Still Substantial Growth Potential for MMOG Games
August 05, 2004
The just released DFC Intelligence report on The Online Game Market forecasts worldwide online game revenue to reach $9.8 billion in 2009. This is over five times the estimated online game revenue in 2003. DFC has always been conservative in its forecasts, so obviously we feel a need to justify such significant market growth.
When dealing with aggregate numbers the first thing to point out is that revenues and profits are not the same thing. This seems obvious, but we are always amazed by the number of people that grab on to a figure like “nearly $10 billion a year” without considering exactly what that number means in terms of where the revenue is going. Furthermore, even at $10 billion, online games will be less then 25% of overall forecasted game industry revenue for 2009. In its best years (fiscal 2002 and 2003), Sony alone made nearly $10 billion in revenue from its game business.
The online game business is composed of multiple markets around the globe, a wide variety of very different products and a customer base that is far more diversified then the traditional video game consumer. This is not a unified industry. In addition, contrary to popular belief, the development to distribution food chain for online games tends to have more players taking a chunk of the revenue stream then is the case with the traditional packaged goods business. In short, even with substantial market growth, making money from online games will require a diversified business approach.
One market segment that already has a fairly substantial revenue base is massively multiplayer online games (MMOGs). This market has reached the point where the industry is talking about saturation. We are often asked questions like “How much can the MMOG market grow?,” or, more to the point, “Haven’t we maxed out on people who will sit around for 20 hours a week pretending to play with swords and magic?” The simple, glib answer to how much growth potential there is for MMOG revenue is: “a whole lot.”
In 2003 we forecast that worldwide revenue from MMOG games was slightly over $1 billion. However, 34% of that revenue came from one country, South Korea. South Korea is a country with a population of only 48 million, but its revenue from MMOG products is more than that of North America, Europe and Japan combined (see chart).
The size of the South Korean online game market alone shows that growth potential in other markets is nowhere near the saturation point. Yes, there are currently too many similar products chasing too few consumers. Yes, development costs mean this is a business for the strong of stomach. But, no, consumer spending is nowhere close to its maximum potential.
For companies that look beyond their home turf and view online games as a truly global business the growth potential is even more impressive. However, going global is extremely hard in practice and it requires significant capital. Outside of Gravity Corporation’s Ragnarok Online, there are few MMOG products that have had a truly global focus. Successfully entering foreign markets requires more then just finding a local distribution partner. Market leaders like Sony Online Entertainment (SOE) and NCsoft have found that out the hard way. NCsoft has invested heavily in U.S. development and distribution talent, to not only bring its products from Korea to the U.S., but also to create western-based content like City of Heroes. In July, SOE announced a far-ranging partnership with Taiwan-based Gamania Digital Entertainment. The goal of this joint venture is to not only distribute products globally, but also to focus on customizing and developing products for individual countries and regions. This is the type of investment necessary for global success.
The growth potential for the online games market is truly exciting. It means new types of products, a new kind of consumer and new business models and distribution channels. Female gamers, games for kids from such companies as Disney, Neopets and Nickelodeon, console games, games of skill for cash, on-demand games, the list goes on. However, a gold rush mentality is definitely not appropriate. DFC also forecasts that there will be 376 million people around the world playing games by 2009. This equates to spending of only about $26 per customer. Obviously issues like customer acquisition and support cost will be crucial. Success in online games will take talent, discipline, knowledge, perseverance and a sober look at market realities.
DFC Intelligence’s research services provide detailed strategic analysis of the interactive entertainment industry.
A sample of reports on the video game and PC game market include:
DFC Dossier The DFC Dossier is published ten times a year and provides subscribers with regular updates and analysis of the latest market trends.
The Online Game Market This 800 page report contains a comprehensive analysis of the online gaming market. Includes current sales trends, market forecast, and in-depth company profiles.
The Market for Portable Video Games This 185 contains complete five-year forecasts by platform, a look at portable game software, portable game online trends, and business models and revenue expectations for game publishers.
Worldwide Market Forecasts for the Video Game and Interactive Entertainment Industry Complete five-year forecasts for all individual console and portable game platforms by region (Asia, Europe, North America, rest of world)) through 2012. Also included are PC game forecasts and historical sales figures. The report has several scenarios for future market growth including an analysis and forecasts for new systems from Sony, Microsoft and Nintendo, as well as portable game systems.
The Business of Computer and Video Games This report includes an historical analysis, overview of individual hardware system, top-selling games, game genres, consumer demographics, business models, retailer profiles, marketing elements and case studies, industry trends.
Market Leaders in the Video Game and Interactive Entertainment Industry This 750+ page report profiles major companies in the interactive entertainment industry. Each individual company report is about 25-50 pages and has an historical background, financial overview, product analysis and a frank assessment of the outlook for that company.
Overview of the Video Game and Interactive Entertainment Industry This report is designed to provide an overview of some of the key trends in the video game and interactive entertainment. The focus is on highlights from the forecasts and analysis of trends, game genres and business issues found in DFC reports.
The Game Market in China This 350 page report contains a complete look at the rapidly growing Chinese game market, including forecasts to 2010, government regulations, market entry strategies, business models, distribution options, game genres and numerous company profiles and case studies.