Since 2007 electronic game companies' EBITDA dollars have grown an estimated 16%, second only to the interactive media sector.
Interactive media is bouncing back.
In 2010, interactive media EBITDA dollars grew by 21%. EBITDA margins, meanwhile, have steadily improved, as these companies become more scaled and efficient.
In the 2007–2011E period, interactive media companies are expected to have the highest EBITDA dollar growth rate, while in 2011, EBITDA margins are expected to be second highest among the M&E sectors.
Social network advertising forecast (in billions of US dollars)
Source: Marianne Wolk, “2011 internet growth themes and predictions,” SIG Susquehanna, 3 January 2011.
Internet companies predominantly rely on advertising revenue for their business models, but are supplementing that with subscriptions, microtransactions and other revenue sources.
Another growth catalyst for internet companies is the underserved local advertising market.
Yet, interactive media companies may face increased competition from traditional media companies adapting to digital platforms and the phenomenal growth of social media.
The video game sector has been fairly volatile over the last few years.
During the 2007–2011E period, electronic game companies' EBITDA dollars grew an estimated 16%, second only to the interactive media sector.
In 2011, EBITDA margins in the sector are expected to rise to 17%, an improvement from 16% in 2010.
The sector can expect to see a huge shift in the next decade as the next generation of gamers is growing up playing social or casual games on handheld devices1.
The proliferation of platforms is good for game industry profitability because the incremental cost of porting existing games onto a new platform is minimal.
Business models are also shifting. Games-as-a-physical product models are giving way to games-as-a-service models, where games are stored "in the cloud" to be enjoyed on any platform2.
Like the media and entertainment industry as a whole, conglomerates were greatly affected by weak advertising trends. However, 2010 saw a dramatic recovery in the ad market that continues into 2011.
This, combined with cost controls, helped drive estimated 23% EBITDA margin for 2011E, up slightly from 2010.
Most of the major conglomerates also own movie studios. These have been negatively impacted by the declining DVD market. However the international box office continues to grow.
1Jeetil Patel, Herman Leung & Matt Chesler, "Interactive Entertainment, video game sales down 5% in February," Deutsche Bank, 11 March 2011.
2Atul Bagga, "Multi-channel game-as-a-service II: Ubiquitous games in the cloud," ThinkEquity, 24 January 2011.
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