Ubisoft 2005 Annual Report Download - page 14

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2005 ENTERTAINMENT INDUSTRY
TURNOVER IN THE USA(2)
(in billions of dollars)
A growing industry, driven
by new technologies
In just over 30 years the video game industry has become a major player in the mass
entertainment market, bringing in sales of $28.5 billion in 2005(1), and overtaking world-
wide box office receipts. The industry is currently preparing itself for the ramp up of
next-generation consoles that will drive another explosive growth cycle, beginning 2007.
DEFINING THE NEXT GENERATION
Every 4 or 5 years the video game industry undergoes a transition period as hardware
is upgraded to embrace new, more sophisticated technology. This transition to “next-
generation” consoles has a two-fold impact on the industry: software and current
generation hardware sales slow down as consumers prepare for the launch of the new
consoles; this sluggish phase is then followed by a period of strong growth.
The industry’s last growth cycle saw software sales increase by more than 40% between
1998 and 2003. Ubisoft anticipates similar growth between 2007 and 2011, with an
increase of around 16-17% in software sales in 2007 alone, boosted by the growing
number of first-time gamers drawn in at the start of each new generation.
Market growth comes at a price however; the rising development costs of next-gen
games, which take more people and more time to create, will undoubtedly have a long
term impact on the industry, as publishers seek to absorb those costs while maintaining
profit margins. Promising to prove a defining moment in the history of video games, the
transition to next-gen will clearly benefit those publishers who have anticipated and
prepared their business for the shift.
ONLINE AND MOBILE GAMING:
NEW AVENUES FOR GROWTH
With 50% of Xbox 360™ players already connected to Xbox®Live™ across the world(3),
online gaming grew strongly in 2005 and is set to storm the video game industry over
the next few years, creating a new direct distribution model for software publishers.
The rapid adoption of broadband online connection for PC and consoles, estimated to
increase by 36% between 2004 and 2009(4), is one of the key factors that will drive this
growth. In addition, increasingly user-friendly and standardized interfaces, combined
with the growth of sales via micro-payment, will simplify game downloads and enable
publishers to target more casual gamers with adapted content.
The emergence of other trends such as mobile gaming and in-game advertising also hold
important implications for the industry. Worldwide wireless gaming revenues doubled in
value in 2005 and are predicted to rise another 56% in 2006 to reach around $2.5 billion(5).
(1) Source: DFC Intelligence.
(2) Sources: RIAA, Nielsen,
Digital Entertainment Group, NDP.
(3) Source: Microsoft.
(4) Source: IDC.
(5) Source: Screen Digest.
(6) Source: ESA 2006 Essential Facts about
the computer and video game industry.
16.3
6.5
12.3
10.1
8.9
DVD/VHS RENTALS
12%
MUSIC
23%
DVD/VHS SALES
30%
BOX
OFFICE
16%
VIDEO GAME SOFTWARE
& HARDWARE
19%