The whole world is playing
VIDEO GAMES: Key trends
March 22, 2004
Outlook for video games, 2003-2007
By Stefanie Kane
PricewaterhouseCoopers' "Entertainment and Media Outlook: 2003 -- 2007" provides five-year forecasts of consumer and end-user spending, as well as advertising spending and market analyses for the entertainment and media sector's 14 major market segments. PwC found that video game software is the industry's fastest-growing segment, with some of the strongest projected future growth. That growth is contingent upon a number of crucial influences and market drivers, some of which are in transition. In this part one of a two-part article, Stefanie Kane, PricewaterhouseCoopers Entertainment and Media Practice Partner and Outlook contributor, summarizes these findings and examines some key trends that are affecting video game software spending. This article is also based on additional reporting and research by Mary Shelton Rose, a Director in PricewaterhouseCoopers' Financial Advisory Services Practice.
PricewaterhouseCoopers' "Entertainment and Media Outlook: 2003 -- 2007" documents a thriving video game software industry. The industry's growth has been robust despite the economic downturn of 2001-2002, and economists are predicting continued strong growth.
Market observers note that behind the numbers is an industry that works hard for its money. The video games industry is highly competitive and hit-driven, requiring constant cash outlays for ongoing research and development. It is influenced by ever-changing consumer tastes, shifting demographics and less predictable technological advancements.
According to Outlook, sales of game titles to consumers reached an all-time high of $6.9 billion in 2002, a gain of eight percent over 2001. Advancing digital technology has continued to drive growth in the industry, enabling the development of ever more sophisticated platforms and software to feed the appetites of gamers who habitually crave the next big leap in speed and interactivity.
A flourishing global market
Outlook's forecast focuses on the video game software market, comprising spending on console games, PC games, online games, and wireless games. Spending on consoles or other hardware for playing video games is not measured.
PwC forecasts that global video game software spending will expand from $21.2 billion in 2002 to $35.8 billion in 2007, growing at a compound annual rate of 11%. Latin America and Canada, starting from a very low base, are projected to be the fastest-growing regions, burgeoning at a collective compound annual growth rate of 16.1%. Spending in Latin America is projected to increase from $148 million in 2002 to $312 million in 2007, and Canada is seen as reaching $1.2 billion in 2007 from $575 million in 2002.
Asia/Pacific, home to two of the major console manufacturers, was the world's largest video game software market in 2002, with spending of $8.4 billion. PwC predicts that further development of the market will push the region to $12.6 billion in spending by 2007, an 8.5% compound annual gain.
The U.S. market is projected to rise from $7.2 billion in 2002 to $12.3 billion by 2007 (nearly matching the Asia/Pacific region), with growth averaging 11.3% annually.
The prediction for Europe/Middle East/Asia is that it will progress from $4.9 billion in 2002 to $9.3 billion in 2007, a 13.8% average annual growth rate.
Key trends affecting the industry
Cyclical sales patterns apply
Growth in the video games industry is characterized by alternating revenue curves for hardware and software, forming a cyclical pattern. Platform makers get busy when software sales are sluggish. Hardware sales subsequently boom, driving the sale of new titles. While software sales peak, sales of maturing platforms tend to cool off until the cycle is repeated. Video game spending through 2004 will continue to be stimulated by console platforms that were introduced in 2000 and 2001, such as Sony's Playstation 2, Microsoft's Xbox, and Nintendo's GameCube. A slower rate of growth will be experienced in 2005-2006 while we await the next generation of consoles, expected to be introduced in 2006 -- 2007. These introductions will kick off a new cycle, which will reinvigorate the market, resulting in a projected 2007 growth rate in software sales exceeding 20% in each global region.The sales demographic is widening
The video games industry now caters to a broadening demographic, which partly accounts for its strong performance during the past five-year period. Outlook reports that sixty percent of all Americans older than six now play video games, and the average age of an interactive-game player is 28, with console games skewing younger than PC games. With a more mature and diverse audience, game makers have an opportunity to provide content that reflects greater sophistication and wider interests. In fact, the industry's customer base, long the bastion of young boys, now comprises both men and woman. Game producers are cultivating an avid, mass audience
Video games, like films, have succeeded in attracting a mass audience of avid consumers. Video game makers are selling the artistry of a unique medium, and many video game executives believe that its evolution will transform the industry into one that rivals the film industry in creativity, scale, audience responsiveness and revenues. In 2001, box office receipts from films totaled $8.4 billion, while video game sales hit $6.5 billion. That gap will likely narrow, since video game sales are growing faster than box office receipts. Many video game enthusiasts say that they get a uniquely satisfying experience from the virtual reality aspect of the games--the interactive engagement of a player's imagination, thought and physical activity. The variety and scope of available titles further illuminates the medium's promise. Moreover, the medium is young, and the industry's potential to provide products that entertain and educate is wide open.
Stefanie Kane is a partner in PricewaterhouseCoopers' Entertainment & Media Practice in New York City. She advises entertainment and media clients worldwide on strategies to succeed in the rapidly changing environment surrounding these industries. Stefanie has served numerous Fortune 500 clients and multinational companies and has extensive experience consulting on mergers and acquisitions as well as post-merger integrations. Her clients have included Disney, Sony and Viacom, among others.
By Stefanie Kane
PricewaterhouseCoopers' "Entertainment and Media Outlook: 2003 -- 2007" provides five-year forecasts of consumer and end-user spending, as well as advertising spending and market analyses for the entertainment and media sector's 14 major market segments. PwC found that video game software is the industry's fastest-growing segment, with some of the strongest projected future growth. That growth is contingent upon a number of crucial influences and market drivers, some of which are in transition. In this part one of a two-part article, Stefanie Kane, PricewaterhouseCoopers Entertainment and Media Practice Partner and Outlook contributor, summarizes these findings and examines some key trends that are affecting video game software spending. This article is also based on additional reporting and research by Mary Shelton Rose, a Director in PricewaterhouseCoopers' Financial Advisory Services Practice.
PricewaterhouseCoopers' "Entertainment and Media Outlook: 2003 -- 2007" documents a thriving video game software industry. The industry's growth has been robust despite the economic downturn of 2001-2002, and economists are predicting continued strong growth.
Market observers note that behind the numbers is an industry that works hard for its money. The video games industry is highly competitive and hit-driven, requiring constant cash outlays for ongoing research and development. It is influenced by ever-changing consumer tastes, shifting demographics and less predictable technological advancements.
According to Outlook, sales of game titles to consumers reached an all-time high of $6.9 billion in 2002, a gain of eight percent over 2001. Advancing digital technology has continued to drive growth in the industry, enabling the development of ever more sophisticated platforms and software to feed the appetites of gamers who habitually crave the next big leap in speed and interactivity.
A flourishing global market
Outlook's forecast focuses on the video game software market, comprising spending on console games, PC games, online games, and wireless games. Spending on consoles or other hardware for playing video games is not measured.
PwC forecasts that global video game software spending will expand from $21.2 billion in 2002 to $35.8 billion in 2007, growing at a compound annual rate of 11%. Latin America and Canada, starting from a very low base, are projected to be the fastest-growing regions, burgeoning at a collective compound annual growth rate of 16.1%. Spending in Latin America is projected to increase from $148 million in 2002 to $312 million in 2007, and Canada is seen as reaching $1.2 billion in 2007 from $575 million in 2002.
Asia/Pacific, home to two of the major console manufacturers, was the world's largest video game software market in 2002, with spending of $8.4 billion. PwC predicts that further development of the market will push the region to $12.6 billion in spending by 2007, an 8.5% compound annual gain.
The U.S. market is projected to rise from $7.2 billion in 2002 to $12.3 billion by 2007 (nearly matching the Asia/Pacific region), with growth averaging 11.3% annually.
The prediction for Europe/Middle East/Asia is that it will progress from $4.9 billion in 2002 to $9.3 billion in 2007, a 13.8% average annual growth rate.
Key trends affecting the industry
Cyclical sales patterns apply
Growth in the video games industry is characterized by alternating revenue curves for hardware and software, forming a cyclical pattern. Platform makers get busy when software sales are sluggish. Hardware sales subsequently boom, driving the sale of new titles. While software sales peak, sales of maturing platforms tend to cool off until the cycle is repeated. Video game spending through 2004 will continue to be stimulated by console platforms that were introduced in 2000 and 2001, such as Sony's Playstation 2, Microsoft's Xbox, and Nintendo's GameCube. A slower rate of growth will be experienced in 2005-2006 while we await the next generation of consoles, expected to be introduced in 2006 -- 2007. These introductions will kick off a new cycle, which will reinvigorate the market, resulting in a projected 2007 growth rate in software sales exceeding 20% in each global region.The sales demographic is widening
The video games industry now caters to a broadening demographic, which partly accounts for its strong performance during the past five-year period. Outlook reports that sixty percent of all Americans older than six now play video games, and the average age of an interactive-game player is 28, with console games skewing younger than PC games. With a more mature and diverse audience, game makers have an opportunity to provide content that reflects greater sophistication and wider interests. In fact, the industry's customer base, long the bastion of young boys, now comprises both men and woman. Game producers are cultivating an avid, mass audience
Video games, like films, have succeeded in attracting a mass audience of avid consumers. Video game makers are selling the artistry of a unique medium, and many video game executives believe that its evolution will transform the industry into one that rivals the film industry in creativity, scale, audience responsiveness and revenues. In 2001, box office receipts from films totaled $8.4 billion, while video game sales hit $6.5 billion. That gap will likely narrow, since video game sales are growing faster than box office receipts. Many video game enthusiasts say that they get a uniquely satisfying experience from the virtual reality aspect of the games--the interactive engagement of a player's imagination, thought and physical activity. The variety and scope of available titles further illuminates the medium's promise. Moreover, the medium is young, and the industry's potential to provide products that entertain and educate is wide open.
Stefanie Kane is a partner in PricewaterhouseCoopers' Entertainment & Media Practice in New York City. She advises entertainment and media clients worldwide on strategies to succeed in the rapidly changing environment surrounding these industries. Stefanie has served numerous Fortune 500 clients and multinational companies and has extensive experience consulting on mergers and acquisitions as well as post-merger integrations. Her clients have included Disney, Sony and Viacom, among others.
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