Summer 2012 Video Game Consumer Survey

7/27/2019 Summer 2012 Video Game Consumer Survey

1/20

SUMMER 2012 CONSUMER VIDEO GAME SURVEY

We recently conducted a survey of over 400 video game consumers in an attempt to gauge

awareness and purchase intentions for hardware, software, and peripherals heading into the 2012

holiday season as well as longer-term trends surrounding the upcoming console transition and theundeniable evolution towards digital products, services, and distribution. If our previous surveys are

any indication, the responses from our participants are a strong directional indicator of upcoming

trends within the video game space.

Consumer Awareness of Upcoming Software Titles

Our first question was an attempt to gauge consumer awareness of seventy-six upcoming video

games (forty games with specific release dates and thirty-six which do not yet have a date scheduled

but are expected in 2012/2013). We simply asked consumers to identify which games they had

previously heard of.

In a deviation from our three previous consumer surveys, a Call of Dutytitle did not take the top spot

in awareness. The most recognized game among our contacts was Assassins Creed III (93%

awareness), no huge surprise given that Assassins Creed titles occupied the #2 slot in both our fall

2010 and fall 2011 iterations of the survey. Call of Duty: Black Ops II finished a close 2nd

(90%),

followed by Microsofts Halo 4 with 89%, Take-Twos Grand Theft Auto V (84%), and TTWOs

BioShock: Infinite (84%). The following chart depicts the top fifteen games ranked in terms of

consumer awareness.

Top Fifteen Upcoming Games Consumer Awareness

CreedIII

ty:BlackOpsII

eftAutoV

Infinite

nds2

Evil6

ce3

Absolution

War:Judgemnt

ar:Ascension

der

Revengeance

30%

40%

50%

60%

70%

80%

90%

100%

(%respondents)

We surveyed over 400video game consumers

about awareness andpurchase intentions

Assassins Creed III(93%) edged out CoD:Black Ops II(90%) inawareness


2/20

2M units) of a front-line title, sequels are seen by publishers as much more compelling risk/reward

propositions.

It is worth noting that in general, the percentage of respondents who said they were aware of any

given title came down vs. last year. We attribute this difference to a combination of factors, including

1) the Fall 2011 survey was conducted about a couple months later in the year, which we believeoverlapped with more video game advertising, 2) because of our current late position in the console

cycle, we believe fewer consumers are paying close attention to upcoming releases, a thesis which is

supported by consistently weak year-to-date NPD packaged goods data, 3) exclusive of the overall

trend in video game interest, we believe this years slate of titles is incrementally weaker than the

games released in late 2011, which likely reduces the chances that consumers will stumble across

information about second tier titles, and 4) there were seventy-six games in this years survey, versus

sixty-five and sixty-six games in the past two, likely diluting the responses over a larger pool of

games.

Upcoming Software Purchase Intentions

Our second question asked consumers which of the same seventy-six games they planned to own, on

a scale of one (would most like to own) to five (would like to own, but lowest priority), respondents

were also given the option of answering N/A if they were unaware of a game or had no interest in

owning it.

The top first chart below illustrates which games ranked highest when we counted only the most

desired responses, whereas the bottom chart illustrates the ranking based on our weighted scoring

system. We awarded games five points for each response of most like to own and one fewer pointfor each progressively lower response (ie. four points for a response of two, three points for a

response of three, etc.).

Top 15 Purchase Intentions Most Desired Only

II V OpsII

.Next

U50

60

70

8090

100

110

#respondents)

"Most Desired" Upcoming Releases

We asked gamersabout 76 titles this

year vs. 65 in Fall 2011

Assassins Creed IIIwas also #1 in plans tobuy, followed by threetitles from Take-Two

Call of Duty: Black OpsIIfinished #8 in plansto buy, Modern

Warfare 3was #1 lastfall


3/20

Top 15 Purchase Intentions Weighted Score

Assassin'sCreedIII

BioShock:Infinite

GrandTheftAuto

V

Borderlands2

Halo4

TheLastofUs

WatchDogs

CallofDuty:BlackOpsII

ResidentEvil6

SuperSmashBros.Next

Dishonored

TombRaider

StarWars:1313

DeadSpace3

NewMarioBros.U

0

100

200

300

400

500

600

700

800

900

(points)

Most Desired (1) (2) (3) (4) (5)

Source: Independent Research

As with our awareness question, Call of Duty was nudged from the top spot in this years survey,

although in this case it fell to the #8 spot. Assassins Creed III was again the high scorer, scoring over

860 points based on our scoring system, and with over one third of our respondents identifying it as a

1 or 2 on our plans to buy scale. A.C. III was followed by three TTWO titles: BioShock: Infinite,

Grand Theft Auto V, and Borderlands 2. Halo 4 was the #5 game.

In an effort to better quantify the strength of the upcoming release slate, we calculated that theaverage respondent classified 4.4 games as most desired (1 on our 5 point scale), versus an average

of 6.1 games categorized as 1 in our Fall 2011 survey and 3.3 such-classified games per respondent

in our Fall 2010 survey. We believe this illustrates a general enthusiasm gap relative to last years

release slate (which, at the time, we thought was the most impressive release slate in memory),

although there are clearly many titles on this list which will be blockbusters regardless of when they

are released

Gamers rated fewergames than last year(4.4 vs. 6.1 on average)


4/20

Publisher Title Release Date % Aware Plans to Buy Rank

ATVI Call of Duty: Black Ops II 11/13/2012 90% 8

ATVI Transformers: Fall of Cybertron 8/21/2012 57% 36

ATVI The Amazing Spiderman 6/26/2012 57% 41ATVI StarCraft II Zerg: Heart of the Swarm TBA 35% 55

ATVI StarCraft II Protoss: Legacy of the Void TBA 27% 58

ATVI Family Guy: Back to the Multiverse 9/25/2012 26% 65

ATVI World of Warcraft: Mists of Pandaria 9/25/2012 47% 69

ATVI Skylanders Giants 10/21/2012 34% 74

EA Dead Space 3 Feb-13 72% 14

EA Crysis 3 TBA 2013 74% 16

EA Medal of Honor: Warfighter 10/23/2012 57% 33

EA Need For Speed: Most Wanted Oct-12 57% 38

EA Sim City TBA 62% 40EA Madden NFL 13 8/28/2012 58% 48

EA FIFA 13 9/25/2012 57% 52

EA NCAA Football 13 7/20/2012 42% 56

EA NHL 13 9/11/2012 36% 59

EA The Secret World 7/3/2012 31% 68

EA Overstrike TBA 2013 17% 72

EA NBA Elite 13 10/2/2012 28% 77

THQI Darksiders 2 8/14/2012 65% 18

THQI South Park: The Stick of Truth 3/5/2013 53% 25

THQI Metro: Last Light TBA 48% 34

THQI Homefront 2 TBA 38% 46

THQI Company of Heroes 2 TBA 2013 29% 63

THQI WWE '13 10/30/2012 32% 66

THQI Devil's Third TBA 16% 71

THQI inSANE TBA 12% 73

TTWO BioShock: Infinite Feb-13 84% 2

TTWO Grand Theft Auto V TBA 84% 3

TTWO Borderlands 2 9/18/2012 82% 4

TTWO Spec Ops: The Line 6/26/2012 51% 47

TTWO XCOM: Enemy Unknown 10/9/2012 42% 49

TTWO Mafia III TBA 29% 50

TTWO NBA 2K13 10/2/2012 46% 53

Consumer Survey Results: Most Desired Upcoming Games by Publisher

Electronic Arts

A year ago, EA was the standout publisher when these results were taken in aggregate, with three

games in the top ten in terms of plans to buy: Battlefield 3 (#3), Mass Effect 3 (#8), and Star Wars:

BioShock: Infinitewasthe most desired titleamong our coveredpublishers

Dead Space 3was EAshighest ranked gameat #14


5/20

(12) than last year (10), and more than any other publisher, none of these games appear to have

made a significant impression in the minds of consumers so far.

The first person shooter that has the honors of standing in for Battlefield 3 this year (with Battlefield

4 likely due out holiday-2013) is Medal of Honor: Warfighter. The game achieved 57% awareness and

ranked #33 in terms of plans to buy, a major drop compared with Battlefield 3 (80% and #3 in plans tobuy last year).

Whereas it is universally expected that Medal of Honorsales will fall well short ofBattlefield 3 sales,

these results seem to imply an even larger-than-anticipated drop. While there is plenty of time for

EAs marketing campaign to shift into high gear, the game appears to be off the radar of gamers as of

now. This is unfortunate, in that our takeaway from E3 was that this years Medal of Honorlooks like

a high-quality title with the chance to undo the damage done to the brand by the disappointing 2010

reboot. Based on the current plans to buy and up against not only this years Call of Duty but also a

Halo sequel, the game may not get an opportunity to do so.

Similarly, Need for Speed: Most Wantedscored 57% on awareness and ranked #38 in plans to buy,

down from last years Need for Speed: The Run (45%, #27), which was a commercial and critical

disappointment. For those closely following the Need for Speed franchise, it is clear that this years

game, under the stewardship of Criterion Games (the creators of the last good Need for Speed Game:

Hot Pursuit), is superior in every way to last years title. We fear, however, that consumers are

somewhat burned out on the franchise, given an overabundance of releases in recent years.

Our survey has historically down a pretty poor job of accurately anticipating the success of major

sports franchises, which we believe is a combination of skew of our sample towards hardcore gamers

(Madden players tend to be more casual in nature than FPS, RPG, or MMO players) and towards

American players (FIFA is not a huge seller domestically but one of the top brands globally). That said,

sports games (to which EA is disproportionally exposed) generally did worse this time around.

However, given the consistent growth from the FIFA franchise and the easy comp for the Madden

Franchise, we are less concerned about EAs sports portfolio than we are about some of the

aforementioned issues (namely holiday sales of Medal of Honor vs. Battlefield).

Take-Two Interactive

Among our publishers, Take-Two was the key winner in our survey, with three of the top five mostdesired games. BioShock: Infinite was #2 in terms of plans to buy (with 84% awareness), Grand Theft

Auto Vwas #3 in plans to buy (84% awareness), and Borderlands 2 was #4 in plans to buy with 82%

awareness. This was a particularly impressive feat given the relative size of the company as well as

the fact that a few of the companys premier franchises (Red Dead Redemption, L.A. Noire) have yet

to announce sequels and were therefore not included in the survey.

TTWO had three of thetop 5 most desiredgames (BioShock:Infinite, GTA V,Borderlands 2)


6/20

although Take-Twos game is likely to be hurt by the expected return of EAs basketball franchise this

year or next.

Activision

In a change from our previous surveys, Call of Duty: Black Ops II was not the #1 title in terms of either

awareness or plans to buy, finishing #2 (69% awareness) and #8, respectively. Although it is important

to note that only three of the games ahead ofBlack Ops II on the list (Assassins Creed III, Borderlands

2, and Halo 4) are actually due out in 2012, this is nonetheless a significant fall from grace for the

game, in that a Call of Duty game has been #1 in both categories in each of the five iterations of the

survey.

To be 100% clear, there is no chance that Call of Duty: Black Ops II will be the eighth best selling title

this year. In fact, we would be shocked if the game was not the best selling game of the year.

However, given a fall from #1 in every previous survey to #8 in this survey is likely an indication of

some level of Call of Duty fatigue, making it difficult for this years game to set all-time opening-dayand opening-week records, as has been the case during each of the past three years.

This is especially true given a particularly challenging slate of competitive releases immediately

preceding the Call of Duty release this year. Although Battlefield 3 was released just two weeks ahead

ofCall of Duty: Modern Warfare 3 last year, Black Ops II hasAssassins Creed 3 and Halo 4 coming out

two weeks and one week ahead of it, not to mention Medal of Honor: Warfightercoming out three

weeks prior.

Of these games, the release of Halo 4 just a week ahead of Black Ops (as opposed to the traditional

September release window for Halo) is the most concerning, given the enormous overlap between

those two premier FPS franchises. The only mitigating factor is that Halo is an Xbox exclusive, so PS3

owners will likely see less of an impact.

The following table shows the history of our survey as it pertains to both awareness of the game as

well as plans to buy (percentage of respondents that put the game on their most wanted list). It is

important to note that the current surveys timing is before a number of releases on the list, but

nonetheless, this is such a high profile title (as evidenced by awareness numbers that essentially

match MW3s all-time highs from last fall) that the plans to buy percentage is lower than each of the

games three predecessors: Modern Warfare 2, Black Ops, and Modern Warfare 3.

For the first time, aCall of Duty title wasnot #1 in awareness orplans to buy


7/20

Call of Duty Survey Score History

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Cod: MW2

(Oct-09)

CoD: Black Ops

(Sep-10)

CoD: MW3

(Jan-11)

CoD: MW3

(Sep-11)

CoD: Black Ops 2

(Jul-12)

(%respondents)

Awareness Most Likely to Buy


Last year, our survey correctly predicted that the awareness and plans to buy for Call of Duty: Modern

Warfare 3 were significantly higher than for those of the record-breaking Black Ops, and indeed,MW3 outsold its predecessor by 8% in its first month on the market. We were also of the opinion that

MW3 would struggle to keep pace with its predecessor as time wore on (based primarily on the

competitive set), and that has also turned out to be the case, with life-to-date sales of MW3 trailing

Black Ops by 4%.

We believe the disappointing showing from Black Ops II is far from the last word on the subject for

two reasons. First, it is apparent that the marketing campaign for Black Ops II has barely gotten off

the ground at this point. This is in contrast to a game likeAssassins Creed III, which had a barrage of

marketing in conjunction with the Fourth of July in anticipation of the Revolutionary War setting ofthe game.

Second, from what we have seen of the game so far, including an extensive walk-thru at E3, the game

brings a number of fresh new game play aspects and storytelling angles to the Call of Duty mega-

franchise. We actually think the game looks better than the prior two iterations of the franchise, and

while the relative quality of the game probably plays a small role in the opening month or two of

l i ld h l h i i l i MW3 h l h b i l

We believe the BlackOpsbrand hasovertaken the ModernWarfarebrand incommercial appeal


8/20

June 2012, vs. a fraction of a percent in the year ago period). The sequel will allow users to import

characters from the 32 featured in the original game (with an upgraded level cap), and also features

new characters, which will be larger than the original both in the game and in their physical toy form,

as implied by the title.

AlthoughSkylanders Giants

was way down the list, this is hardly a survey to capture the potential of a

game like Skylanders, which is clearly targeted towards young children (of which there were very few

among our respondent group).

Conversely, this is a group that probably does a good job of capturing the relative excitement

surrounding a World of Warcraft expansion pack, and in this respect, Mists of Pandaria (the

expansion pack scheduled for a September 25 release) had a particularly disappoint outing. While

Cataclysm, the previous expansion pack for World of Warcraft, was the 30th

most anticipated game

among our respondents, Mists of Pandaria came in at #69 this time around. This would seem to

corroborate the anecdotal commentary that we have heard from Warcraft fans, which is that this

expansion pack is by far the least compelling one so far.

THQ

The good news for THQ is that Darksiders 2 scored better in this survey than any of the companys

games did in our year ago survey (and rose 15 spots in the plans to buy rankings, the most of any title

which appeared in both surveys). The bad news is that this was still only good enough for 65%

awareness and #18 in plans to buy, while the majority of the companys upcoming titles are still in the

bottom half of notable games in terms of awareness and plans to buy.

In our year ago survey, Saints Row: The Thirdranked 21st for plans to buy and scored 49% awareness,

on its way to selling 661k units in its debut month and 1.8M life-to-date in the U.S. alone. Similar to

Saints Row, Darksiders 2 is a sequel in an already well known franchise, although we believe

advertising support for Darksiders has been less than what we saw in support of Saints Rowlast year

to this point. We are currently modeling more modest results from Darksiders 2, with an assumption

of ~300k U.S. units in its August debut, although in light of our survey results that estimate now

appears to be more conservative in nature.

WWE 13 was the only other THQ title which appeared in our Fall 2011 survey, and it also performed

better this time, with a 14% increase in awareness and an 11 spot rise in the plans to buy ranks. Thisyears iteration of the WWEfranchise performed essentially in-line with last years (32% awareness

vs. 23%), while actually falling from #52 to #66 in the plans to buy ranks. This is yet another indication

that the WWEfranchise is nowhere near its peak in terms of commercial appeal, with U.S. sales of

WWE 12 down over 50% vs. the current cycle peak ofWWE: Smackdown vs. Raw 08.

We would attribute the generally low awareness and buying intentions for the remainder of THQIs

Darksiders 2rose inthe rankings andscored best for THQ,but the company stilllacks blockbusters


9/20

are released each year and advertising reaches a crescendo. However, what we see is just the

opposite. In our January 2011 survey, 38% reported being more excited, 52% said they were about

the same and 10% reported being less excited for the upcoming release slate y/y.

Given the level of detail known about a given years blockbuster games in mid-summer vs. January,

these results are somewhat disappointing, although in line with the general low levels of excitement

that are evident elsewhere in our results.

Excitement for Upcoming Releases

Less excited16%

About the

same

48%

More excited

36%


Nintendo the Odd Man Out For Next-Gen Console Cycle

We next asked consumers about their interest in owning a next-gen console from each of the three

major console manufacturers. Clearly, this is a difficult question to answer at this point, since we (andeven the best-informed consumers) have limited information about the WiiU and basically no

information about the next-gen consoles from Microsoft and Sony (which we refer to as the Xbox 720

and PlayStation 4 for the purposes of this report).

That said, based on what consumers currently know about the WiiU and what they expect from the

X720 and PS4, they are much more excited for the latter two consoles. 43% of respondents said theyGamers say they are

h it d f


10/20

Consumer Interest in Owning Next Gen Consoles

1(most)

1(most)

1(most)

2 2 23 3 34 4 45(least)

5(least)

5(least)

unaware

unaware

unaware

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

(%respondents)

1 (most) 2 3 4 5 (least) unaware


These numbers are obviously fluid, and are likely to shift meaningfully as we learn more about all the

consoles and the software to be released for each. That said, these results support our previousthoughts on the upcoming console cycle, which we have long believed will be more difficult for

Nintendo given that the WiiU only matches the X360 and PS3 in terms of graphics, and seems to rely

heavily on an innovative controller which leaves the door open for copycats. Although we would put

the likelihood of Sony or Microsoft winning the next console generation at even odds, we believe

Nintendo is likely to be the odd man out.

From the perspective of both the publishers and the retailers, however, the rollout of next-

generations consoles has historically been a major driver of both hardware and software sales. We

believe that investors have been too quick to jump to conclusions regarding the secular decline of the

video game industry, and overlook the repeating pattern of sales with regard to console cycles.

As seen below, during each of the past three cycles, we have seen 3-4 years of meaningful growth,

which has in turn ceded to annual declines in the lead up to the subsequent console generation.


11/20

Console Generations Drive Recurring Software Patterns

$0

$2

$4

$6

$8

$10

$12

$14

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$Billions

U.S. Console Pkg. Goods Software $ Seventh GenerationXB360: Nov-05

PS3: Nov-06

Wii: Nov-06Sixth Generation

Dreamcast: Sept-1999

PS2: Oct-2000

Xbox: Nov-2001

Fifth Generation

Playstation: Sept-1995

Nintendo 64: Sept-1996149%

176%

218%

Source: Independent Research, Industry Sources

The contractions during the current generation have been more protracted for a number of reasons.

First and foremost, the torrid pace of digital video game growth has cut into packaged game sales in

recent years. Second, the aging of the console generation coincided with the 2008/2009 recession,

amplifying the industry slowdown. Finally, we are now entering the 6th

/7th

(depending on when we

start counting) year of the current console cycle compared to five years in the prior cycle and just

four years in the cycle prior to that.

When we couple these three factors with a number of disruptive technologies (namely the iPhone

and the iPad) introduced during this generation, it is no wonder that we have seen the meaningful

declines of the past few years. While the factors listed above would suggest that we should see a

sharp rebound in overall spending during the upcoming cycle,we believe that if video game company

multiples are any indication, investors have attributed a fourth factor to the recent declines: the

Deeper contractionthis console cyclepartly due to length ofthe cycle and recession


12/20

The next generation Sony console will be released during November 2013 with an ASP of$399.

Based on the continuing trend toward digital distribution of video games, amplified by anincreasing focus on digital by the next-gen consoles, we expect attach rates of packaged

goods games to be meaningfully short of what they were for the prior generation. Short-term, we expect console sales of the next generation consoles to approximate what

we saw during the beginning of the last cycle. Longer-term, due to the proliferation of other

gaming platforms such as tablets and smartphones, we assume overall console hardware

sales during the next generation to be short of the current generation.

We Expect Smaller Next-Gen Installed Bases

0

10

20

30

40

50

60

2005 2006 2007 2008 2009

Million

s

PS3

XB360

Wii

0

10

20

30

40

50

60

2012E 2013E 2014E 2015E 2016E

Million

s

PS4

XB720

Wii U


Downloadable Content (DLC) Becoming Ubiquitous

Digital download of console games is far from a new concept, in that millions of games have been

downloaded via Xbox Live, Playstation Network, and other online gaming platforms over recent years.

For the most part, however, these games are either of the casual variety or they are add-ons (DLC) to

previously purchased packaged goods games. In both cases, they are typically much smaller in size

than the frontline titles that garner the lions share of attention and sales.


13/20

Console Add-On Content

Yes

79%

No

21%

Ever Purchase Console Add-On

Content?

Yes

26%

No

74%

Purchased Console Add-Ons In

Store?


With its successful foray into in-store DLC GameStop has a dominant share of those consumers who

have opted to purchase DLC at the store level. While the success of such a business model was

surprising at first (given the relative ease of downloading the games at home) there is clearlysomething to it. In order to gain a better understanding of what motivates gamers to buy add-ons in

store, we asked the group of consumers who said they had purchased in store about their primary

reason for doing so.

Most often, gamers said they purchased in store in order to pay with cash (25% of responses),

followed by for convenience (23%); 19% said they purchased at retail because they were buying the

game and add-on simultaneously, 14% did so in order to use store credits, 9% each said they did so

for the sake of clarity and ease of purchase and for other reasons (which ranged widely). Only 1% of

gamers said they bought in store because a store associate convinced them to do so.

Reasons for Purchasing Add-On Content in a Physical Store

25%

30%

s)

26% of those surveyedhave purchased add-on

content through aretailer


14/20

Tipping Point for Full-Game Downloads Drawing Nearer

The biggest long-term threat to video game retailers is the idea that console games will eventually be

digitally downloaded as opposed to being sold in physical form, resulting in the disintermediation of

the video game industry.

The biggest barrier to the download of full-size video games (as opposed to the wide-spread practice

of downloading DLC) is the length of time currently required to download large games.

In an effort to determine what the tipping point will be in terms of the broadband speeds required to

prompt a more pervasive adoption of full-game downloads, we asked consumers how long they

would be willing to wait to download a full-length console title.

The following table illustrates the distribution of users willing to download a full-sized video game

based on various download times for both the current survey as well as the last time we asked thesame question (January-2011).

Willingness to Wait for Console Digital Downloads

0%

10%

20%

30%

40%

50%

60%

70%

80%


15/20

questions, not only has the comfort level with waiting a given period of time to download a game

increased, but the average amount of time that it takes a game to download has come down. With

current projections of another four years for the required download speeds (1-2 hours) to become

more readily available.

A typical frontline game on the Xbox 360 takes up just over 6 Gigabytes (GB) of disk space, whereas a

comparable game on the PS3 takes up just over 8 GB. The table below shows a range of game sizes,

including the aforementioned console averages, and the varying amounts of time required to

download them at different speeds.

Full Game Digital Download How Long Does it Take To Download a Top-Tier Video Game?

S. Korea Japan U.S. U.K. France Global

Title 17.5 Mbps 9.1 Mbps 5.8 Mbps 4.9 Mbps 3.7 Mbps 2.3 Mbps

L.A. Noire Complete Ed. (21.6 GB) 2.7 hours 5.3 hours 8.3 hours 9.8 hours 12.9 hours 20.8 hoursAssassin's Creed: Revelations (14.9 GB) 1.9 hours 3.6 hours 5.7 hours 6.8 hours 8.9 hours 14.4 hours

PlayStation 3 Average (8.3 GB) 1.1 hours 2.0 hours 3.2 hours 3.8 hours 5.0 hours 8.0 hours

Call of Duty: Modern Warfare 3 (7.8 GB) 1.0 hours 1.9 hours 3.0 hours 3.5 hours 4.7 hours 7.5 hours

Need for Speed: Hot Pursuit (6.7 GB) 0.8 hours 1.6 hours 2.5 hours 3.0 hours 4.0 hours 6.4 hours

Xbox 360 Average (6.2 GB) 0.8 hours 1.5 hours 2.4 hours 2.8 hours 3.7 hours 6.0 hours

Madden NFL 11 (5.2 GB) 0.7 hours 1.3 hours 2.0 hours 2.4 hours 3.1 hours 5.0 hours

Borderlands (3.4 GB) 0.4 hours 0.8 hours 1.3 hours 1.5 hours 2.0 hours 3.3 hours

Country - Avg. download speed

Source: OECD, Akamai, Industry Sources, Independent Research Estimates

While the average global video game consumer can expect to wait 6-8 hours for a typical full-lengthtitle to download, the typical U.S. broadband customer can expect a typical game to download in 2.5-

3.0 hours, and gamers in the fastest Asian download markets can expect to download a game in

only 1-2 hours currently.

While downloading larger titles still takes a prohibitive amount of time (according to our consumer

video game surveys), download speeds have been increasing rapidly, with both the global and U.S.

average up roughly 50% over the past three years.

Full Game Digital Download How Long Does it Take To Download a Top-Tier Video Game?

5 0 Mb

6.0 Mbps

7.0 Mbps

8.0 Mbps

9.0 Mbps

10.0 Mbps

ed,

Mbps)


16/20

Download speeds are expected to accelerate over the next decade, with Cisco calling for a four-fold

increase by 2015 and an FCC 2020 goal of 100 Mbps downloads for 100M U.S. households (for whom

even the largest games could be downloaded in less than half an hour).

Although we would need to consider the source of such an aggressive projection (Cisco would be

among the biggest beneficiaries of this focus on internet infrastructure), even if we see another 50%

increase in average broadband speeds over the next three years (which seems reasonable), we would

be at the 9 Mbps threshold that would put the vast majority of games within the 1-2 hour download

time sweet spot by 2014.

Clearly, it is only a matter of time until digital download becomes feasible in all of the worlds

developed markets. For the purposes of our long-term estimates, we are assuming that the

combination of the next generation console roll-out (2012-2014) and the continuing march towards

ever-faster download speeds, we will begin to see an accelerating shift towards full-game digital

downloads during 2014-2016.

One possible caveat to this scenario is a rapid increase in the size of video games during the next

console generation. Between the two current HD consoles, the PS3 can accommodate larger games,

because it reads single layer Blu-Ray discs, which can hold roughly 25 GB of data. Conversely, the

Xbox 360 uses dual layer DVDs, which may hold up to 8.5 GB. This much lower limit has effectively

placed a ceiling on the size of current gen games for developers, unless they want to publish

exclusively for one of the consoles, produce radically different versions of the game for each console,

or sell a game on multiple discs.

It has been widely rumored that the Xbox 720 will also incorporate Blu-Ray technology, meaning both

consoles will be able to read games up to 25 GB on a single disc (and possibly up to 50 GB if the next

gen consoles can read dual layer Blu-Rays). We will have to wait and see, however, if this is

accompanied by a meaningful increase in the size of a game, or whether (more likely) we could

actually see a transition to a more fragmented game buying experience, where certain portions of a

game are served up a la carte, making the download time less onerous for a given piece of content.

EAs Origin Gaining Ground on Steam in PC Download Space

We next asked gamers a series of questions in order to better understand consumer adoption of full-

length PC game downloads, as well as preferred sites for downloading these games. This isparticularly important as we try and assess the current strength and future potential of GameStops

Impulse and EAs Origin, both of which are digital download platforms.

We first asked self-identified PC gamers whether they had ever downloaded a full-length PC game.

Sixty-five percent of the over 330 respondents to this question said they had, up slightly from 59%

who answered yes to the same question in last years survey. While the response was unsurprising

65% of PC gamers wesurveyed havedownloaded a full


17/20

While these numbers were mostly consistent with what we heard last year, we saw a huge increase in

the percentage of gamers who reported using EAs Origin (+33%), and smaller increases in the

percentage who said they had used Steam (+9%) and GMEs Impulse (+4%).

What Service Do You Use For Digital Downloads?

0%

10%20%

30%

40%

50%

60%

70%

80%

90%

(%respondents)


The progress that EA has made in such a short period of time is quite striking, especially when we

consider the rampant skepticism expressed by consumers and investors alike when the company first

announced Origin. Like other e-commerce sites, the biggest hurdle is getting consumers credit card

information for the first time. In this respect, the exclusivity to Origin of Star Wars: The Old Republic

and the enormous success ofBattlefield 3 have gone a long way towards establishing Origin, and EA

has further capitalized on this success by continually signing other third party publishers.

While GME certainly has Impulses numbers moving in the right direction since its March 2011

acquisition, some of this can likely be attributed to the websites association with the worlds biggest

stand-alone game retailer. Unlike Origin, Impulse does not have the benefit of exclusivity on any

major releases. Conversely, Impulse does have the benefit of being owned by a retailer, and as such

h b tt h f tti t bli h d b EA l tit

The percentage whosaid they havedownloaded using EAsOrigin increased from3% to 36% y/y


18/20

While both Impulse and Origin appear to have made headway over the past year, Steam remains the

clear market leader in PC game downloads with an estimated market share ranging from 65-80%.

From a consumers perspective, there is some benefit to a centralized one stop shop from which to

download all of their favorite games, and Steam appears to have taken that mantle so far.

Many More Consumers Expect to Use Steam in the Next 12 Months Than Its Competitors

0

100

200

300

400

500

600

700

800

900

(points)

5 unlikely

4

3

2

1 most like ly


INDUSTRY OUTLOOKAs much as we may try and explain away any one-month underperformance of the packaged goods

video game space based on a particularly weak release slate or some sort of calendar shift, the

undeniable truth is that we have seen meaningfully weaker-than-expected packaged goods console

(NPD) numbers through the first five months of 2012.

A h b l th bi ti f t i l l th t f th i d th


19/20

Packaged Goods Industry Trends Deteriorating Before Our Eyes

-40%

-20%

0%

20%

40%

60%


As shown, while we continued to see mid-to-high-single digit declines over the course of 2011, there

appeared to be somewhat of a bottoming process taking root, with trailing twelve month results

getting down to 9% as of May 2011 but improving to 7% by November.

During 2012, however, we have consistently seen 20%+ declines, with 30%+ declines during three of

the five months. As a result, trailing twelve month software sales were down 14% through May, witha decidedly negative trend.

Clearly, an accelerating shift towards digital delivery and content is having a big role on the

deterioration of these numbers, but so too are declining numbers of titles released on a year-over-

year basis. Year to date, there have been 27% fewer new software titles introduced into retail, as we

believe mid-tier titles have gotten pummeled by the increasing popularity of cheaper (and sometimes

better) social and casual gaming experiences.

In essence, as sales from average-quality console titles have come down, publishers have opted to

focus on a smaller number of high-quality titles, which has in turn lowered the number of titles atretail and ultimately the monthly sales totals in 2012. Hence, while we believe this to be the right

move for publishers looking to maximize their profitability, it creates a downward spiral for packaged

goods video game retailers.

While we would expect the trend towards digital to continue (and maybe even accelerate) as we

move forward we would also expect the release slate to improve during the back half of the year

Packaged goods saleshave trended steadilyworse since mid-2008

Monthly packagedgoods down 20-30%+so far in 2012


20/20

Jan

Dec JanJun Jul Aug Sep Oct Nov

*Expected dates only, subject to change

Jun Jul Aug Sep Oct Nov Dec

Hitman:Absolution(11/20/12)

Release Calendar - 2011

Deus Ex: HumanRevolution8/23/11

MaddenNFL 128/30/11

Warhammer40K: SpaceMarine9/6/11

Red Faction:Armageddon5/31/11

Duke NukemForever6/10/11

Lord of the R ings:The War in theNorth11/1/11

NCAA Football

'127/12/11

Transformers:Dark of theMoon6/14/11

Cars 26/21/11

Forza Motorsport 410/11/11

Gears of War39/20/11

Batman: ArkhamCity

10/18/11

The Elder S crolls:Skyrim11/11/11

Call of Duty:Modern Warfare 311/8/11

Uncharted 3:Drake's

Deception11/1/11

FIFA 2012~9/30/11

Harry Potter& DeathlyHallows Pt. 27/12/11

NBA 2K1210/4/11

Battlefield 310/25/11

Saint's Row: TheThird11/15/11

Need for Speed:The Run11/15/11

UFCUndisputed 3Jan '12

The Darkness 22/7/12

Release Calendar - 2012*

Spec Ops: TheLine (6/26/12)

Aliens: ColonialMarines (2/12/13)

LEGOBatman 2:D.C.Superheroes

(6/19/12)

The Amazing

Spiderman(6/26/12)

Darksiders 2(Aug-12)

Madden NFL13 (8/28/12)

Far Cry 3(9/4/12)

NCAA Football13 (7/10/12)

Sleeping Dogs(8/14/12)

Borderlands 2(9/18/12)

Dead orAlive 5(9/25/12)

Resident Evil6 (10/2/12)

Skylan ders Giants(9/30/12)

XCOM: EnemyWithin (10/9/12)

NBA 2K13(10/2/12)

NBA Elite 13(10/2/12)

Medal ofHonor:Warfighter(10/23/12)

Assassin's CreedIII (10/30/12)

Halo 4

(11/6/12)

Need for Speed:Most Wanted(Oct-12)

Call of Duty:Black Ops II(11/13/12)

DmC(1/15/13)

BioShock: Infinite(2/26/13)

WWE '13 (Nov-12)

LollipopChainsaw(6/12/12)

Documents

Summer 2012 Video Game Consumer Survey