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Online business innovation
April 2011
Market studyDutch games industry Ready for growth
3 Market study Dutch games industry Ready for growth
Table of contents
Preface 4
Executive summary 5
Consumer spending 6
Value chain developments 14
Dutch games industry opportunities 23
Contacts 32
Definitions 33
4
Preface
This report was prepared as a market study of the Dutch video games industry. It examines global trends in the video games industry and opportunities for local Dutch game companies.
Deloitte’s study of the market is based on:• Ourexperiencewithinthegamessector• InterviewswithkeyplayersintheDutchMarket• Publicallyavailableinformation
This document describes our preliminary findings and Deloitte’s view as of this date. Therefore Deloitte’s judgement should be regarded as indicative, preliminary and for illustrative purposes only.
In preparing this report, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us or which was otherwise reviewed by us.
Deloitte does not accept any duty, responsibility or liability with respect to the subject matter or contents of this report.
5 Market study Dutch games industry Ready for growth
Executive summary
SummaryThe Dutch games industry is well positioned to benefit from global trends towards online and mobile gaming
Observations• Theglobalgamesindustryisexpectedtogrowin
casual, mobile and social gaming in the short term and will get a boost from the next generation of consoles, expected in 2013
• TheDutchgamesindustryisstructurallysimilarto the global industry and will also see a lot of its growth come from new areas like social, mobile and portal gaming
• Intermsofconsumerspend,theDutchgamesmarket is estimated at €626m for 2010 and is expected to reach €805m by 2013, with social, mobile and portal gaming making up €189m
• Mobiledevices,increasingnetworkconnectivityandsocial gaming are creating new players in the games industry with new revenue streams and a different business model
• Thegrowthofnewsegmentslikecasual,mobileand social gaming augurs well for the Dutch game developers
- There are around 160 mostly small Dutch companies active in the games industry (developers, publishers and distributors) employing around 2500 FTEs
- Dutch companies generate €125-150m in revenues and most of these companies have benefitted from digital distribution, increasing smartphone penetration and education programs in game development
- There is a second tier group of suppliers to the industry which is estimated at over 100 companies
• AccesstoVentureCapital(VC)firmsisoneofthekey challenges facing the industry, and in order to succeed, Dutch game developers need to work on improving their business models and increase their level of collaboration to create scale advantages
• Atthesametime,developersshouldmakethemost of national advantages like a highly educated workforce, strong infrastructure and supportive government initiatives
6
Consumer spending
Selection of events
The history of the games industry goes back to the 1950’s but has seen dramatic changes in the past decade
1950’s Firstreleasesofelectronicgamesoncomputers,suchasNIMROD(1951),OXO(1952)and‘TennisforTwo’ (1958)
1971 Computerspace(thefirstarcadegame)isreleased
1972 AtarireleasesPongasanarcadegame Thefirsthomeconsole,MagnavoxOdyssey,islaunched
1976 SecondgenerationconsoleerastartswithVideoEntertainmentSystem/ChannelFbyFairchild
1983 Third generation console era (8-bit) starts with Nintento Entertainment System (NES)
1988 Fourthgenerationconsole(16-bit)withSNES,SegaMegaDrive
1994 Fifthgenerationconsole(32/64-bit)withPlaystation,Nintendo64
2000 Sixthgenerationconsole(128-bit)withPlaystation2,X-box,GameCube
2004 WorldofWarcraftMMOislaunched
2005 SeventhgenerationconsolewithWii,Playstation3,Xbox360
2006 AppleAppStoreopens,significantlychangingmobilegaming
2008 Zynga releases Farmville on Facebook
2010 AngryBirdsbecomesthemostdownloadedgameonmobile
Source: Desk research
7 Market study Dutch games industry Ready for growth
Comments• Therevenueissplitbetweensoftwareandhardware
(home and handheld consoles) • Intheshortrun,thevideogamesindustryis
expected to remain stable between 2010 and 2011 due to hardware segments that are entering a transition phase to a new generation of machines and growth in software
• ConsolegamingsoftwarewillseeitsshareofthetotalgamessoftwaremarketreduceasPCgamesand mobile games grow at a faster rate
- PCgamingislikelytoexpandduetoonlinegaming and the greater penetration of broadband networks in emerging markets
- MobileGamingislikelytogrowduetotheproliferation of smartphones at 13% per annum to reach €11b annually in 2014
• However,by2013thenextgenerationofhardwareconsoles is expected to enter the market which will spur growth
Global games market size
Source:IDATE;DeloitteAnalysis
Console Games 3%
PC Games 9%
Mobile Games 13%
CAGR %Software€b60
45
30
15
02010 2011 2012 2013 2014
22 21 22 24 26
10 11 1314
156 79
1011
38 4044
8,3%
4852
10
Console Hardware 8%
+
Hardware
€b60
45
30
15
02010 2011 2012 2013 2014
12 10 14 17
8,4%
The global games market is estimated at € 50bn in 2010 and projected to grow at over 8% over the next 4 years
8
Comments• Advancementsininternetspeeds,highendmobile
devices and next generation consoles are increasing the push towards digital distribution
• Casualgaming(portal),socialgamingandmobilegaming will be the primary drivers of digital revenue
• By2014,onethirdofconsolegamessaleswillbedigitally distributed
Console Software (Digital)
Physical distributionDigital distribution
Console Software (Physical)
Mobile Games
PC Games (Online)
PC Games (Offline)
€b100%
80%
60%
40%
20%
0%2010 2011 2012 2013 2014
4%
4% 4%
19%
16%
54%
6%
22%
18%
47%
8%
25%
20%
41%
13%
25%
21%
37%
17%
26%
21%
38 40 4844 52
7% 7% 6%
32%
Source:IDATE,Deloitteanalysis
Global games software market
There is an increasing trend towards digital distribution, with the share of digital revenues expected to increase from 38% to 65% by 2014
9 Market study Dutch games industry Ready for growth
Comments• Consolegamingisthelargestsegmentinmost
markets - However,insomemarketslikeGermany,PC
gaming is nearly as large as console gaming - Mobilegamingandportalgamingstillare
relatively small in terms of value market share• Traditionalgamingstillmakeuptheoverwhelming
majority of revenues in the Netherlands - While the Dutch games market has a large
number of players per platform, the ratio of people paying as percentage of players is below countries like the US and UK
- The relatively small share of social gaming is mainly because the leading Dutch social network Hyvesstartedlateongames
Consoles
Portals
MMO’s
PC Games
SocialMobile
€b100%
80%
60%
40%
20%
0%US DE UK FR NL
43%
19%
11%
15%
6%
6% 6%
34%
33%
10%
10%
49%
22%
46%55%
18,6 4,9 4,04,3 0,4
7%
7%
7%
11%
24%
7%
14%
5%
13%
7%
17%
Source:Newzoo,NVPI,expertinterviews,Deloitteanalysis
Video games software 2010
The Dutch games market is structurally similar to its developed market peers and largely driven by console gaming
10
Source:NVPI(1),Newzoo,(2)DeloitteAnalysis
Dutch video games market in 2010
Hardware
Software
€m800
600
400
200
700
500
300
100
0Console
HardwareConsoleSoftware
PC Games PC Games(online)
PortalGaming
MMO MobileDevices
SocialGaming
Total
181 181
247
38
22 76
33 16 13
181 285 160
Hardware1 BoxedSoftware1&2
Online/Mobile2
445
626
Including console hardware, the Dutch video games market is estimated at €626m in terms of consumer spend for 2010
11 Market study Dutch games industry Ready for growth
Source:NVPI,DeloitteAnalysis
Source:NVPI,DeloitteAnalysis
Console hardware sales in NL
Console software sales in NL
€m Million Units400 1,5
1,0
0,5
0,0
300
200
100
02005 2006 2007 2008 2009 2010 2011F 2012F 2013F
89113
212
313
228
181147 144
202
+4%
0,60,6
1,0
1,5
1,1
0,9
Unit Sales (in Millions)Revenues
XBOX 360 Wii PS3
Launch Year
€m400
300
200
100
02005 2006 2007 2008 2009 2010 2011F 2012F 2013F
128171
227
294274
247 240 243270
+3%
• Consolehardwaresalesareexpectedtodeclineinline with global trends in 2011 and 2012
• Consolemakershopetolimitdeclinebyintroducingadd-on features such as motion control, camera peripherals and 3D
• Growthin2013duetoexpectednextgenerationofconsoles
• Increaseinconsolesalesbetween2006-08wasdriven by the launch of new consoles
• Consolesoftwaresalesareexpectedtodeclineslightly in 2011 and 2012
• Growthin2013islinkedtotheexpectednextgeneration of consoles
• Historically,consolesoftwaresalesincreasedinlinewith the installed base of consoles
Console (hardware) sales are forecast to decline till the launch of next generation consoles which is expected by 2013
Console game software revenues are also expected to decline marginally over the next two years, but return to growth in 2013
12
Casual, social and mobile gaming revenues in NL
• Thenumberofpayingsocialgamersisexpectedtoincreasefrom10%in2009to13% by 2012
• 24%ofmobilegamersareestimatedtopayin2012,upfrom12%in2009• Forcasualgamers,thepayingpopulationisexpectedtorisefrom13%to30%in
the same period
Casual / portal gaming (18%)
Mobile gaming (39%)
Social gaming (36%)
CAGR 2010-2012€m200
150
100
50
02009 2010 2011F 2012F
5576 90
10610
72
104
127
+22%
155
71513 19
25
24
18
Social gamers
6
3
02009 2010 2011 2012
2,4
3,5
4,6
5,7
Mobile gamers
6
3
02009 2010 2011 2012
1,3
3,5
4,95,9
Casual gamers
6
3
02009 2010 2011 2012
4,86,0 6,3 6,3
Payers
million
Source: NewZoo
Number of players and payers in NL
At the same time, revenues for mobile, social and casual gaming are projected to take off as companies monetize their wider demographic base
13 Market study Dutch games industry Ready for growth
• Growthinthegamesindustryin2011and2012willcome from new areas like mobile, portal and social gaming
• Growthinconsolegamingisexpectedtoreturnby 2013 with the next generation of consoles, and console gaming will drive €85m out of the €135m growth between 2012 and 2013
• However,ifthereisadelayinthelaunchofnextgeneration consoles, the market may only reach €733mwith5%CAGR,drivenbycasual,mobileand social gaming
Source:Newzoo,NVPI,Deloitteanalysis
Dutch games industry forecast
The Dutch games market is expected to reach €805m by 2013 with social, mobile and portal gaming bring in a quarter of the revenues in 2013
Console hardware
Console software
Social gamingMobile devicesMMO
Portal gaming
PC games
+4%
+3%
+36%+25%
3331
+21%
+18%
+13%
CAGR 2010-2013
€m1.000
500
750
0
250
2010 2011F 2012F 2013F
181
247
147
240
144202
626
60
621
33
7690
68
39
243
78
106
48
668
270
86
125
58
805+3%
+20%
242518
191316
14
-40
-20
0
20
40
60
-10 -5 0 5 10
Revenue Growth CAGR (2006-10) in %
15 20 25 30 35
Sega Sammy HoldingsActivision Blizzard
1000 m€ revenue
Nintendo
Microsoft*
Ubisoft
EA
Sony**THQ
Publisher
Hardware + Publishing
Margins 2010 in %
Value chain developments
Most traditional global games companies have struggled in recent years due to lengthening product development time and increasing development costs
*MicrosoftrevenuesrefertoEntertainmentandDevicesDivision
**SonyfiguresareforGamesdivisionfrom2009
Source:OneSource;annualreports;Deloitteanalysis
Global performance of major games companies • Higherdevelopmentcostsandlengtheningdevelopment times for high-end games have made game development riskier
• Theincreaseddependenceonblockbustershasreduced profits across the industry as a whole
15 Market study Dutch games industry Ready for growth
As penetration of tablets and smartphones increases, mobile internet is becoming an important distribution platform for games
Source:Gartner,Deloitteestimates,Cisco,AppsFire1/11,KPCB,Deloitteanalysis
Global shipments Average time spent on smartphone functions
Global mobile internet traffic used for gaming
Petabyte/month200
150
100
50
02009 2010 2011F 2012F 2013F 2014F
5 12
+96%
27
62
111
173
+154%
Million Units
Notebooks
Desktops
Tablets
Smart-phones
0 100 200 300 400 500 600 700
207
656
154
150
146
159
247
20102013
20
Minutes/day
2010
40
27
84
10
7 Mail
Web/web apps
Telephony
Games, maps, social, others
16
• Newdistributionchannelshavecreatednewgamingcategorieslikemobile,casualandsocialgaming• Thishascreatedopportunitiesforthedevelopertopublishtheirgamesdirectly,althoughmostprefertouse
specialized online publishers
Source:Expertinterviews;Deloitteanalysis
This new distribution platform is changing the business model of the games industry creating new players and challengers for traditional companies
Traditional Model
Emergent Model Illustrative
Console
Manufacturer
Publisher
DeveloperGuerrilla
Distributor
Retailer
Consumer
Nintendo
Microsoft
Activision Blizzard EA
Arvato Technicolor
Bart Smit Free Record Shop
Console
Manufacturer
Online Publisher
Developer
New Distribution
Platform
Publisher
Traditional
Distributor
Retailer
Consumer
AppleGoogle Android
Chillingo
Zynga
Rovio
17 Market study Dutch games industry Ready for growth
FacebookThe worlds largest social network
• $2bnest.in2010revenues,$400minprofit
• $85best.marketcapitalization• 650mactiveusers• Facebookrevenuesfromgames
companies was $400m (est.) in 2010• Gamescompaniessharetheirrevenues
with Facebook in addition to spending on Facebook ads
AppleWorld’s leading technology company by market cap
• $65brevenuesin2010and$18.5binprofitbeforetax
• $314binmarketcapitalization• iPhonehitsAngryBirdsandDoodle
Jump have seen more than 50 million copies downloaded
• Hardwareimprovementsareincreasingthe utility of such devices for games
These new challengers have deep pockets and huge fan bases...
ZyngaLeading social network game developer
• $850mest.inrevenuesin2010,$400mprofit
• $10best.marketcapitalization• 237mmonthlyusers,14.2mjoineach
month, over ten percent of the global Internet population plays Zynga games
• In2010,Zyngahired800peopleandacquired 10 games studios
Revenues ($b)2
1
02006 2007 2008 2009 2010
0,3
0,9
Revenues ($b)2
1
02006 2007 2008 2009 2010
0,80,3
0,20,1
2,0Revenues ($b)90
60
30
02006 2007 2008 2009 2010
4337
2519
65
AllestimatesfromMarch2011.ZyngaandFacebookdon’treportrevenues
Source:NewsReports,OneSource,Deloitteanalysis
18
Comments• Mobileandonlinegamescompanieshaveavery
different business model compared to traditional games companies
• Developmentcostsformobile/socialgamesarelowcomparedtotraditionalgames,iPhoneappgames cost between $20,000 - $100,000 compared to hundreds of millions for popular blockbuster titles
• Insteadofahighinitialpurchasecost,thesegamesare typically free or have a very low purchase price
- Developers make money from micro transactions (e.g. sales of virtual goods), which is shared 70-30 between the developer and the platform owner
- Mobileadvertisingrevenuesisanadditionalsource, which is again shared in a pre-defined manner (ratio depends on volume)
• However,forthisbusinessmodeltosucceed,largenumbers of users are required. The role of good distribution and marketing is therefore still crucial for a game to succeed, as there are numerous options for consumers to choose from (e.g. the AppleAppstorehasover350.000appstochoosefrom,thePlayStationnetworkover100.000)
US virtual goods market
Mobile game ad spend worldwide
...and have lower development costs than traditional players. Their revenue model is based on micro transactions (e.g. virtual goods) and advertising
Source:JuniperResearchascitedinapressreleaseonJan5,2011;
KPCBcitingreportInsideVirtualGoods;PressreleaseSony;Deloitte
analysis
3.000
2.000
1.000
0
1.600
2.000
$m
2010 2011E
+31%
200
100
0
87
138
$m
2010 2011E
+59%
19 Market study Dutch games industry Ready for growth
HighmarketcapitalizationofZyngaisduetoitslargebase of users who can be easily targeted for new games and low development costs which lead to high margins
Due to its innovative revenue model and low operating costs, social game developer Zynga has one of the largest market capitalizations in the industry
Revenues
Market capitalization
* Marketcapreferstowholecompany
** SonyrevenuefiguresareforGamesdivisionfrom2009
Source:Newsreports,Bloomberg,onMarch30,Deloitteanalysis
0
3
6
9
12
Nintendo Sony Microsoft ActivisionBlizzard
SegaSammyHoldings
EA Ubisoft Zynga THQ
10,9
7,3
5,8
3,4
2,92,6
0,9 0,9 0,6
$b
0
10
20
30
220
Nintendo Sony** Microsoft* ActivisionBlizzard
SegaSammyHoldings
EA Ubisoft Zynga THQ
38,1
32
215,4
13,2
4,76,6
1,0
10,0
0,3
$b
20
• AngryBirdsisapuzzlevideogamedevelopedbyFinland-basedRovioMobile
• Roviostartedin2003andAngryBirdswasthecompany’s 52nd game
• AngryBirdswasinitiallydesignedforAppleOS,itwasfollowedbyanAndroidversion,aPCandgameconsoleversion.AFacebookversionisexpectedinMay2011
• Over75millionpaidandad-supportedversionshavebeendownloaded,sixtythousandAngryBirdssofttoys have been sold*
• InitialcosttodevelopAngryBirdsisestimatedataround €100,000
• AngryBirdsmakerRovio’svaluationisestimatedat$200 million after an investment of $42 million
• Roviorevenuesroseto€5minthelast6monthsfrom € 1.6m for the previous full year, due to the successofAngryBirds
• Thevaluationwasbasedontheupsidepotentialfrom the franchise as well as the potential to cross- sell new games
Similarly, mobile game developer Rovio, the maker of Angry Birds has a valuation of $200 million
Case study: Angry Birds by Rovio
* FiguresuptoMarch2011
Source:OneSource,newsreports,Businessinsider,Deloitteanalysis
6
4
2
0
-2
0,91,6
5,0
0,1 -0,1
3,0
FY09 FY10 FY11(H1)
RevenueProfit before tax
€m
Financial years in Finland run from July to June
Rovio Mobile Oyj
21 Market study Dutch games industry Ready for growth
Acquirer Target Date Rationale Price
EA Playfish Nov2009 • PlayfishisasuccessfulsocialgamingdeveloperofsocialgamesforFacebook $400m • ThisacquisitionwastogiveEAafootinginsocialgaming
WaltDisney Tapulous July2010 • Tapulousmakesmusic-basedgames • BuyingTapulousgetsDisneyontothemobilegamingplatformandgivesita n/a
strong presence in music-related games
DeNa Gameview Sep2010 • Gameviewisamobilesocialgamedeveloperandhasmadesocialgamessuch n/a Studios as Tap Fish • DeNa,theJapanesesocialgaminggianthopestouseitsacquisitiontoenterthe
US market
DeNa NGMOCO Oct2010 • NGMOCOisaleadingmobilegamingpublisherfoundedbyaformer $400m EAgamesexecutive
• DeNa,theJapanesesocialgaminggianthopestouseitsacquisitiontoenterthe US market
EA Chillingo Oct2010 • Chillingopublishesmobilegamesdevelopedbyindependentgamedevelopers $29m andwasthepublisherofhitgameslikeAngryBirdsandCuttheRope
Major games companies have been acquiring mobile and social gaming companies to strengthen their position in these new markets
Selected acquisitions of mobile/social gaming companies
Source:Newsreports,TechCrunch,Deloitteanalysis
22
Opportunities for the Dutch Game companies
• Traditionalgamedevelopersareseekingafootprintin the fast growing social and mobile gaming market through partnerships and acquisitions
• Smallgamedevelopersarewellsuitedtoproducerelatively lighter games for smartphones and tablets
• Smallgamedeveloperscan: - Develop and self publish games bypassing the
traditional publisher, if they have a large user base - Develop games and use a new online-publisher to
go to market - Develop mobile and social mini-games for
traditional publishers• Successfulgamecompanieswithasoundbusiness
model can hope to raise finance more easily than before
• Newpublisherscanhavealowcostbasewithlowerrisks as the small games require lower investments
Developments
• Consolegamingisstallingandtraditionalcompaniesare facing a challenging market
• Mobiledevices,ubiquitousnetworkconnectivity,and social gaming are creating new avenues for growth
• Smartphonesandtabletsdonothavethehardwareto support conventional high-end games
• Mobileandsocialgameshaveamoredirectrouteto market compared with traditional games creating opportunities for new players
• Successfulsocialandmobilegamedevelopershavemanaged to raise significant capital from venture capital firms
• Gooddistributionandmarketingremainskeytoensure capturing a large user base
Key Trends
Changing market
New devices, new games
New business models
These changes in the global games ecosystem create opportunities for the Dutch games industry
Source:Expertinterviews;Deloitteanalysis
23 Market study Dutch games industry Ready for growth
The Dutch games industry is defined as developers, publishers, distributors & retail
Source:Expertinterviews;Deloitteanalysis
Global performance of major games companies Overview Dutch games industry• ThecoreoftheDutchgamesindustryconsistsof: - Developers, - (Hardware)Publishers, - Distributors & Retail• BesidesthecompaniesdirectlyactiveintheNL
games industry, a significant number of players are active in a wide range of services related to the industry,rangingfromLegalservicestosoftwaresuppliers, working from over 100 companies, employing several hundreds of FTEs (est.)
• Furthermore,asplitwillbemadebetweenforeignownedandNLownedcompanies;BothemployNLpersonnel in the Dutch games industry and generate economic activity, but the benefits of the foreign companies will flow abroad and not directly benefit theNLgamesindustry
Dutch games industry opportunities
Dutch games industry:• Developers
• (Hardware) Publishers• Distributors & Retail
Advertising WarehousingEducational Services
Security servicesLegal services
Online paymentsHardware suppliers
OutsourcingTrade associations
MarketingMarket research Hosting
PR/Press/Media
Audio DesignSoftware suppliers
Related services
24
<1995 Smallnumber(<10)ofseriousdevelopersactiveforPCandconsolegamedevelopment,a.o.forseriousgames (e-learning)
2000 TheHKUinUtrechtstartswiththefirstMasterstudyforgamedesignanddevelopment
2000 LostBoysgamesstarts,whichwilleventuallyrenametoGuerrillaGamesandreleasetheKillzonefranchise. The company is bought by the Sony corporation in 2005
2000/ ZylomandSpilGamesstartasgameportalsandbecomeleadingglobalwebsitesincasualgaming2002
2003/ StrongincreaseindigitaldistributionwiththeopeningofXboxLive(2003),PSN(2006)andAppleApp2008 store (2008)
2006 100companiesactiveintheNLgameindustry
2011 160companiesactiveintheNLgameindustry
The NL games industry has been growing significantly since 2000, driven by educational programs in game development and digital distribution
Selection of events
NL games companies by year of start of operations (currently active developers and publishers)
After 2005
2001-2005
1996-2000
1991-1995
<1995
0 10 20 30 40
# of companies
50 60 70 80
71
46
12 16
50
76
3
3 3 6
NL companiesForeign companies with NL operations
2
4
4
5
Source:Expertinterviews;ChamberofCommerce;company.info;Gamesindustry.nl;Newzoo;Deloitteanalysis
25 Market study Dutch games industry Ready for growth
160 Companies are active in the Dutch games industry, employing 2500 FTE
Foreign owned NL ownedDevelopers #ofCompanies:<5 #ofCompanies:117 # of FTE: ~200 # of FTE: 1200 Turnover: 30-40m € Turnover: 80-100m €
Example companies • Guerrilla • Vanguard Games • Ranj Serious Games • Triumph Studios • IJsfontein • Media Monks • Codeglue • Little Chicken Game Company
Publishers Digital Physical Digital Physical(incl hardware) #ofCompanies:5 #ofCompanies:11 #ofCompanies:13 #ofCompanies:3 # of FTE: 100 # of FTE: 150 # of FTE: 220 # of FTE: 30-40 Turnover: 30-40m € Turnover: 425-450m € Turnover: 35-45m € Turnover: ~ 3m €
Example companies • Gamania • Nintendo • Activision • Jaludo • Spil Games • Iceberg • Zylom • Microsoft Blizzard • Keesing • Youda • Denda Games • Perfect World • Sony • EA Games Games
Distributors/retail Digital Physical Digital Physical #ofCompanies: #ofCompanies: #ofCompanies:<5 #ofCompanies:~11 None with local presence None with local presence # of FTE: <50 # of FTE: 500-600 Turnover: <10 m € Turnover: ~450 m €
Example companies • Hyves • Bart Smit • Free Record Shop • bol.com • 12game.com
26
Comments• Gamescompaniesarespreadacrossseveralcities
across the Netherlands - ThemajorityofDutchGamecompaniescanbe
foundinAmsterdamorUtrecht - Also,anumberofgamecompaniescanbefound
in the near vicinity of game related education centersinUtrecht,Eindhoven,BredaandLeeuwarden
- Gamecompanieswithforeignownershiparemostly located around Schiphol
• Physicalspreadofthegamecompanieslimitsthe ability to cooperate and benefit from scale advantages(e.g.throughknowledgeexchange);anexceptionisthe‘DutchGameGarden’,abuildinginUtrecht which houses several game companies in the city center
Games companies in the Netherlands are spread across the country which reduces opportunities to cooperate
Source:Expertinterviews;Deskresearch;Deloitteanalysis
Limburg
Northern NL (Fr, Gr, Dr)
Eastern NL (Gld, Ov.ijssel)
Rotterdam area
Eindhoven/N-Brabant
The Hague area
Utrecht
Amsterdam/N-Holland
0 10 20 30
# of companies
40 50 60
5
9
12 13
13
32
51
13
11
15
29
39
NL ownedForeign owned
12
3
2
1
Overview locations NL games industry (developers and publishers)
27 Market study Dutch games industry Ready for growth
Type of main activity NL games companies (# of companies)
Company size NL game developers (FTE)
Observations• TheDutchgamesindustryislargelydevelopment
oriented with only a limited number of (online) publishing companies.
• Themajorityofgamedevelopmentcompanieshavefewer than 5 employees and the average size of the development companies is limited to 10 FTE per company
• Thelimitedsizeofdevelopmentcompanieshasanimpact on the business model that they can apply and the scale advantages that can be reached:
- Manygamedevelopersstrivetocreateagoodgame, but have no strategy to sell the product and optimize margins
- Scale advantages are limited, as developers create their own tools and miss volume to utilize outsourcing opportunities
- Limitedscalealsonegativelyimpactstheabilityto negotiate with large publishers
Most games companies in the Netherlands are relatively small game development companies which restricts their potential scale advantages
40
60
80
20
01-5 6-10 11-20 >20
62
22 21
12
Distributor & Retail
Publisher
Developer
74%
18%
8%
Source:Expertinterviews;AnnualReports,ChamberofCommerce;
company.info;Deloitteanalysis
28
Game revenue 2010 Observations• TheNetherlandsisanetimporterofgames
products;therevenuesoldhereismuchhigherthanthetotalproductionofNLgamecompanies
- €626mwasspendbyNLconsumersongames - €125-150mwasgeneratedbyNLowned
developers and publishers• TheproductionofNLgamecompaniesisdrivenby
a number of key players that generate significant turnover, but no major publishing houses or platform owners originate from the Netherlands
• TheNetherlandsisstronginanumberofonlineportals(e.g.SpilGamesandGamePoint;theircompetitorZylomhasbeenacquiredbyRealGamesand is therefore considered a foreign owned company)
• Alargenumberofcompaniesgeneratelimitedturnover (< 1 million €)
The Netherlands is a net importer of games products
200
100
0
300
400
500
600
700
Total gamespend by
NL consumers
Revenue NLowned
developersand publishers
626
125-150
€m
Source: Deloitte analysis
29 Market study Dutch games industry Ready for growth
Tax incentives
Attractive Tax Regime• Relativelylowstatutorycorporateincometaxrateof25%(20%forfirst200,000Euro)• PossibilityofobtainingadvancetaxrulingsfromtheDutchtaxauthorities• Widetaxtreatynetworkreducingwithholdingtaxesondividends,interestsandroyalties• Favorableparticipationexemptionregime,profitsgeneratedby(qualifying)participationsincompanieshave
been tax-exempt for entities based in the Netherlands• 30%arrangement,theextracostsofatemporarystayofanemployeeoutsidethecountryoforigin
(extraterritorial costs) can be compensated free of tax by the employer
R&D Incentives• TaxincentiveforR&Dactivities(WBSO),consistsofareductioninwagetaxandsocialsecuritycontributions
paid for these R&D employees• Innovationboxresultinginaneffectivecorporatetaxrateof5%
Government subsidies and investments
Investments in Education• TheDutchgovernmenthasfundedcoursesinmanycollegesondesigninggames.Infact,thereare10colleges
with an estimated 45 course related to video game development
Subsidies and direct investments • TheEuropeanUnion,national,provincialandlocalgovernmentareputting€4mintostimulatingthe
development of games industries in Utrecht• Othercitygovernmentshaveschemesthatsupportstartupcompanies;forexamplebyhelpingthemfindoffice
space at reasonable costs
There are several governmental initiatives which have helped foster a positive environment for start-up games companies in the Netherlands
Source: News reports, Deloitte analysis
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Key Challenges
Locational disadvantage• LimitednumberoftechVCsfirmsinEurope• DistancefromtheHQsofmajorgamescompanies
Business model• Mostgamescompaniesaresmallandshowlimited
cooperation• SeveralNLGamescompanieshaveaweakbusinessmodel
Production Costs• HighwageratesinNLcreateadisadvantagecomparedto
low wage countries
Limited National Focus• Toomanycitieshaveindependentinitiativestosupportthe
sector and there is no clear national policy
Major Strengths
Strong Infrastructure• Highbroadbandpenetration• Increasingsmartphonepenetration• WellconnectedwithrestofEurope
Educated and skilled workforce• Availabilityofaskilledworkforcewithanestimated45
courses linked to video games
Testing Ground• Audienceinterestedintryingnewgames• LargeEnglishspeakingpopulation;hitgamescaneasily
move internationally
Supportive Government• Governmentwillingtoinvestininnovation• Cooperativetaxregulationforforeigncompanies,tax
support for small start-ups
Access to VC firms is a key challenge, but strengths like infrastructure, workforce, and government policies make the industry well placed for growth
Dutchlocal gamecompanies
Source: Deloitte analysis
31 Market study Dutch games industry Ready for growth
Six steps towards increased growth for Dutch Game companies
1. Be innovative To be successful, developers must continue to develop new, exciting and innovative concepts
2. Create a sound business model CompanieswhichbalancecreativeoutputwithasoundbusinessmodelsucceedinattractingVCfunding
3. Collaborate to create scale Small local players can work together while negotiating with global publishers. They can also cooperate to benefit from scale advantages on finance, costs, tooling and knowledge exchange
4. Leverage country advantages Highbroadbandpenetration,increasedsmartphoneusage and a games community that is willing to experiment make the Netherlands a great testing ground for new concepts
5. Work your strengths The highly skilled but high cost workforce should concentrateonhighvaluework.Outsourcinglow value work to low wage countries should be considered whenever manageable
6. Create national focus Despite being a small country, multiple Dutch cities claim to be hubs for game development. It would be better to focus resources to create a few centers
In order to succeed, Dutch game companies need to improve their business models and increase their level of collaboration to create scale advantages
Source: Deloitte analysis
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Deloitte:Daan Witteveen DeloitteOnlineBusinessInnovationDWitteveen@deloitte.nl +31 (0)6 5585 3436+31 (0)88 288 0236
Dutch Games Association:JurrieHobersDutchGamesAssociationjurrie.hobers@dutchgamesassociation.nl+31 (0)6 2454 1558
On Deloitte:Deloitte member firms offer clients a broad range of audit, consulting, financial advisory, risk management andtaxservices.Ourclientserviceteamshelpcreatepowerful business solutions for organizations operating anywhere in the world. This integrated approach combines insight and innovation from multiple disciplines with business knowledge and industry expertise to help our clients exceed their expectations.
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33 Market study Dutch games industry Ready for growth
Console Hardware: Includes console and peripheral sales
Console Software: Excludes pre-owned and rental markets. Includes an estimation of downloadable content(DLC)revenuesaswellasportableconsoledevicessuchasPSP,NDS(i).
PC Gaming: IncludesBoxedaswellasDownloadedgamesbutdoesnotincludepaidMMOclientdownloads or paid premium downloads from casual game portals. These revenues are attributed to the individual categories. Excludes pre-owned and rental marketsbutconsidersdownloadedPCgames.
Casual game portals: OnlinecasualgamingdestinationssuchasPogo,Miniclip,Zylom,Gameduell,King.com.
Mobile devices: AllmobilephonesplusdevicesliketheiPodTouch&iPad
MMOs: MassivelyMultiplayerOnlinegamesplayedonPCorMac,browserorclient-based.Includesvirtualworlds.
Social networks: GamesplayedwithinsocialnetworkssuchasHyves,Facebook,MySpace,Hi5,VZNetworks,Orkut.
Definitions
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