Running head: DEMOGRAPHIC PROFILE: COMPUTER AND VIDEO GAMES

Demographic Profile: Computer and Video Games Shannon R. Medlin Full Sail University

DEMOGRAPHIC PROFILE: COMPUTER AND VIDEO GAMES Demographic Profile: Computer and Video Games The Computer and Video Game industry represents a diverse and maturing economy. Many creative game developer houses have inspired generations of people across multiple

disciplines and cultures to explore virtual environments and undertake disparate and cooperative adventures. It could be argued that the gaming industry embodies and merges all forms of design technologies, incorporating elements of design: graphic art, three-dimensional modeling, physics, software, networking, writing, acting and music, to name a few. In this paper, we will investigate the Computer and Video Game industrys demographic profile and influencing factors such as market trends, market size and growth, market distribution and buying patterns, and evaluate some of its competitors. Demographic Profile Along with the gaming industry, its game players have matured. The Entertainment Software Association found that the average game player is now 30 years old (2013). Gender stereotypes in the industry have also been altered. The Entertainment Software Association states that females now comprise 45% of all gamers and those over 18 years old represent 31% of gamers, in difference to males 17 or younger at 19%. The average age of game purchasers are slightly older at age 35 (The Entertainment Software Association, 2013) and have been playing for about 13 years. According to the United States Census Bureau, median income for households with income earners between the ages of 30 and 39 earned between $56 and $61 thousand (2012). However, discretionary income may be a better indicator of buying power. Additional information regarding household net disposable income can be found in the next section.

DEMOGRAPHIC PROFILE: COMPUTER AND VIDEO GAMES Market Trends The number of female gamers has been growing. According to the Entertainment Software Rating Board (2010), 40% of all gamers were female. This represents an increase of five percentage points over a three-year period. If this trend continues, we may see the number of female gamers surpass male gamers soon. In the same report, the Entertainment Software Rating Board (2010) found that average gamer age was 34, average purchaser age at 39 and average number of years spent gaming was 12. This shift may represent an increase in number of younger gamers and purchasers or a decrease in older gamers and purchasers, with a slight overall maturation in the number of years spent gaming. Personal, otherwise known as mobile, games experienced the largest increase by screen

type in 2013 at 22% (Newzoo, 2013). This and other statistics appear to indicate mobile gaming as the biggest current gaming market trend. Other technology innovations of interest in 2013 may also help to shape the gaming industry, moving forward. An article on Mashable suggested that advances in motion controls like Microsofts Kinect, partner apps such as iFruit for Grand Theft Auto V, virtual reality like Oculus Rift, live game streaming and cloud computing would pose the most influence on the gaming industry (Stark, 2013). In 2012, both real GDP and household net disposable income per capita dropped [globally] (Hows Life? 2013 Measuring Well-being: Measuring Well-being, 2013). Alternately, in 2012, the United States experienced an increase in household net disposable income by 2% since 2007. This increase may help to explain increases in entertainment expenditures that the game industry has been experiencing.

DEMOGRAPHIC PROFILE: COMPUTER AND VIDEO GAMES Market Size and Growth The Computer and Video Game industry market size and growth is best represented in

sales dollars. According to NewZoo (2013), the global gaming markets total revenue was $70.4 billion, a 6% increase from the previous year. The Asia-Pacific region held the largest market revenue at $25.1 billion, representing 36% market share and experienced an 11% increase from the previous year. North America followed as a close second with $22.8 billion at 32% market share and a marginal increase of 2% from the previous year. Massively multiplayer online games represent an additional market segment of significant interest. MMO games will account for $14.9 billion, or 21.2%, of global gaming revenues in 2013 (Global Collect, 2013) with top growth countries such as Malaysia at 121%, Thailand at 104% and South Korea by 100%. This increase coincides with other research that indicates high growth in mobile and smartphone usage in countries other than the United States and United Kingdom. Additionally, some projections indicate that the global video game industry may reach over $86 billion by 2016 (Galarneau, 2014). Market distribution and buying patterns Segmentation in the Computer and Video Game industry is essential to understanding the potential opportunities of a development effort. The NPD Group (2013) defines a gamer as being in one of the following segments: (a) Avid Omni Gamers, 16%; (b) Casual Gamers, 19%; (c) Core Console Gamers, 10%; (d) Family Gamers, 10%; (e) Social Gamers, 15%; and (f) Free & Mobile Gamers, 29%. The largest segment, Free & Mobile Gamers, are described as mostly older females that are least likely to have purchased a game or game addition in the last three months and prefer to purchase digital games over physical games (Newzoo, 2013).

DEMOGRAPHIC PROFILE: COMPUTER AND VIDEO GAMES As described in the previous section regarding market size and growth, the Asia-Pacfic region is leading global distribution at 36%, with North America in second with 32%, Europe

Middle-East Africa at third with 28% and Latin America peeking through at 4% (Newzoo, 2013). It is not surprising that there is major interest in the mobile gaming industry, as well. Smartphone ownership has experienced a dramatic increase to 56% in 2013 from 35% in 2011 (Hepburn, 2013). Combining this with figures regarding an increase in mobile web adoption and advertisement traffic, mobile gaming is a very attractive segment for game developers. Competitors Continuing a focus on mobile and massively multiplayer online games, we will evaluate risks, performance and forward-looking statements of two game developer houses that specialize in each area. Utilizing the 10-K reports as a method of evaluation for each company, we acknowledge that successful private companies are not being considered at this time. Alternate forms of measure of these private companies may be necessary in order to evaluate barriers to entry for any new business in this industry. Zynga Representing social and mobile gaming, Zynga has positioned itself as an industry leader with the following characteristics: (a) Large and Global Community of Players; (b) Leading Portfolio of Social Games; and (c) Scalable Technology and Data. Producing games in several genres to include Farmville, Zynga Poker, Words With Friends and Mafia Wars, procuring revenue via in-game virtual goods, paid downloads, and advertising. Their mission includes several strategies common to the gaming industry, such as making their games fun and accessible. They are continuing efforts to expand growth in the mobile segment, improve

DEMOGRAPHIC PROFILE: COMPUTER AND VIDEO GAMES

existing efforts, expansion into the real money gaming market and continual innovations in their proprietary technology (Zynga, 2013, pp. 35). Zyngas risk factors include heavy reliance on Facebooks standards and terms regarding virtual goods, operating in a new and rapidly changing industry and recognize the possibility of declining revenue, bookings and operating margins. In addition, Zynga recognizes standard gaming industry risks if unable to continue developing successful games, any failures or security breaches and privacy concerns within their network. Business operations risks are also noted due to its relatively new business model, recent high employee turnover rate, significant impact if any key executive staff members are lost, integration or acquisition of other companies, unsettled or developing laws, currency exchange rates and need to attract highly qualified employees. They also dedicate a whole section to industry and competitive risks such as compatibility with mobile web, customer movement to other gaming segments, other social games, managing internal game economies, payments of virtual goods through unauthorized sources and cheating. However, the biggest risks may involve intellectual property rights and current litigations (Zynga, 2013, pp. 1132). Zyngas consolidated Financial Data reveals net income loss in 2012 in the amount of $209,448 thousand, resulting mostly from operational costs. However, this was an improvement over the previous year when they experienced a loss of $404,316 thousand. According to the adjusted earnings before interest, taxes, depreciation and amortization, the company realized a profit of $213,233 thousand (Zynga, 2013, pp. 36, 39). These figures may be considered positive performance as a direct result of operational re-investment activities. In fact, Zynga reported these re-investment activities in order to pursue long-term growth.

DEMOGRAPHIC PROFILE: COMPUTER AND VIDEO GAMES Key Operating Metrics are measured in terms of: (a) daily active users; (b) monthly active users; (c) monthly unique users; and (d) monthly unique payers. Using this method, Zynga was able to attribute increases in daily active users to releases of a new games, CastleVille, Hidden Chronicles and new users from the acquisition of Draw Something. Declining performance until the end of the year was also recognized and proposed that future growth is directly dependent on current player retention, new player attribution, new game launches and expansions into new markets and platforms (Zynga, 2013, pp. 4243).

Zynga offers a very detailed report and analysis to include recommendations surrounding recent developments specifically related to game launches, mobile growth, real money gaming, cost reduction and prioritization, operating results, changes to their Facebook agreement, new partnerships with American Express and Hasbro and a Stock Repurchase Program. Overall, Zynga shows due diligence and a level of detail that reveals a true recognition of risk factors and carefully measured intentions to improve future performance. Rockstar Games & 2K In the massively multiplayer online domain, Take-Two Interactive Software is the owner of the Rockstar Games and 2K development houses. Their products are designed for consoles, personal computers, smartphones and tablets. Focus remains primary on consoles due to their expected continual prevalence in the mainstream market. [Their] core strategy is to capitalize on the popularity of video games by developing and publishing high-quality interactive entertainment experiences across a range of genres (Take-Two Interactive Software, 2013, p. 2). Take-Twos extreme focus on quality and detail is evident by their successes. Recently, Grand Theft Auto V broke 7 Guinness Word Records, of which reaching a $1 billion sales mark on September, 20, 2013 as the most mentioned (Bora, 2013). Other game titles have received

DEMOGRAPHIC PROFILE: COMPUTER AND VIDEO GAMES major acclaim such as developments under 2K Sports and Rockstar favorites like Read Dead Redemption. Most gamers enjoy Rockstar for its attention to detail, offering extensive and immersive experiences, not to mention hilarious socio-political commentary. As mentioned previously, Zynga and Take-Two Interactive Software are not the only

players in the gaming industry. However, they are worth being studied and potentially emulated. Both still leave room for and invite innovation and competition and offer both employment opportunities for upcoming game developers, but also encourage new game houses to take advantage of their downfalls.

DEMOGRAPHIC PROFILE: COMPUTER AND VIDEO GAMES References Bora, K. (2013, October 10). GTA 5: How Grand Theft Auto 5 Broke 7 Guinness World Records. International Business Times. Retrieved January 22, 2014, from http://www.ibtimes.com/gta-5-how-grand-theft-auto-5-broke-7-guinness-world-records1420152 Entertainment Software Rating Board. (2010). Video Game Industry Statistics. Entertainment Software Rating Board. Retrieved January 22, 2014, from http://www.esrb.org/about/video-game-industry-statistics.jsp Galarneau, L. (2014, January 16). 2014 Global Gaming Stats: Whos Playing What, and Why? Retrieved from http://www.bigfishgames.com/blog/2014-global-gaming-stats-whosplaying-what-and-why/ Global Collect. (2013, July 2). Global MMO Games Market Report on Payments, Intelligence and Trends. Global Collect. Retrieved January 22, 2014, from

http://www.globalcollect.com/online-payments/news/2013-Press-Releases/GlobalCollectReleases-Global-MMO-Games-Market-Report-on-Payments-Intelligence-and-Trends/ Hepburn, A. (2013, October 1). Infographic: 2013 Mobile Growth Statistics. Digital Buzz Blog. Retrieved January 22, 2014, from http://www.digitalbuzzblog.com/infographic-2013mobile-growth-statistics/ Hows Life? 2013 Measuring Well-being: Measuring Well-being. (2013). OECD Publishing. Retrieved from http://books.google.com/books?id=2bvsAQAAQBAJ Newzoo. (2013, May 22). Global Games Market to Grow 6% to $70.4bn in 2013. Newzoo. Retrieved January 22, 2014, from http://www.newzoo.com/press-releases/newzooannounces-new-report-and-projects-global-games-market-to-grow-6-to-70-4bn-in-2013/

DEMOGRAPHIC PROFILE: COMPUTER AND VIDEO GAMES NPD Group. (2013, June). Video Gamer Segmentation Brief. NPD.com. Retrieved January 22, 2014, from https://www.npd.com/latest-reports/video-gamer-segmentation-

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brief/?utm_source=IndustrySpecific&utm_medium=Title&utm_campaign=LatestReports Stark, C. (2013, June 19). 5 Tech Trends That Will Change Gaming Forever. Mashable. Retrieved January 22, 2014, from http://mashable.com/2013/06/19/gaming-tech-trends/ Take-Two Interactive Software. (2013, May 14). Form 10-K - Take-Two Interactive Software. Securities and Exchange Commission. Retrieved January 22, 2014, from http://www.sec.gov/Archives/edgar/data/946581/000104746913006006/a2215169z10k.htm#da76801_item_1._business The Entertainment Software Association. (2013). Game Player Data. The Entertainment Software Association. Retrieved January 22, 2014, from http://www.theesa.com/facts/gameplayer.asp U.S Census Bureau. (2012). Income, Poverty and Health Insurance in the United States: 2012. U.S Census Bureau. Retrieved January 22, 2014, from http://www.census.gov/hhes/www/income/data/incpovhlth/2012/index.html Zynga. (2013, February 25). Form 10-K - Zynga. Securities and Exchange Commission. Retrieved January 22, 2014, from http://www.sec.gov/Archives/edgar/data/1439404/000119312513072858/d489727d10k.ht m