ECONOMICS OF GAMING INDUSTRY

By:NARENDRASINGH D PATANKAR

INTROWhether you hate it or like it, the gaming

industry is a multi-billion dollar industry which continues to grow every year.

Sales2003 U.S. sales of console games totaled $5.8 B

Computer games $1.2 billion, consoles $4.6 billion

Only entertainment industry to grow in 2003Movie and music industries reported losses

According to Exhibitor Relations and Nielsen SoundScanConsole game players:

Action (30%), sports (20%), racing (15%), RPG (10%), fighting (5%), family entertainment (5%), and shooters (5%)

Computer gamer players:Strategy (30%), children's entertainment (15%),

shooters (15%), family entertainment titles (10%), RPG (10%), sports (5%), racing (5%), adventure (5%), and simulation (5%) 

The Entertainment Software Association

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Game DevelopersCan be independent, or subsidiaries of

publishersMany developers started on PC due to

accessibility of toolsConsole development requires

proprietary development kits and preexisting relationship with publisher

# COMPANY MARKET SIZE(in billion USD)

1 MICROSOFT 237.64

2 DISNEY 68.99

3 NINTENDO 19.47

4 SONY 17.19

5 ACTIVISION 14.01

6 ZYNGA 6.2

7 ELECTRONIC ARTS 5.98

8 KONAMI 3.79

9 SQUARE-ENIX 2.2

10 TAKE-TWO 1.26

11 UBISOFT .54

12 THQ .45

# COMPANY REVENUES(million USD)

1 NINTENDO 6779

2 ACTIVISION BLIZZARD 4279

3 ELECTRONIC ARTS 3728

4 SONY 1914

5 MICROSOFT 1741

6 KONAMI 1594

7 UBISOFT 1249

8 TAKE-TWO INTERACTIVE 916

9 SQUARE ENIX 916

10 THQ 909

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Video Game IndustryValue Chain

D e v e lo pm e n t

M o tio n - c ap tu r e p r o v id er

D eliv er y m ed iam an u f ac tu r er

D e ve lo pe r

P ublis he r

P la tf o r m h o ld er

( S o n y , M ic r o s o f t ,N in ten d o )

G am ec o d e

G am ec o d e

D ata

G am e c o d e( m as ter d is k )

F in is h edg o o d s

Bu g lis t

Ar t/an im atio n p r o v id erD ata

D is tr ib u to r o r r ep g r o u p P R f ir m & ad ag en c y

M ed ia ( T V, m ag azin es , I n te r n e t)

G am e s am p les & m ar k etin g m ater ia ls

G am e in f o

R eta ile r ( W al- M ar t , T ar g et , T o y s "R " Us , E B)

F in is h ed g o o d s

C o ns um e r

G am e in f o

C o n tr ac t Q A p r o v id er

G am ec o d e

F in is h ed g o o d s

F in is h ed g o o d s

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Revenue from $50 Console GameAmount Purpose Paid By Paid To

$3 Cost of goods Publisher Media manufacturer

$7 Publishing license royalty Publisher Platform holder

$13 Retailer profit Consumer Retailer

$3 Markdown reserve Publisher Retailer

$8 Development cost Publisher Developer

$10 Operating cost Publisher Internal(overhead, freight, co-op, bad debt)

$6 Marketing Publisher Ad agencies and media

Items in bold can be converted to profit through careful publisher cost management.

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Platform HoldersRevenue comes from:

Hardware salesLicensing fees from compatible

peripheralsFirst-party gamesLicensing fees from third-party gamesLicensing fees from development

toolsRevenues from sales of proprietary

delivery media

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PCs are an Open PlatformIntersecting relationships among:

CPU manufacturers, application software providers, graphics chip manufacturers, and box assemblers

CPU (Intel, AMD) and graphics chip (NVIDIA, ATI) manufacturers provide developer support and market their technology benefits directly to consumers

Application software providers (Microsoft, Silicon Graphics) give developers free tools to ensure compatibility

Box manufacturers (Dell, HP) may bundle hot software titles to add value to their sale

Low barrier to entry for developers, but high competition for shelf space

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Consoles are a Closed PlatformConsole companies (Nintendo, Sony,

Microsoft) control nearly every aspect of games on their platformsProprietary development hardware and softwarePermission to become a licensed publisherLicense to use console company trademarks in

marketing materialsMay require permission to start a gameCertification of a finished game

Investment in hardware must be offset by revenue from software (around $7/unit for third-party games)

INDIAN GAMING INDUSTRY

• Indian PC and Online Gaming Industry in India are poised to grow at a healthy rate due to rising penetration of PC and internet connectivity. Young population in India will further increase the demand for gaming.

REASONS FOR RISE :Increase in internet penetration;Favorable Demography;Favored outsourcing destination for

many gaming companies;Social networking sites;Rise in the PC Sales.

PIRACYPiracy has hit the gaming industry very hard!!The total revenue of gaming by piracy is estimated to be much higher than the legal Gaming Industry.

Piracy in IndiaLike with any content business, piracy is a

key problem area that affects the growth of the Indian gaming industry. While it seriously restricts the sales of many international game franchises, it completely jeopardises the possibility of the Indian game development industry which may be interested in creating Indian intellectual property (IP) content, with dependence on a captive audience in India for initial success

FactorsHigh customs;Release of games in foreign markets

before releasing in India;Duplication from friends;High prices.

MeasuresIntroducing games worldwide at one time;Reduction in taxes;Price reduction.

CONCLUSIONThe gaming industry has quickly

grown in the past, and we expect it to keep growing faster than the software industry average. As the world population grows richer, progressively more money is available for entertainment, which provides a sound revenue driver for the gaming industry.

ANY QUESTIONS????