Interactive Leisure Software: Global market assessment and forecasts to 2006

SUMMARY

Introduction

This is a mainly statistical update to the ongoing market research that theEntertainment and Leisure Software Publishers Association (ELSPA) commissionsfrom Screen Digest. As in the previous reports published jointly by ELSPA andScreen Digest, our aim has been to provide research and analysis into the UK,European and global interactive leisure software markets that can provide abenchmark reference for the industry.

In partnership with ELSPA, we remain committed to developing an ever morethorough and accurate analytical and statistical assessment of this most dynamicof industries.

We welcome all feedback and comments on our findings, as well as any freshinformation that can help us improve this continuing project.

Screen Digest alone is responsible for the opinions expressed in this report,along with the market forecasts and views about the relative strength ofdifferent companies and their products. ELSPA, as a trade associationrepresenting the entire UK leisure software publishing industry, does notendorse the forward-looking statements and projections presented here, which areentirely attributable to Screen Digest.

Methodology

Screen Digest accepts no primary data uncritically and we routinely makeadjustments to sourced estimates in order to-in our judgment-better representthe real market situation.

Data revisions

It is our policy to review our market estimates critically on a regular basisin the light of fresh data or intelligence. In line with this policy, we haveextensively revised some of the data that appeared in previous editions of ourreports. We have used our best efforts to ensure that the estimates that appearin this edition are as accurate as possible.

Forecasts

The market data and forecasts presented in this report are the best estimatesof Screen Digest at the time of publishing. The forecasts are the work of ScreenDigest alone and do not represent the views of the Entertainment and LeisureSoftware Publishers Association or its executives.

Territory and region coverage

In this report the following territorial definitions are used

• Benelux
  • Belgium and the Netherlands
• Nordic
  • Denmark, Finland, Norway, Sweden
• Western Europe
  • Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy,Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and UK. Nb: it doesnot include Greece, data for which is included in 'other PAL territories
• Other PAL territories
  • territories other than Western Europe and Australia/New Zealand that use thePAL television format. The list of PAL territories that receive distributionfrom each manufacturer and publisher differs from company to company.
• Total PAL markets
  • Western Europe plus Australia/New Zealand plus the 'other PAL territories servicedby each respective distribution organisation. Sony Computer Entertainment Europe(SCEE) has the most developed PAL markets distribution operation and thecomplete list of PAL territories getting distribution of PlayStation andPlayStation 2 is given in Appendix 1. In practice, the list of PAL territoriesfor any non-PlayStation platform will be a sub-set of this SCEE territorydistribution list.

Formats

• 32/64-bit consoles
  • Sega Saturn, Sony PlayStation/Psone, Nintendo N64
• 128-bit consoles
  • Sega Dreamcast, Sony PlayStation 2, Microsoft Xbox, Nintendo GameCube
• 256-bit consoles
  • assumed next generation of consoles from Sony, Microsoft and Nintendofollowing the current 128-bit generation

Handheld

Nintendo Game Boy, Game Boy Colour, and Game Boy Advance

Edutainment/reference software non-game PC software such as children's homelearning titles and encyclopaedias. It does not include utilities (such asanti-virus software) or operating system software like Microsoft Windows.

Leisure software console games plus PC games plus PC edutainment/reference.It does not include sales of utilities or operating system software.

Market analysis

The transition period

Whilst conventional media markets have been affected by normal fluctuationsin consumer demand, they have not been subject to the cyclical swingscharacteristic of the leisure software industry. By contrast, the leisuresoftware market has always been typified not only by much shorter technologicallife cycles but also by multiple proprietary standards existing concurrently.

Historically, every new console machine launched has had a typical lifecycleof four or five years before it is superseded by a new generation of morepowerful platforms. The move from one generation to the next must be handledcarefully by the industry-it must make the new machines attractive withoutprematurely killing existing formats.

From 1995 to the present day, the console market has been dominated by Sony s32-bit machine, PlayStation. The only serious challenger was Nintendo s 64-bitN64 machine. In hardware terms, sales of 32-bit/64-bit consoles peaked in Europein 1998. However, the launch in 2000 of Sony s revamped and smaller version ofPlayStation dubbed Psone helped sustain sales of this platform at respectablelevels while the competition has faded.

The peak of software sales in the 32-bit/64-bit era came one year later in1999 when over 60m games were sold in Western Europe. However, the hugeinstalled base of PlayStations means that software sales have continued at highlevels, with more than 50m discs sold in 2001 across Europe before finallyfalling to about half that number in 2002.

The US market for 32-bit/64-bit software peaked in the same year as Europe-1999-butthe Japanese market peaked the year before due to the earlier launch there ofPlayStation and N64.

The years 2001 and 2002 have marked the transition period from one consolecycle to another. Sega was first to launch a 128-bit console, called Dreamcast.However, despite having a head start on the competition, that machine neverachieved the critical mass necessary to sustain a viable software market atleast in Europe and the US. It performed comparatively better in Sega's homemarket of Japan, building up an installed base of close to 2m machines beforeNintendo's competing GameCube was introduced.

The 128-bit era proper thus began with the launch of Sony's PlayStation 2console in 2000, and continued with the launch of GameCube by Nintendo and Xboxfrom Microsoft. By the end of 2002, Sony had sold more than 11.5m PlayStation 2sin Western Europe and 40m worldwide-an even faster start than the companyachieved with the previous PlayStation.

TABLE OF CONTENTS

• List of tables and charts
• Introduction
• Acknowledgements
• Methodology

EXECUTIVE SUMMARY

• UK market value growing
• UK leisure software market compared with other entertainment media
• The UK market within Europe
• Global market comparisons

MARKET ANALYSIS

• The transition period
• European market trends
  • PlayStation 2
  • Xbox
  • GameCube
  • PlayStation/Psone
  • Handheld gaming
  • PC software
• European market dynamics
• US market outlook
• Japanese market outlook
• The 'next' next generation

MARKET FORECASTS BY TERRITORY

Hardware

• Hardware annual sales
• Hardware installed base
• Hardware penetration of households
  • United Kingdom
  • France
  • Germany
  • Italy
  • Spain/Portugal
  • Nordic (Denmark, Finland, Norway, Sweden)
  • Benelux (Belgium, Luxembourg, Netherlands)
  • Austria, Switzerland
  • Western Europe
  • Australia, New Zealand
  • Paterritories
  • USA
  • Japan
  • World

Software

• Annual sales volume
• Annual sales value (€m, $m)
  • United Kingdom
  • France
  • Germany
  • Italy
  • Spain/Portugal
  • Nordic (Denmark, Finland, Norway, Sweden)
  • Benelux (Belgium, Luxembourg, Netherlands)
  • Austria, Switzerland
  • Western Europe
  • Australia, New Zealand
  • PAL territories
  • USA
  • Japan
  • World

MARKET FORECASTS BY PLATFORM

• 32/64-bit console
  • Hardware sales volume
  • Hardware installed base
  • Software sales volume
  • Cumulated software sales
  • Cumulated TIE ratio (software:hardware sales)
  • Software sales value: euros
  • Software sales value: dollars
  • Software average price: euros
  • Software average price: dollars
• 128-bit console
  • Hardware sales volume
  • Hardware installed base
  • Software sales volume
  • Cumulated software sales
  • Cumulated TIE ratio (software:hardware sales)
  • Software sales value: euros
  • Software sales value: dollars
  • Software average price: euros
  • Software average price: dollars
• Handheld console
  • Hardware sales volume
  • Hardware installed base
  • Software sales volume
  • Cumulated software sales
  • Cumulated TIE ratio (software:hardware sales)
  • Software sales value: euros
  • Software sales value: dollars
  • Software average price: euros
  • Software average price: dollars
• PC
  • Households with PC
  • Software sales volume
  • Cumulated software sales
  • Cumulated TIE ratio (software:hardware sales)
  • Software sales value: euros
  • Software sales value: dollars
  • Software average price: euros
  • Software average price: dollars
• Totals
  • Total consoles: Hardware sales
  • Total hardware: annual sales
  • Total hardware: cumulative sales
  • Total console games software: annual sales
  • Total games software: cumulative sales
  • Total leisure software: annual sales
  • Total leisure software: cumulative sales
  • Total games software: annuals sales value: euros
  • Total games software: annuals sales value: dollars
  • Total leisure software: annual sales value: euros
  • Total leisure software: annual sales value: dolars
• Appendix
  • Sony Computer Entertainment Europe:
  • PAL markets distribution for PlayStation and PlayStation 2

List of tables and charts

EXECUTIVE SUMMARY

• UK leisure software market value
• Total number of game hardware devices sold 1995-2002
• Total games and edutainment/reference software pieces sold 1995-2002
• Total UK TV-based annual console hardware sales
• UK hardware sales volume 2002
• UK leisure software market volume
• UK market comparisons 2002
• Comparative growth in market spending 1997-2002
• Comparative average annualised growth in market spending 1997-2002
• UK leisure software market value
• European comparative leisure software market sizes 2002
• European comparative console games software market sizes 2002
• European comparative PC software market sizes 2002
• Comparative total leisure software market sizes 2002
• European leisure software market forecast
• US leisure software market forecast
• Japan leisure software market forecast
• World leisure software market

MARKET ANALYSIS

• Europe: 32/64-bit console hardware v. software sales
• 32/64-bit software annual sales: Europe v. USA v. Japan
• Next-generation game console contenders
• European software sales keep climbing during console transition period
• Top-selling PlayStation 2 games published by Sony
• Sony PlayStation: European annual sales v price
• Titles released to UK market by platform
• Cumulative number of titles released to UK market by platform
• All-time top 15 PlayStation 2 titles in PAL territories
• Price history of key consoles in European market
• The battle for second place: Xbox v GameCube?ardware sales in 2002
• Europe: 128-bit console price competition
• Nintendo's reduced GameCube global shipment forecasts for year to 31 March2003
• Nintendo's reduced Game Boy Advance global shipment forecasts for year to 31March 2003
• Western Europe: Next-generation console installed base market share end 2002
• Total PAL markets: Hardware sales 2002
• Ranking by household penetration of PlayStation/Psone and PlayStation 2 end2002
• PAL markets: The 128-bit cycle is ahead of the 32/64-bit cycle
• Europe: How many more consoles will be sold in the 128-bit era?
• Western Europe: Next-generation console installed base market share end 2006
• PlayStation/Psone cycle: USA and PAL markets compared
• PlayStation 2: USA and PAL markets compared
• The 128-bit hardware cycle: USA, Japan and PAL markets compared
• USA: Hardware sales 2002
• USA: Next-generation console installed base market share end 2002
• Number of titles released to US market by January 2003
• USA: Next-generation console installed base market share end 2006
• Japan: Hardware sales 2002
• Japan: Next-generation console installed base market share end 2002
• Japan: Next-generation console installed base market share end 2006
• Cumulative tie ratio after three years on the market

MARKET FORECASTS BY TERRITORY

Hardware

• United Kingdom: Hardware annual sales; Hardware installed base; Hardwarepenetration of households
• France: Hardware annual sales; Hardware installed base; Hardware penetrationof households
• Germany: Hardware annual sales; Hardware installed base; Hardwarepenetration of households
• Italy: Hardware annual sales; Hardware installed base; Hardware penetrationof households
• Spain/Portugal: Hardware annual sales; Hardware installed base; Hardwarepenetration of households
• Nordic (Denmark, Finland, Norway, Sweden): Hardware annual sales; Hardwareinstalled base; Hardware penetration of households
• Benelux (Belgium, Luxembourg, Netherlands): Hardware annual sales;
• Hardware installed base; Hardware penetration of households
• Austria, Switzerland: Hardware annual sales; Hardware installed base;
• Hardware penetration of households
• Western Europe: Hardware annual sales; Hardware installed base; Hardwarepenetration of households
• Australia, New Zealand: Hardware annual sales; Hardware installed base;
• Hardware penetration of households
• PAL territories: Hardware annual sales;
• Hardware installed base; Hardware penetration of households
• USA: Hardware annual sales; Hardware installed base; Hardware penetration ofhouseholds
• Japan: Hardware annual sales; Hardware installed base; Hardware penetrationof households
• World: Hardware annual sales;
• Hardware installed base; Hardware penetration of households

Software

• United Kingdom: Software annual sales volume; Software annual sales value (?m,€m, $m)
• France: Software annual sales volume; Software annual sales value (€m, $m)
• Germany: Software annual sales volume; Software annual sales value (€m, $m)
• Italy: Software annual sales volume; Software annual sales value (€m, $m)
• Spain/Portugal: Software annual sales volume; Software annual sales value(€m, $m)
• Nordic (Denmark, Finland, Norway, Sweden): Software annual sales volume;Software annual sales value (€m, $m)
• Benelux (Belgium, Luxembourg,
• Netherlands): Software annual sales volume; Software annual sales value (€m,$m)
• Austria, Switzerland: Software annual sales volume; Software annual salesvalue (€m, $m)
• Western Europe: Software annual sales volume; Software annual sales value(€m, $m)
• Australia, New Zealand: Software annual sales volume; Software annual salesvalue (€m, $m)
• PAL territories: Software annual sales volume; Software annual sales value(€m, $m)
• USA: Software annual sales volume; Software annual sales value (€m, $m)
• Japan: Software annual sales volume; Software annual sales value (€m, $m)
• World: Software annual sales volume; Software annual sales value (€m, $m)

MARKET FORECASTS BY PLATFORM

• 32/64-bit console: Hardware sales volume
• 32/64-bit console: Hardware installed base
• 32/64-bit console: Software sales volume
• 32/64-bit console: Cumulated software sales
• 32/64-bit console: Cumulated TIE ratio (software:hardware sales)
• 32/64-bit console: Software sales value: euros
• 32/64-bit console: Software sales value: dollars
• 32/64-bit console: Software average price: euros
• 32/64-bit console: Software average price: dollars
• 128-bit console: Hardware sales volume
• 128-bit console: Hardware installed base
• 128-bit console: Software sales volume
• 128-bit console: Cumulated software sales
• 128-bit console: Cumulated TIE ratio (software:hardware sales)
• 128-bit console: Software sales value: euros
• 128-bit console: Software sales value: dollars
• 128-bit console: Software average price: euros
• 128-bit console: Software average price: dollars
• Handheld console: Hardware sales volume
• Handheld console: Hardware installed base
• Handheld console: Software sales volume
• Handheld console: Cumulated software sales
• Handheld console: Cumulated TIE ratio (software:hardware sales)
• Handheld console: Software sales value: euros
• Handheld console: Software sales value: dollars
• Handheld console: Software average price: euros
• Handheld console: Software average price: dollars
• PC : Households with PC
• PC : Software sales volume
• PC : Cumulated software sales
• PC: Cumulated TIE ratio (software:hardware sales)
• PC : Software sales value: euros
• PC : Software sales value: dollars
• PC : Software average price: euros
• PC : Software average price: dollars
• Total consoles: Hardware sales
• Total hardware: annual sales
• Total hardware: cumulative sales
• Total console games software: annual sales
• Total games software: cumulative sales
• Total leisure software: annual sales Total leisure software: cumulativesales
• Total games software: annuals sales value: euros
• Total games software: annuals sales value: dollars
• Total leisure software: annual sales value: euros
• Total leisure software: annual sales value: dolars

Appendix

• Sony Computer Entertainment Europe: PAL markets distribution for PlayStationand PlayStation 2