Hong Kong Innovation Project Conference

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Hong Kong Innovation Project Conference New
Entertainment Media Sector Report F. Ted
Tschang Lee Kong Chian School of
Business Singapore Management University
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Overview

• Subsectors
• Global trends
• Regional view
• Nature of industry, products
• Some strengths, weaknesses, threats
• Policy recommendations

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Subsectors

• Digital media consists of the following
  overlapping specialty areas.
• Video games (console, PC, online)
• Animation
• 3D, 2D
• Special effects (computer graphics)
• ? Studys focus is on video games

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US and Global Video Game Industry

• Sunrise sector?
• In US, grows faster than software or film
• 2003-2006 annual growth of 17 (4 in software)
• 2007 US market 9.5 bill (Global 38 bill)
• Still small 2002 sales 4 bill (application
  software 47 bill)
• Small US employment 24,000

Sources ESA 2007, PWC 2007
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Characteristics of US Videogame Industry

• Industrial-organizational
• Publishers possess financial resources
• Studios contract with publishers studios
  typically small but getting larger (complex
  content)
• Spatial Sometimes clustered, but not necessary
• Nature of the work is long-term in-house projects
• Experience counts (iterations and cycles to
  perfect knowledge of what plays well)

Sources ESA 2007 Tschang 2007
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General Nature of Innovation in Industry

• Means of innovating in products
• Game design, e.g. new genres
• Content (world etc.), e.g. Chinese online games
• Technology, e.g. next gen consoles, s/w
  platforms, e.g. virtual worlds, MERECL
• Nature of product innovation creative
• Does radical innovation buy success? Sometimes
• Radical (e.g. Spore, The Sims)
• Incremental innovations (e.g. World of Warcraft)
• Radical ? need for integration? Onsite
• Innovation in business models, e.g. MMOs

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US and Global Video Game Industry Trends (2000s)

• PC games ? Console
• Online games
• Frequent game players playing online 19 in 2000
  to 51 in 2007
• Of this, only 13 play massively multiplayer
  online (MMOs)
• Casual games most online games and some PC
• Emergence of virtual worlds (open-ended MMOs)

Sources ESA 2007, PWC 2007
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Relative Innovative Natures of Products
Degree of innovation Sought
AAA Console games - High cost, risk, return
Casual games - Low cost, risk, return
High

• Virtual worlds? (user innovs)
• Cell games
• High platform cost, risk
• Low user cost, risk

Massively multiplayer online (MMO) - High
cost, low risk e.g. Hong Kong, other countries
Low
Maturity Of product
Low
High
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Other Characteristics of Industry Cultural?

• Japan
• Some products (but not most) have great success
  in US
• China
• Domestic content provided opportunities for
  Chinese studios to gain Chinese market share from
  Korean firms
• HK
• How to leverage on Chinese, Western influences
• Can leverage on China for the West
• Own culture does not sell well in China
• Solution get Chinese staff?

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Competitive Characteristics of Various Countries
Advantage in components Advantage in support (resources, institutions)
US Technology, IP One console maker, major publishers, labor market
UK Creativity Smaller studios but linked to publishers, labor market
Japan Creativity (declining?) Console makers, major publishers, labor market
Korea Dominant in one genre (online (MMO)) developer-operators, labor market, government support
Other Asia Other Asia Other Asia
China Domestic content for own market Developer-operators, market, labor market, government supp
Singapore Government support (small studios)
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Contrasting Models of Business and Industrial
Linkage

• Consoles and PCs
• Publishers scour worldwide for hotspots or
  successful studios
• Publishers own studios, IP
• MMOs
• Operators of MMOs link to studio-developers
• Operators are the developers
• With publishers having all the resources,
• Studios with successful product can become next
  big publishers or operators

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Summary of HK Video Game Industry

• 117 firms
• Only a few of significant size, capability
• Many distributors/resellers, or small startups
• Segments
• Many focused on online gaming
• Cell phone, PC games minimal or niche
• Console gaming - new
• Supporting institutions
• Skills (training programs, e.g. universities)
• Some government programs, e.g. incubation, space,
  advice, early stage funds, RD support, etc.

Source IDC 2007
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HK industry 4 types of firm

• 1. Medium-sized
• More mature but incremental innovation
• Possess some competitive advantage (e.g.
  content)
• 2, 3. Small firms
• 2 types potentially good and unproven
• Potential to be creative
• Some are small or weak (low capability to
  implement)
• Outsourcing as means of implementation (e.g.
  Cyberport incubatees)
• 4. Pure outsourcing or services provider
• Specific capabilities moderate growth potential

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Strengths and Weaknesses of HK Industry

• Firms
• Firms can be creative but
• Minimal resources (ability to create high
  production value)
• Markets
• Largely focused on own market (63 of IDC 2007
  survey)
• But small market HK 2006 30 mill (China 2
  billionS)
• Support systems
• Training programs, e.g. HK Polytechnic University
• Research (MERECL)
• Skills in short supply game design
• High cost

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Threats

• Other countries have better institutional support
• e.g. Korea, China, Singapore (still developing)
• Other countries have resource strengths
• Specific skill areas (low cost, high quantity)
• Philippines art and animation
• India technology
• China technology, art (basic)
• Ultimate threat is when strong companies emerge

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Assessing Opportunities for HK Industry
Implementation

• Partnerships, collaborations
• Local firms cooperating (scale) -- poor
• Outsourcing unclear
• China facility better? outsource what?
• not common (interactive, integrated products)
• Resources
• Skilled labor from China -- good (but at higher
  wages)
• Capital exists but not accessible -- poor

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Assessing Opportunities for HK Industry
Innovation

• Firms
• Creative, radical innovation - unclear
• What is needed?
• E.g. gameplay (CarnyVale, Singapore)
• Innovate in business models unclear
• Can be imitated?
• Markets
• Larger regional market, but not easy (culture)
• Successful medium-sized firms went outside HK

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Examples of Innovation

• Game design ? simulation
• Spore (US)
• Technology ? physics
• CarnyVale (Spore)
• Simulation
• Enlight (HK)

CarnyVale
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Assessing Existing Policies

• Does (Cyberport) incubation work?
• Not if it rushes first-time products by
  inexperienced developers to market (recall
  learning cycles needed)
• Criticism by many (but functions necessary in
  some way)
• What was gained by incubatees?
• Development support
• Funds for early-to-prototype stage development
  are ok
• Commercial funding lacking -- wants track record
• Does research support work?
• Not if the purpose is to support existing firms
  (academic research does not integrate in directly
  in US, elsewhere)
• How to develop creative potential of existing
  developers?

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Prospecting Future Policies

• Encourage creative innovation
• But with minimal learning, experienced
  developers,
• ? how to support first successes?
• Not just through incubation rethink incubator
• Support for professional game design, design
  skills
• E.gs casual games, complete products within
  institutes
• Develop strong mid-tier studios
• More support to existing, larger players (e.g.
  Korean model) - funding development, but how to
  do it
• Rethink ecosystem and lifecycle needs of firms
• Continuum of funding schemes
• What are the various functions (of incubators
  etc.)?
• Continue basic support
• for all skills

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Differing and Emerging Models

• Ecosystem model (Silicon valley)
• Knowledge flow between firms
• Spinning off firms (true of video game studios
  too)
• Government-led model (Singapore)
• Middle models - Hong Kong?
• No flows, no spinoffs (no strong firms yet?),
  minimal government support
• Where does true innovation come from?
• Interdisciplinary
• Link to deeper knowledge domains, e.g. health

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Final Thoughts

• From IT to
• Culture
• Visions
• Beyond Tech
• Creativity