Over the last five years video games have begun to reach new demographic markets and are increasingly impacting the time and money spent consuming more traditional media such as TV, music and film.
Games have become such an accepted part of children and young adults' lives that many of the world's largest media companies have begun to embark on vigorous and sometimes renewed attempts to gain a foothold in the market.
Sony and Vivendi are conspicuous amongst the major media conglomerates as being the only companies to have made a significant, long-term commitment to games.
They also remain the only media giants for whom games make a material contribution to their overall financial performance. The others have made numerous efforts between them to enter the games space in a meaningful way but most of those, especially during the ‘90s, ended in failure and a market withdrawal.
New research from Screen Digest aims to assess the new games industry strategies of a selection of media companies in the USA and Europe to gauge their likelihood of success and their impact on the sector.
THE WALT DISNEY COMPANY
Disney has attached a high priority to establishing a viable, significant and lasting foothold in the games market.
Disney's plan has been to ascend the games value chain, steadily increasing its risk/reward profile. Despite Disney Interactive Studios growing its sales 566 per cent between 2004 and 2008, the company has been largely loss-making or around break-even.
We believe that this bottom-line financial performance is being deliberately sacrificed as part of Disney's long-term plan to gain a meaningful share of the games market and build long-term development and publishing momentum.
The combination of Disney's patient and sensible long-term strategy, its growing resources, its sizeable library of entertainment IP – bolstered by the acquisition of Marvel Entertainment – and its leadership position within the children's market, gives Disney substantial potential to become a major player within the games sector, capable of competing with the largest of the games publishers.
Since 2005, Warner Bros. Interactive Entertainment (WBIE) has invested heavily in development and publishing of games based on Warner and DC Comics properties as well as original titles.
WBIE's strategy is to reduce its use of external licensing and bring projects with Warner Bros. and DC Comics properties in-house, making use of its global distribution network and expanding development and publishing capacity.
During December 2009, Martin Tremblay, president of WBIE, revealed the company's ambition to become a $1bn business by 2013. Based on the company's projected revenues from games between $500-$600m in 2009, and WBIE's rapid moves to develop Warner-owned IP, including Lord of the Rings and Batman games, we believe this target is achievable.
Between mid-June 2005 and the end of November 2006, Viacom, through its MTV Networks subsidiary, embarked on a major spending spree, acquiring five companies from a diverse range of games sub-sectors for an aggregate sum of over $637m.
Since then, additional earn-out payments have taken the sum to in excess of $787m and are expected to top out at over $937m.
Viacom's games strategy is largely consolidated under a single division and single team, which has allowed it to share resources, cross-promote services and co-ordinate an effective set of strategies for tackling multiple parts of an ever-broadening games sector.
While we believe that Viacom has overpaid on pure financial terms for most of its games acquisitions, we acknowledge that these have given the company a strong base from which it can build its games business.
News Corp has acquired two businesses with games activities during the last few years, acquiring games editorial business IGN Entertainment for $650m in 2005 and mobile entertainment company Jamba for $387.5m over two transactions in 2006 and 2008.
These have given News Corp limited exposure to the highest growth sections of the video games market and it remains highly conspicuous amongst its major rivals for its almost complete absence from the boxed product or online games markets.
We believe that a re-entry into the boxed product sector is highly likely over the next few years and that News Corp will achieve this via a major acquisition rather than through organic growth.
NBC Universal as part of General Electric has the least developed games strategy out of the major conglomerates.
Its games activities have been minimal and remain heavily partner-dependent. However, it has begun to take a higher risk involvement in a few areas.
GE's games activities are conducted through its NBC Universal subsidiary and are primarily licensing based. It has begun to self-finance some games development although these projects remain few in number. Its overall impact on the games sector remains muted compared to investments and acquisitions made by Disney, Viacom, Time Warner and News Corp.
European media companies currently lag behind their US rivals by quite a margin within the games industry.
We do not believe that any of the European media companies covered in our research are deriving more than $20m per annum from games and most considerably less. Some of the most ambitious games initiatives have been undertaken by smaller German media companies such as Axel Springer and Hubert Burda Media for example, whilst many of the largest media corporations have undertaken limited roles only.
The British broadcasters have undertaken varying levels of involvement from ITV's token gestures towards the industry to the BBC and Channel 4's public service remit-limited games commissioning. However, as with almost every other company in this report, all three are accelerating their investment in games.