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 A lot of talk continues to be made about the overwhelming success of the global gaming market, with multi-billion dollar revenues that now outpace traditional entertainment moneymakers such as movie box office receipts. This growth is thrown into sharper focus now as we stand on the edge of a full-blown console war between Microsoft, Sony and Nintendo as each launches its respective interpretation of the definitive next generation home entertainment system.
But if these platforms are arguably the leading edge of the global gaming market, can we really in all fairness call it a global market? Approximately 80 percent of overall spending on video game hardware and software takes place in the United States, Europe and Japan, with only minuscule amounts coming from the rest of the world. The next gen offerings from Microsoft, Sony and Nintendo will continue to push the envelope when it comes to video game performance and they all have features that would allow them to be the centerpiece of the digital living room. However, they also face issues that severely limit their global appeal, including expensive price points for the consoles and games, distribution issues in non-traditional markets, and piracy.
The GEC – A Global Platform
Because of these overarching issues that affect several large markets, some believe that the future of the global gaming market lies with a wireless device due to its near ubiquitous accessibility. Consider that by the end of 2006, 2.5 billion people or 38 percent of the world’s population will own a cell phone. Taken a step further, I believe the forthcoming tidal wave of advances in the wireless device and its network will soon allow it to become a “good enough” gaming console in regions such as India, China, Latin America and Russia. Together, these emerging markets represent an enormous untapped consumer gaming market that eclipses that of developed countries. According to Goldman Sachs, in the next decade, more than 800 million people in China, India, Russia, and Brazil will qualify as middle class – that’s more than the combined population of the United States, Western Europe, and Japan. These consumers aspire to own American brands and other high-quality imports. The advanced technology of wireless devices as a good enough console (or GEC) will allow it to function as the gaming/multimedia hub of homes in these emerging markets, and more broadly, as a good enough computing platform as well. We already have PlayStation 1 quality games on phones today and gigahertz processors will be coming to market within the next 12 months. An advanced phone in a developed nation today like Japan or Korea will be the phone consumers receive tomorrow for free when signing up for mobile service in India or Russia. This continual higher resetting of the minimum baseline of technology in phones is what will fundamentally drive these devices to become the mass market computer of the future, as well as a viable GEC in emerging markets.
India is a prime example of the potential for the GEC, as it is demographically representative of many other emerging markets that are alluring to the video game industry, but which also presents many obstacles. It is estimated that in India, a country of more than one billion people, there is an installed base of only 200,000 video game consoles. Due to high import duties (up to 40 percent) for console hardware and software, much of this hardware is sold through black market retailers and virtually all of the software is pirated (played on “chipped” consoles with disabled DRM). The situation is similarly bleak for PC gaming. Though there are an estimated 50 million PCs in India, only four million of these are in households and only one million are believed to be used for gaming. Furthermore, with a robust market for pirated software, an estimated 80 percent of these one million gaming PCs use illegally copied software. So essentially India is a market of over one billion people with only 200,000 PCs playing game software that has been purchased through legal channels, and only 200,000 video game consoles, most of which are sourced from the black market.
But India is also like other emerging regions in that it has quickly embraced the wireless device. India is now the world’s fastest growing wireless market behind China with customers signing up for mobile service at the rate of 5 million per month. In recent years, enough mobile devices have been activated in India to allow wireless to easily surpass wireline telephone service. This has provided a critical foothold for mobile gaming, so much so that mobile gaming already supersedes console and PC gaming by a factor of two. With this momentum in place, it’s up to the wireless industry to ensure that the GEC device, not consoles from the big three, becomes the consumer gaming/multimedia hub in the digital living rooms of emerging markets. Because it addresses the critical issues of affordability, distribution and piracy, the GEC device has the potential to introduce interactive entertainment to people that otherwise could not purchase dedicated gaming platforms.
Next: The Emerging Market Digital Living Room
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