2020 INSIGHTS on External Development for the Video Game Industry advancing external development for the games industry WHAT’S INSIDE What’s Inside External development refers to the practice of video game Developers / Publishers 0404 QUICK STATS (buyers) leveraging Service Providers (sellers) in any aspect of development including but not limited to art, animation, cinematics, audio, server-side/front-end engineering, 0505 WHO PARTICIPATED IN THE SURVEY porting, game development, UX-UI, motion capture QA, localization, and VFX. This report is intended to provide insights in to the changing trends in external 08 EXTERNAL DEVELOPMENT INDUSTRY OBSERVATIONS development that have occurred in recent years as it becomes an increasingly integral 08 part of game development. 1414 OVERVIEW ON THE BUSINESS RELATIONSHIP The statistics in this report were derived from nearly 200 submissions from industry 20 professionals of Service Providers and leading game Developers / Publishers 20 PIPELINE AND INFRASTRUCTURE worldwide. Data was anonymously contributed to provide insights on engagements. 21 21 TOP TOOLS The research and data gathered to establish this report was collected by the organizers of the External Development Summit (XDS), with contributions from the XDS Advisory 22 22 PROJECT DISCIPLINES AND PLATFORMS Committee. Permission must be requested if you would like to use this information in public articles or presentations. 24 24 THE FUTURE OF EXTERNAL DEVELOPMENT 27 27 XDS 2019 SERVICE PROVIDER INDEX 30 30 APPENDIX Special Report: Impact of COVID-19 on External Development Due to the ongoing health crisis at the time of writing this Industry Report, we also focused attention on creating VIEW THE an article on the impact COVID-19 has had on external ARTICLE development in Q1 of 2020, based on survey results HERE from over 300 industry professionals. 2 XDS WHAT’S INSIDE Who We Are External Development Summit (XDS) is the only annual, international games industry event held in Canada, with a primary focus on external development for Art, Animation, Audio, Engineering, QA and Localization. Each year, a broad community of game developers / publishers, Service Providers, and middleware providers meet in Vancouver to contribute to the advancement of the video game industry through collaboration, sharing of best practices, networking and the delivery of a high-caliber, educational program. XDS 2020 will take place on September 9-11, 2020 in Vancouver, Canada. 2020 GUEST AUTHOR 2020 CO-AUTHOR Laurent Lugbull Chris Wren Category Manager — Outsourcing Head of XDI Events, EA and External Development, Ubisoft Chair, XDS Advisory Committee The data in this report was collected between the dates of December 10, 2019 and January 31, 2020. *Please note that some data tables throughout this report may not add to a total % of 100 due to rounding. 3 XDS QUICK STATS Top 3 most important 90% factors when selecting of Developers / Publishers externalize some or all of their 3D art (vehicles, props, a Service Provider weapons, characters), while UI/UX and VFX decrease respectively to 57% and 50% 1 Quality of Assets (same Y-o-Y) 97% of Developers / Publishers 2 Rates Track Record foresee a growth in demand for external development (5% increase YoY) 3 Team Skill Sets (moved up from 2nd place) #1 Reason Companies Engage Service Providers: for flexible skill-set ramp-up / ramp-down Quality of Work continues to be the most important factor year over year as it was selected by 90% of all respondents (18% (to build more content and features increase YoY). Rates and Track Record tied for 2nd place. Team Skill Sets moved from 2nd to 3rd place year over year. Language/ was a close 2nd) communication skills moved from 3rd to 5th place. 4 4 XDS XDS WHO PARTICIPATED – SERVICE PROVIDERS OVERVIEW Percentage of Service Providers Offering the Following Services 74% of Service Providers surveyed propose Art services while only 15% are proposing Audio or Localization. This is linked to the historical positioning of XDS that began with a main focus on art outsourcing and co-development, however does not necessarily reflect the broader market. 2019 2020 An evolving community or a Art 65% 74% changing Service Provider landscape? Animation 44% 57% of Service Providers who responded to Game Development – Console 12% 36% 59% this year’s survey did so for the FIRST TIME! Game Development – Mobile 20% 39% Game Development – PC/Online 16% 39% Game Development – VR/AR 14% 35% Cinematics/VFX 27% 34% 52% 45% of Service Providers of these Service Providers QA 10% 22% surveyed have LESS have been in business for THAN 50 EMPLOYEES MORE THAN 10 YEARS UI/UX 27% 21% with only 6% having more than 500 EMPLOYEES Engineering (server side, front end, web development, etc.) 14% 20% Localization 12% 15% EMPLOYEES TIME IN BUSINESS Audio 13% 15% Other (MoCap, Marketing assets, Music, Player support, etc.) 13% 14% *Notice a difference to last year’s results? We changed the way we represent Service Providers offering by displaying the percentage (%) of respondents who offer each line of service. 5 XDS WHO PARTICIPATED – SERVICE PROVIDERS OVERVIEW Client Make-up 54% In this year’s survey we analyzed the client make-up against the size of Service Providers for a more accurate representation of the overall market. This explains the increase for Multinational Games Developers/Publishers as compared to the previous year. 38% In this case, 54% of the overall workforce represented by all Service Providers surveyed are engaged with Multinational Games Developers/Publishers. 21% 2019 2020 14% 13% 12% 10% 6% 3% 3% 4% 4% 4% 4% 0% 0% 2% 1% 2% 2% MOBA Online Casino / TV / Media Motion Picture Online Social MMO Game- Enterprise Mobile game- Small Multinational Developer Gambling Company Company Game-Focused Focused Clients focused Independent Games Developer Developer Develope Developer Console / Publisher Game Developer RESPONSE REGION SPLIT LOCATIONS 17% 27% Asia of Service Providers that participated · 49% have only ONE LOCATION · North America 7% South America operate out of more than · 13% FIVE LOCATIONS 49% · Europe 6 XDS WHO PARTICIPATED – DEVELOPERS / PUBLISHERS OVERVIEW Developers / Publishers Platform Focus A renewed community? Console and browser/PC games are the main platform focus for Developers/Publishers, with mobile games following closely behind. VR/AR games still drive some attention. Streaming/ or nearly 1 in every 2 Developers / Publishers Cloud games are new to the scene but represents only a small part of the landscape due to its 48% responded to this survey for the first time burgeoning existence, however we can expect to see significant growth in this category next year. Facebook games continue to represent a very small focus. of survey respondents have a central team 71% that helps manage external development with an average of 4 members 2019 2020 Console games 67% 70% Browser/PC games 40% 67% Mobile games 29% 56% 5 38% is the most frequent Developers / Publishers Multi-Platform 36% — number of Service reported an annual spend Providers a developer of $6M or greater for VR/AR games 17% 15% works with annually external development Streaming/Cloud games — 7% Facebook games 2% 2% Social Casino games 2% — Other — 3% * Notice a difference to last year’s results? We changed the way we represent Developers / Publishers platform focus by displaying the percentage (%) of respondents who support each platform. Also note the option for Multi-platform was removed in the 2020 survey to allow specific platforms to be targeted. 7 XDS EXTERNAL DEVELOPMENT INDUSTRY OBSERVATIONS Diversity can be classed as the range of human and organizational similarities and differences. Inclusion can be classed as the process of using those differences and similarities to achieve Diversity a common goal. By leveraging D&I in the workplace it can open up talent pools, increase retention, foster innovation and make for a more desirable place of work. & Inclusion We all have a major role to play to further D&I for our industry! At XDS 2019, we partnered with Google to create awareness for “Be more informed “Be thoughtful D&I by collecting pledges for how about different cultures An additional 20% of of others in every “Help other women attendees will advocate for a that people come Service Providers plan to interaction and acquire confidence in from so that I can diverse and inclusive culture within encourage everyone themselves and their communicate better. implement D&I objectives their teams and partnerships. to bring their whole approach to work I am a direct person and 3% decrease YoY selves.” and life.” sometimes that is not Thank you to Nikki Roth, Sr the best approach.” Technical Artist at Google for 52% of Service Providers Driving The Pledge Wall Effort! have diversity and inclusion objectives within the workplace 8% decrease YoY “ Do my best to mentor “ I will work on without bias. everyone asking more clarifying of Game Developers/ deserves a chance” 70% questions instead of Publishers consider it assuming another important that Service person’s intentions.” Providers have D&I objectives in their workplace first time stat collected 8 XDS EXTERNAL DEVELOPMENT INDUSTRY OBSERVATIONS Mergers and Acquisitions 21% of Service Providers reported that they were actively looking for acquisition targets, which is 13% higher than the prior year. This sharp increase reflects the need to follow the trend established by big players, and the risk of remaining too small to survive - especially in 12% 44% Art where the market is most diluted. of respondents have acquired of respondents are open to Interestingly the percentage of respondents who claim they were approached for M&A Service Providers in the being acquired, which is declined slightly but remains high with 42% (16% decrease YoY). This likely means a smaller past 12 months, which is DOWN 11% YoY subset of Service Providers are aggressively looking for M&A targets and represent the UP 7% YoY (27% could not disclose) majority of the conversations taking place.