APRIL 24, 2009 • Casual games have been around since the dawn of video games and have been an essential part of every game platform. However, the actual definition of casual games has proven elusive. DFC Intelligence has developed its own classification system for what it considers casual games. However, even our classification system needs a bit of narrowing to account for platform and business model. In our upcoming report on the casual PC game business, we look more specifically at business models for delivering casual games to the PC platform. However, this is only one platform for casual games.
What in the early Internet days started as an afterthought today has grown into a market of its own. In 2008 the total revenue for casual PC gaming totaled a respectable $1.58 billion in Western Europe, North America and most of Asia. DFC expects this number to increase to $1.69 billion in 2009.
In recent years there have been some major players emerge that focus almost exclusively on casual PC games. As more competitors entered the party, casual gaming underwent a lot of consolidation as big ticket publishers aggregated eyeballs for advertising’s sake. RealNetworks spent a lot of money to capture an audience large enough to sustain its ambitions for world domination. The company is currently working to spin off its games division, RealArcade, as a separate entity. DFC estimates that RealNetworks is currently the biggest casual game company, but they still account for just a little over 10% market share in terms of revenue. In other words, there is still room for new entrants into this marketplace.
The industry’s biggest aggregators continue to report a growing number of unique visitors every month. However, some companies are clearly trending up, while more established players like Yahoo are not as strong as they were in the past. In early 2009, Dutch SPIL Games zipped past Yahoo! Games and stole first position according to ComScore. SPIL’s combined properties claim a banner-crushing eight million unique monthly players. And with a solid relationship to a key demographic of 35 to 50 year old females, casual game companies like RealNetworks, Intenium and iWin continue to do well.
So are casual games the get-rich industry of the future? Not quite. Despite growing into an entertainment staple, casual gaming also faces a few predictable obstacles in 2009.
For one, the explosion of online gaming sites is rapidly turning its content into a commodity. The alchemy behind discovering the golden formula apparently consists of sandblasting Internet audiences with marginally different content. With an army of clones flooding online outlets, alienated customers have become even less likely to whip out their credit cards, and conversion rates decline. As a consequence, the holy grail of premium content and its loyal disciple marketing are quickly raising the entry barrier for newbie designers. Despite low development costs, in 2009 one is hard-pressed to compete on equal terms with the marketing efforts of the industry’s fantastically successful companies like PopCap and PlayFirst.
One of the drivers behind PopCap’s $127 million annual product sales, for instance, is its aggressive promotion across a variety of platforms. Bejeweled, perhaps the industry’s crown jewel, is not just available on PC and Mac, but also found its way into slot machines and airline entertainment systems. Alternatively, PlayFirst garnered a lot of success with Diner Dash by carefully, but consistently, building out the overall franchise. Today, its time management portfolio contains 28 titles, all of which relate in one way or another to the original game.
A second obstacle is the decline in online ad spending. As the financial backbone of most of the casual game industry, its overall growth heavily depends on a healthy flow of advertising dollars. What this essentially means is that ad companies will likely pass on small developers. We find evidence in the change of revenue distribution over the past few years: where in 2001 portals only accounted for one-fifth of total revenue, in 2008 their share has more than tripled, leaving less for the small fries.
Retail Me This
Despite these trends, the questions facing the casual game industry are not new. Like so many Internet companies before them, casual game companies are merely trying to figure out their retail basics. In only a few years, the retail side of casual gaming has quickly matured.
Amazon’s recent acquisition of Reflexive, for instance, brings a lot of online retail expertise into the space all at once. Amazon’s experience in converting consumers who land on the main site into customers who spend money is an important contribution to the overall business. With 88 million unique customers, Amazon is expected to yield a substantial audience: even at a conversion rate of one to two percent that is over a million potential paying customers.
The declining price point, however, has got a lot of publishers worried. With a lower CPM and a much lower price per unit, the margins are becoming smaller. And so it helps if you’ve been profitable in recent years (which is not something a lot can say). To deal with this, many publishers offer a subscription model, like Big Fish Games, to retain as many of their customers as possible, and guarantee themselves, fingers crossed, a stable income. But since the introduction of $5.99 monthly subscription, it’s been clear that the heyday of $20 a pop are over.
So what’s the future of casual gaming? The short answer is market expansion. In all directions, game companies are trying to capture a larger audience. Emerging markets are an easy answer to this problem. As new audiences are outfitted with broadband, companies like SPIL Games are trying to roll in and grab these not yet inundated eyeballs. With France, Germany, the U.S. and U.K. reaching a point of saturation, the new battle ground will likely be in second-tier markets like Poland and LatinAmerica, where GDP is slightly less than in the traditional first world, but still high enough to sustain an online advertising market.
In addition, more companies focus on Mac’s OS X, where they used to only develop for PC gamers. And the recent emergence of social networking platforms like Facebook promises a new source of potential customers. A company like Large Animal Games has booked some promising success by venturing beyond client-installations, and is aggressively exploring the potential of Facebook apps. And many see a “beacon of hope” in the iPhone. A next generation of sophisticated handheld hardware will without doubt demand its own library of delectable content.
Now that casual gaming is coming of age, it is faced with some maturing questions. It is still very much a reach of distribution business, but there still is plenty of room for innovation for those with a clever new strategy to jump into the fray.
