The document discusses the impact of digitization on the video game industry. It makes three key points: 1) The video game market has grown significantly from 2008 to 2014 due to digitization and the rise of digital sales over physical sales. Most market segments like consoles, PCs, mobile and TV have seen strong growth in digital revenues. 2) Digitization has led to disintermediation and redistribution of value across the industry value chain. Functions have moved to downstream players like developers who can now connect directly with customers. 3) You forecasts that the digital share of video game software revenues will continue increasing to 88% by 2019, driving overall market growth. Developers and retailers will capture more value

1. The impact of digitization
My gravity theory in the game industry
19 November 2015
Laurent MICHAUD
Head of Consumer Electronics Practice, IDATE

2. Copyright © IDATE 2015, 2
I’m responsible for studies related to consumer electronics and video games industry
through changing uses, technology innovation, market analysis, business strategy, industrial
perspectives, forecasts and prospective issues.
Laurent MICHAUD, Head of Consumer Electronics & Digital Entertainment Practice
I act as economic advisor for
game companies and
subcontractors working for
video game industry.
I carry out techno-economic
appraisals for innovation
agencies and incubators on
the issues of video gaming
and multimedia content
development.
I’m the originator of Game
Summit, which takes place
during the Digiworld Summit
in November each year
www.gamesummit.pro.
I hold a Master's degree in Economic and Financial Engineering.

3. Copyright © IDATE 2015, 3
• The video game market has risen from 35.3 billion EUR in 2008 to 47.7 billion EUR in 2014.
• Dematerialisation affects all segments of the video game industry.
Source: IDATE, Video Games in the Cloud, June 2015
Breakdown of the video game software market by type of revenue, 2008
and 2014
Dematerialisation of the video game industry (1/2)
Source: IDATE, Video Games in the Cloud, June 2015
Video game software market, 2008–2014
(billion EUR)
35,3 34 0 35,4 36,9 37,7
41,1
47,7
2008 '09 '10 '11 '12 '13 '14
22%
69%
78%
31%
0%
25%
50%
75%
100%
2008 2014
Physical
Digital

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• Home console: eventually the expected
game changer
• PC: power and variety of the pioneer
• Mobile: the next big deal
• Connected TV
• Handheld consoles
Source: IDATE, Video Games in the Cloud, June 2015
Breakdown of the PC gaming market by type of revenue,
2008 and 2014
Dematerialisation of the video game industry (2/2)
Source: IDATE, Video Games in the Cloud, June 2015
Mobile gaming and TV gaming markets, 2008–2014
(million EUR)
Source: IDATE, Video Games in the Cloud, June 2015
Breakdown of the console gaming market by type of revenue,
2008 and 2014
1 723 2 419
3 692
5 657
7 899
10 274
12 811
0,3 4,5 19,3 45,1
93,7
0
500
0
2 000
4 000
6 000
8 000
10 000
12 000
14 000
2008 '09 '10 '11 '12 '13 '14
Video Games TV
1%
24%
99%
76%
2008 2014
Physical
Digital 69%
93%
31%
7%
2008 2014
Physical
Digital

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Dematerialisation and value displacement
• Digitization has shortened value chains, let’s speak about disintermediation
• Functions have been redistributed to downstream players, new advantages imply new skills
• Digitization has moved video game market segments revenue along the value chain
• Disintermediation has appeared making possible for developers to be closer to their customers. customers

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Dematerialisation and value displacement : PC
• PC gaming and distribution services, pioneers of dematerialisation
• Massively multiplayer gaming services
Source: IDATE, Video Games in the Cloud, June 2015
Physical and digital PC gaming value chains
Breakdown of online video game revenues by
type of game, 2015
Source: IDATE, Video Games in the Cloud, June 2015
12%
33%
17%
38%
Online…
Premium Massively Multiplayer
Free Massively Multiplayer
Casual
Social
… Video Game Market

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Dematerialisation and value displacement: consoles
• In terms of distribution
• In terms of consumption patterns
• The 8th console generation made the shift to dematerialisation by turning to the cloud for
data storage and processing.
Physical and digital console gaming value chains
Source: IDATE, Video Games in the Cloud, June 2015

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• The spread of smartphones has reduced the importance of telecom operators and content aggregators in the
distribution of games.
Source: IDATE, Video Games in the Cloud, June 2015
Mobile gaming revenue distribution, 2008 and 2015 (%)
Dematerialisation and value displacement: mobile
Source: IDATE, Video Games in the Cloud, June 2015
Mobile gaming value chains
5%
35%
54%
39%
40% 11%
1%
15%
2008 2015
Game Studio Publisher Telco Appstore

9. Copyright © IDATE 2015, 9
Dematerialisation and value displacement: mobile
• An underlying trend, the huge popularity of Free-to-Play
• Increasing number of ubiquitous games
• The mobile gaming segment was behind a massive and unprecedented phenomenon
• Increased competition from smartphones and tablets is seriously harming the handheld console gaming
business
Global mobile gaming sector revenue growth, 2000–2015
(billion EUR)
Source: IDATE, Video Games in the Cloud, June 2015

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• Internet service providers now offer video games through their set-top boxes. Their services fall into two
categories
• The GoDP may also choose to offer an Over-The-Top cloud gaming service, meaning it can directly address
users and bypass the ISP managed service (OTT Streaming). Two scenarios are therefore possible
Source: IDATE, Video Games in the Cloud, June 2015
The OTT video game value chain
Dematerialisation and value displacement: cloud gaming
Source: IDATE, Video Games in the Cloud, June 2015
The IPTV video game value chain

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 The global video game software market will rise from 57.7 billion EUR in 2015 to 80.7 billion in 2019, an average annual growth rate of 8.7% over
the period.
 The share of console games in the total video game software market will continue to decrease over the 2015–2019 period. Mobile device games
will continue to grow.
 In 2015, 71% of video game software revenues will be generated by digital sales, compared with 88% in 2019.
 Revenues from digital sales will experience an average annual growth of 14.7% over the period, compared with -13.1% for revenues from
physical sales.
Source: IDATE, Video Games in the Cloud, June 2015
Breakdown of the video game software market by type of revenue,
2015 and 2019
Global video game software market
Source: IDATE, Video Games in the Cloud, June 2015
Video game software market, 2015–2019
(billion EUR)
57,7
65,5
71,0
74,9 80,7
2015 '16 '17 '18 '19
29%
12%
71%
88%
2015 2019
Digital
Physical

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With increasing rates of dematerialisation, we see that the benefits of this value redistribution are felt higher up the chain, mainly
by developers.
The other link in the value chain to benefit from dematerialisation is retail sales. However, the players have changed.
Although the publishing link still captures the largest share of the sector's revenues over the period, retailers will catch up to it in
terms of value and relative share in 2019 as they increasingly benefit from the direct relationship with gamers/customers.
Publishers benefit from cyclical growth in the market, but their share of total revenues in the sector will gradually be reduced as
developers take over more publishing tasks.
Source: IDATE, Video Games in the Cloud, June 2015
Revenues earned by the various links in the video game market value
chain (%)
Impact of dematerialisation on value distribution
12
Source: IDATE, Video Games in the Cloud, June 2015
Revenues earned by the various links in the video game market value
chain (million EUR)
0
10 000
20 000
30 000
2008 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Developer Publisher Distributor
Retailer … revenue
0%
10%
20%
30%
40%
2008 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Developer Publisher Distributor
Retailer … revenue

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