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Opportunities in Video Games – Understanding the Market for Mobile, Console and Casual Games: 

Opportunities in Video Games – Understanding the Market for Mobile, Console and Casual Games Michael Gartenberg Vice President & Research Director

Agenda: 

Agenda US Games Industry Mobile Games Console Games Casual Games

US Video Game Industry: 

US Video Game Industry

Consumers Say They Are Substituting Games for Other Media: 

Consumers Say They Are Substituting Games for Other Media Question: Which of the following activities do you generally do less of because of your time spent playing video games? (Select all that apply.) Source: JupiterResearch/Ipsos-Insight Consumer Survey (5/05), n = 1,465 (online regular gamers, US only) Percentage of Online Regular Gamers

Despite Low Audience Growth, Revenues Show Strong Upward Trend: 

Despite Low Audience Growth, Revenues Show Strong Upward Trend (in billions) Revenues $8.8 $8.7 $8.5 $10.2 $12.8 $14.0 $12.7 $11.3 Source: JupiterResearch Games Model, 3/05 (US only)

Growth of Console Audience Plateaus as Saturation Nears: 

Growth of Console Audience Plateaus as Saturation Nears Source: JupiterResearch Games Model, 3/05 (US only) (in millions) New households: 6.3m Number of US Game Console Households Percentage of US Households

Depth and Breadth of Content Drives Appeal: 

Depth and Breadth of Content Drives Appeal Niche content Console Market Growth Baseline appeal Enhanced functionality Value opportunities Mass appeal content Hit titles Alternative platforms Source: JupiterResearch Games Model, 3/05 (US only) Daunting learning curve

Ancillary Revenues Show Pronounced Cycle-Over-Cycle Growth: 

Ancillary Revenues Show Pronounced Cycle-Over-Cycle Growth Percentage Change in Revenues (Cycle-Over-Cycle) Mean growth: 45% Mean growth: 38% Source: JupiterResearch Games Model, 3/05 (US only)

Connected Consoles Drive Real Revenues in Next Generation: 

Connected Consoles Drive Real Revenues in Next Generation (in millions) Source: JupiterResearch Games Model, 3/05 (US only) Connected Console Revenues Percentage of US Households

Generational Hand-Off Segments Market Through Time: 

Generational Hand-Off Segments Market Through Time Last Generation Next Generation Installed Console Base Tipping point to subsequent generation Current Generation Launch year Source: JupiterResearch Games Model, 3/05 (US only) (in millions)

Mobile Games: 

Mobile Games

Youth Are the Heaviest Cell Phone Game Players: 

Youth Are the Heaviest Cell Phone Game Players Percentage of Cell Phone Owners Playing Games on Mobile Phones Question: During the past six months, which of the following activities did you do at least once on a cell phone? (Select all that apply.) Source:JupiterResearch/Ipsos-Insight Teen Survey (11/04), n = 1,102 (teen cell phone owners ages 13 to 17, US only); JupiterResearch/Ipsos-Insight Consumer Survey (12/04), n = 1,733 (cell phone owners, US Only)

Cell Phone Game Players Favor Puzzles, Classics, and Action: 

Cell Phone Game Players Favor Puzzles, Classics, and Action Percentage of Teens Who Download Games to Mobile Phones Monthly Question: Please choose your three favorite types of action-oriented/casual computer or console games from the list below (game titles are examples of genres only). (Select top three.) Source: JupiterResearch/Ipsos-Insight Teen Survey (11/04), n = 140 (teens ages 13 to 17 who download games to mobile phones monthly, US only)

Despite Solid Adoption Trends, Mobile Gaming Remains Dominated by Free Services : 

Despite Solid Adoption Trends, Mobile Gaming Remains Dominated by Free Services Source: JupiterResearch/Ipsos European Consumer Survey (9/03), n = 5,072 (Western Europe only) Question: During the past year, which of the following activities did you do at least once on your mobile phone? Percentage of Online Consumers

Cell Phone Game Revenue Growth Will Slow as Market Matures : 

Cell Phone Game Revenue Penetration of Mobile Subscriber Base (in millions) Source: JupiterResearch Wireless Model, 9/05 (US only) Cell Phone Game Revenue Growth Will Slow as Market Matures

Growth in Game Downloads Creates New Publishing Opportunity: 

Growth in Game Downloads Creates New Publishing Opportunity Number of Mobile Game Downloads Percentage of Game-Capable Users Who Purchase Games (in millions) Source: JupiterResearch Wireless Model, 12/04 (US only)

Market Evolution Traces Online Games: 

Market Evolution Traces Online Games Licenser Developer Publisher Hardware Platform Carrier User CONTENT CREATION DISTRIBUTION CONSUMPTION Fragmented carriers Fragmented device capabilities Carrier control Low development costs High licensing costs Limited franchises Heterogeneous platforms Low interest Low value Growing audience Source: JupiterResearch (1/05)

Mobile Console Base Set for Modest Expansion on New Capabilities and Entrants : 

Mobile Console Base Set for Modest Expansion on New Capabilities and Entrants Installed Base (in millions) Source: JupiterResearch Portable Games Model, 4/05 (US only) Percentage of Household Penetration

Mobile Console Revenues Go from $2 Billion to $3.2 Billion in 2010 : 

Mobile Console Revenues Go from $2 Billion to $3.2 Billion in 2010 Source: JupiterResearch Portable Games Model, 4/05 (US only) (in millions) Portable Game Revenues

Console Games: 

Console Games

Few Rules Confirmed Through History of Programmable Console Competition: 

Few Rules Confirmed Through History of Programmable Console Competition Atari 2600 Magnavox Odyssey2 Intellivision Bally Arcade Channel F Titles Timing Hardware Price GENERATION Note: generations based on devices competition and timing rather than pure hardware specifications. STRATEGY Impact on success/failure of platforms: High Medium Low Source: JupiterResearch (3/05) Atari 2600 Magnavox Odyssey2 Intellivision Bally Arcade Channel F Playstation2 Xbox GameCube Sega Dreamcast Sega Master Nintendo NES TurboGrafx16 Sega Genesis Nintendo SNES PlayStation Sega Saturn Atari Jaguar Panasonic 3DO Nintendo64 Atari 5200 Commodore64 Coleco Vision Atari 7800

Momentum Is Critical Despite Many Features for Differentiation: 

Momentum Is Critical Despite Many Features for Differentiation Question: Which features do you consider most important for your next game system purchase (console or handheld)? (Select up to three.) HARDWARE TITLES/SOFTWARE Source: JupiterResearch/Ipsos-Insight Consumer Survey (5/04), n = 1,055 (adults ages 18+ interested in buying a game console, US only); JupiterResearch/Ipsos-Insight Teen Survey (11/04), n = 1,432 (teens ages 13 to 17 interested in buying a game console, US only) Percentage of Online Users Interested in Buying a Game Console Percentage of Online Users Interested in Buying a Game Console

One-Third of Buyers React to Price Cuts, but Are Value Sensitive: 

One-Third of Buyers React to Price Cuts, but Are Value Sensitive Question: Which of the following factors most influenced your decision to buy a new game console? (Select up to two.) Source: JupiterResearch/Ipsos-Insight Consumer Survey (11/04), n = 1,079 (game console owners, US only) 18% 16% Percentage of Online Users Who Own Game Consoles Console ownership: 42% 34%

Capturing Innovators Is Key to Driving Adoption Among Imitators: 

Capturing Innovators Is Key to Driving Adoption Among Imitators Percentage of Adult Console Owners Timeframe of Console Purchase (PS2 launch) (XBox launch; NGC launch) Early Adopter Mass gamer/ Early Adopter Mass Gamer Laggard Year 1 Year 2 Year 3 Year 4 Imitator Innovator Source: JupiterResearch/Ipsos-Insight Consumer Survey (11/04), n = 1.079 (online adults who own a game console, US only) Question: If you own a game console (e.g., PlayStation, XBox,Nintendo GameCube, or other), when did you buy or receive it? (Select one.)

Diminishing Return of Graphics Is Impetus for New Sources of Innovation: 

Diminishing Return of Graphics Is Impetus for New Sources of Innovation Time Marginal Benefit Connected Console and AI Source: JupiterResearch (3/05) Movie-like PS Current Next Pong 2600 NES SNES Note: Adapted from GDC 2003 presentation by Jason Rubin, Naughty Dog.

Constraints Come Down on Connected Consoles in Next Generation: 

Constraints Come Down on Connected Consoles in Next Generation Source: JupiterResearch Home Networking Model, 8/04 (US Only); Entertainment Technologies Consumer Survey (7/04), n = 2,464 (US only) HH Connectivity 2004 HH Connectivity (2009) Penetration

Console Competitors Must Build on Fundamentals with Additional Features: 

Console Competitors Must Build on Fundamentals with Additional Features DIFFERENTIATION SEGMENTATION Brand Reasonable/competitive pricing DVD/CD playback; HD-compatible Built-in wired connectivity Large catalogue / wide selection Good graphics / powerful processing FUNDAMENTALS Coordinated releases Cross-device connectivity Innovative interface technology Value Adoption year Expandable storage Source: JupiterResearch/Ipsos-Insight Consumer Survey (11/04), n = 1,055 (online adults interested in buying a game console, US only) Percentage of Online Adults Interested in Buying a Game Console Question: Which features do you consider most important for your next game system purchase (console or handheld)? (Select up to three.)

Supremacy of Gift Giving Indicates Viability of Targeted Packages: 

Supremacy of Gift Giving Indicates Viability of Targeted Packages 34% Question: Which of the following factors most influenced your decision to buy a new game console? (Select up to two.) Source: JupiterResearch/Ipsos-Insight Consumer Survey (11/04), n = 1,079 (online adults who own a game console, US only) Online Adults Who Own a Game Console

JupiterResearch Game Segmentation Offers Guidance for Targeting Systems: 

JupiterResearch Game Segmentation Offers Guidance for Targeting Systems Dollars Spent on Games (Monthly) Time Spent Playing PC Action or Console Games (Weekly) =< $50 =< 5 Hours Status Gamers: 20% Sports, racing, adventure, casino Purchase drivers: Titles: licensed titles Systems: selection, downloads, bundled games, connected console Barely Gamers: 38% Strategy, racing, and action, high casual participation Purchase drivers: Titles: free demos Systems: low price, selection Thrifty Gamers: 13% Sports, action, RPG Purchase drivers: Titles: special offers, free demos Systems: low price, selection, non-game media Ultra-Gamers: 28% Action, RPG, strategy, SIM Purchase drivers: Titles: new releases, connectivity Systems: exclusives, selection, downloads, connected console, built-in storage > 5 Hours > $51 Source: JupiterResearch/Ipsos-Insight Consumer Survey (5/04), n = 1,015 (PC action and console gamers, US only)

Model for Assessing Competition with Respect to Demand Prior to Outcomes: 

Model for Assessing Competition with Respect to Demand Prior to Outcomes Note: See accompanying spreadsheet for scoring model. Teens Teen video game tastemakers Adults Adult early adopters Adult mass adopters Score Source: JupiterResearch/Ipsos-Insight Consumer Survey (11/04), n = 1,055 (adults ages 18+ interested in buying a game console, US only); JupiterResearch/Ipsos-Insight Teen Survey (11/04), n = 1,432 (teens ages 13 to 17 interested in buying a game console, US only)

Casual Games: 

Casual Games

Casual Games Are Broadly Enjoyed Among Gamers: 

Casual Games Are Broadly Enjoyed Among Gamers Question: Please choose your three favorite types of casual computer or console games from the list below. Source: JupiterResearch/Ipsos-Insight Consumer Survey (5/04), n = 2,556 (US only) Percentage of Online Consumers

Second-Order Analysis Segments Gamers by Primary Motivations: 

Second-Order Analysis Segments Gamers by Primary Motivations Question: Which of the following best describes the video games you play most often? (Select one.) Source: JupiterResearch/Ipsos-Insight Consumer Survey (5/04), n = 2,048 (gamers, US only) Percentage of Gamers

Plot Lovers and Vicarious Gamers Share Traits, Account for 15 Percent of All Adult Gamers: 

Plot Lovers and Vicarious Gamers Share Traits, Account for 15 Percent of All Adult Gamers Plot Lovers High handheld game device ownership: 2X online audience High PC game ownership 20 compared to average of 13 High titles spending: 2X average on post-2000 consoles Intensive users: 11 hrs/week vs. 5 hrs/week on post-2000 consoles Highest representation in 25 to 34 year olds (~36%) Price motivated Wide selection of titles important in system Vicarious Gamers High interest in connected consoles: 2.5X average gamer Sequel, genre, and publisher driven Highly male skewed Skewed toward low household income Highest representation in ages 18 to 24 category Source: JupiterResearch/Ipsos-Insight Consumer Survey (5/04), n = 137 (plot lovers, US only); n = 161 (vicarious gamers, US only)

Challengers and Explorers Share Traits, Account for One in Four Adult Gamers: 

Challengers and Explorers Share Traits, Account for One in Four Adult Gamers Challengers Gender balanced Consolidated interest in puzzle and arcade games High interest in bundled games with consoles system Price motivated on software purchases Explorers High titles ownership: 1.5X post-2000, almost 2X pre-2000 High spending on titles: $90 more than average High combination of PC-casual and console hours per week High interest in action, adventure, RPG game genres Price motivated on software purchases Motivated by “recommendations” to buy titles Source: JupiterResearch/Ipsos-Insight Consumer Survey (5/04), n = 350 (challengers, US only); n = 133 (explorers, US only)

Distracters Occupy a Distinct Role and Account for One in Three Adult Gamers: 

Distracters Occupy a Distinct Role and Account for One in Three Adult Gamers Source: JupiterResearch/Ipsos-Insight Consumer Survey (5/04), n = 720 (distracters, US only) Distracters Low game device ownership, high PC ownership High handheld game spending High casual game participation Very low interest in purchasing a game console Female skewed Skews toward an older audience

Connecting Genre Preferences with Motivational Drivers of Video Game Users: 

Connecting Genre Preferences with Motivational Drivers of Video Game Users Source: JupiterResearch/Ipsos-Insight Consumer Survey (5/04), n = 166 (vicarious gamers, US only); n = 137 (plot lovers, US only); n = 133 (explorers, US only) Note: More than 92 percent of each segment plays action-oriented games. Question: Please choose your three favorite types of action-oriented games from the list below. Percentage of Gamers ) Vicarious gamers Plot lovers Explorers

Distracters and Challengers Favor Casual Games: 

Distracters and Challengers Favor Casual Games Source: JupiterResearch/Ipsos-Insight Consumer Survey (5/04), n = 720 (distracters, US only); n = 350 (challengers, US only) Action oriented Casual- oriented Percentage of Distracters Percentage of Challengers Question: Please choose your favorite types of casual computer or console games from the list below.; Please choose your favorite types of action-oriented computer or console games from the list below.

Profile of the Casual Gamer: Demographics Inverse of Console Audience: 

Profile of the Casual Gamer: Demographics Inverse of Console Audience <$35K $35K to $59K >$60K Income Gender Ages 45+ Ages 25 to 44 Ages 18 to 24 Age Source: JupiterResearch/Ipsos-Insight Consumer Survey (5/04), n = 344 (heavy casual gamers, US only) Note: Base is heavy casual gamers (i.e., gamers that spend more than five hours per week playing casual PC games).

Interest in Casual Games Decidedly Not Casual : 

Interest in Casual Games Decidedly Not Casual Source:Jupiter Research/Ipsos-Insight Consumer Survey (7/03), n = 2,834 (US only) Hours per Week Question: How much time do you spend playing games in an average week, on each of the following devices? (Please enter amount of time in number of hours.) Hours per Week

Distribution Opportunities Are Broad, Revenue Is Challenged: 

Distribution Opportunities Are Broad, Revenue Is Challenged Source: Jupiter Research/Ipsos-Insight Consumer Survey (7/03), n = 2,290 (US only) Question: Which types of PC-based games have you played online in the past year? (Select all that apply.) Percentage of Video/Computer Game Players Fee No-fee

Opportunities: Good Outlook with Low Necessary Investment : 

Opportunities: Good Outlook with Low Necessary Investment Source: JupiterResearch PC Games Forecast Model (5/05) Gamers that Have Paid for Web Games (in millions) Revenue (in millions):

Methodology: 

Methodology Majority of the data in this presentation is from online consumer surveys designed by JupiterResearch and fielded to an external panel. Forecasts are built by our own data analysts. They are based on consumer survey data, data from industry players acquired under NDA agreements, publicly available financial information, etc. Models are developed internally and are proprietary.

תודה רבה (and stay in touch) mgartenberg@jupitermedia.com orenh@jupiterresearch.com weblogs.jupiterresearch.com/analysts/gartenberg : 

תודה רבה (and stay in touch) mgartenberg@jupitermedia.com orenh@jupiterresearch.com weblogs.jupiterresearch.com/analysts/gartenberg

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