Games industry expert Ian Hetherington shares his thoughts on the future of the games industry, taking in console production, but mainly the rise of mobile, app based and social network gaming. Ian is a Vision+Media board member, Chairman and Chief Strategy Officer for Realtime Worlds http://www.realtimeworlds.com/

1. Gaming Industry Report Traditional Video gaming Social Gaming Online Gaming Web 2.0/3.0 “activities”

2. About the Speaker Ian Hetherington Chairman and Chief Strategy Officer of Realtime Worlds http://www.realtimeworlds.com/ Board member Vision+Media http://www.visionandmedia.co.uk/ 1st presented 25 March 2010 at the 1st How-Do/Vision+Media Northwest England’s Creative Industries AGM

3. The Global Video Game Market In 2008 analysis of the top 3 computer games producers: UK : £4.03bn (£3.40bn) year-on-year growth of 18.5% USA: £14.89bn (£12.51bn) year-on-year growth of 19% Japan: £4.55bn (£5.37bn) year-on-year decline of 15%

4. The UK Video Game Market 2008 UK consumer spend on videogames products £4 billion (defined as games, consoles and peripherals) Wii software sales up 112%, to £481 million Microsoft’s Xbox 360 software sales up 51% PlayStation 3 software sales up 145% to £334 million Research undertaken by How-Do highlights that in 2008: The UK gaming industry is worth an estimated £20 billion worldwide

5. Fast Forward to 2010 We have a healthy UK Games market? We have a healthy “traditional” UK Games market? The UK has a healthy position in the Global Market All these statements are true…. However: Only 1 in 50 game players are playing traditional video games What are the other 49 doing? These 2008 statistics represent product in development in 2005, conceived in 2004 Since 2004/5 the social network and gaming worlds have changed beyond recognition Facebook was founded in 2004! World of Warcraft launched 2004! Twitter, first tweet sent March, 2006 Where are we NOW?

6. Current Market Segmentation Industry profile 2010 Console Gaming – flat(ish) except Wii The Wii platform defined “social” console gaming Nobody saw it coming Online Gaming - medium/high growth Mobile Gaming – high growth - iPhone Social Gaming – off the scale New interactive web 2.0/3.0 apps obsoletes everything that preceded it What does this tell us? Speed date time……………

7. Sector Specific - Speed Date Packaged Media Retail shelf - console product Online (MMO) Retail shelf plus subscription Server connected Online persistence Social Network Gaming Facebook, Zynga, Playfish, Crowdstar Mobile – iPhone iTunes, AppStore

8. Packaged Media/Online market Call of Duty – Modern Warfare II $400m sales in the first 48 hours $200m pre launch commitment 15m unit lifetime sales Estimated market value $2bn World of Warcraft Service live 2004 $1bn p.a. sales 500 development staff Estimated market value $7bn Massive franchise products - the exclusive domain of publishers Highly polarised 90:10 if not 95:5 A sequel management business Enormous financial commitment predicated on retail channel support No entry point for Independent developers (royalties) or new IP (risk)

10. “Freemium” business model

11. Always something for free

12. Premium services and item sales

13. Development

14. Short development cycle – less than 4 months

15. Launch – permanent Beta status

16. Product design derived from community analytics - Pigs and Chickens

17. No sense of a “finished product” with a “push” launch

18. Launch is the start of service provision with a Beta product

20. “Freemium” business model

21. Always something for free

22. Premium services and item sales

23. Development Cycle

24. Short – less than 4 months

25. Launch – permanent Beta status

26. Product design derived from community analytics - Pigs and Chickens

27. No sense of a “finished product” with a “push” launch

28. Launch is the start of service provision with a Beta product

30. November 2009 vs February 2010 Growth +21m +47m +21m +8m +4m -0.5m +24m +20m +21m -2m

31. Established Social NetworkGame Developer Zynga – formed 2007 Farmville, Café world, etc. November 2009 stats 206,000,000 MAU March 2010 stats 283,000,000 MAU Company Profile Team size = 8 Average development time before launch = 6 months Zynga estimated market value $3.0bn

32. Super novaSocial NetworkGame Developer Crowdstar – formed 2008 Happy AquariumHappy IslandHappy Pets November 2009 stats 33,000,000 MAU March 2010 stats 49,000,000 MAU Company Profile TOTAL Number of employees = 20 Estimated Market Value $250m Also - Playfish (sold to EA $400m), Playdom ($240m) Playfish – number one in Malaysia?

33. Super Nova iPhoneGame Developer Lima Sky – founded 2008 Doodle Jump Launched February 2009 $0.99c iPhone app with Facebook viral links 25 Updates so far Growth 3m downloads, $3m revenue Development Profile Team size = 2 , development time = 2 months First game was iBubblewrap (you guessed it)

34. What does this tell us Market The market is highly segmented, each segment unique Except for hardcore gaming - Gaming is now a casual experience enjoyed by many Of the new socially networked community many enjoy playing games They are willing to pay ($2-3 p.a.) It is the social axis, not the production value axis which is driving this Social Network Gaming - The barriers to entry are still very low We will be developing everything from games to widgets in the next 5 years and serving an receptive global community of hundreds of millions All IP is eligible – Harry Potter to Dr. Who to FarmVille to Bubblewrap The legacy market is not “where it’s at” MASS MARKET HAS FINALLY ARRIVED! Every device will be eligible Set top boxes, phones, browsers, consoles, pads, PDAs, tablets – It will be universal and ubiquitous

35. What does this mean for UK and the NW Region? The UK games development heritage (in particular the NW) is highly relevant to these new opportunities The talent pool in the region is large and exceptional Interactive software development is the primary skill needed to create these products The major source of that talent pool is the games industry Technical, UI, user motivation, reward systems, etc.. MediaCityUK, Gamespace, BBC Canvas and Vision+Mediaare strong regional catalysts Where else do we have such a concentration of skill and expertise? The NW region is organised and receptive We can maximise this opportunity Some risk is inevitable! Are we still too risk averse? What are we waiting for? Management, product selection and investment will be key

36. Finally Every 5 years the games industry goes through transition Next Generation platforms Re-assess consumer behavior Re-evaluate business models This decade starts with an inflection point several orders of magnitude larger The “App” generation is here all of which are interactive some of which are games The perception of video gaming has changed forever! The perception of online social networking has changed forever!

37. Gaming Industry Report By any definition Mass Market has arrived This is the start of something BIG! Thank you…..

38. Share, but please attribute Ian Hetherington Chairman and Chief Strategy Officer of Realtime Worlds http://www.realtimeworlds.com/ Board member Vision+Media http://www.visionandmedia.co.uk/