Everyone knows video games is a growth industry. What is less well known is how Web 2.0 and big business are contributing to that growth.
Like happening upon a gnome in the online fantasy game World of Warcraft or breaking the speed limit in Grand Theft Auto, PricewaterhouseCoopers June analysis of the growth of the global video game industry is hardly surprising. In its annual report "Global Entertainment and Media Outlook: 2007-2011", the financial firm predicts the video game market will continue to expand at a compound annual rate of 9.1 percent over the next five years. Other reports, such as the NPD Group's annual report on the U.S. games industry, show similar growth.
"It's not something that has snuck up on us," says Stefanie Kane, a partner with PwC's Entertainment & Media Practice. "Video games continue to be one of the fastest-driving segments of the market, no matter what region you look at." The surprise, more likely, will be that the video game industry grows even faster than these analysts predict, flexing its muscle across the entertainment industry and beyond.
Casual gamers will drive growthPwC estimates that the global video game market will increase from US$31.6 billion in 2006 to US$48.9 billion in 2011, growing in every region. The report includes video game sales and, in the United States, 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 at 9.3 percent and Internet advertising and access spending at 13.4 percent, according to the report.
But while the PwC analysis is thorough and offers a solid assessment of how the mainstream games industry will grow, it does not look at the innovations happening on the fringes of the industry--innovations likely to mature into whole new markets or to cross over into non-games 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 is the stimulation of the non-hard-core audience that will drive meaningful industry growth." It is 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."
Games with a serious purposeLook to the fringe, and you will see two promising areas for growth that are not acknowledged by the report: the broad category of so-called serious games and the newer attempts to meld games with the social-networking features of Web 2.0. To be fair, PwC does note the popularity of World of Warcraft, the massive multiplayer online game (MMOG) with 8 million players worldwide, and it acknowledges the growth in online games, the fastest-growing consumer-spending segment in the United States and Europe/Middle East/Africa regions. Notably, both nascent markets reflect a shift from thinking about games as products to understanding them as services.
Serious games are used for nonentertainment purposes including education, corporate and military training, and health care. The category includes games developed for professional use, such as Full Spectrum Warrior--a military training game later released commercially--, Re-Mission, and Peacemaker, as well as recreational games adapted for serious purposes, as when teachers use Take 2 Interactive Software's Civilization in the classroom, or consumers use Konami's Dance Dance Revolution as a form of exercise.
There are no hard numbers on the size of the serious games market, but Digitalmill's Sawyer offers what he says is a conservative estimate of US$150 million, excluding traditional "edugames" developed for primary or secondary school education such as Carmen Sandiego and Math Blaster. "My Fortune 500 clients are collectively spending almost US$4 million on serious games. Then there are sales of games like Brain Age--eight million SKUs at $20 each--and Dance Dance Revolution, which we estimate 1 in 20 consumers is buying for exercise," Sawyer explains. "I think there's no reason it can't be a billion-dollar market within a decade or sooner."
The new B-to-B modelTo reach the billion-dollar mark, the market will have to overcome the common wisdom that games are inherently not serious. A serious games market will also require game developers to shift from the traditional business-to-consumer model to a business-to-business one. Today when major studios and publishers are approached by companies interested in commissioning, say, an employee-training game based on a successful commercial title, more often than not those studios and publishers decline. Even if the interested company is offering US$5 million, it is not worth the gamemakers' time to divert engineers from a commercial title likely to generate hundreds of millions of dollars in sales.
But new business models are developing. Some new companies are focused entirely on serious games, and others are developing hybrid models. In June, 2005, the successful British developer Blitz Games established TruSim, a division focused on creating serious games for the military, health-care, corporate, and education markets. Also last year, Japanese company Square Enix partnered with the publisher Gakken to create a serious games unit called SG Labs. In addition to its two dozen consumer titles, the Seattle-based Zombie Studios has developed training simulators for defense contractors and the Defense Dept. BreakAway Games, in Hunt Valley, Md., has also established a successful hybrid model, as has the Raleigh, (N.C.)-based Epic Games, whose Unreal Engine technology has been used both for professional training projects and for consumer titles.
And as more businesses such as IBM, Cisco , Johnson & Johnson, and Alcoa look to games technologies to train their staffs and connect far-flung employees, more traditional studios and publishers seem to be waking up to the opportunity. In April, 2007, XOS Technologies announced that it had licensed the core technology behind Electronic Arts' popular Madden game franchise for use in a series of training tools for collegiate and professional football teams. "Soon every major studio will have a serious games person," predicts Sawyer. "So that when, say, (agricultural giant) Archer Daniels Midland's training director calls to ask about developing a sales game there won't be a long pause at the other end of the phone."
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