Market study
Dutch gaming industry
The right direction
Online business innovation
April 2011
Agenda
Introduction
Executive Summary
Consumer Spending
Value Chain Developments
Dutch Game Industry Opportunities
Appendix
2
Dutch games industry Market study
3
Preface
Executive Summary
This report was prepared as a market study of the
Dutch video games industry. It examines global trends
in the video game industry and opportunities for local
Dutch game companies. eloitte’s study of the market is based on:
D
• Our experience within the games sector
• Interviews with key players in the Dutch Market
• Publically available information
This document describes our preliminary findings and
Deloitte’s view as of this date. Therefore Deloitte’s
judgment should be regarded as indicative, preliminary
and for illustrative purposes only.
In preparing this presentation, we have relied upon
and assumed, without independent verification, the
accuracy and completeness of all information available
from public sources or which was provided to us or
which was otherwise reviewed by us.
Deloitte does not accept any duty, responsibility or
liability with respect to the subject matter or contents
of this presentation.
4
Summary
The Dutch Games Industry is well positioned to benefit
from global trends towards online and mobile gaming
Observations
• The global games industry is expected to grow from
to casual, mobile and social gaming in the short
term and will get a boost from the next generation
of consoles, expected in 2013
• The Dutch games industry is structurally similar
to the global industry and will also see a lot of its
growth come from new areas like social, mobile and
console gaming
• In terms of consumer spend, the Dutch games
market is estimated at €626m for 2010 and is
expected to reach €805m by 2013, with social,
mobile and portal gaming making up €189m
• Mobile devices, increasing network connectivity and
social gaming are creating new players in the games
industry with new revenue streams and a different
business model
• The growth of new segments like casual, mobile
and social gaming augurs well for the Dutch game
developers
- There are around 160 mostly small Dutch companies
active in the games industry (developers, publishers
and distributors) employing around 2500 FTEs
- Dutch companies generate €125-150m in revenues
and most of these companies have benefitted
from digital distribution, increasing smartphone
penetration and education programs in game
development
-There is a second tier group of suppliers to the
industry which is estimated at over 100 companies
• Access to Venture Capital (VC) firms is one of the
key challenges facing the industry, and in order to
succeed, Dutch game developers need to work on
improving their business models and increase their
level of collaboration to create scale advantages
• At the same time, developers should make the
most of national advantages like a highly educated
workforce, strong infrastructure and supportive
government initiatives
Dutch games industry Market study
5
Consumer Spending
The history of the games industry goes back to the 1950’s but has seen dramatic changes in the
past decade
Selection of events
1950’s
F irst releases of electronic games on computers, such as NIMROD (1951), OXO (1952) and ‘Tennis for
Two’ (1958)
The global games market is estimated at € 50bn in 2010 and projected to grow at over 8% over
the next 4 years
Global games market size Global games market size
60
€b
Software
44
45
1971
1972
1976
Computer space (the first arcade game) is released
Atari releases Pong as an arcade game
The first home console, Magnavox Odyssee, is launched
CAGR %
8,3%
30
15
48
10
52
11
Mobile
Games 13%
15
PC Games 9%
Console
Games 3%
38
6
40
10
11
13
22
21
22
24
26
2010
2011
2012
2013
2014
7
9
14
Second generation console era starts with Video Entertainment System/Channel F by Fairchild
0
1983
Third generation console era (8-bit) starts with Nintento Entertainment System (NES)
1988
Fourth generation console (16-bit) with SNES, Sega Mega Drive
1994
Fifth generation console (32/64-bit) with Playstation, Nintendo 64
2000
Sixth generation console (128-bit) with Playstation 2, X-box, Gamecube
60
€b
+
Hardware
45
Comments
• The revenue is split between software and hardware
(home and handheld consoles)
• In the short run, the video game industry is
expected to remain stable between 2010 and 2011
due to hardware segments that are entering a
transition phase to a new generation of machines
and growth in software
• Console gaming software will see its share of the
total games software market reduce as PC games
and mobile games grow at a faster rate
- PC gaming is likely to expand due to online
gaming and the greater penetration of
broadband networks in emerging markets
-Mobile Gaming is likely to grow due to the
proliferation of smartphones at 13% per annum
to reach €11bn annually in 2014
• However, by 2013 the next generation of hardware
consoles is expected to enter the market which will
spur growth
30
2004
World of Warcraft MMO is launched
8,3%
15
6
2005
Seventh generation console with Wii, Playstation 3, Xbox 360
2006
Apple App store opens, significantly changing mobile gaming
2008
Zynga releases Farmville on Facebook
2010
Angry birds becomes the most downloaded game on mobile
0
12
10
10
14
2010
2011
2012
2013
17
Console
Hardware 8%
2014
Source: IDATE; Deloitte Analysis
Dutch games industry Market study
7
There is an increasing trend towards digital distribution, with the share of digital revenues
expected to increase from 38% to 65% by 2014
The Dutch games market is structurally similar to its developed market peers and largely driven
by console gaming
Global games software market
Global games market size
100%
€b
38
40
44
7%
7%
6%
80%
48
4%
37%
52
4%
32%
41%
54%
Console
Software
(Physical)
47%
100%
€b
18,6
4,9
6%
6%
6%
80%
15%
7%
10%
10%
21%
21%
Mobile
Games
20%
40%
16%
26%
25%
19%
22%
6%
8%
2010
2011
2012
Physical distribution
Digital distribution
7%
5%
11%
14%
7%
7%
22%
19%
24%
0,4
Social
Mobile
17%
Portals
7%
MMO’s
13%
PC Games
5%
Consoles
33%
PC Games
(Online)
20%
25%
4%
4,0
40%
18%
20%
4,3
11%
60%
60%
0%
PC Games
(Offline)
Comments
• Advancements in internet speeds, high end mobile
devices and next generation consoles are increasing
the push towards digital distrobution
• Casual gaming (portal), social gaming and mobile
gaming will be the primary drivers of digital revenue
• By 2014, nearly one third of console games sales will
be digitally distributed
13%
17%
2013
2014
Console
Software
(Digital)
0%
43%
US
49%
46%
UK
FR
34%
DE
Comments
• Console Gaming is the largest segment in most
markets
- However, in some markets like Germany, PC
Gaming is nearly as large as console gaming
-Mobile gaming and portal gaming still are
relatively small in terms of value market share
• Traditional gaming still make up the overwhelming
majority of revenues in the Netherlands
- While the Dutch games market has a large
number of players per platform, the ratio of
people paying as percentage of players is below
countries like the US and UK
- The relatively small share of social gaming is
mainly because the leading Dutch social network
Hyves started late on games
NL
Source: Newzoo, NVPI, expert interviews, Deloitte analysis
Source: IDATE, Deloitte analysis
8
Dutch games industry Market study
9
Including console hardware, the Dutch video games market is estimated at €626m in terms of
consumer spend for 2010
The Dutch games market is structurally similar to its developed market peers and largely driven
by console gaming
Dutch Video Games Market in 2010
Console Hardware sales in NL
800
700
€m
€m
400
160
Online/Mobile2
285
Boxed
Software1&2
181
Hardware1
33
600
22
500
16
13
Million Units
1,5
1,5
626
300
1,1
1,0
76
38
+4%
400
445
Software
0,6
200
100
0
200
247
300
0,6
313
181
181
Console
Software
PC Games
PC Games
(online)
Portal
Gaming
MMO
Mobile
Devices
Social
Gaming
Total
0,5
228
212
100
Console
Hardware
1,0
0,9
181
Hardware
89
0
2005
113
2006
XBOX 360
Source: NVPI(1), Newzoo,(2) Deloitte Analysis
• C
onsole hardware sales are expected to decline in
line with global trends in 2011 and 2012
• Console makers hope to limit decline by introducing
add-on features such as motion control, camera
peripherals and 3D
• Growth in 2013 due to expected next generation of
consoles
• Increase in console sales between 2006-08 was
driven by the launch of new consoles
2007
Wii
2008
2009
2010
202
147
144
2011F
2012F
PS3
2013F
0,0
Unit Sales (in Millions)
Revenues
Launch Year
Source: NVPI, Deloitte Analysis
Console game software revenues are also expected to decline marginally over the next two years,
but return to growth in 2013
Console Hardware sales in NL
400
• C
onsole software sales are expected to decline
slightly in 2011 and 2012
• Growth in 2013 linked to expected next generation
of consoles
• Historically, console software sales increased in line
with the installed base of consoles
€m
+3%
300
200
294
274
227
100
247
240
243
2010
2011F
2012F
270
171
128
0
2005
2006
2007
2008
2009
2013F
Source: NVPI, Deloitte Analysis
10
Dutch games industry Market study
11
At the same time, revenues for mobile, social and casual gaming is projected to take off as
companies monetize their wider demographic base
The Dutch games market is expected to reach €805m by 2013 with social, mobile and portal
gaming bring in a quarter of the revenues in 2013
Number of Players and Payers in NL
Dutch Games Industry Forecast
Casual, social and mobile gaming revenues in NL
€m
200
Social Gamers
4,6
0
CAGR 2010-2012
5,7
6
3
€m
100
2010
2011
50
Mobile Gamers
5,9
6
4,9
10
55
0
3,5
3
72
2012
2009
7
104
13
15
76
127
18
24
+3%
25
90
106
Mobile Gaming (39%)
626
600
2011F
2009
Social Gamers
6
2010
2011
2012
6,0
6,3
6,3
4,8
3
0
2009
Payers
Source: NewZoo
12
2010
2011
2012
247
668
13
16
621
39
18
19
90
68
48
106
24
25
805
58
Social Gaming
Mobile Devices
MMO
+36%
+25%
+21%
125
Portal Gaming
+18%
86
PC Games
+13%
270
Console Software
+3%
202
Console Hardware
+4%
78
240
243
181
147
144
2009
2010F
2011F
2012F
1,3
0
33
76
60
Casual / Portal Gaming
(18%)
300
2010
33
31
Social Gaming (36%)
19
CAGR
2010-2013
+20%
155
2,4
2009
€b
+22%
150
3,5
900
• T he number of paying social gamers is expected to increase from 10% in 2009 to
13% by 2012
• 24% of mobile gamers are estimated to pay in 2012, up from 12% in 2009
• For casual gamers, the paying population is expected to rise from 13% to 30% in
the same period
0
2012F
Source: Newzoo, NVPI, Deloitte analysis
• G
rowth in the games industry in 2011 and 2012 will come from new areas like
mobile, portal and social gaming
• Growth in console gaming is expected to return by 2013 with the next generation
of consoles, and console gaming will drive €85m out of the €135m growth
between 2012 and 2013
• However, if there is a delay in the launch of next generation consoles, the market
may only reach €733m with 5% CAGR, driven by casual, mobile and social gaming
Dutch games industry Market study
13
Value Chain Developments
Most traditional global games companies have struggled in recent years due to lengthening
product development time and increasing development costs
As penetration of tablets and smartphones increases, mobile internet is becoming an important
distribution platform for games
Global performance of major games companies
Global unit shipments
• H
igher development costs and lengthening
development times for high-end games have made
game development riskier
• The increased dependence on blockbusters has
reduced profits across the industry as a whole
Margins 2010 in %
60
Average Time Spent on Smartphone functions
Million Units
Minutes/day
84
10
Mail
Web/web apps
27
Telephony
40
Games, maps,
social, others
7
207
Smartphones
656
20
40
Tablets
154
Nintendo
150
20
Sega Sammy Holdings
Notebooks
Activision Blizzard
Microsoft*
2010
247
146
0
2010
2013
Desktops
THQ
Sony**
159
Ubisoft
0
EA
100
200
300
400
500
600
700
-20
-40
-10
-5
0
5
10
15
20
Revenue Growth CAGR (2006-10) in %
25
30
35
Global Mobile Internet Traffic used for Gaming
200
Petabyte/month
173
Publisher
Hardware + Publishing
150
+96%
* Microsoft revenues refer to Entertainment and Devices Division
** Sony figures are for Games division from 2009
111
100
Source: OneSource; annual reports; Deloitte analysis
62
+154%
50
27
Source: NewZoo
0
5
2009
12
2010
2011F
2012F
2013F
2014F
Source: Gartner, Deloitte estimates, Cisco, AppsFire 1/11, KPCB, Deloitte analysis
14
Dutch games industry Market study
15
These new challengers have deep pockets and huge fan bases...
Zynga
Leading social network game
developer
Facebook
The worlds largest social network
• $850m est. in revenues in 2010,
$400m profit
• $10b est. market capitalization
• 237m monthly users, 14.2m join each
month, over ten percent of the global
Internet population plays Zynga games
• In 2010, Zynga hired 800 people and
acquired 10 games studios
• $2bn est. in 2010 revenues, $400m
in profit
• $85b est. market capitalization
• 650m active users
• Facebook revenues from games
companies was $400m (est.) in 2010
• Games companies share their revenues
with Facebook in addition to spending
on Facebook ads
2
2
Revenues ($b)
2006
2007
2008
2009
• $65b revenues in 2010 and $18.5b
in profit before tax
• $314b in market capitalization
• Iphone hits Angry Birds and Doodle
Jump have seen more than 50 million
copies downloaded
• Hardware improvements are increasing
the utility of such devices for games
2,0
Revenues ($b)
1
90
0,8
0,3
0
Apple
World’s leading technology company
by market cap
Revenues ($b)
65
60
0,9
1
...and have lower development costs than traditional players. Their revenue model is based on
micro transactions (e.g. virtual goods) and advertising
0
2010
0,2
0,1
2006
2007
30
03
2008
43
37
25
19
2009
0
2010
2006
2007
2008
2009
2010
This new distribution platform is changing the business model of the games industry creating
new players and challengers for traditional companies
Traditional Model
Emergent Model
Illustrative
Comments
• Mobile and online games companies have a very
different business model compared to traditional
games companies
• Development costs for mobile / social games are
low compared to traditional games, iPhone app
games cost between $20,000 - $100,000 compared
to hundreds of millions for popular blockbuster titles
• Instead of a high initial purchase cost, these games
are typically free or have a very low purchase price
- Developers make money from micro transactions
(e.g. sales of virtual goods), which is shared 70-30 between the developer and the platform
owner
- Mobile advertising revenues is an additional
source, which is again shared in a pre-defined
manner (ratio depends on volume)
• However, for this business model to succeed, large
numbers of users are required. The role of good
distribution and marketing is therefore still crucial
for a game to succeed, as there are numerous
options for consumers to choose from (e.g. the
Apple Appstore has over 350.000 apps to choose
from, the PlayStation network over 100.000)
US virtual goods market
3.000
$m
+31%
2.000
2.000
1.600
1.000
0
2010
2011E
Mobile Game Ad spend Worldwide
200
$m
+59%
100
138
87
0
2010
2011E
Source: Juniper Research as cited in a press release on Jan 5, 2011;
KPCB citing report Inside Virtual Goods; Press release Sony; Deloitte
Console
Manufacturer
Nintendo
Microsoft
Console
Manufacturer
analysis
Rovio
Developer
Developer
Zynga
Publisher
Distributor
Retailer
Activision Blizzard
Arvato
EA
Technicolor
Bart Smit Free Record Shop
Consumer
Publisher
Publisher
New Distributor
Platform
Traditional
Distributor
Chilingo
Facebook
Apple
Retailer
Consumer
• N
ew distribution channels have created new gaming categories like mobile, casual and social gaming
• This has created opportunities for the developer to publish their games directly, although most prefer to use
specialized online publishers
Source: Expert interviews; Deloitte analysis
16
Dutch games industry Market study
17
Due to its innovative revenue model and low operating costs, social game developer Zynga has one
of the largest market capitalizations in the industry
Revenues
Highmarketcap.ofZyngaisduetoitslargebaseof
users who can be easily targeted for new games and
lowdevelopmentcostswhichleadtohighmargins
$b
12
10,9
9
7,3
5,8
6
3,4
2,9
3
0
Nintendo
220
Sony
Microsoft Activision
Blizzard
Sega
Sammy
Holdings
2,6
EA
0,9
0,9
0,6
Ubisoft
Zynga
THQ
Similarly, mobile game developer Rovio, the maker of Angry Birds has a valuation of $200million
Case Study: Angry Birds by Rovio
• AngryBirdsisapuzzlevideogamedevelopedby
Finland-basedRovioMobile
• Roviostartedin2003andAngryBirdswasthe
company’s52ndgame
• AngryBirdswasinitiallydesignedforAppleOS,it
wasfollowedbyanAndroidversion,aPCandgame
consoleversion.AFacebookversionisexpectedin
May2011
• Over75millionpaidandad-supportedversionshave
beendownloaded,sixtythousandAngryBirdssoft
toyshavebeensold*
• InitialcosttodevelopAngryBirdsisestimatedat
around€100,000
• A
ngryBirdsMakerRovio’svaluationisestimatedat
$200millionafteraninvestmentof$42million
• Roviorevenuesroseto€5minthelast6months
from€1.6mforthepreviousfullyear,duetothe
successofAngryBirds
• Thevaluationwasbasedontheupsidepotential
from the franchise as well as the potential to crosssell new games
6
215,4
4
3,0
2
32
0
-2
20
13,2
10
4,7
Nintendo
1,6
0,9
30
*
5,0
$b
38,1
0
Revenue
Profit before tax
Sony
Microsoft Activision
Blizzard
Sega
Sammy
Holdings
FY09
-0,1
FY10
FY11(H1)
10,0
6,6
*
1,0
EA
0,1
Ubisoft
0,3
Zynga
FiguresuptoMarch2011
FinancialyearsinFinlandrunfromJulytoJune
Source:OneSource,newsreports,Businessinsider,Deloitteanalysis
THQ
Market cap refers to whole company
** SonyrevenuefiguresareforGamesdivisionfrom2009
Source:Newsreports,Bloomberg,onMarch30,Deloitteanalysis
18
Dutch games industry Market study
19
Major games companies have been acquiring mobile and social gaming companies to strengthen
their position in these new markets
These changes in the global games ecosystem create opportunities for the Dutch games industry
Selected acquisitions of mobile/social gaming companies
AcquirerTarget Date
Rationale
Price
EA
Playfish
Nov 2009
• Playfish is a successful social gaming developer of social games for Facebook
• This acquisition was to give EA a footing in social gaming
$400m
Walt Disney
July 2010
• Tapulous makes music-based games
• Buying Tapulous gets Disney onto the mobile gaming platform and gives it a strong presence in music-related games
Dena
Gameview
Sep 2010
n/a
• G
ameview is a mobile social game developer and has made social games such as Tap Fish
• DeNa, the Japanese social gaming giant hopes to use its acquisition to enter the
US market
• N
GMOCO is a leading mobile gaming publisher founded by a former EA games executive
• DeNa, the Japanese social gaming giant hopes to use its acquisition to enter the
US market
$400m
• C
hillingo publishes mobile games developed by independent game developers and was the publisher of hit games like Angry Birds and Cut the Rope
$29m
Dena
ngmoco
Oct 2010
EA
Chilingo
Oct 2010
n/a
Key Trends
Developments
Changing market
• C
onsole gaming is stalling and traditional companies
are facing a challenging market
• Mobile devices, ubiquitous network connectivity,
and social gaming are creating new avenues for
growth
New devices, new
games
• S martphones and tablets do not have the hardware
to support conventional high-end games
• Mobile and social games have a more direct route
to market compared with traditional games creating
opportunities for new players
New business models
• S uccessful social and mobile game developers have
managed to raise significant capital from venture
capital firms
• Good distribution and marketing remains key to
ensure capturing a large user base
Opportunities for the Dutch Game companies
• T raditional game developers are seeking a footprint
in the fast growing social and mobile gaming
market through partnerships and acquisitions
• Small game developers are well suited to produce
relatively lighter games for smartphones and tablets
• Small game developers can:
- Develop and self publish games bypassing the
traditional publisher, if they have a large user base
- Develop games and use a new online-publisher to
go to market
- Develop mobile and social mini-games for traditional
publishers
• Successful game companies with a sound business
model can hope to raise finance more easily than
before
• New publishers can have a low cost base with lower
risks as the small games require lower investments
Source: Expert interviews; Deloitte analysis
Source: News reports, TechCrunch, Deloitte analysis
20
Dutch games industry Market study
21
Dutch Game Industry Opportunities
The Dutch games industry is defined as developers, publishers, distributors & retail
Global performance of major games companies
•
•
Related services
Educational Services
Advertising
Warehousing
Legal services
Security services
Dutch Game industry:
• Developers
• (Hardware) Publishers
• Distributors & Retail
Hardware suppliers
Online payments
Trade associations
Outsourcing
Market research
Hosting
Software suppliers
The core of the Dutch games industry consists of:
- Developers,
- (Hardware) Publishers,
- Distributors & Retail
Besides the companies directly active in the NL
games industry, a significant number of players are
active in a wide range of services related to the
industry, ranging from Legal services to software
suppliers, working from over 100 companies,
employing several hundreds of FTE(est.)
• Furthermore, a split will be made between foreign
owned and NL owned companies; Both employ NL
personnel in the Dutch games industry and generate
economic activity, but the benefits of the foreign
companies will flow abroad and not directly benefit
the NL games industry
The NL Game Industry has been growing significantly since 2000, driven by educational
programs in game development and digital distribution
Selection of events
< 1995
S mall number (<10) of serious developers active for PC and console game development, a.o. for serious
games (e-learning)
2000
The HKU in Utrecht starts with the first Master study for game design and development
2000
L ost Boys games starts, which will eventually rename to Guerrilla Games and release the Killzone
franchise. The company is bought by the Sony corporation in 2005
2000/
2001
Zylom and Spilgames start as game portals and become leading global websites in casual gaming
2003/
2008
Strong increase in digital distribution with the opening of Xbox Live (2003), PSN (2006) and Apple App
store (2008)
2006
100 companies active in the NL game industry
2011
160 companies active in the NL game industry
Marketing
Audio Design
NL Game companies by year of start of Operations(Currently active developers and publishers)
PR/Press/Media
<1995
Source: Expert interviews; Deloitte analysis
1991-1995
NL companies
Foreign companies with NL operations
23
3
1996-2000
6
12
16
2001-2005
46
50
After 2005
71
0
10
20
30
76
40
50
60
70
80
Source: Expert interviews; Chamber of Commerce; company.info; Gamesindustry.nl; Newzoo; Deloitte analysis
22
Dutch games industry Market study
23
160 Companies are active in the Dutch Games industry, employing 2500 FTE
Games companies in the Netherlands are spread across the country which reduces opportunities
to cooperate
Developers
Overview Locations NL Games industry (Developers and Publishers)
Foreign owned
# of Companies: <5
# of FTE: ~200
Turnover: 30-40m €
NL owned
# of Companies: 117
# of FTE: 1200
Turnover: 80-100m €
Amsterdam/N-Holland
39
Utrecht
29
The Hague area
DigitalPhysical
# of Companies: 13
# of Companies: 3
# of FTE: 220
# of FTE: 30-40
Turnover: 35-45m €
Turnover: ~ 3m €
32
15
Eindhoven/N-Brabant
Publishers
DigitalPhysical
(incl Hardware) # of Companies: 5
# of Companies: 11
# of FTE: 100
# of FTE: 150
Turnover: 30-40m €
Turnover: 425-450m €
51
11
Rotterdam area
13
Eastern NL (Gld, Ov.ijssel)
12
Northern NL (Fr, Gr, Dr)
13
13
9
Limburg
NL owned
Foreign owned
5
0
10
20
30
40
50
60
Comments
• Games companies are spread across several cities
across the Netherlands
-The majority of Dutch Game companies can be
found in Amsterdam or Utrecht
- Also, a number of game companies can be found
in the near vicinity of game related education
centers in Utrecht, Eindhoven, Breda and
Leeuwarden
-Game companies with foreign ownership are
mostly located around Schiphol
• Physical spread of the game companies limits
the ability to cooperate and benefit from scale
advantages (e.g. through knowledge exchange); an
exception is the ‘Dutch Game Garden’, a building in
Utrecht which houses several game companies in
the city center
Source: Expert interviews; Desk research; Deloitte analysis
Distributors/ DigitalPhysical
retail
# of Companies: None # of Companies: with local presence
None with local presence
24
DigitalPhysical
# of Companies: <5
# of Companies: ~11
# of FTE: <50
# of FTE: 500-600
Turnover: <10 m €
Turnover: ~450 m €
Dutch games industry Market study
25
Most games companies in the Netherlands are relatively small game development companies
which restricts their potential scale advantages
Type of main activity NL Game companies(# of
companies)
Distributor & Retail
8%
Publisher
18%
74%
Developer
Company size NL Game Developers (FTE)
80
60
Observations
• The Dutch Game industry is largely development
oriented with only a limited number of (online)
publishing companies exists.
• The majority of game development companies have
fewer than 5 employees and the average size of the
development companies is thereby limited to 10 FTE
per company
• The limited size of development companies has an
impact on the business model that they can apply
and the scale advantages that can be reached:
- Many game developers strive to create a good
game, but have no strategy to sell the product
and optimize margins
- Scale advantages are limited, as developers
create their own tools and miss volume to utilize
outsourcing opportunities
- Limited scale also negatively impacts the ability
to negotiate with large publishers
The Netherlands is a net importer of games products
Game revenue 2010
€m
700
626
600
500
400
300
200
125-150
100
0
Total game
spend by
NL consumers
Observations
• The Netherlands is a net importer of games
products; the revenue sold here is much higher than
the total production of NL game companies
- € 626m was spend by NL consumers on games
- €125-150m was generated by NL owned
developers and publishers
• The production of NL game companies is driven by
a number of key players that generate significant
turnover, but no major publishing houses or
platform owners originate from the Netherlands
• The Netherlands is strong in a number of online
portals (e.g. Spilgames and Gamepoint; their
competitor Zylom has been acquired by Real games
and is therefore considered a foreign owned
company)
• A large number of companies generate limited
turnover (< 1 million €)
Revenue NL
owned
developers
and publishers
62
Source: Deloitte analysis
40
22
21
20
0
12
1-5
6-10
11-20
>20
Note *: Total revenue generated is higher than market size as this
also inlcudes sales within the value chain (e.g. from developers to
publishers)
Source: Expert interviews; Annual Reports, Chamber of Commerce;
company.info; Deloitte analysis
26
Dutch games industry Market study
27
There are several governmental initiatives which have helped foster a positive environment for
start-up games companies in the Netherlands
Distance from VC firms is a key challenge, but strengths like infrastructure, workforce, policy
make the industry well placed for growth
Key Challenges
Major Strengths
Tax incentives
Attractive Tax Regime
• Relatively low statutory corporate income tax rate of 25% (20% for first 200,000 Euro)
• Possibility of obtaining advance tax rulings from the Dutch tax authorities
• Wide tax treaty network reducing withholding taxes on dividends, interests and royalties
• Favorable participation exemption regime, profits generated by (qualifying) participations in companies have
been tax-exempt for entities based in the Netherlands
• 30% arrangement, the extra costs of a temporary stay of an employee outside the country of origin
(extraterritorial costs) can be compensated free of tax by the employer
R&D Incentives
• Tax incentive for R&D activities (WBSO), consists of a reduction in wage tax and social security contributions
paid for these R&D employees
• Innovation box resulting in an effective corporate tax rate of 5%
Government subsidies and investments
Investments in Education
• The Dutch government has funded courses in many colleges on designing games. In fact, there are 10 colleges
with an estimated 45 course related to video game development
Subsidies and direct investments
• The European Union, national, provincial and local government are putting €4m into stimulating the
development of games industries in Utrecht
• Other city governments have schemes that support start up companies; for example by helping them find office
space at reasonable costs
28
Locational disadvantage
• Limited number of tech VCs firms in Europe
• Distance from the HQs of major games companies
Strong Infrastructure
• High broadband penetration
• Increasing smartphone penetration
• Well connected with rest of Europe
Business model
• Most games companies are small and show limited
cooperation
• Several NL Games companies have a weak business model
Educated and skilled workforce
• Availability of a skilled workforce with an estimated 45
courses linked to video games
Production Costs
• High wage rates in NL create a disadvantage compared to
low wage countries
Limited National Focus
• Too many cities have independent initiatives to support the
sector and there is no clear national policy
Dutch
local game
companies
Testing Ground
• Audience interested in trying new games
• Large English speaking population; hit games can easily
move internationally
Supportive Government
• Government willing to invest in innovation
• Cooperative tax regulation for foreign companies, tax
support for small start-ups
Dutch games industry Market study
29
Appendix
In order to succeed, Dutch game companies need to improve their business models and increase
their level of collaboration to create scale advantages
Six steps towards increased growth for Dutch
Game companies
1.Be innovative
To be successful, developers must continue to
develop new, exciting and innovative concepts
2.Create a sound business model
Companies which balance creative output with a
sound business model succeed in attracting VC
funding
3.Collaborate to create scale
Small local players can work together while
negotiating with global publishers. They can also
cooperate to benefit from scale advantages on
finance, costs, tooling and knowledge exchange
Contacts
Definitions
Deloitte:
Daan Witteveen
Deloitte Online Business Innovation
DWitteveen@deloitte.nl +31.6.5585 3436| +31.88.288 0236
Console Hardware: Includes console and peripheral
sales
4.Leverage country advantages
High broadband penetration, increased smartphone
usage and a games community that is willing to
experiment make the Netherlands a great testing
ground for new concepts.
Dutch Games Association:
Jurrie Hobers
Dutch Games Association
jurrie.hobers@dutchgamesassociation.nl
+31.6.2454 1558
5.Work your strengths
The highly skilled but high cost workforce should
concentrate on high value work. Outsourcing
low value work to low wage countries should be
considered whenever manageable
On Deloitte:
Deloitte member firms offer clients a broad range of
audit, consulting, financial advisory, risk management
and tax services. Our client service teams help create
powerful business solutions for organizations operating
anywhere in the world. This integrated approach
combines insight and innovation from multiple
disciplines with business knowledge and industry
expertise to help our clients exceed their expectations.
6.Create national focus
Despite being a small country, multiple Dutch cities
claim to be hubs for game development. It would be
better to focus resources to create few centers
Deloitte’s Online Business Innovation group has
deep expertise in the impact of digital channels on
a company’s business model and value chain. We
use measurable and innovative strategies to grow
businesses through digital channels.
Console Software: Excludes pre-owned and rental
markets. Includes an estimation of downloadable
content (DLC) revenues as well as portable console
devices such as PSP, NDS(i).
PC Gaming: Includes Boxed as well as Downloaded
games but does not include paid MMO client
downloads or paid premium downloads from casual
game portals. These revenues are attributed to the
individual categories. Excludes pre-owned and rental
markets but considers downloaded PC games.
Casual game portals: Online casual gaming
destinations such as Pogo, Miniclip, Zylom, Gameduell,
King.com.
Mobile devices: All mobile phones plus devices like the
iPod Touch & iPad
MMOs: Massively Multiplayer Online games played on
PC or Mac, browser or client-based. Includes virtual
worlds.
Social networks: Games played within social networks
such as Hyves, Facebook, MySpace, Hi5, VZ Networks,
Orkut.
Deloitte Online Business Innovation - Create, implement
and protect your online business
30
Dutch games industry Market study
31
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