattern causes some retailers to close, it would further exacerbate the decline in the market for console and PC games. 348 PwC Global entertainment and media outlook:

3 Increased broadband penetration and, with it, the growing digital distribution of content will drive the growth of the online market. The migration of many massively multiplayer online games (MMOGs) from their subscription models to a free-to-play business model is increasing the number of players worldwide. The growth of microtransactions is providing a boom for the industry. Casual games and social network games are important components of the online market, helping expand the demographic base and stimulate spending. Some developers are shifting their attention from console games to concentrate more on online games. Global video game market by region (US$ millions) The growth of smartphones and tablets, such as the ipad, with improved graphic capabilities, is enabling developers to produce more-advanced wireless games and will drive demand for those games. Smartphones and tablets, aided by an intuitive-touch interface, are fast becoming the devices of choice for casual game players. At the same time, new application stores that make the purchase of games more userfriendly will increase the number of gamers willing to purchase games. The growth of advanced wireless networks, with their faster speeds, will enable wireless games to approach the quality of console games. The market for PC games will continue deteriorating as consumers turn their attention to newer technologies. Piracy of PC games, which is prevalent in certain markets, has also hampered the growth of the segment. The growth of the MMOGs, which usually require retail purchase of a PC game, continues to support the retail PC game market. Video game advertising is emerging as an additional revenue stream. The growth of social network games and free games is driving an increase in video game advertising. Region p North America 13,181 16,404 15,584 15,382 15,057 15,349 15,754 16,576 17,551 18,569 % Change EMEA 15,087 17,796 17,445 17,736 18,008 18,586 19,261 20,275 21,460 22,760 % Change Asia Pacific 15,215 18,624 20,942 23,059 24,313 26,982 29,664 32,751 36,099 39,739 % Change Latin America 966 1,198 1,230 1,282 1,345 1,432 1,527 1,641 1,768 1,908 % Change Total 44,449 54,022 55,201 57,459 58,723 62,349 66,206 71,243 76,878 82,976 % Change Video games Summary 349

4 Global video game market by component (US$ millions) Component p Console games 26,964 32,006 30,106 28,946 27,493 27,106 26,861 27,703 28,899 30,477 % Change Online games 7,897 10,829 12,921 15,019 16,796 19,475 22,225 25,071 28,176 31,394 % Change Wireless games 4,176 5,729 6,748 7,815 8,789 9,901 11,008 12,114 13,194 14,249 % Change PC games 4,346 4,055 3,798 3,777 3,462 3,375 3,312 3,252 3,195 3,141 % Change Total end-user spending 43,383 52,619 53,573 55,557 56,540 59,857 63,406 68,140 73,464 79,261 % Change Advertising 1,066 1,403 1,628 1,902 2,183 2,492 2,800 3,103 3,414 3,715 % Change Total 44,449 54,022 55,201 57,459 58,723 62,349 66,206 71,243 76,878 82,976 % Change Background on the global console/handheld hardware market Consoles The current generation of consoles consisting of the Xbox 360 from Microsoft, the Wii from Nintendo, and the PlayStation 3 from Sony began to be introduced in The consoles were available by 2007 in all regions except Latin America and became available in Latin America in Microsoft Xbox 360 The Xbox 360 was the first of the current generation of consoles to be introduced when Microsoft launched the device prior to the holiday season in November 2005 in North America, Europe, and Japan. The Microsoft Xbox 360 has sold over 66 million units worldwide as of the end of 2011 compared with about 50 million by the end of In North America, the Xbox 360 has a wide lead over the PS3, while in EMEA, the PS3 has a slight lead. By contrast, in Japan, the Xbox 360, which appeals primarily to Western gamers, has not performed well. In November 2010, Microsoft introduced Kinect, which eliminates the need for a controller by using a specially designed camera that enables games to detect a player s motions and replicate them onscreen. Eighteen million Kinects were shipped worldwide through the end of 2011 compared with 8 million a year earlier. In December 2011, Xbox released voiceactivated search powered by Kinect and Bing. In December 2011, the Xbox Live dashboard was redesigned, giving offerings like Last. fm and the Zune video rental service more prominent positioning to encourage the perception that the 360 is an entertainment device that also plays games. In fact, games represent only 60 percent of activity on the Xbox 360. Use of the console to watch videos has skyrocketed with the inclusion of Netflix. In February 2012, Kinect for Windows was introduced worldwide, enabling the device to be used with PCs. The Windows version works with a variety of applications, enabling other companies to integrate it into their programs. Microsoft is working with many companies such as Toyota, American Express, and Mattel on new applications that use the device. One of Microsoft s strengths is Xbox Live, a multiplayer gaming network, social network, and media suite. The Xbox Live Free, which has limited capabilities, such as voice chat and some downloadable content, is available at no cost. A paid subscription 350 PwC Global entertainment and media outlook:

5 to the Xbox Live Gold service is required for multiplayer gaming, accessing social networks such as Facebook and Twitter, and accessing content such as ESPN3. Worldwide, Microsoft has 40 million subscribers to its online services. There are rumors about the next Xbox console that many have called the Xbox 720. This device, which has not been announced officially, is expected to integrate with the Windows Phone. It is expected that the device will include a much faster processor and Blu-ray technology. The device is not likely to be released before the end of Nintendo Wii The Wii, which was launched in November 2006, is marketed mainly as a game machine, as opposed to the Sony and Microsoft machines, which are being promoted as media centers for home entertainment. Nintendo has expanded the universe of game players to include younger children, older adults, and women. Wii is the most popular console worldwide, having sold over 95 million units due to its wider appeal. The most popular titles for the Wii are published by Nintendo. Nintendo does not have as much support from third-party publishers as do Microsoft and Sony, though a number of publishers, such as Electronic Arts, Ubisoft, and Capcom, continue to release exclusive titles for the Wii. The Wii, which originally sold for $250, saw in 2009 its first price reduction when the price lowered to $200 in the US and included a bundle containing a copy of Wii Sports. In May 2011, the company introduced its second price cut, lowering the price to $150 and bundling it with Mario Kart Wii instead. The lower console price helped boost device sales. Sales of some of the popular Wii games also spurred console sales. For example, more than a million copies of Legend of Zelda: Skyward Sword were sold between its November 2011 debut and the end of the year, helping spur console sales. Similarly, despite launching in 2010, Just Dance 2 continues to sell well and was named the biggest third-party Wii game of all time, with 14 million units sold worldwide. The Wii sold over 4 million units in the US in The Wii is the only one of the major consoles that does not display in high-definition format. Nintendo introduced the Wii MotionPlus accessory in 2009, enhancing the Wii s controller s motion detection capabilities, but Sony and Microsoft responded with their own motion-based peripherals in 2010: Move and Kinect. The Wii is not as technologically advanced as its competitors. As a result, Nintendo was the first of the three major manufacturers to introduce its next-generation console, the Wii U, at the Electronic Entertainment Expo in June 2011 in Los Angeles. The new console, which is expected to be launched in major markets worldwide in time for the holidays in 2012, will display 1080p graphics and feature a 6.2-inch touch-screen controller that interacts with the TV and also functions as a monitor for continuous use when the TV is turned off. More details of the device are expected to be introduced at this year s expo and are rumored to include the ability to act as an e-reader capable of displaying books, magazines, and strategy guides for the company s games. There will be an app store designed for the device that will include apps for the TV screen, with others designed for the controller itself. The device is expected to work with multiple sticklike Wii controllers to enable multiplayer gaming. The app store and the e-reader will provide new revenue streams for the company. The Wii U is expected to be only slightly technologically superior to its current competitors. PlayStation 3 The PS3 was launched in November 2006 in the United States, Japan, Hong Kong, Taiwan, Mexico, and Canada, and in March 2007 in EMEA, Australia, and Singapore, with subsequent launches, including launches in the rest of Latin America in Global sales total around 63 million units worldwide. As with the Xbox 360, Sony has introduced a number of different PS3 models since its introduction, with the latest 160-gigabyte (GB) version replacing the 120-GB version. In August 2011, Sony lowered the price of the 160-GB and 320- GB versions in the US to $249 and $299, respectively, with similar price reductions around the world. The price reductions helped spur sales of the consoles in the latter part of Sales of the PS3 have grown each year since its launch. During its 2010 fiscal year, Sony sold 14.3 million PlayStation 3s worldwide and should hit 15 million by the end of its 2011 fiscal year in March The PS3 is being marketed as the most advanced home entertainment center, with a Blu-ray player and DVR capabilities as well as an outstanding gaming console. The PS3 online environment is free to users and lets game developers control their own environments. Additionally, other online content such as movies can be downloaded. In 2010, Sony introduced PlayStation Network Plus, an optional paid upgrade that provides free games, discounts, and other content. In February 2012, Sony announced that the PlayStation Network is being rebranded as the Sony Entertainment Network. In October 2010, Sony introduced the Move, its new motion controller that is similar to the Wii controller in that it is waved and can be used in lieu of a sword, a baseball bat, or many other devices. Unlike the Wii Remote, the Move also makes use of the PlayStation Eye camera to track the wand s position with greater fidelity and enable added gameplay features such as augmented reality. In the US, the Move comes bundled with a copy of Sports Champions or EyePet and the PlayStation Eye camera. Sony shipped more than 4 million units worldwide in the first month. Sports Champions, which is similar to Wii Sports, is a collection of sports that show off the controller s capabilities. Sony has said there would be no announcement at the 2012 Electronic Entertainment Expo regarding a new PlayStation console. The company said its current console will have a life span of 10 years. That doesn t mean a new console Video games Summary 351

6 cannot be introduced before 2016; rather, the PS3 will continue to sell for 10 years. Similarly, the PlayStation 2 continues to be supported and is still selling well, with games like Madden NFL 12 and NBA 2K12 among the top games for the PS2 in some territories. Many of Sony s first-party games have long shelf lives because they are not annual titles like certain other hit games such as the major sports titles. Handheld devices Combined with interest in the current generation of consoles, the market for portable game consoles continues to show strength. The Nintendo DS (dual screen) is the leading portable device on a worldwide basis because of its simplicity, which has broadened its appeal beyond hard-core gamers. The DS has two screens, providing players with two views of the action, touchscreen capabilities, wireless connectivity, and a built-in microphone, which are innovative features in handheld game consoles. The DS has broadened the market, attracting women and older players with its Touch! Generations brand of games, which includes a number of games in the Nintendogs and Brain Training franchises, both of which are exclusive to the Nintendo DS. There are a number of different DS models on the market, including the DSi and the DSi Excel. Nintendo introduced 3DS, the most anticipated new gaming device of the year, in February 2011 in Japan, and in the American and European markets in March The device enables users to play games in stereoscopic 3-D without the need for special glasses. Some of the games that were available at launch were Capcom s Super Street Fighter IV: 3D Edition and Nintendo s Pilotwings Resort and Nintendogs + Cats. Additionally, since the new device has backward compatibility, all games that played on prior DS models also work. Studios are planning to bring 3-D movies to the device. Initial sales of the 3DS were disappointing as the result of a limited number of titles, an incomplete online environment at the time of launch, and poor battery life. At the end of July 2011, Nintendo announced a worldwide 3DS price cut that reduced prices in Japan from 25,000 ($314) to 15,000 ($188) and in the US from $250 to $180, with comparable decreases worldwide, and supplied free games to gamers who purchased the device at full price. Sales of the device jumped worldwide. The launch of Mario Kart 7 and Super Mario 3D Land was quite successful, as they were the first two 3DS titles to reach a million units sold in the US and they were the two top-selling titles in Japan in As a result, the 3DS became the top-selling device in the world in The 3DS sold more than 4 million devices in the US and Japan in 2011, outpacing the Wii in its first nine months of sales. Sales are expected to remain strong in 2012 with the release of several major titles, including Kid Icarus: Uprising, Luigi s Mansion 2, Professor Layton and the Mask of Miracle, and Metal Gear Solid: Snake Eater 3D. The other major game console in the sophisticated portable market is the Sony PSP (PlayStation Portable), a handheld game device equipped with a 4.3-inch LCD screen that plays music and movies on a proprietary minidisc called the universal media disc, which can hold 1.8 GB of data. The PSP was originally launched in Japan in December 2004 and in other major markets in Since then, a number of different models were introduced, including a budget model called the PSP-E1000, which was launched in Sony introduced the PSP Vita, the newest in its line of handheld devices, in Japan in December 2011 and launched it worldwide in February The Vita is a touchinterface motion-sensitive handheld device that is a successor to the PSP. The Vita has high-definition capabilities and improved graphics, providing a gaming experience approaching that of the PS3. It has a fiveinch OLED (organic-light-emitting-diode) screen running four times the resolution of the PSP. It also has front and rear touch pads and cameras. In the US, the Wi-Fi version sells for $249, and the third-generation (3G) version sells for $299. Some of the titles that were available on launch day were Sony s Uncharted: Golden Abyss, Square Enix s Army Corps of Hell, and Electronic Arts Sports FIFA Soccer. The Vita has a memory card for physical software as well as the ability to download games and apps via the PlayStation Network. Sales of the Vita trailed off in Japan after the first week. It remains to be seen how well the device will sell worldwide. Sony Ericsson introduced the Xperia PLAY in It is an Android-based smartphone that is part of the PlayStation Certified program, meaning that it can play PlayStation suite games. The market for dedicated handheld devices is facing growing competition from the rapidly increasing capabilities of smartphones and tablets. Though in aggregate the dedicated devices have advantages, such as the quality of the games being superior to those on a smartphone and having a controller-type feel to them, a shrinking number of people are willing to pay the relatively high prices for the games when they can purchase much cheaper games for their smartphones. In general, the overall gaming experience is being enhanced by the linking of different gaming platforms. For example, Xbox Live allows PC gamers to interact with Xbox gamers. Additionally, technology advances are enabling smartphones to act as controllers for some of the consoles. Social gaming Social gaming on sites like Facebook, Myspace, and Google+ is growing exponentially. Social games are free, widely available, load in a few seconds, and require only a few minutes at a time to play. They use a business model called freemium, whereby the games are provided free, with the developers gaining revenues through microtransactions as well as advertising. The games grow virally because users can invite all of their contacts to join them in playing the game. 352 PwC Global entertainment and media outlook:

7 Zynga, the major game developer on Facebook, is credited with introducing the first social game, Zynga Poker, in July Zynga s Farmville, which was launched on Facebook in June 2009, was the fastestgrowing game of all time, with more than 84 million monthly users at its peak. Since then, CityVille, another game from Zynga, which launched in December 2010, hit 88.4 million players within a month of its release and has since reached more than 100 million visitors. It was the first time that Zynga launched a game worldwide simultaneously that is localized for specific regions. In November 2010, Zynga acquired Newtoy Inc., developer of Words With Friends, a very popular game online as well as on mobile devices. Since then, Zynga has developed other games in the With Friends series, including Hanging With Friends and Scramble With Friends. Cloud computing In June 2010, OnLive introduced a gaming-on-demand service based on cloud computing in the US. At its launch, OnLive had 10 games in its inventory and now has more than 200 games available. Instead of offering games for purchase online and letting them download to a computer, the on-demand service maintains the processing of the games on its servers and enables users to play the games via cloud computing. This levels the playing field for all players regardless of the computer they re playing on, and as a result, gamers using computers with low-end processing capabilities experience the games in the same way as those using high-end machines, because the actual game processing is taking place on the OnLive servers and not on the gamers hardware. Games are treated as a service, with the business model being either a subscription or a rental that targets nontraditional demographics, a growing trend in the market. The service will not replace a highend PC or console for core gamers, but it will add more casual gamers to the market. The service is being supported by major publishers like Take Two, Electronic Arts (EA), THQ, and Ubisoft to reach people who do not normally buy games. Other advantages of the service are that it will cut down on piracy because the games are never actually downloaded and it enables the game developers to more easily update their games. By contrast, game download services like Valve s Steam and EA s Origin provide digital distribution of a game but require gamers to have powerful computers and significant hard disk drive capacity to save the games as well as the time to download them. These two companies are the major digital distribution platforms, though Valve s Steam is still much more established. Cloudcomputing models will contribute to overall growth in online games. OnLive introduced an all-you-can-play flat-fee subscription service called PlayPack plan, which allows unlimited access to the majority of its older games. It is similar to the Netflix streaming service for movies. OnLive was initially available for PCs and Macs. In December 2010, OnLive introduced a game system that includes a MicroConsole TV adapter, a free game, and a wireless controller that can be connected to a TV via Ethernet or Wi-Fi. In this way, games can be played on a television without the need for an expensive game console system. OnLive expanded to the UK in September In December 2011, OnLive introduced an app for Apple and Android phones, enabling them to run full versions of games. The app works with Wi-Fi-enabled phones and those that use fourth generation (4G). The games cost more than mobile games but are more advanced than typical mobile games. Since the games are based in the cloud, gamers can begin playing on a PC, switch to a mobile device, and then switch back to the PC. Gaikai launched a similar cloud-based game service in February Currently, EA, Capcom, and Ubisoft have signed agreements to supply many of their titles, and Gaikai is negotiating with other publishers to join the service. Players can try the games for free on any connected device and then purchase the games, which are streamed to a PC or tablet. OnLive is available on all Internet-connected smart TVs running the Google TV platform; Gaikai comes installed on a number of new LG TVs. In the near term, cloud-based services continue to face competition from companies that are already established in the digital distribution of games, such as Direct2Drive and Shockwave. They are trying to sell their products to a market whose consumers are already equipped with the required technology. Additionally, since the pricing is not that much different from the current pricing of the download companies, there s little incentive to switch to cloud gaming. Since multiplayer gaming is becoming a more important segment of the market, these companies must develop strategies that minimize the latency of playing games on a remote server. The business model for the cloud gaming companies has a better chance for success in the future, when consumers are faced with the choice of buying the next generation of new consoles or playing games from the cloud. Cloud computing will have an impact on many segments of the market, including having a negative effect on the retail sales of console games and PC games while having a positive effect on the subscription-based online game segment. Since cloud users save game data and history in the cloud, this will make the service stickier. Cloud services also will have a positive impact on advertising because ads can be easily updated in the cloud. Video games Summary 353

8 North America The outlook in brief Growth of the online market as well as the migration of some players to cheaper games on mobile devices will cut into the console/handheld game market. The growing number of people playing games on social networks and the increased number of microtransactions are driving the online game market. Smartphones and tablets, which are becoming the preferred devices for casual gamers, are boosting the wireless game market. The physical PC game market will continue to deteriorate as digital distribution of games increases and gamers seek alternative platforms. Advertising will grow as more advertisers realize the gaming industry s potential to reach specific audiences. Overview The overall video game market is projected to grow by 4.3 percent compounded annually to $18.6 billion in 2016 from $15.1 billion in Video game market by component (US$ millions) Consumer spending on games will grow at a 3.6 percent compound annual rate to $16.6 billion from $13.9 billion in 2011, while advertising will increase from $1.2 billion in 2011 to $2.0 billion, an 11.2 percent increase compounded annually. Console/handheld games will continue to be the dominant segment of the market, though growing at only a 1.9 percent compound annual rate to $10.6 billion in 2016 from $9.7 billion in Online games are expected to increase from $2.6 billion in 2011 to $3.9 billion in 2016, growing by 9.0 percent on a compound annual basis. Wireless games will increase by 7.1 percent on a compound annual basis from $1.1 billion in 2011 to $1.6 billion in The PC game market will decrease to $434 million in 2016 from $534 million in 2011, a 4.1 percent compound annual decline. North America p Console/handheld games 9,445 11,988 10,863 10,237 9,672 9,474 9,339 9,666 10,105 10,625 Online games 1,747 1,993 2,136 2,319 2,559 2,842 3,150 3,419 3,693 3,932 Wireless games ,024 1,115 1,203 1,287 1,370 1,474 1,574 PC games Total end-user spending 12,589 15,630 14,687 14,347 13,880 14,021 14,261 14,923 15,723 16,565 Advertising ,035 1,177 1,328 1,493 1,653 1,828 2,004 Total 13,181 16,404 15,584 15,382 15,057 15,349 15,754 16,576 17,551 18,569 Download a PDF version of each segment. Visit the online Outlook at PwC Global entertainment and media outlook:

9 Video game market growth by component (%) North America p Console/handheld games Online games Wireless games PC games Total end-user spending Advertising Total The video game market in the United States is expected to grow from $13.3 billion in 2011 to $16.4 billion in 2016, a 4.1 percent compound annual increase. Video game market by country (US$ millions) The Canadian video game market will increase by 5.3 percent on a compound annual basis, reaching $2.2 billion in 2016 from $1.7 billion in North America p United States 11,823 14,720 13,885 13,700 13,344 13,572 13,902 14,618 15,469 16, Canada 1,358 1,684 1,699 1,682 1,713 1,777 1,852 1,958 2,082 2, Total 13,181 16,404 15,584 15,382 15,057 15,349 15,754 16,576 17,551 18, Console/handheld game market The console/handheld game market experienced its third straight year of declines, decreasing by 5.5 percent following a 5.8 percent decline in In particular, sales in December were much weaker than in December of the prior year. The declines are attributable to the aging of the current generation of consoles as well as the migration of gamers to other platforms. Activision Blizzard s Call of Duty: Modern Warfare 3 was the top-selling game in It became the biggest entertainment launch in history, hitting $400 million in the US and the UK on its first day of sales. The record had previously belonged to the prior installment in the franchise Call of Duty: Black Ops which grossed $360 million on its first day in Call of Duty: Modern Warfare 3 went on to gross $1 billion in its first 16 days after its November 8 launch, one day quicker than Avatar, the James Cameron movie, which was the highestgrossing film of all time. Call of Duty: Modern Warfare 3 is available on all three consoles and on the PC. The Call of Duty franchise includes five of the top-selling games of all time in the US. Just Dance 3, which is available for all three of the major consoles, was the second-best-selling game in 2011, while its predecessor, Just Dance 2, the eighth-best-selling game in 2011, is a Wii exclusive. Video games North America 355

10 Gears of War 3, which is exclusive to the Xbox 360, was the only other exclusive game among the top 10 in Two other top games Madden NFL 12 and Call of Duty: Black Ops are available for all three consoles. Call of Duty: Black Ops is also available on the DS among the top 10, the only title available for that device. Skylanders: Spyro s Adventure was a hit kids game that gained extra revenues through the sale of figures that could be transported and played with multiple consoles, thereby enabling children to take them to their friends houses and play with them regardless of the console they were using. Super Mario 3D Land and Mario Kart 7 were the fastestselling portable games in 2011 and the first 3DS titles to top 1 million in unit sales. A number of highly anticipated games are scheduled for launch in 2012, including BioShock Infinite, the follow-up to the outstanding 2007 first-person shooter BioShock; Grand Theft Auto V, the latest in the hit series; and Mass Effect 3, the third of the sci-fi trilogy that started in All of these games will be available on the PS3 and the Xbox 360. The Last Guardian will be one of the exclusive PS3 titles to debut in 2012, while Halo 4 will likely be a major exclusive title for the Xbox 360. Sony launched Uncharted: Golden Abyss for the PS Vita in February Resident Evil: Revelations is the mostanticipated game for the 3DS. It plays just like the console version, allowing fans of Resident Evil 4 to have an equivalent experience on a portable device. Although it has not been announced officially, Activision is anticipated to continue its pattern of launching major titles at the end of the year to take advantage of holiday sales, with the introduction of Call of Duty: Black Ops 2 as the next installment of the hit series. Canada passed the UK to become the third-largest developer of video games in the world, surpassed only by the US and Japan. Canada is the home of a number of top video game developers, including Ubisoft in Montreal, which developed Tom Clancy s Splinter Cell series of games; BioWare in Alberta; and Electronics Arts in Burnaby, British Colombia, which developed FIFA Soccer, one of the most popular games in the world. Around 20 percent of the top-selling games in North America are developed in Canada. Two factors that are helping make Canada a major game-developing center are (1) the large pool of talent as a result of many colleges with game development departments and (2) government policies that support the industry through tax credits and incentives. Provincial governments in Canada are revamping their tax credit systems to attract game developers. Ubisoft, for example, is making a significant investment in Ontario because of an attractive tax package. These incentives make it cheaper and easier to develop games in Canada than in the United States and Europe. The Canada Media Fund, which traditionally supported television production, now requires funded projects to have interactive components. This is driving all content creators to develop video games or interactive Web sites. The console/handheld game market declined in 2011 by 5.5 percent, reflecting the aging of the current generation of consoles. The launch of Mario Kart 7 and Super Mario 3D for the 3DS buoyed the market for handheld games. There is a migration to more-casual and mobile gaming, which is hurting the console game market. We anticipate modest declines in 2012 and 2013 followed by a turnaround in 2014, when it is expected that all three next-generation consoles will be on the market. Until then, new games developed to take advantage of the motion controllers of the PS3 and Xbox 360 as well as new games for the 3DS, PSP Vita, and Wii U should have a positive effect on the market, minimizing the decline. Even with the new consoles, due to competition from digital platforms we do not expect the console/handheld game market to show the large increases of the past. The console/handheld game market in the United States is expected to grow by 1.9 percent on a compound annual basis from $8.8 billion in 2011 to $9.7 billion in A similar pattern is expected for the Canadian console/ handheld game market, with revenues increasing 1.9 percent on a compound annual basis from $842 million in 2011 to $925 million in Overall spending in North America will increase from $9.7 billion in 2011 to $10.6 billion in 2016, a 1.9 percent compound annual increase. 356 PwC Global entertainment and media outlook:

11 Console/handheld game market (US$ millions) North America p United States 8,714 10,997 9,900 9,350 8,830 8,650 8,525 8,825 9,225 9, Canada Total 9,445 11,988 10,863 10,237 9,672 9,474 9,339 9,666 10,105 10, Online games The PC platform was traditionally the only means to play games online and is still the dominant platform, far surpassing the Xbox 360, which is in second place. Consoles are becoming more-important platforms because each of the consoles in the current generation of consoles supports online gaming. Their online marketplaces Xbox Live, PlayStation Network (newly rebranded as Sony Entertainment Network), and Nintendo Wii Shop enable gamers to purchase games, and they allow competition against other players anywhere via the Internet. Sony s PlayStation Network, which launched in 2006, is a free environment that provides online gaming as well as a means of downloading video and game content. Sony s PlayStation Plus subscription service for the PS3 went live in 2010 at a cost of $50 annually. Under the plan, users get free access to a selection of games that are normally available for sale from the PlayStation Network. Similarly, Microsoft has two online services: First, the Xbox Live Silver, recently renamed Xbox Live Free, provides users with free access so they can download a limited number of game demos and movie trailers. Second is a gold membership, which costs $60 annually and which is required for online gaming or access to other services like Facebook. The company has said it has 40 million registered users worldwide. Valve s Steam service is the dominant company in the market for legally downloading games to the PC. In late 2011, the company achieved a record 5 million concurrent users. Steam has over 1,800 games available to download to its 40 million registered users worldwide. In June 2011, Steam introduced free-to-play games, including Sega s Spiral Knights and Perfect World s Forsaken Worlds and has expanded its library to around 20 games, with more to be added in In June 2011, Electronic Arts launched Origin, formerly the EA Store, as a competitor to Steam. Origin is a digital distribution system that enables users to purchase games on the Internet and download them to their PCs or mobile devices. Additionally, Origin has a number of other features, including (1) the saving of games in the cloud, thereby enabling them to be played on different devices, and (2) social features such as networking with friends. Origin currently offers more than 100 titles in its portfolio of games from a number of different publishers, far fewer than the Steam platform, which has around 1,500 titles. The Mac App Store launched in January 2011 with over a thousand programs and has made software (including games) available in a familiar marketplace for ios users. There are now around 9,000 apps in the store, with games representing the largest category. Many popular games are in the store, including Angry Birds and Plants vs. Zombies. That should help grow the market for Mac games, because in the past, retail game stores rarely stocked them in favor of games for the PC and consoles instead. Massively multiplayer online games are played by thousands of people simultaneously around the world. MMOGs are virtual worlds inhabited by supernatural beings, such as aliens or wizards that continue evolving. Most MMOGs are played on PCs, with additional content being delivered over broadband connections. World of Warcraft (WoW), which was launched in November 2004, is by far the most popular MMOG. The game, which had 12 million subscribers at its peak, has seen its subscriber count decline to around 10 million. After buying the game, subscribers pay a monthly subscription fee of $15 to continue playing online. World of Warcraft: Mists of Pandaria, the latest expansion pack for WoW, is scheduled to launch in 2012 and is expected to buoy demand for the game. Video games North America 357

12 A major new MMOG with a similar business model Star Wars: The Old Republic, was developed by EA s BioWare and launched on December 20, 2011, reaching 1 million subscribers by the end of the month. Players who bought the game are entitled to 30 days of free online service before they have to pay the $15 monthly fee. It remains to be seen how successful the game will be and if the subscription model still has staying power. By contrast, many other MMOGs such as EverQuest II, Age of Conan, and DC Universe Online have switched from the traditional business model to a free-to-play model, with microtransactions generating the revenues for the publisher. After the switch, the number of players for these games increased dramatically, as did the number of microtransactions. Not all MMOGs that switch from the subscription model become successful as free games, as evidenced by the demise of LEGO Universe in January 2012, which failed to achieve enough revenues after switching. Another major MMOG title is the free-to-play League of Legends, published by Riot Games, which has 30 million registered players worldwide. A number of new MMOGs are scheduled to launch in 2012, including Guild Wars 2, developed by ArenaNet; Sony s Planetside 2; and BioWare s Warhammer Online: Wrath of Heroes. None of these will use the traditional subscription business model but instead will be free to play, with microtransactions providing the revenue stream. Electronic Arts introduced a line of free-to-play online games, including Battlefield Heroes and Need for Speed World, that have reached 25 million players worldwide. Microtransactions enable gamers to buy items that give them an advantage in the game or enhance the gaming experience. Combined with the free-to-play business model, microtransactions let gamers control the amount they spend on games rather than paying a monthly subscription fee. Many game developers are adding downloadable digital content for their games so as to enhance the gaming experience and as an additional source of revenues. Activision launched Call of Duty Elite, an online service, on the same day it launched Call of Duty: Modern Warfare 3. The online service, which has more than 7 million subscribers, provides access to additional downloadable content. Games on social networks, such as Facebook, have grown exponentially. Zynga, the major game developer on Facebook, has had a number of major games. Its CityVille game became the biggest Facebook game of all time, reaching 100 million users and surpassing the record held by FarmVille, another Zynga game. The games are free to play and generate revenues from microtransactions and advertising. These games are also played by women and by people in older age-groups, thereby opening up opportunities for advertisers and other commercial partners. Most of the social games are played on PCs and, to a lesser extent, on smartphones and tablets. Words With Friends, originally developed by Newtoy Inc., which is now part of Zynga, has proved very popular on mobile devices. Zynga continues to develop new games in the series, including Scramble With Friends. The major game developers are beginning to realize the potential of social games. Electronic Arts, which acquired Playfish in November 2009 and PopCap in July 2011, recently released a number of social games on Facebook, including Sims Social, which reached 30 million users in its first month. Similarly, Disney entered the social game market by acquiring second-leading social game developer Playdom. Casual games such as puzzles, cards, and arcade games that do not require extended periods of time to learn and to play have attracted a wider demographic audience, including women and older adults. In fact, the majority of online gamers in the United States are women. A number of online sites such as Yahoo! Games, MSN s Zone, and Electronic Arts Pogo.com provide some free games, with most of their revenues coming from advertising. Some of the popular casual games are Bejeweled, Tetris, Solitaire, and Luxor. The games can be played online or downloaded. There are a number of different business models, including free, advertising-supported games; pay per game; and subscription-based games. The online game market in North America grew by 10.6 percent in Growth has been driven by an increase in broadband subscribers, by transition to the current generation of consoles, and by the growth of social games. There are more subscription services entering the market as well as more companies providing digital distribution. The online game market will grow from $2.6 billion in 2011 to $3.9 billion in 2016, increasing at a 9.0 percent compound annual rate. 358 PwC Global entertainment and media outlook:

13 An expanding microtransaction market will also fuel online game spending in North America during the next five years. The online game market in the United States is expected to increase from $2.1 billion in 2011 to $3.2 billion in 2016 a 9.0 percent compound annual growth rate while the Canadian online game market will increase at a slightly slower, 8.7 percent compound annual rate to $728 million in 2016 from $480 million in Online game market (US$ millions) North America p United States 1,399 1,605 1,722 1,879 2,079 2,316 2,574 2,797 3,020 3, Canada Total 1,747 1,993 2,136 2,319 2,559 2,842 3,150 3,419 3,693 3, Wireless games Wireless games are games played on mobile phones and other wireless devices. Almost all new wireless phones are now Internet enabled, facilitating the ability to download games. The increasing sophistication of the new handsets will make for a more enjoyable gaming experience. As people upgrade their existing handsets for newer models, the number of game-capable handsets will increase dramatically. Historically, mobile games were simplistic due to the graphic limitation of the handsets. As a result, the most popular mobile games were single-player board games, word games, and puzzles, although that trend is changing as AAA titles are being released for these devices. These casual games help widen the demographics of wireless game players. In fact, more than half of wireless gamers are women who enjoy playing casual games such as Tetris and Bejeweled, two of the most-often-downloaded wireless games. Originally, many handsets were embedded with games as a differentiator to drive sales of individual phones. Those games provided enjoyment for the users but did not provide any additional revenue for the operators. With the expansion of Internet-connected phones, operators saw the potential for additional revenues by users downloading of games at a modest fee. However, the carriers download platforms were often not consumer friendly. Apple s introduction of the iphone and the App Store revolutionized the wireless game market. The App Store improves the buying experience dramatically over carriers decks, has better descriptions, and offers free trials. The number of games on the App Store increased from around 5,000 in October 2008 to over 75,000 by the end of And a number of other online services such as the Android Market have been established that compete with the carriers decks to provide content. The sophistication of games for the iphone and ipod Touch has caused many gamers to substitute these devices for their DS and PSP handheld devices. In 2010, Apple introduced the ipad, a tablet computer that runs all of the iphone applications, including the games. With its enhanced graphic capabilities and its large touch screen, the ipad is becoming the platform of choice for many gamers. The introduction of the ipad 2, with the advanced A5 processor chip, which renders graphics much faster than the previous model did, further establishes the ipad 2 as a device on which to play games like Infinity Blade 2 and Real Racing 2, which have graphics that rival those of console games. The newest version, the ipad 3, with a higher-resolution screen, was introduced in The Android mobile device market has skyrocketed because of lower prices relative to the iphones. These phones provide another platform for gamers. Video games North America 359

14 Although casual games continue to dominate the market, more-advanced games that take advantage of the sophistication of the newer smartphones are also being developed. Even wireless versions of MMOGs are being developed for gamers on the go. These games will become more prevalent as the number of technically advanced handsets proliferates. There are a growing number of mobile games, both because of the rising penetration by smartphones and because the games are significantly cheaper than console games. Mobile gaming provides an enjoyable experience for short periods of time, as when waiting for a bus or train. The business model for mobile games is moving from the pay to download to the freemium model whereby the games are downloaded for free, with microtransactions and advertising providing the necessary revenues. In fact, it s estimated that in-game purchases will outpace download fees in the near future. Angry Birds was a hugely successful game as a paid download but has now garnered more fans as a free download. Social network games are finding their way to mobile phones, with microtransactions and advertising providing the requisite revenue streams. In December 2011, Microsoft introduced an Xbox Live app for Windows phones and Apple devices that enables users to track and compare their achievements and send messages to Xbox Live friends. Microsoft is also developing apps that will enable users to play Xbox Live games on their devices. Electronic Arts Mobile, the world s leading mobile game developer, is headquartered in California, with a major studio in Canada, and is best known for turning big-name titles like Monopoly, Scrabble, and Tetris into mobile games. Electronic Arts major position resulted from its purchase of Jamdat in Jamdat had been the largest mobile game developer in the world. EA Mobile continues acquiring smaller studios to enhance its position as the industry leader. In 2010, it acquired Chillingo, a leading publisher of ios games, including the ios version of Angry Birds. In 2011, EA acquired Australian game developer Firemint, developer of Flight Control, Real Racing, and SpyMouse. In 2011, EA launched a mobile version of its popular Facebook social game Sims FreePlay for Apple devices. Zynga, the online game developer famous for its games on Facebook such as CityVille, is developing a series of games for mobile devices to expand its user base. It recently introduced its Scramble With Friends word game to join Words With Friends and Hanging With Friends in the wireless segment. The wireless game market is expected to continue growing as the penetration by smartphones and tablets expands. More people will be playing games, including casual games, social games, and more-advanced multiplayer games. The market will also grow as more gamers get accustomed to making microtransactions in order to enhance their gaming experience. The wireless game market in North America rose 8.9 percent in During the next five years, the market will expand at a 7.1 percent compound annual rate from $1.1 billion in 2011 to $1.6 billion in The wireless game market in the United States is expected to grow by a 7.1 percent compound annual rate, reaching $1.4 billion in 2016, up from $990 million in 2011, while the Canadian market will increase from $125 million in 2011 to $181 million in 2016, a 7.7 percent annual growth rate. Wireless game market (US$ millions) North America p United States ,066 1,138 1,211 1,304 1, Canada Total ,024 1,115 1,203 1,287 1,370 1,474 1, PwC Global entertainment and media outlook: