April 9, 2009 | Alex Ferrara | Bessemer Venture Partners Notes on the Video Game Industry

$500 million First Week Sales $239 million First Week Revenue Source: Associated Press Scale of Dark Knight vs. GTA4

Worldwide Gaming is bigger than Music, DVDs, or Box Office Source: Citigroup, NPD, October 2007; ESA 2008 Asia $11.5bn Europe $11.4bn U.S. $10.7bn

$34+ Billion Industry Worldwide Source: Citigroup, Brent Thill $68 Billion of Total Consumer Spend in 2007

Traditional Video Game Value Chain Publishers Console Vendors Retailers Consumers Spend Value Capture $68 billion $9 billion $25 billion $33 billion Royalties & Licenses Independent Studios

Console Game Publishers Face Challenging Economics Low contribution margin and high fixed costs make “hits” critical to success Revenue from a $50 Console Game Trend Ad agencies and media Overhead, freight, co-op, bad debt, etc… Developer Retailer Retailer Console vendor Media manufacturer Paid To Publisher Marketing $6 (12%) Publisher Operating cost $10 (20%) Publisher Development cost $8 (16%) Publisher Markdown reserve $3 (6%) Consumer Retailer profit $13 (26%) Publisher Publishing license $7 (14%) Publisher Cost of goods $3 (6%) Paid By Purpose Amount

Consumers Desire Social Gaming Experiences Source: MMOGChart

Consumers Desire Social Gaming Experiences Source: Gamer DNA Rock Band and Guitar Hero III share common game design themes, however Rock Band is designed for a more social gaming experience. Do these social elements contribute to increased player activity? Rock Band - Players/Day Guitar Hero III - Players/Day

Case Study: Nintendo DS Source: VGChartz, March 2009 <- Weekly Puzzle Downloads via Wifi <- Multiplayer and ghost data sharing <- Virtual pets can play together <- Local multiplayer & capture the flag <- Multiplayer competition DS is the first portable device designed for connected multi-player local games

Traditional Retail Pricing Model for Console Games Source: VGChartz

More to come…