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The Video Game Industry Outlook: $31.6 Billion and Growing

This is an article published in Aug 2007 in business week talking about Video Gaming industry outlook from 2007 to 2011. http://www.businessweek.com/innovate/content/aug2007/id20070813_120384.htm

The Video Game Industry Outlook: $31.6 Billion and Growing
The global market will grow at an annual rate of 9.1% over the next five years, according to a new report by PricewaterhouseCoopers

In June, PricewaterhouseCoopers released the report Global Entertainment and Media Outlook: 2007-2011. The comprehensive analysis offers a picture of the entertainment and media landscape, as well as in-depth breakdowns of 14 industry segments (filmed entertainment; TV networks; TV distribution; recorded music; radio/out-of-home advertising; Internet advertising and access spending; video games; business information; magazine publishing; newspaper publishing; book publishing; theme parks and amusement parks; casino and other regulated gambling; and sports).

The report is good news for companies in the video game industry, predicting that the global gaming market —measured by consumer spending on games played on all platforms, including online and wireless games, but not counting gaming hardware sales—will expand at a compound annual rate of 9.1% over the next five years.

Stated in hard cold cash, PwC estimates that the video game market will increase from $31.6 billion in 2006 to $48.9 billion in 2011. This makes video games the third-fastest-growing segment of the entertainment and media market after TV distribution (up 9.3% to $250.7 billion in 2011) and Internet advertising and access spending (up 13.4% to $331.6 billion in 2011).

Watching the Trends
Video game growth will be strongest in the Asia Pacific region, its largest market, with a 10% annual growth rate through 2011, but will increase in the Europe/Middle East/Africa region (10.2%), the U.S. (6.7%), Canada (9.4%), and Latin America (8.2%) as well.

To give a comprehensive picture, PwC further breaks down the numbers, giving consumer spending by region on games played on consoles, handhelds, PCs, and mobile phones, including online games (streamed or downloaded) and subscriptions to online services such as GameTap and XboxLive (MSFT). (In the U.S., the figures also include the burgeoning business of advertising in games.)

Certain trends hold steady across most regions: For instance, driven by increased penetration of broadband access, online gaming is surging. In the U.S. and Europe/Middle East/Africa, online gaming represents the fastest-growing consumer segment (19.3% and 24.6%, respectively); in Asia Pacific and Canada, online growth came in second only to wireless (at 16.1% and 13.9%, respectively).

Tremendous Potential
Other trends are more regional. The in-game advertising market is expected to increase 64% in the U.S., for instance, while PwC does not even track it in other regions. And in China, which PwC expects will show the largest growth rate of any country in the region, rising at a compound annual rate of 14.3% to $2 billion in 2011, most all of that growth will come in online games—due to rampant piracy, retail packaged games are almost nonexistent in the People's Republic.

The takeaway is clear: Spurred by the new generation of consoles and handhelds, and by increased penetration of broadband and wireless technologies, the video game industry is ripe with opportunity. "Growth in platforms allows you to hit new demographics," says Stefanie Kane, a partner with PwC's entertainment and media practice, noting that handheld game devices have brought more women into the market, and that the entrance of cable and on-demand TV channels will further widen the base. "There is a lot of unlocked potential."