New Deloitte Report Examines Impact of Gaming Advances on Advertising, Wireless and Entertainment Industries

Unrelenting progress in processing power, network bandwidth and storage capacity will enable the electronic gaming industry to become five times more pervasive by 2010, with the number of devices (excluding PCs) on which games can exist growing from 415 million to 2.6 billion worldwide. "Moore's Law and Electronic Games," a report produced by the Technology, Media and Telecommunications Group at Deloitte, focuses on the industries, outside of the electronic gaming industry, that will be impacted by technological advances based on Moore's Law, as well as the positive and negative disruptions that the advancements will create.

"As technology continues to improve, new opportunities will arise for industries outside of the traditional electronic gaming arena, such as film studios, record companies, advertisers, mobile phone producers, communications operators, toy manufacturers and electronics manufacturers," comments Ed Shedd, technology and media partner at Deloitte. "The number and range of platforms on which paid-for electronic games can exist will expand significantly and will include mobile phones, MP3 players, PDAs, set-top boxes, children's toys and even exercise machines."

Moore's Law states that the transistor density of a silicon chip will double every two years. This implies that there will be significant technological growth by 2010 and that processing power will experience an eight-fold increase by 2010, greatly impacting the disruptiveness of the electronic gaming industry. It is expected that 450 million homes worldwide will have broadband connections by 2010, with one billion individuals having access to multimedia mobile phones that could support paid-for electronic games. Storage capacity will increase to 1,000 gigabytes of disk storage in a typical home PC by 2010, enabling games to be longer and more complex with enhanced visual detail, sound effects and music.

These advances will create new revenue opportunities for sectors related to electronic gaming and will expand audience reach beyond the traditional electronic gaming markets:

Advertising. Games publishers, looking to recoup spiralling development costs, are more receptive to product advertising in games. In-game advertising will become commonplace, particularly as technology improvements and shifting demographics make in-game product ads more appealing.

Wireless communications. Mobile operators will be the pre-dominant channel for selling and distributing phone-based games, with only a small number sold in retail stores. More advanced networks, prevalent by 2010, will provide higher transfer rates, enabling downloaded games to be more complex and sophisticated.

Entertainment. Electronic games represent an important new merchandising category, with cross-licensing between films and electronic games providing a major source of revenue. Music companies will recognise revenue opportunities, as music becomes a more essential part of the gaming experience. Video games have inspired entire lines of toys and action figures, allowing toys manufacturers to capitalise on cross-licensing opportunities.

"Electronic gaming has been the fastest growing sub-sector of the media industry over the past five years," comments Mr Shedd. "In the UK, electronic games currently outsell music singles ten-to-one, with year-over-year sales for the third quarter of 2003 increasing by 13 percent to $684 million. This growth means additional opportunities for industries typically not associated with electronic gaming, with the chance to create a new revenue stream."

Additional key findings from Deloitte's "Moore's Law and Electronic Games" report include:

Gaming publishers. Gaming publishers will have more platforms to leverage, including on-line play and mobile phones, but will also face escalating production costs as demand for more sophisticated games increases. Steep entry costs may drive smaller publishers out of the market.

Advertisers. Embedded advertising in games provides advertisers a new opportunity to reach an expanding market with attractive demographics. Aggregating eyeball hours for a game that sells three to five million copies implies at least 50 million hours of viewing time. The Sims Online game already includes an interactive advertising element.

Fixed-line operators. Fixed-line telecommunications operators will benefit from the increasing popularity of multi-layer online games and downloadable add-ons, leading to increasing subscriber revenues.

Mobile operators. With an equal ratio of females to males owning mobile phones, the expansion of games to mobile phones will likely increase the participation level of women to electronic gaming. However, bandwidth may be insufficient to support the growth until 3G networks are more widely available around 2010.

Music industry. The music industry will continue to benefit from electronic gaming. Titles like Grand Theft Auto: Vice City use music to enhance the game's appeal, and seven audio CDs from the game are sold separately. Music and licensing revenues will become a factor in mobile and handheld games.

Toy manufacturers. Electronic games have historically competed with traditional toy manufacturers in the youth market. Technological advances will create new opportunities to improve existing toys with electronic feature add-ons as well as for cross-licensing opportunities.

The report was researched and written by Deloitte's Telecommunications, Media and Technology (TMT) Group and Deloitte Research. Input was provided by clients, leading industry and financial analysts, and the 5,000 strong global Deloitte TMT team.