The Sims Social: Revenue Forecast and Growth Potential

While it looks like The Sims Social may have lost its chance to pull ahead of Zynga's CityVille in traffic during 2011, the game could potentially be one of the top-grossing Facebook games of the year. EA Playfish's life simulation game has captivated the media with its massive growth, but as the game enters the mature part of its lifespan -- where traffic decreases as average revenue per user rises -- we turn our attention to the revenue potential, estimating an annual run rate of at least $82 million to $163 million. Our bullish estimate is based on the game's current demographic spread and monetization activity, EA Playfish’s probable expansion plans in the next few quarters, and the overall strength of the Sims franchise brand. This report will explore key factors behind this revenue forecast in greater detail. Demographics of Sims Social Tom Mapham, executive producer for The Sims Social, reports that the game’s largest player demographic is between 25-35, slightly skewed female. Mapham believes a significant percent of these players were PC or console gamers who became familiar with the Sims franchise in their teens. This demographic pattern contrasts significantly with the bulk of previous Playfish games, such as Restaurant City, which is 65% female and a majority of players 25 and younger. Compared to these and many popular social games, The Sims Social appeals to an older, more gender-balanced playerbase. This has important implications for monetization: According to data collected for our Inside Virtual Goods report series, male gamers between the ages of 18 to 34 tend to monetize in freemium games at higher rates than most other demographics. If Mapham is right, it's probable this segment will contribute significant revenue to The Sims Social, joining the “Facebook moms” segment who are already prone to monetize at high rates. Monetization: Revenue Estimates and Virtual Goods in The Sims Social Our forecast of The Sims Social's $82 million to $163 million annual run rate is based on two key assumptions: - That The Sims Social game generates $1 to $2 in revenue per month per daily user, per month. This is a typical revenue pattern for a well-monetized simulation game, according to Inside Virtual Goods. - That EA Playfish can sustain or exceed the game's current levels of engagement for a full year. The Sims Social currently has 6.8 million DAU, and therefore, we estimate it to be earning $6.8-13.6 million in revenue per month, which annualizes to $82-163 million. However, it’s probable that total revenue will be closer to the high end of this forecast, due to the game’s very monetizable user demographics (see above), and EA Playfish's expansion plans and merchandising (see below). This estimate is within range of forecasts from two leading video game industry analysts. The first, M2 Research Senior Analyst Billy Pidgeon, estimates that Sims Social will earn $110 million in annual revenue or fall somewhere in a range of $100 million to $120 million. His forecast assumes that 3 to 5% of the playerbase will convert to paying customers, with 3 to 5% of that monetized segment becoming “whales,” (defined here as users that spend in excess of $25 per month on at least one game). Pidgeon's revenue estimate also takes into account a certain percentage of churn-out after eight months, and relatively strong overall conversion rates. In this, he cites an October analysis by Raptr, a consumer-facing gameplay tracking service, which reports strong conversion of its userbase to EA Playfish’s Facebook game. Pidgeon stressed that $110 million is a conservative estimate, “and it could certainly over-perform,” even taking into account the volatile market of social gaming. The second analyst, Wedbush Morgan's Michael Pachter, estimates The Sims Social to be earning $80 million to $160 million in annual revenue. “Electronic Arts said at a recent conference that it expects 2 to 4 cents per DAU,” he tells us. “So roughly 10 million DAUs time 365 days times $.02 equals $73 million at the low end and $146 million at the high end.” For his published estimate, he rounds up to the $80million to $160 million. Again, the more bullish forecast which approaches or exceeds $163 million in annual revenue is due to the high number of male gamers 25-35 playing The Sims Social, who tend monetize at higher rates than most other age/gender segments. On top of this, recent and upcoming additions to the game will also increase Sims Social’s revenue potential. What Sells in Sims Social: Categories and Trends In terms of the particular virtual goods that generate the most revenue in The Sims Social, Playfish’s Tom Mapham reports two categories: Gameplay or consumable boosts -- One-use items that expand or enhance a player’s gameplay, like energy refill items. Durable virtual goods -- Items that are persistent in the game environment beyond a single use. In The Sims Social, this is largely decoration items for the player's Sim, the Sim's virtual home, or items with functional benefits that satisfy the Sim's needs. As the needs mechanic is a core gameplay element to The Sims Social, this provides a unique revenue stream for the game where players are more or less required to purchase items like beds or toilets to achieve winning conditions in the game. Durable virtual goods that enable new gameplay experiences -- Building off of the needs-satisfying items described above, this category of virtual good allows the player to engage in different gameplay activities when purchased. For example, a single-bed allows the player's Sim to perform sleeping or napping actions while a more expensive double-bed item allows the Sim to engage in sleeping, napping, and sexual intercourse actions (referred to in-game as "WooHoo"). Other items -- like a stereo or a gazebo -- allow Sims to dance. These item-based interactions also feature a viral component where a player can share the activity on other players' Facebook Walls, thereby attracting more users to purchase the item. Near-Future Growth Potential for Sims Social As our AppData chart below indicates, The Sims Social has recently entered a period of decline across monthly and daily active users as the game transitions into the mature part of its lifespan. (Note that the mid-October sharp drop in MAU reflects a Facebook update to its accounting methods for active users across all apps.) It is typical for most social games to experience a tapering off effect in their third or fourth month as users with lower lifetime value exit the game and high lifetime value users remain. However, during EA’s Q2 FY2012 earnings call in late October, executives hinted that the company planned to drive second stage user growth in The Sims Social with "expansions." This term can be applied to small-scale content updates or larger gameplay experience adjustments or additions that run within the app.While declining to detail specifics, EA Playfish’s Mapham indicates that these new features would be similar to the Sims franchise's popular expansion packs, which tend to offer new gameplay experiences -- for example, the recently-released Pets expansion for The Sims 3 PC game. Based on both past performance of Sims expansions and social games currently experimenting with similar content, these additions will likely drive a new growth curve that lasts approximately one to two months. Additionally, EA is currently exploring merchandising options that could bring new users into the game. For example, in October, the company launched a $15 Facebook Credits gift card branded with The Sims Social that also included a special Sims Social item included in the purchase. Good through Christmas, these gift cards will be sold at Walmart, placing The Sims Social in one of the world’s largest retail chains. Our “Future of Social Gaming 2011” Inside Virtual Goods report estimated the total market opportunity for prepaid cards to be $200-250 million in 2010 revenue, with compound growth rates of 50% to 100% expected for 2011. Much of this revenue will be earned by top Facebook games like The Sims Social. For a rough and conservative estimate, assume 3-5% of The Sims Social's monthly 36.5 million users purchase one of these Walmart cards (or are given them as gifts). This would translate to $16 to $27 million in revenue on top of revenue earned directly through the game. In addition to the Walmart prepaid card, the existing brand awareness of The Sims franchise cannot be overstated. The Sims has sold over 140 million copies, including sequels and expansion packs across multiple platforms since the original game launched in early 2000, with the latest expansion, Sims 3: Pets, just released for PC, Mac, PlayStation 3, Xbox 360, Nintendo 3DS, Wii, and Nintendo DS. As awareness and sales of this expansion and other Sims offerings continue over the holidays and beyond, expect some carry over interest to benefit The Sims Social. Whereas most social games rise or fall on the strength of the game experience, EA Playfish’s offering also has over a decade of market awareness and broader franchise strength to draw from. Final Thoughts on The Sims Social's Place in Social Gaming History The Sims Social is unique among social games both in its PC game franchise origins and in the massive growth achieved on the Facebook platform. Given the both the game's size and the clout of its developer, it's inevitable that comparisons to Zynga's CityVille will dominate media discussion as EA continues to release games on Facebook and Zynga moves closer toward its IPO. This discussion lacks context, however, as The Sims Social is a completely different gameplay experience and a much younger product with just 83 days of life on Facebook so far. Rather, we learn more from examining the revenues of The Sims Social, finding that as new game types are adapted to social network platforms, games kind find new -- and more profitable -- ways to monetize.

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The Sims Social: Revenue Forecast and Growth Potential

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