SPRING 2013 CONSUMER VIDEO GAME SURVEY

We recently conducted a survey of over 700 video game consumers in an attempt to gauge awareness and purchase intentions for hardware, software, and peripherals through 2013 and into the release of next-gen consoles. If our previous surveys are any indication, the responses from our participants are a strong directional indicator of upcoming trends within the video game space.

Consumer Awareness of Upcoming Software Titles

Our first question was an attempt to gauge consumer awareness of 59 upcoming video games expected in 2013/2014. We simply asked consumers to identify which games they had previously heard of. For the first time, Grand Theft Auto V led the pack, with 92% awareness among consumers. While the GTA franchise is among the best known in video games and GTA V is one of the most long-awaited games that we can remember. This is actually the first time that we have conducted our survey since GTA V was officially announced, th with an actual release date (September 17 ) and multiple official trailers. With such an increased profile, it is no surprise that we have seen an increase in the awareness surrounding the game, despite the fact that we are in the early stages of what we anticipated to be a broad marketing campaign. What was somewhat surprising, however, is the fact that Bioshock Infinite also registered ~90% awareness among our survey respondents, good enough for the #2 overall slot. Filling out the top five games were Ubisofts Assassins Creed IV: Black Flag with 89% awareness, EAs SimCity reboot with 77% awareness (with about half of th the survey conducted ahead of the March 4 release), and Square Enixs Tomb Raider reboot. The following chart depicts the top fifteen games ranked in terms of consumer awareness. Top Fifteen Upcoming Games Consumer Awareness
100% 90% 80%

(% respondents)

70% 60%

Assassin's Creed IV: Black Flag

Gears of War: Judgment

The Elder Scrolls Online

God of War: Ascension

40%

South Park: The Stick of Truth

50%

10% 0%

As always, the responses we received to this question underscore the importance of sequels in the video game market. However, whereas the top fifteen list is typically reserved for sequels to previously successful games, new IP represented three of the top fifteen. This is a trend we will discuss in depth later.

SimCity

Watch Dogs

20%

Call of Duty 2013

BioShock Infinite

30%

Dead Island: Riptide

Grand Theft Auto V

The Last of Us

Pokemon X/Y

Tomb Raider

Battlefield 4

Upcoming Software Purchase Intentions

Our second question asked consumers which of the same 59 games they planned to own, on a scale of one (would most like to own) to five (would like to own, but lowest priority), respondents were also given the option of answering N/A if they were unaware of a game or had no interest in owning it. The chart below illustrates which games ranked highest when we counted only the most desired responses, whereas the bottom chart illustrates the ranking based on our weighted scoring system. In our scoring system, we awarded games five points for each response of most like to own and one fewer point for each progressively lower response (ie. four points for a response of two, three points for a response of three, etc.). Top 15 Purchase Intentions Most Desired Only
250

"Most Desired" Upcoming Releases

200

(# respondents)

150

Assassin's Creed IV: Black Flag

South Park: The Stick of Truth

100

Super Smash Bros. Next

The Elder Scrolls Online

Grand Theft Auto V

Metal Gear Solid Ground Zeroes

BioShock Infinite

Pokemon X/Y

50

Battlefield 4

Destiny

Call of Duty 2013

The Last of Us

Tomb Raider

Dragon Age 3: Inquisition

Watch Dogs

Top 15 Purchase Intentions Weighted Score

2000 1800 1600 1400
(points)

"Weighted Score" of Most Desired Games

1200
Assassin's Creed IV: Black Flag

1000 800
Grand Theft Auto V

South Park: The Stick of Truth

Call of Duty 2013

The Last of Us

400 200 0

Most Desired (1)

(2)

Destiny

(3)

(4)

(5)

Grand Theft Auto V finds itself at the top of the heap in terms of most wanted games, successfully translating a high level of awareness into real purchase intentions. We believe this to be a resounding answer to two questions we have continually gotten with regards to Grand Theft Auto in recent months and over the years: (1) whether or not the five year layoff has had an impact on the appeal of Grand Theft Auto and the draw of the brand, and (2) whether or not the recent attention paid to violent video games in the wake of the Sandy Hook tragedy has suppressed interest in a game like GTA V. In both cases, the above results suggest that the answer to both questions is a resounding no. Another Take-Two title, Bioshock Infinite, was the second most wanted game of the 59 we queried, both in terms of total most desired selections and in terms of our weighted average score. Although we believe that the sales opportunity for Bioshock Infinite represents a small fraction of that for Grand Theft Auto V, the mere fact that the game is so high on the list suggests that this could be the breakout year for this up and coming franchise. Rounding out the top five most wanted games were Ubisofts Assassins Creed IV: Black Flag, Ubisofts Watch Dogs and EAs Battlefield 4. We would note that while Battlefield 4 was in fifth place, that it and Call of Duty (at #10) were the only games on the list that have not been officially announced yet. We would expect both games to move up the list once they begin to be marketed (rumor is that we will see the official announcement and the first Battlefield 4 trailer next week), but it is also noteworthy that Battlefield outscored Call of Duty among the two premier military shooters. We were particularly impressed by the performance of the new franchises on the list, notably Watch Dogs at #4, Sonys The Last of Us at #7, Activisions Destiny at #8, and Southpark: the Stick of Truth at #12. Sequel games simply have a much easier time attracting attention and generating sales than brand new IP, and given the increasing break-even levels (we estimate about 2M units) of a front-line title, sequels are seen by publishers as much more compelling risk/reward propositions. As the current generation of consoles approaches eight years in age and we get closer and closer into the next generation of consoles, there is clearly a renewed interest in new franchises. We believe this is a healthy trend for

Pokemon X/Y

Star Wars: 1313

600

BioShock Infinite

Watch Dogs

Battlefield 4

Gears of War: Judgment

The Elder Scrolls Online

Super Smash Bros. Next

Tomb Raider

the industry and is indicative of the opportunity for those publishers that are able to innovate heading into nextgen. When we look at these results through the lens of our covered publishers, we believe there are (sometimes isolated) reasons for optimism for each of the publishers, although we believe the data is most positive for TakeTwo followed by EA and Activision.
Consumer Survey Results: Most Desired Upcoming Games by Publisher Title Release Date % Aware Plans to Buy Rank Destiny TBA 43% 8 Call of Duty 2013 TBA 56% 10 The Walking Dead: Survival Instinct 3/19/2013 48% 16 Deadpool TBA 47% 18 StarCraft II: Heart of the Swarm 3/12/2013 42% 31 StarCraft II: Legacy of the Void TBA 29% 38 Skylanders: Swap Force TBA 18% 59 Battlefield 4 TBA 71% 5 Dragon Age 3: Inquisition TBA 40% 19 SimCity 3/5/2013 77% 22 FIFA 14 Sep-13 46% 39 Madden NFL 25 8/27/2013 47% 40 Army of Two: The Devil's Cartel 3/26/2013 45% 45 NCAA Football 14 Jul-13 32% 51 Fuse TBA 12% 58 Grand Theft Auto V 9/17/2013 92% 1 BioShock Infinite 3/26/2013 90% 2 XCOM TBA 51% 24 Mafia III TBA 26% 32 NBA 2K14 Oct-13 36% 50 WWE 14 TBA 22% 53 Agent TBA 11% 56

Publisher Activision Activision Activision Activision Activision Activision Activision Electronic Arts Electronic Arts Electronic Arts Electronic Arts Electronic Arts Electronic Arts Electronic Arts Electronic Arts Take-Two Take-Two Take-Two Take-Two Take-Two Take-Two Take-Two

Take-Two Interactive
For the third consecutive survey, Take-Two was the big winner, with this rounds results nicely encapsulating our buy thesis on the name. Take-Two boasts the top two most wanted games in Grand Theft Auto V and Bioshock Infinite. While BioShock: Infinite was #2 in terms of plans to buy for the second consecutive survey, Grand Theft Auto V moved from #4 to #1. This can clearly be attributed to the fact that this is actually the first time that we have th conducted our survey since GTA V was officially announced, with an actual release date (September 17 ) and multiple official trailers. With such an increased profile, it is no surprise that we have seen an increase in the awareness surrounding GTA V, despite the fact that we are in the early stages of what we anticipated to be a broad marketing campaign. For quite some time, there have been concerns that the extended wait for Grand Theft Auto V (GTA IV came out in April of 2008) may have dampened the interest in this franchise, once arguably the biggest in the video game world. GTA IV broke all sorts of launch records in 2008, although all of these records have since been topped by multiple Call of Duty games). If our survey results are any indication, GTAs absence has only made gamers more excited to get their hands on the game.

Electronic Arts
Late last summer, EAs upcoming (at the time) games (Medal of Honor: Warfighter, Dead Space 3, Crysis 3) were failing to capture the imaginations and more importantly the purchase intentions of video game consumers. This was of a particular concern given the strong lineup of compelling games in 2011 (Battlefield 3, Star Wars: The Old Republic at #9, Mass Effect 3), which combined proved to be the foundation for the best annual sales total ($4.2B) in company history, and the best earnings performance ($0.85) since prior to the recession. Most notably, Battlefield 3 proved to be one of the most successful titles in EA history, selling a combined total of ~15M units during FY12, shattering all expectations. This time, EA has only one of the top fifteen most wanted titles, but it is Battlefield 4, at #5. We would expect all of the games in our top five to be strong sellers, and while Battlefield 4 was in fifth, it is worth noting that it and Call of Duty (at #10) were the only games on the list that have not been officially announced yet. We would expect both games to move up the list once they begin to be marketed, but it is also noteworthy that Battlefield outscored Call of Duty among the two premier military shooters. Though unlikely at this point, it is possible that Battlefield 4 could give Call of Duty a run for its money this holiday.

Activision
As in our past two surveys, a Call of Duty title was not the #1 title in terms of either awareness or plans to buy, finishing #13 (56% awareness) and #10, respectively. At first glance this would appear to be a very poor showing for the franchise; however this only represents a fall of three spaces in the plans to buy ranking despite the fact that no details have actually been released regarding the franchises next game. To be clear, there is no chance that this years iteration of Call of Duty will be the tenth best selling title this year. In fact, we would be shocked if the game was not among the best selling games of the year (although both GTA V and Battlefield 4 could give CoD a run for its money for the first time in a long time). The fact that a generic Call of Duty title could place in the top 10 reflects the franchises brand power and loyal following. However, given a fall from #1 in most previous surveys to #10 in this survey is likely an indication of some level of Call of Duty fatigue, making it increasingly difficult for this years game to set all-time opening-day and opening-week records. This is especially true given a particularly challenging slate of competitive releases this year. The release of new consoles could prove to be a challenge for this franchise and others as they balance targeting the large installed base of current-gen consoles while not forgetting about next-gen console early adopters expecting a superior version of the game. More importantly, in 2012 Call of Duty: Black Ops II went up against Halo IV and Assassins Creed III, but was spared having to face a truly competitive military FPS as it saw in 2011s Battlefield 3. This years competition could prove to be its most difficult to date with Battlefield 4 set to be released, not to mention the first Grand Theft Auto title in five years, Assassins Creed IV: Black Flag and next-gen titles such as Watch Dogs and ATVIs own Destiny. Destiny may have had the most impressive results among ATVIs titles, debuting at #8 on the plans to buy list despite there being very little known about the game, having been announced very recently. In fact, Destiny placed #24 on the awareness list, meaning the relative few that were aware of the game had a very high interest in it. Once awareness of the title grows we should expect it to move up the plans to buy list. This should be no surprise as it is being developed as the first installment of a trilogy by Bungie, the development team behind all but the most recent Halo titles. If the success of the Xbox-exclusive Halo is anything to go by, a multi-platform trilogy from the same developers has huge potential. Although Skylanders: SWAP Force was way down the list, this is hardly a survey to capture the potential of a game like Skylanders, which is clearly targeted towards young children (of which there were very few among our respondent group). However, this will be the first year a Skylanders game will have competition in the toy/interactive video game market that it pioneered. Disney is set to release its figurine/video game franchise, th Disney Infinity, on August 18 . This would be about two months prior to the expected release date of Skylanders: SWAP Force and would feature much more recognizable characters and brands from the vast Disney universe. In addition, there has been controversy surrounding this years Skylanders game as it is not compatible with the

portals (the peripheral required to read data from the figurines) of the previous two installments, requiring players to buy the more expensive ($15 more) starter pack. Conversely, this is a group that probably does a good job of capturing the relative excitement surrounding a StarCraft II expansion pack, and in this respect, Heart of the Swarm improved slightly concurrent with its launch. StarCraft II: Heart of the Swarm came in #31 in plans to buy, compared with #39 in our October survey and #55 in th our July survey. Having been released on March 12 , we expect this to be another solid PC release from Blizzard.

Anticipation for Next-gen Console Cycle

We next asked consumers about their interest in owning a next-gen console from each of the three major console manufacturers. Clearly, this remains a difficult question to answer, as the Wii U is the only one of the three consoles on the market, with very little known about PlayStation 4 (PS4) and even less known about Microsofts next-gen Xbox (referred to here as Xbox 720) That said, based on what consumers currently know about the Wii U and what they expect from the X720 and PS4, they are much more excited for the latter two consoles. 47% of respondents said they were most interested in owning the X720, 31% said they were most interested in owning the PS4. Consumer Interest in Owning Next-gen Consoles
360 350 340 330 320 310 300 290 280 Xbox 720 Summer 2012 PlayStation 4 Fall 2012 Spring 2013 1 (Most) 0% Xbox 720 2 3 4 5 (Least) PlayStation 4 Unaware/No Interest 20% 10% 40% 30%
Weighted Average Interest Over Time

50%

Spring 2013 Interest Distribution

Versus our October survey, the Most interested responses were up for both PS4 and X720, which in our opinion can be attributed to two factors. First, our October survey was conducted after the somewhat disappointing launch event for Wii U, which at the time may have depressed opinion of all next-gen consoles collectively. More th recently, Sony held an unveiling event for PS4 on February 20 , which we believe increased anticipation and awareness of PS4 and X720. This opinion was supported in one of our follow up questions, as we asked gamers to describe their excitement th level for PS4 as of now compared to before the February 20 event. Respondents were more excited for PS4, postunveiling, 33% of the time, compared to only 12% who were less excited. In addition, we asked them to gauge their excitement for the upcoming slate of video game releases (referenced above) compared to the previous year. A net 22% were more excited for this years slate, up from a net of only 12% in our October survey. We believe this was also influenced by the growing anticipation for new consoles, with several next-gen titles making our top-15.

Anticipation of PS4 and Upcoming Release Slate

60%

PS4 Excitement PostUnveiling

Less Excited 12%

Upcoming Games vs. Previous Year

50% 40%

More Excited 33%

30% 20%

No Change 55%

10% 0% Jan-11 Summer '12 More Excited No Change Fall '12 Less Excited Spring '13

These numbers are obviously fluid, and are likely to shift meaningfully as we learn more about all the consoles and the software to be released for each. The only new console currently available (Wii U) has performed well below th expectations since its November 18 launch, with just over 1M units sold in the U.S., nearly half what the Wii sold in that same time period six years ago. With lacking hardware specs and slowing sales it will be an uphill battle going forward against what are expected to be true next-gen consoles in PS4 and X720. The only other next-gen console that has been unveiled is PlayStation 4, with Microsoft expected to announce its next console in the coming months. In terms of hardware, Sony developed the PS4 to be a supercharged PC platform, utilizing high-end but off-the-shelf components, unlike the proprietary architecture that made the PS3 so time consuming and expensive to develop for. The console features an 8 core X86 CPU, a highly-enhanced PC GPU, and 8 Gigabytes of RAM. In short, the PS4 and likely X720 will dwarf the current generation of consoles (as well as Wii U) in terms of graphics and computational power, although hard-core PC gamers are likely to scoff at these specs given the infinite (and infinitely expensive) hardware options currently available.