Part 3 of a 4-part series
Particular segments of the content and digital media industry are growing faster than others and by working closely with specialist research company, IHS Screen Digest, we looked into what’s new in this sector.
In part 3 of our blog series, we examine the role of games and gambling services in driving change in European markets.
A fragmented sector, online gaming boasts many facets. As an industry, the gaming sector has adopted the Internet with open arms, with most modern games relying on consumer broadband connections for some part of their lifespan – be they browser-based games, delivered from a download-to-own or streaming on-demand store or requiring broadband access to enable multiplayer or other features.
Despite this, the majority of actual spending on games in Europe and North America still revolves around physical discs for consoles, however online purchase of and access to games is a growing business segment. In 2011, ‘digital’ represented 18 percent of the value of the €6bn gaming market in UK, France, Germany, Netherlands and Switzerland.
Much of the money beyond download stores in the online gaming sector revolves around Massively Multiplayer Online Games (MMOGs), characterised by games such as World of Warcraft, as well as general Multiplayer Online Games (MOGs). These games operate broadly in two tiers, those which require a monthly subscription, and those which are free to play, but make money through microtransactions – users buy in-game items for real money.
A newer market entrant to the online gaming space is the social network game category. Social network games are typically casual games designed to appeal to non-gamers, and run within social networks such as Facebook. Zynga is perhaps the most well known of the social network gaming companies in the market, with its high profile ‘Ville’ series of games. Facebook revealed that Zynga was responsible for 12 percent of its revenue in 2011. Social network games generate their revenue largely through microtransactions, but advertising is a growing revenue stream for many.
The latest, and perhaps most ambitious, launches in the online gaming sector have come from a range of companies which operate video-streamed games on-demand solutions. Firms such as OnLive and Gaikai allow users to play high-end games on thin clients – the companies run the games on remote servers, and simply stream the visuals to the users. While the services are new, they target the same groups of gamers who would normally spend on console or PC games.
Strategies differ across the sector – companies such as OnLive have targeted telcos for partnerships, aiming at using their networks to ensure consistent service delivery, while competitor Gaikai has concentrated on making syndication deals with other websites, expanding its effective visibility through partnerships.
For such gaming services to offer multiplayer options at scale, they need hardware to match. Every gaming platform or service is different, but for a large scale massively multiplayer game, 80 blades might be necessary per 10,000 concurrent users. And as usage of online gaming services has grown, processing power requirements have expanded to match. In addition, many online games, particularly those aimed at the high-end of the market, require low latency for a good user experience, making the very location of the server-base important.
Heavily regulated, online gambling is still growing fast. A controversial subject in many markets, online gambling services are nonetheless enjoying rapid growth – while bricks-and-mortar gambling establishments have seen little expansion in their traditional businesses over the last few years, the online sector has been growing at a rate of 50-100 percent per year in some markets.
Gambling remains a heavily regulated industry, and in many countries, under strict state control. Online gambling (aside in some cases from lottery services) is effectively illegal in the US and in many European markets, including Germany, Netherlands and Switzerland; however relaxed attitudes towards actively limiting consumer access, with restrictions focusing on online gambling service advertising, has meant that extra-territorial online gambling sites have flourished. Many pan-regional sites and services actively target consumers in European markets where local online gambling services are not permitted.
The UK is perhaps the most deregulated gambling market in Europe, and as such boasts the most developed online gambling sector. IHS Screen Digest analysis of UK gambling commission data and company figures indicates that regulated online gambling represented 8 percent of the gambling sector in 2010, with extra-territorial services targeting the UK being worth at least as much again.
Elsewhere in Europe, regulation is slowly thawing. Online gambling was legalised in France in 2010, and was followed by a veritable explosion in the value of the market. In Germany, although operating online gambling services is still currently illegal, legislation is being looked at which will permit the entry of a limited number of existing bricks-and-mortar outlets into the online sector.
Alongside allowing the expansion of existing operations, the legalising of online gambling services has allowed a number of new online-specialists to enter the gambling sector. Companies such as Bet365, Bwin and Betfair have joined traditional players such as Betfred, William Hill and PMU in competing for consumer spend. Sports betting exchange Betfair now boasts close to 1m active customers and saw 8 percent revenue growth in 2011. The online specialist has substantial ambition and aggressively promotes its services – the company recently launched a new Google Chrome extension which uses keyword technology to overlay Betfair odds on competitor websites.
Particularly for betting services referencing real-world events, the speed and reliability of connections are paramount in ensuring that odds reflect reality – time is very much money in this sector. As a consequence, similarly to the online gaming sector, the location, as well as the size of the core infrastructure is critical for many online gambling houses.