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gamerista (TM) (c) 2014 www.gamerista.net g a m e r i s t a 2014 SCENARIOS FOR THE FUTURE OF DIGITAL GAMES
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Gamerista 2014 Scenarios for the Future of Gaming

Aug 19, 2014

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It is a simple cliche to say that the digital video games industry is undergoing major changes. Every year we produce a STRATEGIC INDUSTRY SCENARIO REPORT which looks at key scenarios for the digital video games industry. We focus particular attention to disruptive content, applications, platforms, services and infrastructure, as well as functional issues such as content creation and distribution which may produce a change in the ways in which users and audiences consume digital video games.

This gamerista STRATEGIC REPORT is a major departure from previous years in that 2014 is a pivotal year in which major changes will be occurring across the wide range of video games in core AAA, MMO, indie, social & casual, mobile and immersive worlds as well as the digital video game ecosystem as a whole.
THE FULL REPORT IS AVAILABLE AT gamerista.net
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Page 1: Gamerista 2014 Scenarios for the Future of Gaming

gamerista (TM) (c) 2014 www.gamerista.net

gamerista 2014 SCENARIOS FOR THE FUTURE OF DIGITAL GAMES

Page 2: Gamerista 2014 Scenarios for the Future of Gaming

Headquarters: gamerista TM

100 CONGRESS AVENUE, SUITE 2000 AUSTIN, TEXAS 78701 !Studios: gamerista TM

STUDIO LAB AUSTIN STUDIOS RED BUILDING, #400 1901 E. 52nd. STREET AUSTIN, TEXAS 78723 !+1.512.825.6866 - Direct +1.512.897.7100 - Main [email protected] !www.gamerista.net @thegamerista facebook.com/gameristagamerista (TM) (c) 2014 www.gamerista.net

gamerista TM

VIDEO GAME R & D

gamerista TM

DIGITAL VIDEO GAMES STRATEGY

USER AND AUDIENCE EXPERIENCE TESTING & RESEARCH

ADVANCED VIDEO GAME DEVELOPMENT

DIGITAL VIDEO GAMES INDUSTRY ECOSYSTEMS MARKET RESEARCH

Page 3: Gamerista 2014 Scenarios for the Future of Gaming

THE DIGITAL GAME ECOSYSTEM

CONTEXT/VENUE CONTENT APPLICATIONS

PLATFORMSSERVICES INFRASTRUCTURE

gamerista (TM) (c) 2014 www.gamerista.net

Page 4: Gamerista 2014 Scenarios for the Future of Gaming

!

$100 BILLION

DIGITAL GAMES ON A GLOBAL GROOVE

THE 2014 GLOBAL DIGITAL GAMES INDUSTRY

gamerista (TM) (c) 2014 www.gamerista.net

Page 5: Gamerista 2014 Scenarios for the Future of Gaming

IT’S THE AUDIENCE, STUPID

Image: Trey Ratcliff

!

Game industry studios & publishers will finally begin to act proactively like major media companies and target gamers-as-audiences rather than the operating systems they use. !Audience demographics drive consumer usage and deliver revenues. !Expect a major “big data” focus on targeting audience segments (“personas”) and behaviors rather than just simple operating system platform label categories like “iOS” or “Android”. !

gamerista (TM) (c) 2014 www.gamerista.net

Page 6: Gamerista 2014 Scenarios for the Future of Gaming

WOMEN LEAN IN AND WIN

Women represent 50% of the world’s population. They also make up the fastest growing segment of digital game players around the world. !Data varies widely on women gaming by game category, platform and geography. But women represent the single largest audience opportunity in the history of digital games. Ironically, they have been hidden-in-plain sight and systematically overlooked by the digital games industry.

~45%OVERALL

GAME PLAYER POPULATION

USA

CASUAL/SOCIAL/MOBILE GAME PLAYER POPULATION

USA

CORE AAA GAME PLAYER POPULATION

USA

~55%

~30-40% ~60-70%

~60-75% ~25-40%

gamerista (TM) (c) 2014 www.gamerista.net

Page 7: Gamerista 2014 Scenarios for the Future of Gaming

BLOCKBUSTERS WAG THE LONG TAIL!

Blockbuster titles and genres will move fluidly and pervasively across all platforms to both “upsize” and “downsize” by category and title. !Key titles and genres will be candidates for porting from/to console and mobile platforms, based on audience, brand, gameplay experience and appeal.

!Despite a thousand flowers blooming, in the last 5 years, 70% - 80% of digital game industry revenue will come from less than 1% of all digital game titles. !! Image: App Annie, Jan. 6, 2014gamerista (TM) (c) 2014 www.gamerista.net

Page 8: Gamerista 2014 Scenarios for the Future of Gaming

CONSOLES NEED NO CONSOLING!

Video game consoles will innovate with new features on just-released “next gen” platforms as killer hit titles appear. !New raw processing power and hyper-real capabilities will enable new capabilities such a motion, virtual reality and immersive play. !This, coupled with their online stores with digital distribution capabilities, will increase their market share over the next 2-3 years, contrary to market projections on the demise of the console market. Despite some outlooks, Nintendo’s franchise will remain stable. !!!

Image: “Grand Theft Auto V”, Rockstar Gamesgamerista (TM) (c) 2014 www.gamerista.net

Page 9: Gamerista 2014 Scenarios for the Future of Gaming

INDIE STAYS WINDY!

2014 will be a crucial year for indie “mid-core” game studios and publishers. While publishers won’t front much money anymore, new distribution outlets will open up considerably. !Securing financing for “mid-core” games will be tougher than ever. Having a good prototype is …good. But having a solid game development track record is what publishers and agents are looking for. !Even if indie developers do secure funding, they will have to raise significantly more money to complete a game and secure a solid distribution deal to monetize it. !

Image: Journey, Sony Interactive/ thatgamecompanygamerista (TM) (c) 2014 www.gamerista.net

Page 10: Gamerista 2014 Scenarios for the Future of Gaming

MMOs AND PCs SECRETLY RULE!

MMOs will flourish and grow at a rate of 10% per annum. PC’s will be there to provide game processing horsepower and a huge installed base of machines. New, high end massive multiplayer games made for $20 - 40 M+ will continue to hit the market. ARPU in USA will deliver 2x ARPU over other countries. !Both classic role play and science fiction adventure categories will dominate the space with hundreds of millions of players worldwide. !

gamerista (TM) (c) 2014 www.gamerista.net

Page 11: Gamerista 2014 Scenarios for the Future of Gaming

THE KIDS ARE ALRIGHT

Kids will increasing drive sales of games and create blockbusters through their usage.

!!Not only will children’s games grow as a category overall, specific commercial titles such a Minecraft” will cross over and continue to used in school curriculum as “educational” pedagogical tools. !The major growth segments in over 300+ virtual online worlds is coming from players under the age of 15.

7 MILLION COPIES OF MINECRAFT SOLD TO KIDS UNDER THE AGE

OF 15gamerista (TM) (c) 2014 www.gamerista.net

Page 12: Gamerista 2014 Scenarios for the Future of Gaming

WHY SO SERIOUS ?!

The “serious play” space will increasingly focus on education and consumer health games. Military and government will drive the single biggest spends.

Growth will be moderate in education as higher ed MOOCs will attempt to integrate game elements into their learning environments. Consumer mobile/tablet games like “Minecraft” will be integrated into K 1 -12 curriculum rather than development of traditional “education” titles (e.g., “Oregon Trail” genre).

Aging baby boomers will leverage health and fitness games online, and with all three major consoles: Nintendo, Microsoft and Sony.

The military and government markets will spend over $5 BB on simulation and high end games.

gamerista (TM) (c) 2014 www.gamerista.net

Page 13: Gamerista 2014 Scenarios for the Future of Gaming

MAJOR CONSUMER BRANDS BUILD GAMES!

Major consumer brands will continue to develop video games to attract customers in their target demographic as part of their media strategy. !Most youth-orienetd brands have already gone into the business of developing ‘advergames’. Rapid convenience food restaurants like McDonald’s has been a leader in leveraging games for branding. !Expect most brands pursuing all age demographics to build many more ‘advergaming’ applications which reinforce their brand image.

gamerista (TM) (c) 2014 www.gamerista.net

Page 14: Gamerista 2014 Scenarios for the Future of Gaming

THE REST OF THE WORLD WINS MOBILE

!

The United States lags the world in top-grossing mobile digital game revenue on both iOS and Android platforms. This gap will continue to grow. !Most U.S. game studios focus on developing games for the iOS U.S. market because it monetizes at higher rates than Android games. !The dominance of Asian top grossing titles, especially in China, Japan and South Korea, has implications for digital game makers everywhere. !

TOP 10 GAME PUBLISHER CATEGORY HEADQUARTERS

1 Clash of Clans GungHo Online Strategy, Action Finland

2 Candy Crush Saga King Arcade, Puzzle United Kingdom

3 Puzzles & Dragons GungHo Online Arcade, Puzzle Japan

4 Hay Day GungHo Online Simulation, Family Finland

5 Game of War -Fire Machine Zone Role Play, Strategy Unit

6 Pet Rescue Saga King Puzzle, Arcade United Kingdom

7 I Am MT Online Locojoy/EFUN Action, Role Play China

8 WeRun Tencent Action, Adventure China

9 Simpsons T.O. Electronic Arts Simulation Unit

10 Slotomania Ceasers Card, Casino Unit

Source: “Top Game Apps by Monthly Revenue”, App Annie, November, 2013

TOP 10 GAME PUBLISHER CATEGORY HEADQUARTERS

1 Puzzles & Dragons GungHo Online Arcade, Puzzle Japan

2 Candy Crush Saga King Arcade, Puzzle United Kingdom

3 Monster Taming CJ Group Arcade, Action South Korea

4 Clash of Clans Supercell Strategy, Action Finland

5 Pokopang LINE / NHN Casual Japan

6 World of Mystic Wiz

COLOPL Puzzle, Arcade United Kingdom

7 Everybody’s Marble

CJ Group Casual South Korea

8 Cookie Run Devsisters Casual South Korea

9 Tower of Saviors Mad Head Brain, Puzzle Hong Kong

10 Pet Rescue Saga King Casual United Kingdom

gamerista (TM) (c) 2014 www.gamerista.net

Page 15: Gamerista 2014 Scenarios for the Future of Gaming

JUST 4 WAYS TO MAKE A BUCK!

The past thrashing and angst around viable business models for monetizing digital games is over. !

“We don’t know how we will monetize” statements are relics of the past. !While the “freemium” model will persist, more traditional entertainment media revenue models will once again gain dominance to become the acknowledged “three legs of the revenue stool”. !

PURCHASE SUBSCRIPTION IN GAME PURCHASES ADVERTISING

gamerista (TM) (c) 2014 www.gamerista.net

Page 16: Gamerista 2014 Scenarios for the Future of Gaming

The first boom in mobile game development and distribution is now over. !A mobile video game, unless highly compelling and promoted for hundreds of thousands or millions of dollars, now has an infinitesimally small chance of becoming a hit and monetizing its own development costs. The market is changing as quickly as it started less than 5 years ago. !Barriers to market entry are now almost non-existent. But barriers to monetization are increasingly daunting and will require major resources. !!

!

1 !!______ !!!!!!!!!250,000 0.000004=

THE ODDS OF A HIT

PENNY ARCADES MAKE PENNIES

gamerista (TM) (c) 2014 www.gamerista.net

Page 17: Gamerista 2014 Scenarios for the Future of Gaming

MARKETING MONEY TALKS, FTP WALKS

Like any other industry, hits and “discovery” in the digital games industry will increasingly be driven by the amount of marketing spend behind the game. !The naive notion that by putting free- to-play (FTP) “awesome” games into the ecosystem which will “get lucky and go viral” is over. FTP was down 17% for 2013. !Even though game publishers of blockbuster titles have known this for years, mobile, indie/mid-core game studios/publishers will require major capital to promote their titles. !

!

GRAND THEFT AUTO V MARKETING BUDGET: $265 MILLION

CPI* RATES DOUBLING FOR MOBILE WAS $2/CPI; $4 - $7/CPI IN DECEMBER

CPI RATES DRIVE ARPU*** BREAK-EVEN 2X HIGHER NEED TO HIT 2X ARPU+ IN SMALL TIME WINDOW

* CPI = COST PER INSTALL ***ARPU = AVERAGE REVENUE PER USER

LOW CONVERSION RATES FOR FTP**: < 5%

** FTP = FREE TO PLAYgamerista (TM) (c) 2014 www.gamerista.net

Page 18: Gamerista 2014 Scenarios for the Future of Gaming

KICKSTARTER KICKS BUTT

Kickstarter will continue to be a viable funding source for large digital game development projects. !Game companies with rockstar founders and major successful industry track records will continue to raise large amounts of shareholder/private equity-free funding in the $40M+ range. Roberts Space Industries and Portalarium are examples of this trend. !This is will continue to change the economics for major select startup studios and also help select indie studios with track records as well. !! Image: “Star Citizen”, Roberts Space Industriesgamerista (TM) (c) 2014 www.gamerista.net

Page 19: Gamerista 2014 Scenarios for the Future of Gaming

ANDROID TRIES TO BECOME FRIENDLY!

Android OS will be slowly rationalized across operating system versions but not overnight. !Frustrated with supporting 3 major release versions of Android (2.0, 3.0, 4.0), digital game studios and general app publishers will push both carriers and hardware vendors to standardize new versions of their Android releases and also improve OS upgrade paths.

Apple will continue to enjoy its competitive advantage over Android by having always having 2/3rds. of it user base operating on its then-current version of iOS. Their users will continue to quickly upgrade when new releases are rolled out to stay compatible. !

gamerista (TM) (c) 2014 www.gamerista.net

Page 20: Gamerista 2014 Scenarios for the Future of Gaming

HYPER-REALITY GETS REALLY REAL!

The multi-pronged push to increase ultra high definition digital games will occur on 4 new fronts: 4K screens, “next gen” game platform processors, “next gen” ultra-high rez games and 4K video.

Game developers will catch up with the technology platforms now available to them and start developing extremely immersive high resolution games. Console titles like “Two Souls”, “Assassin’s Creed” are moving in this direction as are mobile games such as “Infinity Blade III” on iOS. !

Image: Wall Street Journal, Jan. 8, 2014gamerista (TM) (c) 2014 www.gamerista.net

Page 21: Gamerista 2014 Scenarios for the Future of Gaming

VIRTUAL REALITY BECOMES A CATEGORY!

Consumer virtual reality products will reach the top of the “hype curve” this year but become a broad but specialized category for game apps. While Occulus Rift (OR) has received an enormous amount of publicity in 2013, and recently received $75 MM in funding to go retail, they will be pursued by other major vendors who own the console game space if sales take off. Nothing is market-tested yet.

Companies like Sony will challenge OR with its huge manufacturing capabilities with an initially inferior and costly product but will improve it and drop prices if VR takes off. Microsoft will do so similarly. !gamerista (TM) (c) 2014 www.gamerista.net

Page 22: Gamerista 2014 Scenarios for the Future of Gaming

AUGMENTED REALITY FINDS ITS VOICE!

Augmented reality (AR) games will continue to grow in the mobile space, made possible with cameras and video on intelligent devices. !Still in its infancy and not yet delivering full scale game play on multiple levels in most case, AR will grow and double from around 5,000 apps to at least 10K in 2014. !Software development tools from Qualcomm’s Vuforia, Metaio, Aurasma and others will improve and be fully integrated into game dev tools such as Unity and Unreal Engine. !

gamerista (TM) (c) 2014 www.gamerista.net

Page 23: Gamerista 2014 Scenarios for the Future of Gaming

NEW GAME DISTRIBUTION CHANNELS

New Android-centric distribution channels will emerge to break the duopoly on iOS and Android for mobile and tablet games. !Because Android is built on a more open but fragmented ecosystem, assume that new distributors will build their stores on Google’s technology to exploit and improve distribution. !Console-based digital games will follow a similar path of multi-distribution alternatives to retail stores as well as to traditional console game and application stores. !

6.8 BILLION WORLD-WIDE MOBILE SUBSCRIBERS

1.8 BILLION MOBILE SMARTPHONES 0.25 BILLION TABLETS

310,000 MOBILE GAMES

gamerista (TM) (c) 2014 www.gamerista.net

Page 24: Gamerista 2014 Scenarios for the Future of Gaming

CONSOLE STORES OPEN & STREAM!

Console game will open their stores to more independent titles and stream them to multiple devices. !Digital game console manufacturers will race against each other, as well as new players such as amazon and Google, to open their platforms not only to curated content, but on multiple platforms along with other media such as movies, tv and music to increase their value proposition.

Increasingly console players will mimic amazon’s overall current transmedia content, apps, services and platforms business model. !

gamerista (TM) (c) 2014 www.gamerista.net

Page 25: Gamerista 2014 Scenarios for the Future of Gaming

VALVE TURNS UP THE STEAM!

Valve’s Steam will grow its base of 65 million users online to become a digital game distribution leader for core gamers. !STEAM represents a potentially major disruptive force in the digital games distribution ecosystem. Like other app stores, it allows developers to retain 70% of revenues. This will all but kill retail bricks-and-mortar stores. !The games distributed by STEAM will be supported on its new Open Source STEAM Machine consoles, which have been announced were shown at the January 2014 Consumer Electronics Show.

gamerista (TM) (c) 2014 www.gamerista.net

Page 26: Gamerista 2014 Scenarios for the Future of Gaming

GAMES GO PHYSICAL & COMMUNICATE!

Digital games will go physical to include real world objects. Bluetooth, RFID and wireless technologies now enable this and will increasingly be integrated into games. !The blockbuster success of the multi-platform Skylanders franchise has the potential to encourage others to think beyond just integrating action figure objects into digital games. !Game companies which leverage objects with connectivity technology will become part of ‘the Internet of things’ and possibly create to entirely new forms and categories of games. !gamerista (TM) (c) 2014 www.gamerista.net

Page 27: Gamerista 2014 Scenarios for the Future of Gaming

UNITY : THE GAME DEV SWISS ARMY KNIFE!

Unity has secured an ubiquotous hold as an all-purpose universal game development engine. !There are a number of game development engines on the market such as Unreal, Crytek and others. But because of its freemium use offer strategy, relative ease-of-use, major partner program and marketing efforts, Unity has become the versatile tool of choice for most game studios. !The major advantage of Unity adoption is that Unity game developers are now a global commodity, lowering game development costs 40% to 80% around the world. !

gamerista (TM) (c) 2014 www.gamerista.net

Page 28: Gamerista 2014 Scenarios for the Future of Gaming

Headquarters: gamerista TM

100 CONGRESS AVENUE, SUITE 2000 AUSTIN, TEXAS 78701 !Studios: gamerista TM

STUDIO LAB AUSTIN STUDIOS RED BUILDING, #400 1901 E. 52nd. STREET AUSTIN, TEXAS 78723 !+1.512.825.6866 - Direct +1.512.897.7100 - Main [email protected] !www.gamerista.net @thegamerista facebook.com/gameristagamerista (TM) (c) 2014 www.gamerista.net

gamerista TM

VIDEO GAME R & D

DIGITAL VIDEO GAMES STRATEGY

USER AND AUDIENCE EXPERIENCE TESTING & RESEARCH

ADVANCED VIDEO GAME DEVELOPMENT

DIGITAL VIDEO GAMES INDUSTRY ECOSYSTEMS MARKET RESEARCH

FOR FURTHER INFORMATION