MARKET

The worldwide video game industry, with revenues of $31.5 billion last year, overtook movie box-office receipts, and sales are expected to soar to $55 billion by the end of 2008, according to PriceWaterhouseCoopers.

While broadcast TV audiences dwindle and moviegoing stagnates, gaming is emerging as the newest and perhaps strongest pillar of the media world. So it's no surprise film studios, media giants, game makers, and Japanese electronics companies are all battling to win the Game Wars. "This is a huge shift we're seeing, and nobody wants to be left behind," says Sony Entertainment (SNE) Chairman Michael Lynton.

Over 120 million people a day play online games. Plus another 200 million people will be playing next year according to Forrester Research.

In fact, 7 out of 10 college students are playing an online game EVERY DAY! To top it all off, golf is the fastest growing sport in the world. NuSkyWay has combined online gaming and golf to create the next generation of online millionaires! It's the "perfect storm". VIDEO GAMES

Consumer demand for interactive entertainment is at an all-time high, mostly due to mainstream acceptance of video games. The average online consumer spends 3.3 hours per week engaged in video games compared to an average of 10 hours of television watching. One-third of gamers play for greater than 5 hours per week and 8% play greater than 15 hours per week (Source: GDC 2004 Developer Business Summit). GOLF

Golf is one of the most popular sports in the world today. In 2003 in the US alone, there were over 38 million golfers who played nearly 500 million rounds of golf on approximately 15,000 golf courses. According to the ESPN Sports Poll in 2003, 19.3% of persons over the age of 12 indicated that they do play golf. Clearly, golf is a major sport with an intensely popular following.

Sports Video Games Are a Large Proportion of the overall Video Game Market

Video games based on sports are a significant portion of the video game market, capturing 17.6% of overall sales by units sold in 2003. While the majority of sports video games are related to football, there is an undeniable "halo effect" that surrounds sports video games in general with a popularity and mainstream cachet rarely found in other genres. Additionally, sports video games are generally multiplayer and competitive in nature which tends to increase the demand for online gaming.

Source: ESA 2005 Sales, Demographics and Usage Data Growing Consumer Demand for Online Gaming

Online gaming has been a powerful force for change in the video games industry. With the ubiquity of the Internet and its ability to bring connectivity, video game playing has been transformed from what once was a generally solitary endeavor to what has now become a social activity. Indeed, multiplayer modes and online multiplayer modes are becoming standard features on video games of all genres. The figure below illustrates the increasing trend in online gaming: 43% of most frequent game players say they play games online, up from 37% in 2003 and 31% in 2002. Upward Trend in Online Gaming

Source: ESA 2005 Sales, Demographics and Usage Data

Online gaming has become popular across all video game genres. At the "hardcore" gaming level, World of Warcraft (created by Blizzard Entertainment), a massively-multiplayer online video game released in 2004, has already shattered previous concurrency records in North America, achieving over 200,000 simultaneous players at one time. On the "casual" side of video gaming, services like Yahoo Games, MSN Zone and Pogo attract tens of millions of users and at any given time will have 150,000 to 200,000 simultaneous players each. On top of that, for many services a high percentage of their users are adult females, a demographic that has historically shunned video games. According to the ESA 2004 Sales, Demographics and Usage Data report, 40% of online gamers are female. Higher Broadband Penetration Increases Online Gaming

Low-cost, high-speed broadband is driving the evolution of gaming and industry distribution models. Broadband services are typically defined as 200 kilobits per second (Kbps) or faster over fixed lines (cable, DSL, etc.). Today U.S. broadband typically delivers data rates of 200 kbps to 10 megabits per second (Mbps). Data rates of 100MBps to 1 gigabit per second (Gbps) are deployed in few markets. The total number of broadband cable and DSL Internet subscribers in the US is anticipated to grow to nearly 49 million by the end of 2007 (Leichtman Research Group, 2003). The relationship of broadband to network game adoption is evident in N2 Networks' assessment: "When broadband penetration reaches 25% of Internet households, online games become a dominant form of online entertainment for all ages".

Correlating Broadband Penetration and Online Gamers Source: Digital Gaming: A Technology Forecast (The IC2 Institute) Increased Numbers of Gamers Means Unfulfilled Gaps in Video Game Demand

According to Michael Gartenberg, Vice President and Research Director, Jupiter Research, when he spoke at the GDC 2004 Developer Business Summit, the average gamer today is twenty-five years old and by 2009 is expected to reach twenty-nine. Currently, the favorite game genre is dominated by low-intensity puzzle and board games but software revenues are driven by action/arcade titles. This presents an opportunity because there is clearly a group of consumers interested in games that has not reached its full revenue generating potential. The older market is extremely important because the older consumer exhibits diverse tastes in genre and is increasingly becoming connected to the Internet. However, the preferences of this older demographic have not necessarily been satisfied by the current video games on the market.

Source: ESA 2005 Sales, Demographics and Usage Data