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Media Industries Log 3 - 07/12/2005 Teacher: Nick Baxtor Seminar: Tuesday 8-9 The Gaming Industry Work Title: Ubisoft and the Canadian Intelligence By: Peter Packroff


Introduction

This log will examine the computer gaming industry, and focus on Ubisoft, one of the world’s biggest computer game developers, which has placed its head quarters in Montreal.

In recent years the gaming industry has experienced a massive growth. It has not only become part of other media industries, such as using cross over marketing with the film industry, but in fact, the gaming industry is today so powerful, that computer games are now adapted to the screens, and are no longer only being “follow ups� on screen successes. Examples are Tomb Raider, Resident Evil, and soon the game Halo will be released on screen, alongside with the Danish produced Hitman.

The essay will look into the structure of the gaming industry, and should determine, why it is so important for Canada, to ride on the wave of computer game developing.

The opportunities

This continuing expanding entertainment industry is unique: It is a new industry, which works relatively independently from major media giants e.g. like Warner Brothers, and can still develop to become even more independent.

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Today, it is still possible for even small nations and companies to produce quality games. The Danish company IO Interactive, which is the producer of the bestseller, Hitman, was sold to UK based Eidos, 2 years ago for the considerable amount of ÂŁ23 million1.

Another example of small actors in the market is e.g. German based Crytek 2, which has produced the main engine to power the intelligence of the successful game “FarCry�, produced by Ubisoft. This shows us that small companies, can globally produce parts of a computer game, exactly as in the car industry, where some assembly plants only concentrate on a specific car-part.

Characteristics of the market

The gaming industry must be the best example of a new industry developed in a post- internet environment. In contradiction to the film and music industry, there is no market for national games. All computer games on the market distributed and sold world wide. The vast of all games are produced in English, and some have translated (Submenus etc.) in e.g. Japanese, German, Spanish and French. Looking closer into the composition of Ubisoft, it is revealed that it has offices around the globe. Using the Internet, the companies are making use of a network structure, and can thereby gain access to the needed qualified staff around the world, which the industry is lacking from.

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The explosion

While the computer gaming industry has exploded, the national statistics have not yet moved forward, and made separate statistics on consumption of the gaming industry, and includes the genre as under books, TV and video entertainment. But the sales statistics speak for them selves: In 2001, the U.S. consumers spent $633.6 million on renting video games (including PC software) 3. Ubisoft states in their annual report that (on the industry): “In 2004, the videogame industry brought in $25 billion, as much as the film industry; it even overtook the latter in the United States, where it is also closing in on the music industry. Nevertheless, its success is closely linked to that of the movie industry: between 2001 and 2003, 57% of the sales in the USA of major videogame publishers came from licenses, particularly those from films.”

But not only the console (videogames), experience a massive growth: Infotechtrends Market Research presumes there will be shipped 111.4 million computers in USA alone in 2008 4. The sale of high-end graphic cards is also exploding, as more pc users want the best possible performance.

According to Eidos: “The entertainment software industry continues to grow at a rapid pace, gain mainstream acceptance and eclipse other more traditional forms of entertainment such as cinema, video and DVD rental” 5.

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Ubisoft

The Montreal based Ubisoft is one of the biggest actors on the market. It employs 2300 experienced professionals worldwide, where 1100 are Canadians (23% female). In order to avoid qualified staff defection, Ubisoft focuses not only on cheap production, but puts a lot of effort in training its staff: “The Ubisoft Campus in Montreal is a unique initiative providing ongoing training year-round to people from all the company’s studios around the world. It has a two-fold mission: provide the necessary educational foundation for future professionals of the videogame industry, and guarantee that Ubisoft’s production teams are equipped with the necessary skills to succeed in their chosen careers”. (Annual report)

Though Ubisoft has been on the market since 1986, its brand has not been recognized like one of the first actors such as “Sierra”, which produced games to e.g. the early Sega console, or, as EA games, which is the biggest producer and is using an aggressive marketing approach. One of Ubisoft’s key-points in their annual statement is the mission of “strengthening of Ubisoft’s label”. Ubisoft is fighting for recognition, and to gain a stronger positioning in the aggressive market, against the other big actors, which are:

Name:

Est.:

Sierra 6

1979

EA Games 7

1982

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Ubisoft 8

1986

ID Software 9 1991 Activison 10

1997

Valve 11

1999

Crytek 12

1999

Eidos 13

?

The above companies also experience the massive growth: Valve, behind the game “Counter Strike” has a portfolio of titles which “accounts for over 18 million retail units sold worldwide, and Valve games account for over 88% of the PC online action market”.

Ubisoft has experienced a growth of 150% from 2001 to 2004 14. “For the 2005/2006 fiscal year, we project growth of 12% at constant exchange rates, and a positive cash flow in excess of €40 million, which will build on the over €50 million in cash flow that we managed to achieve this past year. This will allow us to invest an additional €25 million in our studios, while continuing to improve our financial ratios. Furthermore, operating income is expected to be over €55 million, and net income above €38 million”. (Ubisoft’s Annual Report – available on above link)

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The future and challenges

Ubisoft is very optimistic about the future. Their annual report states that they “…plan to double worldwide revenue and triple profits by 2010, and our production force should exceed 4,000 talents in the next four years as well”.

Ubisoft points out the new generation gaming consoles as their new main focus: PS3, Xbox2, GameCube and PSP *. In contrast to the PC- gaming market, which is open for all producers, the above mentioned actors have licenses to their own source codes (required to be played on their devises). This means that e.g. Sony can create these exclusivity agreements, and thereby push out the competitors, and which is much more profitable, and easier to manage, than the PC market, which calls on more competition.

When the first FarCry game was released by Ubisoft, it revolutionized the gaming world, and gained millions of fans, using the PC platform. However, FarCry 2 (Instincts) is only released for Xbox, and there has been no announcement made if they plan to release the game for PC.

As for the first versions of Hitman (before the company was sold), FarCry was not marketed aggressively. The vast majority of PC users have the strategic advantage of Internet access. And the most 1person shooters’ gamers are to some extent part of a culture, and have a network (in extended version, when they play online). This works

**

Sony’s Playstation3, Nintendo’s GameCube, Microsoft’s Xbox

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as a great distribution channel. Word to word (email to email) has made these games sell million copies world wide, with very little advertising needed. When Ubisoft launched FarCry2 there must have been a lot of money involved in the exclusivity agreement, in order to opt out the marketing free of charge, as many PC users would have obtained all necessary information through Internet sources. However, their strategy must have been to create an up-selling of Microsoft’s Xbox, using their good name, which was followed up by a massive marketing campaign, in order to urge gamers to purchase an Xbox, and to hit another “non- pc nerd market”. Ubisoft was probably given an ultimatum, and had to chose between the two, and found Microsoft’s offer most attractive.

Essay Statement

Weather the consumers go the PC way or the consul way, Nicholas Negroponte claims 15 : "We are not waiting on any invention. It is here. It is now. It is almost genetic in its nature, in that each generation will become more digital than the proceeding one. The control bits of that digital future are more than ever before in the hands of the young. Nothing could make me happier." If this statement speaks true, which all figures suggest so far, the future is the gaming industry. Canada based companies, Ubisoft and ATI16, work in alliance together through recommendation, product development and promotional strategies, for example:

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bundling Ubosoft games with ATI graphic cards and advertising ATI’s logo in the form of product placement. ATI is the leading producer of graphic cards and currently employ 2500 staff. The professional relationship between two Canada based companies shows us how software and hardware companies interact.

With reference to the previous example of smaller companies producing game engines, it is possible for independent productions to take over the film industry, as a matter of Computer Animated films as e.g. the Invisibles, and computer generated special effects in e.g. Lord of the Rings, tell us that there are a lot of job opportunities in programming.

The essay has shown how also small independent companies can do well in this industry. For example, it was a middle-aged Danish professor, who designed the 3D program, which was used to produce Gollum in Lord of the Rings, and for which he won an Oscar for best visual effect 17.

Today, there are no electronic industries which do not to some extent depend on programmers. Therefore, supporting the gaming industry can benefit the entire national industry, and will be an investment in a long-term business. Computer programming, unlike most other industries, cannot yet be moved to less developed countries, due to the high level of education required.

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All links last accessed and verified the 06/12/2005 1 2

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http://www.egmont.com/Egmont/en/Press/PressReleases/IOInteractivesoldtoEidos.htm http://www.crytek.com/inside_crytek/index.php?s=co1999 http://retailindustry.about.com/cs/sales_categories/l/bl_vsda071502.htmntals

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http://www.infotechtrends.com/marketresearch.htm http://corporate.eidos.co.uk/eidos/games/index.jsp 6 http://www.sierra.com 7 http://www.ea.com/index.jsp 8 http://www.ubisoftgroup.com/Home/Default.aspx?cpid=37&lang=en-US 9 http://www.idsoftware.com/ 10 http://investor.activision.com/background.cfm 11 http://www.valvesoftware.com/privacy.htm 12 http://www.crytek.com/inside_crytek/index.php?s=co1999 13 http://www.eidosinteractive.com/corporate/index.html 14 http://www.ubisoftgroup.com/Downloads/Info.aspx?dlId=667 15 http://www.media-awareness.ca/english/resources/research_documents/studies/video_games/ video_game_culture.cfm 16 http://downloads.guru3d.com/downloadget.php?id=921&file=1&evp=9051e6c173d1b634512357843 a90789b 17 http://news.bbc.co.uk/1/hi/entertainment/film/3433895.stm 5

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