Global Consulting Challenge 2011 - Berkeley Submission

1

Looking East

2

EA Play in China - Roadmap

Chinese Market -

Opportunity Size

Business Strategy

Tactical Considerations

Implementation Plan

Tracking Success

3

Online gaming in China is $6B large, growing

at 18% y-o-y

Source: IDC, 2009, “China gaming market 2009-2013 Forecast and Analysis

4

in game MTX

social network payment gateway

portal MTX

internet

mobile

operators

game

portals/cloud

personal

computer

smart

phone

The Online Gaming Ecosystem

source: Venice Blvd Analysis

5

So Lo Mo Social Local Mobile

source: © KPCB, Murphy, Meeker, 2011 top 10 mobile trends

So-Lo-Mo: The Road Ahead

cost of

implementation

fin

an

cia

l re

turn

Enter via shell

company

Revenue share with

local company; Launch

on multiple social

networks/online

gaming websites

Exclusive partnership

with social network


Three Options For Entry In China

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Shanda .. The perfect partner?

source: IDC, “Asia/Pacific Online Gaming Market 2009 - 2013 Forecast and Analysis”

Gaming Publishers in China

• Strong Brand (#1 online gaming operator)

• Excellent R&D capabilities

• Diverse game groups & huge user clusters

• Solid Financials

• Good working relationship w/

Government

• Partnerships w/ other online gaming

companies


8

Source: Team Venice Blvd. Analysis

Business Model:

Free to play, MTX, Ad-Supported

Game Operator/Platform Provider

End User

free to

play

micro

transactions

product

placements

Free ad-

supported

Sponsors


9

source: BloggerInsight, China’s top 10 Social Games

“So”-cial Networks:

PengYou (Qzone) and RenRen

10

Source: EA Presentation on SIMS

Q. Why PengYou and RenRen?

A. Demographics Match!

Over 50% gamers between 16 to 35 Over-representation of 18-

34 in and RenRen

PengYou and RenRen

demographic Sims Demographic

55-64

45-54

35-44

25-34

18-24

Peng you Representation Ren Ren Representation

source: BloggerInsight, China’s top 10 Social Games

11

The “Lo” element – Go Local

eastern

styles for

characters

eastern

lifestyle in

games

local

language,

jargon,

architecture

localize

virtual goods


12

Gamify Localized Sims and SimCity

Localized Gamification: Endless Opportunities

1. Gamer wants a Coach

bag for her Sims

Character

2. Gets a “clue” to

visit local Coach

store

3. Finds the bag

4. Scans barcode with

phone & “wins” virtual bag

in SIMS


13

The “Mo”-bile Treasure Cove

source: iResearch Inc., 2010

Active Mobile Game Players and Market Scale of China’s Mobile Phone Game

Over 30M active users by 2012 and 6B RMB

0

5

10

15

20

25

30

35

2007 2008 2009 2010 e 2011 e 2012 e

¥0

¥10

¥20

¥30

¥40

¥50

¥60

¥70

Mobile Gamer Active Accounts (m) Market Size (100m)

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MobiMinTransactions (MMTX)

Mobile Gamer buys

prepaid card from

China Mobile

Wants a new villa in

SimCity

Pays for the Villa

with his minutes

More money for China

Mobile and EA


15

Massive popularity of telecom providers’ App

Stores

Direct contribution of mobile gaming to

telecom’s top line

source: iResearch Inc., 2010, http://www.iresearch.com.cn/View/131930.html

Partnering with Telecom Providers

http://www.iresearch.com.cn/View/131930.html


Implementation Plan: Project Timeline

Strategic Partnership with Shanda

Partnership with Telco

Targeted Marketing & Community Development

Customize SIMs & SimCity for So-Mo Platforms

Launch on Social Network, Shanda Online & Mobile App

Store Analytics

New Virtual Goods, Adventures, Worlds

17

Payback

Financial Projections: First year discounted

revenues would payback costs


$18M Projected NPV and 89% IRR

Refer to: Financial

Analysis

18

Appendix

19

How does this strategy address the

inherent risks in China? Intellectual Property

Risks

• Free-to-play through

online game providers

and Social Networks

ensures centralized

distribution

• Prevents parallel

ecosystem of virtual

goods from developing

Policy Risks

• Shanda’s strong relationships with the government

• Local partnership means superior understanding of navigating through policy and legal hurdles

Industry Risks

• SIMS and SimCity’s intellectual property and engaging game-play prevent them from being subjected to short life cycles

• Intense competition, but the strength of brands’ and loyalty can ensure ‘stickiness’ of the gamer


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Financial Analysis Assumptions

Cost to expand in China 10.32 m

Projected Revenue in China per year 171 m

Projected Net Income

% of Revenue Amount

Projected Revenue 171

Partnerships 30% 51.31

COGS 20% 34.20

Marketing and sales 20% 34.20

G&A 9% 15.39

R&D 11% 19.38

Profits 16.53

Revenues and Costs over 3 years

Year 0 Year 1 Year 2 Year 3

Revenues 0 85.51 128 171

Costs 10.32 76.96 115 154

Discounted Revenues and Costs

Discount factor 1.00 1.00 0.83 0.75

Year 0 Year 1 Year 2 Year 3

Discounted revenues 0 85.51 106 128

Discounted Costs 10.32 76.96 95 116

Capital Budgeting

Year 0 Year 1 Year 2 Year 3 NPV IRR

Cash flows -10.32 8.27 12.40 16.53 $18.06 89%

Source: Team Venice Blvd. Analysis

Refer to: Financial

Analysis

21

Revenue Projection

“ The China online gaming

industry's concentration is

increasing every day. In 2008,

there were over 140 operators

with 365 games in the market

but the revenue of the 10

leading operators accounted

for 90.2%. “- EA Answers

Global Consulting Challenge 2011 - Berkeley Submission

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