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Deloitte & Touche Predicts Electronic Game Devices to Increase Five-Fold to 2.6 Billion by 2010
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New Deloitte Report Examines Impact of Game Technology Advances on
Advertising, Wireless and Entertainment Industries

NEW YORK, May 27 /PRNewswire/ -- Unrelenting progress in processing power,
network bandwidth and storage capacity will enable the electronic game
industry to become greater than five times more pervasive by 2010, with the
installed base of electronic game devices (excluding PCs) growing from 415
million to 2.6 billion. "Moore's Law and Electronic Games," a new global
report by Deloitte & Touche's Technology, Media and Telecommunications (TMT)
Group and Deloitte Research, focuses on the industries -- outside of the
electronic game and related industries -- that will be impacted by
technological advances based on Moore's Law, as well as the positive and
negative disruptions that the advancements will create. Moore's Law states
that the transistor density of a silicon chip will double every two years.
"As technology continues to improve, new opportunities will arise for
industries outside of the traditional electronic game arena, such as movie
studios, record companies, advertisers, mobile phone producers, communications
operators, toy manufacturers and electronics manufacturers," said Scott
Singer, Managing Director of Deloitte's Media and Entertainment Corporate
Finance Group. "As a matter of fact, the number and range of platforms on
which paid-for electronic games can exist will expand significantly and will
include mobile phones, MP3 players, PDAs, set-top boxes, children's toys and
even exercise machines. The installed base of devices will escalate from 415
million in 2004 to 2.6 billion in 2010."
Moore's Law implies that there will be an eight-fold increase in
processing power and memory capacity between now and 2010, greatly impacting
the disruptiveness of the electronic game industry. It is expected that 450
million homes worldwide will have broadband connections by 2010, with one
billion individuals having access to multimedia mobile phones that could
support game downloads and some form of mobile game playing. Storage capacity
will likely increase to 1,000 gigabytes of disk storage in a typical home PC
by 2010, enabling games to be longer and more complex with enhanced visual
detail, sound effects and music.
These technological advances will create new revenue opportunities for
sectors related to electronic games and will expand audience reach beyond the
traditional electronic game markets.

* Advertising. Game publishers looking to recoup their spiraling
development costs are more and more receptive to product advertising
in games. In-game advertising is expected to become increasingly
popular, particularly as technology improvements and shifting
demographics make in-game product ads more appealing.

* Wireless communications. Mobile operators will be the predominant
channel for selling and distributing phone-based games, with only a
small number sold in retail stores. More advanced networks prevalent
by 2010 will provide higher transfer rates, enabling downloaded games
to be more complex and sophisticated.

* Entertainment. Electronic games represent an important new
merchandising category, with cross-licensing between movies and
electronic games providing a major source of revenue for movie studios.
Music companies will recognize revenue opportunities, as music in
electronic games becomes a more essential part of the game experience.
Video games have inspired entire lines of toys and action figures,
allowing toy manufacturers to capitalize on cross-licensing
opportunities.

"Electronic games has been the fastest growing sub-sector of the media
industry over the past five years," said Singer. "In the U.S., sales of video
games and related technology surpassed box office receipts in 2001. This
growth means additional opportunities for industries typically not associated
with electronic games, providing the opportunity to create a new revenue
stream."
Additional key findings from Deloitte's "Moore's Law and Electronic Games"
report include:

* Game publishers - Game publishers will have more platforms to leverage,
including on-line play and mobile phones, but will also face escalating
production costs as demand for more sophisticated games increases.
Steep entry costs may drive smaller publishers out of the market.

* Advertisers - Embedded advertising in games provides advertisers a new
opportunity to reach an expanding market with attractive demographics.
Aggregating eyeball hours for a game that sells three to five million
copies implies at least 50 million hours of viewing time. The Sims
Online game already includes an interactive advertising element.

* Fixed-line operators - Fixed-line telecommunications operators will
benefit from the increasing popularity of multi-layer online games and
downloadable add-ons, leading to increasing subscriber revenues.

* Mobile operators - With an equal ratio of females to males owning
mobile phones, the expansion of games to mobile phones will likely
increase the participation level of women to electronic games. However,
bandwidth may be insufficient to support the growth until 3G networks
are more widely available around 2010.

* Music industry - The music industry will continue to benefit from the
growth of electronic games. Titles like Grand Theft Auto: Vice City use
music to enhance the game's appeal, and seven audio CDs from the game
are sold separately. Music and licensing revenues will become a factor
in mobile and handheld games.

* Toy manufacturers - Electronic games have historically competed with
traditional toy manufacturers in the youth market. Technological
advances will create new opportunities to improve existing toys with
electronic feature add-ons as well as for cross-licensing
opportunities.

* Home console - Home console manufacturers will have to make
increasingly large investments to build the next-generation video game
console that will occupy the dominant position in the digital living
room of the future.

The report was researched and written by Deloitte's Telecommunications,
Media and Technology (TMT) Group and Deloitte Research. Input was provided by
clients, leading industry and financial analysts, and the 5,000 strong global
Deloitte TMT team. The report is available at http://www.deloitte.com.

About Deloitte
Deloitte, one of the nation's leading professional services firms,
provides audit, tax, financial advisory services and consulting through nearly
30,000 people in more than 80 U.S. cities. Known as an employer of choice for
innovative human resources programs, the firm is dedicated to helping its
clients and its people excel. "Deloitte" refers to the associated partnerships
of Deloitte & Touche USA LLP (Deloitte & Touche LLP and Deloitte Consulting
LLP) and affiliated entities. Deloitte is the US member firm of Deloitte
Touche Tohmatsu. For more information, please visit Deloitte's web site at
http://www.deloitte.com/us.
Deloitte Touche Tohmatsu is an organization of member firms devoted to
excellence in providing professional services and advice. We are focused on
client service through a global strategy executed locally in nearly 150
countries. With access to the deep intellectual capital of 120,000 people
worldwide, our member firms (including their affiliates) deliver services in
four professional areas: audit, tax, financial advisory services and
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as large national enterprises, public institutions, and successful, fast-
growing global growth companies.
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