VCON is a 1-day exploration into how Games-as-a-Service and Virtual Items have changed the playbook forever. Led by the game industry's most sought-after CEO's, founders, visionaries, and executives, we'll discuss the industry's undisputed transition to this new business model, as well as its ramifications on development, product management, operations, and strategy.

1. Eating An Elephant One Bite at a Time:
March 2010
DFC Intelligence
(858) 834-4340
www.dfcint.com
David Cole
dcole@dfcint.com
DFC INTELLIGENCE P R O P R I E T A R Y

2. DFC Intelligence Overview
 Founded in 1994 to focus on games and digital entertainment
content
 From 1994-1997 a major focus was digital distribution and online
games
 DFC was a little too early to the online party
 From 1998 to 2001, DFC’s primary focus was on U.S. retail
 Starting in 2001, DFC once again started to focus heavily on the
online game market looking at casual games, MMOGs and being
one of the first research companies to start looking at the
Korean game market
 DFC Intelligence offers:
 Off-the-shelf reports with market forecasts, company profiles
 Detailed surveying of consumers on a global basis
 Custom consulting
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3. DFC’s Theory
 The game model where all products are released at a price of
about $50 (less for portable) is whacked and not sustainable
 We have had that theory since 1994
 Sony brought prices down towards $40 with the first PlayStations
 With the Xbox 360 and PS3 they brought prices back up to $60!
 The fact that prices remained so high for so long is a testament
to how popular games are in modern society
 However, technology has caught up and allows for new pricing
models
 We have reached the point where there will be massive variation
in game prices based mainly around usage
 Research shows consumers are rapidly adapting to this change
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4. How did the Game Industry Get Its Start?
 In the arcades
where consumers
spent 25 cents at a
time
 It became a multi-
billion industry by
the early 1980s
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5. Entering the Home
 Home cartridge
systems had a
high cost of goods
 High cost of
goods = The start
of $30+ games
 People like being
able to play at
home
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6. It Took About 15 Years for Home Game Revenue to
Reach Arcade Revenue
25
$30
cents
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7. Lessons Learned
 People love games and are willing to pay for them
 People like playing games at home on a regular
basis
 Technology has limited home delivery options
and forced artificially high prices
 Technology improves and allows for more flexible
product delivery to the home
 Economics 101: Offer people more efficient
options and they will take them
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8. Economics 101: Game A and Game B
 The past 20 years
 Game A
 Fun for 2 hours
 Total Cost: $50
 Cost Per Hour: $25
 Game B
 Fun for 100 hours
 Total Cost: $50
 Cost Per Hour: $0.50
 This is not sustainable for Game A
 With Game B, the market is undervaluing the product
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9. Compare with Other Entertainment
 Going to a Movie: $10 for 2 hours or $5/hour
 Assume a game is valued at only $1/hour
 Game A should cost $2
 Game B should cost $100
 Assume a game is valued at $2/hour
 Game A should cost $4
 Game B should cost $200
 We are still unclear how consumers will value games
 Because new methods of charging based on usage are just
being introduced consumers are still setting a valuation
 However, we know consumers increasingly have more
choices and are starting to make more efficient decisions
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10. Xbox Live Users Flocked to Call of Duty: Modern
Warfare 2
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11. World of Warcraft: People Try it and Continue to Play
Game Lapsed Subscribers Game Never Used
World of Warcraft 58% World of Warcraft 42%
EVE Online 60% EVE Online 72%
Everquest II 74% Lord of the Rings Online 80%
Lord of the Rings Online 75% Warhammer Online 80%
City of Heroes/City of Villains 84% City of Heroes/City of Villains 84%
Warhammer Online 84% Everquest II 89%
DFC survey of PC gamers in North America and DFC survey of PC gamers in North America and
Europe conducted Jan-Feb 2010. Based on Europe conducted Jan-Feb 2010. Based on
percentage of total subscribers that identified percentage of respondents that identified
themselves as former subscribers not current themselves as never having played the game.
subscribers. Respondents per game 2,512-2,526 Respondents per game 2,512-2,526
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12. The MMOG Model
 $15 a month = $180 a year for all subscribers
 User A plays 30 hours/yr = $6/hour
 User B plays 500 hours/yr = $0.36/hour
 User C plays 1,000 hours/yr = $0.18/hour
 Can you get Users B and C to pay more by getting
them to pay for in-game enhancements?
 The answer increasingly seems to be yes.
 Economics 101 says Users B and C are getting high
entertainment value for their $
 Nov 2009: Blizzard adds pets available in WoW for $10
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13. Gamers are Getting Comfortable Buying In-Game
Goods
Region No Yes
Europe 49.33% 50.67%
North America 37.30% 62.70%
UK 36.42% 63.58%
Grand Total 40.05% 59.95%
DFC survey of PC gamers in North America and
Europe conducted Jan-Feb 2010. Based on
percentage saying Yes to question “Have you
ever purchased an in-game good that is not a
full game, but consists of a game component
such as virtual currency, avatars/characters,
items/weapons/vehicles, extra levels, etc?”
Respondents 2,674
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14. Gamers are making recent purchases: 80% of in-
game good buyers have purchased in past 3 months
Amount Spent Europe North America UK Grand Total
None 24.3% 19.7% 19.2% 20.5%
Less than $5 24.3% 17.8% 22.8% 20.9%
$5-10 14.4% 17.2% 12.3% 14.9%
$11-20 14.1% 18.5% 19.7% 18.0%
$21-50 13.8% 15.6% 18.0% 16.1%
$51-100 4.5% 5.1% 3.5% 4.4%
More than $100 4.5% 6.1% 4.4% 5.2%
DFC survey of PC gamers in North America and
Europe conducted Jan-Feb 2010. Questions
asked only to respondents that have said they
have purchased in game goods. “In the past
three months how much have you spent buying
in-game goods?” Respondents 1,580
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15. Free-to-play games are popular: 53% are current
users
I used to play F2Ps
but no longer play
Region Every day Several times a week Once a week or less them I never play F2Ps
Europe 20.76% 19.81% 13.95% 33.28% 12.20%
North America 21.26% 18.06% 18.52% 30.71% 11.46%
UK 15.40% 15.65% 13.57% 37.16% 18.22%
Grand Total 19.25% 17.72% 15.79% 33.43% 13.82%
DFC survey of PC gamers in North America and
Europe conducted Jan-Feb 2010. Based on
answer to question “How often do you play F2P
games” Respondents 2,540
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16. Converting Users from Free to Paying Can Vary
Significantly by Product and Business Model
Percent Paying of
Percent Paying of
Game Total Users
Game Total Users
Runescape 39.5%
Free Realms 19.0%
Club Pogo 37.8%
Knight Online 16.7%
Real Arcade 36.4%
Cabal Online 16.6%
Texas Hold-Em 29.1%
Flyff (Fly for Fun) 15.2%
Maplestory 26.8%
2Moons 11.6%
Club Penguin 26.4%
Farmville 9.5%
Silkroad Online 22.9%
Neopets 9.1%
Combat Arms 19.6%
Mafia Wars 8.9%
RF Online 19.3%
DFC survey of PC gamers in North America and
Europe conducted Jan-Feb 2010. Percent of
respondents in North America that identified
themselves as former or current users that had
PAID. Respondents 1,069-1,085 per game
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17. iPhone and iPod Touch owners are purchasing
games for the system: 60% of owners bought a
game in the past 3 months
More than
none but less More than
Region None than $5 $5 to $9 $10 to $19 $20 to $29 $30 to $39 $40 to $50 $50
Europe 49.14% 13.79% 4.31% 11.21% 4.31% 5.17% 1.72% 10.34%
North
America 40.37% 12.96% 13.33% 14.44% 5.56% 5.19% 1.85% 6.30%
UK 34.25% 14.17% 13.39% 13.39% 9.84% 5.91% 2.76% 6.30%
Grand Total 39.53% 13.59% 11.72% 13.44% 7.03% 5.47% 2.19% 7.03%
DFC survey of PC gamers in North America and
Europe conducted Jan-Feb 2010. Based on
answer to question “Over the past 3 months,
please estimate the total amount you have
spent on iPhone / iPod Touch games
purchases.” Question asked only to owners of
iPhone or iPod Touch.” Respondents 640
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18. Xbox 360 Owners Are Comfortable Buying Digital
Content: 66% have bought a digital game or game
component
Xbox 360 – I have
Xbox 360 - I have purchased
Xbox 360 - I have purchased downloadable games Xbox 360 – I have Xbox 360 - I own this
purchased a full downloadable games or games purchased non-game system but have
downloadable game or game components components at any content such as never purchased
Region for more than $10 priced at under $10 price music or a movie digital content for it
Europe 36% 23% 52% 7% 45%
North America 47% 38% 69% 16% 27%
UK 42% 39% 69% 13% 28%
Grand Total 43% 36% 66% 13% 30%
DFC survey of PC gamers in North America and
Europe conducted Jan-Feb 2010. Based on
answer to question from only those that
indicated they owned an Xbox 360.
Respondents 1,248 Xbox 360 owners
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19. What Does it Mean?
 Consumers are increasingly spending money based on product
usage
 Multiple types of usage based models are going to become
increasingly popular
 Usage based models can take all forms
 Charging a set price for unlimited usage is a usage based model
 For certain products a $50+ retail price and/or $15+ monthly
subscription is a bargain because it allows for unlimited usage
 For these products there is a growing ability to upsell digital
content to heavy users
 Most products will not have the luxury of getting consumers to make a
major commitment up front and will need to rely on getting consumer
payments in smaller increments
 For all products quality of the user experience becomes more
important
 A high profile license can bring consumers in, but it can’t get
them to stay around
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20. Online Usage Models
are Already Major DFC Forecasted Online Usage Revenue
Revenue Generators, $9.0
Especially in Asia $8.0
$7.0
Online Usage Revenue includes
subscriptions and virtual item $6.0
models where the product is
consumed and/or no longer
in billions
$5.0
usable once the consumer stops
paying. $4.0
$3.0
$2.0
$1.0
$0.0
2009 2010 2011 2012 2013 2014
North America and Europe Online Usage Revenue
Asia Online Usage Revenue
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21. Contacting DFC
 The Data in This Presentation is From Our Latest Report:
Downloadable Content: The Future of the Game Industry
 Survey of nearly 5,000 gamers in North America and Europe
 Partnership with Live Gamer to analyze seven years of actual micro-
transaction data from games in Korea, U.S., Japan, Germany, Philippines
and Vietnam
 Strategic Market Reports, Forecasts and Analysis of Established
and Emerging Investment and Partnership Opportunities
 Emerging Markets Research: http://www.dfc-niko.com/
 Monthly DFC Dossier report available for download.
 Profiles emerging markets, products and companies
 Sign-up to receive the report
https://www.dfcint.com/DFCDossier/signup.php
 If you know of a company or product that should be profiled contact George
Chronis gchronis@dfcint.com
 If you would like access to past reports or more info give your business card
to David Cole or contact Ozzie Monge at omonge@dfcint.com
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