Mobile Games in Europe Innovation in European Digital Economy

Mobile games in Europe Innovation in the European Digital Economy Mobile games in Europe Innovation in European Digital Economy September 2015 © 2015 Deloitte LLP 1 Mobile games in Europe Innovation in the European Digital Economy Important Notice from Deloitte This final report (the “Final Report”) has been prepared by Deloitte LLP (“Deloitte”) for Interactive Software Federation of Europe (“ISFE”) in accordance with the contract with them dated 12/05/2015 (“the Contract”) and on the basis of the scope and limitations set out below. The Final Report has been prepared solely for the purposes of analysing the mobile games segment in the EU, as set out in the Contract. It should not be used for any other purposes or in any other context, and Deloitte accepts no responsibility for its use in either regard. The Final Report is provided exclusively for ISFE’s use under the terms of the Contract. No party other than ISFE is entitled to rely on the Final Report for any purpose whatsoever and Deloitte accepts no responsibility or liability or duty of care to any party other than ISFE in respect of the Final Report and any of its contents. As set out in the Contract, the scope of our work has been limited by the time, information and explanations made available to us. The information contained in the Final Report has been obtained from ISFE and third party sources that are clearly referenced in the appropriate sections of the Final Report. Deloitte has neither sought to corroborate this information nor to review its overall reasonableness. Further, any results from the analysis contained in the Final Report are reliant on the information available at the time of writing the Final Report and should not be relied upon in subsequent periods. 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To the fullest extent possible, both Deloitte and ISFE disclaim any liability arising out of the use (or non-use) of the Final Report and its contents, including any action or decision taken as a result of such use (or non-use). 1 © 2015 Deloitte LLP Mobile games in Europe Innovation in the European Digital Economy Contents Executive summary 3 1 Introduction 7 2 The app ecosystem 8 3 Mobile games: the freemium model 10 4 Freemium’s impacts on the European economy 13 5 Consumer attitudes towards mobile games 16 6 Appendix: Methodology 22 7 Endnotes 24 © 2015 Deloitte LLP 2 Mobile games in Europe Innovation in the European Digital Economy Executive summary As the EU looks to grow and unite its digital economy through the newly launched Digital Single Market strategy (DSM), the mobile games industry is the one area of the global tech industry where Europe is a global leader and has been driving digital innovation, not just across the continent, but worldwide. Every day, millions of people throughout the EU and the world turn on their devices to find enjoyment, challenge themselves, and play against their friends on mobile as well as traditional game platforms. While the mobile games industry is still young, its impact already extends beyond game development and spills over to companies and workers in other creative industries, benefitting the European digital economy. Furthermore, industry forecasts suggest mobile games will grow at an annual rate of more than 10% until at least 2017. European mobile app developers capture a large portion of worldwide revenues from mobile games. Several of these companies grew from SMEs to organisations with hundreds of employees in the span of less than a decade. Popular games such as Candy Crush Saga (King), Clash of Clans (Supercell), and many others have been created by European companies and have now become international household names. More than 90% of the revenues from mobile games come from titles that employ a revenue model known commonly as “freemium”: this approach lets people download and play apps for free and gives them the choice to pay for extra features through optional in-app purchases. The freemium model is relatively new. While consumers have already embraced it, more work can be done for its commercial and operational aspects to be better understood by policymakers. The Interactive Software Federation of Europe (ISFE), the industry body representing video game companies in the EU, commissioned Deloitte to investigate mobile games and the freemium model. Among other topics, this study investigates the impact of the freemium model on: • The choice and affordability of games that it provides for consumers; • The competitiveness and growth opportunities it facilitates for developers; • The innovation and entrepreneurship brought to the technology, creative, and related industries, and by extension in the whole EU economy. The study combines desk-based research with the findings from a new consumer survey commissioned by ISFE from Ipsos that polled 4,000 people between the ages of 18 and 64 in Germany, France, Spain, and the UK in May 2015. Six interviews with large and small EU-based mobile game companies informed the developer-focussed topics of the report. Revenue models for mobile games • Free game: a game that requires no upfront payment for download and that does not contain in-app purchases • Freemium game: a game that requires no upfront payment for download, is free to play and does contain optional in-app purchases. Sometimes also referred to as “Free-to-play / download” • Paid game: a game that requires an upfront payment for download and does not contain in-app purchases • Paidmium game: a game that requires an upfront payment for download and does contain optional in-app purchases 3 © 2015 Deloitte LLP Mobile games in Europe Innovation in the European Digital Economy The freemium model is benefitting European consumers They benefit from an extended choice of games, and download more free and freemium mobile games than paid games Based on the responses to the survey, it is estimated that 21m people downloaded a free or freemium game in the four markets in the three months leading up to May 2015. In contrast, 3m (or seven times less) people downloaded a paid game. They are also three times more likely to download a free or freemium mobile game in the future than a paid game. Figure 1: Share of mobile gamers who downloaded Figure 2: Number of free/freemium games a game in the past 3 months, N = 3,728 downloaded in the past 3 months, Ipsos/ISFE Freemium survey 60% “21m people 54% 45% 42% downloaded a 50% 40% 36% 35% free or freemium 40% game in the 30% 25% UK, Germany, 30% 20% France, and 20% 15% 13% Spain in three 8% 10% 10% 4% months” 5% 3% 2% 1% < 0.5% 0% 0% Downloaded free/freemium Downloaded paid/paidmium 1 2 to 3 4 to 5 6 to 9 10 to 19 20 to 49 50 or Don't more know The respondents who played free or freemium games on average acquired three titles during the targeted period. The highest proportion of them, 42%, downloaded two to three mobile games and nearly a fifth of them downloaded more than four. In contrast, a 55% majority of mobile gamers who downloaded a paid or paidmium game acquired only one. The attention of consumers is not concentrated among a few titles but rather dispersed throughout a broader base of games. The survey results suggest that only half of mobile gamers had played any of the nine freemium games included in the survey that in May 2015 occupied the lists of top grossing and most popular games. The remaining half thus played games from the rest of the app stores’ offerings. Consumers would download and play fewer games if they had to pay upfront. The survey responses suggest a 72% decrease in downloads if games were priced at €/£1.99 and a 86% decrease if offered at €/£4.99, even when people considered the games they already play. The finding also implies that overall revenues in the industry would decrease, as the estimated download revenues would not offset the reduced revenues from in-app purchases. The majority of mobile game players do not make in-app purchases in their games Figure 3: Number of freemium games in which in-app purchases were made over the past 3 months, Ipsos/ISFE Freemium survey 90% “During the three 78% 80% months prior 70% to the survey, 78% of players 60% of freemium 50% games did not 40% make any in-app 30% purchases in any 20% 10% of the games they 7% played” 10% 2% 1% 0% None 1 2 to 3 4 to 5 More than 5 © 2015 Deloitte LLP 4 Mobile games in Europe Innovation in the European Digital Economy During the three months prior to the survey, 78% of players of freemium games did not make any in- app purchases in any of the games they played.

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