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In August, Dean Takahashi described his thoughts on the increasingly globalized video game business.
In the post, he shared interesting anecdotes collected over the course of a year traveling to game industry events around the world — Shanghai, Amsterdam, and San Francisco. Takahashi drew a comparison to the stories included by Thomas Friedman in “The World Is Flat,” the bestselling book describing the forces reshaping the global economy. I was inspired by Takahashi’s article, and during a talk at Casual Connect Amsterdam, I took the opportunity to take that comparison to “The World Is Flat” one step further — applying the notion of “flattening forces” to look at the global video game landscape, past, present, and possible future.
A decade ago in 2004, the worldwide video game market was $26BN. While there were rapidly-growing industries in South Korea and China, it was a market dominated by the traditional Western and Japanese retail-oriented publishers like EA and Activision and the console-manufacturing giants Sony and Nintendo.
It was a highly balkanized industry worldwide.
Looking at some of the top performing games and companies by region, Nintendo and Square/Enix ruled in Japan’s retail game business with “Dragon Quest 8.” “GTA: San Andreas” was top of the US PlayStation 2 sales charts, and “FIFA” sold well in Europe. In South Korea, Nexon was pioneering the free-to-play model with success in games like “Maple Story” and “Kartrider,” while in China, Shanda’s “Legend of Mir 2” was king.
With the benefit of hindsight, the picture that comes together is one in which the massive friction associated with the physical distribution of games — whether it was distribution of disks to retail outlets or to Internet cafes for installation — resulted in insular local industries dominated by regional powerhouses. Those isolated regional industries created an echo chamber in which game-makers’ and game-players’ tastes evolved with minimal outside influence. What game dork (like me) doesn’t remember the pains associated with special-ordering that rare Japanese import title and navigating around region-locked consoles?
The first flattening force was Internet penetration.
The ability to transfer a game over the internet reduces the friction of game distribution over distance to almost zero. According to data from the International Telecommunication Union, in 2004 internet penetration in the developed world was 54% — not substantially lower than 2014’s 58%. But in order for distribution to become friction-free globally, global internet penetration is required. Just 7% of the developing world had access to the internet in 2004, whereas that that grew to 22% in 2014. Today the cost of distributing a game internationally is nominal.
The second force flattening the game industry is the proliferation of smartphones.
According to Mary Meeker/KPCB’s Internet report, 2013 tablet and smartphone shipments were four times that of PC’s. Mobile device screen minutes have surpassed that of both PC and TV in an astonishing 25 of the 30 most populous countries in the world. Over 65% of the global population spends more time using their smartphone than TV or PC. And in emerging markets like India and recently-emerged markets like China, mobile internet share is even greater. 80% of Chinese internet users are mobile.
The third force is the impact of Apple and Google’s mobile operating systems.
According to IDC, combined, iOS and Android account for more than 95% of the global mobile operating system share. And a fundamental part of both the Apple and Google ecosystems are open storefronts enabling developers to provide their games to users, and there’s very little economic barrier to entry into this massive worldwide market. The great news for game-makers is that, with very little variance worldwide, games account for the vast majority of the dollars spent on these platforms. Apple and Google have created the first open and nearly ubiquitous global game platforms.
The future of the game business is taking shape in mobile.
According to IDATE, 2004’s mobile game business was just $120M — less that .5% of the industry at the time. Today, it’s about 20%, or about $17BN. And according to Newzoo, it will continue to grow at roughly 20% CAGR through 2016. And the low cost, global distribution provided by Google and Apple mean that success is no longer regional. The best games — Clash of Clans, Brave Frontier, or Plague Inc. — can directly distribute globally and find success. Developers from China, Japan, Korea, and even tiny countries like Finland occupy top spots in the global top-grossing lists.
The accessibility of locally-created games globally will have an enormous impact in the years to come. Game-players and game-makers can download and play content produced anywhere in the world with a minimum of friction, introducing them to new genres, mechanics, and themes. Games that once might have been considered only viable regionally, like Brave Frontier or Clash of Clans, are successful everywhere. As game-makers develop increasingly international tastes and target a global market, the best games made anywhere will dominate everywhere. The top grossing charts regionally will unify globally.
In a follow-up post, I’ll address the challenges that this global game market will create and how companies will have to address them.
Daniel Fiden is Chief Strategy Officer at FunPlus.
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