Spending on Connected TV Gaming to Reach $1.6B in 2016

EL SEGUNDO, CA — Internet-connected TVs aren't just for watching Netflix. They also have a bright future as conduits to online games, according to a new report by information and analytics provider IHS.

Worldwide consumer spending on video games on connected TVs is forecast to grow rapidly to $1.6 billion in 2016, up from $88.0 million in 2012, driven by a combination of the exploding adoption of Internet-enabled TV devices, the rising availability of free-to-access games and the dismantling of market hurdles involving hardware capability, user interface and middleware fragmentation.

IHS predicts that in 2016, more than 800 million actively connected TV devices will have exposure to monetized games content, up from 100 million in 2012. These connected devices include Internet-enabled televisions (IETVs), Blu-ray Disc players and over-the-top-capable set-top boxes (STBs). Growth also will be fueled by the steady dismantling of established market development barriers and the adoption of freemium content monetized through microtransactions.

"The stars of the connected TV games market are beginning to align,” says Piers Harding-Rolls, senior principal analyst and head of games research at IHS. “The sheer volume of addressable connected devices means this sector will be hard to ignore for content owners. There remain hurdles to overcome, of course, not least of which is user monetization. However, IHS expects an acceleration in spending during the next five years as these hurdles are dismantled by leading industry players. Connected TV devices are now poised to join a competitive mix of games distribution channels in the home alongside dedicated consoles, tablets and smartphones."

Hurdles Are Falling
The market for video games on TV traditionally has been dominated by dedicated consoles. Other distribution channels serving interactive TV games have failed to find any significant competitive traction. However, this state of affairs is changing.

On the hardware front, the latest connected TV devices are now much more capable games machines compared to legacy pay-TV STBs. Like smartphones and tablets, which are making significant advances in chipset power, graphics capability and storage, connected TV devices are following suit with similar components.

Furthermore, remote control technology has advanced significantly, with consumer electronics manufacturers deploying more flexible solutions to cater to the cross-section of content that is available through their connected devices. These solutions include built-in gesture control and remote apps on smartphones and tablets to enable touch-screen inputs.

One major hindrance to the interactive TV games market was the fragmentation of pay-TV STB middleware. However, the industry is starting to offer solutions to this fragmentation issue. These include collaboration among consumer electronics manufacturers LG, Sharp and Philips; support for platform-agnostic deployment and run-time environments such as Adobe's AIR; and third-party publishing networks that help content owners get their games to market through companies such as PlayJam.

Lastly, progress is being made in the area of user monetization and the rollout of effective billing and payment relationships and mechanisms. Still, IHS says, more needs to be done to deliver comprehensive solutions for this global opportunity.

Companies on the Hunt
The value chain for games content is already very active. Samsung and LG have been most aggressive in pursuit of video games and similar content for their IETVs, acquiring content direct from developers, from publishers, from internal development teams and from third-party content aggregators.

IPTV operators such as China Telecom and Shanghai Telecom have also been receptive to games content in a bid to differentiate their services.

A handful of third-party games stores, networks and publishers are active in this market. These include Canada-based Transgaming and UK companies Accedo Broadband and PlayJam. Of these, PlayJam has the most extensive set of OEM distribution relationships. The company offers an end-to-end service specifically for games developers, which includes deployment tools, a marketing and distribution network, and access to its range of APIs that cover billing, community features and analytics.

"There are already a large number of companies bringing games content to connected TV devices,” Harding-Rolls says. “Based on the quick evolution of previous digital games markets and the time it takes to develop the necessary relationships to get content published across devices, gaining first-mover advantage is likely to be key to the connected TV games sector. Additionally, those third-party companies that offer solutions to major market hurdles such as market fragmentation and consumer billing are well-positioned to benefit in the short to medium term."