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Games developers turn to outsourcing to save industry

London, 9th March 2006: A quiet revolution is transforming the games industry as developers turn to outsourcing to control spiralling next generation costs. A new report from media research company Screen Digest - Outsourcing in Next Generation Games Development - reveals a sea change in games development that is resulting in significant expenditure being shifted to outsourced services providers, many located in Eastern Europe and South Asia.

The report estimates that the market for games outsourcing, which was of insignificant size only five years ago, will reach $1.1bn by the end of 2006 and is set to grow to $2.5bn by 2010. This will represent around 40% of total games development spend.

This market growth is being precipitated by the arrival of new games consoles from Sony, Microsoft and Nintendo. Average games development costs have spiralled upwards and threaten to undermine industry profitability. If unchecked, production costs for games developed for the new generation of consoles will increase by 50% - mostly driven by a rise in art requirements and the requisite support for high definition.

The report's author, Rick Gibson, says: "Every transition to a new generation of consoles is painful, but this one is proving much more difficult and more expensive than before. Outsourcing is one of the few effective strategies in use today by the world's largest games studios to keep costs, particularly resource costs, under control."

Screen Digest predicts that publishers, console manufacturers and developers will be able to cap rising costs to 20% by keeping team sizes stable and outsourcing large projects to specialist outsourced studios. Outsourcing is already common - it is estimated that 60% of games studios outsource to some extent today, with this figure rising to 90% by 2008.

Rick Gibson says: "Outsourcing is in wide use today, but it is not a magic wand. You get what you pay for in the trade-off between price and quality, but the real costs of outsourcing are often below the line. This is forcing the industry to undergo a fundamental shift towards stronger project management skills, which have been lacking in many organisations."

Outsourcing's common pitfalls include low quality delivery, and lack of due diligence and poor briefing by clients. Benefits include the reduction in development costs, accessing a flexible and temporary resource base, and focusing staffs work on higher value work.

Although there are just enough outsourcing providers to supply today's market, demand for quality art and animation will soon outstrip supply by experienced outsourcing providers who can supply the large teams of artists required for next generation development. The majority of these experienced providers are based in Eastern Europe, South Asia and the Far East.

The result of this undersupply will be rising prices, continued suppression of the number of new titles in development, an increase of financing into the games services sector, and a number of new market entrants, particularly traditional media companies, whose entrance will be slow, difficult but ultimately beneficial for the games industry as a whole.

Q: Editors' Notes

The data, forecasts and analysis contained in this press release are taken from a new Screen Digest report - "Outsourcing in Next Generation Games Development: Delivering Cost and Production Efficiency."

To find out more about this please contact sales@screendigest.com or call +44 20 7424 2820

Screen Digest is the pre-eminent source of business intelligence, research, and analysis on global audiovisual media. Screen Digest the journal has been published for more than 30 years and is read in over 40 countries. Screen Digest is primarily a research company and publishes a rapidly growing number of major business reports on media markets. The company also offers continuous online research services providing searchable access to a vast database of global audiovisual market research information. Screen Digest also provides single client consultancy services and has undertaken a wide variety of bespoke projects on behalf of numerous national and international organisations.

For further information on this report or to arrange interviews, please contact:

Fay Hamilton

dan.stevenson@screendigest.com

Tel: +44 20 7424 2820

Dan Stevenson

fay.hamilton@screendigest.com

Tel: +44 20 7424 2820

www.screendigest.com

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