TERRITORY REPORT: Eastern Europe

The far side of the continent is home to a wide variety of markets. While none may be the size of the UK, France or Germany, when combined they still represent a significant portion of Europe’s gamers.

As with any multi-nation territory, it becomes difficult to establish exact market data but the numbers that have surfaced in the last twelve months have been promising.

Nevertheless, firms are advised to do their research before entering the region. Key differences in installed bases and consumer tastes business models that prove to be successful in Western Europe are by no means guaranteed to succeed.

The region is very culturally and economically diverse so it’s difficult to adopt a ‘one strategy fits all’ model,” says TripleACodes’ sales and business director Marcus Whitney.

Crucially, it’s important to be aware of the effect the recession had on the area. Many of the markets suffered greatly during the economic crisis and while growth is now apparent in certain areas, the damage has not been completely repaired.

The Eastern European market was one of the hardest hit in a unprecedented year-on-year sales decline,” says Koch Media’s sales and marketing director Paul Nicholls.

We were hoping for the situation to at least return to the previous state, but it seems that consumers remained more conscious of their expenses and have cut back on entertainment significantly.”

Developer and distributor Techland’s acquisitions manager Jakub Alcer adds: The direct results of the financial crisis were dealt with but people remain cautious. It seems they’re more likely to deny themselves entertainment than anything else.”

Retailers are also becoming cautious when it comes to selecting stock, and video games in particular are finding it harder to secure shelf space. Only a handful of titles are assured success, so stores are determined to minimise the amount of stock sent back to distributors.

Retailers are losing interest in stocking expensive games on their shelves,” says CEO?at distributor Computerland Mikica Stakic.

They always ask for better margin, fearing they’ll lose money if they don’t sell their entire stock. Many of them to not want to buy games. They just offer shelves and pay for the goods that is sold to end users. The unsold merchandise is returned to the distributor.”

But all is not lost. The last year has seen a significant rise in console sales, especially in terms of software. The strong performance of the PS3 and Xbox 360 is slowly but surely instilling local firms with the confidence they once had to fully embrace the market.

On a more positive note, we have seen growth in console sales,” says Nicholls. It’s still far from what we would wish for. It’s too small to base all of your business upon, but it’s certainly going in the right direction.”

The other benefit of stronger console sales is that it lures consumers away from the piracy-stricken PC. Illegal downloads have wreaked havoc on the format, especially given that it was the dominant games platform for so many years.

For historical reasons the Polish gaming market is still mostly PC-based, which enables easy access to illegal copies of games,” says localisation firm Testronic’s site manager Michal Ferlas.

This is partially why some of the major publishers are still not directly present and active in the Polish market, which keeps the pricing high, thus discouraging players from spending money on legal copies.”

That’s not to say the region plans to abandon the PC. Internet penetration is rapidly improving and with it comes more opportunities for new business models.
MMOs have already taken hold in the region – with digital distributor TripleACodes bringing titles such as RuneScape to these markets.

In the last 12 months, our partners have been asking for more free-to-play products like RuneScape and Nexon – it’s going to be an important area,” said Whitney. Broadband and disposable incomes are growing in territories like Romania and Ukraine. We are hoping these will be ‘another Poland’ in a couple of years.”

With both sales and opportunities growing in the past year, Eastern Europe is set for a more hopeful 2011. It is up to local firms to fortify their positions, strengthen their market and attract more attention from the rest of the continent.

THE FACTS

[POLAND]
Population: 38,192,000
Currency: Zloty
GDP (Per Capita): $12,575
Capital City: Warsaw
Language: Polish

[CZECH REPUBLIC]
Population: 10,647,940
Currency: Czech koruna
GDP (Per Capita): $19,084
Capital City: Prague
Language: Czech, Slovak

[HUNGARY]
Population: 10,005,000
Currency: Forint
GDP (Per Capita): $12,926
Capital City: Budapest
Language: Hungarian

[SLOVAKIA]
Population: 5,429,763
Currency: Euro
GDP (Per Capita): $15,906
Capital City: Bratislava
Language: Slovak

[SERBIA]
Population: 7,306,677
Currency: Serbian dinar
GDP (Per Capita): $5,262
Capital City: Belgrade
Language: Serbian

KEY RETAILERS:
Poland: Empik, Media Markt, Saturn, Gram.pl, Ultima.pl
Czech: JRC, GAME

DISTRIBUTORS:
Various: Koch Media
Poland: CD Prjoekt, Cenega, LEM, Techland
Czech: Hype, Conquest
Hungary: Magnew, Antec
Serbia: Computerland, Extreme

EASTERN EUROPE: AT A GLANCE

PIRACY
As with most emerging markets, illegal games downloads have been a serious problem for Eastern European territories for several years, particularly in the bigger markets.

The key challenge for the industry in Poland is still the high rate of piracy,” says Testronic’s Michal Ferlas.

When we compare the size of the potential market – around 38 million people living in Poland – against actual sales and hardware base, it is clear most of the games being played come from illegal sources.”

Fortunately a rise in console sales has drawn gamers away from piracy. However, illegally copied Xbox 360 games have prevented that format from achieving its true growth potential and competing with the PS3.

DISTRIBUTION
Each of the territories are served by different distributors, but the financial turmoil has made it difficult for any to seize control of their markets.

The major problems facing local distribution partners is maintaining a healthy profit and loss with the need of increased costs due to quality localisation and the ‘payment up front’ nature of a republishing deals,” says Koch Media’s Paul Nicholls.

This can put a lot of strain on the cash flow. Add to this the margin needed from the channel and in many cases delayed payment from the channel, a local distributor will have a challenge to make this work.”

DEVELOPMENT
The region has a strong community of well-known developers. Techland is best known for its work on the
Call of Juarez series. The studio also grabbed headlines last month with the debut trailer for its upcoming zombie title Dead Island.

The City Interactive sales triumph that was Sniper: Ghost Warrior was also developed in Poland, as was the People Can Fly FPS Bulletstorm, which was created with Epic Games.

Going forwards, consumers can look forward to The Witcher 2, the sequel to the acclaimed 2007 RPG from Polish developer CD Projekt Red.

DIGITAL DISTRIBUTION
The increase in broadband penetration has opened up new opportunities in the digital marketplace.