Mobile Games Brief. May, Digital Games Market Brief: United States & China

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1 Mobile Games Brief Digital Games Market Brief: United States & China May,

2 Executive summary What s in here. Spending whales drive mobile revenue in China to more than double by year s end as a letup in conversion leads U.S. revenue to grow by less than 10%. While smartphone penetration and growing in-game social features are large contributors to mobile gaming growth in the U.S., this is even more so the case in China. Aside from the Tencent ecosystem, top grossing Android games in China are mainly card battles, RPGs and simulations. The growing variety of mid-core games entering the Chinese market are attracting more stable and active players and payers. High ARPPU garnered from the growing mid-core segment coupled with increased confidence in the security of in-app purchases have led to increased spending confidence in both China and the U.S. The free-to-play model has been fully adopted by the highest grossing casual titles in China and the U.S. However, China finds the highest ARPU from mid-core and core games while the U.S. continues to see monetization from a variety of genres. Both regions see CPI increase year-over-year, in large part due to established publishers increasing marketing budgets. Developers in both markets will need to focus on understanding effective monetization mechanics for in-app purchases and targeting their most lucrative audiences as free-to-play becomes the standard for mobile games. Research and development of creative IP, game quality and effective acquisition incentives will need to stay competitive in order for new games to overcome the over-saturation of the global mobile games market.

3 Methodology Terminology & Definitions Methodology All data and analyses on the United States and Chinese mobile markets are provided by SuperData Research and TalkingData, respectively. For a detailed overview and explanation of our methodology and data collection, please refer to our websites: For questions regarding data on the U.S., contact SuperData Research. For questions regarding data on China, contact TalkingData. Terminology Android: Operating system developed by Android, Inc. for smartphone and tablet devices. App Store: An online marketplace where users can purchase and download apps and games, such as the ios App Store and Google Play. ARPPU (historic): Average Revenue Per Paying User per month. Conversion Rate: The number or percentage of users that have shifted from non-paying to a paying status. Cost per Install (CPI): The amount of marketing dollars required for an app to acquire a single user. Daily Active Users (DAU): The number of unique users that have used an application at least once over the course of a day. DAU/MAU (Daily active users/monthly active users): Ratio indicating how many of active users play each day, showing player engagement. Also known as the stickiness factor. F2P/Freemium: Offering a game, product or service free of charge (such as software, web services or other) while charging a premium for advanced features, functionality, or related products like virtual goods and services. Google Play: ios / ios App Store: Operating system developed by Apple for iphones and ipad tablets and its corresponding app store. In-Game Purchase (IAP): A purchase made inside a mobile game of virtual goods. Intellectual Property (IP): Original and proprietary creative material used in a game, such as storyline, animation, characters, gaming mechanics, etc. Lifetime Value (LTV): The average revenue generated over the entire lifespan of a player in a single game. Mobile Games: Gaming applications played on a smartphone or tablet device.

4 Methodology Terminology & Definitions (cont.) Terminology (cont.) Mobile Games: Gaming applications played on a smartphone or tablet device. Monthly Average Users (MAU): The number of unique users that have used an application at least once over the course of 30 days or one month. Virtual Goods: In-Game items or game-related services, such as a virtual currency or temporary subscription, that enable or enhance game play. Whales: Top spending users who typically generate bulk of revenue. Usually defined by a percentage (i.e., top 10% of spenders) or an amount (ex. gamers with lifetime values over $1,000). Genres Card battles: Gameplay is determined by drawing and playing cards such as Magic: The Gathering Duels of the Planeswalkers or Puzzle & Dragons Casual: Games with a low learning curve, quick and easy gameplay sessions, and often the requirement to complete levels in order to advance in the game. Core: Games that have high learning curves and time commitment requirements. Mid-core: Games that require more commitment than casual games, but often have lower learning curves and require less time to maintain than core games. Role-playing game (RPG): Games where players take on the role and decision-making abilities of a character in to advance through a fictional setting. Simulation: Games that replicate real-life scenarios in the form of gameplay.

5 Mobile Games Market: Overview Market growth due to rising smartphone penetration and maturing freemium market. Mobile games revenue and audience (MAU), 2014E Worldwide United States $3.2B 242M $21.6B 1,996M China $3.0B 266M Audience (MAU) 182 MM 237 MM 266 MM 242 MM Revenue $1.4 B $3.0 B $3.0 B $3.2 B As worldwide smartphone penetration continues to grow the mobile gaming audience, smartphones have become affordable gaming devices with a lower barrier to entry than PCs and consoles. The Chinese market in particular has seen quick and steady penetration growth with the availability of increasingly affordable Android devices. Players in both the United States and China have become more comfortable with the freemium model and, thus, more willing to spend money on in-app purchases E E

6 Spending booms in China, slows in the U.S. Payment security & the rise of mid-core games help boost spending in both regions. The growth of U.S. MAU has decelerated as the American mobile market saturates. As a result, not enough new spenders are entering the mobile games market causing a stagnation in the conversion rate. Casual games are accessible and give users more opportunities to convert into payers at a low initial cost. Thus, as Tencent brings big casual titles like Candy Crush Saga to China, more mobile users are becoming mobile gamers and spenders. United States 2013 Q Q1 Conversion 5.2% 5.0% China 2.4% 2.9% ARPPU (Average revenue per paying user) $19.52 $26.72 $21.60 $32.46 Both Chinese and American mobile gamers have become more trusting of mobile payment methods. SMS payments through carriers and third-party providers like Ali Pay are quickly growing in China, and the ios App Store and GooglePlay have increased payment safeguards, helping gamers in the U.S., and worldwide, feel more secure when making in-app purchases. Mid-core and core games have helped boost ARPPU in both regions since they are increasing in popularity across the United States and China and traditionally see higher spending than their casual counterparts.

7 CPI and ARPU rise year-over-year in China A year later, U.S. ARPU doesn t change much while CPI rises 37%. Cost per install (CPI) and average revenue per user (ARPU), indexed (2013 Q1 vs Q1) U.S. CPI ARPU Jan Feb Mar Jan Feb Mar China CPI ARPU 100 App stores have become over-saturated with content, leading to a freeze in top grossing ranks. As a result, larger publishers with more marketing dollars have inflated U.S. CPIs year-over-year. Though ARPPU has increased in the U.S., it did not increase enough to account for the slow-down in new users and decrease in conversion. Thus, U.S. spending has not risen to the demands of growing CPI. Seasonal promotions in conjunction with spring festivals inflated Chinese CPIs this January year-over-year. CPIs decreased in the following months but stayed higher than a year ago. Whales are still the biggest contributors to mobile games revenue in China. However, with the growth of casual games, lower Chinese spenders have helped to give ARPU a bump upwards to meet increasing CPIs Jan Feb Mar Jan Feb Mar

8 About Who we are SuperData provides market intelligence on the online, digital and mobile games industry. We collect digital point-of-sale data directly from publishers and developers to give our customers unparalleled monthly insights into the unboxed games market. This allows us to identify key trends, evaluate marketing spend, establish accurate revenue estimates and analyze market changes for popular online games, including MMOs, FPS, casino, virtual worlds, mobile and social games. SuperData publishes industry-relevant key performance indicators. Using our proprietary panel of 2.8 million paying online gamers, we establish monthly benchmarks such as monthly active users, conversion rates, ARPPU and title-level revenue estimates. Customers use our data to evaluate their performance, identify key growth opportunities, assess revenue potential, optimize their efforts, and better understand their audience s wants and needs. TalkingData is China's leading data service provider for Mobile Internet. We offer the most data-rich and insightful reports along with the best-in-class data products and solutions to accelerate your success into the Chinese mobile market. TalkingData Insight: TalkingData AppCPA: TalkingGame: TalkingData Analytics: The Intelligence platform that gives the most accurate source of data for the Chinese mobile market. Base on that we provide most data-rich and insightful reports to help mobile businesses entering Chine stay ahead of the competition. The ONLY independent mobile Ad tracking platform integrated with all major mobile Ad networks and cooperating with all major mobile distribution channels (3rd part app stores) in China. Trusted by top advertisers and publishers. The No.1 mobile game analytics platform that is recognized by the whole mobile game ecosystem of China. The largest 3rd party Analytics platform for mobile apps in China. Used by apps covering 400M+ devices.

9 Contact How to reach us For inquiries regarding U.S. data: Senior Analyst, Consumer Insights Stephanie Llamas Director, Business Development Sam Barberie 116 West 23rd Street, 5th floor New York, NY For inquiries regarding China data: Director, Global Business Development Ibrahim Dai Director, Global Marketing Fiona Ji Room 602, Aviation Services Plaza Building #2, No. 39 DongZhiMenWai Street Dongcheng District, Beijing, China Social Casino Metrics, April 2014 Copyright 2014 SuperData Research. All rights reserved.