The Bu$iness of Games LATAM Sept_2011

The Bu$iness of Games September 23, 2011 – Mexico City

Justin Berenbaum Theseus Games, Inc.

Agenda A Perfect Storm

◦ The Effects

Retail by the Numbers

◦ The Retail Model(s)

◦ Where We Were

◦ Where We Are

◦ Where We’re Going

The Social Market

Mobile

Trends

Conclusion

◦ Take-A-Ways

◦ Fortune-Telling

Questions 2 Theseus Games, Inc.

A PERFECT STORM

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A Perfect Storm – 2009 to 2011

• U.S. economy in recession spilling over into the world economy

• Beginning of a steady and long decline in retail software sales

• Dramatic rise and adoption of iPhone and then Android (mobile apps)

• Meteoric rise of Facebook

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The Effects

• Apple convinced people content (apps) should be “free”

• Facebook / Zynga – Virtual goods through micro-transactions

• Free to play MMO’s and Virtual Worlds

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The Effects

• Dramatic rise in the adoption of digital distribution

• The big word “CLOUD”

• Going from Product model to “Service” model

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RETAIL BY THE NUMBERS

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Traditional Retail Model

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Wholesale (Gross Revenue to Publisher)

$48.00

Cost of Goods (Includes 1st Party Royalty)

-$8.00

Variable Sales & Marketing (Commissions, MDF’s, etc.)

-$9.00

Gross Profit Per Unit $31.00

Licensor Royalties - (if any)

Developer Royalties - 20% of Gross

Profit

Model seems OK, assuming you can move most of your units at full MSRP

Retail Price = $60.00

Used Game Retail Model

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Used Price $55.00

Maximum Trade-In Value -$30.00

Revenue to Publisher -$0.00

Gross Profit Per Unit to GameStop $25.00

Good for Consumers – Maybe Good for Publishers – Doubtful

Good for Developers – Yeah right!

The Rise and Fall of Retail

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$5.1 $6.3 $6.9 $6.6

$9.4 $10.3 $10.0 $9.9 $10.5

$12.5

$18.0

$21.4 $19.7

$18.6

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

U.S. Videogame Industry Revenue (in Billions) Retail Only, Subscriptions and Digital Distribution Excluded

Source: NPD?

Platform Breakdown

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6%

10%

9%

43%

6%

11%

15%

Total U.S. Games Spend (in Billions): 2010 $24.7 (-2% vs 2009)

Consoles: $10.6 (-29% vs ‘09)

PC/Mac (boxed): $2.1 (-19% vs ‘09)

PC/Mac (download): $2.5 (+60% vs ‘09)

Mobile Devices: $1.6 (+46% vs ‘09)

MMOs: $2.7 (+27% vs ‘09)

Casual game portals: $3.7 (+34% vs ‘09)

Social networks: $1.5 (+66% vs ‘09)

Source: Newzoo, 2010

Traditional Platform Trends

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Console 2008 2009 2010 2011–YTD*

4,365,219 4,738,151 5,910,598 5,471,806

12,154,986 8.912,394 8,320,295 5,536,184

5,363,229 5,288,667 7,220,353 6,513,403

14,765,991 15,065,468 10,596,169 5,644,388

7.802,298 5,698,096 5,149,101 4,098,014

Total 44,451,723 39,702,776 37,196,516 27,263,795

Worldwide Hardware

Source: VGChartz – *Through September 18, 2011

The Not So Pretty Picture

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10%

27%

12% 33%

18% 20%

20%

24%

21%

15%

2008 2011

Worldwide Hardware Market Share

Source: VGChartz

Retail Down but Not Out

14 Theseus Games, Inc. Source: DFC Intelligence & Gamasutra

$19.3

$29.9

$37.9

$29.7

$27.0 $24.6

$17.5

$20.0 $18.5

2010 2013 2016

Hardware Games Sales

Retail Games Spend

Digital Games Revenue

$66.5

$76.9 $81.0

Worldwide Game Revenue (in Billions)

THE SOCIAL MARKET

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The Social Epidemic

Source: http://www.pamorama.net/2011/01/30/65-terrific-social-media-infographics/ 16 Theseus Games, Inc.

The Rise of Facebook – December 2009

Global Domination

Source: http://www.pamorama.net/2011/01/30/65-terrific-social-media-infographics/ 17 Theseus Games, Inc.

Unstoppable Force

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Audience Growth on Facebook Position Country July 2011

(millions of users)

12-Month Growth

ALL 712.4 33.5%

1 United States 151.4 16.8%

2 Indonesia 38.9 33.3%

3 United Kingdom 29.9 11.2%

4 Turkey 29.5 64.2%

5 India 29.5 23.4%

6 Mexico 26.8 51.5%

7 Philippines 25.3 42.3%

8 France 22.7 16.6%

9 Italy 21.2 77.6%

10 Brazil 19.8 16.0%

11 Germany 19.5 48.9%

12 Canada 16.6 6.6%

13 Argentina 15.6 33.2%

Source: http://gold.insidernetwork.com/facebook

Position Country July 2011 (millions of users)

12-Month Growth

14 Colombia 14.6 30.1%

15 Spain 14.4 26.4%

16 Malaysia 11.2 34.8%

17 Australia 10.6 60.3%

18 Thailand 10.4 13.5%

19 Taiwan 9.9 32.1%

20 Venezuela 9.1 26.4%

21 Chile 8.5 18.6%

22 Egypt 7.9 54.4%

23 Poland 6.4 56.4%

24 Peru 6.3 59.2%

25 Pakistan 4.8 59.6%

The Social Games Market

600M Active Facebook Users

Social Game Players 318M (53%) 258M

60M (19%) Addicted Players

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Facebook Social Game Metrics

Source: Lightspeed Research – September 13, 2010

Extrapolates to: 712MM users, 377MM Social Game Players, 72MM addicted.

Behind the Numbers

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Social Game User Characteristics

Have up to 10 friends playing the same social games as them

55%

Have invited their friends to join them

59%

Play on a mobile device 12%

Source: Lightspeed Research – September 13, 2010

A Marketer’s Dream

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Have a Facebook account

75% 63%

Social gamers have responded to some kind of marketing activity to get game rewards

39%

Social games are “more likely” to buy products from a brand/company that has sponsored or advertised in a social game

26%

Social Game Metrics for Marketers

Source: Lightspeed Research – September 13, 2010

The Local Opportunity

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MOBILE

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The Mobile Landscape

Android OS 50%

Apple iOS 25%

RIM BlackBerry OS

15%

Microsoft Windows

Mobile / WP7 7%

Palm / Web OS 2% Symbian OS

1%

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Smartphone Market Snapshot – Recent Acquirers

Source: The Nielsen Company, March 2011, Nielsen Mobile Insights, National

Mobile Market Shift

61%

35%

39%

65%

January 2011 June 2011

% Revenue from Freemium Games

% Revenue from Premium Games

25 Theseus Games, Inc. Sources: iTunes App Store, Flurry Analytics, Flurry Analysis

Revenue Generated U.S. App Store Top 100 Grossing Games

A Deeper Dive

22%

32% 29%

14%

3% 5%

16%

49%

28%

2%

13-17 18-24 25-34 35-54 55+

Relative Time Spent Playing Relative Money Spent

26 Theseus Games, Inc. Sources: iTunes App Store, Flurry Analytics, Flurry Analysis

Mobile Freemium Games

Age Group (in years)

TRENDS

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ACQUISITION

The 800 Pound Gorilla

Applies to games on any platform. How do you attract customers?

Brand is Everything

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Brand

Console

PC

Smartphone

Tablet

The Ecosystem

Gaming Key Trends

Customer Acquisition Costs (CAC) - Rising Game Development Costs (Including Mobile & Social)– Rising

“Viral Effect” (K or K-Factor) – Falling

The 80-20 rule has become 95-5 or more

Importance of Brand

Casual Core

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A Rapidly Maturing Market Means

CONCLUSION

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Take-A-Ways

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Do small things really well / Don’t reinvent the wheel

Find Partners

Be relevant for your target market

Build a relationship with your customers

Take-A-Ways

33 Theseus Games, Inc. Not sure who to attribute this to, but it is very accurate

My Crystal Ball

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Retail finding a way to be relevant

Android Market Place Economy evolving

Small innovations will drive big money

Call of Duty Outsells Battlefield - Brand Wins

QUESTIONS?

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THANK YOU! – MUCHAS

GRACIAS!

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Justin Berenbaum President Theseus Games, Inc. theseusgames@gmail.com Twitter: scslug

All research, trademarks and trade names are ™ and © their respective owners.

APPENDIX

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Playing the Game

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ACQUISITION

MONETIZATION

$ / User LTV > CAC

Non-Viral User Sources FB Ads, Offer Walls, Display Banners, Cross Promotion,

Fan Pages, Others

Refine Marketing / Create New

Opportunities

Viral User Sources Wall Posts, Streams, Invites, Email, Others

RETENTION

K

Revenue Sources Virtual Goods, Offers,

Advertising, Merchandise, etc.

Social Game Revenue Funnel

Social Definitions Customer Acquisition Cost (CAC): Total dollars spent

acquiring each new customer from all sources. Engagement / Customer Retention: How long someone

plays your game and how often they come back.

Monthly Average Users (MAU’s): The total number of unique users your game has on a month by month basis.

Daily Average Users (DAU’s): The total number of unique users your game has on a day by day basis (these users are the most likely to spend money on your game).

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Social Definitions

Monetization ◦ ARPU – Average Revenue per User: Total revenue divided by your

total user base.

◦ ARPPU – Average Revenue Per Paying user: Total revenue divided by

the total number of users who paid for anything in your game.

“Viral Effect” (K or K-Factor): How much is your game

spread by users. A higher K factor can help reduce your

customer acquisition costs.

Life Time Value (LTV): Total value of a user over the lifetime

of that user. How much money did your customer spend

playing your game before they stopped.

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Retail Display of Game Cards

Retail adoption has already occurred. They are seeking ways to derive revenue from the virtual space.

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