Interactive Games: Piloting ClusterMap Technology Executive Summary

• Purpose of the Report
• PC/Console Games - Globally
• PC/Console Games - Within New Zealand 
• Mobile Games 
• Conclusions and Implications

Purpose of the Report

The purpose of this report is to investigate the innovative capacity and competitive positioning of the New Zealand interactive games “industry” that points to its potential engagement with the global games industry. It builds upon earlier studies that have identified the challenges and obstacles facing the industry by focusing on the commercial, research and educational links and supports required to strengthen the industry’s position in the global marketplace.

Games are huge business worldwide but New Zealand has barely made an impact on the core global industry of designing, making or exporting games. The New Zealand games industry is fledgling - the number and size of companies is small, and value chains are thin and poorly connected internally and globally.

This study selected 16 companies with some proven market penetration and capacity and applied the ClusterMap tool to assess their innovative and technological capability – vital sources of competitiveness. The degree to which these capabilities are distributed among firms, and harnessed and managed by them directly affects their market reach. We also spoke to a further 14 organisations peripherally connected to the industry in order to capture the total innovation environment within which the industry operates.

We found that there are two distinctly different industry segments that have disconnected value chains. Between these two segments lies a layer of service providers with graphic, interactive and digital entertainment capability. The report is consequently divided into two parts reflecting the primary separation.

Globally, the PC and console segment of the industry is estimated by some commentators to expand to US$35.8 billion by 2007, growing at an 11% compound annual rate. The other emerging market segment is mobile games which produced around US$400 million in 2001 but rapid growth in this segment is predicted as advanced handsets enable a richer experience for the consumer (e.g. 50-100 million Java enabled handsets are to be distributed just by Nokia by the end of 2003).

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PC/Console Games - Globally

The primary sources of competitive advantage in the PC/Console global market include:

• Reputation – being known and trusted as a developer or service provider by
  the dominant games publishers located in Europe, Japan and the US.
• Cultural Fit – alignment between the thinking of publishers and console
  manufacturers, and that of developers is critical given their market
  dominance.
• Cost/Economy/Scale – being able to produce quality games on time and to
  specification, including within budget is fundamental.
• Performance – overall performance involves fault free technical execution,
  reliability as well as meeting commercial performance criteria. This implies
  significant organisational and management capability. Any novelty or
  improvement has to be achieved without compromising cost.
• Innovation – while the level of innovation sought by publishers is limited by
  their low risk perceptions of what the players want, there is significant
  opportunity arising from:
  • what results from the collaborative links between various suppliers and the industry as a whole
  • design and technology-driven development occurring around the making of games such as rapid prototype development, or automatic streamlining of high bandwidth applications that can be used to generate savings and as a base for further innovation.
  • the availability of pools of management and technical talent capable of building both the internal organisational capability and developing and then leveraging the opportunities for interactivity between commercial research, and academic participants in the industry.

Given the level of global integration within this industry it is only possible to make sense of New Zealand’s capabilities and opportunities to the extent that they connect to global value chains.

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PC/Console Games - Within New Zealand

Reputation

New Zealand’s reputation has yet to be established, with just one development company in the process of establishing its reputation with mid to large scale publishing and platform companies in Australia and the US. Likewise, New Zealand’s reputation in support services hinges on two or three significant companies. However, these companies have contributed to supporting the general profile of New Zealanders in the technical and creative fields as inventive yet practical people.

Cultural Fit

In terms of cultural fit, New Zealand has the right language skills and communications style to fit. However, we suffer from some disconnection between enthusiastic developers trying to design the perfect game and the business savvy of the more conservative publishers.

Cost/Economy/Scale

New Zealand’s overwhelming disadvantage is that of tiny scale – only two or three development teams within a broader sector of 20 or so small companies with consequent problems of insufficient skills, profile, intra-company synergy etc. We are cost-competitive, but risk being drawn into low price cost competition with Latin America or Eastern Europe.

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Performance

Because of our scale we have not yet had the opportunity to demonstrate performance in the high-selling mainstream international games industry.

Innovation

The local industry lacks cohesion and is not well integrated internally although it is outwardly connected to the wider world of technology, creativity and game playing. It has yet to place a value on the benefits to be achieved from actively developing an innovation system largely because it is too small and busy and lacks a mobilising vision.

Industry leadership is confined to a few individuals with subtly different perspectives who are championing different industry aspects. There is currently no sense of collective identity that would drive the development of an innovation system to support the games industry. There are associated questions to do with the willingness and readiness of industry members to engage it purposeful collaborative activity – a pre-condition for making significant progress.

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Mobile Games

Reputation

Globally the mobile games market is emergent with most countries seeking to establish a reputation as quality providers. However, the market is expected to grow as a result of systems that support applications and games built to Java and BREW standards. Critical to growth is the building of partnerships with global scale purchasers of content and for developers to provide platform and network operators with “proof of concept” and “proof of service” applications.

Within New Zealand, games developers and mobile operators have not yet built the internal relationships required to progress local development. The operators are reluctant to partner with small start-up type companies who are yet to be proven and who often lack a compelling business case.

Cultural Fit

Games are being produced for a highly diversified consumer market. They need to be short-lived games with a fast turnaround to keep pace with demands for fresh entertainment. Translation services and integration into multiple mobile network types are important. New Zealand’s digital media companies have a good reputation for their creativity and ability to customise their content for international markets,especially English speaking ones.

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Cost/Economy/Scale

Conventional computer games have budgets of between $2-5 million while many mobile games have budgets of less than $100,000 enabling small teams of people to develop games over a few months. This means the threshold for industry entry is relatively low. However, those companies focused on aggregating games products from a diverse range of developers have a stronger bargaining position than individual developers.

New Zealand’s mobile games sector is extremely small with some crucial skills being drawn heavily from University departments and most companies struggling to be noticed. Current business and revenue models are high risk with underdeveloped developer-mobile operator relationships and unequal bargaining power.

Performance

The ability to produce, on-time and on-budget, one game that works across dozens of phones is a major target for developers and carriers alike. New Zealand games developers still rely on one-off projects and have yet to develop their businesses to achieve the level of systematisation required to achieve this.

Innovation

Integration of New Zealand’s mobile games developers internally as well as with the global games value chain is yet to be achieved. Isolated endeavours by individual small companies as well as a current inability to share technology and the high cost of accessing international markets are significant barriers.

Wellington is where the most significant concentration of activity in mobile games is found, and from where further innovation would be expected to flow. Media Lab South Pacific, a research consortium, and Creative HQ, a business start-up incubator for creative companies, provide support for fledgling games companies.

However, there is limited R&D activity taking place within the value chain.

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Conclusions and Implications

The Challenge

The games “industry” does not add up to a homogenous group with a significant domestic profile nor is it especially integrated into the global value chain for games. A number of individual participants are starting to see the need to develop a single voice and a common strategic vision that embraces participating companies, educational and research institutions and industry associations. However, this view is not yet predominant nor is it widely evident in industry practice.

In addition, the pure games industry lacks critical mass and infrastructure. Furthermore, strategic leadership and management talent to build organisational capability is a major challenge for the industry.

However, there are opportunities and potential courses of action that could be pursued to mitigate these obstacles. To be realised, these opportunities require willing, capable and active leadership from within the industry, directed towards the collaborative building of industry capability and a development pathway for the industry. This represents a considerable challenge.

Government’s Interest

While the games industry represents a small area of economic activity at present it, does form part of the wider digital and creative industry landscape that has been singled out for particular attention within the government’s Growth and Innovation Framework. Of course this does not require the government to support the development of the games industry but it is worth considering how interactive games might interface with or be leveraged by other components of the digital/creative development mix.

In any event, it would be reasonable for government to require clear evidence of such leadership and collaborative endeavour as a pre-condition for any future investment of resources in the industry. Providing an initial opportunity for the industry to gather and examine these options may be the catalyst required to kick-start purposeful development activity.

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Taking Stock

Government may consider partnering (e.g. through support for conferences and networks) with the games industry to collectively take stock and identify a strategic pathway. Such an initiative would also begin to build a profile for the industry and assist in building a robust business case worthy of higher levels of government support. Should the industry want to engage there are a number of options and initiatives that are open to it and the government.

Interactive Education

In the area of interactive education and learning, where New Zealand has a range of competitive strengths, there is a clear opportunity to pursue a new interdisciplinary initiative, inviting participation from many of the companies, entities and organisations loosely involved with the games innovation sphere.

Critical Mass and Infrastructure

There is not yet widespread evidence of acceptance and motivation among companies and other entities to get involved and build common resources. The industry has to show its willingness to tackle these obstacles, exploiting where necessary its relationships with peer groups in the broader digital media industry and education and research sectors.

Initiatives the government may wish to consider to help overcome the lack of critical mass and infrastructure include:

• assisting with access to published international market intelligence
• scoping market opportunities for combined offerings
• recruitment of brokerage skills to help in facilitating industry interaction
• maintaining high- bandwidth connections to service overseas markets.

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Management/Leadership

The industry could strengthen its strategic positioning significantly by making an effort to interact with other bodies and groups using templates from other industries and regions to fast-track its own leadership strengthening.

Government may wish to acknowledge the challenges of shortcomings in strategic leadership and management talent by incorporating its development into its engagement with the industry.

PC/Console: Market and Technology Leverage

Developing a technology road map to enable the PC/console segment of the industry identify how it might integrate into the into global value chains as games market experts, rather than merely as games developers will help position the industry internationally. This might involve government facilitating a meeting of the larger players to identify areas for potential collaboration and research.

Mobile Games Sector: Integration and Technology Roadmap

To overcome the fragmentation and build relationships between developers and carriers, a mobile games network could be established in Wellington to provide a firmer footing for this industry segment in terms of focus and innovation. It would need to stem from a meeting of minds of carriers, aggregators and developers.

In addition, creating a technology roadmap for the industry to identify technology pathways and expertise held locally would provide a framework for the greater leverage of mobile network and application technology. Again it is in industry's interest to initiate and steer this process itself.

Government may wish to stand behind the development of such a roadmap by helping to draw together some of the participants, and offering to catalyse some of the technology and research organisations.