BusinessWeek article about Gaming Industry growth
September 11th, 2007 Posted in Game Industry
Some parts of the article:
Casual Gamers Will Drive Growth
PwC estimates that the global video game market will increase from $31.6 billion in 2006 to $48.9 billion in 2011, growing in every region. (The report includes video game sales and, in the U.S., advertising within games, but not hardware sales.) This makes video games the third fastest-growing segment of the entertainment and media market after TV distribution (9.3%) and Internet advertising and access spending (13.4%). (For highlights of the report, click here.)
But while the PwC analysis is thorough and offers a solid assessment of how the mainstream gaming industry will grow, it doesn’t look at the innovations happening on the fringes of the industry—innovations likely to mature into whole new markets or to cross over into nongaming industries and create entirely new revenue streams. “The real growth in video games will come from the casual and nontraditional game market,” says Evan Wilson, an analyst with Pacific Crest Securities.
“Traditional games have become too complex for all but the most hard-core players in the industry, and it’s the stimulation of the non-hard-core audience that will drive meaningful industry growth.” It’s this growth that suggests the video game market of 2011 will be even bigger than the PwC report predicts. Or, as Ben Sawyer, president of the Portland (Me.)-based consulting firm Digitalmill and co-director of the Serious Games Initiative, puts it: “the report itself is sort of conventional for those of us working on the outermost edges of the industry.”
Gaming 2.0
In addition to serious games, a second niche has been attracting attention: projects at the intersection of gaming and social-networking technologies. “At conferences, Web 2.0 and games have been the meme all year,” says Sawyer.
One of the most high-profile efforts in this area is the L.A.-based Areae, founded by industry veteran Raph Koster (former chief creative officer at Sony Online Entertainment (SNE)) in December, 2006. Still in stealth mode, the company is talking very broadly about its plan to reinvent virtual worlds. But the basic idea is to bring down the astronomical development costs of the popular MMOGs by borrowing from the equally popular and vastly more economical Web 2.0 technologies supporting sites such as MySpace and YouTube. (Game design stalwart David Perry is also working to bring down game-development costs by using Web 2.0-style crowd-sourcing to develop an online multiplayer game, Top Secret (see BusinessWeek.com, 8/13/07, “Video Games Entertain and Educate”) .)
Areae’s proposition to combine the best elements of two of today’s hottest media genres has attracted funding from both Crescendo Venture Management and Charles River Ventures, and it isn’t the only player in this sector. The Boston-based Conduit also has raised venture backing for its plan to blend social networking with gaming. Kaneva and Cyworld, which originated in Korea and now boasts an American version, already offer 3D virtual worlds focused on social networking (see BusinessWeek.com, 4/13/07, “Digital Suburbia”). And while it’s too early to estimate the size of this market, Disney’s (DIS) recent purchase of the casual MMOG Club Penguin for $350 million—with another $350 million on the table if the site’s operator, New Horizons Interactive, hits earnings targets—provides a useful data point.