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Video games

Summary 348 North America 354

Latin America

Asia Pacific

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Europe, Middle East, Africa (EMEA)

365 380 392

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Summary
Video games
The video game market consists of consumer spending on new console games (including handheld games), personal computer games, online games, and wireless games as well as video game advertising. The category excludes spending on the hardware used for playing the games. Retail purchases of games are included in either the PC games or console games category. The online game category includes microtransactions, which are players purchases of accessories and additional game content that enhance the gaming experience. Oftentimes, online games are first purchased at retail and then played online. When these games are then played online for a subscription fee, the subscription fee is counted in the online game category. Market size and growth by region
The video game market in North America, EMEA (Europe, Middle East, Africa), Asia Pacific, and Latin America will expand from $58.7 billion in 2011 to $83.0 billion in 2016, growing at a 7.2 percent compound annual rate. Asia Pacific, with three of the top four countries in the world, is the largest region, at $24.3 billion in 2011, and is projected to be the fastest-growing region during the next five years, increasing 10.3 percent on a compound annual basis to $39.7 billion in 2016. Online games and wireless games, the fastest-growing enduser components of the video game market, constitute a larger share of total spending in Asia Pacific than in other regions and consequently have a greater influence on growth. EMEA, the second-largest region in 2011, with $18.0 billion, is projected to grow by 4.8 percent compounded annually to $22.8 billion. North America is projected to increase from $15.1 billion in 2011 to $18.6 billion in 2016, growing by 4.3 percent on a compound annual basis. Latin America is projected to grow to $1.9 billion in 2016 from $1.3 billion in 2011, a 7.2 percent compound annual gain.

Market size and growth by component

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Global console games, the largest category, at $27.5 billion in 2011, will expand at a 2.1 percent compound annual rate to $30.5 billion in 2016. PC games will continue to decline, decreasing at a 1.9 percent rate compounded annually to $3.1 billion from $3.5 billion in 2011. Online games and wireless games will be the fastest-growing end-user categories, with compound annual increases of 13.3 percent and 10.1 percent, respectively. Online games will total $31.4 billion in 2016, and wireless games, $14.2 billion. As a result, online games will replace console games as the largest gaming category in 2016. Video game advertising will increase from $2.2 billion in 2011 to $3.7 billion in 2016, growing by 11.2 percent on a compound annual rate.

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Principal drivers
The shift to online and wireless games will hurt the console game market in the near term, although new games being marketed for the current generation of consolesthe Wii, the Xbox 360, and the PlayStation 3 (PS3)with improved motion-sensory technology, which changes the game-play experience and brings in a wider range of players, will limit declines. The Wii U is the only next-generation console that has been officially announced, though next-generation consoles from the other manufacturers are likely to be introduced over the forecast period, spurring sales of games that take advantage of the new technologies, although a dip in sales is to be expected during the generational transition period for static consoles. The latest handheld devicesthe Nintendo 3DS and the PlayStation Vita, which are primarily gaming consoleswill also continue supporting the market for console/handheld games. Deteriorating retail sales of games are hurting retail stores. If this pattern causes some retailers to close, it would further exacerbate the decline in the market for console and PC games.

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Global video game market by region (US$ millions)


Region North America % Change EMEA % Change Asia Pacic % Change Latin America % Change Total % Change

Increased broadband penetration and, with it, the growing digital distribution of content will drive the growth of the online market. The migration of many massively multiplayer online games (MMOGs) from their subscription models to a free-to-play business model is increasing the number of players worldwide. The growth of microtransactions is providing a boom for the industry. Casual games and social network games are important components of the online market, helping expand the demographic base and stimulate spending. Some developers are shifting their attention from console games to concentrate more on online games.

The growth of smartphones and tablets, such as the iPad, with improved graphic capabilities, is enabling developers to produce more-advanced wireless games and will drive demand for those games. Smartphones and tablets, aided by an intuitive-touch interface, are fast becoming the devices of choice for casual game players. At the same time, new application stores that make the purchase of games more userfriendly will increase the number of gamers willing to purchase games. The growth of advanced wireless networks, with their faster speeds, will enable wireless games to approach the quality of console games.

The market for PC games will continue deteriorating as consumers turn their attention to newer technologies. Piracy of PC games, which is prevalent in certain markets, has also hampered the growth of the segment. The growth of the MMOGs, which usually require retail purchase of a PC game, continues to support the retail PC game market. Video game advertising is emerging as an additional revenue stream. The growth of social network games and free games is driving an increase in video game advertising.

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13,181 26.6 15,087 23.5 15,215 28.1 966 29.8 44,449 26.1

16,404 24.5 17,796 18.0 18,624 22.4

15,584 5.0 17,445 2.0

15,382 1.3

2007

2008

2009

2010

2011p

2012

2013 15,754 2.6 19,261 3.6 29,664 9.9 1,527 6.6 66,206 6.2

2014 16,576 5.2 20,275 5.3 32,751 10.4 1,641 7.5 71,243 7.6

2015 17,551 5.9 21,460 5.8 36,099 10.2 1,768 7.7 76,878 7.9

2016 18,569 5.8 22,760 6.1 39,739 10.1 1,908 7.9 82,976 7.9

201216 CAGR 4.3 4.8 10.3 7.2 7.2

15,057

15,349 1.9 18,586 3.2 26,982 11.0 1,432 6.5 62,349 6.2

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1.7 23,059 10.1 1,282 4.2 57,459 4.1 2.7 2.2

17,736

2.1

18,008 1.5 24,313 5.4 1,345 4.9 58,723 2.2

1,198 24.0

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54,022 21.5

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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12.4 1,230 55,201

20,942

Video games | Summary 349

Global video game market by component (US$ millions)


Component Console games % Change Online games % Change Wireless games % Change PC games % Change Total end-user spending % Change Advertising % Change Total % Change

2007 26,964 28.4 7,897 37.4 4,176 25.1 4,346 3.1 43,383 25.5 1,066 55.2 44,449 26.1

2008 32,006 18.7 10,829 37.1 5,729 37.2 4,055 6.7 52,619 21.3 1,403 31.6 54,022 21.5

2009 30,106 5.9 12,921 19.3 6,748 17.8 3,798 6.3 53,573 1.8 1,628 16.0 55,201 2.2

2010 28,946 3.9 15,019 16.2 7,815 15.8 3,777 0.6 55,557 3.7 1,902 16.8 57,459 4.1

2011p 27,493 5.0 16,796 11.8 8,789 12.5 3,462 8.3 56,540 1.8 2,183 14.8 58,723 2.2

2012 27,106 1.4 19,475 16.0 9,901 12.7 3,375 2.5 59,857 5.9

2013 26,861 0.9 22,225 14.1 11,008 11.2 3,312 1.9 63,406 5.9

2014 27,703 3.1 25,071 12.8 12,114 10.0

2015 28,899 4.3 28,176 12.4 13,194 8.9 3,195 1.8

2016 30,477 5.5 31,394 11.4 14,249 8.0 3,141 1.7 79,261 7.9 3,715 8.8 82,976 7.9

201216 CAGR 2.1 13.3 10.1 1.9 7.0 11.2 7.2

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2,800 12.4 66,206 6.2

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3,252 1.8 68,140 7.5 3,103 10.8 71,243 7.6

73,464 7.8 3,414 10.0 76,878 7.9

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consoles

The current generation of consoles consisting of the Xbox 360 from Microsoft, the Wii from Nintendo, and the PlayStation 3 from Sonybegan to be introduced in 2005. The consoles were available by 2007 in all regions except Latin America and became available in Latin America in 2009.

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Background on the global console/handheld hardware market

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prominent positioning to encourage the perception that the 360 is an entertainment device that also plays games. In fact, games represent only 60 percent of activity on the Xbox 360. Use of the console to watch videos has skyrocketed with the inclusion of Netflix. In February 2012, Kinect for Windows was introduced worldwide, enabling the device to be used with PCs. The Windows version works with a variety of applications, enabling other companies to integrate it into their programs. Microsoft is working with many companies such as Toyota, American Express, and Mattel on new applications that use the device. One of Microsofts strengths is Xbox Live, a multiplayer gaming network, social network, and media suite. The Xbox Live Free, which has limited capabilities, such as voice chat and some downloadable content, is available at no cost. A paid subscription

The Microsoft Xbox 360 has sold over 66 million units worldwide as of the end of 2011 compared with about 50 million by the end of 2010. In North America, the Xbox 360 has a wide lead over the PS3, while in EMEA, the PS3 has a slight lead. By contrast, in Japan, the Xbox 360, which appeals primarily to Western gamers, has not performed well. In November 2010, Microsoft introduced Kinect, which eliminates the need for a controller by using a specially designed camera that enables games to detect a players motions and replicate them onscreen. Eighteen million Kinects were shipped worldwide through the end of 2011 compared with 8 million a year earlier. In December 2011, Xbox released voiceactivated search powered by Kinect and Bing. In December 2011, the Xbox Live dashboard was redesigned, giving offerings like Last. fm and the Zune video rental service more

Microsoft Xbox 360


The Xbox 360 was the first of the current generation of consoles to be introduced when Microsoft launched the device prior to the holiday season in November 2005 in North America, Europe, and Japan.

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2,492 14.2 62,349 6.2

to the Xbox Live Gold service is required for multiplayer gaming, accessing social networks such as Facebook and Twitter, and accessing content such as ESPN3. Worldwide, Microsoft has 40 million subscribers to its online services. There are rumors about the next Xbox console that many have called the Xbox 720. This device, which has not been announced officially, is expected to integrate with the Windows Phone. It is expected that the device will include a much faster processor and Blu-ray technology. The device is not likely to be released before the end of 2013.

and was named the biggest third-party Wii game of all time, with 14 million units sold worldwide. The Wii sold over 4 million units in the US in 2011. The Wii is the only one of the major consoles that does not display in high-definition format. Nintendo introduced the Wii MotionPlus accessory in 2009, enhancing the Wiis controllers motion detection capabilities, but Sony and Microsoft responded with their own motion-based peripherals in 2010: Move and Kinect. The Wii is not as technologically advanced as its competitors. As a result, Nintendo was the first of the three major manufacturers to introduce its next-generation console, the Wii U, at the Electronic Entertainment Expo in June 2011 in Los Angeles. The new console, which is expected to be launched in major markets worldwide in time for the holidays in 2012, will display 1080p graphics and feature a 6.2-inch touch-screen controller that interacts with the TV and also functions as a monitor for continuous use when the TV is turned off. More details of the device are expected to be introduced at this years expo and are rumored to include the ability to act as an e-reader capable of displaying books, magazines, and strategy guides for the companys games. There will be an app store designed for the device that will include apps for the TV screen, with others designed for the controller itself. The device is expected to work with multiple sticklike Wii controllers to enable multiplayer gaming. The app store and the e-reader will provide new revenue streams for the company. The Wii U is expected to be only slightly technologically superior to its current competitors.

Nintendo Wii
The Wii, which was launched in November 2006, is marketed mainly as a game machine, as opposed to the Sony and Microsoft machines, which are being promoted as media centers for home entertainment. Nintendo has expanded the universe of game players to include younger children, older adults, and women. Wii is the most popular console worldwide, having sold over 95 million units due to its wider appeal. The most popular titles for the Wii are published by Nintendo. Nintendo does not have as much support from third-party publishers as do Microsoft and Sony, though a number of publishers, such as Electronic Arts, Ubisoft, and Capcom, continue to release exclusive titles for the Wii.

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The Wii, which originally sold for $250, saw in 2009 its first price reduction when the price lowered to $200 in the US and included a bundle containing a copy of Wii Sports. In May 2011, the company introduced its second price cut, lowering the price to $150 and bundling it with Mario Kart Wii instead. The lower console price helped boost device sales. Sales of some of the popular Wii games also spurred console sales. For example, more than a million copies of Legend of Zelda: Skyward Sword were sold between its November 2011 debut and the end of the year, helping spur console sales. Similarly, despite launching in 2010, Just Dance 2 continues to sell well

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PlayStation 3
The PS3 was launched in November 2006 in the United States, Japan, Hong Kong, Taiwan, Mexico, and Canada, and in March 2007 in EMEA, Australia, and Singapore, with subsequent launches, including launches in the rest of Latin America in 2009. Global sales total around 63 million units worldwide. As with the Xbox 360,

Sony has introduced a number of different PS3 models since its introduction, with the latest 160-gigabyte (GB) version replacing the 120-GB version. In August 2011, Sony lowered the price of the 160-GB and 320GB versions in the US to $249 and $299, respectively, with similar price reductions around the world. The price reductions helped spur sales of the consoles in the latter part of 2011. Sales of the PS3 have grown each year since its launch. During its 2010 fiscal year, Sony sold 14.3 million PlayStation 3s worldwide and should hit 15 million by the end of its 2011 fiscal year in March 2012. The PS3 is being marketed as the most advanced home entertainment center, with a Blu-ray player and DVR capabilities as well as an outstanding gaming console. The PS3 online environment is free to users and lets game developers control their own environments. Additionally, other online content such as movies can be downloaded. In 2010, Sony introduced PlayStation Network Plus, an optional paid upgrade that provides free games, discounts, and other content. In February 2012, Sony announced that the PlayStation Network is being rebranded as the Sony Entertainment Network. In October 2010, Sony introduced the Move, its new motion controller that is similar to the Wii controller in that it is waved and can be used in lieu of a sword, a baseball bat, or many other devices. Unlike the Wii Remote, the Move also makes use of the PlayStation Eye camera to track the wands position with greater fidelity and enable added gameplay features such as augmented reality. In the US, the Move comes bundled with a copy of Sports Champions or EyePet and the PlayStation Eye camera. Sony shipped more than 4 million units worldwide in the first month. Sports Champions, which is similar to Wii Sports, is a collection of sports that show off the controllers capabilities. Sony has said there would be no announcement at the 2012 Electronic Entertainment Expo regarding a new PlayStation console. The company said its current console will have a life span of 10 years. That doesnt mean a new console

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Video games | Summary 351

cannot be introduced before 2016; rather, the PS3 will continue to sell for 10 years. Similarly, the PlayStation 2 continues to be supported and is still selling well, with games like Madden NFL 12 and NBA 2K12 among the top games for the PS2 in some territories. Many of Sonys first-party games have long shelf lives because they are not annual titles like certain other hit games such as the major sports titles.

Handheld devices
Combined with interest in the current generation of consoles, the market for portable game consoles continues to show strength. The Nintendo DS (dual screen) is the leading portable device on a worldwide basis because of its simplicity, which has broadened its appeal beyond hard-core gamers. The DS has two screens, providing players with two views of the action, touchscreen capabilities, wireless connectivity, and a built-in microphone, which are innovative features in handheld game consoles. The DS has broadened the market, attracting women and older players with its Touch! Generations brand of games, which includes a number of games in the Nintendogs and Brain Training franchises, both of which are exclusive to the Nintendo DS. There are a number of different DS models on the market, including the DSi and the DSi Excel. Nintendo introduced 3DS, the most anticipated new gaming device of the year, in February 2011 in Japan, and in the American and European markets in March 2011. The device enables users to play games in stereoscopic 3-D without the need for special glasses. Some of the games that were available at launch were Capcoms Super Street Fighter IV: 3D Edition and Nintendos Pilotwings Resort and Nintendogs + Cats. Additionally, since the new device has backward compatibility, all games that played on prior DS models also work. Studios are planning to bring 3-D movies to the device.

The other major game console in the sophisticated portable market is the Sony PSP (PlayStation Portable), a handheld game device equipped with a 4.3-inch LCD screen that plays music and movies on a proprietary minidisc called the universal media disc, which can hold 1.8 GB of data. The PSP was originally launched in Japan in December 2004 and in other major markets in 2005. Since then, a number of different models were introduced, including a budget model called the PSP-E1000, which was launched in 2011.

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Initial sales of the 3DS were disappointing as the result of a limited number of titles, an incomplete online environment at the time of launch, and poor battery life. At the end of July 2011, Nintendo announced a worldwide 3DS price cut that reduced prices in Japan from 25,000 ($314) to 15,000 ($188) and in the US from $250 to $180, with comparable decreases worldwide, and supplied free games to gamers who purchased the device at full price. Sales of the device jumped worldwide. The launch of Mario Kart 7 and Super Mario 3D Land was quite successful, as they were the first two 3DS titles to reach a million units sold in the US and they were the two top-selling titles in Japan in 2011. As a result, the 3DS became the top-selling device in the world in 2011. The 3DS sold more than 4 million devices in the US and Japan in 2011, outpacing the Wii in its first nine months of sales. Sales are expected to remain strong in 2012 with the release of several major titles, including Kid Icarus: Uprising, Luigis Mansion 2, Professor Layton and the Mask of Miracle, and Metal Gear Solid: Snake Eater 3D.

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Sony introduced the PSP Vita, the newest in its line of handheld devices, in Japan in December 2011 and launched it worldwide in February 2012. The Vita is a touchinterface motion-sensitive handheld device that is a successor to the PSP. The Vita has high-definition capabilities and improved graphics, providing a gaming experience approaching that of the PS3. It has a fiveinch OLED (organic-light-emitting-diode) screen running four times the resolution of the PSP. It also has front and rear touch pads and cameras. In the US, the Wi-Fi version

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sells for $249, and the third-generation (3G) version sells for $299. Some of the titles that were available on launch day were Sonys Uncharted: Golden Abyss, Square Enixs Army Corps of Hell, and Electronic Arts Sports FIFA Soccer. The Vita has a memory card for physical software as well as the ability to download games and apps via the PlayStation Network. Sales of the Vita trailed off in Japan after the first week. It remains to be seen how well the device will sell worldwide. Sony Ericsson introduced the Xperia PLAY in 2011. It is an Android-based smartphone that is part of the PlayStation Certified program, meaning that it can play PlayStation suite games. The market for dedicated handheld devices is facing growing competition from the rapidly increasing capabilities of smartphones and tablets. Though in aggregate the dedicated devices have advantages, such as the quality of the games being superior to those on a smartphone and having a controller-type feel to them, a shrinking number of people are willing to pay the relatively high prices for the games when they can purchase much cheaper games for their smartphones. In general, the overall gaming experience is being enhanced by the linking of different gaming platforms. For example, Xbox Live allows PC gamers to interact with Xbox gamers. Additionally, technology advances are enabling smartphones to act as controllers for some of the consoles.

Social gaming
Social gaming on sites like Facebook, Myspace, and Google+ is growing exponentially. Social games are free, widely available, load in a few seconds, and require only a few minutes at a time to play. They use a business model called freemium, whereby the games are provided free, with the developers gaining revenues through microtransactions as well as advertising. The games grow virally because users can invite all of their contacts to join them in playing the game.

Cloud computing
In June 2010, OnLive introduced a gaming-on-demand service based on cloud computing in the US. At its launch, OnLive had 10 games in its inventory and now has more than 200 games available. Instead of offering games for purchase online and letting them download to a computer, the on-demand service maintains the processing of the games on its servers and enables users to play the games via cloud computing. This levels the playing field for all players regardless of the computer theyre playing on, and as a result, gamers using computers with low-end processing capabilities experience the games in the same way as those using high-end machines, because the actual game processing is taking place on the OnLive servers and not on the gamers hardware. Games are treated as a service, with the business model being either a subscription or a rental that targets nontraditional demographics, a growing trend in the market. The service will not replace a highend PC or console for core gamers, but it will add more casual gamers to the market.

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In December 2010, OnLive introduced a game system that includes a MicroConsole TV adapter, a free game, and a wireless controller that can be connected to a TV via Ethernet or Wi-Fi. In this way, games can be played on a television without the need for an expensive game console system. OnLive expanded to the UK in September 2011. In December 2011, OnLive introduced an app for Apple and Android phones, enabling them to run full versions of games. The app works with Wi-Fi-enabled phones and those that use fourth generation (4G). The games cost more than mobile games but are more advanced than typical mobile games. Since the games are based in the cloud, gamers can begin playing on a PC, switch to a mobile device, and then switch back to the PC.

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Zynga, the major game developer on Facebook, is credited with introducing the first social game, Zynga Poker, in July 2007. Zyngas Farmville, which was launched on Facebook in June 2009, was the fastestgrowing game of all time, with more than 84 million monthly users at its peak. Since then, CityVille, another game from Zynga, which launched in December 2010, hit 88.4 million players within a month of its release and has since reached more than 100 million visitors. It was the first time that Zynga launched a game worldwide simultaneously that is localized for specific regions. In November 2010, Zynga acquired Newtoy Inc., developer of Words With Friends, a very popular game online as well as on mobile devices. Since then, Zynga has developed other games in the With Friends series, including Hanging With Friends and Scramble With Friends.

The service is being supported by major publishers like Take Two, Electronic Arts (EA), THQ, and Ubisoft to reach people who do not normally buy games. Other advantages of the service are that it will cut down on piracy because the games are never actually downloaded and it enables the game developers to more easily update their games. By contrast, game download services like Valves Steam and EAs Origin provide digital distribution of a game but require gamers to have powerful computers and significant hard disk drive capacity to save the games as well as the time to download them. These two companies are the major digital distribution platforms, though Valves Steam is still much more established. Cloudcomputing models will contribute to overall growth in online games. OnLive introduced an all-you-can-play flat-fee subscription service called PlayPack plan, which allows unlimited access to the majority of its older games. It is similar to the Netflix streaming service for movies. OnLive was initially available for PCs and Macs.

Gaikai launched a similar cloud-based game service in February 2011. Currently, EA, Capcom, and Ubisoft have signed agreements to supply many of their titles, and Gaikai is negotiating with other publishers to join the service. Players can try the games for free on any connected device and then purchase the games, which are streamed to a PC or tablet. OnLive is available on all Internet-connected smart TVs running the Google TV platform; Gaikai comes installed on a number of new LG TVs. In the near term, cloud-based services continue to face competition from companies that are already established in the digital distribution of games, such as Direct2Drive and Shockwave. They are trying to sell their products to a market whose consumers are already equipped with the required technology. Additionally, since the pricing is not that much different from the current pricing of the download companies, theres little incentive to switch to cloud gaming. Since multiplayer gaming is becoming a more important segment of the market, these companies must develop strategies that minimize the latency of playing games on a remote server. The business model for the cloud gaming companies has a better chance for success in the future, when consumers are faced with the choice of buying the next generation of new consoles or playing games from the cloud. Cloud computing will have an impact on many segments of the market, including having a negative effect on the retail sales of console games and PC games while having a positive effect on the subscription-based online game segment. Since cloud users save game data and history in the cloud, this will make the service stickier. Cloud services also will have a positive impact on advertising because ads can be easily updated in the cloud.

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North America
The outlook in brief
Growth of the online market as well as the migration of some players to cheaper games on mobile devices will cut into the console/handheld game market. The growing number of people playing games on social networks and the increased number of microtransactions are driving the online game market. Smartphones and tablets, which are becoming the preferred devices for casual gamers, are boosting the wireless game market. The physical PC game market will continue to deteriorate as digital distribution of games increases and gamers seek alternative platforms. Advertising will grow as more advertisers realize the gaming industrys potential to reach specific audiences. Consumer spending on games will grow at a 3.6 percent compound annual rate to $16.6 billion from $13.9 billion in 2011, while advertising will increase from $1.2 billion in 2011 to $2.0 billion, an 11.2 percent increase compounded annually. Console/handheld games will continue to be the dominant segment of the market, though growing at only a 1.9 percent compound annual rate to $10.6 billion in 2016 from $9.7 billion in 2011.

Wireless games will increase by 7.1 percent on a compound annual basis from $1.1 billion in 2011 to $1.6 billion in 2016. The PC game market will decrease to $434 million in 2016 from $534 million in 2011, a 4.1 percent compound annual decline.

North America Console/handheld games Online games Wireless games PC games Total end-user spending Advertising Total

2007 9,445 1,747 462 935 12,589 592 13,181

2008 11,988 1,993 861 788

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Video game market by component (US$ millions)


2009

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2010 2011p 9,672 2,559 1,115 534 13,880 1,177 15,057 2012 9,474 2,842 1,203 502 14,021 1,328 15,349

The overall video game market is projected to grow by 4.3 percent compounded annually to $18.6 billion in 2016 from $15.1 billion in 2011.

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2013 9,339 3,150 1,287 485 14,261 1,493 15,754

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Online games are expected to increase from $2.6 billion in 2011 to $3.9 billion in 2016, growing by 9.0 percent on a compound annual basis.

2014 9,666 3,419 1,370 468 14,923 1,653 16,576

2015 10,105 3,693 1,474 451 15,723 1,828 17,551

2016 10,625 3,932 1,574 434 16,565 2,004 18,569

10,863 2,136 937 751 14,687 897 15,584

10,237 2,319 1,024 767 14,347 1,035 15,382

At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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Download a PDF version of each segment. Visit the online Outlook at www.pwc.com/outlook

Video game market growth by component (%)


North America Console/handheld games Online games Wireless games PC games Total end-user spending Advertising Total

2007 35.0 23.3 18.9 13.3 25.1 67.2 26.6

2008 26.9 14.1 86.4 15.7 24.2 30.7 24.5

2009 9.4 7.2 8.8 4.7 6.0 15.9 5.0

2010 5.8 8.6 9.3 2.1 2.3 15.4 1.3

2011p 5.5 10.3 8.9 30.4 3.3 13.7 2.1

2012 2.0 11.1 7.9 6.0 1.0 12.8 1.9

2013 1.4 10.8 7.0 3.4 1.7

2014 3.5 8.5 6.4 3.5 4.6

2015 4.5 8.0 7.6 3.6 5.4 10.6 5.9

2016 5.1 6.5 6.8 3.8 5.4 9.6 5.8

201216 CAGR 1.9 9.0 7.1 4.1 3.6 11.2 4.3

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12.4 2.6

10.7 5.2

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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Video game market by country (US$ millions)


North America United States Canada Total

The video game market in the United States is expected to grow from $13.3 billion in 2011 to $16.4 billion in 2016, a 4.1 percent compound annual increase.

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The Canadian video game market will increase by 5.3 percent on a compound annual basis, reaching $2.2 billion in 2016 from $1.7 billion in 2011.

2007 11,823 1,358 13,181

2008 14,720 1,684

2009

2010

2011p 13,344 1,713 15,057

2012 13,572 1,777 15,349

2013 13,902 1,852 15,754

2014 14,618 1,958 16,576

2015 15,469 2,082 17,551

2016 16,352 2,217 18,569

201216 CAGR 4.1 5.3 4.3

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13,885 1,699 15,584

13,700 1,682 15,382

Console/handheld game market


The console/handheld game market experienced its third straight year of declines, decreasing by 5.5 percent following a 5.8 percent decline in 2010. In particular, sales in December were much weaker than in December of the prior year. The declines are attributable to the aging of the current generation of consoles as well as the migration of gamers to other platforms. Activision Blizzards Call of Duty: Modern Warfare 3 was the top-selling game in 2011. It became the biggest entertainment launch in history, hitting $400 million in the US and the UK on its first day of sales. The record had previously belonged to the prior installment in the

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At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

16,404

franchiseCall of Duty: Black Opswhich grossed $360 million on its first day in 2010. Call of Duty: Modern Warfare 3 went on to gross $1 billion in its first 16 days after its November 8 launch, one day quicker than Avatar, the James Cameron movie, which was the highestgrossing film of all time. Call of Duty: Modern Warfare 3 is available on all three consoles and on the PC. The Call of Duty franchise includes five of the top-selling games of all time in the US. Just Dance 3, which is available for all three of the major consoles, was the second-best-selling game in 2011, while its predecessor, Just Dance 2, the eighth-best-selling game in 2011, is a Wii exclusive.

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Gears of War 3, which is exclusive to the Xbox 360, was the only other exclusive game among the top 10 in 2011. Two other top gamesMadden NFL 12 and Call of Duty: Black Opsare available for all three consoles. Call of Duty: Black Ops is also available on the DSamong the top 10, the only title available for that device. Skylanders: Spyros Adventure was a hit kids game that gained extra revenues through the sale of figures that could be transported and played with multiple consoles, thereby enabling children to take them to their friends houses and play with them regardless of the console they were using. Super Mario 3D Land and Mario Kart 7 were the fastestselling portable games in 2011 and the first 3DS titles to top 1 million in unit sales. A number of highly anticipated games are scheduled for launch in 2012, including BioShock Infinite, the follow-up to the outstanding 2007 first-person shooter BioShock; Grand Theft Auto V, the latest in the hit series; and Mass Effect 3, the third of the sci-fi trilogy that started in 2007. All of these games will be available on the PS3 and the Xbox 360. The Last Guardian will be one of the exclusive PS3 titles to debut in 2012, while Halo 4 will likely be a major exclusive title for the Xbox 360.

Although it has not been announced officially, Activision is anticipated to continue its pattern of launching major titles at the end of the year to take advantage of holiday sales, with the introduction of Call of Duty: Black Ops 2 as the next installment of the hit series. Canada passed the UK to become the third-largest developer of video games in the world, surpassed only by the US and Japan. Canada is the home of a number of top video game developers, including Ubisoft in Montreal, which developed Tom Clancys Splinter Cell series of games; BioWare in Alberta; and Electronics Arts in Burnaby, British Colombia, which developed FIFA Soccer, one of the most popular games in the world. Around 20 percent of the top-selling games in North America are developed in Canada.

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Sony launched Uncharted: Golden Abyss for the PS Vita in February 2012. Resident Evil: Revelations is the mostanticipated game for the 3DS. It plays just like the console version, allowing fans of Resident Evil 4 to have an equivalent experience on a portable device.

The console/handheld game market declined in 2011 by 5.5 percent, reflecting the aging of the current generation of consoles. The launch of Mario Kart 7 and Super Mario 3D for the 3DS buoyed the market for handheld games. There is a migration to more-casual and mobile gaming, which is hurting the console game market. We anticipate modest declines in 2012 and 2013 followed by a turnaround in 2014, when it is expected that all three next-generation consoles will be on the market. Until then, new games developed to take advantage of the motion controllers of the PS3 and Xbox 360 as well as new games for the 3DS, PSP Vita, and Wii U should have a positive effect on the market, minimizing the decline. Even with the new consoles, due to competition from digital platforms we do not expect the console/handheld game market to show the large increases of the past. The console/handheld game market in the United States is expected to grow by 1.9 percent on a compound annual basis from $8.8 billion in 2011 to $9.7 billion in 2016. A similar pattern is expected for the Canadian console/ handheld game market, with revenues increasing 1.9 percent on a compound annual basis from $842 million in 2011 to $925 million in 2016. Overall spending in North America will increase from $9.7 billion in 2011 to $10.6 billion in 2016, a 1.9 percent compound annual increase.

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Two factors that are helping make Canada a major game-developing center are (1) the large pool of talent as a result of many colleges with game development departments and (2) government policies that support the industry through tax credits and incentives. Provincial governments in Canada are revamping their tax credit systems to attract game developers. Ubisoft, for example, is making a significant investment in Ontario because of an attractive tax package. These incentives make it cheaper and easier to develop games in Canada than in the United States and Europe. The Canada Media Fund, which traditionally supported television production, now requires funded projects to have interactive components. This is driving all content creators to develop video games or interactive Web sites.

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Console/handheld game market (US$ millions)


North America United States Canada Total

2007 8,714 731 9,445

2008 10,997 991 11,988

2009 9,900 963 10,863

2010 9,350 887 10,237

2011p 8,830 842 9,672

2012 8,650 824 9,474

2013 8,525 814 9,339

2014 8,825 841 9,666

2015 9,225 880 10,105

2016 9,700 925 10,625

201216 CAGR 1.9 1.9 1.9

At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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The PC platform was traditionally the only means to play games online and is still the dominant platform, far surpassing the Xbox 360, which is in second place. Consoles are becoming more-important platforms because each of the consoles in the current generation of consoles supports online gaming. Their online marketplaces Xbox Live, PlayStation Network (newly rebranded as Sony Entertainment Network), and Nintendo Wii Shopenable gamers to purchase games, and they allow competition against other players anywhere via the Internet. Sonys PlayStation Network, which launched in 2006, is a free environment that provides online gaming as well as a means of downloading video and game content. Sonys PlayStation Plus subscription service for the PS3 went live in 2010 at a cost of $50 annually. Under the plan, users get free access to a selection of games that are normally available for sale from the PlayStation Network. Similarly, Microsoft has two online services: First, the Xbox Live Silver, recently renamed Xbox Live Free, provides users with free access so they can download a limited number of game demos and movie trailers. Second is a gold membership, which costs $60 annually and which is required for online gaming or access to other services like Facebook. The company has said it has 40 million registered users worldwide. Valves Steam service is the dominant company in the market for legally downloading games to the PC. In late 2011, the company achieved a record 5 million concurrent users. Steam has over 1,800 games available to download to its 40 million registered users worldwide. In June 2011, Steam introduced free-to-play games, including Segas Spiral Knights and Perfect Worlds Forsaken Worlds and has expanded its library to around 20 games, with more to be added in 2012.

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The Mac App Store launched in January 2011 with over a thousand programs and has made software (including games) available in a familiar marketplace for iOS users. There are now around 9,000 apps in the store, with games representing the largest category. Many popular games are in the store, including Angry Birds and Plants vs. Zombies. That should help grow the market for Mac games, because in the past, retail game stores rarely stocked themin favor of games for the PC and consoles instead. Massively multiplayer online games are played by thousands of people simultaneously around the world. MMOGs are virtual worlds inhabited by supernatural beings, such as aliens or wizards that continue evolving. Most MMOGs are played on PCs, with additional content being delivered over broadband connections. World of Warcraft (WoW), which was launched in November 2004, is by far the most popular MMOG. The game, which had 12 million subscribers at its peak, has seen its subscriber count decline to around 10 million. After buying the game, subscribers pay a monthly subscription fee of $15 to continue playing online. World of Warcraft: Mists of Pandaria, the latest expansion pack for WoW, is scheduled to launch in 2012 and is expected to buoy demand for the game.

Online games

In June 2011, Electronic Arts launched Origin, formerly the EA Store, as a competitor to Steam. Origin is a digital distribution system that enables users to purchase games on the Internet and download them to their PCs or mobile devices. Additionally, Origin has a number of other features, including (1) the saving of games in the cloud, thereby enabling them to be played on different devices, and (2) social features such as networking with friends. Origin currently offers more than 100 titles in its portfolio of games from a number of different publishers, far fewer than the Steam platform, which has around 1,500 titles.

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A major new MMOG with a similar business modelStar Wars: The Old Republic, was developed by EAs BioWare and launched on December 20, 2011, reaching 1 million subscribers by the end of the month. Players who bought the game are entitled to 30 days of free online service before they have to pay the $15 monthly fee. It remains to be seen how successful the game will be and if the subscription model still has staying power. By contrast, many other MMOGssuch as EverQuest II, Age of Conan, and DC Universe Onlinehave switched from the traditional business model to a free-to-play model, with microtransactions generating the revenues for the publisher. After the switch, the number of players for these games increased dramatically, as did the number of microtransactions. Not all MMOGs that switch from the subscription model become successful as free games, as evidenced by the demise of LEGO Universe in January 2012, which failed to achieve enough revenues after switching. Another major MMOG title is the free-to-play League of Legends, published by Riot Games, which has 30 million registered players worldwide.

Microtransactions enable gamers to buy items that give them an advantage in the game or enhance the gaming experience. Combined with the free-to-play business model, microtransactions let gamers control the amount they spend on games rather than paying a monthly subscription fee. Many game developers are adding downloadable digital content for their games so as to enhance the gaming experience and as an additional source of revenues. Activision launched Call of Duty Elite, an online service, on the same day it launched Call of Duty: Modern Warfare 3. The online service, which has more than 7 million subscribers, provides access to additional downloadable content.

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Electronic Arts introduced a line of free-to-play online games, including Battlefield Heroes and Need for Speed World, that have reached 25 million players worldwide.

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A number of new MMOGs are scheduled to launch in 2012, including Guild Wars 2, developed by ArenaNet; Sonys Planetside 2; and BioWares Warhammer Online: Wrath of Heroes. None of these will use the traditional subscription business model but instead will be free to play, with microtransactions providing the revenue stream.

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The major game developers are beginning to realize the potential of social games. Electronic Arts, which acquired Playfish in November 2009 and PopCap in July 2011, recently released a number of social games on Facebook, including Sims Social, which reached 30 million users in its first month. Similarly, Disney entered the social game market by acquiring second-leading social game developer Playdom. Casual gamessuch as puzzles, cards, and arcade games that do not require extended periods of time to learn and to playhave attracted a wider demographic audience, including women and older adults. In fact, the majority of online gamers in the United States are women. A number of online sitessuch as Yahoo! Games, MSNs Zone, and Electronic Arts Pogo.comprovide some free games, with most of their revenues coming from advertising. Some of the popular casual games are Bejeweled, Tetris, Solitaire, and Luxor. The games can be played online or downloaded. There are a number of different business models, including free, advertising-supported games; pay per game; and subscription-based games. The online game market in North America grew by 10.6 percent in 2011. Growth has been driven by an increase in broadband subscribers, by transition to the current generation of consoles, and by the growth of social games. There are more subscription services entering the market as well as more companies providing digital distribution. The online game market will grow from $2.6 billion in 2011 to $3.9 billion in 2016, increasing at a 9.0 percent compound annual rate.

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Games on social networks, such as Facebook, have grown exponentially. Zynga, the major game developer on Facebook, has had a number of major games. Its CityVille game became the biggest Facebook game of all time, reaching 100 million users and surpassing the record held by FarmVille, another Zynga game. The games are free to play and generate revenues from microtransactions and advertising. These games are also played by women and by people in older age-groups, thereby opening up opportunities for advertisers and other commercial partners. Most of the social games are played on PCs and, to a lesser extent, on smartphones and tablets. Words With Friends, originally developed by Newtoy Inc., which is now part of Zynga, has proved very popular on mobile devices. Zynga continues to develop new games in the series, including Scramble With Friends.

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An expanding microtransaction market will also fuel online game spending in North America during the next five years. The online game market in the United States is expected to increase from $2.1 billion in 2011 to $3.2 billion in 2016 Online game market (US$ millions)
North America United States Canada Total

a 9.0 percent compound annual growth ratewhile the Canadian online game market will increase at a slightly slower, 8.7 percent compound annual rate to $728 million in 2016 from $480 million in 2011.

2007 1,399 348 1,747

2008 1,605 388 1,993

2009 1,722 414 2,136

2010 1,879 440 2,319

2011p 2,079 480 2,559

2012 2,316 526 2,842

2013 2,574 576

2014 2,797 622

2015 3,020 673 3,693

2016 3,204 728 3,932

201216 CAGR 9.0 8.7 9.0

Wireless games
Wireless games are games played on mobile phones and other wireless devices. Almost all new wireless phones are now Internet enabled, facilitating the ability to download games. The increasing sophistication of the new handsets will make for a more enjoyable gaming experience. As people upgrade their existing handsets for newer models, the number of game-capable handsets will increase dramatically.

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Historically, mobile games were simplistic due to the graphic limitation of the handsets. As a result, the most popular mobile games were single-player board games, word games, and puzzles, although that trend is changing as AAA titles are being released for these devices. These casual games help widen the demographics of wireless game players. In fact, more than half of wireless gamers are women who enjoy playing casual games such as Tetris and Bejeweled, two of the most-often-downloaded wireless games.

Originally, many handsets were embedded with games as a differentiator to drive sales of individual phones. Those games provided enjoyment for the users but did not provide any additional revenue for the operators. With the expansion of Internet-connected phones, operators saw the potential for additional revenues by users downloading of games at a modest fee. However, the carriers download platforms were often not consumer friendly.

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Apples introduction of the iPhone and the App Store revolutionized the wireless game market. The App Store improves the buying experience dramatically over carriers decks, has better descriptions, and offers free trials. The number of games on the App Store increased from around 5,000 in October 2008 to over 75,000 by the end of 2011. And a number of other online services such as the Android Market have been established that compete with the carriers decks to provide content. The sophistication of games for the iPhone and iPod Touch has caused many gamers to substitute these devices for their DS and PSP handheld devices. In 2010, Apple introduced the iPad, a tablet computer that runs all of the iPhone applications, including the games. With its enhanced graphic capabilities and its large touch screen, the iPad is becoming the platform of choice for many gamers. The introduction of the iPad 2, with the advanced A5 processor chip, which renders graphics much faster than the previous model did, further establishes the iPad 2 as a device on which to play games like Infinity Blade 2 and Real Racing 2, which have graphics that rival those of console games. The newest version, the iPad 3, with a higher-resolution screen, was introduced in 2012. The Android mobile device market has skyrocketed because of lower prices relative to the iPhones. These phones provide another platform for gamers.

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At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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3,150

3,419

359

Although casual games continue to dominate the market, more-advanced games that take advantage of the sophistication of the newer smartphones are also being developed. Even wireless versions of MMOGs are being developed for gamers on the go. These games will become more prevalent as the number of technically advanced handsets proliferates. There are a growing number of mobile games, both because of the rising penetration by smartphones and because the games are significantly cheaper than console games. Mobile gaming provides an enjoyable experience for short periods of time, as when waiting for a bus or train. The business model for mobile games is moving from the pay to download to the freemium model whereby the games are downloaded for free, with microtransactions and advertising providing the necessary revenues. In fact, its estimated that in-game purchases will outpace download fees in the near future. Angry Birds was a hugely successful game as a paid download but has now garnered more fans as a free download. Social network games are finding their way to mobile phones, with microtransactions and advertising providing the requisite revenue streams. In December 2011, Microsoft introduced an Xbox Live app for Windows phones and Apple devices that enables users to track and compare their achievements and send messages to Xbox Live friends. Microsoft is also developing apps that will enable users to play Xbox Live games on their devices.

Electronic Arts major position resulted from its purchase of Jamdat in 2006. Jamdat had been the largest mobile game developer in the world. EA Mobile continues acquiring smaller studios to enhance its position as the industry leader. In 2010, it acquired Chillingo, a leading publisher of iOS games, including the iOS version of Angry Birds. In 2011, EA acquired Australian game developer Firemint, developer of Flight Control, Real Racing, and SpyMouse. In 2011, EA launched a mobile version of its popular Facebook social game Sims FreePlay for Apple devices. Zynga, the online game developer famous for its games on Facebook such as CityVille, is developing a series of games for mobile devices to expand its user base. It recently introduced its Scramble With Friends word game to join Words With Friends and Hanging With Friends in the wireless segment. The wireless game market is expected to continue growing as the penetration by smartphones and tablets expands. More people will be playing games, including casual games, social games, and more-advanced multiplayer games. The market will also grow as more gamers get accustomed to making microtransactions in order to enhance their gaming experience. The wireless game market in North America rose 8.9 percent in 2011. During the next five years, the market will expand at a 7.1 percent compound annual rate from $1.1 billion in 2011 to $1.6 billion in 2016. The wireless game market in the United States is expected to grow by a 7.1 percent compound annual rate, reaching $1.4 billion in 2016, up from $990 million in 2011, while the Canadian market will increase from $125 million in 2011 to $181 million in 2016, a 7.7 percent annual growth rate.

Electronic Arts Mobile, the worlds leading mobile game developer, is headquartered in California, with a major studio in Canada, and is best known for turning big-name titles like Monopoly, Scrabble, and Tetris into mobile games. Wireless game market (US$ millions)
North America United States Canada Total

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2014 1,211 159 1,370

2007 384 78 462

2008 767 94 861

2009 833 104 937

2010 911 113 1,024

2011p 990 125 1,115

2012 1,066 137 1,203

2013 1,138 149 1,287

2015 1,304 170 1,474

2016 1,393 181 1,574

201216 CAGR 7.1 7.7 7.1

At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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PwC | Global entertainment and media outlook: 20122016

PC games
The PC game market declined in 2011, returning to its normal pattern of deterioration. This follows a one-year aberration, when the sale of boxed PC games increased for the first time in recent years as revenues got boosted by large sales of World of Warcraft: Cataclysm and StarCraft II. With just a few exceptions, the retail market for PC games has been in decline for a number of years because the rise of the consoles has shifted the market away from the PC. It must be noted that this section deals only with retail sales of PC games and does not include digital distribution of PC games, subscriptions to online games, or microtransactions that take place in online games. Those revenue streams are growing in importance and are included in the online game category. Retail sales of PC games have been deteriorating for a number of reasons: Developers are producing fewer PC games because of the fear of piracy. Consumers have been migrating from PC games to those played on the current generation of consoles. Retailers do not make the same effort to market PC games, often relegating them to the backs of their stores. And the move to digital distribution of games makes downloading them directly to the PC an easier alternative to purchasing games at retail.

Steam is the major player in the PC game download market, with around 70 percent of the market. Direct2Drive, EA.com, Blizzard.com, and Big Fish Games are among the other download services. PC game downloads are not included in PC gaming spending and effectively compete with PC games. In addition to World of Warcraft, the other major franchise that continues to support PC game sales comprises the various Sims games. Sims 3, launched in June 2009, continues to be a major-selling PC game franchise. The Sims 3 Showtime expansion pack was released in 2012. The new PC games expected in 2012 include Guild Wars 2 and StarCraft II: Heart of the Swarm. We expect the number of games sold to show modest decreases throughout the forecast period but not be offset by modest price increases. North American spending on PC games will decline from $534 million in 2011 to $434 million in 2016, decreasing at a compound annual rate of 4.1 percent. The US PC game market will decline by 4.2 percent compounded annually from $470 million in 2011 to $380 million in 2016, while the Canadian market will decline from $64 million to $54 million, a 3.3 percent compound annual rate.

Despite recent sales declines, PC games do have a solid fan base. PCs give gamers a superior method to play certain game genres such as strategy games and MMOGs, because a keyboard and mouse provide better means of interacting with the games than a console controller does. PC games also provide superior graphics. The most-advanced games are often PC based because the open platform, with no certification necessary, as is required with console games, facilitates more-efficient development of games. PCs are offering better graphics than the aging consoles are. The high-end graphics processing unit (GPU) from NVIDIA is selling well as hard-core gamers upgrade their computers to play games like Battlefield 3 and Elder Scrolls V: Skyrim. The growth of MMOGs is aiding the retail PC game market because most MMOGs require retail purchase of the game, after which the gamer can play the game online.

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Star Wars: The Old Republic, a major new MMOG, launched in late December 2011, quickly rose up the sales charts to become one of the most popular PC games of the year. Another new major MMOG was League of Legends.

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World of Warcraft: Cataclysm, the third expansion pack for the MMOG, sold 3.3 million copies worldwide on its first day of availabilityDecember 7, 2010making it the fastest-selling PC game of all time. It beat the previous record holder, World of Warcraft: Wrath of the Lich King, the second expansion pack, which sold 2.8 million copies the first day. Despite losing subscribers recently, World of Warcraft is still quite popular around the world, and expectations are that the next expansion pack, World of Warcraft: Mists of Pandaria, scheduled to debut in 2012, will help spur PC game sales.

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PC game market (US$ millions)


North America United States Canada Total

2007 826 109 935

2008 701 87 788

2009 680 71 751

2010 700 67 767

2011p 470 64 534

2012 440 62 502

2013 425 60 485

2014 410 58 468

2015 395 56 451

2016 380 54 434

201216 CAGR 4.2 3.3 4.1

At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Advertising
Advertisers are turning to video games to reach specific demographic groups that are becoming more elusive. The prime example is males 18 to 34 years of age, who are spending relatively less time watching television and more time with interactive games. The video game platform provides a unique level of engagement that is missing in other advertising media. People are less likely to be multitasking when they play games as compared with when they are watching television. Initially, all ads were static, such as billboards that appeared in the backgrounds of sporting events or product placements in which a character is shown with a branded product. Such ads were placed in the games at the time the games were developed, and they could not be changed. The ads often appeared in sports games and other contemporary environments where they added a measure of authenticity to the games.

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With the advent of online gaming, a more-advanced type of advertising became possible. Advertisers can now place ads that can be changed dynamically through the Internet. For example, a billboard promoting a movie can be updated as new films get released. In this way, the advertising will always be fresh. Additionally, advertising can be targeted geographically, with different messages hitting different geographic areas. The messages can be programmed for delivery at specific times of day. Since online games are attached to the Internet, its also possible to track both the number of times a gamer is exposed to ads and the amount of time that ads appear on the screen. And the placement of the ads can vary by the users experience. For example, if a player does not spend enough time on the ad, it can be made to reappear later in the game.

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Advergaming is the practice of using a video game to promote a product or a service. Such video games are often played for free on corporate Web sites. Many broadcast and cable networks promote their programs through the use of advergames. Some of the popular advergames are Ace Assault II and LEGO Harry Potter, both of them sponsored by LEGO; Mobile 1 Track Challenge, sponsored by ExxonMobil; and Kart Fighter, sponsored by Red Bull. The US Army designed a game called Americas Army to promote recruitment. Advertisers can reward gamers for looking at ads by providing gamers with additional game content for free. This procedure is often used in social and mobile games. In this way, the ads do not interfere with the game but, rather, are means for gamers to receive additional content that they would normally pay for. A major growth area is advertising that appears around games on social networks. For example, Facebook often places ads in the borders around social games. In 2006, Microsoft entered the game advertising market by acquiring Massive Inc., a pioneer in the in-game advertising industry. Massive had deals with Electronic Arts, THQ, and Activision to insert ads in a number of their games. Advertisers that wanted to place ads in Xbox 360 games had to go through Massive. In October 2010, Microsoft announced it was closing down its Massive subsidiary and would deploy its technology into its firstparty ad business. Xbox Live thus became Microsofts sole advertising platform. Microsoft had been placing ads in its Xbox 360 games for several years, while Sony began permitting in-game advertising in the middle of 2008. Nintendo still does not permit in-game advertising in any of its games.

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Sony is taking a different approach to its in-game advertising by opening up its platform to allow independent ad companies to broker deals with third-party game publishers. IGA Worldwide and Double Fusion, two companies that also developed the technology to insert dynamic ads in games, have partnered with Sony to place dynamic ads in PS3 games. IGA signed exclusive deals with Activision and Electronic Arts to deliver in-game ads for the PS3, while Double Fusion signed deals to insert dynamic ads on the PS3 for NBA 2K12 and NHL 2K12. The dynamic in-game advertising segment of the market has not grown as quickly as expected, as evidenced by the closings of Microsofts Massive subsidiary and the downsizing of employees at IGA Worldwide, a leader in this market segment. Instead of in-game advertising in major gaming titles, advertisers are focusing more on casual and mobile games. Double Fusion, a leading independent in-game advertising network, acquired the assets of rival NeoEdge Networks in December 2011, which focused on in-game ads in social and mobile games. These ads are often placed when a round of play ends rather than within the game itself. Double Fusionwhose clients include McDonalds, Dr. Pepper, State Farm Insurance, and Toyota and which has placed ads in games developed by Ubisoft and THQ, among othersis thus likely to concentrate more on social and mobile games.

Display ads, advergames, and advertising on Web-based game portals are the major advertising segments. Advertising is appropriate only in sports games and other games set in contemporary times where it enhances the gaming experience by making the environment more realistic, because it would be hard to imagine a baseball stadium without billboards. In those cases, gamers respond favorably to the ads, and studies have shown that they have favorable perceptions of the advertised products and are more likely to buy them. By contrast, ads would not be appropriate in games set in medieval times or fantasy worlds, and Blizzard has said ads would never appear in World of Warcraft games. Similarly, studies found that ads are less effective in violent games because such games require a higher level of concentration, drawing players attention, and players are averse to ads that draw their attention away from the actual game playing. Ads in violent games must therefore be less obtrusive so gamers can absorb them without distraction; otherwise, the ads could have a negative impact. Product placement is an effective means of advertising in video games. Having a character interact with a product, such as drinking Red Bull to stay alert, drives the message home. Microsoft introduced a new suite of advertising tools in 2011 called NUads (natural user-interface ads) for its motion-sensing Kinect devices. NUads enable gamers to use voice and motion commands to access additional product information and maps of local establishments selling the products. By simply saying Xbox more, a gamer can get an e-mail with more information about the advertised product.

Greystripe, the worlds leading independent mobile advertising network, is bringing ad-funded games to the iOS and Android platforms. Previously, Greystripe concentrated its efforts on making games available to consumers directly on its own Web site Gamejump.com. Angry Birds, which was a huge hit as a paid download on the App Store, has gained even more fans as an adsupported game on the Android platform.

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Video game advertising is still only a small segment of the video game market, with North American revenues estimated at $1.2 billion in 2011. Game publishers are using advertising revenues to supplement revenues from game sales, which are decreasing in the retail market. We expect this market to expand, fueled by the growth of social and mobile games. By 2016, video game advertising will total $2.0 billion, growing by 11.2 percent at a compound annual rate. Video game advertising market (US$ millions)
North America United States Canada Total

The United States is the largest market in the world for video game advertising, with revenues of $975 million in 2011 that will grow to $1.7 billion in 2016. The Canadian market, being closely associated with that of the United States, is a relatively strong market for advertising, with revenues of $202 million in 2011 that will grow to $329 million in 2016.

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2014 1,375 278 1,653

2007 500 92 592

2008 650 124 774

2009 750 147 897

2010 860 175 1,035

2011p 975 202 1,177

2012 1,100 228 1,328

2013

2015 1,525 303 1,828

2016 1,675 329 2,004

201216 CAGR 11.4 10.2 11.2

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At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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The outlook in brief
The console/handheld market is being hurt by the shift to online and mobile gaming. The online game market is being driven by increased broadband penetration, the growth of social online gaming, and increased digital distribution of content. The wireless market is being driven by the explosion of smartphones and tablets that enable an enhanced gaming experience. Retail PC game sales will continue to deteriorate as digital distribution expands, which is also hurting retail stores. Video game advertising is being driven by the increase in free social network games. Consumer spending on video games will grow by 4.6 percent on a compound annual basis from $17.4 billion in 2011 to $21.8 billion in 2016. Video game advertising is expected to grow by 10.2 percent on a compound annual basis from $613 million in 2011 to $994 million in 2016. Console/handheld games will continue to be the largest segment of the market, increasing by 1.9 percent compounded annually from $9.5 billion in 2011 to $10.5 billion in 2016.

The overall video game market is anticipated to increase from $18.0 billion in 2011 to $22.8 billion in 2016, growing at a compound annual rate of 4.8 percent. Video game market by component (US$ millions)

Console/handheld games Online games Wireless games PC games Total end-user spending Advertising Total

9,212 1,976 948

11,180 2,510

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Overview

Wireless games will increase to $2.4 billion by 2016, up from $1.6 billion in 2011, an 8.4 percent compound annual increase. PC game sales will dip from $2.2 billion to $2.1 billion, a 1.7 percent compound annual decrease.

Online games, driven by both casual games and MMOGs, will increase by 11.3 percent compounded annually to $6.8 billion in 2016 from $4.0 billion in 2011.

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2013 9,252 5,140 1,927 2,162 18,481 780 19,261

2014 9,520 5,689 2,084 2,127 19,420 855 20,275

2015 9,914 6,274 2,252 2,090 20,530 930 21,460

2016 10,453 6,832 2,421 2,060 21,766 994 22,760

10,328 3,021 1,342 2,312 17,003 442 17,445

9,883 3,569 1,467 2,298 17,217 519 17,736

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2,653 14,789 298 15,087

At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

R
1,197 2,520 17,407 389 17,796

Access data and digital functionality across your organization. Visit the online Outlook at www.pwc.com/outlook

Video games | EMEA

365

Video game market growth by component (%)


EMEA Console/handheld games Online games Wireless games PC games Total end-user spending Advertising Total

2007 29.4 31.3 26.9 0.4 23.1 46.1 23.5

2008 21.4 27.0 26.3 5.0 17.7 30.5 18.0

2009 7.6 20.4 12.1 8.3 2.3 13.6 2.0

2010 4.3 18.1 9.3 0.6 1.3 17.4 1.7

2011p 3.5 12.1 10.0 2.3 1.0 18.1 1.5

2012 1.7 13.7 9.3 2.1 2.8 14.4 3.2

2013 1.3 13.0 9.2 1.6 3.3

2014 2.9 10.7 8.1 1.6 5.1 9.6 5.3

2015 4.1 10.3 8.1 1.7 5.7 8.8 5.8

2016 5.4 8.9 7.5 1.4 6.0 6.9 6.1

201216 CAGR 1.9 11.3 8.4 1.7 4.6 10.2 4.8

11.3 3.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

At $3.8 billion in 2011, the United Kingdom is the largest video game market in EMEA. The United Kingdom is an important game-developing center that includes development of such major games as Batman: Arkham City, Little Big Planet, and the Grand Theft Auto series. The UK also has specialist expertise, such as a strong visual effects industry, which is important in the final production of games. In the United Kingdom, the industry is concerned that other countriesespecially France, Canada, and Singaporeare luring game developers away by providing tax incentives, and therefore the UKs video game industry has asked the government for similar incentives. In March 2010, the British government announced plans to include in its annual budget certain tax breaks for the gaming industry. However, later in the year, after the elections, the new government changed course and did not include the tax breaks. It appears that game publishers are moving some of their development studios to Canada, which provides more-beneficial tax incentives and now claims to have surpassed the UK as the third-largest game development market. From 2008 to 2010, the British game industrys workforce declined by 9 percent, while that of Canada increased by one-third. The UK game market decreased 1.5 percent in 2011, its third consecutive declineafter many years of significant growthbecause of the migration of players to other platforms. The UK is expected to maintain its dominance in EMEA, growing 4.4 percent on a compound annual basis to $4.7 billion in 2016.

France, the second-largest video game market in EMEA, at $3.4 billion in 2011, is the home of Vivendi (majority owner of Activision Blizzard) and Ubisoft Entertainment, two of the top five video game publishers in the world. Additionally, France has two of the primary producers of mobile games: Gameloft and Zenops. The French government provides significant tax benefits for the development of gamessame as it does for the film industryand many international game developers have established studios in France. The video game market in France is expected to grow 3.6 percent on a compound annual basis to $4.0 billion in 2016. Germany has the third-largest video game market in EMEA, at $2.8 billion in 2011. Germanys game market is unique in comparison to the other major markets in that its PC game market is relatively strong compared with the console game market because of the relatively low levels of penetration by console hardware. Germany has strict laws regarding violence in video games. In fact, Germany has its own voluntary industry board called the USK, which reviews and rates games, while most other European countries follow the Pan-European Game Information ratings system. Germany has about 10,000 people working in the game industry at large international publishers such as Sony, Ubisoft, and Electronic Arts as well as at local companies like Bigfoot and Gameforge. Germany is at the forefront of the development of free-to-play online games, the fastestgrowing segment of the online market. The German market will expand to $3.3 billion in 2016, a 3.5 percent compound annual increase.

366

PwC | Global entertainment and media outlook: 20122016

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Russia is by far the largest market in Central and Eastern Europe, with revenues of $1.4 billion in 2011. Additionally, Russia is projected to exhibit the highest growth rate of any country in EMEA, increasing at an annual rate of 11.0 percent compounded annually through 2016 to reach $2.3 billion. Similar to Germany, the PC game is relatively strong in Russia. In fact, outside Germany, Russia is Steams largest-growing territory in EMEA. Free-to-play MMOGs are very popular in Russia.

The market is expected to exhibit modest declines in 2012 and 2013 before returning to positive growth in 2014, as many new games will be developed for the next generation of consoles, which are expected to hit the market in the latter part of the forecast period. We do not expect the high growth rates that occurred when the current generation of consoles debuted, because there is increased competition from other gaming platforms. Call of Duty: Modern Warfare 3 was the most popular title in Europe in 2011, as it was in the US and worldwide. The game broke several worldwide records, including reaching the billion-dollar level in 16 days, one day faster than Avatar, the James Cameron movie that became the biggest-grossing film of all time.

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The console/handheld game market decreased by 3.5 percent to $9.5 billion in 2011, due partially to the aging of the current generation of consoles.

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Console/handheld game market

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France is the second major market in the region, with revenues of $2.0 billion in 2011 that are expected to increase to $2.1 billion in 2016, a 1.3 percent increase compounded annually. Germany is the third-largest market, with revenues of $1.6 billion. Germany has a strict ratings system that limits sales of violent games and holds down the console market. The console market in Germany is relatively small compared with the countrys PC market, owing to a lower penetration by consoles. Germany is the only major market where more people play games on PCs rather than on stationary consoles. The market is expected to grow to $1.8 billion in 2016, a 2.3 percent compound annual increase from 2011.

Spain has the fifth-largest video game market in EMEA, at $1.2 billion in 2011. By 2016, the Spanish video game market will total $1.5 billion, a 4.6 percent compound annual increase.

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Italy also has a significant video game industry, with revenues of $1.4 billion in 2011. Italy has a number of small game developers, many of which are subsidiaries of larger, foreign companies. The games developed locally are often football (soccer) related. The local market has been hampered by piracy, and the government has promised to try to combat the problem because Italy has the highest rate of pirated games in Europe. Italian spending on video games is expected to grow to $1.9 billion in 2016, increasing at a 6.2 percent compound annual rate.

The UK is the biggest market in the region, with revenues totaling $2.2 billion in 2011. Console/handheld game sales declined 6.9 percent in 2011 following larger declines in 2009 and 2010. The UK is the home of a number of major game developers, including Rockstar North, Rocksteady Studios, Media Molecule, Lionhead Studios, Codemasters, FreeStyleGames (a subsidiary of Activision Blizzard), and Blitz Games Studios. Activision Blizzards Call of Duty: Modern Warfare 3 was the top-selling game in the UK in 2011, grossing a recordbreaking 83 million ($133 million) in its first week. It was the third year in a row that a Call of Duty title was the top-selling game in the UK. Some of the other best-selling titles across all platforms in the UK in 2011 were FIFA 12 and Battlefield 3. Those three titles were among the top sellers on both the PS3 and the Xbox 360. By contrast, the top sellers on the Wii were Zumba Fitness, Just Dance 3, and Just Dance 2. Revenues in the UK are expected to reach $2.3 billion in 2016, a 1.4 percent compound annual growth rate from 2011.

Video games | EMEA

367

Video game market by country (US$ millions)


EMEA Western Europe Austria Belgium Denmark Finland France Germany Greece Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe total

2007

2008

2009 77 360 196 167 3,386 2,592 55 462 1,291 801 193 47 1,304 353 451 3,974 15,709

2010 81 355 199 182 3,416 2,659 60 482 1,371 801 190 51 1,212 367 482

2011p 81 346 201 182 3,352 2,757 60 488 1,428 809 190 56

2012 84 340 206 179 3,395 2,803 65 503 1,497 831 195 58

2013 87 335 212 182 3,455 2,847 65

2014 92 346 221 188 3,602 2,959

2015 97 359 230 198 3,793 3,110 73 580 1,801 929 220 67 1,442 446 607 4,399 18,351 162 32 419 28 2,092 68 2,801 99 NA 209 308 21,460

2016 103 377 240 206 3,999 3,281 75 612 1,926 982 233 67 1,529 476 643 4,659 19,408 174 33 437 29 2,285 71 3,029 103 NA 220 323 22,760

201216 CAGR 4.9 1.7 3.6 2.5 3.6 3.5 4.6 4.6 6.2 4.0 4.2 3.7 4.6 4.8 5.2 4.4 4.2 7.4 5.7 3.8 3.0 11.0 5.2 9.2 5.2 4.6 4.8 4.8

63 302 173 130 2,869 2,280 45 387 1,112 658 184 39 1,304 325 363 3,580 13,814

75 380 202 145 3,412 2,631 54 470 1,326 789 217 49 1,445 384 441 4,304 16,324

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1,580 850 201 62 1,288 403 543 3,973 16,605 141 29 389 28 1,728 63 2,378 89 NA 189 278 19,261

SE
1,247 389 521 3,844 16,157 131 27 375 26 1,544 58 2,161 85 NA 183 268 18,586

U
25 25 55 80

1,223 377 500

ES

3,812

3,755

PR

15,720

15,805

Central and Eastern Europe Czech Republic Hungary Poland Romania Russia Turkey Central and Eastern Europe total Middle East/Africa Israel Middle East/North Africa (MENA) South Africa Middle East/ Africa total EMEA total

20 255 11 685 39 1,092

22

82

84

98 23

112 25 350 23

122

FO

323

334 22 967 49 1,493 73 NA 170 243

363

16

759 47 1,251

1,207 50 1,767 76 NA 173 249 17,736

1,357

1,947

59 NA 122 181 15,087

72 NA 149 221 17,796

NA 176 256 18,008

17,445

At average 2011 exchange rates. Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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N LY
67 522 549 1,686 888 211 64 1,363 421 571 4,171 17,399 151 30 403 29 1,905 65 2,583 94 NA 199 293 20,275

Console/handheld game market (US$ millions)


EMEA Western Europe Austria Belgium Denmark Finland France Germany Greece Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe total Central and Eastern Europe Czech Republic Hungary Poland Romania Russia Turkey Central and Eastern Europe total Middle East/Africa Israel Middle East/North Africa (MENA) South Africa Middle East/ Africa total EMEA total

2007

2008

2009 36 280 121 121 2,191 1,600 26 250 807 381 119 22 783 241 230

2010 36 271 118 129 2,156 1,550 26 250 843 344 110 22 680 242 232

2011p 33 259 115 125 2,017 1,590 24 237 842 316 104 21

2012 32 249 113 121 1,962 1,579 24

2013 31 242 111 118 1,913 1,565 22

2014 32 250 114 121 1,962 1,614 22 230 856 306 103 22 626 240 223 2,133 8,854 67 13 220 12 186 30 528 34 NA 104 138 9,520

2015 33 260 118 125 2,045 1,683 24 239 897 320 106 22 643 251 230 2,213 9,209 71 14 233 12 201 31 562 35 NA 108 143 9,914

2016 35 273 123 131 2,149 1,781 25 252 953 337 111 22 675 264 241 2,326 9,698 75 14 248 13 222 33 605 37 NA 113 150 10,453

201216 CAGR 1.2 1.1 1.4 0.9 1.3 2.3 0.8 1.2 2.5 1.3 1.3 0.9 0.9 1.9 1.1 1.4 1.6 5.3 3.1 5.7 5.4 10.0 4.9 7.0 1.7 1.5 1.5 1.9

35 225 112 83 1,881 1,258 22 227 687 316 120 21 885 217 194 2,524 8,807

40 299 133 97 2,295 1,572 28 278 857 409 143 25 957 252 236 3,055 10,676

O
835 306 102 21 627 237 223 2,109 8,768 61 13 198 10 159 27 468 34 NA 104 138 9,374

228

SE
647 240 228 2,165 8,963 58 12 188 10 138 26 432 34 NA 105 139 9,534

ES

2,600 9,808

2,326 9,335 54 12 177 9 129 25 406 35

PR

10 118 4

37

40 12

46 11

FO

149 7

163 8 123 24 375 36 NA 109 145 10,328

109 22 300

136 26 370

33 NA 72 105 9,212

39 NA 95 134 11,180

NA 107 142 9,883

At average 2011 exchange rates. Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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223 828 298 101 21 612 235 219 2,077 8,616 64 13 209 11 175 29 501 33 NA 102 135 9,252

Video games | EMEA

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Online games
The PC platform has traditionally been the only means of playing games online and is still the dominant platform for online games, far surpassing the Xbox 360, which is in second place. The major console manufacturers Sony, Microsoft, and Nintendohave introduced online marketplaces (PlayStation Network, Xbox Live, and Nintendo Wii Shop) that enable gamers to purchase games and other content and that facilitate competition against other players anywhere in the world via the Internet. Digital distribution of content is emerging as an important segment of the market. In addition to full games, players can also download additional game content to enhance their playing experience. The online game market is composed of several segments. Massively multiplayer online games are usually role-playing games that take place in fantasy or medieval worlds and can be played over long periods of time. After purchasing copies of the game at retail stores, players often pay monthly fees to participate, sometimes making additional purchases to buy online equipment and accessories. The microtransactions associated with MMOGs are major drivers of online gaming revenue growth. Currently, these games are played primarily on PCs. World of Warcraft is the leading MMOG in EMEA and is expected to maintain its lead with its new expansion packWorld of Warcraft: Mists of Pandariascheduled for release in 2012. As in many other regions, the free-to-play business model is taking hold in EMEA, with microtransactions supplying the requisite revenues. Many popular MMOGs, including EverQuest II, recently switched to the free-to-play model and have experienced growth in number of users and spending.

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Rapid growth in social gaming is also driving spending on microtransactions. Many social games are free, but gamers buy virtual goods to give them an edge or otherwise improve the gaming experience.

370

PwC | Global entertainment and media outlook: 20122016

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OnLive and Gaikai are two cloud-based gaming services that let players play traditional disk-based PC games on entry-level computers, because the processing takes place on the companies servers. With cloud gaming, theres no need to download the games or own the physical media. OnLive has also developed a low-cost console, enabling games to be played on a television. In September 2011, OnLive expanded to the UK, making it the first overseas expansion since launching the service in the US in June 2010. Gaikai has partnered with Eurogamer, a leading consumer game site, to become its first media affiliate in Europe, enabling gamers to stream Gaikai-powered games across Europe in local languages. The increased penetration of broadband households is a major driver of online games because the faster speeds make for a more enjoyable experience. The number of broadband subscribers in EMEA surpassed the 100-million mark in 2006, grew to over 170 million in 2011, and is expected to exceed 240 million by 2016, providing a strong impetus for the online market. Online game revenues rose by 12.1 percent in 2011 to $4.0 billion. We expect online games during the next five years to increase by 11.3 percent compounded annually to $6.8 billion in 2016. The UK, the largest market in EMEA, at $802 million in 2011, will increase at a compound annual rate of 10.1 percent to $1.3 billion in 2016. World of Warcraft is the most popular MMOG in the UK, as it is in most other countries in Europe.

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Another segment of the online market consists of casual gamers who go to a Web site and play strategy games or puzzle gamesoften at no chargewith advertising supplying the requisite revenues. Casual game sites like RealGames.com, King.com, and PopCap.com reach twothirds of European gaming households. These casual game sites expand the demographics of gamers. For example, in France the majority of gamers using online game portals are women. In Germany, GMX.net is a major game portal for casual games. In general, game portals are usually language specific.

Russia is second, at $736 million, and is expected to show the sharpest increase in EMEA, growing by 16.1 percent compounded annually to $1.6 billion in 2016. The downloading of PC games is quite popular in Russia, as is the downloading of free-to-play MMOGs. In Russia, Facebook does not have a dominant position; instead, local social networks, such as VKontakte, are very important. France is next, with revenues of $554 million in 2011, which will grow by 10.3 percent annually to reach $904 million in 2016. In January 2012, Bouygues Telecom and Playcast Media partnered to launch a new cloud gaming service called Bbox games. Bouygues is the first French telecom company to bring high-profile game franchises directly to gamers TVs with an easy-to-use interface. Playcast is currently providing a similar service in Portugal and Spain. Germany is the home of Bigpoint and Gameforge, two rising players in the hybrid free-to-play/pay online market, a segment led on a worldwide basis by Zynga. Online revenues are projected to grow to $675 million in 2016, increasing by 10.1 percent on a compound annual basis from $417 million in 2011.

Italy had the fifth-largest online game market, at $364 million in 2011, and is expected to show the largest increase of any country in Western Europe, growing at a compound annual rate of 13.4 percent to reach $682 million in 2016, making it the third-largest market in that year. The large increase is due to strong growth in numbers of broadband subscribers (the highest gain in Western Europe) combined with higher penetration of online gamers. The Netherlands has one of the most active online markets in Europe, with revenues of $334 million in 2011 due to its high broadband penetration, which surpassed 80 percent. Both MMOGs and casual games are very popular in the Netherlands and are driving overall spending. Netherlandsbased Spil Games is a global leader in online casual games, with numerous game sites in 19 languages around the world and over 4,000 games in its portfolio. A number of other Dutch companies are developing online game portals, including Zylom, which delivers casual games to 12 European countries and YoudaGames, which has over 2,000 games on its portal. Online revenues are projected to reach $452 million in 2016, a 6.2 percent compound annual increase from their 2011 level.

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Video games | EMEA

371

Online game market (US$ millions)


EMEA Western Europe Austria Belgium Denmark Finland France Germany Greece Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe total Central and Eastern Europe Czech Republic Hungary Poland Romania Russia Turkey Central and Eastern Europe total Middle East/Africa Israel Middle East/North Africa (MENA) South Africa Middle East/ Africa total EMEA total

2007

2008

2009 14 17 28 13 462 291 10 81 282 282 30 7 214 53 129 674 2,587

2010 14 19 31 15 509 371 11 89 317 309 33 8 227 57 145 741

2011p 15 22 33 17 554 417 11 97 364 334 36 10

2012 17 24 37 18 620 465 13 109 423 358 40 11

2013 18 25 42 21 697 511 14

2014 19 26 44 22 762 559 15

2015 21 29 46 24 835 620 17 138 626 422 52 13 362 92 246 1,203 4,746 35 9 20 NA 1,391 16 1,471 24 NA 33 57 6,274

2016 22 31 48 25 904 675 18 146 682 452 56 13 390 100 265 1,299 5,126 39 10 23 NA 1,555 17 1,644 25 NA 37 62 6,832

201216 CAGR 8.0 7.1 7.8 8.0 10.3 10.1 10.4 8.5 13.4 6.2 9.2 5.4 9.7 9.3 10.3 10.1 10.0 11.1 14.9 12.1 16.1 9.1 15.8 9.3 21.5 15.6 11.3

8 11 20 8 301 257 7 54 220 209 19 4 146 32 87 446 1,829

11 15 24 11 398 309 8 71 259 243 26 7 186 46 113 581 2,308

O
498 378 45 11 295 78 206 1,007 3,967 29 7 16 NA 1,064 14 1,130 20 NA 23 43 5,140

SE
267 71 183 898 3,554 26 6 15 NA 900 13 960 18 NA 18 36 4,550

U
64 23 5 13 11 16 14 30

246

ES

162 802

PR

2,896

3,184

3 7 NA 102 6 136

3 10

18

14

17 4

20 5 12

FO

11 NA 372 10 414 12 NA 8 20 3,021

NA

NA 601 10 648 14 NA 11 25 3,569

NA 736

151 8 186

788

8 NA 3 11 1,976

10 NA 6 16 2,510

NA

4,002

At average 2011 exchange rates. Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

372

PwC | Global entertainment and media outlook: 20122016

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121 129 563 401 49 11 327 85 224 1,103 4,339 32 8 18 NA 1,227 15 1,300 22 NA 28 50 5,689

Wireless games
EMEA has a large wireless telephone subscriber base, and high-speed wireless data technology is also advanced in much of the region. Western Europe is at the forefront in the deployment of 3G/4G LTE (Long-Term-Evolution) technology, which provides wireless high-speed Internet access comparable to the high-speed access provided by wired digital subscriber lines. MMOGs are being developed for the wireless market to take advantage of the speed of the advanced wireless networks. Casual games continue to dominate the market because theyre quick to learn and easy to play. The most popular mobile games are single-player board games, puzzles, and word games. These casual games widen wireless games demographic reach. Initially, the only games people could play were those embedded in their phones. Currently, Internet-connected phones enable additional games to be downloaded either for free or for a modest fee.

With emergence of the app stores, such as for Apple and Android devices, the market for wireless games has exploded. App stores have thousands of games available for download. Additionally, app stores improve the buying experience dramatically over the carriers decks by offering better descriptions, user reviews, and free trials. Additionally, new forms of payment, such as the iTunes Account, are facilitating the purchase of games.

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Introduction of the iPad in 2010 and its newer version, the iPad 2, with its faster A5 processor, is driving the market because of its large screen, superior graphics, and familiar ecosystem. In addition to the iPads are many Android tablets, such as the Samsung Galaxy Tab 10.1 and the Sony Tablet S, which are providing a wonderful gaming experience. And smartphones and tablets have become substitutes for traditional portable devices like the DS and PSP.

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In addition to casual games, more-sophisticated games are being developed for the wireless market. In fact, there are cloud gaming companies that are delivering consolequality games to wireless devices. Of course, these games are much more expensive than typical wireless games that cost as little as 99 cents. Development costs of these games are accelerating, causing pressure in a market that values low-cost games.

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There are a growing number of mobile gamers, both because of the rising penetration by smartphones and because the games are significantly cheaper to develop and hence cost much less than console games. Mobile gaming provides an enjoyable experience for short periods of time, as when waiting for a train or bus. Wireless penetration in much of EMEA is at a saturation point, with penetration above 100 percent in many countries. As a result, future growth will come not from more wireless subscribers but, rather, from a higher percentage of subscribers who play games and pay to play those games. We expect the newer phones and the moreadvanced networks to facilitate that growth. We expect the market for wireless games to continue growing with the increased penetration by smartphones and tablets. Additionally, the growing variety of games being developed to take advantage of the features of the new devices will spur the market. The wireless market in EMEA is expected to increase 8.4 percent on a compound annual basis from $1.6 billion in 2011 to $2.4 billion in 2016. The UK is the largest market for wireless gaming in EMEA. Almost half of the UKs 8 million mobile gamers pay for games. As in most other countries, puzzle games, arcade games, and strategy games are the most-popular types of mobile games in the UK. Wireless game revenues were $330 million in 2011 and are projected to increase to $504 million in 2016, an 8.8 percent compound annual increase.

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The business model for wireless games is changing. Originally, the market consisted of onetime payments for the downloading of games. A growing number of games are being offered for free, with microtransactions and advertising providing the requisite revenues for publishers. Angry Birds, a hugely successful game worldwide as a paid download, gained even more followers as a free, advertiser-supported game. By providing games for free, publishers are able to expand the number of players and reap their revenues from the microtransactions. Additionally, exposing people to the wireless gaming experience increases the likelihood of these gamers also downloading paid games.

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Wireless game revenues in Spain were $262 million in 2011 and are expected to grow 8.6 percent annually to reach $396 million by 2016. Mobile gamers in Spain are spending more per capita on microtransactions than are mobile gamers in many other Western countries. France, with two of the top mobile game publishers, Gameloft and Zenops, was the third-largest market in the region, with revenues totaling $234 million. Revenues are expected to increase by 8.4 percent annually to $351 million. Games for iPhones and iPads are driving the revenues for Gameloft, as they are for many of the major publishers. Adictiz, a French company that makes games for smartphones and Facebook, developed Paf le Chien, which is available on both platforms and was the most downloaded game in France in 2011, garnering over 3 million downloads between the two platforms.

Wireless game revenues in Germany were relatively low in 2011, at $51 million. However, as a result of starting from a very low base, Germany is expected to show the largest percentage increase in the region, growing by 16.4 percent on a compound annual basis to reach $109 million in 2016. Italy has one of the highest numbers of wireless subscribers of any country in Europe. Its wireless game market was $136 million in 2011 and will increase by 7.6 percent compounded annually to $196 million in 2016. In 2011, Italy launched a mobile payment system to make the purchasing of wireless games easier.

374

PwC | Global entertainment and media outlook: 20122016

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Build personalized data sets by segment, component, and territory. Visit the online Outlook at www.pwc.com/outlook

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Wireless game market (US$ millions)


EMEA Western Europe Austria Belgium Denmark Finland France Germany Greece Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe total Central and Eastern Europe Czech Republic Hungary Poland Romania Russia Turkey Central and Eastern Europe total Middle East/Africa Israel Middle East/North Africa (MENA) South Africa Middle East/ Africa total EMEA total

2007

2008

2009 13 17 18 8 192 58 7 83 113 60 20 8 221 38 35

2010 14 18 20 10 211 47 8 93 127 67 22 10 237 43 39

2011p 14 19 22 11 234 51 10 103 136 75 25 11

2012 15 22 24 13 256 58 11 113

2013 17 24 26 14

2014 18 25 29 15 301 79 11 135 174 88 31 13 341 64 52 428 1,804 32 3 20 NA 150 11 216 23 NA 41 64 2,084

2015 19 26 31 17 326 96 11 146 185 92 33 13 369 69 55 465 1,953 35 3 22 NA 160 11 231 24 NA 44 68 2,252

2016 21 28 33 18 351 109 11 157 196 96 36 13 396 76 59 504 2,104 38 3 24 NA 170 11 246 25 NA 46 71 2,421

201216 CAGR 8.4 8.1 8.4 10.4 8.4 16.4 1.9 8.8 7.6 5.1 7.6 3.4 8.6 10.6 6.5 8.8 8.6 10.6 0.0 8.4 7.4 1.9 7.5 6.8 6.9 6.8 8.4

8 11 14 6 134 36 6 58 102 39 14 6 154 26 25 191 830

11 14 17 7 171 46 7 74 114 51 18 7 198 32 33 244 1,044

O
150 79 27 11 285 52 45 361 1,522 26 3 17 NA 130 10 186 20 NA 36 56 1,764

SE
262 46 43 330 1,392 23 3 16 NA 119 10 171 18 NA 33 51 1,614

ES

273

302

PR

1,164

1,268 20 3 14 NA 108 8 153 16 NA 30 46 1,467

3 8

11

14 3

17 3 12

FO

10

NA 66 5 93

NA 85 7

NA 97 8 137 14 NA 27 41 1,342

119

8 NA 17 25 948

12 NA 22 34 1,197

At average 2011 exchange rates. Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

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67 11 124 163 83 29 13 313 58 48 395 1,663 29 3 19 NA 141 11 203 22 NA 39 61 1,927

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PC games
PC game revenues reflect the retail sales of packaged PC games and do not include online distribution of game content or subscription fees to play PC games online, both of which are covered in the Online Games section. Revenues for PC games decreased 2.3 percent in 2011 to $2.2 billion. The market for boxed PC games has been in decline in recent years, as more attention has been focused on console games. Additionally, the digital distribution of PC games by companies like Valve has been cutting into the retail market for PC games. Retailers have been providing less shelf space for PC games, often relegating them to the backs of their stores. The pattern of modest decline is expected to continue, with revenues projected to decrease to $2.1 billion in 2016, a 1.7 percent compound annual decrease. MMOGs are providing a positive influence on the market because many of them require retail purchase of games before they can be played online. For example, World of Warcraft, with its various expansion packs, has provided a boost for the retail PC market. The next expansion pack, WoW: Mists of Pandaria, is scheduled to be launched in 2012. The new MMOG Star Wars: The Old Republic was the top-selling PC game in the world in 2011. In addition to the MMOGs, the PC game market continues to be maintained by the various Sims games, including The Sims 3, which was launched in 2009 but continues to sell well. PCs represent the preferred platform for hard-core gamers because a keyboard and mouse provide a better interface for complex commands than console controllers do. Additionally, high-end computers with graphics cards from companies like NVIDIA provide a visual experience superior to that provided by the consoles.

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The PC game market also benefits from more-casual gamers who do not want to purchase expensive game consoles and are satisfied using their computers to play games. On one hand, many console games are also developed for the PC in order to broaden the number of possible customers. On the other hand, some games such as those in the StarCraft series are made exclusively for the PC in order to take advantage of the platforms superior processing power and mouse-and-keyboard interface.

376

PwC | Global entertainment and media outlook: 20122016

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The PC game market in the UK was down slightly in 2011, falling below the $300-million level for the first time to $294 million, and is expected to decline 2.1 percent on a compound annual basis to $265 million by 2016. Football Manager 2012 and Football Manager 2011 were the two top-selling PC games in 2011, followed by Elder Scrolls V: Skyrim and Sims 3. In Italy, the PC game market is relatively small both because PC penetration in Italy lags behind that in many other European countries and because there are high levels of PC game piracy in Italy. PC game revenues were $53 million and are expected to decrease by 4.5 percent annually to $42 million. The increase in PC penetration will partially offset the long-term trend of declining PC game sales. Russia exhibits the strongest PC game market in Central and Eastern Europe, with revenues of $355 million in 2011. In fact, the Russian market is the third largest in EMEA, surpassed only by Germany and France. Nonetheless, we expect the Russian PC market to exhibit a pattern similar to that of the rest of the countries in EMEA, decreasing 1.8 percent on an annual basis to $324 million in 2016 and reflecting the impact of competition from other platforms.

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France is expected to maintain its position as the secondleading market, with revenues decreasing to $410 million in 2016, a modest, 1.3 percent decrease on an annual basis from the $438 million registered in 2011.

N LY

Germany had the largest PC game market in EMEA, at $609 million, in 2011. Germanys strong PC game market is directly correlated with the fact that the country has a relatively weak console market. In fact, unlike in most other countries, more people in Germany play games on PCs than they do on stationary consoles. Nevertheless, the console market is expanding in Germany, and the PC market has declined in three of the past four years. We expect that trend to continue and project spending to decline to $563 million in 2016, a 1.6 percent decline compounded annually.

PC game market (US$ millions)


EMEA Western Europe Austria Belgium Denmark Finland France Germany Greece Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe total Central and Eastern Europe Czech Republic Hungary Poland Romania Russia Turkey Central and Eastern Europe total Middle East/Africa Israel Middle East/North Africa (MENA) South Africa Middle East/ Africa total EMEA total

2007

2008

2009 6 38 22 19 459 575 4 40 67 56 16 4 79 7 38

2010 6 36 22 21 448 616 4 40 56 53 16 4 61 7

2011p 6 33 22 21 438 609 4 40 53 51 15 4

2012 6 31 22 19 433 601 4 40 51 50 15 4 58 7 38 282 1,661 10 2 135 14 344 4 509 6 NA 21 27 2,197

2013 6 29 22 19

2014 6 28 22 19 423 583 4 40 46 47 14 4 56 7 35 274 1,608 10 2 132 15 329 4 492 6 NA 21 27 2,127

2015 6 26 22 19 417 573 4 40 43 45 14 4 54 7 35 269 1,578 10 2 130 14 327 4 487 6 NA 19 25 2,090

2016 6 26 22 19 410 563 4 40 42 43 14 4 53 7 35 265 1,553 10 2 128 14 324 4 482 6 NA 19 25 2,060

201216 CAGR 0.0 4.7 0.0 2.0 1.3 1.6 0.0 0.0 4.5 3.4 1.4 0.0 2.5 0.0 2.1 2.1 1.7 0.0 0.0 1.3 0.0 1.8 0.0 1.6 0.0 2.0 1.5 1.7

6 49 22 29 497 682 4 42 88 79 25 4 115 41 45 345 2,073

6 45 22 24 474 641 4 40 77 67 23 4 97 41 42 329 1,936

SE
60 7 39 294 1,696 10 2 137 14 355 4 522 6 NA 21 27 2,245

ES

41

313

310

PR

1,743

1,741 10 2 139 13 361 4 529 6 NA 22 28 2,298

2 118 7

10

10 2

10 2

FO

148 9

142 13 368 4 539 6 NA 24 30 2,312

404 4 545

381 4 554

6 NA 29 35 2,653

6 NA 24 30 2,520

At average 2011 exchange rates. Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

LY
593 4 40 49 49 14 4 57 7 36 277 1,634 10 2 134 15 336 4 501 6 NA 21 27 2,162

428

Video games | EMEA

377

Advertising
As the number of video game players continues increasing, advertisers are turning to games as a means of reaching specific demographic groups that are becoming more elusive. In particular, young adult males are spending less time watching television and more time playing games. Video games offer a unique level of engagement that is missing in other advertising media. Consumers are less likely to be multitasking while playing games than when theyre watching television or listening to the radio. There are a number of different segments that make up the video game advertising market: static ads, dynamic ads, advertising on game portals, advertising around games on social networks, and advergaming. Initially, video game advertising consisted primarily of static ads that were hard coded in games when the games were developed. The ads could include billboards that appeared in the background of sporting events or could be product placements within the game. Such ads had a few shortcomings: they had to be planned well in advance during the development of the game; once inserted, they could not be changed; and the advertiser had no measure of how often the ads were seen.

Studies have found that gamers like advertising because it gives the games a more realistic feel. In fact, gamers generally develop more-favorable attitudes toward the products in games. Positive feelings are associated with products that are integrated into the game play, while negative feelings are often associated with ads that interfere with the gaming experience. The growth of free social games is being driven partially by banner ads that appear around the games. Similar banner ads also appear on casual-game Web sites. Advergaming is the practice of using a video game to promote brands, products, or organizations. These games are often played for free on corporate Web sites. Many different advertisers are experimenting with games to get their messages across. Some of the most-popular advergames in 2012 are Ace Assault II and LEGO Harry Potter, developed by LEGO to promote its toys; Kart Fighter, sponsored by Red Bull; and Mobil 1 Track Challenge, sponsored by ExxonMobil. Currently, display ads and advergames are the most prevalent. Dynamic in-game advertising has not grown as quickly as expected. The growth of social gaming in particular is a driving force for video game advertising. We project video game advertising revenues to grow cumulatively by more than 60 percent over the next five years, reaching $994 million in 2016, up from $613 million in 2011, a 10.2 percent compound annual increase. Advertising is still only a small portion of the overall video game market. The UK accounts for more than a quarter of the EMEA video game advertising market, with revenues of $164 million in 2011, followed by France with $109 million and Germany with $90 million.

With the advent of online gaming, a more-advanced type of advertising became possible. Advertisers can now place ads that can be changed dynamically through the Internet. For example, a billboard promoting a movie could be updated as new movies hit the box office, thereby providing the games with a current feel. Additionally, advertising can be geographically targeted, with online players in the UK seeing a different ad from players in Germany. The placements of these ads get planned while the games are being developed, but the actual ads can be changed via the Internet. Since the online games are attached to the Internet, its possible to track the number of times a gamer is exposed to the ads and the amount of time that ads appear on the screen. In-game advertising is appropriate only in sports games or other games that are set in the contemporary real world; ads would not be appropriate in games set in medieval times or fantasy worlds. In those cases, advertisers can reward players with extra levels of play or with additional content by viewing ads before a game begins.

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PwC | Global entertainment and media outlook: 20122016

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Video game advertising market (US$ millions)


EMEA Western Europe Austria Belgium Denmark Finland France Germany Greece Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom Western Europe total Central and Eastern Europe Czech Republic Hungary Poland Romania Russia Turkey Central and Eastern Europe total Middle East/Africa Israel Middle East/North Africa (MENA) South Africa Middle East/ Africa total EMEA total

2007

2008

2009 8 8 7 6 82 68 8 8 22 22 8 6 7 14 19

2010 11 11 8 7 92 75 11 10 28 28 9 7

2011p 13 13 9 8 109 90 11 11 33 33 10

2012 14 14 10 8 124 100 13

2013 15 15 11 10

2014 17 17 12 11 154 124 15 15 47 46 14 14 13 25 37 233 794 10 4 13 2 13 5 47 9 NA 5 14 855

2015 18 18 13 13 170 138 17 17 50 50 15 15 14 27 41 249 865 11 4 14 2 13 6 50 10 NA 5 15 930

2016 19 19 14 13 185 153 17 17 53 54 16 15 15 29 43 265 927 12 4 14 2 14 6 52 10 NA 5 15 994

201216 CAGR 7.9 7.9 9.2 10.2 11.2 11.2 9.1 9.1 9.9 10.4 9.9 8.4 13.4 7.7 9.0 10.1 10.2 8.4 5.9 9.2 14.9 9.2 8.4 8.9 10.8 NA 10.8 10.8 10.2

6 6 5 4 56 47 6 6 15 15 6 4 4 9 12 74 275

7 7 6 6 74 63 7 7 19 19 7 6 7 13 17 95 360

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38 38 11 11 10 22 32 194 652 8 3 10 2 11 4 38 7 NA 4 11 701

13

SE
10 8 20 28 164 570 8 3 9 1 9 4 34 6 NA 3 9 613

18 25

ES

114

133

PR

407

480 8 3 8 1 8 3 31 5 NA 3 8 519

2 4

6 2

8 3

FO

6 6 2 22

6 1 7 3 28 5 NA 2 7 442

4 2 18

4 NA 1 5 298

5 NA 2 7 389

At average 2011 exchange rates. Less than US$500,000. Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

LY
111 14 14 42 42 12 13 11 25 34 217 725 9 4 11 2 12 5 43 8 NA 4 12 780

139

Video games | EMEA

379

Asia Pacific
The outlook in brief
The console/handheld market will benefit from the next generation of consoles. Growth of microtransactions and increased broadband penetration will drive the online market. Growth in smartphones and tablet penetration is spurring the wireless market. The PC game market will continue to decline due to competition from the other sectors. Advertising on social network games and other online games is driving the market for video game advertising. Advertising will increase from $355 million in 2011 to $649 million in 2016, growing by 12.8 percent compounded annually. Console/handheld games will grow to $8.7 billion in 2016, increasing by 2.5 percent on a compound annual basis from $7.7 billion in 2011. Online games became the largest category in 2010, surpassing console/handheld games, and will reach $20.4 billion by 2016, a 15.1 percent compound annual increase from $10.1 billion in 2011. Wireless games will grow at an 11.1 percent compound annual rate to $9.5 billion in 2016 from $5.6 billion in 2011. Wireless games will surpass console/handheld games as the second-largest game category in 2014 and will widen their lead through 2016. PC games will decline by 2.3 percent compounded annually to $486 million in 2016 from $545 million in 2011.

Video game market by component (US$ millions)


Asia Pacic Console/handheld games Online games Wireless games PC games Total end-user spending Advertising Total

2007 7,742 4,150 2,519 643 15,054 161 15,215

2008 8,136 6,282 3,361 628

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2009

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2010 2011p 7,673 10,121 5,619 545 23,958 355 24,313 2012 7,639 11,944 6,446 533 26,562 420 26,982

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2013 7,648 13,777 7,244 519 29,188 476 29,664

End-user spending on video games will total $39.1 billion in 2016, growing 10.3 percent on a compound annual basis from $24.0 billion in 2011.

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The video game market will grow from $24.3 billion in 2011 to $39.7 billion in 2016, increasing at a 10.3 percent compound annual rate.

Overview

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2014 7,875 15,786 8,046 506 32,213 538 32,751

2015 8,212 18,015 8,782 497 35,506 593 36,099

2016 8,691 20,418 9,495 486 39,090 649 39,739

8,256 7,698 4,119 607

8,188 9,043 4,929 581 22,741 318 23,059

FO
18,407 217 18,624

20,680 262 20,942

At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Create customized bar charts and line graphs instantly. Visit the online Outlook at www.pwc.com/outlook

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PwC | Global entertainment and media outlook: 20122016

Video game market growth by component (%)


Asia Pacic Console/handheld games Online games Wireless games PC games Total end-user spending Advertising Total

2007 20.0 47.1 37.1 1.8 28.0 37.6 28.1

2008 5.1 51.4 33.4 2.3 22.3 34.8 22.4

2009 1.5 22.5 22.6 3.3 12.3 20.7 12.4

2010 0.8 17.5 19.7 4.3 10.0 21.4 10.1

2011p 6.3 11.9 14.0 6.2 5.4 11.6 5.4

2012 0.4 18.0 14.7 2.2 10.9 18.3 11.0

2013 0.1 15.3 12.4 2.6 9.9

2014 3.0 14.6 11.1 2.5 10.4 13.0 10.4

2015 4.3 14.1 9.1 1.8 10.2 10.2 10.2

2016 5.8 13.3 8.1 2.2 10.1 9.4 10.1

201216 CAGR 2.5 15.1 11.1 2.3 10.3 12.8 10.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Japan was devastated in March 2011 by the earthquake and tsunami, which caused extensive loss of life and major damage to its economy. It is estimated that the natural disaster cost the gaming industry up to $100 million because of delayed launch dates of many titles because of the emotional mood of the country, which led to less money being spent on entertainment. In addition to the impact of the natural disaster, Japan experienced a significant decline in its console/handheld game market, leading to an overall decline of 4.7 percent in the video game market in 2011. We expect the market to turn around and continue growing through 2016, reaching $8.9 billion in 2016, a 5.1 percent compound annual increase from 2011.

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Japan, at $6.9 billion, is the largest video game market in Asia Pacific and the second-largest video game market in the world, after the United States. It is the home of two of the three major console manufacturers, Sony and Nintendo, making the console/handheld game segment more important than in other countries in the region. Japan accounted for 45 percent of the console game market in Asia Pacific and 29 percent of total video game spending in Asia Pacific in 2011.

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The Peoples Republic of China (PRC) overtook South Korea in 2009 to become the second-largest market in Asia Pacific and the third-largest market in the world. It widened the gap by increasing 13.2 percent in 2011 to $6.9 billion based on the growth of its online game market, reflecting huge markets for MMOGs as well as casual and social network online games. The pattern is continuing, with the PRC overtaking Japan in 2012 as the leading video game market in the region.

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Online games dominate the PRC market, accounting for 85 percent of spending. The PRC has by far the largest online video game market in the world, constituting 35 percent of total global online game spending and 58 percent of the online market in Asia Pacific. The online market is thriving in large part because it effectively eliminates piracy, which is a major problem in the PRC. Online games are not downloaded but are stored on a server. Some games are played for free, with microtransactions generating revenues, while with other games, users must pay in advance to access the server in order to play. Continued broadband growth and growth in the number of users will propel the market. The console game market is very small in the PRC because with the exceptions of the Nintendo Game Boy and the Nintendo DS, the country has banned consoles for the past decade, and therefore the only consoles in the country are imported illegally. Overall spending will increase at a 17.6 percent compound annual rate to $15.5 billion in 2016. South Korea is the third-largest market in Asia Pacific and the fourth largest in the world, at $5.8 billion in 2011. Wireless games represent the dominant category in South Korea, and it is the largest wireless market in the region, reflecting the high rate of mobile phone Internet access. Additionally, the high broadband penetration level helps explain its large online market. We expect the market to grow to $8.3 billion in 2016, up 7.7 percent compounded annually.

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Video games | Asia Pacic

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13.3 9.9

381

Australia at $1.7 billion is the only other country in Asia Pacific above $1 billion. By contrast with the PRC and South Korea, console games constitute the dominant category54 percent of spending. The widespread usage of consoles also aids the online market because most consoles are connected to the Internet. The Australian game industry is expected to increase at a 7.3 percent compound annual rate to $2.4 billion in 2016. We expect India to be the fastest-growing country during the next five years, with a projected 21.8 percent compound annual increase. Since the country is relatively poor, Video game market by country (US$ millions)
Asia Pacic Australia China Hong Kong India Indonesia Japan Malaysia New Zealand Pakistan Philippines Singapore South Korea Taiwan Thailand Vietnam Total

wireless games make up the dominant game category because they do not require the purchase of expensive hardware. Spending on legitimate games is also very low because of piracy. The overall game market is still quite small given the size of the populationonly $240 million in 2011. That figure is projected to increase to $644 million by 2016. The game development industry in the Philippines is expected to exhibit significant growth driven by strong demand for mobile, tablet, and flash games in both local and foreign markets.

N LY
2014 2,100 11,554 387 449 521 7,988 271 131 124 220 317 7,215 879 505 90 32,751

2007 1,111 2,110 224 60 280 6,601 156 82 71 118 165 3,507 464 224 42 15,215

2008 1,566 3,916 254 86 329 6,667 177 95 80 138 191 4,244 549 281 51 18,624

2009 1,688 5,038 278 118 364 6,979 193 105 87

2010 1,670 6,076 300 181 396 7,270 207 109 95

2011p 1,716 6,878 322

2012 1,819 8,383 346 309 463 7,175 238 116 110 192 273 6,274 773 434 77 26,982

2013

2015 2,263 13,445 412 539 557 8,412 288 138 133 236 342 7,759 933 545 97 36,099

2016 2,437 15,482 439 644 601 8,903 304 149 142 252 368 8,343 989 582 104 39,739

201216 CAGR 7.3 17.6 6.4 21.8 7.0 5.1 6.7 6.3 7.1 7.2 8.0 7.7 6.8 8.3 7.9 10.3

U
71

SE

1,935 9,889 367 374 492 7,503 254 125 116 205 295 6,731 825 470 83

240 429

PR
151 212 4,753 605 314 57 20,942

FO

ES
164 229 5,287 660 352 63 23,059

S
6,931 220 110 101 178 250 5,763 713 391 24,313

29,664

At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

382

PwC | Global entertainment and media outlook: 20122016

Console/handheld game market


The console/handheld market is dominated by Japan, which controlled 45 percent of the market in 2011. The 13.4 percent decline in Japan in 2011 more than offset increases in most other countries, resulting in an overall decline of 6.3 percent in the region. Mario Kart 7 was the top-selling game in Japan in 2011, selling 1.1 million copies. It was followed by Super Mario 3D with 1.0 million copies. Those two games, which were launched in the last two months of the year, helped drive sales of the 3DS, which became the top-selling device in Japan, selling 4.1 million units in 2011. The two titles are wildly popular worldwide, whereas the Monster Hunter series, which is very popular in Japan, has not achieved the same success in the West. Monster Hunter Portable 3rd, which launched in December 2010 and sold 1.0 million units in 2011, for a total of 4.5 million units since its launch, helped drive sales of the PSP, which sold 2.0 million units in 2011. Another in the popular Monster Hunter series, Monster Hunter 3G for the 3DS was the fourth-top-selling title in 2011. In Japan, the market is driven by updated versions of popular games that continue to entice gamers. It remains to be seen how well games for the PSP Vita will fare in the market, because sales of the handheld device dropped sharply after its launch in December. Overall, it was a weak year for console/handheld games in Japan because of the lack of high-demand titles, with only three titles reaching the million-unit level. By contrast, in 2010, seven titles reached that level, including top sellers Pokmon Black Version and Pokmon White Version, which sold 4.7 million copies, and Monster Hunter Portable 3rd, which sold 3.2 million copies. Activision Blizzards Call of Duty: Modern Warfare 3, the most popular game in Europe and the US, was not among the top 10 games in Japan.

We expect further declines in Japan in 2012 and 2013 due to the aging of the consoles and migration to other platforms before a turnaround in 2013 through the remainder of the forecast period, when games for the new consoles are expected to reach the market. Overall, we project a modest, 1.1 percent compound annual increase to $3.6 billion in 2016. South Korea is the second-largest console/handheld game market in the region, at $2.1 billion, up 2.2 percent from 2010. Japan and South Korea together constituted almost three-quarters of the console/handheld game market in 2011. Government investment in the industry should help local development of games, which in turn should lead to new titles that will stimulate the market. South Korea will have faster growth during the next five years, averaging 3.6 percent compounded annually to $2.5 billion in 2016 as games for the new consoles gain market traction. In Australia, console/handheld games declined for the second year in a row, decreasing by 6.7 percent to $929 million. After years of debate, it seems that Australia is inching closer to establishing an R18+ classification rating for interactive entertainment. An in-principle agreement was reached between the federal and state governments in July 2011, but final implementation has not been completed yet. The previous maximum age classification was MA15+, which prevented some games from being distributed in the country. Support for the classification comes both from adults who want the right to play games that appeal to them and from parents who want clear guidelines for their children. Australia is the only major country without an adult classification for games. We expect the market to turn around in 2014, reaching $991 million by 2016, a 1.3 percent compound annual growth rate from 2011. In general, we expect the aging of the current generation of consoles to continue having a negative effect on the market. When the next-generation Sony and Microsoft static consoles are introduced (expected in the latter part of the forecast period), we project a modest growth in sales. The growth will not mirror the huge expansion that resulted when the current consoles were introduced, because there are many competing platforms for gamers. Spending is projected to expand at a 2.5 percent compound annual rate during the next five years from $7.7 billion in 2011 to $8.7 billion in 2016.

The top 10 titles included three Wii-exclusive titles: Minna no Rhythm Tengoku, Wii Party, and Wii Sports Resort as well as one PS3 exclusive, Tales of Xillia. There were no exclusive Xbox 360 titles among the best-selling titles further evidence of the poor reception the console has received in Japan.

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Video games | Asia Pacic

383

Console/handheld game market (US$ millions)


Asia Pacic Australia China Hong Kong India Indonesia Japan Malaysia New Zealand Pakistan Philippines Singapore South Korea Taiwan Thailand Vietnam Total

2007 664 81 114 14 139 4,524 80 43 36 61 76 1,595 243 52 20 7,742

2008 1,031 95 128 15 160 4,167 88 45 40 68 84 1,850 279 63 23 8,136

2009 1,098 99 133 17 166 4,092 92 48 41 70 87 1,934 290 65 24 8,256

2010 996 102 137 26 171 3,984 95 46 43 72 89 2,035 300 67 25 8,188

2011p 929 106 140 38 176 3,450 98 44 44 74 92 2,080 306

2012 910 111 145 50 181 3,338 102 43 46 77 95

2013 893 115 150 64 187 3,262

2014 914 119 155 81 193 3,338

2015 945 124 162 102 206 3,450 118 44 52 88 107 2,351 349 83 31 8,212

2016 991 131 172 128 224 3,639 124 47 55 93 113 2,487 366 88 33 8,691

201216 CAGR 1.3 4.3 4.2 27.5 4.9 1.1 4.8 1.3 4.6 4.7 4.2 3.6 3.6 5.0 4.1 2.5

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80 99 2,171 325 76 29 7,648

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2,125 315 73 28 7,639

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69 27

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7,673

Traditionally, the PC platform was the only means to play games online and is still the dominant platform. Each of the consoles in the current generation of consoles has features to entice online users, including online marketplaces: Xbox Live, PlayStation Store, and Nintendo Wii Shop. They enable gamers to purchase games, and they allow competition against other players anywhere via the Internet. The games that these sites sell are mostly small games or expansion packs because a major game could require up to 50 GB of data to be downloaded.

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Online games

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At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Asia Pacific is the dominant market for online gaming, constituting over 60 percent of the global total. The freeto-play business model with microtransactions is quite popular in the region. In fact, microtransactions constitute a higher proportion of the online market in Asia Pacific than in any other region. To combat piracy in the PRC, major game developers, including Tencent and Shanda Games, introduced games that could be played online for free, with revenues generated through the purchase of additional game elements, such as clothing for ones avatars, additional weapons, or additional game levels that enhance the gaming experience.

Digital distribution of content is emerging as an important segment of the market. Many game developers are adding downloadable digital content to their games so as to enhance the gaming experience and as an additional source of revenues. In addition, developers of static consoles are using digital content as a means of driving Day One sales versus secondhand sales.

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PwC | Global entertainment and media outlook: 20122016

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107 112 42 48 43 50 84 102 2,238 337 79 30 7,875

Although MMOGs get the most publicity, its actually casual games such as puzzles, cards, and arcade games that attract the greatest numbers of players. These games are simple to learn and do not require extended periods of time to learn and to play. Casual games have expanded the demographic audience of the gaming industry to include more women and older adults. Many of the casual games are played for free, with banner ads around the games supplying the requisite revenues. Social network games are emerging as a huge market for publishers. These free-to-play games have grown exponentially over the past few years, with microtransactions serving as the source of revenues.

Japan is the home of the second-largest number of broadband households in the region, with 35.0 million homes in 2011 providing a potential source for online gaming. Since piracy is not as much a factor in Japan as it is in the PRC, the retail market for games is very strong there. Conversely, the online market is relatively weak. The online market is projected to increase 7.9 percent on a compound annual basis to reach $2.2 billion in 2016, up from $1.5 billion in 2011. Australia is the next-largest market, with revenues of $316 million in 2011. We project the online market to grow by 17.5 percent on a compound annual basis, reaching $707 million by 2016 and spurred by continued growth in broadband households, with penetration reaching 86 percent in 2016. The online distribution of games and additional content is growing in Australia, with established online distribution systems for PC game services such as Steam, Direct2Drive, and GameTree Online. Limiting factors, such as relatively high broadband prices, download limits, and relatively expensive storage costs are being addressed gradually. Social gaming is growing on popular sites like Facebook, with such popular games as Happy Aquarium and Pet Society attracting a growing number of players. The online market will be driven by further growth in the broadband market, which we project will rise by a cumulative 58 percent during the next five years. We project spending to increase to $20.4 billion by 2016, a 15.1 percent compound annual gain. Online games will continue to be the fastest-growing category. Its share of total end-user spending will increase to 51 percent in 2016 from 42 percent in 2011.

Online games represented the second-fastest-growing component of the video game market in 2011, with an 11.9 percent increase to $10.1 billion. The PRC is the dominant market, at $5.9 billion in 2011, of which over 50 percent came from the countrys own game developers, followed by South Korea at $1.7 billion and Japan at $1.5 billion. Together those three countries account for nearly 90 percent of the market in Asia Pacific. Spending in the PRC rose by 12.8 percent in 2011. Growth was fueled by rising broadband penetration and a surging user base. The leading online companies include Tencent, Shanda, Perfect World, Giant Interactive, Sohu, NetEase, and The9. In the PRC, social network games are very popular on Qzone, Renren, and Kaixin, among others. Facebook is currently blocked by the government. These and most other online games are played on PCs. We expect 75 million new broadband households in the PRC during the next five years, which should significantly expand the user base. We project spending to reach $13.7 billion by 2016, an 18.5 percent compound annual increase from 2011.

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MMOGs are games played by thousands of players worldwide simultaneously. These games are very popular in Asia Pacific and in particular in the PRC and South Korea. Unlike the situation with gamers in the US and other Western countries, who pay a monthly subscription fee to play World of Warcraftthe most popular MMOG in the world, with 10 million playersin the PRC, players purchase prepaid cards and pay as they play the game. Activision Blizzard announced in October 2011 that it had struck a deal with Thailand-based AsiaSoft to distribute several of its games, including WoW, in Southeast Asia, including Thailand, Malaysia, and Singapore.

South Korea has the second-highest broadband penetration in the region, approaching 100 percent in 2011 and surpassed only by Singapore. This helps explain the popularity of online games, with spending totaling $1.7 billion in 2011more than in Japan, whose population is more than double that of South Korea. South Korea has a very strong online-game publishing industry, and many games are exported to surrounding countries. The government helps support the industry by funding the research and development of games. We expect South Korea to maintain its position as secondleading market in the region, growing by 9.5 percent annually to reach $2.7 billion in 2016.

Video games | Asia Pacic

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Online game market (US$ millions)


Asia Pacic Australia China Hong Kong India Indonesia Japan Malaysia New Zealand Pakistan Philippines Singapore South Korea Taiwan Thailand Vietnam Total

2007 163 1,638 44 6 62 909 34 3 17 27 41 997 102 98 9 4,150

2008 193 3,299 51 8 72 1,078 39 5 19 31 48 1,186 121 121 11 6,282

2009 218 4,296 58 21 81 1,227 44 6 21 35 55 1,353 137 134 12 7,698

2010 263 5,198 65 28 91 1,379 48 6 24 39 60 1,525 153 151 13 9,043

2011p 316 5,861 72 36 100 1,493 52 6 26 43 68 1,695 169 169 15

2012 381 7,209 79 45 109 1,631 57 6 29 47 76

2013 459 8,557 86 56 119 1,769 61 8

2014 551 10,063 92 66 128 1,907

2015 634 11,794 99 75 138 2,045 70 10 37 61 105 2,442 237 246 22 18,015

2016 707 13,669 106 85 147 2,183 74 11 40 66 115 2,668 256 267 24 20,418

201216 CAGR 17.5 18.5 8.0 18.7 8.0 7.9 7.3 12.9 9.0 8.9 11.1 9.5 8.7 9.6 9.9 15.1

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52 85 2,065 204 207 18 13,777

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1,884 187 188 16 11,944

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10,121

Mobile games are played on mobile phones or other mobile devices. Almost all new mobile phones are now Internet enabled, enhancing the downloading potential for games. The increasing sophistication of new handsets will make for a more enjoyable experience. As people upgrade their existing handsets for newer models, the number of gamecapable handsets will increase dramatically.

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Wireless games

PR

At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Although casual games continue to dominate the market, more-advanced games that take advantage of the sophistication of the newer smartphones are also being developed. There are even versions of MMOGs being developed for gamers on the move. Initially, many handsets were embedded with games as a differentiator to drive sales of individual phones. Those games provided enjoyment for users but did not provide any additional revenue for operators. With the expansion of Internet-connected phones, operators have recognized the potential additional revenues from the downloading of games at a modest fee. However, the carriers download platforms usually were not user-friendly.

Most mobile games are very simple because the graphic capabilities of many handsets are limited. As a result, the most-popular games are single-player board games, puzzles, and word games. These casual games widen mobile games demographic reach. In fact, more than half of mobile game players are women who enjoy playing casual games such as Tetris and Bejeweled, two of the most-often-downloaded mobile games.

386

PwC | Global entertainment and media outlook: 20122016

N LY
66 9 31 34 56 95 2,252 221 226 20 15,786

A number of third-party Web sites, such as Jamster, have been established to facilitate the downloading of games. They offer games from a variety of publishers and provide a more-user-friendly environment. For game developers who cannot get on carriers decks, these Web sites also provide an opportunity to sell their games to consumers. We would expect the number of games downloaded to increase as consumers find these Web sites more user-friendly. Apples introduction of the iPhone and the App Store revolutionized the wireless game market. The App Store, with thousands of games available for downloadwhich dramatically improves the buying experience over the carriers deckshas better descriptions and offers free trials. A number of other online services, such as the Android Market, have been established that compete with the carriers decks to provide content. Introduction of the iPad tablet, which plays all of the iPhone games, has caused many gamers to substitute these devices for their DS and PSP devices.

Japanese company Capcom, which created the hit Resident Evil series, is focusing some of its attention on developing social network games for wireless devices. Capcoms Smurfs Village, a free-to-download game, has been downloaded millions of times to iPhones and Android devices, with microtransactions providing the revenues. We expect the wireless game market in Japan to increase to $2.5 billion by 2016, a 10.7 percent compound annual increase, while in South Korea it will grow to $3.1 billion, a 10.1 percent compound annual rate. The PRC and India are becoming major wireless game markets because of their large wireless subscriber bases and expanding 3G markets. There were 950 million wireless telephone subscribers in the PRC in 2011, and 850 million in India. The mobile gaming market in India, though growing fast, is still in its nascent stage, as compared with other countries. India has one of the largest mobile consumer bases in the world, and the percentage of people downloading games is expected to grow dramatically. In India, the wireless game segment of the market dominates the video game industry because mobile phones are widespread, whereas few consumers have consoles or PCs. The wireless market, which was $145 million in 2011, is expected to show the largest increase in the region, growing at a compound annual rate of 22.2 percent to reach $395 million in 2016. The9, an online game developer in the PRC, is developing its wireless segment by introducing and localizing OpenFeint, a huge mobile social gaming platform for iPhone and Android devices. We project the wireless game market in the PRC to reach $1.5 billion in 2016 from $852 million in 2011, a 12.7 percent compound annual increase. Australia also has a significant wireless market, at $358 million in 2011, fourth largest in Asia Pacific. We expect the wireless market in Australia to grow at an 11.2 percent compound annual rate to $609 million in 2016. We expect the wireless video game market in the Asia Pacific region to increase to $9.5 billion in 2016 from $5.6 billion in 2011, an 11.1 percent compound annual increase.

Asia Pacific is by far the dominant region in the wireless game market, constituting 64 percent of global spending in 2011. The region has more wireless subscribers than the rest of the world combined, creating a huge potential for wireless games. South Korea at $1.9 billion and Japan at $1.5 billion are the leading markets, together generating 59 percent of the total wireless game market in Asia Pacific. DeNA and GREE are major Japanese mobile social network companies that distribute hundreds of games, all of which are free, with microtransactions providing the revenues.

FO

A number of mobile social networking sites like DeNA, GREE, Mobage, and mixi provide users an opportunity to play games on the go.

PR

The wireless market is exploding because of the growth of casual games with mass appeal like Angry Birds that are easy to learn and easy to play. Additionally, the growth of social networks with mobile games is driving the industry. The business model is migrating from downloading for a fee to free games, with microtransactions providing the revenues.

ES

SE

LY

Video games | Asia Pacic

387

Wireless game market (US$ millions)


Asia Pacic Australia China Hong Kong India Indonesia Japan Malaysia New Zealand Pakistan Philippines Singapore South Korea Taiwan Thailand Vietnam Total

2007 157 368 42 32 62 714 33 26 14 24 33 847 98 58 11 2,519

2008 202 494 53 53 80 957 42 34 17 32 44 1,132 128 78 15 3,361

2009 247 607 64 64 98 1,177 48 40 21 39 54 1,389 156 96 19 4,119

2010 301 728 75 109 115 1,399 55 47 24 46 64 1,646 184 113 23 4,929

2011p 358 852 86 145 133 1,506 62 51 27 54 74 1,899 213 132 27

2012 413 992 98 190 152 1,694 71 59 31 60 86

2013 464 1,131 106 228 165 1,945 78 67 33 65 95

2014 512 1,270 114 273 178 2,196

2015 557 1,410 124 329 190 2,359 92 78 39 77 114 2,858 319 194 42 8,782

2016 609 1,549 133 395 206 2,509 98 85 42 83 123 3,075 338 205 45 9,495

201216 CAGR 11.2 12.7 9.1 22.2 9.1 10.7 9.6 10.8 9.2 9.0 10.7 10.1 9.7 9.2 10.8 11.1

O
2,397 270 166 34 7,244

SE
2,171 246 152 31 6,446

ES

5,619

The retail PC market is being hampered by high piracy rates in many countries. There is virtually no legal retail PC industry in the PRC, India, or Indonesia because of piracy, which enables illegal copies of games to be sold for a small fraction of what legal copies would sell for.

FO

PC games

PR

At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

poor overall software market. We expect the declines to moderate during the remainder of the forecast period. We project the retail PC game market to decline from $294 million in 2011 to $246 million in 2016, decreasing at a 3.5 percent compound annual rate of decline. Australia is the only other country in the region with significant PC game revenues: $96 million in 2011. We anticipate that the PC market in Australia will be relatively flat, decreasing by a modest, 1.1 percent on a compound annual basis through 2016, declining to $91 million. Due to a high piracy rate, the PC game market in India is tiny, at $17 million in 2011, despite the huge population base. The government is trying to crack down on piracy, which will lead to a moderate increase in the market, though far from its potential. We expect the PC market will reach $28 million by 2016.

In Western countries, the growth of MMOGs is buoying the PC market by requiring retail purchase of games before the games can be played online. In the PRC, this business model has been replaced by the downloading of games for free, with microtransactions and fee for play providing the revenues. Japan is by far the major PC market in the region, constituting more than half of overall revenues in 2011. The PC market has declined in each of the past four years. There was a 10 percent decrease in 2011, reflecting the

388

PwC | Global entertainment and media outlook: 20122016

N LY
85 73 36 71 104 2,623 294 179 38 8,046

PC game market (US$ millions)


Asia Pacic Australia China Hong Kong India Indonesia Japan Malaysia New Zealand Pakistan Philippines Singapore South Korea Taiwan Thailand Vietnam Total

LY

The long-term retail market for PC games will continue to decline as console games attract more attention from gamers and developers. Increased digital distribution of PC games will also have a negative effect on retail sales of PC games. While they have a smaller base, there will continue to be a market for PC games because they are cheaper to produce, resulting in a lower average price compared with console games. Additionally, PC games will be popular with players who buy sophisticated gaming computers that can outperform even the newest consoles. And they will continue serving as the portal

to the world of MMOGs. Because of the portability that enables people to take a game to a friends house to play, some people will continue purchasing PC games at retail rather than downloading them. The PC market is also being negatively affected by alternative gaming platforms, such as mobile devices that are gaining more adherents. As a result, the forecast for the PC game market is expected to be one of continuing declines. We project the PC game market to total $486 million in 2016, down 2.3 percent on a compound annual basis from the $545 million registered in 2011.

2007 119 7 22 7 14 359 8 10 3 5 14 42 17 14 2 643

2008 131 5 20 9 13 336 7 11 3 5

2009 115 5 20 13 13 331 7

2010 97 5 20 15 13

2011p 96 5

2012

2013 94 5 19 21 12 276 6 8 2 5 13 26 14 16 2 519

2014 93 5 19 23 12 266 6 6 2 5 13 24 14 16 2 506

2015 92 5 19 26 12 256 6 6 2 5 13 23 14 16 2 497

2016 91 5 19 28 12 246 6 6 2 5 13 22 14 15 2 486

201216 CAGR 1.1 0.0 1.0 10.5 1.6 3.5 0.0 7.8 0.0 0.0 1.5 6.0 1.4 2.5 0.0 2.3

SE
20 17 13 294 6 9 2 5 14 30 15 17 2 545

95 5

19 19 13 286 6 8 2 5 14 28 14 17 2 533

PR
11 3 5 14 36 16 16 2 607 2

R
14 40 16 16 628

FO

At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Access additional territory-level commentary. Visit the online Outlook at www.pwc.com/outlook

ES
326 7 10 3 5 14 32 15 17 2 581

Video games | Asia Pacic

389

Advertising
Video game advertising gives advertisers the opportunity to reach a demographic audience that has become elusive from traditional media. Young adults are spending relatively more time playing games rather than watching television. Video game advertising is composed of both static and dynamic in-game advertising, banner ads on game Web sites and around social network games, and advergaming. Static advertising, which is hard coded into games at the time the games are developed and which cannot be changed later, was the first type of advertising. Static ads were placed in games to give the games a more realistic feeling such as banners at the finish line in an auto racing game. The emergence of the Internet has enabled dynamic advertising, which enables ads to be changed online to reflect changes in the market such as promoting the newest films. Online gaming provides advertisers with feedback on how often and for how long ads are seen. The explosive growth of social network gaming and the migration of many MMOGs from a subscription business model to a free-to-play model have encouraged the gaming community to embrace advertising as an additional revenue stream. Gamers are enticed to watch ads by being offered additional game play or other rewards. Sports games and games set in contemporary times benefit from ads because the ads give the games a more realistic feeling. Ads would not be appropriate in games set in historical times or fantasy worlds. For games that are not appropriate for in-game advertising, players are rewarded with extra levels and aftermarket add-ons for watching ads before the games begin. Studies have shown that gamers actually appreciate ingame advertising if it does not interfere with game play and provides a more realistic game environment. Gamers develop a positive attitude toward the advertised products and buy more of them. Conversely, if the advertised products are obtrusive and interfere with the gaming experience, gamers adopt negative attitudes toward those products. Therefore, its very important to place ads in a manner that does not interfere with game play. Display ads, advergames, and advertising on Web-based game portals are the major advertising segments. Dynamic in-game advertising has not grown as quickly as many had anticipated.

An advantage of video game advertising is that players are actively participating in the game and are actively engaging with the advertising. Advergames are games that are developed to promote brands, products, or organizations. The games are often provided for free on corporate Web sites and are usually simple ones that promote the products in a fun way. Some of the most-popular advergames in the Asian market in 2012 were Zombies Ate My Phone, sponsored by Phones 4 U; Kart Fighter, sponsored by Red Bull; and UrbAN THRILL, sponsored by Reckitt Benckiser. Japan has the largest video game advertising market in Asia Pacific, at $188 million in 2011. Advertising in Japan slowed dramatically in 2011 as a result of the economic impact of the earthquake. We expect advertising to rebound and to remain strong during the remainder of the forecast period, increasing to $326 million in 2016, an 11.6 percent increase on a compound annual basis from 2011. South Korea, with its significant online game market, had the second-largest video game advertising market in 2011, at $59 million, a total we expect will grow to $91 million by 2016, a 9.1 percent compound annual increase. The PRC is projected to exhibit the largest increase of any country in the region, owing to the PRCs online market growth rate, which is also expected to be the largest of any country in the region. The PRC is projected to surpass South Korea as the second-largest market in the region in 2013, with the gap widening through 2016. Revenues are expected to grow from $54 million in 2011 to $128 million in 2016. Focus Media and Bihu Technology dominate the in-game advertising market in the PRC. Gamers in Australia are continuing to spend more time playing online games, thereby enhancing the reach of video game advertising. We expect video game advertising in Australia to increase to $39 million in 2016 from $17 million in 2011, an 18.1 percent compound annual increase. We expect total video game advertising in Asia Pacific to increase from $355 million in 2011 to $649 million in 2016, a 12.8 percent compound annual increase.

390

PwC | Global entertainment and media outlook: 20122016

FO

PR

ES

SE

N LY

Video game advertising market (US$ millions)


Asia Pacic Australia China Hong Kong India Indonesia Japan Malaysia New Zealand Pakistan Philippines Singapore South Korea Taiwan Thailand Vietnam Total

2007 8 16 2 1 3 95 1 1 1 1 26 4 2 161

2008 9 23 2 1 4 129 1 1 2 1 36 5 3 217

2009 10 31 3 3 6 152 2 1 2 2 41 6 3 262

2010 13 43 3 3 6 182 2 1 2 2 49 8 4

2011p 17 54 4 4 7 188 2 2 2 2

2012 20 66 5 5 8 226 2 2 3 2

2013 25 81 6 5 9

2014 30 97 7 6 10 281 2 2 4 3 78 13 5 538

2015 35 112 8 7 11 302 2 3 5 3 85 14 6 593

2016 39 128 9 8 12 326 2 3 5 4 91 15 7 649

201216 CAGR 18.1 18.8 17.6 14.9 11.4 11.6 0.0 1.0 8.4 20.1 14.9 9.1 8.4 11.8 1.0 12.8

O
66 11 4 420

SE
59 10 4 355

ES

318

FO

PR

At average 2011 exchange rates. Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

LY
2 2 3 3 72 12 5 476

251

Video games | Asia Pacic

391

Latin America
The outlook in brief
High piracy rates and expensive consoles will limit the console game market. The PC game market will be limited by piracy and the increased digital distribution of games. Increased penetration by smartphones as well as improvements to wireless networks will drive the wireless game market. The online market is being driven by the increase in broadband penetration, the growth of social network games, and increased digital distribution of games. Video game advertising is growing as a result of the increase in the online game market. End-user spending will grow to $1.8 billion in 2016, increasing at a 7.1 percent compound annual rate. Console/handheld games will grow by 2.9 percent compounded annually from $614 million in 2011 to $708 million in 2016. The PC game market is expected to reach $161 million in 2016 from $138 million in 2011, a 3.1 percent compound annual increase.

Console/handheld games Online games Wireless games PC games Total end-user spending Advertising Total

565 24 247 115 951 15 966

702 44 310 119

PR

Latin America

2007

2008

2009 659 66

ES
2010 638 88 395 131 1,252 30 1,282

Video game market by component (US$ millions)

S
2011p 614 114 441 138 1,307 38 1,345 2012 619 139 488 143 1,389 43 1,432 2013 622 158 550 146 1,476 51 1,527

The overall video game market in Latin America is projected to grow by 7.2 percent compounded annually from $1.3 billion in 2011 to $1.9 billion in 2016.

SE

Overview

Advertising is expected to grow at a 12.3 percent compound annual rate from $38 million to $68 million in 2016.

The online game market will reach $212 million in 2016 from $114 million in 2011, growing by 13.2 percent on a compound annual basis.

N LY

The wireless game market will increase from $441 million in 2011 to $759 million in 2016, growing at 11.5 percent on a compound annual basis.

2014 642 177 614 151 1,584 57 1,641

2015 668 194 686 157 1,705 63 1,768

2016 708 212 759 161 1,840 68 1,908

FO
1,175 23 1,198

350 128

1,203 27 1,230

At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Export your own data selections to Excel and PDF. Visit the online Outlook at www.pwc.com/outlook

392

PwC | Global entertainment and media outlook: 20122016

Video game market growth by component (%)


Latin America Console/handheld games Online games Wireless games PC games Total end-user spending Advertising Total

2007 29.9 500.0 34.2 5.5 29.9 25.0 29.8

2008 24.2 83.3 25.5 3.5 23.6 53.3 24.0

2009 6.1 50.0 12.9 7.6 2.4 17.4 2.7

2010 3.2 33.3 12.9 2.3 4.1 11.1 4.2

2011p 3.8 29.5 11.6 5.3 4.4 26.7 4.9

2012 0.8 21.9 10.7 3.6 6.3 13.2 6.5

2013 0.5 13.7 12.7 2.1

2014 3.2 12.0 11.6 3.4 7.3

2015 4.0 9.6 11.7 4.0 7.6 10.5 7.7

2016 6.0 9.3 10.6 2.5 7.9 7.9 7.9

201216 CAGR 2.9 13.2 11.5 3.1 7.1 12.3 7.2

LY
6.3 18.6 6.6

11.8 7.5

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Latin American game developers are gaining the attention of international game companies. Chilean game developer Atakama Labs was acquired by Japanese online services company DeNA, and Argentinas Three Melons was acquired by social games company Playdom, now part of Disney.

PR

ES

A small but growing number of companies are developing games in Latin America. For example, QB9 is one of around 65 video game companies in Argentina. The company has introduced a popular online childrens game called Mundo Gaturro, which has a million registered users.

FO

A number of countries, including Argentina and Brazil, are realizing the growing value of the gaming industry and have started providing some small government incentives to help the industry develop. Mexico has the largest video game market of the region, at $636 million in 2011, 47 percent of the total, with Brazil next, at $420 million, 31 percent of the market. Of the countries in Latin America, the Mexican game industry is closest to that of the US in that the console/handheld segment is the dominant segment of the market. Sony introduced its consoles in Mexico before it did in other countries in the region, in part accounting for Mexicos dominant position. By contrast, online and mobile games dominate in the other countries in Latin America.

SE

Brazil has very high taxes on video games, causing consoles and games to cost up to three times what they cost in the US. This helps explain why the video game market is much stronger in Mexico, a significantly smaller country. The high tax rate in Brazil also contributes to piracy, which further dampens investment in the industry. The government is beginning to offer support so as to promote development of the gaming industry. Brazil has the potential to be the largest market for video games, a position held by Mexico. A plan is being evaluated to reduce the tax burden on games in Brazil, but it has been under evaluation since 2006. Game developers in Brazil include Tectoy, Hoplon Infotainment, and Continuum Entertainment. The Brazilian game market has been limited by its inability to monetize its large number of playersespecially because of a lack of credit cards. Thats beginning to change with the expansion of prepaid gaming cards that are purchased for cash at retail outlets.

O
Video games | Latin America

393

Video game market by country (US$ millions)


Latin America Argentina Brazil Chile Colombia Mexico Venezuela Total

2007 63 289 71 60 460 23 966

2008 78 360 88 72 572 28 1,198

2009 80 374 90 72 587 27 1,230

2010 82 391 92 74 616 27 1,282

2011p 87 420 95 77 636 30 1,345

2012 94 457 103 82 664 32 1,432

2013 100 495 110 87 701 34

2014 107 541 119 92 747 35

2015 115 587 126 96 806 38 1,768

2016 123 640 135 103 867 40 1,908

201216 CAGR 7.2 8.8 7.3 6.0 6.4 5.9 7.2

1,527

Console/handheld game market


Gamers in Latin America are at a disadvantage relative to players in the rest of the world in that console games arrive in Latin America later than in most other regions and are typically priced much higher than in other regions. The retail market for console games is hampered by piracy as well as a strong market in used games. Legally purchased retail boxed console games constitute only a small minority of the console/handheld game market.

than the same games sold in the US. This helps explain the high rate of illegally acquired games. Xbox games do relatively better than PS3 games in Mexico because the Xbox console is relatively cheaper.

PR

Console/handheld game market (US$ millions)


Latin America Argentina Brazil Chile Colombia Mexico Venezuela Total

FO

The growth of the console/handheld game market in Mexico is being hurt by the relatively high cost of games in Mexico, which are often 30 to 50 percent more expensive

ES

Sony is beginning to focus more on the Latin American market by localizing its key titles for the Latin American market. For the forecast period as a whole, we expect spending to grow at a 2.9 percent compound annual rate to $708 million in 2016 from $614 million in 2011. Mexico will continue to be the largest market in the region despite growing only 1.8 percent on a compound annual basis from $298 million in 2011 to $326 million in 2016.

SE

At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

N LY
1,641 2014 42 201 46 39 298 16 642 41 193 44 38 290 16 622

2007 37 165 43 37 269 14 565

2008 46 204 52 45 338 17 702

2009 43 192 48 40 321 15 659

2010 41 185 45 38 315 14 638

2011p 39 184 42 37 298 14 614

2012 40 189 43 38 294 15 619

2013

2015 44 210 48 39 310 17 668

2016 47 225 51 41 326 18 708

201216 CAGR 3.8 4.1 4.0 2.1 1.8 5.2 2.9

At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

394

PwC | Global entertainment and media outlook: 20122016

PC game market
Piracy, which is estimated to be as high as 90 percent in some countries, is the major factor hindering growth of the retail PC game market. Despite that fact, Latin America is the only region where the PC game market continues to expand because of lack of a strong competing console market. In 2011, spending on PC games rose by 5.3 percent.

Growing penetration by PCs and an expanding broadband market will widen the potential base for PC games, including games purchased to play online. On balance, we expect the PC game market to continue expanding but at slower rates than during the past five years. We project the PC game market to grow 3.1 percent compounded annually from $138 million in 2011 to $161 million in 2016.

PC game market (US$ millions)


Latin America Argentina Brazil Chile Colombia Mexico Venezuela Total

LY

2007 8 33 8 7 56 3 115

2008 8 34 8 7 59 3 119

2009 8 37 9 8 63 3 128

2010 8 38 9 8 65 3

2011p 9 41 9 8

2012 9

2013 9

2014 9 46 10 9 74 3 151

2015 10 48 10 9 77 3 157

2016 10 50 10 9 79 3 161

201216 CAGR 2.1 4.0 2.1 2.4 3.0 0.0 3.1

O
43 9 9 70 3 143

44 9 9 72 3 146

S
131

At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Wireless games

PR FO R

ES

Wireless games have high potential in Latin America. Wireless penetration averaged around 100 percent in 2011 compared with 34 percent for broadband, and wireless carriers are upgrading their networks to 3G. The mobile game environment will continue to become more and more enjoyable as wireless markets expand in much of Latin America both in terms of coverage and with the deployment of 3G networks. Mobile games, with their free-to-play business models, are growing in Brazil, with microtransactions generating the requisite revenues. Angry Birds was a major hit on the iPhone, but the game has generated even more players since its adoption of a free-to-play model on GetJar and the Android Market.

U
68 3 138

SE

A number of major mobile game developers, such as Glu Mobile and Gameloft, are gaining traction in Latin America, helping further expand the market. Spending on wireless games rose by 11.6 percent in 2011 to $441 million. We expect similar increases during the next five years, averaging 11.5 percent compounded annually to $759 million in 2016.

Video games | Latin America

395

Wireless game market (US$ millions)


Latin America Argentina Brazil Chile Colombia Mexico Venezuela Total

2007 16 77 17 14 117 6 247

2008 20 98 22 17 147 6 310

2009 22 113 24 20 164 7 350

2010 25 129 27 22 185 7 395

2011p 29 144 30 24 205 9 441

2012 33 162 34 26 223 10 488

2013 36 183 38 29 254 10

2014 40 207 42 32 282 11

2015 44 231 46 35 318 12 686

2016 48 255 51 38 354 13 759

201216 CAGR 10.6 12.1 11.2 9.6 11.5 7.6 11.5

Online games
The online game market has been hampered by low broadband penetration and fewer consoles that are connected to the Internet. Online spending totaled only $114 million in 2011, just 8.7 percent of end-user spending on video games. In North America and EMEA, online games constituted 18.4 percent and 22.5 percent, respectively, of total end-user spending on video games; in Asia Pacific, the online share was 41.9 percent.

enables users to purchase virtual goods using a personal identification number they purchase from retail stores. Mentez publishes Playdom games in Latin America and also has a number of its own games on Orkut.

PR

FO

Historically, the Latin American market has had the lowest broadband penetration rate, which has stymied the growth of the online game market. However, broadband penetration in Latin America is expected to show tremendous growth over the next five years, which is expected to have a strong impact on the online game market.

Social network Orkut, which is similar to Facebook and is operated by Google, is quite popular in Brazil. In fact, around 60 percent of Orkuts worldwide users are located in Brazil. Games on Orkut are attracting a growing number of Brazilians. Googles Orkut had been the most popular social network in Brazil. However, the number of Facebook users tripled in 2011, surpassing Orkut for the first time. Latin America does not monetize online games well because of the lack of credit cards. Leading online gaming company Zynga is partnering with leading Brazilian social game publisher Mentez to sell prepaid social game cards at numerous locations in Brazil and Mexico and is planning to sell the cards in other Latin American countries. Mentez operates a Paymentez network that

396

PwC | Global entertainment and media outlook: 20122016

ES

The digital distribution of games through systems like Steam is quite popular in Latin America. Browser-based MMOGs and social games are becoming increasingly popular in Latin America. In many countries, especially Argentina, a large number of male youth visit locutorios, the Latin American versions of Internet cafs, to play games. Most often these are freeto-play games, with microtransactions and advertising providing the revenues. Since most gamers play at public Internet cafs, there is very little downloading of games. Brazil is the fastest-growing online game market in Latin America, owing to the explosion of social network games, with microtransactions accounting for the bulk of the revenues. Additionally, Brazil is the home of numerous Internet cafs where many gamers play MMOGs. The growing penetration of broadband households is increasing the number of gamers who play games at home. The online game market is expected to grow 16.0 percent on a compound annual basis from $40 million in 2011 to $84 million in 2016. Government intervention has limited the growth of online games. In Brazil, for example, several popular online games like Counter-Strike, Bully, and EverQuest have been banned because of their impact on youth.

SE

At average 2011 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

N LY
550 614

The online game market is relatively weak in Mexico compared with the countrys console game market. The market will grow with increased broadband penetration. Revenues are projected to reach $83 million in 2016, up from $48 million in 2011, an 11.6 percent compound increase. The broadband household universe in Latin America also is expanding. During the past three years, the number of broadband households almost doubled, and during the next five years, we expect it will more than double. Online game market (US$ millions)
Latin America Argentina Brazil Chile Colombia Mexico Venezuela Total

By 2016, two-thirds of households in Latin America will have broadband connections compared with 34 percent in 2011 and only 13 percent as recently as 2007. These developments will support substantial growth in online gaming. We project the online game market will rise to $212 million by 2016, growing at a 13.2 percent compound annual rate. The online game market is thus expected to show the largest increase of any segment of the video game market.

LY

2007 1 10 2 1 10 24

2008 3 17 4 2 17 1 44

2009 5 24 7 3 26 1 66

2010 6 30 9 4 37 2

2011p 7 40 11 5

2012 9

2013 10 58 15 8 64 3 158

2014 12 67 16 8 71 3 177

2015 12 75 17 9 77 4 194

2016 13 84 18 10 83 4 212

201216 CAGR 13.2 16.0 10.4 14.9 11.6 5.9 13.2

SE
48 3 114

S
88

In-game advertising has been limited by slow growth of the console game market.

FO

Video game advertising has been limited in Latin America due to the relatively small size of the video game industry.

Advertising

PR

At average 2011 exchange rates. Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

ES

In the future, growth of the online and mobile game segmentsassociated primarily with the rise of casual games on those platformswill drive the video game advertising market. Additionally, advertising is a significant portion of revenues for social network games, which are growing dramatically. We project video game advertising to increase from $38 million in 2011 to $68 million in 2016, a 12.3 percent compound annual increase.

O
49 14 6 58 3 139

Video games | Latin America

397

Video game advertising market (US$ millions)


Latin America Argentina Brazil Chile Colombia Mexico Venezuela Total

2007 1 4 1 1 8 15

2008 1 7 2 1 11 1 23

2009 2 8 2 1 13 1 27

2010 2 9 2 2 14 1 30

2011p 3 11 3 3 17 1 38

2012 3 14 3 3 19 1 43

2013 4 17 4 3 21 2

2014 4 20 5 4 22 2

2015 5 23 5 4 24 2 63

2016 5 26 5 5 25 2 68

201216 CAGR 10.8 18.8 10.8 10.8 8.0 14.9 12.3

398

PwC | Global entertainment and media outlook: 20122016

FO

PR

ES

Filter digital and nondigital spending data. Visit the online Outlook at www.pwc.com/outlook

SE

At average 2011 exchange rates. Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

N LY
51 57