I know about half the people that I’ve seen here so the other half I’m a stock market analyst which means I absolutely contribute nothing in society I’m in all worker I help institutional investors so the guys who manage your 401ks pension money I help them make smarter decisions about stocks I’m really good at stocks really suck at everything else especially making presentations so i I’ve never made a presentation that had any pictures or graphs or charts because I don’t comprehend them I’m not visual I can’t figure it out Martin started out telling us that you were gonna have a take away from each each of the presentations today my takeaway from Martin’s intro was that he likes Michael Denny better and he likes me my take away from Michael’s presentation is that hip-hop gamer really likes Morpheus which is kind of cool you guys know who hip-hop game word is he was there Kevin told me that halo DLC is gonna be free that’s what really cool al told me that Amazon is a charity they’re giving stuff away for free as well that’s pretty cool and Maria told us that community matters which is kind of cool I mean we all knew that she said it’s really obvious but it obviously wasn’t that obvious to dice until more recently so that’s cool there’s a theme here which is that if you give people more content or allow them to spend more time accessing content for less money they’re gonna be happy and and getting more from less effort I’d say is pretty much the definition of productivity so you want to be more productive if you’re more productive you you’re gonna generate more wealth period and I think Alf asks the question about that you know how many people are trying to make engaging games versus trying to monetize they’re one of the same I mean if you get people playing your games you’re gonna make more money you just are unless you’re an idiot and you don’t know how to monetize you know even Mozilla makes money from Firefox by letting Google advertise there so I’m gonna talk about where the industry is going I’m glad we have these giant monitors this is awesome um pretty much everybody here is somehow in the software business they’re they’re in the business delivering content to consumers Sony you know would love to sell as many devices as possible but they can’t do without content software sales it’s a big deal and you know notwithstanding alfe’s numbers on mobile overall software consumption is huge it was twenty two billion the two thousand eight and digital was only three billion i don’t know what digital really is there’s addressable markets and I’m talking about North America and the PAL territories not talking about Asia because Asia’s kind of hard to crack for most people but it was twenty two and three total in in 2008 in twenty fourteen packaged goods dropped like a stone just under nine billion and digital seventeen so the market really was pretty flat in those six years but you see digital taking over and digital is a lot of things you know again I’ll fast about mobile digital is a combination mobile tablet desktop free-to-play you know we have some guys here from wargaming it’s kind of hard to play war gaming on your Android phone you know play World of Tanks on your Android phone so the market stayed pretty much the same but digital became the big deal and consumption has changed a lot as we migrate to that lower pricing has kept sales very high that more people involved on a greater number of devices and again I’m just going where we were and then where we’re going um we have one point four billion phones and tablets sold annually two-and-a-half billion pcs attached to the internet in the world so lots and lots of people compare that to 270 million consoles doesn’t even come close so you all know that the console gamer will spend hundreds of dollars a year on games you all also know that some mobile gamers one percent will spend hundreds of dollars a year on games but not a hundred percent so that’s back to alph speech that lets monetize a hundred percent you’re never going to get hundreds of dollars unless we can figure out how to leave that game on all the time and Amazon just pays you hundreds of dollars a year you’ve had a resurgence of gaming on on the PC free to play League of Legends hearthstone the games that have started to really show the possibilities world World of Tanks of course package software’s gone for fifty to sixty over the last decade that’s good so you know get a little bit more money you’ve got DLC that until halo decided give it away people charge for DLC so you could monetize 100 hundred and twenty bucks I have a player we’re getting a lot of distribution you’ve got

Google Play iTunes stores obviously which didn’t exist fifteen years ago you’re getting these new boxes I put razor down there because they bought who you I have no idea what they’re doing with that but Apple TV PlayStation TV fire TV we’ve got the fire TV guys here the and I think that might be a sinister you know backdrop to the whole Amazon free free free free game maybe they’ll buy it fire TV the console on saw console installed basis as big as its ever gonna get we are seeing people moving away from console you are getting a different kind of console gamer and this just jump to the bottom there non-traditional gamers are what drove the last cycle and and I’m picking on women here but Nintendo train twenty five-year-old women they they saw a game like guitar hero and they wanted to play it and the only way to play it was to have a console so they bought a week forty five-year-old women thought we fit was cool and so they bought a Wii 65 year old women thought that we bowling and we tennis was a way to stay in shape so they bought a wii and then of course none of them bought a Wii U in this cycle and they’re not going to because they moved on their playing tablet and mobile games so Nintendo was probably the best thing that ever happened to expanding the base and they talked about their blue ocean strategy and it was brilliant absolutely brilliant but it’s over it’s now that’s been taken by everybody else and I think that Sony and Microsoft have capitalized on roughly half of the Wii audience that are really console gamers and want to continue to play console games so there were about a hundred million Wii sold last cycle that half of those the million probably are real core gamers that are gonna buy something and continue to play console games and I think Sony and Microsoft are splitting up that market the other half probably not and they’re probably moving on ps4 is impressive and if you think back if you’ve been around long enough the ps1 the ps2 were giant consoles giant list all based dominated ps3 not so much I don’t think the ps3 was like mission impossible 3 you know it’s just a really crappy movie it didn’t kill the franchise Mission Impossible 4 and 5 were great I think Sony’s back just like Tom Cruise is back you know it’s ok you can have a bad movie everyone smiled Sony had a bad console and they got over it Xbox one they blew it a lot of DRM they confuse the hell out of people they wanted to make it by Kinect you didn’t want Kinect you didn’t want to deal with the arm they backtracked everything cut the price too late Sony’s brand is overwhelmingly stronger gonna be stronger so Sony’s gonna win guess what second place is good Microsoft’s fine let’s not cry shareholder both by the way so we’re gonna have a good cycle this is gonna be good but the point is that the next generation is not going to be bigger than the last generation we’re gonna be about the same the Wii U’s gonna sell twenty million units compared to a hundred for the Wii the ps4 will sell 120 130 million that’s great Xbox one will sell 100 to 110 that’s great add that up it’s 260 maybe the last cycle was 270 so we’re not gonna be bigger yet we all know there’s a lot more people playing games so what do we do I think we’re gonna see 260 I don’t see an advanced in technology I think 4k 8 K TV is great except there’s nothing to watch on a 4k TV if you have a 4k TV you either have one because the price differential wasn’t that great from 4k to the 1080p we’re thinking about buying or because you’re a ok there is nothing no there’s there’s nothing to watch and people you know I gotta say seriously every single television show produced in the US every single one is shot in 4k all of them anybody want to guess how many television shows over-the-air or broadcast in 4k 0 right 0 so there is no content if you buy a blu-ray Disc of a movie made after 2014 I think that’s in 4k you can watch that before ok why the hell would you buy 4k TV so people talk about this this we had this talk about 3d TV a few years ago a Smart TV a few years ago is gonna change the universe no it’s not you’re not gonna get a 4k broadcast standard till 2020 at the earliest maybe that’s about the next the timing for the next cycle but honestly the only reason you’re gonna buy a 4k TV is that that Samsung 60-inch 4k TV will be under a thousand bucks this holiday and next year 800 bucks in the next year 600 bucks and you’ll buy it just because just like my last TV is LED I didn’t want an LED TV I have a dent built into my wall for the TV it’s 5 inches deep but you can’t buy an LCD LCD TV anymore

everything is LED that’s what’s gonna have a 4k there won’t be a real upgrade cycle for consoles no real reason to buy them what we’re gonna get is a lot of model updates we’ve already seen a new model you know the one terabyte hard drive on the consoles we had seven Xbox 360s twelve ps3’s you’re gonna get that mini Xbox one ps4 but I also you think where it’s going is you’re gonna get the boxes designed to deliver over-the-top television that’s what OTT TV is where you get your television through the internet and you’re hearing all these sling TV HBO now everybody’s doing it there’s gonna be more and more and more of that and PlayStation TV does that as well so why is this last cycle and this is the punchline so just in case you were taking notes when Martin got up this morning he said you’re gonna have one takeaway from every presentation this is the takeaway this is the last real console cycle I don’t mean that Microsoft and Sony and Nintendo will shut down and go bankrupt they will not each of them will make another console some people will buy them and the next console cycle will be to this console cycle similar to the 3ds cycle to the DIA cycle so 3ds is selling about 13 million units a year DS had 5 consecutive years that sold more than 26 million so about half as big the next console cycle will be half as big so when I say the last cycle the reason is console games shouldn’t require a console I’m not talking about the cloud if you think back to and I’m just credit nolan bushnell because he’s a nice guy you think back to atari tari was started out as a coin-op arcade machine game what is an arcade machine it’s a monitor a CPU GPU combo and a joystick that’s it control display CPU GPU what is a console CPU GPU controller and it connects to your television pretty easy right if you can get rid of the CPU GPU why do you need a console you don’t have to get rid of it as in eliminated and shifted to the cloud you have to get rid of it and put it in something that’s already in your house which would be my iPhone 8 or 9 not this version but it’s coming for my PC or my surface tablet or my iPad pro whatever whatever device comes out garnet in the back will tell you it’s your fire TV box of course that’s fine it might be that but you’re going to have a cpu GPU in your house that is connected to your television even through Smart TV or fire TV stick and so I’m just going to make this up because I don’t know this but Amazon will be complicit in this because Amazon is going to dominate the planet they’re gonna own the world okay there will be one store in the universe that’s going to be called the Amazon and what Amazon’s gonna do is they’re gonna give everybody a controller they’re gonna give everybody a fire TV box they’re gonna hook up content and they’re gonna say our box has a CPU GPU it’s got enough storage so that you can download I’ll just say call of duty because if you’re gonna pick Amazon the charity might as well partner them with Activision the greediest company on the planet and I mean greedy I mean greedy in a good shareholder friendly way active isn’t understands who owns them and they want to maximize profit for their shareholders there and they know they have to do that by making great games but what Activision is going to do I think I don’t know any of this stuff they’re gonna say Call of Duty what is what is it it’s this client file out of 2530 gigabytes and it’s this multiplayer cool stuff and so if we can make Call of Duty available through a fire TV box that will be 49 bucks by then and with the fire TV controller it’ll be 30 or 40 bucks by then we can bypass the console and if we bypass the console maybe we can capture a piece of that multiplayer revenue you know so when you think about multiplayer and you know back to halo 5 and free DLC why because multiplayer Xbox Live 60 bucks a year there’s 60 bucks a year that’s good who gets it not after vision so they’re not getting on Call of Duty so what I think we’re gonna probably do if you go to the very last bullet on this slide you’re gonna have a company that’s formed like national cinema via and you probably don’t know what that company is but if you have ever watched a movie in a theater in the US there are advertisements before the film national sent immediately add vert Iseman and what national centimeter is is that consortium of the film exhibitors the theater operators and they pool for delivering these ads and selling these ads and then they share the revenue based on who’s theatres the ads are shown in and how many people see them

imagine that for multiplayer gaming Inc imagine Activision ea take to Ubisoft form together and they say all of our games can be played multiplayer for three bucks a month again I’m making this up and Amazon Web Services will gladly host that for 50 Cent’s because as I said they’re a charity and it probably costs Amazon Web Services a penny to get 50 so they’ll make a ton of money on so there’s 250 left if 40% of all game play is called a duty again I’m making it up sounds good Activision gets a dollar a month versus zero right now if Activision says you can load download call of duty to your phone or your tablet or your surface or your PC and play multiplayer for three bucks a month if you’re the average consumer you go wait a minute if I buy the hard you know the physical disk and the buy a console I got to pay 349 for an Xbox or 399 for PlayStation I’ve got to pay five bucks a month for online multiplayer access and yeah I get a disc that I can trade back in for 20 bucks but if I buy this essentially it’s a PC game for 50 bucks I save 10 right away and I save $2 a month on my multiplayer and I don’t have to buy a console so what happens lower the entry so no one needs a console if you if Activision sells 20 million copies of Call of Duty how many people when team only people who have a console how many people would buy it who don’t have a console I’m guessing 20 million more let me make it easier for the Europeans in the room how many people play fifa if a console wasn’t required another 20 million so if you’re Activision yeah you’re like we’re gonna make more money how many people play Grand Theft Auto if you didn’t need a console 100 million it’s just crazy numbers so this makes so much sense it is gonna happen it’s absolutely gonna happen so what’s it mean you go you’re just you grow your addressable market instead of looking at 270 million as an upper limit as to how many games you can sell you’re looking at 1.4 billion if the phone or the tablet is powering it two and a half billion if the PC is powering it that’s a lot of people I’m not talking cloud I mean cloud might happen but latency still is a problem I’m talking local client this is gonna play like League of Legends which is local client services as I said instead of paying the console manufacturers the publishers are gonna get the money which just means they’re gonna make it first rate it’s gonna get great and as I said Amazon Web is gonna power all of it consumers you go beyond the console the all-in cost of owning a game is lower no console purchase theoretically lower game you know packaged goods purchase which probably will be a digital copy and the consumer I think you get actually dropped the price of Call of Duty and FIFA to 30 40 bucks and Scherzer even in in terms of their unit economics if you double the market they’re making a lot more money so again lower the price you’re gonna get higher volume you get more people playing you’ve got that whole back-end that you have more people paying to play and as I said the publishers need a hook so I think they charge less than 50 50 bucks a year or 60 bucks here retailers not so good you go beyond consoles retailers probably don’t stick around too long I think there will always be a market for physical goods give you a good good metric you didn’t know in 1997 and I picked 1997 because that was the year that Napster Grokster and Kazaa were invented music CD sales in the u.s. were 1 billion 10 million units 1010 in 2014 music CD sales were 183 million now that’s kind of remarkable not because it declined 82% but because there were 183 million CDs sold in the US last year like bought them I have no idea but somebody bought them right now I would say I still buy CDs because as gifts like if somebody’s at my house and they hear something they like I will buy them the CD because it’s fun for 8 bucks or 10 bucks but the fact is physical media is really hard to get rid of and as long as there’s a profit to be made in physical media and somebody wants it they will still be made so the retailers will still exist but I think they’re gonna get smaller and smaller smaller and you’re gonna get migration to full game downloads more important I think all the growth in the industry is going to be absorbed by full game downloads if you go off console because you’re gonna be hitting people again there’s plenty of 40 year old guys who would like to play FIFA or Call of Duty but can’t for one game they’re not gonna buy a console and you just know that and I’d say that’s true of every single game major there is a niche market which is probably several million people who would never buy a console to play the game but they would absolutely buy the game because they hear it’s great developers bigger addressable market means you sell more stuff and that I think what’s really interesting here I

had a conversation with two prominent developers at the Sony X I think it was called in last December and they were they were actually talking about reopening their contract and I went out to dinner with him and they asked me what I thought they should ask for and I won’t name the publisher because I’d only get into much trouble but I said ask for back in on off console sales because I think this happens in three or four years and these guys are going to sign a five-year deal I think you’re gonna see this in 2018 and I think there’s big money so negotiate a royalty on a per unit basis because you’re gonna get paid a lot I think developers are gonna make a ton of money which is good you guys create all the joy you deserve to share in some of the profit I think that if the publishers control multiplayer there’s more money for the developers and you should ask for some of that too and as you eliminate use games as you migrate to digitally use games get smaller smaller as a piece of the total you obviously reduce cannibalization and new game sales and you really want every person who plays your game to pay for it and pay pay for it in a way that you can benefit oops I’m not know what else you know free-to-play games you all know low barriers to entry you know 50,000 bucks you can make flappy bird you know 500,000 bucks you can make most decent mobile games spend a million bucks it’s hard to spend 20 million unless you’re thinking I don’t know well I don’t know somebody Alf had the presentation the mountain goat mountain have you looked at that game if that can’t cost more than 50,000 bucks or something wrong with the universe but you know it did but it shouldn’t you know I mean I don’t know how many different kinds of goats can you design that there’s probably only like three kinds of goats in the world yeah and I actually don’t buy that top ten being 20 percent of revenues cuz you know if you look at the revenues on the top ten it’s got to be 60 70 percent not that many people are making money in in Mobile I’d say the top 100 are definitely 90 percent though it’s it’s pretty concentrated among the successful games and I think the hard part on mobile is balance I didn’t know about about Amazon underground so I didn’t know that you were gonna completely change the landscape and I actually think that works that is a brilliant model if you guys are committed to it stick with it if you end up making every game free you can actually go back to just making games that are fun you don’t have to worry about balancing the economy because everything’s free who cares people will play and that’s where Nintendo’s library gets really interesting I mean you play every GBA game ever made on mobile Nintendo doesn’t want to do it because they can’t turn it into a free-to-play model you don’t have to that’s cool for sure phones and tablets have cannibalized handheld that’s why 3ds sales are half as big as DS tablets the new laptops that’s more interesting to me because as I said you don’t need any kind of hardware in your house to play a console game in the cloud I don’t know OnLive is kind of gone I mean sony Sony keeps you know buying up all these guy cards and on lives I have no idea what they’re gonna do I’m hopeful that Sony is rational about this and they recognize that they have to kind of ensure their own existence but Sony is a hardware company as a company and so it’s hard for them to get into the cloud service business one would think Microsoft would have done that and they did not so conclusions I think this digital shift to full game downloads to you know everybody having an opportunity to play a game without having to invest 399 bucks is a huge opportunity it’s an opportunity for everybody in the value chain except the retailer and maybe the console manufacturer I think that ultimately these these shifting revenues supplement current revenue streams I think you get more money and that’s great I think that as Nintendo has trained we used to talk about in in 10 dad’s about 10 years ago we talked about these guys who you know had an NES in 1985 when they were 10 years old and you know there were dads in 2005 and there were you know open to their kids playing games we now had these candy crush moms who and and I you know I’m sure she’s not up at 5:00 in the morning but my wife is that person my wife thinks games are absolutely she cannot understand why anybody spends in these time playing games gets pissed at me when I play games she doesn’t understand why I need to play games tonight you know whatever I have excuses but she started playing candy crush and she’s on like you know level 600 and she’s playing it for three years she’s totally addicted to it spends money and she’s suddenly completely tolerant of my kids playing games because she does it’s guilty pleasure but she does it I think that’s a bigger deal than in 10 dads because your dad never said no to anything your mom’s the one who’s the

pain in the butt you know that so if you get the mom on your side oh my god so the opportunity is amazing and you know I also Kevin was talking about the nine-year-old kid trash talking and your first question should be what nine-year-old is allowed to play Halo and the answer is all of them you know so that I mean that’s like that didn’t happen 20 years ago but it’s happening now you know publishers have to embrace these new business models so DLC is a big deal the idea that Microsoft would give it away for free it’s unbelievable it’s mind-blowing but like I said new ways to monetize we’ve heard this more frequent updates just keep people engaged I mean the ultimate goal is keep the player engaged and you’ll figure out and make money off of that either Amazon’s gonna pay you or games as a service it doesn’t matter there’s a way to keep that player coming back he will buy more of your stuff in the future and I think that free-to-play can be on any platform that’s something I think that a lot of people miss I think it’s mobile only and again we have wargaming guys here you know we’ve got Kabam guys here we’ve got Riot Games guys here there’s a lot of opportunity on PC and when that PC becomes the vehicle that gets a console game on the TV that’s where I think we’ve come full-circle back to PC consumer choice and consumer demand is what’s driving all this growth casual and social is what trains people to play games the negatives I think it’s hard to succeed in any of these businesses and the more you democratize it it’s going to be harder for the established to stay established the I guess the barrier though there’s graphics on console games are so expensive to produce that you’re gonna still have some rich big guys and I think the biggest negative is free-to-play is free again we talked about the 95 percent of people who don’t pay that’s a problem you know you’re creating a lot a lot of joy and not monetizing it that’s why I think this Amazon underground is so fascinating them if it works it’s a great model it’s just that you need deep pocket Amazon to fund it and and there has to be a benefit to Amazon or they won’t keep doing it so ultimately you really do want to monetize those people in your games so I think about 10 years we just aren’t gonna care about consoles anymore we’re gonna be talking about consoles that’s the same way we talk about the Wii U right now I don’t think Smart TVs are gonna be necessary I think devices get connected through things like Apple TV fire TV chromecast and I think Smart TVs you can’t buy a new TV now that’s over 40 inches it’s not smart so it’ll be built into every TV but you wanna have a TV in every room that’s connected the fire TV sticks 35 bucks what the hell chromecast is 35 bucks you’re gonna retrofit every TV and if you have a reason to do that piece of cake storage is less essential if we can ever get the cloud to work I don’t think so or consumers are willing to embrace it if it’s a bad experience they won’t but I think that storage is less of a problem when you get your iPhone 9 and it has 512 gigabytes in it and the phone I just held up has 128 gigs I have no idea why I bought it I just got tired of not being able to update iOS on my last phone so I bought it for about 128 all by 512 packaged goods drop about 10% a year but they’re gonna stay around I’d say they probably level off about 50% of current level gamer demographic keeps getting bigger and that’s mostly because we age so I who will be 60 in January and the oldest guy alive playing games and I will still be playing games when I’m 80 as long as I’m still alive and there’s always a new generation of nine-year-old halo players who trash talk so they’re just not going away minecraft is training those guys so it’s it’s gonna keep going traditional gamers are gonna have high standards and non-traditional low standards I think the traditional gamer market with high standards does brought in but the only way you actually see a step function change in that is to pull the console out of the equation make that open to people who can’t afford a console or don’t don’t want to afford a console smart devices I really curious and I know rich Hillman talked about this a few years ago about you know having a different experience on different devices and I that actually resonates with me but smart the smarter the device the the closer the experience will be and the experiences have to be complementary and the OEA is kind of the poster child for that with trying to get you to play fifa on different devices and different settings and it’s not the same game obviously but keeping you engaged and I think that’s really smart packaged goods will be around use games will be around as long as packaged goods around full game downloads will be available on you know on demand to any device in a few years I think that you’re gonna see a migration to this games sold in installments and I’m

talking about destiny destiny is not a conventional packaged game it’s not a conventional you know launch in fall of 14 and then it’s done EF sub DLC this most recent DLC update coming out Tuesday is gigantic and it’s one of those things that Activision is counting on this I think it’s fair every single da you on destiny is buying it every one of those guys might be three and a half million but they’re all buying it and probably half of the MA use that are around are gonna buy it in the first few weeks that’s kind of unprecedented and they’re gonna do this again next year and again the next year until there’s a destiny – so keeping players engaged and monetizing that engagement is what activism is all about so again I mean this with utmost respect they are greedy in a good sense because they are giving players a great experience and they’re great perceived value for the $40 that they’re gonna spend on this expansion pack and people want it and they’re gonna pay for it which is great that’s that’s perfect economy if you can sell somebody something and they feel like they got a bargain and that is destiny microtransactions again alfe’s killing my presentation here because you won’t need them if if everything’s free but I don’t know I want to see how that works you know you’re not on iOS I understand why I OS is still a very strong platform for mobile so we’ll see how that works and I think ultimately you might get true games and services subscriptions every game is going to have a digital or mobile component so again I think you can do complimentary design so that you can keep people engaged all the time and for that I’m talking fallout like fallout shelter is not fallout but if your Fallout player I’m pretty sure you download the fallout shelter and noodle around with it for an hour so just you did and it kept you engaged and it’s fun and it gets you psyched to buy fallout 4 you’re gonna start seeing a lot more of that I think you might see a bold company split single-player and multiplayer into two different games and I think GTA is the poster child for that they didn’t do that and they actually should have I think if GTA the package good was sold independently from GTA online you still would have had 50 million people buying GTA and you would have had 300 million people playing GTA online so I think there’s an opportunity there if you see guys starting to split it and again I think it’ll be great if you could play on multiple devices and watch your game progress you can do that with hearthstone you can do that with candy crush but for what some reason you can’t do it you can’t play Call of Duty cross-platform except now Xbox one and and you can play Microsoft proprietary Xbox one and PC the audience’s that you keep growing already talked about candy crush moms I think that you might start seeing more advertising to monetize that ninety-five percent and again maybe the ad is no add don’t add free Amazon underground and their pain my predictions Microsoft loses but they still win because they finish a very strong second they make a ton of money which is winning is making money that’s okay Sony absolutely thrives they get back to their prominence and they deserve it they’ve done great Nintendo continues to make amazing software but I don’t think they get I do think this mobile move by Nintendo is a is a positive sign I hope that they succeed I think if they embrace something like Amazon underground Nintendo could be the biggest player by a large measure on on mobile but we’ll see if they do nobody’s going out of business all the weak companies are gone you might see some consolidation there’s still one or two companies out there that that have great IP that could be bought the PC is coming back but you might not have a PC in a few years it might be your phone and imagine your phone you know with some eight gigahertz microprocessor and a fast GPU card sitting in a docking station in your house and talking all your TVs like why not we can do that

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