Introduction to Video Games Creation

Module 14: The Games Industry and Data Analytics, 1 ECTS

(beta)

Dr. Jan Storgårds (c) 2019

Course Leader
CADGI
Cambridge Academy of Digital
Games and Innovation
Module 14: The Games Industry and Data Analytics, 1 ECTS:

The Video Games Industry has grown since 90s to an industry worth more than 150 billion $ (2019). It is bigger
industry than movies, films and music altogether. As learned from Module 11, 12 and 13, it is thanks to lot of
innovations in the industry as well excellent, creative people developing great games along the history of approx.
50 years.

This module is about games industry and data analytics. It is very seldom that any university degree in games
teaches the business side of the industry. Most often courses are about technology and arts. We try to give you
an easy introduction about the terminology used in the games industry and also introduce you to a number
important game analytics topics (data science) that you should know before deciding what type of games you
want to develop. At first you probably want to like to develop games you like personally, but when it comes to a
successful game you need to know the facts about the games industry and where is the best potential, and still
like the game genre you work with.

This Module is the last ‘easy’ module we publish. As always it is important that you get to know at least the
basics of games industry even you would prefer games programming or games arts.

You will self-study this document I prepared for you and then answer to 30 quiz questions to show your
learnings about the different aspects the games business and data analytics.

Enjoy!
Jan
Course Leader
Learning outcomes:

The module will improve your general knowledge about video games industry and data analytics in a simple way.
You can study this module by using a smart phone.

Learn about video games industry and games business.

Learn about terminology used in video games industry and data analytics.

Learning resources:

Your main learning resource is this presentation. There is NO need to search for internet for more information
but there are references you might be interested in looking for further reading.

Assessment:

You need to pass quiz with over 80% correct answers (28/35).
You can do the quiz as many times you like until you pass.

Important! All answers to all the quiz questions are in this presentation.
Content (BETA)
- Historic facts and examples about the development of the
games industry
- Statistics about games business and industry, the market
- Games studios and publishers, the ecosystem
- Games brands and most valuable games francises
- Data analytics
- Monetisation
- Virtual goods
- Websites to follow for games industry news
Fun vs. Usefulness Parachute is a Game & Watch game released as a part
Intrinsic vs. Extrinsic of the Wide Screen series on June 19, 1981. It was the
first game in the Wide Screen series. It is a single-screen
Nintendo thought that adding a clock single-player Game & Watch.
and an alarm to the game platform
would give parents a reason to buy the Designed by “godfather of Nintendo” Gunpei Yokoi
game to their children.
Entrepreneur
Sir Clive Marles Sinclair

(born 30 July 1940) is an English

entrepreneur and inventor, most commonly
known for his work in consumer
electronics in the late 1970s and early
1980s. He was based in Cambridge, UK.

This is one of the first commercially

successful home computers, mostly used for
developing and playing games, called ZX
Spectrum.

“In 1982 the ZX Spectrum was launched at

£125 for the 16 kB RAM version and £175 for
the 48 kB version. In March 1982 the company
made an £8.55 million profit on turnover of
£27.17 million.”

Source: https://en.wikipedia.org/wiki/Clive
h

_Sinclair
 Oftentimes it takes decades to
an idea to become commercially
viable.
Technological change
1995 was the year when
Nintendo decided to publish first
1960’s 1995 2016
Virtual Reality platform/game
console, or ‘Stereorescopic 3D”
experience.

Unfortunately this was a

commercial failure. The
technology was not ready for
consumers.

In 2016, Sony published

Playstation VR set. Almost 5
million units have been sold to
date and it has been a great
success story.

It took almost 60 years (!) to

make an idea of a new type of
user experience commercially
successful. TV Nintendo Virtual Boy Playstation VR
Source: https://en.wikipedia.org/wiki/Virtual_Boy https://en.wikipedia.org/wiki/PlayStation_VR
 There are 2.3bn people playing mobile games!!!

https://gamegavel.com/mobile-gaming-statistics/
Indexed, 300 means 3 times more than 100
Which platform is growing fastest?
Different cultures and countries tend to
spend differently money on mobile games.

For instance, Europeans tend to spend less money

Than Asian cultures. This can also be debated but
It is because Europeans have grown up with a ‘pay
to play’ model where you buy the game once and
all content is at least mostly free.

Most Asian countries and cultures are adopting

faster the Free-to-play model, where installing the
game and starting to play is free But to advance
faster or to get access more game content, you
have to pay.

Also, a ‘pay to win’ is a common strategy in the

games industry. By paying real money you receive
for extra gold, diamonds/
characters/content/weapons etc. you can advance
faster and get extra power to beat the competitors.
‘Pay to win’ is very controversial debated because
most players still think you should ‘earn your
experience’ by playing Further reading and references: adopted from https://en.wikipedia.org/wiki/Free-to-play
https://www.cnbc.com/2018/05/30/pay-to-win-video-games-differences-between-us-and-chinese-gamers.html
The game.
However, it has no been always a
growth market.

While games industry started to grow

fast in the 80s and people started to
buy games there was a period of
time that the growth stagnated
drastically and growth almost
stopped. This ‘Atari shock’ happened
due to a recession in the games
industry in early 80s for the reason of
too many bad quality games
published.

Only a few game studios were

making money and most of them
went bankrupt.

Adopted from Wikipedia article

(Video game crash of 1983) Read
more
https://en.wikipedia.org/wiki/Video_
game_crash_of_1983
At early 80s Atari 2600 was the most
popular console system in the market.

However, due to their new policy,

Atari decided to give license
agreements to 3rd party developers.

The number of games in the market

suddenly jumped really fast but
because the public thought the games
were bad quality and many just fast
copies of others’ ideas, Atari’s sales
and market share dropped drastically.

You can see the crash between 1982-

1985 on the graph on the right.

Adopted from Wikipedia article (Video

game crash of 1983) Read more
https://en.wikipedia.org/wiki/Video_g
ame_crash_of_1983
In this picture you can see the companies at the moment
dominating the video games industry either developing or
publishing games.

Due to the reason publishers take high stake of the sales, many
of the game studios have decided to start self-publishing. Still,
unfortunately, the sales channel takes high stake of all sales
revenue.
 TOTAL
RANK COMPANY CHANGE
REVENUE
Top 25 Public Companies by 1 Tencent $19,733M 9%
2 Sony* $14,218M 41 %
Game Revenues (based on 3 Microsoft* $9,754M 32 %
4 Apple* $9,453M +18 %
Newzoo research) 5 Activision Blizzard $6,892M +6 %

*=based on estimates 6
7
Google*
NetEase
$6,497M
$6,177M
+22 %
+11 %
8 EA $5,294M +4 %
This is a recent list of the companies that ‘dominate’ the 9 Nintendo $4,288M +36 %
games industry. As you might see it there, it is actually not 10 Bandai Namco $2,741M +13 %

the game studios that are the biggest in games revenues but 11 TakeTwo Interactive $2,580M +35 %
companies that either own a publishing platform, 12 Nexon $2,252M +8 %
technology platform or are well known on the internet. 13 Ubisoft $2,221M -3 %
14 Netmarble $1,893M -17 %
I would say that the first ‘real’ game studios on the list is 15 Warner Bros* $1,835M -5 %

Activision Blizzard (e.g. World of Warcraft) and then EA 16 Square Enix $1,583M -9 %
17 NCSoft $1,343M -8 %
(Electronic Arts)
18 Cyber Agent $1,324M +7 %
19 Mixi $1,222M -17 %
20 Konami $1,210M +12 %
21 Aristocrat Leisure $1,146M +187 %
22 37 Interactive* $1,091M +27 %
23 Perfect World* $897M +3 %
24 Sega $832M -3 %
25 Capcom $809M +4 %
Throughout the history of video games business, games
studios have been established and sold.

The fastest ever growing company of all times is

Supercell (Finland), just with 3 games in the market
they were able to sell their company to Tencent for a
whopping 8.6 billion dollars!

It has made history in the video games industry and

also shows what is the potential of it.

However, keep in mind that over 1000 mobile games

are published every day so the market is brutally
competitive and you have to be very smart positioning
your game and use existing data to do so.
Since the birth of the games
industry, changes in technology An simplified example of Games industry value chain(s) in2020s
and consumer behaviours have
facilitated business models have
been invented.

On the right there is a simplified

image of how the value chain has
changed during the past decades.

Probably the most important

change in the value chain
happened when internet start to
support ‘self-publishing’. Self-
publishing means that the game
developer takes all responsibility
where to publish the game and
how do marketing. It also meant
that game developer took all
responsibility about the games
success. Also, it meant that a
bigger share of the revenues
come directly to the developer.
Adapted from reference: https://hackernoon.com/the-gaming-ecosystem-explained-nk1d32ts
Reference: https://strivesponsorship.com/2019/02/14/esports-games-and-mobile-trends-in-2019/
Data Analytics
Introduction to games data analytics
Data Analytics, definition
In simple terms, games data analytics, is about analysing the numerical data gathered from the game for the use of
1) Improving game play experience (retention)
2) Improving monetisation possibilities (revenue)
3) Understanding game play behaviours (e.g. difficulties)

Data is #1 source to understand game player behaviours.

It is a complex science and you need to have skills in statistics to analyse and understand data properly.

Data analytics is closely connected to Key Performance Indicators (calculations about user behaviours) and Monetisation
strategies (making money from the game product and selling virtual goods)

Further reading
https://medium.com/activewizards-machine-learning-company/top-8-data-science-use-cases-in-gaming-de1f429ae651
 Monetisation and data
Video game monetization is the process that a video game
publisher/developer can use to generate revenue from a video
game product/service.

Monetisation strategy is the most important task to plan when considering

how to make money out of a game. There are plenty of types of monetization
available, it is often a mix of several types. Some of them are very ‘creative’
such as selling loot boxes.

Examples of ways to monetisate a game are

1) Subscriptions or digital download

2) Downloadable content (e.g. characters, updates)
3) Loot box/Surprise box
4) Advertising
5) Player trading (selling goods to other players)

Monetisation of a game is largely based on understanding user behaviours

and data analytics (statistics). Most of the successful games do not only
publish great games (user experience) but know what the game players like
and how they behave while playing a game.

Applied from: https://en.wikipedia.org/wiki/Video_game_monetization

 Examples of reasons for Willingness to Pay

• Innovation&fun – Reviews and respect

• Consumer purchasing power – Pricing, Value
• Changing behaviors – Give a reason to pay
• Game genre – Target group
• The life cycle of the game – Long, 5+ years
• Monetisation logic – Smart, existing
• Relevant game mechanics – Engaging
• Timing – By type
• Big Data – Analysis, implementation

Extension to other platforms and other types of software products

A game’s success is often measured with a selected set of KPIs
(Key Performance Indicators)
It helps a game studio to understand the success and also the problems the game might have. There are MANY indicators
to look at.

It is commonly accepted (can be debated, but depends on the context) that the most important KPIs for games are

ARPU – Average Revenue Per User. This describes how much money the player is spending on average in the game.
LTV – Lifetime Value. This describes how much money in total each player spends in the game.
CAC – Customer Acquisition Cost. This is the money that you need to spend to acquire a new paying user.
Retention Rate – The number of users that come back to play the game, in calendar time.

There are many more statistics game studios/publishers follow of course, including the most important one which is the
actual sales.

Further reading and formulas can be found e.g. from this source
Adopted from https://gameanalytics.com/blog/50-kpi-measure-mobile-game-app.html
70b$ in Virtual Goods worldwide
Virtual goods are non-physical objects and money purchased for use in online communities or online
games. It is the most common way nowadays to monetise a game.

Habbo Hotel (https://www.habbo.com/ / https://en.wikipedia.org/wiki/Habbo) was the first ever

game like social networking services that invented virtual goods which are now used as the main
source of revenue for mobile games.

Their strategy was very simple but extraordinary at the time of creation in year
2000. They gave a free access to anyone to get a ‘hotel room’ for room. However, the hotel
room was empty without any furniture. The magnificent idea was that users
must pay real money for credits to spent on virtual furniture to decorate their hotel room.

They also had other types of virtual currencies like Diamonds and seasonal currencies.

For instance, Habbo Hotel made revenue over 74 million $ in 2009 by selling virtual furniture.

The service is still open, even it went through some serious trouble about
Moderation of the discussions. Changes were made and it is a ‘safe environment’ for
teenagers to play.

https://techcrunch.com/2009/03/30/habbo-pulled-in-74-million-in-real-
revenues-last-year-from-virtual-goods-and-advertising/
Paying for what? Examples of where game players
spend real money

• New levels, content

• Resources
• Permanent game-affecting items
• VIP access
• Expanded options
• Progress and performance boosts
• Wait-time reduction
• Permanent cosmetic items

Source: EEDAR May 2016

The reason for choosing the image on the
right is to show that different game genres
tend to have different consumer spending
profiles.

As you can see, role playing often make in

average higher revenue per user than for
instance trivia games.

The point is, that you need to carefully look at

different game genres (type of games), their
potential and then position YOUR game into
the market place.

The reasons for differences between genres

vary of course. Most often it is the game
player profile behind the scenes that matters
the most. E.g. on 30 year old man spends
more in games than a 57 year old woman.
The point of this graph is to show
That each game has a different ‘pay to win’
Paying to Win
profile.

In some genre and games people are willing

to play a lot of real money to win in the game.

Marketing play a important influence on people’s

choice behaviors.
$550 AVG/Player
“Game of War: Fire Age is a freemium mobile
massively multiplayer online strategy video game
developed and published in 2013 by Machine Zone
(now known as MZ). The game had a high-profile
advertising campaign and was one of the top-
grossing apps in 2014 and 2015.”

References:
https://en.wikipedia.org/wiki/Game_of_War:_Fire_A
ge
Why games studios that successfully sell virtual goods are so profitable?
There is NO a simple answer as the games industry is brutally competitive. From economics
point of view it is all about MARGINAL COST and MONOPOLISTIC competition in the game.

Loose definition is that Marginal Cost is the cost added by producing one additional unit of a
product or service which in software business like games approaches to zero cost (no cost at all
to add a unit in the market place).

Monopolistic competition characterizes an industry in which many firms offer products or

services that are similar, but not perfect substitutes. Barriers to entry and exit in a monopolistic
competitive industry are low, and the decisions of any one firm do not directly affect those of
its competitors. (https://www.investopedia.com/terms/m/monopolisticmarket.as)p

So producing or publishing a new game is almost zero cost to the game publisher. However, this
is not completely true because high expenditure spent on marketing nowadays.

When the game player is in the game, and if the experience is good, the game owns the user
and there is NO competition in the game for the demand and supply of in game virtual goods.

Therefore game publisher can manage the internal economy alone and price the goods according
whatever the users are willing to pay.

Supercell (https://www.ft.com/content/a0ac39d6-2ec0-11e9-8744-e7016697f225) is probably

the most successful mobile gaming studios taking advantage of this idea. For instance in 2018 an
amazing 1.37 billion euro with only 283 employees.
Further reading about Marginal Cost of Production
https://www.investopedia.com/terms/m/marginalcostofproduction.asp
Adopted from
https://ckluis.com/the-marginal-cost-of-software-approaches-zero-7fda166f219f
https://praxtime.com/2013/12/16/average-is-over-could-use-more-zero-marginal-cost-economics/
Games are played and sold
nowadays basically 50/50
between genres. It was not
always so. 20 years ago the
consumption of games based
on male teenagers and young
adults (<30).

This is a sample of what types

games men and women prefer
to play.
 Who makes the money?

1.5m$/day!!!

Here you see some latest statistics which games are at the moment most grossing. The moral of the story on the top right
statistics (from 2017) that the number 151 game makes ‘only’ 18.124$/day. There are approximately 1000 mobile games
published EVERY DAY so you can imagine how brutally competitive the market is and only a few makes significant revenues.
 10% players pay for
Unfortunately, even people are getting
used to spend money on in-app
purchases there is a lot room for growth.
90% revenues
Most of the game players do NOT spend
money to in-app purchases.

The point is, you need to know those

players who spend the most and try to
attract such players to your game.
• 0.19% / half of revenues, AVG/Player is $24.33

• Total amount of mobile game players is increasing

• Share of the total paying customers is increasing
• The shape of the curve is changing but slowly

People are still learning how to spend

There is space for new games with smart monetization logic
 Computing platforms
Games industry subsectors PC,mobile,tv, watches, sensors

Dev. platforms Virtual currency

Games industry has played a

major role in creating new Creative tech
Movies
technologies, ways of
playing games, ways of
developing content.
Servers/cloud Characters
VR
Here on the right you see
some examples of Art Live music/Radio
multibillion sub sectors
where gaming experience MR/AR
design is essential. Avatars
Holograms
Gamification

Analytics
Data science Audio
Broadcasting
eSports
Where is games business heading to?
This kind of historic moment will mean As an example, the most popular
sports to play or follow among
1) Sponsorship money is going to support eSports professionals
2) More and better eSports games are published young people (<30) in Finland is
3) Competitive games sector will grow eSports.
(instead of single player campaings)
4) eSports is actually a sport, not just playing a game.

StarCraft2 – Joona “Serral” Sotala

1st ever non-South Korean
World champion in StarCraft2
Follow the games industry
Games Business News / Jobs
https://www.gamesindustry.biz/

Game consumer behaviour data

https://www.limelight.com/resources/white-paper/state-of-online-
gaming-2018/
About the games industry, conclusion
Video games were always intended to be ‘massively multiplayer’ but the
technology did not support that philosophy well until the internet came
around. Thanks to the internet, billions of people every day share their game
play experiences with friends. It is an amazing industry, but not easy to enter,
that keeps reinventing itself again and again.

The ultimate purpose of video games, in my opinion, is to be social and learn

how be social, share fun experiences. During this course we are trying to
inspire YOU, rather than only play games to DEVELOP your games and learn
new skills which will support your career whatever you will do.

Dr. Jan Storgårds

Course Leader
Start your test!
This is the link to the SurveyMonkey QUIZ, a similar like for Module 11
and 13.

https://www.surveymonkey.co.uk/r/DJCX592
 Introduction to Video Games Creation

Module 14: The Games Industry and Data Analytics, 1 ECTS

(beta)

Dr. Jan Storgårds (c) 2019

Course Leader
CADGI
Cambridge Academy of Digital
Games and Innovation