The Online Game Market Heats Up
June 30, 2004
Next month DFC Intelligence will release our Online Game Market report. We have been releasing online game specific reports since 1996 and have seen many startups fail in the elusive search for a mass market audience and/or revenue generating business model. Therefore, it is a pleasant change to be able to say that the online game industry is finally here in a true mass market sense. There are even signs that consumers are starting to open their wallets. Furthermore, online games are growing on a global scale and attracting a broader range of demographics than the traditional video game industry.
Our belief has always been that broadband connections are what would make online games attractive to the masses. The good news is that the number of broadband households is rapidly growing around the world. Depending on whether you are on optimist or pessimist, the good/bad news is that there is still a long way to go before most households have broadband. In North America an estimated 25.5 million households had broadband at the end of 2003 (our forecast in our last report was 25.2). In the more heavily populated European market, only 19.5 million households had broadband (however, this was more then our forecast of 18.9 million). The rate of broadband penetration has grown even more rapidly in certain Asian markets, most notably China, Korea, Taiwan and Japan. By the end of 2003, we estimate 36.1 million households in Asia had broadband, well exceeding our previous forecast of 30.6 million. Not surprisingly, the countries with the highest broadband penetration are some of the hottest markets for online games, while Europe remains relatively weak.
It has become clear that broadband connections are driving online game usage around the world. What is perhaps even more exciting is the type of consumers that are using online games. The online game business is notable not only for its geographic diversity, but also its demographic diversity. Of course, adult males playing massively multiplayer online role-playing games (MMORPG) like EverQuest have received the most attention. However, it is the numbers for the casual games that are arguably more impressive. Services like Yahoo Games, MSN Zone and Pogo attract tens of millions of users and at any given time will have 150,000 to 200,000 simultaneous players each. On top of that, for many services over 50% of their users are adult females, a demographic that has historically shunned video games.
Of course, children have been the traditional heart of the console video game industry. With its basis in cutting-edge PC technology, the online game business has started with an older audience. The good news is that online games are attracting kids as they go mass market. Content for children includes subscription-based products like Disney’s Toontown, as well as advertising/sponsor supported services like Neopets. In fact, Neopets, with over 20 million users, is one of the first examples of online originated content that is spreading to other media in a big way. With licensed toys, games and McDonalds Happy Meals, Neopets has the potential to be the next Pokemon.
The traditional video game audience is also slowly starting to get on board the online game bandwagon. A service like Xbox Live may currently be used by less than 10% of Xbox owners, but it is clearly a sign of the future. Xbox Live is the leading example of where console systems are going with online games.
While online games are clearly starting to take-off, it is still worth noting that this is an immature business. Many services are free and dependent on often elusive advertising support. Online game companies are still grappling with business models. On the positive side, it has become clear that there are many potential viable business models, with advertising just one part of the mix. Free sites have the ability upgrade consumers via tiered subscription packages, on-demand distribution, pay-per-play games of skill and other revenue generating models. The number of potential consumers for online games is so much higher then with the traditional packaged foods business that less revenue per consumer is needed to make online games a really substantial industry.
This obviously leads to the question of how big is the online game business and how fast can it be expected to grow. DFC Intelligence estimates that the online game industry in 2003 was $1.9 billlion, with well over 50% of the revenue coming from Asia and barely 10% of the revenue from Europe. By 2006 we forecast revenue growing to $5.2 billion with continued steady growth so that worldwide online game revenue reaches $9.8 billion by 2009. By 2009, we forecast that Asia will still be the largest market, but Europe with forecasted 2009 online game revenue of $2.2 billion will be the fastest growing.
The main drivers of growth for the online game business are 1) increased consumer usage and 2) more average per consumer revenue from what we define as casual and moderate gamers. Casual and moderate gamers are expected to go from 65% of usage in 2003 to 73% of online game usage by 2009. About 62% of online game revenue in 2009 is forecasted to come from casual and moderate gamers. By 2009, console online games are forecasted to account for only 17% of usage, but 30% of online game revenue.
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.