Getting Serious About Gaming

Everyone knows video gaming is a growth industry. What's less well known is how Web 2.0 and big business are contributing to that growth

by Jessie Scanlon

Like happening upon a gnome in the online fantasy game World of Warcraft or breaking the speed limit in Grand Theft Auto, PricewaterhouseCoopers' June analysis of the growth of the global video game industry is hardly surprising. In its annual report "Global Entertainment and Media Outlook: 2007-2011," the financial firm predicts the video game market will continue to expand at a compound annual rate of 9.1% over the next five years. Other reports, such as the NPD Group's annual report on the U.S. gaming industry, show similar growth.

"It's not something that has snuck up on us," says Stefanie Kane, a partner with PwC's Entertainment & Media Practice. "Video games continue to be one of the fastest-driving segments of the market, no matter what region you look at." The surprise, more likely, will be that the video game industry grows even faster than these analysts predict, flexing its muscle across the entertainment industry and beyond.

Casual Gamers Will Drive Growth

PwC estimates that the global video game market will increase from $31.6 billion in 2006 to $48.9 billion in 2011, growing in every region. (The report includes video game sales and, in the U.S., advertising within games, but not hardware sales.) This makes video games the third fastest-growing segment of the entertainment and media market after TV distribution (9.3%) and Internet advertising and access spending (13.4%). (For highlights of the report, click here.)

But while the PwC analysis is thorough and offers a solid assessment of how the mainstream gaming industry will grow, it doesn't look at the innovations happening on the fringes of the industry—innovations likely to mature into whole new markets or to cross over into nongaming industries and create entirely new revenue streams. "The real growth in video games will come from the casual and nontraditional game market," says Evan Wilson, an analyst with Pacific Crest Securities.

"Traditional games have become too complex for all but the most hard-core players in the industry, and it's the stimulation of the non-hard-core audience that will drive meaningful industry growth." It's this growth that suggests the video game market of 2011 will be even bigger than the PwC report predicts. Or, as Ben Sawyer, president of the Portland (Me.)-based consulting firm Digitalmill and co-director of the Serious Games Initiative, puts it: "the report itself is sort of conventional for those of us working on the outermost edges of the industry."

Games with a Serious Purpose

Look to the fringe, and you'll see two promising areas for growth that aren't acknowledged by the report: the broad category of so-called serious games and the newer attempts to meld gaming with the social-networking features of Web 2.0. (To be fair, PwC does note the popularity of World of Warcraft, the MMOG (massive multiplayer online game) with 8 million players worldwide, and it acknowledges the growth in online games, the fastest-growing consumer-spending segment in the U.S. and Europe/Middle East/Africa regions.) Notably, both nascent markets reflect a shift from thinking about games as products to understanding them as services.

Serious games are used for nonentertainment purposes including education, corporate and military training, and health care. The category includes games developed for professional use, such as Full Spectrum Warrior (a military training game later released commercially), Re-Mission, and Peacemaker, as well as recreational games adapted for serious purposes, as when teachers use Take 2 Interactive Software's Civilization in the classroom, or consumers use Konami's Dance Dance Revolution as a form of exercise (see BusinessWeek.com, 8/17/06, Harnessing the Power of Video Games).