The video games segment comprises consumer spending on video games software and services (not hardware or devices), including both traditional and social/casual gaming, as well as revenue from advertising via video games. All sub-categories are exclusive of each other.
Traditional gaming includes revenues associated with PCs and games consoles (both TV-connected and portable). This covers physical (disc-based) game sales at retail (both bricks-and-mortar and online retailers), digital game sales (including Steam, Good Old Games and Origin for PCs, and the PlayStation Store and Xbox Games Store for consoles), and additional downloadable content (DLC) and subscription services. Traditional gaming also includes online/microtransaction revenue associated with free to play multiplayer online games but does not include spending on social and casual browser games.
Social/casual gaming includes consumer spending on and in app-based games on tablets and mobile phones, and browser games aimed at casual users. This includes revenues associated with the purchase of social and casual game apps, subscription services for social and casual games, and purchase of virtual items within social and casual games. This also includes revenues associated with "hardcore" mobile games (e.g. Infinity Blade 2).
Video games advertising revenue includes only static advertising in video games. It does not include dynamic advertising inserted into or displayed alongside the game in an app or browser during play.
The Swiss Video Games Market
Penetration of electronic equipment, smartphones and tablets, as well as internet connectivity of households, is important when it comes to video games. In all of these, Switzerland is among the world leaders. PCs and TVs are most everywhere, and smartphone and tablet penetrations have risen to 78 per cent (+9 percentage points since 2014) and 48 per cent (+11 percentage points 2014) respectively. Almost nine of ten households are connected to the WWW, and in households where the primary breadwinner is younger than 54, it’s ten out of ten. Switzerland’s Internet is being enlarged and improved, as many cities and also rural areas switch to fibre-to-the-home (FTTH) infrastructure to further enhance the internet speed. This creates new possibilities especially for online and browser-based gaming.
All this, combined with a high per capita income, sets a fruitful playground for video gaming in Switzerland. Video Games grew around 2.9 per cent (CAGR) between 2011 and end 2015 reaching total revenue of around CHF 395 million in 2015.
The Swiss Video Games market has experienced rising interest in recent years, and the segment is expected to stay in the spotlight. Not only have sales and customer numbers climbed, Switzerland’s politicians, regulators as well as public initiatives target the innovative and tech-based industry. This is about technological progress, and also refers to novel business models.
Gamification is a key trend, describing how other industries connect their services with gaming to attract customers by using games as an enabling and motivating instrument. For example, virtual reality (VR) gaming is incorporated in training machines, to enhance the fun of exercising. Augmented reality (AR) games (e.g. Pokémon GO) are being used to attract tourists: for instance, Pokémon are placed on mountain tops. VR and AR are the top trends in the gaming industry; they have the power to change the Video Games segment fundamentally.
Swiss video game makers are “indie” players with a low international profile. Few of their games have achieved global resonance. One of the few is the very successful ‘Farming Simulator’ of Zurich-based Giants Software, which is ranked among the world’s top sellers for several years now. Overall, Switzerland is still a minor player in the global market. Pro Helvetica officially supports game makers, with its programme game-culture.ch. The Swiss game developer/design scene has grown within the last years to almost 60 companies.
Traditional gaming on consoles and PCs still dominates the market in absolute terms. Consumer spending here has increased at 1.4 per cent CAGR between 2011 and end 2015, with a total of CHF 309 million in 2015. Sales of physical games are declining, falling by 8.0 per cent CAGR for PC games between 2011 and 2015 and 5.9 per cent CAGR in the same period for console games. This is no surprise, given similar developments in music and video. There the change to the online retail is even more advanced. The trend will continue over the next 5 years, however at a slower pace.
Traditional gaming is expected to change fundamentally with further progress of VR. Never before has it been possible to experience and dive into another world so completely. VR technology will create totally new experiences and new games. Together with the sales of equipment, this will stimulate traditional gaming.
Social and casual gaming constitutes around 13 per cent of the total video gaming market in 2015 in Switzerland. With 10.1 per cent CAGR, social and casual gaming outperformed the traditional gaming segment between 2011 and 2015 in terms of growth, with app-based games providing to largest contribution. Social/casual gaming revenues are rather small compared to the traditional gaming, but its growth over the next 5 years will outperform other types due to the penetration of technological progress such as augmented reality. VR and AR will allow creation of new business models (in connection with non-video-gaming industries), and this “spill-over” will become monetarized.
Advertising in video games is still relatively modest. With new technologies such as AR advertising will become more interesting, as new customers can be reached by such games.
Large Swiss telecom companies also are entering the market. Swisscom announced in September 2015 to connect a gaming feature to its next generation TV-box. Swisscom’s clients would only need an additional controller to play the offered web-based games. UPC supports E-Sport and is supporting the first professional e-sports team in Switzerland. E-Sport is a growing part of gaming, attracting ever more audiences that make it interesting for advertisers.
Globally, Video Games is expected to reach CHF 86 billion in 2020. Growth is pegged at 4.8 per cent CAGR between 2015 and 2020. Advertising and social/casual gaming will dominate the growth, yet traditional gaming still has the largest market share. Physical sales continue to decline: revenues are expected to drop by 5.6 CAGR between 2015 and 2020.
Swiss Video Games are expected to grow just below 4.4 per cent CAGR (2015-2020). Differences between sub-segments are remarkable. Advertising as well as social/casual gaming will outperform traditional gaming segment in terms of growth. Digital sales (of all types) will grow in double digits, physical sales will decline. This development in general is not surprising, since other industries (e.g. music, film, literature) are facing similar trends. Spending on social/casual games is expected to grow more than 57 per cent CAGR from 2015-2020. Online spending in the traditional gaming segment is expected to grow by 13 per cent CAGR in the console segment from 2015-2020. PC games will in general lose market share. Overall consumer spending on video games is expected to reach CHF 500 million by 2020 in Switzerland. Even a bigger market can be created by firms that successfully enter and with the right partner strategy and unlock the huge potential of spill-over into other industries.
In general, the Swiss video games market is very fragmented. Only a few players have an international profile (bit forge, Giants Software, Miniclip, Nothing agency). The most important players are:
Organisations and Institutions: Pro Helvetica supports the industry with its online platform game-culture.ch, where hot topics in the game industry can be found as well as a directory of active companies. Its content is prepared jointly with Zurich University of the Arts (ZHDK), Zurich University of Applied Sciences (ZHAW), the International Game Developers Association, Swiss Chapter (IGDA) and the Swiss Gamers Network (SGN). Pro Helvetica also organises the Swiss presence at international gaming conferences.
Developers: Game developers and designers in Switzerland have enjoyed increasing government and media attention lately. There are around 60 small to very small companies mostly located around Zurich. They often offer integrated solutions, in which gaming is only a component. Game development is expensive and risky, and competition is aggressive, so Swiss investors are still reluctant to fund video game makers. Their reluctance may recede, as the see some international developers opening offices in Switzerland, and as they realise interesting connections of gaming with other industries.
Telecommunication firms: UPC as well as Swisscom are entering or have already entered the Swiss Video Games Market. UPC has been very active in promoting gaming as an e-sport and supports a professional gaming team. With a series of reports, UPC also offers insights into the gaming industry. Swisscom has published plans to incorporate a gaming-function in the next generation of TV-boxes. The incorporated game-function enables to play web-based games. To be able to offer these games, Swisscom has entered a partnership with Gamefly, the largest Game-on-Demand Company in the USA.
Multinational Firms: International giants still dominate traditional video gaming, due to the high resources needed for games and consoles development in this segment. The majority share of the video games market is now held by China’s Tencent, the world’s biggest game development company.
As Internet bandwidth increases, cloud gaming became more possible. It is already integrated in many consoles, and it is creating new opportunities, especially for AR and VR.
The technological innovations from gaming will generate new business models and monetisation opportunities in corporation with other industries. These “spill-over” effects will help the gaming industry to monetise their technologies and services.
Video games are attracting a broader customer base, particularly older generations and women. So-called ‘Silver Gamers’ are usually not seeking a high-speed action game, but rather a strategic puzzle or a classic board or card game. Their connectivity is rising: most own a computer, and their use of smartphones and tablets is increasing. As opposed to classic (young male) gamers, the Silver Gamer is usually well-to-do, and doesn’t mind in-game purchases. The second group on which focus should be placed are female gamers. Most video games very openly address a male audience. Makers and distributors may need to adapt, to avoid scaring away a huge, potential client base.
The new image of gaming and the perception of gaming as e-sport open new opportunities. Gaming is becoming trendy and even mainstream with a growing number of customers. This is in part due to a Swiss innovation: AirConsole, a web-based platform that connects smartphones as controllers. Games can be played on a screen and each player uses a smartphone to play. AirConsole, under development at the University of Art Zurich (ZHdK) is meant to bridge traditional gaming and social/Casual gaming by bringing app-and web-based local multiplayer games on a TV screen.
Media interest contributes to the new optimized image of gaming. This is pushing the industry and raising government interest in the gaming industry – which has resulted in funding for the ZHdK initiative. The gaming industry depends on experts. The further development and funding of university programs (e.g. game design at ZHdK) is the most urgent need of the industry to grow and therefore one of the most important drivers in the next years.
Video Games is innovative and successful, especially in VR and AR. Not only from a technically, but also as a business model. In terms of technical progress, two developments have dominated in 2016: Virtual reality (VR) and Augmented Reality (AR). While VR creates a completely new artificial environment, AR expands the existing user environment by integrating digital information in real time.
VR opens countless new opportunities for gaming and will change the gaming experience fundamentally. Especially in traditional gaming, players often have the intention to dive into a new world. VR creates imaginary worlds that attract gamers of every age. VR also creates spill-over effects to other industries. Gaming in connection with a training machine (e.g. ICAROS) will be followed by other applications. The demand for such games is obvious; however the obstacles of the high equipment prices (e.g. VR glasses) are still too high in order to reach a large consumer group today.
AR has become a key topic in the media, and it will stay there. AR enlarges the real environment with digital objects. This technology is successfully used in games such as Pokémon Go, and it has the advantage of not needing extra equipment (other than a smartphone) to use it. No special glasses are needed, and users still spend the majority of the time in the real world.
AR can reach a far bigger group than VR, which makes AR interesting for other industries. Restaurants can enlarge their real environment, with digital-things from AR games. Tourist attractions can place AR game-items at special places in order to attract tourists. Tourism can even use countries as real board-games, potentially influencing the tourist movements within a country. AR also creates an opportunity for in-game advertising thanks to masses it can reach. AR allows new business models that are not limited to gaming, but instead connect different industries. Therefore, gaming has the potential to act as a connector of so far mostly separated industries. This creates opportunities to monetarize products and services (e.g. selling AR components to stores in order to attract customers). The technology for augmented reality will continuously improve and be adapted for other applications.
Comparison to Western Europe
Switzerland accounts for around 2.5 per cent of Western Europe’s Video Games segment in 2015. This number is not very high, however, when taking into account that the population in Switzerland accounts for around 2 per cent of Western Europe’s population, consumer spending in Switzerland is among the highest in Western Europe. Per capita video game spending in Switzerland was CHF 43, comparable to France (CHF 45) and Finland (CHF 43) and in the upper third of all countries. The highest spending per capita is in the UK (CHF 80) and Ireland (CHF 55). Greece (CHF 9) shows by far the lowest spending per capita.
Switzerland’s Video Games segment is expected to grow at 4.4 per cent CAGR between 2015 and 2020, well above Western Europe’s growth of 3.1 per cent CAGR. Trends in sub-categories, such as physical game sales, have similar patterns in Switzerland as in the rest of Western Europe.