BizTech 2015 Spring Case: Mecaslin Street Gamesmisclub.gtorg.gatech.edu/wp-content/uploads/2014/... · mobile gaming is stealing market share and redefining the gaming landscape.

1

BizTech 2015 Spring Case: Mecaslin Street Games

This case was adapted from a Deloitte Consulting Case from 2012 for educational use only in an internal

case competition.

About Mobile Gaming Gaming, once a simple pastime, is now a big business. In 2010, worldwide revenues for the industry

totaled $19.1 billion – a touch lower than the annual GDP of Bolivia. The key industry players, companies

such as Electronic Arts, Activision Blizzard, and Zynga, produce a variety of games with staggering rates

of sales. For example, Activision’s Call of Duty sold 6.5 million copies in the first 24 hours after its

release. As a point of comparison, the final edition of the Harry Potter series sold 6.9 million copies on

the day of its debut. However, even with these blockbusters, the overall pie is shrinking. Online and

mobile gaming is stealing market share and redefining the gaming landscape. From 2008 to 2010, the

sales of games for traditional consoles shrunk by $900 million. That being said, hardware sales have

been growing, and consoles will remain the largest gaming segment for the next five years, even as

revenue growth is expected to decline as gamers spend more of their time on social and mobile gaming.

Ten years ago, games were played on consoles and purchased on disks – now gamers can use mobile

phones, tablets, or PCs to download a game in mere minutes. Innovations like 3D and HD graphics are

increasing the file size of the products and necessitating changes to the delivery mechanism. Instead of

sending out a game on two disks, online downloads are gradually becoming the method of choice. While

these enhanced graphics are good for gamers, the constant state of innovation is putting a strain on the

IT resources of many of the market leaders. In one interview, a developer admitted that instead of

sending their development files over the terribly slow network, it was faster to ship them via FedEx. In

order to please the game consumers and creators alike, cloud computing is becoming an integral part of

any gaming company’s portfolio. In fact, new players like Zynga already use this operating model and

have come to be known as the new brand of company “born in the cloud”.

Picking up on the trends, established gaming companies are turning to social and mobile games to

provide new revenue streams via ad revenue. They are also drawn by the lower costs of the social media

games – development can take a few short weeks, and expenditure is measured in thousands, not

millions, of dollars. Another bonus of these new platforms is their ability to generate sustained revenue

streams as users buy upgrades within the game (an example is Zynga’s Mob Wars, wherein players pay

real currency for items that only exist within the world of their game. Zynga reportedly earns over

$22,000 daily on Mob Wars alone). This move to mobile and social gaming is driving faster, almost

continuous, design cycles. While this model ensures a constant stream of games to appease consumers,

recent reports have highlighted the strain the pressure of constant delivery puts on the development

staff. Gaming companies have seen decreased morale and heightened attrition as a negative

consequence of the shifts the industry is facing.

Another side effect of the shift to mobile gaming is that the profile of a typical gamer is dramatically

changing. Traditionally, the biggest market segment was comprised of males, aged 18-35, looking for

2

games rich in graphics, sound, and with a solid storyline. These types of consumers are willing to pay

between $40 and $60 for a game and upwards of $200 for the console on which to play it. Focused on

this customer profile, the gaming companies poured money into development with a high margin, low

volume revenue model. Enter social media and mobile games. The customer base shifts to a mix of

males and females, aged 5-55. They’re looking for easy-to-use games – the type that will help kill time

while they wait for the bus or stand in line – a level of enjoyment that they value at no more than $10

per game. With their low demands for quality, these games cost mere thousands to develop and make

up for their low margins with high sales.

Due to the increased competition and changing atmosphere of the industry, many of the largest gaming

companies are growing through acquisition – snatching up developing studios for their intellectual

capital. This helps offset some of the pricing pressures from the value chain – from console makers to

internet service providers – all of whom are looking to control the distribution of games to customers,

especially in this new “age of the cloud”.

About Cloud Computing Until a few years ago, consumers needed to buy hardware, software, and sometimes data in order to

use certain products. Recently, however, research and innovation has led to a significant breakthrough

in the way technology is delivered. In the past few years, companies have been leveraging the Internet

as a common infrastructure that can be used to deliver products.

Cloud computing is a nebulous term that has many different meanings. Gartner Research refers to the

term as “a style of computing where scalable and elastic IT-enabled capabilities are delivered as a

service to external customers using Internet technologies.” In order to fully understand cloud

computing, let’s look at several examples of some of the most successful products:

Netflix uses Amazon Web Services (IaaS) to encode and deliver high-quality video streams on

devices such as PCs, game consoles, and smartphones. Cloud computing has helped Netflix

move from physical DVD rental to on-demand video streaming and become the biggest online

distributor of streaming videos

OnLive, a cloud-based gaming company, allows on-demand and instant game play on Internet-

connected computers by using remote servers to host video games. Cloud-based gaming will

solve the device-content compatibility* issue and increase the user base for interactive games

Workday offers a Software-as-a-Service (SaaS) solution to provide cost and resource savings to

major companies that need an HR and Finance management tool

In other words, it is no longer necessary to buy and install a suite of software for each and every

customer. Instead, one application can be loaded that would allow multiple customers to log into a web

based service that hosts the program. Workload shifts from the computers of local customers to the

servers of network computers that make up the cloud.

Cloud computing functionality has exploded in the last few years, and the use of cloud technologies has

had a significant impact in the gaming industry. Cloud computing has produced new revenue streams

and has opened markets that were previously unreachable. Customers are no longer required to buy a

console and individual games. Instead, games can be streamed directly from the web in order to provide

significantly more data to customers, allowing for a better user experience. Because of this, traditional

3

video game companies must change the way they develop games in order to tap a market with

significant potential for growth.

About The Client Mecaslin Street Games, Inc. is a publicly traded American developer and distributer of video games for

gaming consoles. With over 7,000 employees, Mecaslin Street is the second largest gaming company in

the world and considers its strongest competition to be companies such as Activision and Electronic

Arts. In 2014, Mecaslin Street recorded a 30% decline in revenue from the previous year, seeing a

substantially higher decline than the 20% decrease that the overall industry faced. To address their

disappointing performance, Mecaslin Street just rolled out a new set of five year strategic goals aimed at

improving performance across several key measures (see Exhibit 3 for more details). The key client

contacts who have voiced concerns over cloud technology are:

Anna Wise – Chief Executive Officer

Anna Wise has been Chief Executive Officer of Mecaslin Street since June 2007. Previously, Ms. Wise

served as the Chief Operating Officer of Mecaslin Street for 3 years. Prior to joining Mecaslin Street, Ms.

Wise served as the Chief Talent Officer for the Windows Operating System Division of Microsoft. Ms.

Wise has held executive management positions at several companies including Dove, Panasonic, Coca

Cola, and Kraft. Ms. Wise holds an MBA from Harvard Business School and a B.S. in Applied Mathematics

from Georgia Tech.

Because of Ms. Wise’s more traditional career path, she has not had much experience in cloud

computing and is resistant to changing the corporate strategy to focus on an area where Mecaslin Street

has little experience. She also is very concerned about talent attrition and the happiness of Mecaslin

Street employees. Ms. Wise will not support such a large change without analytical evidence of the

potential for growth.

Ram Kumar – Vice President of Strategic Development

Mr. Kumar has been Vice President of Strategic Development for Mecaslin Street since March 2014.

Prior to joining Mecaslin Street, he was a Senior Associate of Corporate Strategy at Google for 3 years.

From June 2006 to March 2008, Mr. Kumar served as an Equity Research Associate at Goldman Sachs.

Mr. Kumar received a B.A. in Economics from Northwestern University and an MBA from University of

Chicago Booth School of Business.

Mr. Kumar is not afraid of large scale change, and coming from Google, sees the huge potential for

growth in cloud gaming. He would like to see additional research in the future of the industry in order to

make a sound investment decision.

Maria Morgan – Chief Information Officer

Mrs. Morgan was recently hired as the Chief Information Officer at Mecaslin Street. She was previously

the Global IT lead for Disney’s gaming division and has a computer science background, receiving her

undergraduate degree from the University of Texas at Austin and her MSM from Georgia Tech.

Mrs. Morgan is an avid supporter of technological advancement and a strong proponent of moving

Mecaslin Street towards cloud technology. She comes from an analytical background and expects any

proper solution to rely heavily on solid quantitative reasoning.

4

Dave Cunningham – Vice President of Corporate Finance

Mr. Cunningham has steadily advanced at Mecaslin Street since he began as a financial analyst with the

company in 1992. A University of California, Los Angeles alumni with a degree in finance, he worked his

way up to his current position as the global head of corporate finance faster than any person in the

history of the company.

Mr. Cunningham is wary of sweeping technological changes, especially when they require significant

financial investment. He expects requests for funding to be very persuasive before he gives them the

stamp of approval to go to the board.

* Note: Mecaslin Street and its employees are fictional and intended for illustrative purposes only.

The Case After a rough final quarter of 2014, Mecaslin Street’s VP of Strategic Development, Ram Kumar,

considers the need to invest in technology that will allow the company to respond to the changes in

their market. From e-mail correspondence, he knows that the newly hired CIO, Maria Morgan, is a

strong proponent of embracing cloud technologies for improved business processes and customer

delivery. He contemplates suggesting an investment in cloud at the board meeting in two weeks, but he

knows that he needs a well-formulated plan, especially given that it would be such a large investment

during turbulent economic times. Because of the complex nature of the problem, Ram Kumar decides to

call upon Burdell Consulting to assist with his presentation to the board.

Knowing that this is a multi-faceted problem, Mr. Kumar asks Burdell to bring a team comprised of

Human Capital, Technology, and Strategy & Operations practitioners. At his team briefing he outlines

the questions that he is looking to answer in the formulation of this presentation:

1. What are some options for how Mecaslin Street can integrate cloud into their business in order

to achieve their five year goals? Specifically, Mr. Kumar has requested that Burdell provide an

analytical evaluation of the current cloud options, along with the team’s suggestion as to which

makes the most sense for Mecaslin Street to pursue

2. How does this cloud strategy fit into Mecaslin Street’s five year growth plan and strategic vision?

Specifically, Mr. Kumar has requested an implementation roadmap to demonstrate how the

strategy should be enacted

3. If Mecaslin Street implements cloud technology, it will be a dramatic shift to their current

overall structure (i.e., change the process of game development)

a. What factors regarding the operating model should be considered when implementing a

new technology?

b. How can Mecaslin Street manage the change that their employees will experience with a

dramatic shift to their operating model? How should the company focus their talent strategy

to ensure that they don’t lose valuable employees in the transition, while also ensuring that

they have the necessary capabilities for a cloud based business model?

4. Mr. Kumar is concerned that the investment in cloud will put Mecaslin Street in an undesirable

financial position while the world economy is still shaky. On the other hand, he knows that

technological innovation is necessary to compete with companies “born in the cloud”. What are

some other concerns he should be aware of and how can Mecaslin Street mitigate against those

risks?

5

5. Mr. Kumar mentions that some members of the board are resistant to an overall strategic

investment to the cloud. How should Mr. Kumar present Burdell’s assessment to leadership to

minimize resistance?

Following the team briefing Mr. Kumar hands the Burdell team a template on which to make the

presentation. He is heading on a business trip to Asia and will be “out of pocket” for one week, after

which he will meet with the team to be briefed on their findings. He strongly encourages the team to

perform external research prior to completing the analysis and tells Burdell to get creative in thinking of

their solution, making sensible assumptions when necessary.

6

Exhibits

Exhibit 1: E-mail Correspondence From: Morgan, Maria

Sent: Sunday, January 29, 2015 2:57 PM

To: Kumar, Ram; Cunningham, Dave

Subject: Investment in the Cloud

Hi Ram and Dave,

I trust you’ve both been well since I last saw you at the board meeting in December. I wanted to take a

moment to write you regarding something that has been weighing heavily on my mind these past few

months. As you may know, I am a strong proponent of moving the company toward a cloud solution,

based on recent changes in the marketplace and Mecaslin Street’s internal data transmission needs. I

know it’s a big investment, but now more than ever we need to take action.

Internally, delays in data transmission during the development cycle are coming back to affect our

bottom line. As one of numerous examples, during the crucial final development period of Call to Glory

IV, we lost 10 days of development time physically shipping the disks to our global testers. Developers

were working on materials that hadn’t had the bugs identified and ultimately it showed in the quality of

our final products, the amount of overtime we had to pay to both developers and testers, and the sales

of the game. With EA’s Battlefield 5 and Activision’s Call of Duty Advanced Warfare coming out on our

heels, we simply can’t afford these kinds of delays.

On top of that, I know you have both been following the explosive growth of our mobile and social

gaming competition (If you are unaware of what Shinra is doing in the US next summer, I would highly

recommend checking Google News). We have to make a move, for our stock price and in order to

maintain our position as one of the market leaders in the global gaming industry.

Let me know your opinions and what I can do to help prepare for our next board meeting. I cannot

stress how strongly I feel that immediate action is necessary.

Best,

Maria

Maria Morgan, CIO

Mecaslin Street Gaming, Inc

Phone: (404) 212-9999 | Fax: (404) 211-9999

[email protected]

7

From: Cunningham, Dave

Sent: Monday, January 30, 2015 3:19 PM

To: Kumar, Ram; Morgan, Maria

Subject: RE: Investment in the Cloud

Hi Maria,

Thank you for your e-mail. It’s great to see that you’re hitting the ground running in your position as CIO.

While I appreciate the need for Mecaslin Street to move toward a cloud solution, I’m apprehensive

about being so aggressive in our board request. As you acknowledged in your e-mail, moving to cloud

technology would require a significant capital investment. We are still in the beginning stages of our

capital budgeting process, but Global IT would have to make a very persuasive case in order to obtain

that level of funding.

Keep in mind that Mecaslin Street has some other significant projects in the works that would limit the

availability of funds for a project in the cloud, namely:

Ongoing implementation of our Oracle ERP system

Development costs for our new action and adventure game (set to be launched in 2016, this is

expected to be our new Call to Glory-type blockbuster franchise)

Potential acquisition of one or multiple social and mobile gaming studios

If you are set upon presenting a cloud solution to the board, please think about bringing in a third party

source to validate the costs and benefits of such a solution. In the past, Mecaslin Street has worked with

Burdell Consulting to achieve excellent results. Perhaps you should consider bringing them in for a short

feasibility study.

Thanks,

Dave

Dave Cunningham

VP of Corporate Finance

Mecaslin Street Gaming, Inc

Phone: (404) 212-8888 | Fax: (404) 211-8888

[email protected]

8

From: Kumar, Ram

Sent: Monday, January 29, 2015 7:23 PM

To: Morgan, Maria; Cunningham, Dave

Subject: RE: Investment in the Cloud

Hi Maria and Dave,

I can see both sides of the argument here – we need to invest in cloud but must make sure that doing so

does not adversely affect our financial position. Employees have e-mailed me arguing for both sides of

the discussion. I agree that we should bring in a third party consulting firm to do an in-depth analysis

prior to the next board meeting. I have begun negotiations with Burdell Consulting and have asked for a

team that incorporates practitioners across their Technology, Human Capital, and Strategy practices.

Hopefully we get a well-rounded, analytical, and creative result that we can bring to the board. Burdell

has proven itself over and over again, and I expect this project to be no exception.

Please feel free to come to the final presentation a few days prior to the board meeting to see what the

Burdell team has produced. I will send you the Outlook invite under separate cover. I’m sure there will

be information that each of us finds relevant.

Cheers,

Ram

Ram Kumar

VP of Strategic Development

Mecaslin Street Gaming, Inc

Phone: (404) 212-9889 | Fax: (404) 211-9988

[email protected]

9

Exhibit 2: Financial Report – Income Statement

Mecaslin Street Games, Inc.

In Millions of USD (except for per share items)

13 weeks ending

2014-09-30

13 weeks ending

2014-06-30

13 weeks ending

2014-03-31

13 weeks ending

2013-12-31

13 weeks ending

2013-09-30

Revenue 590 804 834 865 520

Other Revenue, Total

Total Revenue 590 804 834 865 520

Cost of Revenue, Total 330 185 260 425 275

Gross Profit 260 619 574 440 245

Selling/General/Admin. Expenses, Total

250 171 215 255 200

Research & Development 220 210 240 198 205

Depreciation/Amortization 10 10 10 11 12

Interest Expense(Income) - Net Operating

Unusual Expense (Income)

Other Operating Expenses, Total

Total Operating Expense 810 576 725 889 692

Operating Income (220) 228 109 (24) (172)

Interest Income(Expense), Net Non-Operating

(4) 3 3 3 3

Gain (Loss) on Sale of Assets

Other, Net

Income Before Tax (224) 231 112 (21) (167)

Income After Tax (212) 215 98 (20) (160)

Minority Interest

Equity In Affiliates

Net Income Before Extra. Items (212) 215 98 (20) (160)

Accounting Change

Discontinued Operations

Extraordinary Item

Net Income (212) 215 98 (20) (160)

Preferred Dividends

Income Available to Common Excl. Extra Items

(212) 215 98 (20) (160)

Income Available to Common Incl. Extra Items

(212) 215 98 (20) (160)

Basic Weighted Average Shares

Basic EPS Excluding Extraordinary Items

Basic EPS Including Extraordinary Items

Dilution Adjustment 0 0 0 0 0

Diluted Weighted Average Shares 264 270 268 265 263

Diluted EPS Excluding Extraordinary Items

(0.80) 0.80 0.37 (0.08) (0.61)

Diluted EPS Including Extraordinary Items

Dividends per Share - Common Stock Primary

0 0 0 0 0

10

Exhibit 3: Mecaslin Street’s Five Year Goals Grow top line revenues at least 20% by the end of December 2020

Enhance the customer experience by producing high-quality, timely, and

engaging game content

Strengthen Mecaslin Street’s internal culture in order to reduce attrition by 10% and

foster a positive and productive workplace

Acquire key intellectual property in order to widen footprint in rapidly growing

gaming segments

Improve the business processes in order to facilitate the internal development of

games

Expand into innovative technologies in order to stay at the forefront of the

worldwide gaming market

Exhibit 4: Mecaslin Street’s General Organizational Structure Excerpt

The departments of the Global Business Division support all studios globally, for example, one

centralized IT department provides coverage for all Mecaslin Street’s studios.

Each studio focuses on the development of one or more (related) games. Each studio builds a unique

product but each depends on the departments of the Global Business Division for support. There are 12

studios worldwide: 3 in the United States, 2 in the United Kingdom, 1 in Romania, 2 in South Korea, 2 in

India, 1 in China, and 1 in Malaysia.

Mecaslin Street

Games

Global Business

Division

Game Development

Division

Information

Technology Finance Marketing Studio C Studio B Studio A

11

Exhibit 5: Burdell Consulting Organization Burdell Consulting is organized into 3 areas to provide services to clients. Burdell’s usual approach is to

consider a client’s problems from each of these angles.

Strategy and Operations Human Capital Technology

Bring industry experience, analytical capabilities and a pragmatic mindset to solving the client’s most complex business problems.

Align the client’s people issues with their business strategy through industry expertise, HR service delivery, talent, culture, change, leadership, and reward strategies.

Adopt an industry focus and apply technology-based innovation to business challenges, while supported by worldwide resources and strategic alliance.

Exhibit 7: News Articles of Note

KT and Ubitus Join Hands to Accelerate Cloud Gaming Service on IPTVs in Korea

TAIPEI and SEOUL, South Korea, Jan. 7, 2015 /PRNewswire/ -- Ubitus Inc., the worldwide cloud gaming

leader, and KT Corporation, the largest telecommunication service provider in South Korean, are excited

to announce their partnership in cloud gaming service today.

KT Corporation has launched its gaming service "Wizgame" on IPTV Set-top-box and plans to strengthen

the service by extending game line up in this year. With the collaboration with Ubitus, more blockbuster

game titles from leading game companies worldwide will be expected to land on KT's "Wizgame" going

forward. Users will be able to download the updated app in KT's Appstore from April.

Moreover, KT's HTML5 Set-top-box devices (three to five models) will be upgraded to support cloud

gaming by April, which would enable 60%~70% of existing KT IPTV 5 million subscribers to access cloud

gaming service. Ubitus is also aimed to support as many set-top-box devices as possible to expand the

12

device coverage. By the end of this year, 80%~90% subscribers would be able to enjoy cloud gaming

service.

Powered by Ubitus' GameCloud ® solution, KT's set-top boxes can deliver instant console gaming

experiences on demand without the need for users to equip with expensive high-end computers or

game consoles as prerequisites. Users will be amazed by the incredible console-level gaming experience,

similar to that of PS4 or Xbox, streaming down via their home broadband connections from the cloud.

"Ubitus is thrilled to collaborate with KT and bring 'Wizgame' cloud gaming service to the next level in

Korea market. We are devoted to enhance customers' satisfaction by bringing more attractive services

and contents to users," said Wesley Kuo, CEO of Ubitus.

About Ubitus Inc.

Ubitus Inc. has the world's leading game virtualization technology and cloud-streaming platform. It

strives to provide a more pervasive gaming user experience using top-notch technology, allowing

players to play the best games at any time and any place as long as they are connected to the internet.

The services are compatible across devices, platforms, and networks. It doesn't matter if the player is

using a smart phone, tablet, PC, or smart TV.

As one of the leaders in cloud gaming technology and game streaming services, Ubitus has entered into

long-term partnerships with top-notch international game developers, becoming the agent for many

classic gaming masterpieces. It has penetrated the Japanese, Korean, US, Hong Kong, and mainland

Chinese market. It has liaised with leading telecom service providers, online service providers, and game

makers everywhere to provide services to local gamers.

The company was established in 2007, headquartered in Taipei, Taiwan. It currently has 140 employees,

and has offices in the US, Japan, South Korea, and Mainland China. Since it was established, it has been

generating record-breaking achievements in the global cloud gaming market and received widespread

industry recognition in the respective countries and regions.

For more information, please visit the website of Ubitus. www.ubitus.net

Shinra starts ‘supercomputer cloud gaming’ test in Japan with Final Fantasy VII

Posted January 25, 2015 7:45 PM by Jeff Grubb

Cloud gaming means you don’t need a console to play video games, and now another new company is

stepping in to make that happen.

Shinra, a technology company based out of New York, is kicking off a beta-testing phase for its new

game-streaming platform. The company’s cloud gaming will enable players to access a number of

publisher Square Enix’s releases from throughout the years. Those include Final Fantasy VII, 2013’s

Tomb Raider, and Hitman: Absolution. The test starts Feb. 17 and runs for three months.

To get the beta off the ground, Shinra partnered with Internet company NTT East and Techorus

Coporation. NTT East is ensuring that Shinra’s supercomputer has direct access to Japan’s high-speed

fiber-optic network. Techorus is providing the rendering technology that keeps each instance of a cloud

game running smoothly.

13

In addition to the traditional Square Enix games, Shinra will also release a massively multiplayer online

twin-stick space shooter. The company is hoping this will demonstrate the service’s versatility and how it

might make sense for Internet gaming cafes, which remain popular in Asia.

While this test is only coming to Japan, Shinra president Yoichi Wada, the former president of Square

Enix, says the company is planning a similar beta for the United States this summer.

In a statement, Wada went on to talk about how Shinra wants to change “everything about content,

infrastructure, and business models” in the gaming industry.

Mobile game revenues set to overtake console games in 2015

Posted by John Gaudiosi, January 15, 2015, 10:56 AM EST

Fortune Magazine

A huge power shift in how consumers game is tipping the balance of power in the global video game

business.

The mobile video game industry continues to ride a growing wave of free-to-play and casual game

successes such as Supercell’s Clash of Clans and Rovio Entertainment’s Angry Birds Transformers.

Consumers are spending so much time—and money—playing games on smartphones and tablets that

Newzoo, a video game research firm, has had to raise its 2014 global revenue forecast from $21.7 billion

to $25 billion. The new total is a 43% increase over mobile game revenues recorded for 2013.

Peter Warman, Newzoo’s chief executive, says the mobile market growth isn’t limited to a specific

market. Both “mature” Wewise markets and emerging markets showed rapid growth in 2014. In North

America, the market is now expected to grow 51% year over year; Wewise Europe is expected to grow

by 47%. For the fastest growth, though, look East to emerging markets in Southeast Asia and China—the

latter of which is up 86%. Japan is also seeing strong growth in iOS and Android game revenues, but the

overall market remains level as traditional feature phone game revenues collapse.

“Despite a widely reported slump in new tablet unit sales, game revenues on tablets are growing faster

than smartphones, cementing the position of tablets as a key gaming device,” Warman says.

“Smartphones and tablets have given gamers two new screens to play games on in addition to their TV

and PC screen. Because U.S. consumers use all four screens, mobile gaming does not replace console or

PC gaming. Moreover, it gives gamers the possibility to play games anywhere at any time, pushing

overall time spent on games in the U.S. up 40% in only two years.”

Industry executives see these usage shifts as creating room for new, non-cannibalizing revenue growth

for the mature U.S. mobile gaming market. Time spent playing mobile games ultimately converts to

money spent—even if those dollars are migrating from PC or console games. “Initially, online casual and

social network games suffered revenue losses because of mobile games growth,” Warman says. “This

year for the first time we see signs that it is taking its toll on the global growth of PC and console

gaming.”

In 2015, global mobile game revenues will eclipse console game revenues for the first time. Newzoo

expects that mobile games will generate $30.3 billion worldwide; it predicts that console games will take

in $26.4 billion. The firm expects sales for the total worldwide gaming market to be $91.95 billion in

2015.

14

In North America, consoles will still dominate: Newzoo forecasts $24.05 billion in total games revenue,

with mobile games generating $7.2 billion and console games representing $11.1 billion.

“Playing games on the TV or PC will not disappear,” says Vincent van Deelen, market analyst at Newzoo.

“They are different screens, each with their own right of existence. What we see happening now is that

money spent on games is gradually being spent more equally across all four screens. Ultimately this

could be 25% for TV, 25% for PC, 25% for tablets and handhelds, and 25% for phones. In the U.S., the

percentages are 44%, 26%, 15%, and 15% respectively. On a global scale, the split is closer to the

theoretical situation: 28%, 39%, 13%, and 20%. Time spent on games has already shown a close-to-equal

split across screens for years.”

Apple and Google rise

The continued growth of mobile game revenues will put Google GOOG and Apple AAPL in the top five

public companies by game revenues in 2015, thanks to their 30% commission on all games sold in their

app stores, Warman says.

This shift in power has catapulted Apple to the top of the video game ecosystem. Newzoo reports that

Apple’s App Store remains by far the biggest single platform in the mobile industry, accounting for about

half the mobile games market revenues in 2014. Google Play is a close second.

“We estimate that Apple and Google will earn close to $4 billion and $3 billion respectively in games

revenues in calendar year 2014, explaining the fast growth in Google’s ‘other revenues’ in its recent

quarterly results,” Warman says. “To put this into perspective, Nintendo’s game revenues amounted to

$2.4 billion last year and will likely be slightly lower this year. Other app stores likely to grab a significant

market share in Android games include Amazon and several Chinese stores such as 360 Mobile

Assistant, Tencent’s MyApp, Baidu Mobile Assistant, and Xiaomi’s MIUI.”

Many traditional game publishers have invested heavily in mobile games, or at least launched console

games across mobile devices. Those companies that made the early investment will reap rewards in the

coming years as mobile continues on its upward rise. Newzoo forecasts global mobile revenues will top

$40.9 billion by 2017.

“Electronic Arts has gone through the changes required to be successful on the mobile screens and run

games as a service and is showing great results with a nice balanced portfolio,” Warman says. “Activision

has taken a less experimental approach over time and decided to focus on Skylanders, Call of Duty,

World of Warcraft, and getting Destiny out there. I think the success of Hearthstone: Heroes of Warcraft

will spark more mobile activity in the coming years. Destiny could well be known as the last global

blockbuster launched in the ‘traditional’ way. The pressure put on initial feedback from players, and the

marketing dollars required to put that game in the market is not something any company would like to

repeat.”

Activision invested $500 million in a 10-year plan for Bungie’s Destiny, but has yet to release any sales

data for the game. The console and PC games business transitioned years ago to releasing a smaller

amount of games, most of which are franchise sequels. Even with an installed base of 101 million Wii

units, 80 million PlayStation 3 systems, 80 million Xbox 360 consoles, 13 million PlayStation 4 machines,

7 million Xbox One units, and 7 million Wii U systems, the console business can’t compete with the

sheer billions of smartphone and tablet users around the world.

15

“Practically everyone in mature markets now has a smartphone and the majority has access to a tablet,”

van Deelen says. “In emerging markets, the smartphone is often their first device that is connected to

the Internet. With an installed base of billions, the audience is enormous on a global scale. A console is

not a must-have device like smartphones, and in a growing number of cases, tablets are. Mobile devices,

which aren’t purchased to play games on, introduce new consumers to games.”

The ability for developers of all sizes to publish on app stores like Google’s Play and the Apple’s App

Store has allowed creativity to flourish. Instead of Sony, Microsoft, or Nintendo deciding which games

see the light of day on their closed platforms, consumers are able to more broadly choose with their

downloads and dollars.

“This app store ecosystem allows developers to continuously improve and expand their game in terms

of gameplay and business model,” Warman says. “It has accelerated the shift from games developed as

a product to games run as a service—a change that requires a different organization than traditional

publishers had in place. This is why new players such as Supercell and Kabam have popped up as

winners while many traditional large companies have struggled to change—and, in some cases, did

simply not believe the mobile market was as large as some analysts told them. Now, they are back up to

speed and reaping the benefits.”

Copyright © 2015 Fortune Magazine

LyteShot is Developing an Advanced Mobile Gaming Platform Called, Appropriately Enough, LyteShot

Posted by Jessica Fisher on January 7th, 2015 on http://www.148apps.com/

LyteShot Inc. is cooking up some very interesting tech. They have unveiled their Kickstarter campaign for

the LyteShot platform – a open cloud-based interactive mobile gaming platform. The system includes

the LyteShot mobile app system, the Lyter handheld device, and the LytePuck sensor that each users

wears. They are also developing glasses to be used as a head-up display so that in-game information will

be easily transmitted to players.

The Lyter handheld becomes your stylus in the real world. As you take actions with it, the handheld

transmits data to the LytePuck sensor and connects with your mobile device through the LyteShot app.

With this set up you can do all sorts of things in-game such as attack your enemy, give first aid to a team

member, or use items you find. The hope is that this technology will open up a world of interaction for

mobile gamers.

Lyteshot should be launching with 2 games so far:

Assassin, which uses the classic rules of Assassin; a game commonly played on college campuses.

Players get times and boundaries to find and eliminate their targets in. The app includes special

functions such as respawning, late entry, a cool-down clock, penalties, and private or public options to

make the game much more advanced.

Besieged is a roleplaying game where teams of players must find and defend territories using traditional

fantasy roles such as warrior, wizard, or ranger. You get experience points as you play that will allow you

to level-up and advance your character to get better powers and abilities.

The LyteShot platform looks like a pretty cool system for developers to work with. You can check out

more info on their official website: http://www.lyteshot.com/