The Pulse of Gaming: Gaming Disruption

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The Pulse of Gaming Gaming Disruption 2 The Pulse of Gaming

Game companies need capabilities that provide captivating content, intelligent game design, and rapid engineering to adapt to consumer insights. Gaming Disruption 3

Executive Summary

As the game industry In this competitive and rapidly changing continues to grow and market, game companies that want to win will create an operating model expand its target market that addresses demands for today, and to nearly every person provides strategic agility to prepare for the with access to an Internet capabilities needed for tomorrow. Starting from the top down, industry leaders must connection, the capabilities define their relationship with content needed to gain a competitive and nurture the appropriate relationships advantage are changing too. with developers. They must create rich, connected, and personalized experiences Game companies need to create that enable gamers to be captivated and compelling gaming experiences focused on immersed, and do so as part of a broader the things gamers want, in the distribution franchise development and monetization channels they consume, and ahead of what strategy that increases gamer lifetime competitors may bring. value. Furthermore, to maintain their relevance in this increasingly digitally Leisure time is crowded with competitors; driven industry they must determine game companies, Internet companies, the best channels to deliver content product companies, retailers and others will where gamers want it and support the continue to compete for gamers’ time and business with a strong set of foundational share of wallet. To compete, games must capabilities from engineering to pricing, be tailored to individual gamer preferences, and from promotion to customer support. be seamlessly connected with the gamer’s environment and technologies, and be In the battle for gamer mindshare, the old immersive enough to pull the gamer into the mode of operation is no longer sufficient. experience and away from other activities. If you can’t beat the disruptors, you need to be nimble enough to join them. As game companies continue to be pressured by increasing consumer demands, the proliferation of gaming-capable devices and lower barriers to entry for low-cost alternatives, the need to innovate and join the revolution of disruptors is more critical than ever. Major studios are faced with rising development budgets for established franchises and new business models are challenging the traditional outright product purchase. 4 The Pulse of Gaming

Four Trends Driving Industry Change

The worldwide video game 1. An Evolving Customer Base However, big players are taking notice industry is expected to grow of how low development costs and a Video game consumers are increasingly cult-like following can draw large loyal to nearly $87 billion by diverse and gaming behaviors are less communities. For example, Microsoft 2017, and with each year, homogenous than in the past. recently purchased Minecraft for digital customers and digital The number of people playing games $2.5 billion in an effort to capture is growing, with the US being one of the a larger audience for its smaller form distribution create more largest markets for the gaming industry. factor devices. diversity and complexity With mobile increasing the accessibility Beyond traditional screens and mobile 1 in the industry. of video games, the number and diversity devices, innovative form factors are of gamers continues to expand. providing new options for creating This growth is driven by a surge in the In this digital world, greater availability immersive experiences. Devices that number of users equipped with powerful of low-cost “good enough” alternatives enable virtual and augmented reality new devices capable of gaming and a rise is driving consumer expectations for more gaming experiences, like Oculus Rift, in the amount of time gamers are playing. value from games. Moreover, the digital are nearing broad commercial release, As the industry grows in an increasingly age has empowered customers, allowing leaving the door wide open for new digital world, four major shifts are driving them to be more vocal than ever before, game content specifically for these devices. tremendous industry disruption: and their peers are listening—with social Initiatives like Google’s Project Tango are media having an increased influence in encouraging virtual-like experiences by purchasing decisions. These shifts present enhancing the real world surrounding the many opportunities, but also challenges, gamer. Just as mobile helped consumers for gaming companies. Delivering to the find new ways to squeeze in gaming, new right screens with the right content will form factors and immersive experiences ultimately lead to success. bring new opportunities to games, increase share of overall leisure time, and steal 2. Evolving Definition share from time spent on the console. of Games Additionally, as film and television companies make their content more Lower barriers to entry drive growth interactive as AMC has with The Walking in successful content from indie game Dead and HBO has with Game of Thrones, development, while innovative technologies game companies can no longer look only enable immersive gaming experiences. at each other as the competition. Other Accenture’s 2014 Digital Consumer non-traditional gaming companies Survey found smartphone penetration at like Amazon are realizing the value in 72 percent of the global mobile subscriber original content and are further raising market and 35 percent of adults over 18 the competitive stakes. The idea of multi- owning tablets. Game companies must find channel story telling is just beginning; a way to create immersive experiences on pioneers like Disney and Amazon are all screens of consumption that can hold tying media assets across comics, movies, the attention of the more than 966 million games and a range of physical items. mobile gamers.2 Worldwide mobile gaming is growing rapidly—42 percent in 2013 alone—which brings an influx of independent developers with lower costs of development.3 Independent developers now see an opportunity to express their creativity to a more diverse audience, leveraging the ease of development and distribution on mobile. Gaming Disruption 5

Figure 1: US Gaming Market Statistics 31% of the gaming population are adult women. 19% of the gaming population are boys age 17 or younger. At 11% gaming is still a small slice of overall consumer media consumption. 165 billion hours Americans spent gaming in 2012 represents a 9% increase YoY. 28% of consumers strongly agree that comments posted on social media sites contribute to their buying decisions.

Source: Entertainment Software Association, USC Marshall School of Business Report, 2013. 6 The Pulse of Gaming

3. Digital Delivery 4. Proliferating Digital distribution is becoming the Business Models norm across technology platforms While mega brands continue to deliver and personalized gaming experiences. financial gains, new business models Digital delivery is disrupting the industry are shifting how revenue is devised. in known ways, such as physical distribution, as well as unconventional The spread of connected devices is truly ways, like ongoing customer engagement, changing the economics of gaming. For and development operations. PC games, the revenue mix is shifting from revenue earned through outright purchase The wide availability of high-speed to revenue amassed through in-game Internet has changed much of our daily goods over time. The NPD Group reported lives, and that includes how we play games. a nearly 34 percent growth in digital games Globally, the physical distribution of video and downloadable content, from 2012 games decreased at an annual rate of to 2013, and in 2012 less than half of US 13.1 percent from 2009 to 2012, while game revenue came from retail purchases.5 digital distribution grew at 12.6 percent annually over the same time period New delivery methods play a significant worldwide.4 Digital distribution is not role in challenging the traditional “single limited to phones; downloadable content price point” business model. Flexible is the new norm and will continue to models that provide numerous ways to evolve as endpoints (i.e. screens and digital pay for a game experience will allow game marketplaces) proliferate. With the rise companies to capture more consumer of digital distribution, consumers have value. Concepts like freemium, micro- come to expect a dynamic and responsive transactions, and advertising are shifting entertainment experience. Whether the industry to a high volume, low margin this means personalized interactions business, but one that can boost the top or immersive experiences, entertainment line because these smaller transactions is no longer a notion with a fixed ship allow companies to get closer to the and release date. individual consumer’s willingness to pay. The critical question is how to create an innovation and operating model that aligns to evolving revenue models? Gaming Disruption 7

Figure 2: PC Game Revenue Streams Worldwide (Millions USD 2011-2017E)

2011 $2 $4 $4 $1

2012 $2 $4 $6 $1

2013 $2 $4 $10 $2

2014 $2 $4 $12 $2

2015 $2 $3 $13 $3

2016 $2 $3 $15 $3

2017 $2 $3 $16 $4

$0 $5 $10 $15 $20 $25

PC Gaming Software Online Subscription In-Game Virtual Goods In-Game Ads

Source: Created by Accenture based on Gartner report, “Forecast: Video Game Ecosystem, Worldwide, 4Q13,” October 14, 2013, G00246826, Brian Blau et al. 8 The Pulse of Gaming

Winning Amidst Disruption: Forcing Change from Within

Together, the evolving and Re-Thinking Content Content Provider diversifying customer base, and Developer Relationships Content providers bring together content creators within a single distribution richer and more diverse Content is only as good as the talent that channel that work together to achieve content, the rise of digital develops it; game companies must define economies of scale, but maintain individual delivery and proliferating their relationships with developers as well control of branding and creative license. as the content itself. The IP is owned by the content creator, business models are driving and the content provider makes margin significant industry disruption, Relationships with Content on the consumer transaction. Distributors particularly for well established The traditional video game value can leverage their strong capabilities in gaming companies. chain has evolved into more of a value delivering content to the gamer, such web, with numerous connections and as vendor relationship management, digital marketplace management, Yet studios can benefit from disruption and pathways to get content to gamers. and customer service. create sustainable, profitable revenue growth Developers, publishers and distributors if they seize the opportunity. Adapting in are taking on different roles and Consumer Product Company an industry ripe with change requires an collaborating in new ways. Success Consumer product companies own the evolution in the way major studios currently within the gaming industry requires deep value chain from conception to distribution. think and operate. It requires re-thinking consideration of the core capabilities The focus of these companies is to maintain content and developer relationships, that the company wants to deliver, and complete ownership of the brand and its creating captivating gamer experiences, determining where those capabilities are extensions into new product categories. delivering content where gamers want it, needed in the new value web. and innovating both business model and Portfolio Management Company franchise intellectual property (IP). Companies like Activision are starting to look more like portfolio management companies, as they continue to regularly acquire new IP and manage a broad assortment of brands that target various gamer groups. This type of relationship requires deep capabilities in brand management, a significant amount of available cash, strengths in investment and risk management, and strict ownership of future creative decisions and branding. Gaming Disruption 9

Figure 3: The Evolution of the Video Game Value Chain

Traditional Video Game Value Chain

Developer Publisher Distributor

Portfolio Management Company New Capabilities Needed

Developer - Brand Management Publisher Distributor - Investment Management Developer - Risk Management Content Provider

Developer - Marketplace Management Publisher Distributor Developer - Customer Relationship Management

Consumer Product Company

Distributor - Brand Management Developer Publisher - Customer Analytics Distributor - Product Development

Roles in the value chain played by the company Roles in the value chain not played by the company

Relationships with Developers Hiring models where engineers are brought Case Study: Ubisoft Montreal As value chain ownership continues in at entry level and are expected to share to blur, game companies must also ownership of their code quality can bring Ubisoft has embraced the idea of re-evaluate their approach to building an influx of talented resources and improve “indie-sized projects” in a world relationships with developers to attract, overall development efficiency. dominated by triple-A titles, specifically retain and manage the best talent. With Reward Developers with Creative License in its Montreal office. The idea that an increasing number of studios, and Historically, gaming companies have developers and creative teams can take single developer enterprises enabled struggled to develop and retain their ownership of smaller projects without by mobile, finding and retaining the best talent for lack of a clear progression having to split off into a different indie best talent is more difficult than ever. toward innovation and independence. studio is unique. Strong talent can Studios need to make two major shifts be rewarded with “indie” work, and Retaining talent requires a new mindset with regard to talent: establish a long-term career path. that enables the best developers to define De-Stigmatize Quality Assurance (QA) their own career paths, work on new and “I think it’s a win–win if you can Discovering and attracting the right creative ideas, and separate themselves figure out a way to have the talent requires a shift in the culture that from successful, but antiquated, IP. more indie-style development stigmatizes QA as being the only entry- Talent that has more ownership over work within a bigger structure. level department for development. In their content, greater flexibility to innovate, the traditional hiring process, entry-level and independence from traditional success I think that’s an advantage we talent is initially acquired by the QA metrics will choose to stay engaged with have in Toronto too, because department, where employees must prove the company rather than find a studio there’s a really great indie scene themselves in QA before moving “up” to where they feel their skills are more valued. so it would be dumb of us not the role of developer. The QA-to-developer [to leverage that].”6 career progression can lead to in-fighting between groups and decreased efficiencies. Jade Raymond, Ubisoft Montreal 10 The Pulse of Gaming

Creating Captivating Gamer Emphasize the Art Exploit Technical Advancements Experiences: Media Rich, Media-rich game creation starts before Game companies can enrich the any code is written. Applying focus to story gaming experience and reach gamers Connected, Personalized development and artistic level design (and on new platforms, as advanced At the core, a game is any form of investing in talent with these skills) helps technologies are becoming affordable interactive entertainment with a set of incorporate creative direction into original for the average gamer. Game applications parameters that advance the user to a IP from inception. for non-gaming technologies are paving the way for innovation. desired goal. By this definition, the best Enhance the Tools games are experiences, and developing By constantly looking to the future and For example, with two way IP-based rich, connected, and personalized investing in new or enhanced development communications on connected TVs, could experiences enables gamers to be capabilities, game companies can bring the we see gaming embedded with linear TV captivated and immersed. art to life. Realism with facial expression content? Imagine watching a Formula rendering, sophisticated storytelling 1 race and being able to compete with Media-Rich Experiences branches, and advanced artificial intelligence the live action. Technology makes such Games face pressure as they must compete are all possible with the advancement of scenarios closer than we think. with all forms of digital entertainment development tools. For example: across multiple customer circumstances. • Using dozens of cameras that In order to increase share of leisure time, Case Study: simultaneously capture three- game companies need to steal share from Google’s Ingress Game dimensional videos enabled Rockstar other forms of digital entertainment, such Games to enhance facial expression Google is leveraging its extensive as television and film, and help to continue rendering that was essential to detecting location services capabilities to to expand the overall market with new when characters lie or tell the truth in launch an augmented reality mobile ways to play. the detective game, L.A. Noire. game called Ingress. The game uses Some game companies have already GPS settings on smartphones to • Empowering the player to make choices taken the first steps toward blurring create a massively multiplayer online that impact the storyline of the game the lines between television and games augmented reality game; allowing two is exactly how Telltale captivated its with dramatic content and rich storylines. factions to collide in a virtual world audience with its episodic zombie game, The Uncharted series, developed by Naughty that interacts with the gamer’s actual Walking Dead: The Game. This requires 7 Dog, seamlessly connects theatrical cut real-life surroundings. a careful balance between complex scenes with action, giving the gamer an story branching that is interesting to experience that aligns more similarly to the gamer, and not adding too many an interactive movie rather than a game. additional development requirements. So how can a game company bring rich • Irrational Games’ Bioshock Infinite, media into their game design? There are the third installment of the trilogy, three ways to apply focus to enriching pushed the boundaries of artificial content: emphasizing the art, enhancing intelligence by creating a “sidekick” the tools, and exploiting advancements that interacts with the player and her in the technology. environment, and reacts appropriately to game stimuli. This required increased developmental focus, and room-by- room builds of the artificial intelligence’s potential interactions. Gaming Disruption 11

Connected Ecosystem map while continuing to play on the Even if a particular experience is media console. Ubisoft recently released a free rich, the newer generation of gamers is mobile companion app that connects used to being bombarded at every angle. live with console/PC users in the form At any given moment, a gamer could be of a mini-game in its latest game, Watch managing in-game tasks using multiple Dogs. At any given moment, a console or screens or multi-tasking during load times, PC player can be “spotted” by the mobile leading to a distracted gaming experience player, and incite a police chase. The mobile that could easily be replaced. In order to player is able to play with the PC/console combat the noise and multi-tasking, games player in a way that is optimized for need to be able to transcend the individual their form factor. device and connect across an ecosystem of A connected experience is more than connected devices. A seamlessly connected porting a game to a new form factor— ecosystem has the ability to captivate users it is an understanding of how the gamer on every screen, blocking out competing uses that screen that enables a tailored leisure activities. experience. Being able to deliver a Some leading companies are already connected experience requires a strong waging the war against multi-tasking by understanding of consumer behavior tying up multiple screens with companion to inform the design of companion mobile apps and connecting players across experiences, as well as thoughtful form factors. Capcom’s Dead Rising 3 engineering and cloud hosting capabilities experience enables gamers to use their to enable cross–platform integration, secondary screen (a tablet or smartphone) all of which are relatively new to the to receive in-game communications from traditional studio. non-playable characters and utilize the 12 The Pulse of Gaming

Unique Personalized Experiences Personalized Content Game companies that are able to leverage Personalization can drive customer value Provides gamers with the ability to the wealth of gamer data to drive actionable as a differentiating characteristic of the individualize in-game content, such as outcomes will be able to increase their game, and using the data derived from customizing avatars, building and sharing probability of success. The challenge, personalization can help extract additional level components and creating in-game however, is an over-reliance on data, value. Game companies that can enhance items. This allows a game company to create while ignoring other core aspects of game their data analytics capabilities will be able new revenue streams for their existing IP. design. Leading edge game companies will to glean new insights to inform future Team Fortress 2, developed by Valve, enables strike a balance between the science of content and distribution decisions, and users to customize weapons or in-game data-driven decision making, and the drive additional revenues. items, and monetize their creations in the art of game development. Steam Community Market. Two challenges emerge when it comes to personalization: acquiring access to Personalized Experiences Cautionary Tale: meaningful and accurate gamer data, Bolsters the game’s ecosystem Data-Dependent Zynga and centralizing that data to be analyzed through companion apps, tailored device experiences and integration of social Zynga, for example, showed quick in different ways within the game property, success in its ability to mine user across game properties and across the networks. Gamers can customize the way in which they interact with the content, data and use its analytic capabilities organization. While methods of data to attract users to its games. Shortly collection and storage can vary widely unlocking bonuses and exclusives based on attaching to the ecosystem. after its IPO in 2011, the stock price based on the intended objectives and skyrocketed to $13.39, with Facebook potential impacts to game design, the most This approach allows a game company to dominate leisure time by leveraging revealing that 12 percent of its important component of personalization revenue came from Zynga. is getting buy-in from the gamer. the broader ecosystem and creating second screen experiences. Many industry insiders believe The right value proposition is needed Realizing the benefits from gamer data that Zynga’s downfall came from to get users to willingly provide data. an over-emphasis on hard metrics Customers are more willing to share requires not only the presence of data, but also the ability to centralize it, continuously and sacrificing the creativity in their information if they can see the their content. Zynga became data- value and potential benefits of doing so. update it, and drive insights at the user and segment level. Master data management dependent; its success was too closely According to the Accenture Digital and smart data design are core capabilities tied to the monetization of just Consumer Tech Survey 2014, 70 percent that enable game companies to turn 2 percent of users, regardless of the of surveyed consumers would share their data into insights, and use the insights to duration of the gamer lifecycle. As personal data in exchange for a reward achieve outcomes. When data is managed content became stale and new game if it was used only by their providers, and properly, it improves the analysis to drive releases were duplications of the same 65 percent would share if the provider business outcomes and also can improve model, daily active users continued to complies with data protection laws. It is customer experience. For example, when decline from 72 million at its peak in also worth noting that early adopters— in-game data is captured in the same place 2012 to just 29 million in June 2014, which many gamers can be considered—are as billing, account and user profile data, and the stock recently hit a 52 week much more confident in online security of it can be presented to a customer support low at just $2.27. In a free to play their personal data (64 percent) than late representative to improve a customer world, developing engaging content to 8 adopters (24 percent). interaction. When a gamer can see all his keep gamers interested over a longer period allows the organization to focus By collecting user-level data, game information in one place, it can increase on conversion rather than attrition to companies can facilitate hyper- self-service for simple customer support drive a longer tail of revenues.9 personalization, providing end users with tasks, and free up support teams to customized and individualized content handle more challenging tasks. or experiences. Deciding whether to personalize content, experiences, or both depends on the type of game and overall end goal of the personalization. Gaming Disruption 13

Figure 4: The Benefits From Hyper-Personalization

Capabilities Description Benefits Challenges

Break down entire user base - Inform future game design - Data ownership Gamer along various criteria such as: and development - Privacy Segmentation - User demographics - Refine features and content - Centralized access of - Gameplay patterns to tailor to segments gamer records and analysis

- Perceived price - Develop pricing strategies - Quickly adjust prices to discrimination Pricing and based on user segments maintain competitiveness - Requires pricing control Targeted Offers - Implement dynamic pricing and - Increase propensity to buy offers for specific user/segments based on offer/promotions - Recommendation engine costs and maintenance

- Achieve better insights into - Anticipate customer needs - Requires long lead time Next-Best Action the lifecycle of a customer to provide timely offers to achieve enough data Marketing - Understand progression to track trends of purchases for users - Improve recommendations

- Identify pre-cursor behaviors - Anticipate user churn to attrition of users before it occurs Churn Analytics - Time-to-insight can be lengthy - Track success of win-back - Improve success of strategies win-back strategies

The game developer enhances user experiences through personalization to incent users

Enhance user experience Figure 5: Personalization and Data Sharing Cycle via personalization

Game companies can reinforce this cycle by using customer data to further enhance user experiences Game Company End User

Provide customer data through participation

Delivering Content Where or to leverage already established channels of multiple business models to extend Gamers Want It: Digital with proven reach. Owning a direct-to- their revenues. To create sustainable consumer channel means having complete revenue and growth, companies must Distribution control over the data analytics, pricing, identify the pricing and monetization In the digital world, distribution involves promotions, marketing and management strategies that best fit each game and more than just how the game gets to the of customer relationships. However, in order branch out of existing franchises with customer. Distribution has become more to be successful, the purchasing process innovative new intellectual property. of a portfolio management function than needs to be frictionless and simple–which a single decision. Pricing control, level of requires strong capabilities in managing Demonstrate the Value customer interaction, and ownership of a cloud-based commerce platform and of Premium Content gamer-related data are important variables efficient customer relationship management Pricing and monetization across various in determining channel strategy. and support functions. business models varies significantly, with the traditional model requiring the most The first decision to make is determining A note on being exclusive: Even after upfront risk for the gamer and other how many channels to pursue, which is the where and how of distribution are models shifting the risk to the publisher largely constrained by budget availability. decided, a game company must determine or supplier. In all models, as avoiding Where will the company place its bets and the extent to which the game will be gamer downtime is an important factor in what sequence? How will marketing exclusive to specific platforms or channels. in mitigating publisher risk, the need dollars be invested? The inclination is to Platform exclusivity can drive console sales, for core cloud capabilities that enable decide to “be everywhere” to dominate and offering special editions or exclusive the gamer to access content anytime, gamer mindshare across platforms. This content packages can help promote anywhere and on any platform become decision comes with significant costs; specific channels. Just the act of exclusivity critical to the game’s success. preparing a game to be distributed on can be a marketing tool to pique additional multiple platforms and in different formats interest and increase awareness. increases development costs, requires When it comes to distribution, maintenance of relationships with various understanding the tradeoffs between channel partners, and tracking each channels and the combined benefits of channel’s success requires a large amount being on multiple channels is critical to of overhead. Digital distribution is not ensuring that the game is not just placed about doing it right once and replicating— where the customers want it, but that each digital channel has its own those channels are also playing to the success factors. company’s core capabilities and goals. Once the company decides in which channels it wants to invest, the next step Innovating Both Business is determining how it will manage the Model and Franchise IP gamer relationship. Should the company create its own direct-to-consumer The traditional game purchase channel? Does it want to work with an model is now just one of many online or console-based marketplace? It is options available to gamers looking critical to determine what capabilities are to make their next purchase decision. needed to support a direct-to-consumer Such a model requires a strong value relationship, and whether it is better to proposition for the purchase price and invest the effort to build a new channel many companies are leveraging aspects Gaming Disruption 15

If a game company decides to stick to the models to extend their revenues. However, when “Steam Sales” were traditional model, it is imperative to justify These forms of revenue can extend introduced–increased promotion and the higher price point with more than the life of existing games and extract temporary discounts in price–Valve’s just the cost to provide the experience. additional revenues from high value leading competitive first-person shooter, Game companies can demonstrate value gamers who are open to paying for Counter-Strike, had an increase in sales by with differentiated game mechanics additional content above the initial sticker a factor of 40, as compared to silent price or an increased number of gameplay price. For example, World of Warcraft modification. Upon further investigation, hours. Upping the replay factor with leverages subscriptions, micro-transactions, Valve noticed that sales increased both new gameplay modes (such as online and expansion packs to supplement the for the retail and digital channel, and multiplayer) and multi-branched storylines outright purchase of the game. the increase persisted after the sale.11 can help justify a premium sticker price. Experimentation with pricing models This example demonstrates that price If the experience is unique, highly valued and dynamic pricing changes allows and promotion decisions are inextricably by gamers, and “worth the price” it can game companies to better understand linked and, importantly, in an industry still be successful in the traditional model. the elasticity of their product, and adjust where customers are always online and Titanfall, which was released exclusively on quickly to changes in demand. Valve always “watching,” the transparency Xbox One, had more than 900,000 copies Corporation, a major content provider of a company’s price and promotion sold within a week of its release on March for PC games, even hired an economist strategy is critical. 11, 2014.10 The traditional model may not to research the elasticity of game pricing. be growing, but the model is still viable Through rigorous (and transparent) for the mega studios that can support it. price testing on its customer base, Valve At the same time, large studios that use determined that no matter the price, the traditional outright purchase model overall revenue appeared to remain flat. are adopting elements of other business

Figure 6: Game Industry Monetization Models

Distribution Physical Digital Subscription-based Free-to-play (F2P) method distribution distribution services + Micropayments

Upfront cost $20-$60 $0.99-$4.99 Varies Free not including depending on depending on not including of the game downloadable content marketplace platform game service micro-transactions

Marketplace crash/ Server crash/Downtime/ Primary challenge Insufficient stock Conversion Downtime Attrition

Responsible party Retailer/Supply chain Marketplace host Cloud service provider Cloud service provider

Inability to generate Deferred revenue/ Deferred revenue/ Refunds/credits to win Financial impact revenue–loss is Lost sales Lost sales back customers permanent

Publisher/Developer Gamer Developer Publisher/Developer Conversion rate of Owner of risk High upfront cost Revenue share with Attrition of customers customers from free without a trial marketplace over time to paid

Branch Out of Existing Franchises completely new story or in the form of Enable Discovery with Test Drives with Innovative New IP new gamer mechanics. In either case, Selecting where and how to promote a the testing ground for pure innovation game plays a critical role in determining The commercial success of a game heavily should be new IP. Once new IP is its success. Machinima and Twitch, which relies on the collective opinion of the developed, enabling game discovery was recently acquired by Amazon for customers. A game can have a big budget, becomes an important success factor. $970 million,13 demonstrate the importance a successful franchise history, and even a of discovery platforms. Machinima has 21 cult following, but it is still not guaranteed Innovate with New Stories channels14 in YouTube’s top 100 channels to be a success. For example, Duke Nukem Developing a new story with new characters and Twitch accounted for 1.8 percent Forever, the long-awaited addition to the can invigorate a game company’s existing of US peak Internet traffic in Feb 2014.15 Duke Nukem franchise, was a commercial core base, gain new fans and reacquire Machinima and Twitch are game focused failure after its launch in 2011, primarily those that might have fallen off an existing user generated video sites that allow due to release delays and a lack of franchise. For example, Titanfall is built gamers to watch and learn how to play advancement in graphics and storytelling on a combination of traditional first games, and also get buyer advice from to reflect gamer expectations of the time. person shooter and of MechWarrior-like gamers who have had hands-on experience Conversely, games with no budget, no mechanics, but takes on a whole new story, with the game. With new games, content proven following and limited graphics and with various classes of Pilots and Titans. creators must leverage platforms like level design can be huge hits. Flappy Bird, Revolutionize with New Game Mechanics Twitch to highlight the new stories and a mobile game developed by Dong Nguyen, Leveraging new technologies or rethinking demonstrate new game mechanics to amassed $50,000 in ad revenue per day the mechanics of how a game can be enable game discovery and start the fly- at its peak, with no formal promotion and played are risky, but if done well can prove wheel of gamers generating their own clips a one man development team.12 Given to be huge successes. Destiny, a title from to share with others. With an increasing that there is no foolproof formula for a Bungie and Activision, is described as a number of game titles available commercial win, game companies need “shared world shooter.” Players can fully every day it becomes even more critical to create game portfolios that reduce experience the game solo, but the game to demonstrate a game’s value before overall risk and improve success rates is designed to be shared and seamlessly the gamer makes the purchase decision. for games in development. connects to other players. The always-on In order to create sustainable growth Portfolio risk can be reduced by enhancing requirement does require gamers to be fully and profit, game companies must art with a little bit of science, and by connected to the shared world to play, but be able to continue to innovate with conducting careful innovation planning. the lack of a subscription fee differentiates new ideas and for new platforms, while Gamer analytics and live experimentation it from other massively multiplayer online creating compelling franchise extensions can improve a game’s probability of success experiences. The open-world view allows that meet customer expectations. by providing a deeper understanding of the player to be immersed in an expansive consumers, and how they relate to content. environment, and experience different Especially for games that rely on sustained aspects of the game each time he or she gamer interest (such as installments, logs in. These innovations are challenging franchise expansions or subscription-based the way gamers think about traditional games), incremental improvements and first-person shooter games, and will prove increased responsiveness to data-driven to be commercially successful if a large insights can lengthen the lifecycle of enough network of gamers are willing a successful game or franchise. to commit to the $60 price tag. Even with rich data analytics and rapid experimentation, a franchise is still at the whim of gamer interests and their ability to assess games before buying them. In order to hedge bets on new games within a major franchise, new IP should continue to be developed. Innovation can come through development of a Gaming Disruption 17

“There is an intrinsic value in allowing people to experiment a lot. In the short term it is probably not so efficient, but if you have this open and creative environment it is easier to attract talented people who value that. They can try out new tools and experiment, and that is a big part of our success.”16 Mats-Olov Eriksson, Director of data warehousing, King.com 18 The Pulse of Gaming

Conclusion

As game companies continue Gamer Analytics & Data Management Cloud to be pressured by increasing Developing the mechanisms to acquire, Bringing the best gaming experience aggregate, analyze and act on data to any platform, at any time, from consumer demands, the rise received from gamers from within anywhere requires expertise in cloud of digital endpoints and the game and outside of it. hosting and online streaming capabilities. Gamers will come to expect that their lower barriers to entry for Channel Management experience is seamlessly integrated Knowing where to place the game and low-cost alternatives, the across ubiquitous platforms. how much to charge the gamer for it, and need to innovate and join building the right relationships or in-house Revenue Model Design the revolution of disruptors technologies to support the transactions. Incorporating monetization into the game design and development process from the is more critical than ever. Game Portfolio Management beginning to create a seamless experience Building the right game portfolio, Major studios are faced with rising that optimizes gamer lifetime value. knowing when to invest in new IP, when development budgets for established to gracefully retire maturing IP, and how Customer Support franchises and increased risks with new to increase the returns on investment Determining the best approach business models challenging the traditional with successful brands. for managing direct-to-consumer outright purchase. relationships, troubleshooting gamer Development Efficiency In a competitive and rapidly changing market, issues and complaints, reducing As the pendulum swings away from game companies that want to win will create gamer churn and preventing loss of pure artisan development to engineering an operating model that meets demands for gamer engagement. diligence, there is an increased importance today, and is flexible enough to prepare for placed on being able to drive efficiencies the capabilities needed for tomorrow. In order that enable developers to be lean, and to get a seat at the table, games must have rapidly deliver quality results at scale. compelling content and thoughtful design built on a sound game engine with stringent engineering principles. However, competitive advantages will be borne out of applied focus to emerging capabilities in the new world of games. A few examples include:

In the battle for gamer mindshare, digital entertainment share of leisure time, and overall game revenues – if you can’t beat the disruptors, be nimble enough to join them. Gaming Disruption 19

Sources:

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Authors

Christian Kelly Managing Director Accenture Electronics & High Tech [email protected]

Bikash Mishra Senior Manager Accenture Strategy, Communications, Media & Technology [email protected]

Justine Jequinto Accenture Strategy, Communications, Media & Technology [email protected]

Acknowledgement

We’d like to acknowledge the significant contributions of Eddie Gonzales, a manager in our CMT Strategy practice, and Sarah Freeman, a consultant in our CMT Strategy practice.

This document is produced by consultants at Accenture as general guidance. It is not intended to provide specific advice on your circumstances. If you require advice or further details on any matters referred to, please contact your Accenture representative.

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