MARCH 26, 2010 • As far back as 1994 DFC Intelligence has been monitoring the trends in digital distribution. By 2001, we had begun tracking the game market in South Korea. We chose South Korea as a primary case study for numerous reasons, but mostly because over the past 10 years there has been tremendous growth there with high-speed broadband connections that reach over 80% of the population.

In terms of per capita spending, South Korea has the highest revenue of any country for PC games, the bulk of which is delivered over the broadband network. A major portion of the business in Korea is from delivering digital content, in small amounts such as items, characters and weapons. Many games are free to play and revenue is generated as users buy goods and currency to enhance their game play experience. This model is known as the free-toplay (F2P) business model.

Broadband penetration in North America and Europe has lagged behind Korea. Therefore, the F2P model has not yet been as prevalent. While this reality has negated the kinds of huge client downloads possible there in favor of streaming data, there have been no limitations on the same kinds of browser-based F2P games also popular in Korea.

With broadband penetration growing and services like Steam introducing consumers to safe and friendly digital distribution, there is growing introduction of free-to-play games in North America and Europe. This includes games from Asia, major Western releases like Sony Online Entertainment’s Free Realms and the growth of F2P games on social networks like Facebook.

However, it should be noted that the market for digitally delivered online games in North America and Europe is still in its infancy. The foundation of our coverage is to explore how this market might grow over the next few years. Our thesis is that a key indicator of growth potential will be the core game consumers that currently drive much of the game market. This is an audience of males primarily 13-24. This demographic is what drives spending on the most successful billion dollar-plus game franchises such as Guitar Hero, Grand Theft Auto, Call of Duty, World of Warcraft and others.

To accomplish this DFC conducted a survey of core game consumers during February 2010, of which 4,816 unique users responded to the survey. Our goal WAS NOT to provide a representative survey of the general population. Instead we focused on active gamers and their gaming and digital media habits.

The survey asked questions around game playing habits, systems owned, purchase habits of downloadable digital content, preferences and willingness to purchase digital content.

The respondents to this survey were heavily male and between the ages of 13 to 30. This is fairly representative of the overall traditional game audience. There are obviously other consumer segments but they were not targeted in this survey. Currency questions were asked in Euros, Pounds and Dollars. For final results adjustments were made to show currency in Dollars.

A consumer survey alone, is only indicative of general directions in consumer behavior. To obtain a more robust picture of the potential for virtual goods, DFC Intelligence also partnered with Live Gamer to analyze actual transaction data for F2P games released in South Korea, Japan, Germany, the U.S, Vietnam and the Philippines between 2002 and 2009.

While South Korea has the highest revenue and longest track record, DFC believes that many of the spending trends found in South Korea will come to other markets as broadband penetration improves. Furthermore, in some cases, DFC believes that some Western markets may have higher average spending than Korea.

The usage data, combined with the survey data, presents an interesting picture of a market that could be on the edge of seeing significant growth over the next few years. The results were presented in a new DFC Intelligence report Consumer Trends in Virtual Goods and Downloadable Gaming in North America and Europe.

The good news is that we found broad acceptance of purchasing digital content online, with more than 80% of respondents indicating that they have done so. This month we thought we would highlight a few points we found in our most recent survey of core game consumers in North America and Europe.

What we discovered next was surprising given digital distribution is still relatively new. There was substantial willingness to purchase content at full MSRP without owning a physical copy about the same as those who will go without a physical only for a discounted price.

Not surprisingly, given the core gamer demographic we polled, a majority of those surveyed are paying to subscribe to online games. Although in Europe, less than 50% pay for such subscriptions.

Given the lower desire to pay for subscriptions in Europe it could be suggested that there would be a higher inclination to play F2P games, but that is not the case, with Europe mirroring North America fairly closely. It is likely core gamers in Europe are simply not yet predisposed to play titles they perceive as too casual.

There seems to be no inhibition to buying in game goods, however, with close to 60% of all respondents saying they make such purchases.

When it comes to what items these gamers buy, it is obvious that they are most interested in items that can provide them with a power-up item that will add a competitive edge in the game, with nearly 50% indicated they have bought such goods.

Most surveyed were more likely to buy virtual goods $5 and under. But there was almost as much willingness to make purchases up to $50. There is more resistance to buying items priced more than $50.

As we said above, the vast majority of those surveyed were young and male: more than 85% under 24 years-old, and 96% of them men.

Obviously the information presented in this report is only a summary of what we have learned from this research. However, we firmly believe that the established markets in North America and Europe are likely to see a major shift in consumer spending trends among the core gamer community over the next few years. For the “DFC take” on the issue please see the article “Eating an Elephant One Bite at a Time.”

However, this is only one opinion and we urge users to be willing to draw their own conclusions from the data. For more information on the report Consumer Trends in Virtual Goods and Downloadable Gaming in North America and Europe go to the following URL or contact DFC Intelligence.

About Live Gamer
Live Gamer is a global provider of total commerce solutions for micro-transaction-based businesses. Spanning online games, virtual worlds, and social networks, Live Gamer provides an advanced offering that goes beyond monetization to drive core business metrics and optimize new transaction-based revenue streams. Combining its micro-transaction platform, primary and secondary market management, fraud and security solutions, scalable publisher support and international payment gateways, Live Gamer’s technology has been adopted by leading publishers in gaming, social and entertainment including Acclaim, Funcom, NHN USA, Quepasa, MEG Toys and Sony Online Entertainment, supporting over 80 million users in 23 countries.

Founded in 2007, the company is backed by $28 million in venture funding from Charles River Ventures, FirstMark Capital, Kodiak Venture Partners, Rustic Canyon Partners, Triple Point Capital and Venrock. Live Gamer is headquartered in New York with offices in Los Angeles and Palo Alto, Calif. and Seoul, Korea.