THE GREAT THE GREAT ORACLEORACLE

THE “EXPERTS” ARE THE “EXPERTS” ARE SAYING:SAYING:As part of an interview with Industry Gamers this As part of an interview with Industry Gamers this week, Riccitiello (CEO of EA) said that digital week, Riccitiello (CEO of EA) said that digital goods market will, in his opinion, surpass the goods market will, in his opinion, surpass the packaged goods business by the end of this year.packaged goods business by the end of this year.

According to Reuters, 2011 will be the year of the According to Reuters, 2011 will be the year of the casual, mobile based video game. Video game casual, mobile based video game. Video game sales were down four percent from 2009 level, sales were down four percent from 2009 level, but social, Facebook games and iPhone and iPad but social, Facebook games and iPhone and iPad titles are expected to make up for the less-thantitles are expected to make up for the less-than-stellar sales levels in 2011.-stellar sales levels in 2011.

Digital revenue models are, importantly, helping companies circumvent used game sales, with the "Online Pass" concept pioneered by EA and being explored by numerous other publishers. From Facebook credits to microtransactions-enabled smartphone games, digital's no longer just an option: It's the only way to succeed in an increasingly platform-agnostic gaming world alongside visibly ailing physical retail.

eMarketer says that nearly 62 million US internet users, or 27% of the online audience, will play at least one game on a social network monthly this year, up from 53 million in 2010. In the U.S., consumers will spend $653 million on virtual goods in social games in 2011, compared to $510 million spent in 2010.

Sales of video game consoles and new games purchased at retail dropped in 2010, but revenue from mobile game "apps" and games on social networks helped make up for the shortfall, say market researchers at NPD Group.  Game console sales fell 13 percent to $6.3 billion. Sales of new video games purchased at retail declined 6 percent to $9.4 billion. However, the total amount spent on the games themselves, including online and mobile games, was flat at about $15.5 billion.

WHAT I SEE:WHAT I SEE:

• Greater challenge for consumers Greater challenge for consumers $ and eyes$ and eyes

• Death at retail PCDeath at retail PC• Death of non licensed games at Death of non licensed games at

consoleconsole• A monopoly on Facebook A monopoly on Facebook

Customers by a few companiesCustomers by a few companies• A massive influx of App’s with A massive influx of App’s with

only a few big winners(8 figures)only a few big winners(8 figures)

PRICE WARSPRICE WARS

• Retail pricing tends to remain constant but the content Retail pricing tends to remain constant but the content for the value has multiplied. $ games for the Price of one for the value has multiplied. $ games for the Price of one from 3 years ago.from 3 years ago.

• We have already seen online pricing in the Trial business We have already seen online pricing in the Trial business and we hope that is over!and we hope that is over!

• Its clear people want value so the App store has and Its clear people want value so the App store has and continues to consume consumers game and continues to consume consumers game and entertainment time with $.99 cent and Free app’sentertainment time with $.99 cent and Free app’s

• Facebook and social network gaming is also taking and Facebook and social network gaming is also taking and fulfilling the entertainment time of consumers which puts fulfilling the entertainment time of consumers which puts more pressure on Casual game developers in the trial more pressure on Casual game developers in the trial business.business.

RETAIL PCRETAIL PC

• Retail space has been suffering for the last 24 Retail space has been suffering for the last 24 months due to the success of the alternate months due to the success of the alternate online channels. online channels.

• Like any industry when there is better, cheaper Like any industry when there is better, cheaper faster other channels will fall, regardless of their faster other channels will fall, regardless of their size (Wal-mart)size (Wal-mart)

• We at Gogii will see a 2M retail business in 2010 We at Gogii will see a 2M retail business in 2010 fall to less than $500k in 2011fall to less than $500k in 2011

• There is less shelf space now: Wal-mart rated There is less shelf space now: Wal-mart rated Video Games a B from a A level category Video Games a B from a A level category for the first time in 20 yearsfor the first time in 20 years

RETAIL EVOLUTIONRETAIL EVOLUTION

NUMBER OF TITLES AT NUMBER OF TITLES AT RETAIL BY TERRITORYRETAIL BY TERRITORY

ONLINE DOWNLOAD ONLINE DOWNLOAD BUSINESS (TRIAL/BUY)BUSINESS (TRIAL/BUY)• Over the last few years we have experienced much Over the last few years we have experienced much

and have seen Little fish in 2003 become Big Fish in and have seen Little fish in 2003 become Big Fish in 2010 (*Paid for by )2010 (*Paid for by )

• We went from the throwaways developers of retail and We went from the throwaways developers of retail and big publishers to the huge success stories of VC’s and big publishers to the huge success stories of VC’s and independent developersindependent developers

• Casual games became a household word and one that Casual games became a household word and one that resonated with the buying customers (moms not 9-13 resonated with the buying customers (moms not 9-13 year olds)year olds)

• Huge growth brought huge success and failures Huge growth brought huge success and failures in the distribution, engine licensing, advertising in the distribution, engine licensing, advertising models and micro-transactionsmodels and micro-transactions

• Along comes Apple and Facebook and itAlong comes Apple and Facebook and it changes everything. changes everything.

THE POND EFFECTTHE POND EFFECT

• Over the last 10 years Europe trends about 1-2 years behind NA in retail

• We expect and already see Compilations being the winners in the UK and Germany and expect the same for France in 2011

• Look at the ChartTrack Top 20 Games:

CONSOLECONSOLE

• Console has been an enigma with the casual space with only a few success’. There are games that work on NDS and even PSP that were great for casual but those days are behind us and with so much cheap product placement is very difficult and there is very little Net $.

• The success of Iphones/Itouchs and now Ipads have changed the way kids and parents play and that is narrowing the market potential to brands/license IP and fewer customers at retail

• Limited (dare say) no revenue success with XBLA, or Wii-ware This is because of the wrong demographic focus as well as the mentality of the games and their presentation.

CONSOLE CHARTCONSOLE CHART

US GAMERS, BY PLATFORM, US GAMERS, BY PLATFORM, JUNE 2010JUNE 2010

FACEBOOK/ONLINE MICRO FACEBOOK/ONLINE MICRO PAYMENTSPAYMENTS

The US virtual goods market for social games will reach $2.1 billion overall in 2011

FACEBOOK/ONLINE MICRO FACEBOOK/ONLINE MICRO PAYMENTSPAYMENTS

Last year, social gaming revenues were $856 million. It will top $1.3 billion by 2012. In terms of the shifting share, virtual goods will barely move, retaining a nearly 60 percent share of the social gaming revenue pie with $792 million next year. Advertising will grow from a 14.1 percent share of the market with $120 million spent in 2010, to 20.5 percent share with $271 million in 2012.

SOCIAL GAME REVENUES SOCIAL GAME REVENUES WORLDWIDE, 2008-2014WORLDWIDE, 2008-2014

U.S. SOCIAL GAMING STATS U.S. SOCIAL GAMING STATS FOR 2010-2012FOR 2010-2012

APPLE EFFECTAPPLE EFFECTPROS:• Huge “opportunity” for small

independents to succeed • Great revenue share 70%• With the influx of new Tablets and app

stores there is growth opportunities there for the taking

• Trial/up sell, straight purchase, micro transactions, ad based revenue models, there is an endless amount of revenue models waiting you in this environment

CONS: • Reality will be Big companies will get the

promotion 1/1000 will see any major promotion

• There will be compilation packs and a value war that will not be healthy for the business as whole

• Whenever there is big money and growth there will be big companies get involved and screw up a good thing (EA buying Chillango)

• They are teaching our buying customers that we had just gotten from 1% to 8% conversion rates to think that they don’t have to buy because their entertainment need can be satisfied because there are 2-10 new games a day they can try and play for free

• The Free entertainment is not a teaser anymore but it has even spun new models like Smurfs into opportunities for developers IF they can afford to fund and cash flow out that far.

APPLE FACTSAPPLE FACTS

• 15M IPads sold in 2010

• 160 Million IOS devices

• Available in 46 Countries

APPLE’S IPAD REVOLUTION

GARTNER FORECASTS MOBILE APP STORE REVENUES WILL HIT $15 BILLION IN 2011

SURVEYSURVEY

SUMMARY: WHAT SHOULD SUMMARY: WHAT SHOULD WE DO NEXT?WE DO NEXT?• Get out of gaming and build Fart Apps for Get out of gaming and build Fart Apps for

Rim! Rim!

• Give away content and live on Ad revenue Give away content and live on Ad revenue on Torrent sites!on Torrent sites!

• Build Inline Email games for Spam Build Inline Email games for Spam companies!companies!

• Let Gogii publish all your games so you Let Gogii publish all your games so you make more $! make more $!

WHAT YOU SHOULD REALLY WHAT YOU SHOULD REALLY DO:DO:• Freemium Games are a real business but without the right

promotion partner/License it will be lost or buried amongst others.• Trial Games are still healthy but make sure your Top 3. The real $ is

there and if your spending more than 100-250k it will be difficult to be profitable short term

• App’s are a great business and something that I believe indie and small developers will be able to build a very healthy business in.

• Never lose site of your target customer. If they are over 45-50 women then design for them, but do not expect it will appeal to every demographic like >>

• If your want to be indie that’s fine but the commercial success will depend more and more on the right partners. If it is a publisher, with connections to retail or Apple, or Facebook. Their % (if negotiated right) is and will always be worth much more than you can bring on your own.