Japanese Video Game Market Overview 2012

Japanese Video Gaming Trends
Past, Present & Future

1

Japanese Video Game Market Size

Source: Famitsu by ENTERBRAIN, INC. (Japan) 2

Japanese Video Gaming Timeline
Data Collected from December 29, 1986 to December 26, 2010
100 Millions of JPY
8000 2006:
1996: Playstation 3,
2000:
Nintendo 64 Wii
Playstation 2
7000
1994:
1998: 2005:
3DO Real,
NeoGeo Xbox 360
1990: Sega Saturn,
6000 Pocket,
NeoGeo, PlayStation
Dreamcast 2002:
Game Gear, PC-FX
XBox
SNES
5000
1988:
Genesis
4000 1999:
WonderSwan
1995:
Virtual Boy 2004:
3000 Nintendo DS,
1989: PlayStation
Gameboy Portable

2000
1987:
TurboGrafx-16
1000

0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010


Arcade Gaming Sales in Japan
250

200
Sales/Billion Yen

150

100

50

0
2004 2005 2006 2007 2008 2009 2010
Year

Source: JAMAA 4

Arcade Gaming in Japan
Demographics

• Over 19,000 amusement arcades in Japan
• 3.94 arcades per 100,000 people
• Arcade games played across all age groups
• 30% of arcade video game players over 60

Source: Amusement Industry Survey Report 2011, CAPCOM CO., LTD. (Japan) 5

Top Genres:

• Board games
• Horse Racing
• Pachinko
• Trading card games


Major Developers/Publishers:

• Namco Bandai
• Taito
• Sega
• Capcom
• Konami


Market Drivers
67

Urbanization Growth In Japan
66.5

66

65.5

65

64.5

64
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Growth in urbanization has fuelled a boom in arcade video gaming.

Source: WORLD BANK 2011 (Japan) 8

Arcade Facilities in Japan
Market Trends and Overview

Units $Billions
700

600

500

400

300

200

100

0
2004 2005 2006 2007 2008 2009 2010

Source: Survey on the Amusement Industry, 2011, JAMMA (Japan Amusement Machinery Manufacturers Association) 9


DOMESTIC ARCADE FACILITY MARKET

504.3
Billion
yen

12.0% Decrease from
FY2008 FY2009 FY2010 previous year

Shrank for the third straight year



Over 101 machines 51~100 machines Below 50 machines
30,000

(Units: Stores)
25,000

20,000

15,000

10,000

5,000

0
2004 2005 2006 2007 2008 2009 2010
Years Ended March 31
Currently operating store fronts: 19,213



Spreading fear of "Swine Flu Contamination " that gave
rise to "nesting consumers" who avoided going out,
resulting in fewer customers in arcades.


Multi-player network games grew in popularity


Console Gaming in Japan
Background
• 1970s: Atari started the market

• 1980s: NEC, Nintendo and Sega

• 2000s: Nintendo, Sony and Microsoft

Top Consoles Today:

• PlayStation 3

• XBOX 360

• WII

14

Consoles unique to Japanese market:
• PSX - hybrid of PS1, PS2 and XMB

• Panasonic Q - Hybrid of GameCube and DVD Player

• Dreamcast Divers 2000 CX1

• Nintendo Astro Boy Game Boy

• Sony Gold Gundam PlayStation 2

15

Console Gaming in Japan - Portable
Background
1980 Game & Watch (Nintendo)
1989 Game Boy (Nintendo), Lynx (Atari)
1990 Game Gear (Sega), PC Engine GT (NEC)
1994 Game Boy Bros. (Nintendo)
1995 Virtual Boy (Nintendo)
1996 Game Boy Pocket (Nintendo)
Game Boy Light, Game Boy Color (Nintendo)
1998
Neogeo Pocket (SNK)
1999 WonderSwan (Bandai), Neogeo Pocket Color (SNK)
2000 WonderSwan Color (Bandai)
2001 Game Boy Advance (Nintendo)
2002 Swan Crystal (Bandai)
2003 Game Boy Advance SP (Nintendo)
Nintendo DS (Nintendo)
2004
PSP (SCE)
2005 Nintendo DS Lite, Game Boy micro (Nintendo)
2008 PSP 3000 (SCE)
2009 PSP Go (SCE)
2011 Nintendo 3DS (Nintendo)
2012 PlayStation Vita (Nintendo)

Source: COMPUTER ENTERTAINMENT SUPPLIERS ASSOCIATION 2012 16

Console Gaming in Japan - Home Console
Background
1977 TV Jack 1000, 1200, 1500, 2500, 3000 (Bandai)
1978 Visicom (Toshiba)
Video Computer System (made by Atari, sold by Epoch)
1979
Supervision8000 (Bandai)
Cassette vision (Epoch), Pyu-Ta (Tomy)
1981 Game Pasocom M5 (Sword / Takara)
Max Machine (Commodore)
Family Computer (Nintendo), SG-1000, SC-3000 (Sega)
PV-1000 (Casio), Osero Maltibision (Tsukuda)
1983
TV Boy (Gakken), My Vision (Kanto Denshi / Nihon Bussan)
Cassette vision Jr. (Epoch)
SG-1000 II (Sega), Super Cassette vision (Epoch)
1984
RX-78 (Bandai), Pyu-Ta Mk II (Tomy)
1985 Sega Mark III (Sega)
1986 DiscSystem (Nintendo), Twin Famicom (Sharp)
1987 Master System (Sega), PC Engine (NEC)
1988 Megadrive (Sega), CD-ROM (NEC)
1990 Super Famicom (Nintendo), Neogeo (SNK)


Console Gaming in Japan - Home Console
Background

1991 MegaCD (Sega), PC Engine Duo, Super CD-ROM (NEC)
1992 Wondermega (Victor)
1993 Laser Active (Pioneer)
PlayStation (SCE), 3DO Real (Panasonic)
3DO Try (Sanyo), Saturn (Sega), PC-FX (NEC)
1994
Playdia (Bandai), Neogeo CD (SNK)
Super 32X (Sega)
1996 Nintendo 64 (Nintendo), PiPPiN@Atmark (Bandai)
1998 Dreamcast (Sega)
2000 PlayStation 2 (SCE), PSone (SCE)
2001 Nintendo GameCube (Nintendo)
2002 X box (Microsoft)
2003 PSX (Sony)
2005 X box 360 (Microsoft)
2006 Family Computer (Nintendo), SG-1000, SC-3000 (Sega)
2006 PS3 (Sony)


Background
35
Total Console Unit Sales in Japan
30

25
SALES/MILLION UNITS

20

15

10

5

0


Demographics
<18 YRS 18-35 YRS 36 YRS> Male Female

36% 36%
44%

56%

28%


Preferences driven by culture and brand loyalty
• Sony PS3 and Nintendo WII dominate

• Xbox 360 has smaller following

• Role playing games popular among both genders

• Portable consoles popular due to long train commutes

21

Preferences
Nintendo WII and PS3 sales in Japan 2006-2011
4.0

3.5
Yearly Units (Millions)

3.0
PS3 Wii

2.5

2.0

1.5

1.0

0.5

0.0
Jan '06 Jul '06 Jan '07 Jul '07 Jan '08 Jul '08 Jan '09 Jul '09 Jan '10 Jul '10 Jan '11 Jul '11 Jan '12

Source: VGCHARTZ

Preferences
Portable Console Ownership in Japan (2011)
50
45 Male Female

40
35
30
25
%

20
15
10
5
0
Nintendo GB Nintendo GBA Nintendo DS PSP WondeSwan

Source: MIKEMACE.COM 23

Console Gaming in Japan vs. America
Preferences (Top 3 Desktop Consoles)

North America Japan
50
45
40
35
Sales/Million Units

30
25
20
15
10
5
0
Wii (Wii) Xbox 360 (X360) PlayStation 3 (PS3)

Source: VGCHARTZ 24

Developers/Publishers
Nintendo (“Leave luck to heaven”)

• World’s largest gaming company by revenue

• Formed in 1889 and based in Kyoto

• Sales of 565m and 3.4bn hardware and software units respectively₁

• 19% market share of the Japanese video game market ₁

• Major manufacturer of home and portable consoles

Source: NINTENDO FS 2012 (Japan) 25

Nintendo-Business Model
This key strategy has enabled Nintendo
to become the most profitable of the 3 major console manufacturers

Source: ELIZABETH MENOZZI BUSINESS INSIGHTS 26

PC Gaming in Japan
Background

• 1970-1995 was the golden age of PC gaming, with NEC and Toshiba developing their
own microprocessor used on PCs

• Advent of windows 95 led to the decline in overall PC gaming in Japan

• PC games share of the market is constantly being eroded by the increase in social and
mobile gaming

• PC gaming lags behind as the least platform of adoption in Japan

• PC gaming in Japan has seen increased growth recently

• Historically PC games are usually a variant of console games

27

PC Gaming in Japan
Background

• Decline since mid 1990s

• Least popular game platform today

• Further eroded by social and mobile gaming

• Role playing most popular genre

28

PC Gaming in Japan
Trends

• PC gaming in Japan recently growing again

• Shift from physical media to online

• Shift from solo to social

• Good opportunity for foreign titles

29

Key Statistics - Japanese Video Gaming Industry

510 Billion Yen 469.2 Billion Yen

• YoY: 9 % Revenue Decreased
Primary Reasons for Negative Growth


Japan vs. USA Major Console Shipments (2005-2012)
Japan

USA

Source: VGCHARTZ 31

Japan vs. USA Hardware Shipments (2007-2011)
USA Hardware Year-Over-Year Comparison
10M

2007
8M 2008
2009
2010
2011

6M
Units Sold

4M

2M

OM
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Japan Hardware Year-Over-Year Comparison
3500K

3000K 2007
2008
2009
2500K 2010
2011
Units Sold

2000K

1500K

1000K

500K

OK
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Source: VGCHARTZ 32

Market Value of
Online Game Content in Japan


Japanese Market Share Based on
Actual Sales FY 2011
20%

18%

16%

14%

12%

10%

8%

6%

4%

2%

0%
Nintendo Namco Capcom Square-Enix Pokemon Konami Sega SCE TECMO Level Five Others
Bandai KOEI
GAMES


Japanese Gaming Demographics

Japanese gamers are predominantly male.

40% are female with interests in SNS and
arcade games.

Age range of hardcore gamers are between
16-45.

Older women are increasing involved in
playing especially arcade games.

Source: Digi-Capital Investment Review 2012, SERKANTOTO.COM 35

Japanese vs. US Video Gaming
• Realism vs. Fantasy (self escapism vs. self
expression)

• Genre differences e.g. RPG

• Philosophy (symbolic world, emphasis on diligence
and tasks, exotic settings)

• Huge infusion of Anime/Manga in Japanese games

• Need for console customization

36

Japanese User Preferences: Genre
Top – 3 Genres In Japanese Video Game Industry in 2010

1. ACTION
• Market Share: +16.3% w.r.t 2009 = 42.1%
• 26.468 million copies sold

2. RPG
• Market Share: 24.30 %

3. OTHERS
• Market Share: 9.40%


Market Share in Percentiles


Best Selling Games in Top – 3 Genres

• Monster Hunter • Pocket Monster • Tomodachi
Portable 3rd Black/White Collection.
• 3.48M copies sold • 4.914M Copies Sold • Wii Party

ACTION RPG OTHER


Platform Usage in Japan

What portable game console do
they currently use the most ?
MALE
FEMALE
10.00%

19% Playstation Playstation
Portable PSP 27.40% Portable PSP
47% Nintendo DS Lite Nintendo DS
Lite
Nintendo DS 52.20% Nintendo DS
34%

Source: NET ASIA CO., LTD. 40


How often do they use game consoles

11%
?
Less than 1 day a week
12% 37%
Every day
2/3 days a week
4/5 days a week

15% 1 day a week

25%



How long do they use the
console for videogames per day ?
14%

29%
1 hour during weekdays
Less than 15 minutes
17%
Almost 2 hours
Almost 30 minutes
More than 5 hrs/day

18% 22%



How long do they use the console for
videogames per weekends ?
10.30%

21.60% 1 hour
3 hour
18.10% 2 hour
More than 5 hours

18.50%



If there is any variation in the frequency and
time of playing videogames with portable
consoles compared with a year ago ?
22.20%
Increased
Decreased
33.90%



Where do they use portable game consoles
?
50.40%
My Room
Living Room
81.50%



Survey brought out …
Train

6.50%
Friend's/
14.20% Acquaintance's
house
10.30% Outside Home

Car
11.60%

Most people use their portable game consoles at home……!

Japanese User Preferences:
Gaming Platforms Ranking W.R.T Sales

Console Sales in Japan during FY2011
4500000

4000000
Number of consoles sold
3500000

3000000

2500000

2000000

1500000

1000000

500000

0
Nintendo 3DS Sony PSP Sony Nintendo Wii Nintendo DS Playstation Xbox 360
Playstation 3 Vita

Source: Famitsu by ENTERBRAIN, INC. (Japan)
http://goo.gl/H4rLD 47

Top Selling Games
in Japan During FY2011
1,200,000
Number of copies sold
1,000,000

800,000

600,000

400,000

200,000

0
Mario Kart 7 Super Mario Monster Monster Final Fantasy Final Fantasy
(Nintendo 3D Land Hunter Hunter 3G XIII-2 (Sony Type-0 (Sony
3DS) (Nintendo Portable 3rd (Nintendo PS3) PS3)
3DS) (Nintendo 3DS)
3DS)

Source: Famitsu by ENTERBRAIN, INC. (Japan)
http://goo.gl/H4rLD 48

Top Publishers in
Japanese Video Gaming Industry
2011 Combined Unit
2011 Ranking Publisher Sales Share
1 Nintendo 10,667,868 (Down) 20.8%

2 NAMCO BANDAI 8,377,529 (Up) 16.3%
Games
3 CAPCOM 4,802,106 (Down) 9.4%

4 SQUARE ENIX 4,725,621 (Down) 9.2%

5 KONAMI 3,492,342 (Down) 6.8%

6 SEGA 2,221,138 (Down) 4.3%

17 TECMO KOEI Games 2,127,995 (Up) 4.1%

8 LEVEL-5 2,016,654 (Up) 3.9%

9 SCEJ (SONY) 1,629,310 (Down) 3.2%

10 Pokemon 1,219,325 (Down) 2.4%

Source: FAMITSU (Japan) MARKETING DATA SERVICE, Yearly Report CY 2011 49

Growth Trends in Japan 2000-2011
Japan Video Game Market Value History.
8,000.0
Software
Hardware
7,000.0

6,000.0

5,000.0
100 Million of JPY

4,000.0

3,000.0

2,000.0

1,000.0

0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: FAMITSU (Japan) GAMING RESEARCH 2011 50

Social/Mobile Gaming in Japan
Background

• Increasing use of mobile phones • Social gaming market worth $3.26bn
since early 1990s in 2011 (y-o-y growth of 80%)

• Early 2000s: • Expected to surpass domestic
• Upswing in mobile gaming console sales by 2014
• Popular arcade titles ported to mobile

• Mobile phones no. 1 platform for
social/mobile gaming today

Source: MINISTRY OF INTERNAL AFFAIRS AND COMMUNICATIONS (Japan) 51

Recent Social/Mobile Gaming
Developments in Japan
Background

GREE partners with
DeNA acquires GREE acquires
Chinese IT giant
Ngmoco 100% ownership
Tencent
of Openfeint

Smartphone's DeNA expands GREE starts providing "Tsuri-Sta"
Version of Smartphone services and "Pirate Kingdom Columbus"
GREE launches
"Mixi" launched worldwide
paid for service to IPhone and Android
on Iphone

May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11

DeNA rebrands from
Capcom releases new Mixi announces new platforms GREE sets up its first
"Mobage Town" to
"Monster Hunter" social "Mixi Plugin" and "Mixi Graph API" US based subsidiary
"Mobage"
game for Mobage

“Yahoo Mobage” hits 3 million users

DeNA partners with Japanese mobile
telecom major NTT Docomo

Source: DIGICAPITAL INVESTMENT REVIEW 2012 52

Japan’s Social Game
Market Size in FY2011

US$5.4 billion
US$3.6 billion

Japan’s Entire Online Japan’s Social Game Market on
Game Market PCs and Mobile Devices


Japan’s Social Game
Market Size in FY2011
Smart Phones Feature Phones

US$8.3 billion
US$1.0 billion
(Excluding Mobile Commerce)
(Excluding Mobile Commerce)


Business Model in
Japanese Mobile Content Market

Out of 4.4 Billion USD,
63.5% was contributed by
4.4 billion dollars Trend shifting from Sell-out the "Freemium" model,
generated by the Model to Freemium Model which grew 28.2% over
"sell-out" model the previous year.


Background
Mobile Revenue/Phone category (2011)
3
2.65
2.5
USD/billions

2

1.5

1
0.61
0.5

0
Feature Phone Smart Phone

Source: JAPAN MINISTRY OF INTERNAL AFFAIRS AND COMMUNICATIONS 2012 56

Background
Forecast for # of Paying Social Games Players in Japan
6.2

5.98
6
5.86
5.8

5.6
Millions

5.4
5.27
5.2

5

4.8
2011 2012 2013

Source: MITSUBISHI UFJ MORGAN STANLEY 2011 57

Forecast for Average Revenue per Paying Users (ARPPU) in Japan
$60.00
$53.03
$50.00 $47.42
$42.18
$40.00

$30.00

$20.00

$10.00

$0.00
2011 2012 2013

Source: MITSUBISHI UFJ MORGAN STANLEY 2011 58

Background
100
90 $86.35
80
70
$61.30
USD

60
50
40 36.0981
30
$34.97 $32.86
$19.27 $31.92
20 $16.19
$13.53 $9.22
10 $12.34 $10.97
0
Male Female Male Male Male Male Male Female Female Female Female Female
15-19 16-29 30-39 40-49 50-59 15-19 20-29 30-39 40-49 50-59
Gender/Age

Source: ENTERBRAIN INC. (Japan) 2011
59

Background
100.0%
Gaming Use of SNS Platform 94.2%

90.0%

80.0%
by Device Type in Japan (2011)
75.2%

70.0%
62.9%
60.0%
53.2%

50.0%
40.4% 42.0%
40.0%
32.8%
28.5%
30.0%
22.7%
20.9%
20.0%

10.0% 4.5% 4.0%
0.0% 0.0% 0.0% 0.0%
0.0%
Tablet

Tablet

Tablet

Tablet
Smartphone

Feature Phone

Smartphone

Feature Phone

Smartphone

Feature Phone

Smartphone

Feature Phone
PC

PC

PC

PC
Mobage GREE Mixi
Facebook

Source: ENTERBRAIN INC. (Japan) 2011
60

Current Trends

• Mobile games:
• Downloaded as Apps on smartphones
• Preinstalled on feature phones
• Convergence of social and mobile gaming

• Feature phones market share declining

• Smartphones, led by Android, taking the lead

• Dominant players:
• Mixi
• GREE
• DeNA (Mobage)

61

Forecast of SNS users in Japan
60 Growth in SNS adoption in Japan is expected to impact on gaming!
50.7%
50 47.8%
44.7%
39.5%
40

30

20

10

0
2011 2012 2013 2014

Source: STATISTA 62

90 Mobile Users Activity in Japan (2011)
81.7%
80 Japan United States Europe 75.2%
70 66.8%
59.3%
60

50 43.7%
40.1% 42.3%
38.5%
40 34%
31.1%
30 24.9% 25.8%

20

10

0
Sent SMS Used app Used browser Mobile media usage
(browsing the internet,
using apps, downloading
content)

Source: STATISTA 63

Background
70 Percentage of Mobile Internet Users using browsers on mobile devices (2011)
59.3
60

50

40
34

30 25.8

20

10

0
Japan USA Europe

Source: OFCOM (Office of Communications UK ) 64

OS share of market
Japan Smartphone/Feature phone Penetration
(2011)

Feature Phone
SmartPhone

44.9%

55.1%

Source: COMSCORE MOBILENS 2011 65

OS share of market
Japan Smartphone Market Share by OS (2011)
0.2 0%
Android
IOS
0.3 0%
RIM
5.4 5%
Symbian
Windows Mobile

33.6 34%

60.5 61%


Demographics

70.0%
Male Female
60.0%
60.0%

52.1% 53.3%
50.0% 47.9% 47.0%
40.0%
40.0%

30.0%

20.0%

10.0%

0.0%
Mixi Mobage Town(DeNa) GREE

Source: COMPANIES REPORTING NUMBERS 67

Demographics

60.0%
53.8%

50.0%
Mixi

43.0% Mobage Town(DeNa)
GREE
40.0%
36.0%
31.0%
30.0%
26.0%
24.0%

20.0%
15.0%
9.4%
10.0% 7.3% 7.4%
2.1%
0.0%
10-19 20-29 30-39 40-49 50>

Source: COMPANIES REPORTING NUMBERS 68

Demographics
Social Mobile Gaming User Activity for Japan (2011)
Active Non Active

Non Mobage and GREE users 68% 32%

Mobage and GREE free users 69% 31%

Mobage and GREE paying Users 80% 20%

Mobage and Gree Users 76% 24%

0% 20% 40% 60% 80% 100%

Source: CA MOBILE 69

Preferences
Medium of choice for playing
social games (2011)

By Phone
1% BY PC & Phone
From PC

21%

78%

Source: GOO RESEARCH 70

Preferences
Frequency of Mobile game
playing in Japan -% of
Smartphone owners (2012)
Less than Less than monthly
Monthly, monthly, Daily
5% 3% Weekly
Never
Monthly

Never, 34%
Daily, 47%

Weekly,
11%


Preferences

Where they usually play their mobile devices (2011)
80% 75%
70%
70%

60%
Male Female

50%
42%
39% 38%
40% 36%

30%
20% 18%
20% 17%
10% 10% 9%
10%

0%
In My Room In another room at On public transport Work or School Train Station/Bus In shops/On the
home stop street

Source: GOO RESEARCH (Japan) 72

Preferences

On which machine do you usually play games (2011)
80 76%

70 65%
60%
60
Male Female
50 45%
40 35%
30%
30

20 15% 15%
10% 12%
10

0
Mobile Phone Home Machine Portable Game Other Don’t Play Games
Machine

Source: INFOPLANT (Japan) 73

Preferences
Which do you access Social games from more: Mobile or PC
Don’t Know, 1%

Both about the
PC, 14%
same, 15%

Mobile Phone, 70%


Preferences

% of population that have played mobile social game in Japan (2011)

Don’t Know
Anything, 15.6%

Havent played but
heard, 16.5%
Have Played, 67.9%

Source: CA MOBILE, 75

Preferences

Do you want to buy a
Smartphone (Mobile Phone
Users) 2011

Don’t
Know, 24%

Yes, 55%

No, 21%


Preferences
Do you want to keep playing
social games (Smart Phone
Users) 2011

Don’t
No, 3% Know, 14%

Yes, 83%


Preferences

Top 5 Venues for Playing mobile games in Japan (2011)

Before Bed 52.0%

Free time 40.0%

During Job breaks 37.0%

At home/TV watching 36.9%

Waiting for transport/Public Transport 29.5%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

Source: CA MOBILE 78

Preferences

Top 3 Countries by Revenue Top 3 Countries by Revenue
for IOS (2011) for Google Play (2011)

Rest of
World, Rest of
40% US, 42%
World,
34% US, 45%

Japan, Japan, 10%
UK, 8% 10%
UK, 11%

Source: APPANNIE 79

Preferences
Top 3 Fastest Growing by Revenue
Top 3 Fastest Growing by Revenue
for Google Play (2011)
for IOS (2011)

US, 19%

France,
12% Russia,
Japan,
20%
22% Brazil,
88%
US, 13%
Japan,
23%
Russia,
17%

Source: APPANNIE 80

Preferences

Top Fastest Growing Countries in Terms of Revenue in
600% 560% Apple App Store for Iphone (May 2011-May 2012)

500%

400%

300%

200%
115% 109% 101%
100% 84% 83%
63% 59% 54% 47%

0%
Japan Russia China Taiwan Thailand Brazil Mexico Korea Turkey Canada

Source: DISTIMO PUBLICATION JUNE 2012 81

Preferences
Mobile Social Game Players in Japan (2011)

Engineers 8.0%

School students 10.0%

Part time workers 12.0%

Office Workers 13.0%

Full time Housewives 14.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%


Preferences
25
Japanese Social Networks Population
24
by Asianjin

23
Million Users

22 Gree
Mobage Town
Mixi
21 Mobage + Y!

20

19

18
07/31/10 10/31/10 11/31/11
Date


Preferences Japan Iphone Apps downloaded by Users by App category (2011)
Games 61.9%
72.0%

Weather 6.9%
42.8%

News 7.5%
40.9%

U lity 30.7%
30.6%
Entertainment 21.3%
40.1%

Photos 25.0%
33.9%

Produc vity 21.9%
29.2%

Music 2.0%
23.8%
Business 23.8%
29.2%

Ebooks 22.5%
29.1%
Free
Naviga on 8.1%
23.3%
Paid
SNS 6.9%
21.0%

Educa onal 8.8%
19.5%

Lifestyle 6.9%
17.5%

Finance 7.5%
13.6%

Health and Fitness 7.5%
12.1%

Travel 3.8%
10.1%

Medical 8.6%
10.0%
Sports 5.0%
7.0%
Reference 5.8%
5.0%
Other 1.2%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%

Source: APPANNIE 84

Preferences
60%

50%
47% Top 3 Countries by
Top 5 Countries by 49%
50%
45%
App Downloads (2011) App Downloads (2011)
40%
40%
35%
35%
30% 28% IOS
25%
30% Google Play

20% 18%
20%
15%

10% 10%
7% 10%
6%
5%

0% 0%
US China Japan Rest of World US UK Germany Rest Of World

Source: APPANNIE 85

Preferences
Share of Total Traffic by
Non-Computer devices (2011)
7
6.2
5.9
6
5.3
5 4.6
4.3
4
%

3

2

1

0
Australia Japan UK Singapore U.S.


Preferences
Percent of Mobile Phone users who also own a Tablet

JAPAN 5.0%

GERMANY 7.4%

ITALY 9.2%

UK 9.2%

FRANCE 9.4%

SPAIN 10.9%

CANADA 10.9%

US 14.9%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%


Market Drivers

• Kompu Gacha is a huge revenue driver for social in-game purchase

• Freemium business model encourages premium in-game purchases

• Integration of virtual wallets into social games

• Advertising revenue growth

• (Relatively) low development costs

88

Market Drivers

• Increase in mobile penetration

• Integration between mobile and social gaming through SNS

• Increase in consumer acceptance

• Increased availability of smartphones

• Social gamers with moderate to high disposable income, especially females

89

“Kompu Gacha”- Revenue Generation Model

Source: SERKANTOTO.COM 90

Revenue Model Validation
35.0% Kind of items purchased
with first payment in a social game
29.8%
30.0%
27.3% Male Female
25.9%
25.2%
25.0%
21.4%
19.8%
20.0% 18.6% 18.7%
18.0%
15.7%
14.5% 14.3%
15.0%
12.0%
10.8%
9.5%
10.0% 8.8%

5.0%

0.0%
Items to shorten Status/power Avatar Items Gacha Limitied edition Experience Hard to get rare Others
waiting times boosting items items Points items


12 Current Social/Mobile
Gaming Trends in Japan
Present Trends
1. Most social games offer free elements coupled with
• In-game purchases
• In-game virtual item purchases
• Subscription and advertising

Source: ARKADIUM.COM
http://goo.gl/IuA7p
92

Present Trends
2. Focus on genre that supports female participation

93

Present Trends

3. Subscription and in-game item sales

94

Present Trends

4. Enhanced capabilities to up-sell, cross-sell and cross promote across media

95

Present Trends

5. Overseas acquisitions and mergers to enter new markets

96

Present Trends

6. Selling games for playing on smartphones and tablets directly via app stores

97

Present Trends

7. Virtual wallet is integrated into social games

98

Present Trends

8. Strong cultural difference between Western and Japanese social games

99

Present Trends

9. (Relatively) low development costs - popular games profitable within months!

100

Present Trends

10. Short product lifecycle

101

Present Trends

11. Different pricing strategies

102

Present Trends

11. Gaming community creates and expands content

103

Special Genres
Social Gaming Genres

PET-BREEDING

CITY BUILDING

FARMING

RESTAURANT
MANAGEMENT

104

Special Genres
Manga-based Social Games

105

Special Genres
Social RPGS

106

Special Genres
Social Dating and Love Simulations

107

Special Genres
Social Idol-raising Games

108

Special Genres
Social Collectible Card Games

Title Screen My Page Screen Battle Screen

109

Future Trends in Japan’s Social Gaming Industry

110

7 Future Social/Mobile
Gaming Trends for Japan
Future Trends

• Augmented reality using smartphone features

111

Future Trends

• Growth in Near Field Communication (NFC) adoption

112

Future Trends

• Location-based features of Smartphone to be used in overall game experience

113

Future Trends

• 3D holograms and voice control

• Inbuilt Projection of stored media

114

Future Trends

• In-built Projection of stored media

115

Future Trends

• Market fragmentation due to different operating systems (Android/IOS) and
hardware capabilities of mobile phones

116

Future Trends

• HTML 5 will support cross platform integration and a universal App Store

117

Japan's Social Game Market
Experiencing rapid growth
Sales in 100 Million Yen
1400 1000%
750.3%
Sales 800%
1200
600%
1000 Growth
400%
221.3%
156.7%
800 200%
0%
600 1,171
-200%
747

400 -400%
-600%
200 338
45
-800%
0 -1000%
2008 2009 2010 2011

Source: YANO RESEARCH INSTITUTE. 118

Potential Venue for Game Development
Key Peculiarity: Facebook Japan
Facebook Users
5 000 000

4 250 000

3 500 000

2 750 000

2 000 000
10.03 09.04 09.05 09.06 08.07 07.08

Source: SOCIAL BAKERS 119

Preferences
Forecast for Mobile Penetration in Japan (2011)
80.00
73.50
68.70
70.00
63.20
60.00 57.80
52.10
50.00 47.30
43.50
40.00

30.00

20.00

10.00

0.00
2010 2011 2012 2013* 2014* 2015* 2016*

Source: STATISTA 120

Revenue Allocation on Social/Mobile Apps

Feature Phone Market
Billing / Operator
Game Developer Publisher Aggregator Portal /
End
Platform
Mgt Hub User

50% 50%

Smartphone App Store

End
Game Developer App Store
User

30%
70%

Source: CAPCOM (Japan) ANNUAL REPORT 2011 121

Top Publishers in Japanese
Mobile & Social Gaming Sector

Source: MOBILE SOCIAL GAMING MARKET GUIDE 2011 Published by MOBYAFFILIATES. 122

Platforms
• Most users access via mobile phones

• Top platforms:
1. DeNA (Mobage Town) over 43m registered users

2. GREE over 26m registered users

• Both double as social networks and platform providers

• Used to be closed ecosystem but now open to 3rd party developers

• Rapid growth during 5 years

Source: COMPANY’S WEBSITE 123

Publishers/Developers
GREE

• A top mobile game developer, publisher and social mobile game platform
• Top 5 games developer for iPad
• Net revenue of ¥158bn₁

Source: COMPANIES’ WEBSITES 124

GREE
• GREE Mobile social gaming platform was launched in 2012 enabling game
distribution in 169 countries with English and Japanese portals


GREE
• Global expansion into Western market with purchase of Openfeint and Funzio
• Integration of Openfeint into its gaming platform


GREE
• Formed new partnership with Namco Bandai


GREE
• GREE Platform support for 15 languages to be launched


GREE
• Revenue generation through:
• Advertising (advertising sales)
• Social games (paid service sales)


GREE
Major acquisitions by GREE includes
• Paprika (South Korea mobile social game developer)

Source: NY TIMES APRIL 2011 130

GREE
• IUGO (San Francisco based social mobile game developer)


GREE
• Funzio


GREE

Openfeint

• Social platform operating on IOS and Android

• Enables developers to add social networking features to their apps and games

• Top mobile game social platform

• Bought by GREE for $104m


SNS Business Model: GREE Primer

GREE Ad space Advertising
Advertising revenue
•Banner and Text Ads stream
•Tie-Up ads

Avatars
GREE Avatar personalisation through
Main virtual goods and upgrade

Window
purchases Premium
Content
sale
Social Games
•Free social games (Freemium)
•In-game selling of virtual item

Source: INFINITA GREE RESEARCH REPORT 134

Acquisition of Funzio (Sales and position in the market)

Sales
14 Rank Corporate Name No of applications

12
1st Zynga 4
10
2nd Funzio Inc 3
8

6 2nd EA 3
4
2nd TinyCo Inc 3
2

0
3rd Admired Inc 2
July- Sep 2011 Oct-Dec 2011 Jan-Mar 2012
3rd Diaper Gentlemen 2

• Funzio sales grew rapidly, reaching $12m
3rd Pocket Gems Inc 2
from Jan to Mar 2012

• In April, when Kingdom Age was released, monthly sales exceeded $5m, accelerating growth

Source: DIGI-CAPITAL INVESTMENT REVIEW 2012 135

DeNA

• Top social mobile game publisher, main competition to GREE

• Net revenue of ¥42bn₁ for FY 2011

• Growth revenue was from online auctions to the present social gaming

Source: COMPANY WEBSITE 136

DeNA

• Launched Mobage platform through its acquisition of US based Ngmoco

• Has major games on Android and IOS


DeNA

• Global alliance was launched with Disney Studios to reach a wider market


DeNA

• Increased monetization methods introduced across game titles


DeNA
Major subsidiaries include:

• Gameview (California based,
• Ngmoco (California based, operates
publishes free-to-play games for
Mobage global service)
Android and IOS

Source: DeNA.JP/INTL 140

DeNA

• DeNA China (Mobage services in China) • DeNA Seoul (games and partnership
with Korean partners

Asia
• DeNA Asia (games and partnership with
Asian developers)

DeNA

• Grasshopper (Japanese mobile • Plus+
game developer)


DeNA
Types of games include:

• Real Time
Team Battle (Final
Fantasy Brigade)
• Farming & • Royale • Card Battle
collection (Kaito Royale, (Gundam Card
(Noen Hokorina) Sengoku Royale) Collection)


DeNA (Mobage)

1000
917 # of Mobage Social Games (2012)
900

800
First and second party Third Party
700

600

500

400 355

300
202
200

100 48 42
7 16 12
0
Feature phone PC Smartphone( Browser based) Smartphone( App based)


Going mobile pays!!!
Mobile-based (GREE and Mobage) more profitable than web-based (Zynga)

Source: GUMI RESEARCH 145

Going mobile pays!!!
Though Zynga has more users worldwide than GREE and DeNA, net
income for both Japanese developers has shown considerable growth!

Source: GUMI RESEARCH 146

Reasons why GREE and Mobage monetize better than Zynga!
• Japan is a gaming nation
• 10%₁ share of Global video gaming market
• Video gaming has a huge cultural impact


• Japan is a mobile nation
• 99%₁ 3g penetration in Japan
• Mobile phones essential for mobile game play
• Easier to sell content on mobile devices


• Card battle games are popular
• About 70%₁ of top 20 games on GREE and Mobage are card battle games



• Higher pay walls acceptance
• Micropayment acceptance and processing through coin collection
• Users are comfortable with higher pay walls to progress through game levels

150


• Smooth and easy mobile payment systems

151


• Focused and aggressive marketing campaigns

152

• Pre-Installation on handsets
• Collaboration with mobile operators to preinstall games on handsets

153


• Anonymity /virtual nature of social graph
• GREE and Mobage are used anonymously
• Mass invitation of friends to play/participate

154

Japanese SNS Usage by Platform
100 94.2
90
80 75.2

70 62.5
60 53.2
50
40.4 42
40 32.8
28.5
30 22.7
20.9
20
10 4.5 4
0 0 0 0
0
Tablet

Tablet

Tablet

Tablet
SmartPhone

PC

SmartPhone

PC

SmartPhone

PC

SmartPhone

PC
Mobile

Mobile

Mobile

Mobile
Phone

Phone

Phone

Phone
Mobage GREE mixi facebook

Source: Research Report 2011, ENTERBRAIN, INC. (Japan) 155

Japanese SNS Demographics
Male Users > Female users
Age Brackets of 15-19 & 20-29


Paid-For Usage
on Social Game Content in Japan

8000
7000 6732
6000
5000 4780
4000
3000 2815
2207 2489 2727 2562
2000
1503 1262
1000 962 1055 719 855
0
Total Male Female Male Male Male Male Male Female Female Female Female Female
15-19 20-29 30-39 40-49 50-59 15-19 20-29 30-39 40-49 50-59


Video Game Usage
Among Social Gamers in Japan
Video Game Usage by Social Gamers

Non Video
Game Users
23%

Video Game
Users
77%


Video Game Usage
Video Game Platform belonged to Social Gamers
70

60

50

40

30

20

10

0
DS Wii PS2 PSP PS3 3DS Xbox 360 Others


Video Game Usage
Video Game Usage by Gender/Age (Social Gamers)
40
35
30
25 16.8
12.7 12.9
20 12.4
15
9.5 6.5 10.3
10 3.3 16.7 18.1
15.7 7 12.4 8.7
5 7.8 8.3 8.1
3.2 5.9 3.6
0
Male Male Male Male Male Female Female Female Female Female
15-19 18-29 30-39 40-49 50-59 15-19 20-29 30-39 40-49 50-59

Video Game Users Non Video Game Users


Social Gaming Impact
on Video Game Usage in Japan
Video Game Usage Frequency by Social Gamers
Fairly Increased,
2%
Increased,
2.00%

Decreased,
No Changes, 45%
37%

Failry Decreased,
14%


Social Gaming Impact
on Video Game Usage in Japan
Social Gamers Video Game Usage Frequency by Gender/Age
70
Increased
Decreased
60

50

40

30

20

10

0
Male Male Male Male Male Female Female Female Female Female
15-19 16-29 30-39 40-49 50-59 15-19 16-29 30-39 40-49 50-59


Growing Use of
Smartphones for Social Gaming in Japan
Social Game Users Mobile Usage

Smart Phones
32.8%
iOS 11.4 %
Android 20.4 %
Others 2.6 %

Mobile Phones
76.4%


Growing Use of
Smart Phone Usage with Social Games Play

30
25 27.4

20
20.4
15
10
8.9
5
0
Smart Phone Users Playing Social Games Started Social Games
by Smart Phones by Purchasing Smart
Phones


Growing Use of
Feature phone users: do you want to buy a smartphone?

Don't Know,
24%

Yes,
55%

NO,
21%


Growing Use of
Do you want to keep playing Social Games? (Smart Phone Users)

No,
Don't Know, 3%
14%

Yes, 83%


Market Acquisitions (Japan - US)
Major Japanese acquisitions in US and growing!!!

• DeNA acquired Ngmoco- $400M₁ (Rolando, Eliminate)

Source: COMPANIES’ FS 2012 167

These Japanese developers acquisitions are focused on the following:
• Competing globally by entering the US and European markets


These Japanese developers acquisitions are focused on the following:
• Diversifying of revenue streams due to recent regulations on kompu gacha


Japanese Video Game Market Overview 2012

Japanese Video Game Market Overview 2012

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