THE NEW WORLD Combined market When The Consoles Die, What Comes Next?

WHEN THE CONSOLES DIE, WHAT COMES NEXT? BEN COUSINS (ALL MARKET INFORMATION CORRECT ON 7TH MARCH 2012)

WHO IS THIS GUY ANYWAY?

SOME DEFINITIONS

WHEN THE CONSOLES DIE, WHAT COMES NEXT?

WHEN THE CONSOLES DIE, WHAT COMES NEXT? Die, for the purpose of this talk means ‘Signiﬁcantly smaller market share with no sign of return’

WHEN THE CONSOLES DIE, WHAT COMES NEXT?Sales drop in absolute terms, often because customers move to a new solution for their need

WHEN THE CONSOLES DIE, WHAT COMES NEXT?Market share drops in relative terms, often because a new product massively expands the overall market

WHEN THE CONSOLES DIE, WHAT COMES NEXT? Die, for the purpose of this talk DOES NOT mean ‘The product is never used by anyone ever again’

WHEN THE CONSOLES DIE, WHAT COMES NEXT?

THE WEDDING THEORY

THE STATE OF THE INDUSTRY The Old World

THE OLD WORLDNASDAQ +25.78% EA -61.77%

THE OLD WORLDNASDAQ +25.78% ATVI -33.34%

THE OLD WORLDNASDAQ +25.78% MSFT +24.39%

THE OLD WORLD‘Consumer Software, Services & Devices’,‘Entertainment & Devices’ Division Proﬁt/Loss Lifetime results for this division = $7.807B loss

THE OLD WORLDNASDAQ +25.78% SNE -46.42%

THE OLD WORLD‘Games’, ‘Networked Products & Services’,‘Consumer Products & Services’ Results for this division since 2000 = ¥252.9B loss (around $3.1B)

THE OLD WORLDNASDAQ +25.78%NTDOY -71.28%

THE OLD WORLDUS Annual sales (hardware and software) 1997-2011 (NPD, billions USD)

THE OLD WORLDUK Annual sales (hardware and software, billions GBP)

THE OLD WORLD

THE OLD WORLD IS LARGE BUT SHRINKING FAST• In summary; • Investors are not showing conﬁdence in the future of large traditional publishers • Sony, Microsoft showing losses for console divisions over the last 10 years • Nintendo in ‘disarray’ • Retail sales dropping year on year since 2009 • Major European retailer Game in serious trouble • Casual & kids games on console and handhelds hit by an unseen force

THE DEATH OF DEDICATED ELECTRONICS HARDWARE Down 17% Down 42.5% Down 32.6% Down 20.5% Down 20.8%

THE STATE OF THE INDUSTRY The New World

THE NEW WORLDTop 5 dedicated gaming companies by market cap, August 2008 (millions USD) 123 33 30 26 43

THE NEW WORLDTop 5 dedicated gaming companies by market cap, March 2012 (millions USD) 123 33 5 8 18

THE NEW WORLD Audience sizes for games25 million sales 500 million downloads

THE NEW WORLD ‘100’20 19 Market caps of platform companies (billions USD) 267 495 198

THE NEW WORLD Combined market caps of platform companies (billions USD) 793306

THE NEW WORLDGrowth rates of platforms (assumes 70% of iOS are gamers, 50% of FB are gamers, excludes iPod touch sales)

THE NEW WORLD The Japanese revolution

THE NEW WORLD IS GROWING VERY FAST• In summary; • Now 3 out of 5 of the world’s largest gaming companies distribute digitally, are freemium focussed • The audience sizes for a hit game has increased 20x on new platforms like FB, iOS and Android • New Mobile/Social platforms are driven by huge companies • In Japan freemium social mobile has already overtaken the traditional business

THE LAST BIG CHANGE When The Arcades Died, What Came Next?

THE LAST BIG CHANGEPer Capita Spending on Video Games in the United States by Revenue Model (2010 dollars) Copyright © 2012 SuperData Research The 1980’s Traditional Retail revenue hovers between 3% and 35% of Arcade

THE LAST BIG CHANGEPer Capita Spending on Video Games in the United States by Revenue Model (2010 dollars) Copyright © 2012 SuperData Research The 1990’s Traditional Retail revenue grows steadily from 38% to 166% of Arcade

THE LAST BIG CHANGEPer Capita Spending on Video Games in the United States by Revenue Model (2010 dollars) Copyright © 2012 SuperData Research The 2000’s Traditional Retail revenue grows sharply, ending up 17x the size of (declining) Arcade

THE LAST BIG CHANGEPer Capita Spending on Video Games in the United States by Revenue Model (2010 dollars) Copyright © 2012 SuperData Research What happened here? The Tipping Point What killed the arcade?

THE LAST BIG CHANGE The 1980’s •Arcades dominated home experience •Better graphics •Bigger screens •Better controllers

THE LAST BIG CHANGE The 1990’s • Arcades start much more powerful than home consoles • Mid 90’s consoles and PC start competing with textured 3D arcade games • Sony’s entry into the business - a company 3.7x bigger than Nintendo • 1998 Dreamcast launched, same as Naomi system board, less memory

THE LAST BIG CHANGE The 2000’s • Home consoles now in parity or above arcades in power • Arcade still have better controllers, bigger screens • Microsoft’s entry into the business - a company 6x Sony, 12.7x Nintendo • Dead arcades - novelty controllers/cabinets, 2D ﬁghters

THE TIPPING POINT• Two big things happened;1.Bigger companies entered the games business • More marketing clout, grow the overall business2.Chips got cheap enough and lower power enough • Creating an ‘arcade experience’ in the home, that pulled in the arcade gamers• Home consoles had always been cheaper and more convenient, but these advantages now really mattered• Worth noting arcades still often had bigger screens & always better controllers

THE NEXT BIG CHANGE ? When The Consoles Die, What Comes Next?

THE NEXT BIG CHANGE When The Consoles Die, What Comes Next?

THE DEATH OF DEDICATED ELECTRONICS HARDWARE Down 17% Down 42.5% Down 32.6% Down 20.5% Down 20.8%

DISRUPTIVE TECHNOLOGY

• ’Sustaining Technologies’ dominate• Disruptive tech enters the market• Incumbents don’t take it seriously• It rapidly increases in performance• Disruptive tech replaces all usages

• ’Sustaining Technologies’ dominateLarge scale businesses computing • Disruptive tech enters the Scientiﬁc market computing Personal • Incumbents don’t take it Computer seriously Small business computing • It rapidly increases in performanceHobby computing • Disruptive tech replaces all usages

• ’Sustaining Technologies’ dominate AAAConsole Games • Disruptive tech enters the marketHandheld Games iOS/Android • Incumbents don’t take it devices seriously • It rapidly increases in Kids Games performance Casual Phone Games • Disruptive tech replaces all usages

We are here • ’Sustaining Technologies’ dominate AAAConsole Games • Disruptive tech enters the marketHandheld Games iOS/Android • Incumbents don’t take it devices seriously • It rapidly increases in Kids Games performance Casual Phone Games • Disruptive tech replaces all usages

DISRUPTIVE TECH MOVES FASTER My Little Tank (2005)

DISRUPTIVE TECH MOVES FASTERGran Turismo 4 (Polyphony Digital 2005) God of War (Sony Santa Monica 2005)

DISRUPTIVE TECH MOVES FASTER Inﬁnity Blade Dungeons (Epic 2012)

DISRUPTIVE TECH MOVES FASTER Modern Warfare 3 (Activision 2011)

WHAT’S HAPPENING RIGHT NOW?• Two big things are happening;1.Bigger companies have entered the games business • More marketing clout grows the overall business2.Chips are getting cheap enough and lower power enough • Creating a ‘console experience’ on the move, pulling in the console gamers• Mobile games have always been cheaper and more convenient, but these advantages now really matter• Worth noting that consoles will still often had bigger screens & always better controllers

WHAT A STRANGE, MARGINALIZED OPINION!

JOHN CARMACK “platform wise, you could certainly imagine a future where, instead of having your console, you have your mobile device”

PHIL HARRISON “If they carry on unrestrained in their growth, then there’s a pretty good chance that Apple will be the games industry”

MIKE CAPPS

HIDEO KOJIMA “Gamers should be able to take the experience with them in their living rooms, on the go, when they travel -- wherever they are and whenever they want to play. It should be the same software and the same experience,”

GABE NEWELL “I suspect Apple will launch a living room product that redeﬁnes peoples expectations really strongly and the notion of a separate console platform will disappear”

KOTAKU ‘Tim Cook holds the future of gaming in his hands.’

CONSOLES WONT DIE - CINEMA WASNT KILLED BY TV!

CONSOLES WONT DIE - CINEMA WASNT KILLED BY TV!% of the US population who visited the cinema on a weekly basis (Michelle Pautz, Elon University, 2002)

CONSOLES WONT DIE - CINEMA WASNT KILLED BY TV!Total UK cinema attendance (British Film Institute, Cinema Advertising Association & Rentrack EDI)

CONSOLES WONT DIE - CINEMA WASNT KILLED BY TV! UK box ofﬁce cinema revenue as a % of GDP (Bakker 2008 and ONS)

CINEMA WAS CRUSHED BY TV• The ‘platform holder’ (cinema) didn’t do ok - thousands of cinemas closed down• The ‘content people’ (movie studios/distributors) did ok • Made movies available on the lower-res ‘free to watch’ TV and ‘for hire’ VHS platforms• Games content developers need to do the same - move content to new low-res platforms - or we will suffer the same fate as the cinema

FOX THEATRESAN FRANCISCO

TWITTER: @BENJAMINCOUSINS