APPNATION IV - Jefferies Presentation
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This document summarizes key points from a panel discussion on the video game industry. It discusses trends such as the large installed base of consoles but declining retail sales, the growth of mobile and digital gaming, and challenges in mobile from an increasingly crowded market. The panel explored topics like the future of consoles, growth of mobile gaming, and new business models being pioneered in mobile like free-to-play.
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APPNATION IV - Jefferies Presentation
- 1. APPNATION IV SAN FRANCISCO, CA DECEMBER 11-12, 2012
- 2. December 2012 Internet & Interactive Entertainment Brian Pitz APPNATION IV bpitz@jefferies.com 212.336.7413 Gamer Nation: A Global Mass Market Emerges Brian Fitzgerald bfitzgerald@jefferies.com 212.284.2491 Moderator: Timothy O’Shea Brian Pitz: Senior Internet & Interactive Entertainment Analyst; toshea@jefferies.com 212.284.3415 Jefferies Sachin Khattar, CFA skhattar@jefferies.com 212.323.3381 Panelists: Stan Velikov, CFA George Jones: Director of Programming, Games / Action; Wikia svelikov@jefferies.com 212.284.2140 Will Kassoy: CEO; AdColony Eros Resmini: SVP, Marketing & Developer Relations; GREE Jefferies & Company, Inc.
- 3. Companies on Panel / Biographies George Jones: Director of Programming, Games / Action; Wikia Wikia operates the world’s largest network of collaboratively published video game, entertainment, and lifestyle content on the web. With 1B monthly page views and 53MM unique visitors (+9MM add’l mobile uniques), Wikia now has 250K different wikis of which 50K are focused on gaming. Will Kassoy: CEO; AdColony AdColony operates a leading HD mobile video ad network. AdColony’s video ad network serves video ads instantly with its proprietary Instant- Play technology on the most popular apps in the world across Apple’s iOS and Google’s Android platforms. Eros Resmini: SVP, Marketing & Developer Relations; GREE GREE is a leading mobile social gaming company based in Japan, with a focus on creating and supporting unique free-to-play content. GREE has had a #1 grossing mobile game in 51 countries, with 2 million loyal page 3 players. The company acquired Funzio earlier in 2012. pitz-fitz@jefferies.com Jefferies and Company, Inc.
- 4. Themes to be Explored by Panel What happens to consoles during the next hardware cycle? • Large file sizes, low latency requirements, and digital entertainment content (Netflix, etc) have isolated consoles from disruption, for now. With next-gen hardware on the horizon, what happens going forward? • Is the $60 fixed retail price the right model going forward, or will we see new models over time? Where does mobile gaming go over time? • As smartphones and tablets realize vast, global audiences, what are the implications on mobile gaming? What sort of growth are you seeing, and what are the differences between iOS vs. Android and smartphone vs. tablet usage? • Can mobile games ever make the jump to the big screen (TV)? What do new business models look like going forward? • Asian gaming companies are pioneering here; what are the lessons for the West? (and vice versa) first, let’s review some key industry trends • Looking at new business models (free to play with IAP, paid downloads, page 4 subscription, ads), what is the right model going forward? pitz-fitz@jefferies.com • Jefferies and Company, Inc. How will data / analytics improve the economics for developers?
- 5. Global Console Install Base of 239 Million is Largest Ever (and Still Growing!) 7th Gen Console Global Install Base (Millions, Left Axis) vs. Y/Y Growth (Right Axis) 300 140% 250 120% 200 100% 80% 150 60% 100 40% 50 20% 0 0% December December December December December December December December 2005 2006 2007 2008 2009 2010 2011 2012 Wii Xbox 360 PS3 Y/Y Growth Source: NPD, VGChartz page 5 new hardware cycle resets this install base pitz-fitz@jefferies.com Jefferies and Company, Inc.
- 6. No Clear Winner or Loser This Hardware Cycle (but What About the Next Cycle?) Global Console Market Share PS3 70 Million Wii 29% 98 Million 41% Xbox 360 72 Million 30% Source: NPD, VGChartz 239 Million Current-Gen Consoles page 6 pitz-fitz@jefferies.com Jefferies and Company, Inc.
- 7. Retail Sales of Video Games Peak During Holidays (but Digital Sells Year Round) Monthly Unit Retail Sales of Video Game Software in the US (Millions) 80 Call of Duty 4 Call of Duty: WaW New Super Mario Bros Guitar Hero 3 Wii Play, Wii Fit Call of Duty: Black Ops Call of Duty: MW2 70 Assassin’s Creed Just Dance 2 Madden NFL 07 Call of Duty: MW3 Zelda: Twilight Princess Just Dance 3 60 Call of Duty 3 Skyrim 50 40 Super Smash Battlefield:BC2 Pokemon: Bros Brawl God of War 3 Black / White 30 GTA: IV Guitar Hero 5 Madden 12 Red Dead Gears 3 20 10 0 Jan-06 Mar-06 Sep-06 Jan-07 Mar-07 Sep-07 Jan-08 Mar-08 Sep-08 Jan-09 Mar-09 Sep-09 Jan-10 Mar-10 Sep-10 Jan-11 Mar-11 Sep-11 Jan-12 Mar-12 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 May-06 May-07 May-08 May-09 May-10 May-11 Source: NPD page 7 pitz-fitz@jefferies.com Jefferies and Company, Inc.
- 8. Retail Sales of Video Games Peaked in 2008 US Unit Video Game Software Sales - Retail Only (Millions) 300 7th Gen Hardware Cycle 250 +9% CAGR -4% CAGR 200 150 100 50 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: NPD page 8 pitz-fitz@jefferies.com Jefferies and Company, Inc.
- 9. US Publishers Already Generating $3.75 of Every $10.00 Through Digital Means Comparing Digital Revenue at Leading US Video Game Publishers (3Q 2012) Total Revenue ($MM)* Digital Revenue ($MM)* % of Total Digital Revenue Y/Y Growth Activision Blizzard 751 427 56.9% 10.6% Electronic Arts 1080 314 29.1% 45.4% Take-Two Interactive 283 57 20.0% 108.0% Total 2114 797 37.7% 26.8% Source: Jefferies, Company *non-GAAP revenue, note can be lumpy over time based on release schedule What is Digital Revenue? Downloadable Content (DLC) – Call of Duty Map Packs ($15 / per download) Subscriptions – WoW ($15 / month), EA Sports Season Ticket ($25/ year) Free to Play / Freemium – League of Legends, FarmVille In-Game Advertising – Primarily on mobile games Mobile – Angry Birds, Clash of Clans, supports many business models digital revenue can be more profitable given it bypasses the retail channel page 9 pitz-fitz@jefferies.com Jefferies and Company, Inc.
- 10. Mobile Usage is Increasing the Global Addressable Market by a Factor of Five Smartphones - 1.1 Billion 42% CAGR Console - 239 Million 19% CAGR Other PS3 70 Million Wii 29% 98 Million Android 41% Xbox 360 72 Million 30% new hardware cycle resets install base iOS Source: Informa, IDC, NPD page 10 excludes tablets! pitz-fitz@jefferies.com Jefferies and Company, Inc.
- 11. Mobile Explosion Creates Challenges for Traditional Handheld Gaming Apple vs. Nintendo Global Unit Hardware Ests. (Millions; 12 Mos. Ending Mar '13) 180 160 140 120 100 80 60 40 20 0 DS 3DS iPad iPhone page 11 pitz-fitz@jefferies.com Source: Nintendo forecast provided 9/30/12; Jefferies and Company, Inc. Jefferies Estimates
- 12. Cumulative Console vs. iOS Global Install Base (Millions) 800 700 600 Console 500 400 300 iOS 200 100 0 2007 2008 2009 2010 2011 2012 iPhone iPad Wii Xbox 360 PS3 Source: Apple, NPD, Jefferies page 12 pitz-fitz@jefferies.com Jefferies and Company, Inc.
- 13. An Increasingly Crowded Market Retail Facebook App Store hundreds of games thousands of games hundreds of thousands discoverability is a challenge page 13 pitz-fitz@jefferies.com Jefferies and Company, Inc.
Notas do Editor
- Today’s panel includes three gentlemen from companies I’m sure you’re all familiar with.First, welcome George Jones, Director of Programming from Wikia, which is now generating1B monthly page views from 53MM monthly unique visitorsAcross 250k wikis (50k for gaming)Second, Will Kassoy, CEO of AdColony, a leading HD mobile video ad network, which allows developers to monetize free to play games. Last welcome Eros Resminifrom GREE, which is a mobile social game company based in Japan. GREE has had a #1 grossing game in 51 countries.
- Before we get into the panel discussion, I thought it would be useful to review several key industry trends.
- At 7 years, this is the longest and largest console cycle ever.And Sales are still strong…SOME STATS:* Xbox sold 750K units over holidays in US alone on Black Friday Weekend. (but still down from 960K last year)* Wii U sold 400K units in the same timeframe.* Growth has been driven by HD consoles, Xbox and Playstation 3, while the 1st gen Wii has lagged. * We expect a new Xbox next year
- There is no clear winner this console cycle, with an install base of nearlyt 240MM consoles. The big question, in the Next console cycle – is there room for three consoles (plus new gaming platforms)? Would love to dig deeper into this…
- This slide shows the traditional video game sales peaks during the holidays from 2006 through early 2012…as you can see – holidays are importamtNote, This data is:US only (no Europe, no Asia)Console only (no PC)Retail only (no digital)Unit Sales (not $ sales)Retail Industry characterized by:Consumer dollar is focused on a small number of huge key titlesTitles are being played longer than ever, thanks to online play and DLCDLC / online play keeps the games out of the used games bin
- Also, the retail channel is also becoming a less important sales channel over time. In the US, unit sales of video games peaked in 2008 and have modestly declined ever since…. According to NPD numbers
- BUT As retail shrinks, digital revenue is driving growth at the major US publishers.Already, these companies are generating roughly $3.75 out of every $10 through digitalNote: this table provides a snapshot view from 3QData is lumpy over time depending on release schedulesKEY: Digital revenue is more profitable given it bypasses the retail channelRetail gets about a 20% cut SOME EXAMPLES: ActivisionWorld of Warcraft: $15 / month subscriptionCOD Online in ChinaCall of Duty Map Packs ($15)Electronic ArtsStar Wars the Old Republic: Subscription, moving to Free-to-playEA Sports Season Ticket: $25 / yearFIFA alone generated $115 million in digital revenue in 1H ’13PopCap: Bejeweled, Plants vs. Zombies
- AND MOBILE…DEFINING THE OPPORTUNITY: Smartphones and tablets have dramatically increased the addressable market.We estimate 239MM global consoles.And 1.14B global smartphones, about 20% global penetration…
- Large file sizes, low latency requirements, and over-the-top entertainment (Netflix, etc) have isolated the console market from disruption, for now.Traditional handheld gaming market is clearly seeing impacts.This chart shows the challenges faced by the traditional handheld gaming market.Nintendo Estimates: official nintendo estimates given on September earnings releaseApple Estimates: Jefferies Hardware Analyst Peter Misek’s estimatesApples-to-apples comparison , all estimates for 12 months ending March 31, 2013.
- And in terms of iOS vs. Consoles…The mobile platform is much larger when Android is layered on top.Expect about 300 million iPhones / iPads sold in 2013 (Jefferies ests). Console install base returns to zero given new hardware.
- FINALLY…THE MARKET IS INCREASINGLY CROWDEDThe Number of users is growingAnd So is number of gamesBut Discoverability is a problem as consumers face hundreds of thousands of options.