Tracking the Growth of Online Game Usage and Distribution

October 08, 2010

DFC Intelligence is pleased to announce the latest report in its ongoing research into the growth of online games and consumers using real world money to buy virtual goods and products. The new report, Virtual Property and Real Money Trade: A Business and Legal Survey, contains analysis of some of the key issues involved in selling virtual items and characters in online games and via social networks like Facebook. This report is the latest in a series of DFC research analyzing the future of the online digital entertainment economy.

According to the recently released report Online Game Market Forecasts, DFC forecasts worldwide market revenue from games generated solely online to reach $26.4 billion in 2015, up from $11.9 billion in 2009. However, the most important issue is understanding how this revenue will be generated and the key issues impacting success and profitability. To this end, DFC has launched a global research initiative and in the past two years has surveyed tens of thousands of consumers and interviewed hundreds of executives at key companies around the globe. Most importantly, DFC has focused on collected an unprecedented amount of actual usage and revenue data from the top global online games over the past decade.

The research DFC has published on online games over the past year is available in a bundled package of multiple reports or is available as individual reports. DFC is also launching a series of mini-reports and analysis in conjunction with leading game business news site IndustryGamers. Sign up here for more information on this initiative. This will allow DFC to explore the myriad of business issues raised as games across multiple platforms move to online usage and digital distribution business models.

Key issues that DFC has focused on in its research include:

• Sizing the global market and growth rates for the top regions and the top 20 countries.
• Looking at trends in emerging global markets.
• Gaining an in-depth understanding of business models and how they vary by type of product, platform and market.
• Understanding the impact of online usage on the video game console market and behavior and purchase patterns of console gamers
• Looking at the growth of connected mobile platforms, both dedicated game systems and multi-function devices like smartphones and the iPod Touch.
• Payment processing methods and how they differ by consumer, product type and country.
• Legal issues and regulations impacting the creation and trading of virtual goods and virtual property.
• The difference between delivering a game using a large client distribution model or via a cloud model in a browser or social network like Facebook.
• Looking at key distribution outlets from physical retail stores to distribution on online portals and social networks and understanding how feasibility and business model vary by product, consumer, platform and country.
• Identifying and analyzing the top global companies for online games.
• Looking at technology infrastructure and broadband penetration around the globe.
• Understanding consumer tastes and preferences and how they vary by age, gender, geography and platform.

In publishing its research DFC has relied on the knowledge and insight of many key partners. These include working with consumer solution provider Live Gamer on research that both surveyed over 5,000 PC gamers and analyzed actual global transaction data from a seven year history of consumers buying in-game virtual goods in North America, Europe and Asia. In a separate research project, DFC conducted a survey of over 8,000 gamers in North America and Europe to look at overall online patterns across PC, console and portable platforms.

To better understand the broadband infrastructure, DFC partnered with Pando Networks, a game delivery services company, to distribute the report Online Game Delivery which looks at actual broadband performance in leading countries and cities around the globe. This report has many interesting highlights including showing how much of the success in a country like South Korea can be attributed to the fact that its broadband network far outperforms the rest of the world. This indicates a key point that if companies want to be truly successful on an international basis they need to understand the subtle technical and consumer differences for each country they wish to target. To this end, DFC has recently launched a consulting division focused on how companies can look at bringing products to an international audience, whether from Asia to the rest of the world or vice versa.

In the U.S., DFC has partnered with Bowen and Associates to survey 2,000 consumers on their attitude towards buying virtual goods. This research has yielded some major insight into how console-centric U.S. consumers may react to business models where established games try to sell digital content on top of a traditional retail product.

With the diversity of potential business models and markets, it is no surprise that the three leading companies in terms of generating revenue from online games, Blizzard (part of Activision Blizzard), Tencent and Nexon all not only have very different products but they are based in three very different markets, the U.S., China and Korea respectively. Blizzard, with World of Warcraft, is an example of a high-end subscription model with a major retail distribution component. This type of product is discussed in the DFC report The Subscription Based MMOG Market. Tencent and Nexon are examples of more pure play online models and the movement to free distribution and upselling consumers with the purchase of virtual goods, optional subscriptions and product offers. These business models are discussed at length in numerous DFC reports including the recently released The Market for English Language Client-Based Free-to-Play PC Games and Virtual Property and Real Money Trade: A Business and Legal Survey which was prepared in conjunction with leading virtual property attorney S. Gregory Boyd.

The process of understanding the global game business is an ongoing one as platforms change, new business models emerge and consumers become more diverse in their taste. The PC is by far and away the leading platform for online delivery and play of games. The PC should continue to be the leader, but console and portable systems are rapidly adopting online delivery and usage models. Games now have a hybrid of business models including pure retail sales, selling virtual currency and credits that allow for micro-transactions, mandatory or optional monthly subscriptions, and increasingly the ability to effectively incorporate advertising and sponsorship models. The most successful products will incorporate a mix of these models. However, the appropriate mix of revenue and payment models for a given product will vary greatly by targeted platform, demographic, genre and country.

For all of the above reasons, DFC Intelligence research has always focused in detail on studying business model approaches of individual companies and products. DFC can say with confidence that the global online game market will grow substantially in the next few years. However, it is understanding the subtly of how this growth will impact established companies and create new profit opportunities that is the most important focus. Because of the complex issues involved, DFC has both created a diverse package of multiple research reports and surveys, as well as offering companies the ability to buy just the individual report, data or custom analysis they need.

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