Newzoo Trend Report: DLC, Pre-owned, Digital Distribution - November 2011

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games market research © 2011 Newzoo www.newzoo.com

DLC , Pre-Owned & Digital Distribution Key facts behind game publishers drive towards digital

console retail

pc/mac retail

pc/mac digital

casual websites

social networks

mobile devices

mmo games

console digital

© 2011 Newzoo | www.newzoo.com | 2

DLC, Pre-Owned & Digital Distribution. Key facts behind game publishers drive towards digital. games market research

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Introducing the Newzoo Topic Reports At Newzoo, we are dedicated to providing the total picture when it comes to the games market. This means we specialize in analyses across platforms, business models and countries. Our Topic Reports take a trend as starting point and give insight across topics and countries. When it comes to a topic like Console DLC, we believe it is key to include Pre-Owned, PC/Mac digital distribution and Players vs Payers in the discussion. This brief report aims to provide a comprehensive overview of the key factors behind the current drive of game publishers towards digital distribution of content and full games. As digital business models are per definition international, we will look at the US and key EU territories . The data and insights included in this report are based on analysis of our own proprietary research amongst consumers, our database of publically accessible data and exclusive access to business and tracking data through our clients and partners. I hope you appreciate this report. Up next: MMO Games. We will include a limited number of company cases in coming editions. Let me know if you are interested and willing to share data. Peter Warman, CEO Newzoo, [email protected], +31 (0)20 6635816

Topic Report | DLC, Pre-Owned & Digital Distribution | November 2011

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Key Trend Drivers. Free-riders, DLC and Pre-owned drive publishers towards digital.

games market research

Casual games paying audience is growing. Many casual console titles never make it into retail but are offered exclusively in the console download shop. The increasing popularity of mobile as well as online casual and social games, plus demand for these games on the TV screen is expected to increase significantly. Console publishers will soon have to compete with TV App Stores and Cloud Gaming. Retail already sells download codes of XBLA titles.

Virtual currency has become mainstream. As the use of virtual currency gains broad acceptance, thresholds are disappearing for those not comfortable yet with direct online purchases.

New business model on the horizon. Games are quickly becoming services, enabling a variety of proven online business models to be integrated with console games.

Multi-player games have become services. As all games go more social, players have come to expect exciting multiplayer modes. But if players only play the first couple of weeks after launch, these possibilities become obsolete very quickly, accelerating the loss of its audience. In this respect, online MMO games are showing the future. These games are completely depending on a large number of simultanuous players and been through the evolution of games becoming a continuous service. Not possible without DLC.

Key trend Unlike the large music publishers 5 to 10 years ago, game publishers have a positive attitude towards digital distribution of their products and services. There simply is too much upside. Retail will always remain important but what shops sell is changing rapidly under influence of a combination of drivers.

Free-riders outnumber payers. Of the 82M Americans who state they play console games, only 36M, or 44% spends money doing so. Boxed games are often actively shared within families or groups of friends. The share of 52 million American (F2P & P2P) MMO gamers spending money is 43%, just slightly behind console gaming. For Mobile and Social gaming this figure is lower: 36% and 25% but still…

Pre-owned spending is huge. 85% of all American PC/Mac and console gamers in the US also buys games second-hand. 25% states to spend at least half of its budget on second-hand games. Publishers see no revenues from this. Digital distribution does away with all of this.

Console DLC has taken off. A few months ago, Activision announced that they sold over $180 million worth of Map Packs for their Call of Duty franchise. Spending on downloaded PC/Mac games has already surpassed boxed sales end 2010 in the US. Publishers are growing in confidence because of this success and stand stronger in their negotiations with retail.



Key Take-Aways. American DLC spend closes in on $1bn, or 12% of total.


Key take-aways

Only 44% of all 82M Americans that play games on consoles, ever spends money on console games.

54% of these 36M console spenders also buys DLC: 19.5M Americans. 75% is male, comparable to Europe.

On average they spend $49 per year on DLC.

Newzoo estimates that US consumers will spend $960M on DLC (all consoles) in 2011. This is 12% of all money spent on console games including pre-owned and import.

Americans spend 23% of their console game budget on pre-owned games. In Europe this is an average of 20%.

13% of spending PC/Mac or Console gamers buys boxed games abroad most of the time or always.

EU consumers from seven countries will jointly spend $785M on console DLC, or 9% of total console spending.

The UK is clearly the largest European market when it comes to DLC: £145M.

In the US, money spent on PC or Mac game downloads (56%) has surpassed spending on boxed games.

In Europe, more than half of PC/Mac game spending is still boxed (58%).

Share of total spend on console* games (US)

2011 estimate

65% new boxed

23% pre-owned

56% free-riders

56% digital

44% boxed

Share of total spend on PC/Mac

games (US) 2011 estimate

12% DLC

$960M DLC spend

2011 estimate

13% buys games abroad most

of the time or always (online/physical)

* All consoles, including handhelds: Xbox, Xbox360, PS2, PS3, Wii, N(3)DS, PSP.



Key Facts. Europe behind US but generates more than $785M DLC spend.


US Europe* UK Germany France Spain Netherlands Belgium Italy

12% 9% 9% 6% 8% 12% 15% 7% 8%

23% 20% 23% 14% 27% 22% 21% 16% 17%

58% 42% 42% 35% 44% 40% 39% 47% 41%

Share of DLC and Pre-Owned in total spend on console games per country / region (% and absolute)

2011 estimate

Share of total spend on PC/Mac games (%) 2011 estimate

$960M $785M £145M €90M €120M €65M €80M €16M €13M

* Figures for Europe are an aggregate of the 7 EU countries also featured in this report.

Pre- Owned

DLC

Digi- tal

Box

Consoles

PC/Mac



Key Demographics. 83% of American DLC spenders are younger than 35.


US Europe*

Age & Gender split for Americans and Europeans spending more than 25% of their game budget on DLC / Pre-owned games 2011 estimate

* Figures for Europe are an aggregate of the 7 EU countries also featured in this report.

Box

Console DLC 65% 21-35

18% 10-20

12% 36-50

5% 51-65

Pre-owned

Age

Gender

25% female

75% male

26% female

74% male

51% 21-35

30% 10-20

15% 36-50

4% 51-65

49% 21-35

33% 10-20

17% 36-50

2% 51-65

Age

Gender

32% female

68% male

32% female

68% male

44% 21-35

27% 10-20 23%

36-50

6% 51-65

Age

Gender

Age

Gender


© 2011 Newzoo | www.newzoo.com | 7 Topic Report | DLC, Pre-Owned & Digital Distribution | November 2011

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Newzoo Trend Report: DLC, Pre-owned, Digital Distribution - November 2011