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April 2011

Market studyDutch games industry Ready for growth

3 Market study Dutch games industry Ready for growth

Table of contents

Preface 4

Executive summary 5

Consumer spending 6

Value chain developments 14

Dutch games industry opportunities 23

Contacts 32

Definitions 33

4

Preface

This report was prepared as a market study of the Dutch video games industry. It examines global trends in the video games industry and opportunities for local Dutch game companies.

Deloitte’s study of the market is based on:• Ourexperiencewithinthegamessector• InterviewswithkeyplayersintheDutchMarket• Publicallyavailableinformation

This document describes our preliminary findings and Deloitte’s view as of this date. Therefore Deloitte’s judgement should be regarded as indicative, preliminary and for illustrative purposes only.

In preparing this report, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us or which was otherwise reviewed by us.

Deloitte does not accept any duty, responsibility or liability with respect to the subject matter or contents of this report.


Executive summary

SummaryThe Dutch games industry is well positioned to benefit from global trends towards online and mobile gaming

Observations• Theglobalgamesindustryisexpectedtogrowin

casual, mobile and social gaming in the short term and will get a boost from the next generation of consoles, expected in 2013

• TheDutchgamesindustryisstructurallysimilarto the global industry and will also see a lot of its growth come from new areas like social, mobile and portal gaming

• Intermsofconsumerspend,theDutchgamesmarket is estimated at €626m for 2010 and is expected to reach €805m by 2013, with social, mobile and portal gaming making up €189m

• Mobiledevices,increasingnetworkconnectivityandsocial gaming are creating new players in the games industry with new revenue streams and a different business model

• Thegrowthofnewsegmentslikecasual,mobileand social gaming augurs well for the Dutch game developers

- There are around 160 mostly small Dutch companies active in the games industry (developers, publishers and distributors) employing around 2500 FTEs

- Dutch companies generate €125-150m in revenues and most of these companies have benefitted from digital distribution, increasing smartphone penetration and education programs in game development

- There is a second tier group of suppliers to the industry which is estimated at over 100 companies

• AccesstoVentureCapital(VC)firmsisoneofthekey challenges facing the industry, and in order to succeed, Dutch game developers need to work on improving their business models and increase their level of collaboration to create scale advantages

• Atthesametime,developersshouldmakethemost of national advantages like a highly educated workforce, strong infrastructure and supportive government initiatives

6

Consumer spending

Selection of events

The history of the games industry goes back to the 1950’s but has seen dramatic changes in the past decade

1950’s Firstreleasesofelectronicgamesoncomputers,suchasNIMROD(1951),OXO(1952)and‘TennisforTwo’ (1958)

1971 Computerspace(thefirstarcadegame)isreleased

1972 AtarireleasesPongasanarcadegame Thefirsthomeconsole,MagnavoxOdyssey,islaunched

1976 SecondgenerationconsoleerastartswithVideoEntertainmentSystem/ChannelFbyFairchild

1983 Third generation console era (8-bit) starts with Nintento Entertainment System (NES)

1988 Fourthgenerationconsole(16-bit)withSNES,SegaMegaDrive

1994 Fifthgenerationconsole(32/64-bit)withPlaystation,Nintendo64

2000 Sixthgenerationconsole(128-bit)withPlaystation2,X-box,GameCube

2004 WorldofWarcraftMMOislaunched

2005 SeventhgenerationconsolewithWii,Playstation3,Xbox360

2006 AppleAppStoreopens,significantlychangingmobilegaming

2008 Zynga releases Farmville on Facebook

2010 AngryBirdsbecomesthemostdownloadedgameonmobile

Source: Desk research


Comments• Therevenueissplitbetweensoftwareandhardware

(home and handheld consoles) • Intheshortrun,thevideogamesindustryis

expected to remain stable between 2010 and 2011 due to hardware segments that are entering a transition phase to a new generation of machines and growth in software

• ConsolegamingsoftwarewillseeitsshareofthetotalgamessoftwaremarketreduceasPCgamesand mobile games grow at a faster rate

- PCgamingislikelytoexpandduetoonlinegaming and the greater penetration of broadband networks in emerging markets

- MobileGamingislikelytogrowduetotheproliferation of smartphones at 13% per annum to reach €11b annually in 2014

• However,by2013thenextgenerationofhardwareconsoles is expected to enter the market which will spur growth

Global games market size

Source:IDATE;DeloitteAnalysis

Console Games 3%

PC Games 9%

Mobile Games 13%

CAGR %Software€b60

45

30

15

02010 2011 2012 2013 2014

22 21 22 24 26

10 11 1314

156 79

1011

38 4044

8,3%

4852

10

Console Hardware 8%

+

Hardware

€b60

45

30

15

02010 2011 2012 2013 2014

12 10 14 17

8,4%

The global games market is estimated at € 50bn in 2010 and projected to grow at over 8% over the next 4 years

8

Comments• Advancementsininternetspeeds,highendmobile

devices and next generation consoles are increasing the push towards digital distribution

• Casualgaming(portal),socialgamingandmobilegaming will be the primary drivers of digital revenue

• By2014,onethirdofconsolegamessaleswillbedigitally distributed

Console Software (Digital)

Physical distributionDigital distribution

Console Software (Physical)

Mobile Games

PC Games (Online)

PC Games (Offline)

€b100%

80%

60%

40%

20%

0%2010 2011 2012 2013 2014

4%

4% 4%

19%

16%

54%

6%

22%

18%

47%

8%

25%

20%

41%

13%

25%

21%

37%

17%

26%

21%

38 40 4844 52

7% 7% 6%

32%

Source:IDATE,Deloitteanalysis

Global games software market

There is an increasing trend towards digital distribution, with the share of digital revenues expected to increase from 38% to 65% by 2014


Comments• Consolegamingisthelargestsegmentinmost

markets - However,insomemarketslikeGermany,PC

gaming is nearly as large as console gaming - Mobilegamingandportalgamingstillare

relatively small in terms of value market share• Traditionalgamingstillmakeuptheoverwhelming

majority of revenues in the Netherlands - While the Dutch games market has a large

number of players per platform, the ratio of people paying as percentage of players is below countries like the US and UK

- The relatively small share of social gaming is mainly because the leading Dutch social network Hyvesstartedlateongames

Consoles

Portals

MMO’s

PC Games

SocialMobile

€b100%

80%

60%

40%

20%

0%US DE UK FR NL

43%

19%

11%

15%

6%

6% 6%

34%

33%

10%

10%

49%

22%

46%55%

18,6 4,9 4,04,3 0,4

7%

7%

7%

11%

24%

7%

14%

5%

13%

7%

17%

Source:Newzoo,NVPI,expertinterviews,Deloitteanalysis

Video games software 2010

The Dutch games market is structurally similar to its developed market peers and largely driven by console gaming

10

Source:NVPI(1),Newzoo,(2)DeloitteAnalysis

Dutch video games market in 2010

Hardware

Software

€m800

600

400

200

700

500

300

100

0Console

HardwareConsoleSoftware

PC Games PC Games(online)

PortalGaming

MMO MobileDevices

SocialGaming

Total

181 181

247

38

22 76

33 16 13

181 285 160

Hardware1 BoxedSoftware1&2

Online/Mobile2

445

626

Including console hardware, the Dutch video games market is estimated at €626m in terms of consumer spend for 2010


Source:NVPI,DeloitteAnalysis

Source:NVPI,DeloitteAnalysis

Console hardware sales in NL

Console software sales in NL

€m Million Units400 1,5

1,0

0,5

0,0

300

200

100

02005 2006 2007 2008 2009 2010 2011F 2012F 2013F

89113

212

313

228

181147 144

202

+4%

0,60,6

1,0

1,5

1,1

0,9

Unit Sales (in Millions)Revenues

XBOX 360 Wii PS3

Launch Year

€m400

300

200

100

02005 2006 2007 2008 2009 2010 2011F 2012F 2013F

128171

227

294274

247 240 243270

+3%

• Consolehardwaresalesareexpectedtodeclineinline with global trends in 2011 and 2012

• Consolemakershopetolimitdeclinebyintroducingadd-on features such as motion control, camera peripherals and 3D

• Growthin2013duetoexpectednextgenerationofconsoles

• Increaseinconsolesalesbetween2006-08wasdriven by the launch of new consoles

• Consolesoftwaresalesareexpectedtodeclineslightly in 2011 and 2012

• Growthin2013islinkedtotheexpectednextgeneration of consoles

• Historically,consolesoftwaresalesincreasedinlinewith the installed base of consoles

Console (hardware) sales are forecast to decline till the launch of next generation consoles which is expected by 2013

Console game software revenues are also expected to decline marginally over the next two years, but return to growth in 2013

12

Casual, social and mobile gaming revenues in NL

• Thenumberofpayingsocialgamersisexpectedtoincreasefrom10%in2009to13% by 2012

• 24%ofmobilegamersareestimatedtopayin2012,upfrom12%in2009• Forcasualgamers,thepayingpopulationisexpectedtorisefrom13%to30%in

the same period

Casual / portal gaming (18%)

Mobile gaming (39%)

Social gaming (36%)

CAGR 2010-2012€m200

150

100

50

02009 2010 2011F 2012F

5576 90

10610

72

104

127

+22%

155

71513 19

25

24

18

Social gamers

6

3

02009 2010 2011 2012

2,4

3,5

4,6

5,7

Mobile gamers

6

3

02009 2010 2011 2012

1,3

3,5

4,95,9

Casual gamers

6

3

02009 2010 2011 2012

4,86,0 6,3 6,3

Payers

million

Source: NewZoo

Number of players and payers in NL

At the same time, revenues for mobile, social and casual gaming are projected to take off as companies monetize their wider demographic base


• Growthinthegamesindustryin2011and2012willcome from new areas like mobile, portal and social gaming

• Growthinconsolegamingisexpectedtoreturnby 2013 with the next generation of consoles, and console gaming will drive €85m out of the €135m growth between 2012 and 2013

• However,ifthereisadelayinthelaunchofnextgeneration consoles, the market may only reach €733mwith5%CAGR,drivenbycasual,mobileand social gaming

Source:Newzoo,NVPI,Deloitteanalysis

Dutch games industry forecast

The Dutch games market is expected to reach €805m by 2013 with social, mobile and portal gaming bring in a quarter of the revenues in 2013

Console hardware

Console software

Social gamingMobile devicesMMO

Portal gaming

PC games

+4%

+3%

+36%+25%

3331

+21%

+18%

+13%

CAGR 2010-2013

€m1.000

500

750

0

250

2010 2011F 2012F 2013F

181

247

147

240

144202

626

60

621

33

7690

68

39

243

78

106

48

668

270

86

125

58

805+3%

+20%

242518

191316

14

-40

-20

0

20

40

60

-10 -5 0 5 10

Revenue Growth CAGR (2006-10) in %

15 20 25 30 35

Sega Sammy HoldingsActivision Blizzard

1000 m€ revenue

Nintendo

Microsoft*

Ubisoft

EA

Sony**THQ

Publisher

Hardware + Publishing

Margins 2010 in %

Value chain developments

Most traditional global games companies have struggled in recent years due to lengthening product development time and increasing development costs

*MicrosoftrevenuesrefertoEntertainmentandDevicesDivision

**SonyfiguresareforGamesdivisionfrom2009

Source:OneSource;annualreports;Deloitteanalysis

Global performance of major games companies • Higherdevelopmentcostsandlengtheningdevelopment times for high-end games have made game development riskier

• Theincreaseddependenceonblockbustershasreduced profits across the industry as a whole


As penetration of tablets and smartphones increases, mobile internet is becoming an important distribution platform for games

Source:Gartner,Deloitteestimates,Cisco,AppsFire1/11,KPCB,Deloitteanalysis

Global shipments Average time spent on smartphone functions

Global mobile internet traffic used for gaming

Petabyte/month200

150

100

50

02009 2010 2011F 2012F 2013F 2014F

5 12

+96%

27

62

111

173

+154%

Million Units

Notebooks

Desktops

Tablets

Smart-phones

0 100 200 300 400 500 600 700

207

656

154

150

146

159

247

20102013

20

Minutes/day

2010

40

27

84

10

7 Mail

Web/web apps

Telephony

Games, maps, social, others

16

• Newdistributionchannelshavecreatednewgamingcategorieslikemobile,casualandsocialgaming• Thishascreatedopportunitiesforthedevelopertopublishtheirgamesdirectly,althoughmostprefertouse

specialized online publishers

Source:Expertinterviews;Deloitteanalysis

This new distribution platform is changing the business model of the games industry creating new players and challengers for traditional companies

Traditional Model

Emergent Model Illustrative

Console

Manufacturer

Publisher

DeveloperGuerrilla

Distributor

Retailer

Consumer

Nintendo

Microsoft

Activision Blizzard EA

Arvato Technicolor

Bart Smit Free Record Shop

Console

Manufacturer

Online Publisher

Developer

New Distribution

Platform

Publisher

Traditional

Distributor

Retailer

Consumer

AppleGoogle Android

Chillingo

Facebook

Zynga

Rovio


FacebookThe worlds largest social network

• $2bnest.in2010revenues,$400minprofit

• $85best.marketcapitalization• 650mactiveusers• Facebookrevenuesfromgames

companies was $400m (est.) in 2010• Gamescompaniessharetheirrevenues

with Facebook in addition to spending on Facebook ads

AppleWorld’s leading technology company by market cap

• $65brevenuesin2010and$18.5binprofitbeforetax

• $314binmarketcapitalization• iPhonehitsAngryBirdsandDoodle

Jump have seen more than 50 million copies downloaded

• Hardwareimprovementsareincreasingthe utility of such devices for games

These new challengers have deep pockets and huge fan bases...

ZyngaLeading social network game developer

• $850mest.inrevenuesin2010,$400mprofit

• $10best.marketcapitalization• 237mmonthlyusers,14.2mjoineach

month, over ten percent of the global Internet population plays Zynga games

• In2010,Zyngahired800peopleandacquired 10 games studios

Revenues ($b)2

1

02006 2007 2008 2009 2010

0,3

0,9

Revenues ($b)2

1

02006 2007 2008 2009 2010

0,80,3

0,20,1

2,0Revenues ($b)90

60

30

02006 2007 2008 2009 2010

4337

2519

65

AllestimatesfromMarch2011.ZyngaandFacebookdon’treportrevenues

Source:NewsReports,OneSource,Deloitteanalysis

18

Comments• Mobileandonlinegamescompanieshaveavery

different business model compared to traditional games companies

• Developmentcostsformobile/socialgamesarelowcomparedtotraditionalgames,iPhoneappgames cost between $20,000 - $100,000 compared to hundreds of millions for popular blockbuster titles

• Insteadofahighinitialpurchasecost,thesegamesare typically free or have a very low purchase price

- Developers make money from micro transactions (e.g. sales of virtual goods), which is shared 70-30 between the developer and the platform owner

- Mobileadvertisingrevenuesisanadditionalsource, which is again shared in a pre-defined manner (ratio depends on volume)

• However,forthisbusinessmodeltosucceed,largenumbers of users are required. The role of good distribution and marketing is therefore still crucial for a game to succeed, as there are numerous options for consumers to choose from (e.g. the AppleAppstorehasover350.000appstochoosefrom,thePlayStationnetworkover100.000)

US virtual goods market

Mobile game ad spend worldwide

...and have lower development costs than traditional players. Their revenue model is based on micro transactions (e.g. virtual goods) and advertising

Source:JuniperResearchascitedinapressreleaseonJan5,2011;

KPCBcitingreportInsideVirtualGoods;PressreleaseSony;Deloitte

analysis

3.000

2.000

1.000

0

1.600

2.000

$m

2010 2011E

+31%

200

100

0

87

138

$m

2010 2011E

+59%


HighmarketcapitalizationofZyngaisduetoitslargebase of users who can be easily targeted for new games and low development costs which lead to high margins

Due to its innovative revenue model and low operating costs, social game developer Zynga has one of the largest market capitalizations in the industry

Revenues

Market capitalization

* Marketcapreferstowholecompany

** SonyrevenuefiguresareforGamesdivisionfrom2009

Source:Newsreports,Bloomberg,onMarch30,Deloitteanalysis

0

3

6

9

12

Nintendo Sony Microsoft ActivisionBlizzard

SegaSammyHoldings

EA Ubisoft Zynga THQ

10,9

7,3

5,8

3,4

2,92,6

0,9 0,9 0,6

$b

0

10

20

30

220

Nintendo Sony** Microsoft* ActivisionBlizzard

SegaSammyHoldings

EA Ubisoft Zynga THQ

38,1

32

215,4

13,2

4,76,6

1,0

10,0

0,3

$b

20

• AngryBirdsisapuzzlevideogamedevelopedbyFinland-basedRovioMobile

• Roviostartedin2003andAngryBirdswasthecompany’s 52nd game

• AngryBirdswasinitiallydesignedforAppleOS,itwasfollowedbyanAndroidversion,aPCandgameconsoleversion.AFacebookversionisexpectedinMay2011

• Over75millionpaidandad-supportedversionshavebeendownloaded,sixtythousandAngryBirdssofttoys have been sold*

• InitialcosttodevelopAngryBirdsisestimatedataround €100,000

• AngryBirdsmakerRovio’svaluationisestimatedat$200 million after an investment of $42 million

• Roviorevenuesroseto€5minthelast6monthsfrom € 1.6m for the previous full year, due to the successofAngryBirds

• Thevaluationwasbasedontheupsidepotentialfrom the franchise as well as the potential to cross- sell new games

Similarly, mobile game developer Rovio, the maker of Angry Birds has a valuation of $200 million

Case study: Angry Birds by Rovio

* FiguresuptoMarch2011

Source:OneSource,newsreports,Businessinsider,Deloitteanalysis

6

4

2

0

-2

0,91,6

5,0

0,1 -0,1

3,0

FY09 FY10 FY11(H1)

RevenueProfit before tax

€m

Financial years in Finland run from July to June

Rovio Mobile Oyj


Acquirer Target Date Rationale Price

EA Playfish Nov2009 • PlayfishisasuccessfulsocialgamingdeveloperofsocialgamesforFacebook $400m • ThisacquisitionwastogiveEAafootinginsocialgaming

WaltDisney Tapulous July2010 • Tapulousmakesmusic-basedgames • BuyingTapulousgetsDisneyontothemobilegamingplatformandgivesita n/a

strong presence in music-related games

DeNa Gameview Sep2010 • Gameviewisamobilesocialgamedeveloperandhasmadesocialgamessuch n/a Studios as Tap Fish • DeNa,theJapanesesocialgaminggianthopestouseitsacquisitiontoenterthe

US market

DeNa NGMOCO Oct2010 • NGMOCOisaleadingmobilegamingpublisherfoundedbyaformer $400m EAgamesexecutive

• DeNa,theJapanesesocialgaminggianthopestouseitsacquisitiontoenterthe US market

EA Chillingo Oct2010 • Chillingopublishesmobilegamesdevelopedbyindependentgamedevelopers $29m andwasthepublisherofhitgameslikeAngryBirdsandCuttheRope

Major games companies have been acquiring mobile and social gaming companies to strengthen their position in these new markets

Selected acquisitions of mobile/social gaming companies

Source:Newsreports,TechCrunch,Deloitteanalysis

22

Opportunities for the Dutch Game companies

• Traditionalgamedevelopersareseekingafootprintin the fast growing social and mobile gaming market through partnerships and acquisitions

• Smallgamedevelopersarewellsuitedtoproducerelatively lighter games for smartphones and tablets

• Smallgamedeveloperscan: - Develop and self publish games bypassing the

traditional publisher, if they have a large user base - Develop games and use a new online-publisher to

go to market - Develop mobile and social mini-games for

traditional publishers• Successfulgamecompanieswithasoundbusiness

model can hope to raise finance more easily than before

• Newpublisherscanhavealowcostbasewithlowerrisks as the small games require lower investments

Developments

• Consolegamingisstallingandtraditionalcompaniesare facing a challenging market

• Mobiledevices,ubiquitousnetworkconnectivity,and social gaming are creating new avenues for growth

• Smartphonesandtabletsdonothavethehardwareto support conventional high-end games

• Mobileandsocialgameshaveamoredirectrouteto market compared with traditional games creating opportunities for new players

• Successfulsocialandmobilegamedevelopershavemanaged to raise significant capital from venture capital firms

• Gooddistributionandmarketingremainskeytoensure capturing a large user base

Key Trends

Changing market

New devices, new games

New business models

These changes in the global games ecosystem create opportunities for the Dutch games industry



The Dutch games industry is defined as developers, publishers, distributors & retail


Global performance of major games companies Overview Dutch games industry• ThecoreoftheDutchgamesindustryconsistsof: - Developers, - (Hardware)Publishers, - Distributors & Retail• BesidesthecompaniesdirectlyactiveintheNL

games industry, a significant number of players are active in a wide range of services related to the industry,rangingfromLegalservicestosoftwaresuppliers, working from over 100 companies, employing several hundreds of FTEs (est.)

• Furthermore,asplitwillbemadebetweenforeignownedandNLownedcompanies;BothemployNLpersonnel in the Dutch games industry and generate economic activity, but the benefits of the foreign companies will flow abroad and not directly benefit theNLgamesindustry

Dutch games industry opportunities

Dutch games industry:• Developers

• (Hardware) Publishers• Distributors & Retail

Advertising WarehousingEducational Services

Security servicesLegal services

Online paymentsHardware suppliers

OutsourcingTrade associations

MarketingMarket research Hosting

PR/Press/Media

Audio DesignSoftware suppliers

Related services

24

<1995 Smallnumber(<10)ofseriousdevelopersactiveforPCandconsolegamedevelopment,a.o.forseriousgames (e-learning)

2000 TheHKUinUtrechtstartswiththefirstMasterstudyforgamedesignanddevelopment

2000 LostBoysgamesstarts,whichwilleventuallyrenametoGuerrillaGamesandreleasetheKillzonefranchise. The company is bought by the Sony corporation in 2005

2000/ ZylomandSpilGamesstartasgameportalsandbecomeleadingglobalwebsitesincasualgaming2002

2003/ StrongincreaseindigitaldistributionwiththeopeningofXboxLive(2003),PSN(2006)andAppleApp2008 store (2008)

2006 100companiesactiveintheNLgameindustry

2011 160companiesactiveintheNLgameindustry

The NL games industry has been growing significantly since 2000, driven by educational programs in game development and digital distribution

Selection of events

NL games companies by year of start of operations (currently active developers and publishers)

After 2005

2001-2005

1996-2000

1991-1995

<1995

0 10 20 30 40

# of companies

50 60 70 80

71

46

12 16

50

76

3

3 3 6

NL companiesForeign companies with NL operations

2

4

4

5

Source:Expertinterviews;ChamberofCommerce;company.info;Gamesindustry.nl;Newzoo;Deloitteanalysis


160 Companies are active in the Dutch games industry, employing 2500 FTE

Foreign owned NL ownedDevelopers #ofCompanies:<5 #ofCompanies:117 # of FTE: ~200 # of FTE: 1200 Turnover: 30-40m € Turnover: 80-100m €

Example companies • Guerrilla • Vanguard Games • Ranj Serious Games • Triumph Studios • IJsfontein • Media Monks • Codeglue • Little Chicken Game Company

Publishers Digital Physical Digital Physical(incl hardware) #ofCompanies:5 #ofCompanies:11 #ofCompanies:13 #ofCompanies:3 # of FTE: 100 # of FTE: 150 # of FTE: 220 # of FTE: 30-40 Turnover: 30-40m € Turnover: 425-450m € Turnover: 35-45m € Turnover: ~ 3m €

Example companies • Gamania • Nintendo • Activision • Jaludo • Spil Games • Iceberg • Zylom • Microsoft Blizzard • Keesing • Youda • Denda Games • Perfect World • Sony • EA Games Games

Distributors/retail Digital Physical Digital Physical #ofCompanies: #ofCompanies: #ofCompanies:<5 #ofCompanies:~11 None with local presence None with local presence # of FTE: <50 # of FTE: 500-600 Turnover: <10 m € Turnover: ~450 m €

Example companies • Hyves • Bart Smit • Free Record Shop • bol.com • 12game.com

26

Comments• Gamescompaniesarespreadacrossseveralcities

across the Netherlands - ThemajorityofDutchGamecompaniescanbe

foundinAmsterdamorUtrecht - Also,anumberofgamecompaniescanbefound

in the near vicinity of game related education centersinUtrecht,Eindhoven,BredaandLeeuwarden

- Gamecompanieswithforeignownershiparemostly located around Schiphol

• Physicalspreadofthegamecompanieslimitsthe ability to cooperate and benefit from scale advantages(e.g.throughknowledgeexchange);anexceptionisthe‘DutchGameGarden’,abuildinginUtrecht which houses several game companies in the city center

Games companies in the Netherlands are spread across the country which reduces opportunities to cooperate

Source:Expertinterviews;Deskresearch;Deloitteanalysis

Limburg

Northern NL (Fr, Gr, Dr)

Eastern NL (Gld, Ov.ĳssel)

Rotterdam area

Eindhoven/N-Brabant

The Hague area

Utrecht

Amsterdam/N-Holland

0 10 20 30

# of companies

40 50 60

5

9

12 13

13

32

51

13

11

15

29

39

NL ownedForeign owned

12

3

2

1

Overview locations NL games industry (developers and publishers)


Type of main activity NL games companies (# of companies)

Company size NL game developers (FTE)

Observations• TheDutchgamesindustryislargelydevelopment

oriented with only a limited number of (online) publishing companies.

• Themajorityofgamedevelopmentcompanieshavefewer than 5 employees and the average size of the development companies is limited to 10 FTE per company

• Thelimitedsizeofdevelopmentcompanieshasanimpact on the business model that they can apply and the scale advantages that can be reached:

- Manygamedevelopersstrivetocreateagoodgame, but have no strategy to sell the product and optimize margins

- Scale advantages are limited, as developers create their own tools and miss volume to utilize outsourcing opportunities

- Limitedscalealsonegativelyimpactstheabilityto negotiate with large publishers

Most games companies in the Netherlands are relatively small game development companies which restricts their potential scale advantages

40

60

80

20

01-5 6-10 11-20 >20

62

22 21

12

Distributor & Retail

Publisher

Developer

74%

18%

8%

Source:Expertinterviews;AnnualReports,ChamberofCommerce;

company.info;Deloitteanalysis

28

Game revenue 2010 Observations• TheNetherlandsisanetimporterofgames

products;therevenuesoldhereismuchhigherthanthetotalproductionofNLgamecompanies

- €626mwasspendbyNLconsumersongames - €125-150mwasgeneratedbyNLowned

developers and publishers• TheproductionofNLgamecompaniesisdrivenby

a number of key players that generate significant turnover, but no major publishing houses or platform owners originate from the Netherlands

• TheNetherlandsisstronginanumberofonlineportals(e.g.SpilGamesandGamePoint;theircompetitorZylomhasbeenacquiredbyRealGamesand is therefore considered a foreign owned company)

• Alargenumberofcompaniesgeneratelimitedturnover (< 1 million €)

The Netherlands is a net importer of games products

200

100

0

300

400

500

600

700

Total gamespend by

NL consumers

Revenue NLowned

developersand publishers

626

125-150

€m

Source: Deloitte analysis


Tax incentives

Attractive Tax Regime• Relativelylowstatutorycorporateincometaxrateof25%(20%forfirst200,000Euro)• PossibilityofobtainingadvancetaxrulingsfromtheDutchtaxauthorities• Widetaxtreatynetworkreducingwithholdingtaxesondividends,interestsandroyalties• Favorableparticipationexemptionregime,profitsgeneratedby(qualifying)participationsincompanieshave

been tax-exempt for entities based in the Netherlands• 30%arrangement,theextracostsofatemporarystayofanemployeeoutsidethecountryoforigin

(extraterritorial costs) can be compensated free of tax by the employer

R&D Incentives• TaxincentiveforR&Dactivities(WBSO),consistsofareductioninwagetaxandsocialsecuritycontributions

paid for these R&D employees• Innovationboxresultinginaneffectivecorporatetaxrateof5%

Government subsidies and investments

Investments in Education• TheDutchgovernmenthasfundedcoursesinmanycollegesondesigninggames.Infact,thereare10colleges

with an estimated 45 course related to video game development

Subsidies and direct investments • TheEuropeanUnion,national,provincialandlocalgovernmentareputting€4mintostimulatingthe

development of games industries in Utrecht• Othercitygovernmentshaveschemesthatsupportstartupcompanies;forexamplebyhelpingthemfindoffice

space at reasonable costs

There are several governmental initiatives which have helped foster a positive environment for start-up games companies in the Netherlands

Source: News reports, Deloitte analysis

30

Key Challenges

Locational disadvantage• LimitednumberoftechVCsfirmsinEurope• DistancefromtheHQsofmajorgamescompanies

Business model• Mostgamescompaniesaresmallandshowlimited

cooperation• SeveralNLGamescompanieshaveaweakbusinessmodel

Production Costs• HighwageratesinNLcreateadisadvantagecomparedto

low wage countries

Limited National Focus• Toomanycitieshaveindependentinitiativestosupportthe

sector and there is no clear national policy

Major Strengths

Strong Infrastructure• Highbroadbandpenetration• Increasingsmartphonepenetration• WellconnectedwithrestofEurope

Educated and skilled workforce• Availabilityofaskilledworkforcewithanestimated45

courses linked to video games

Testing Ground• Audienceinterestedintryingnewgames• LargeEnglishspeakingpopulation;hitgamescaneasily

move internationally

Supportive Government• Governmentwillingtoinvestininnovation• Cooperativetaxregulationforforeigncompanies,tax

support for small start-ups

Access to VC firms is a key challenge, but strengths like infrastructure, workforce, and government policies make the industry well placed for growth

Dutchlocal gamecompanies



Six steps towards increased growth for Dutch Game companies

1. Be innovative To be successful, developers must continue to develop new, exciting and innovative concepts

2. Create a sound business model CompanieswhichbalancecreativeoutputwithasoundbusinessmodelsucceedinattractingVCfunding

3. Collaborate to create scale Small local players can work together while negotiating with global publishers. They can also cooperate to benefit from scale advantages on finance, costs, tooling and knowledge exchange

4. Leverage country advantages Highbroadbandpenetration,increasedsmartphoneusage and a games community that is willing to experiment make the Netherlands a great testing ground for new concepts

5. Work your strengths The highly skilled but high cost workforce should concentrateonhighvaluework.Outsourcinglow value work to low wage countries should be considered whenever manageable

6. Create national focus Despite being a small country, multiple Dutch cities claim to be hubs for game development. It would be better to focus resources to create a few centers

In order to succeed, Dutch game companies need to improve their business models and increase their level of collaboration to create scale advantages


32

Deloitte:Daan Witteveen [email protected] +31 (0)6 5585 3436+31 (0)88 288 0236

Dutch Games Association:JurrieHobersDutchGamesAssociationjurrie.hobers@dutchgamesassociation.nl+31 (0)6 2454 1558

On Deloitte:Deloitte member firms offer clients a broad range of audit, consulting, financial advisory, risk management andtaxservices.Ourclientserviceteamshelpcreatepowerful business solutions for organizations operating anywhere in the world. This integrated approach combines insight and innovation from multiple disciplines with business knowledge and industry expertise to help our clients exceed their expectations.

Deloitte’s Online Business Innovation group has deep expertise in the impact of digital channels on a company’s business model and value chain. We use measurable and innovative strategies to grow businesses through digital channels.

DeloitteOnlineBusinessInnovation-Create,implementand protect your online business

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Console Hardware: Includes console and peripheral sales

Console Software: Excludes pre-owned and rental markets. Includes an estimation of downloadable content(DLC)revenuesaswellasportableconsoledevicessuchasPSP,NDS(i).

PC Gaming: IncludesBoxedaswellasDownloadedgamesbutdoesnotincludepaidMMOclientdownloads or paid premium downloads from casual game portals. These revenues are attributed to the individual categories. Excludes pre-owned and rental marketsbutconsidersdownloadedPCgames.

Casual game portals: OnlinecasualgamingdestinationssuchasPogo,Miniclip,Zylom,Gameduell,King.com.

Mobile devices: AllmobilephonesplusdevicesliketheiPodTouch&iPad

MMOs: MassivelyMultiplayerOnlinegamesplayedonPCorMac,browserorclient-based.Includesvirtualworlds.

Social networks: GamesplayedwithinsocialnetworkssuchasHyves,Facebook,MySpace,Hi5,VZNetworks,Orkut.

Definitions

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© 2011 Deloitte The Netherlands

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