Strategy Shaping Economy and Business of Video Game Console Industry - Case Study Example

Running Header: COMPETITION IN THE VIDEO GAME INDUSTRY Student’s Name: Instructor’s Name: Course Name & Code: Date of Submission: Strategy shaping economy and business of video game console industry. An over view of video game industry is categorized based on its software, hardware, infrastructure and enabling technologies. These subsectors have varied development and interest levels for undertaking business enterprise investment. Video game console industry has proved to be maturing, extremely competitive and capital intensive. Video game industry is vastly taken to be maturing on daily basis, quite competitive with its practices and structure; it is similar to other medias but with a higher level of complexity. Video game consoles consist of computing devices specifically designed to play online and offline games. Earlier on they were stored on interchangeable discs or varied cartridges but currently they are on format based CD/DVD. The unpredictability of video game console industry’s structure is as a result of changing technology and business preferences made earlier by the firms. Each firm comes up with a system incompatible with others; this encourages a standard-based industry leading to an oligopolistic market at the hardware level. The market face a lot of network externalities therefore each competitor strives to attain its system’s peak point thus dominating the global market while those notwithstanding are forced out. Video game industry is extremely centralized. Based on market analysis in 2000, Sony had 47% coverage, Microsoft and Nintendo had 28% and Sega had 23% (quit console business in 2001 due to stiff competition) as illustrated by Flew, etal (2005). Sony targeted video game professionals and their children, while Nintendo targeted middle-class segment who were mostly children. The video game industry is marked by opportunities and an enormous growth in technology. Nonetheless, the industry greatly depends on corresponding resources; console reliance on video games and its uniqueness. The industry’s achievement also depends on compatibility with older versions of the console and the ability to adjust to evolutionary strategies rather than sticking to obsolete ones. Competition in the video game system industry The classic competitive forces in the video game industry are categorized in to: 1) Threat of market entry: the risk of new entry by prospective competitors. 2) The Power of Suppliers: the bargaining power strength of suppliers 3) The Power of Buyers: the bargaining power strength of buyers 4) The Threat of emerging substitute: the competitive force of substitute products 5) Rivalry among existing competitors: the degree of rivalry among established companies Weak suppliers’ bargaining power The makers of video game consoles such as PlayStation, XBOX and Nintendo are very choosy on which game developer to employ in accordance to the kind of game to be produced. Entry barriers are enormously strong It is extremely probable that threats from fresh competitive ventures will have a negative impact on core producers’ yield. Availability of internet is quite fundamental as it gives opportunity to any company to do brand awareness and to push their product to the market. Weak buyers’ bargaining power It is the weakest competitive force in the video game console industry. The feature of bargaining power depends on what the video game console has in relation to what the customer needs. Currently, Electronic Arts have been adamant in producing supplementary style games thus losing some potential customers. However, with a greater variety of sport games they still enjoy a market lead in most video game consoles. Rivalry among existing competitors Microsoft, Sony and Nintendo are all competitors of Electronic Arts; therefore rivalry among them is quite strong. This has enabled them to strive to make their own video games based on their platform brands as argued by Losh (2005). Electronic Arts (EA) is the principal market leader in the video game console industry. However, the market trends fluctuate annually due to the ever shifting technology and changes in customers’ needs. It is also worth noting that Microsoft, Sony and Nintendo are not compelled to apply Electronic Arts developments. Based on thorough analysis, it is worth noting that the emergence of substitute product is the strongest competitive force. Therefore, purchasing power is quite broad amid the various options available to the customers. Changes in the video game system industry Video game industry structure is shaped by a greatly autonomous network of publishers, developers, manufacturers and retailers where each firm has several roles. Underlying drivers of change in the video game industry Console manufacturers According to Middleton & Harper (2003), video game business requires a lot of capital and at times a form of risk taking adventure. Consoles are sometimes sold at a loss but often compensated by hefty profits obtained from video games from which they get a license fee or $10 per copy from developers and $1-$3 from publishers as highlighted by Losh (2006). Attracting new and innovative developers to initiate various titles is quite fundamental. It is also very significant to sign exceptional deals in conjunction with developers thus becoming extraordinary and lead the market with advanced new games operated through a definite video game console. Developers Developers are generally dependant on publishers as well as manufacturers since video games are becoming quite complicated and their costs keep on increasing. On average, 50% to 70% of the business is controlled by publishers and therefore, developers have to pay up to $20,000 for toolkits provided by console manufacturers as illustrated by Anderson & Dill (2000). Achievement of objectives set by a particular Video Game industry principally depends on swift, creative and successful generation of video games as well as applicability and use of the game. Publishers Publisher’s role is to fund, manufacture, advertise and distribute video games in the job market. In addition to that, they play a crucial role in game development, funding independent developers’ projects and at times involved in purchase of developers’ firms. Publishers are categorized into first party or console manufacturers and third party publishers. Retailers The retail channels involved are games and computer stores, internet and video games renting. Retailers play a vital role of providing good bargaining power; therefore their individual sales advice is very significant for customer choice and in turn necessitating constructive changes in the video game industry. Strategic group map of the video game industry Video game industry is divided in three market segments namely the game consoles, handheld consoles and wireless/cell phone devices; they all have exceptional characteristics but all give a view of the market share, products and competition. Game Consoles Video Game consoles are computing devices designed to principally play games; they come on interchangeable discs or game cartridges. Microsoft, Sony and Nintendo are the main players in the job market currently. Sony and Microsoft battle directly in the teens to adult gaming segment, while Nintendo concentrates its product on the younger group thus encounter less competition. These video game consoles are comparatively immobile and typically linked to a television. Microsoft and Sony’s advanced technological know-how and availability of marketing resources enabled them to enter and dominate the market. Technology keeps changing with each generation of video game consoles, therefore, relationships with suppliers like graphics chip makers is very critical. New entrants face the challenge of an already installed base of users and software that is already at the market. Handheld Consoles Handheld consoles are commonly mobile devices possessing multiple games predominantly intended for use in video gaming. Nintendo GameBoy products, Nokia N-Gage (mobile version) and Sony PSP are examples of hand held consoles. Nintendo’s GameBoy product makes it to be an overriding player with almost 100% market share. The market dynamics are comparable to those in console gaming, where considerable capital and infrastructure are required to challenge the new market entrants. Zodiak handheld was launched last year based on the Palm operating system platform and their target is to sell a combination of music, gaming and organizer device. However, the device targets serious gamers since the product is incorporated with a graphics chip. Its acceptance rate is quite uncertain due to its recent introduction to the already competitive market place. Wireless/Cell phone Devices Most cell phones initially had fairly basic games pre-installed in their system. Lately, though, this has improved with the advent of wireless data services as well as advanced video gaming. Therefore, cell phone devices are increasingly being used on various gaming gadgets platform. The key market players are Nokia, Motorola, Samsung and Sony Ericsson; each of them enjoys good relationship with existing carriers, its component suppliers and business retailers. It is apparent that new entry into the market devoid of these relationships is extremely difficult and in particular on the carrier side. Wireless and Cell phone devices continue to develop with the addition of fresh features like cameras and advanced functionality. Generally, hardware markets are fairly mature and often highly competitive it is quite evident that it is hard for a company lacking established relationships, adequate capital and a current technology advantage to compete. Video game industry is quite cyclical with an average of five years between each new console appearance. Based on analysis, it is really imperative to launch a product in the middle of the cycle in order to be always viable. Barlow, (2007) argues that the foremost hitch faced in this industry is piracy; it reached a 37% level in 2000 thus affecting margins and net sales. During the year 2000, there was 60% access of the market in United States of America and thereafter there has been a tremendous penetration. A broad selection of games and fee ranges are accessible for consumers to aid them make a wise decision based on the choice they want. Compatibility and practical performance with latest models are very crucial factors put into consideration by consumers. If a consumer prefers a competitors’ consoles due to soaring costs and games inaptness rather than high cost of console in addition to cost of new video games’ compatibility with a new console, it would be quite hard to attract nor convince them. The hybrid devices are in the best position though a strong demand for such devices has also led to multiple failures in the market of video game industry. However, new entrants in each of the above mentioned segments are considered to be at the worst positions due to confirmed continued failure in the highly competitive market. Key factors determining the success for video game console producers. 1. Production of appealing goods: video game console goods and services should be attractive to the targeted consumers. 2. Quality of the product: Consumers are fond of scrutinizing very keenly the available video game console products at the job market. They compare, check for any damage and examine the material used to manufacture the product. Therefore, the products’ quality is imperative to decision making by the consumers probable to buy the product and in turn determining the success of video game console. Video game Products manufactured from cheaper material are not frequently purchased; most consumers prefer to go for an improved quality product made from a good quality material that lasts longer.   3. The availability of credit conditions: offering especially middle class consumers the condition of purchasing a good or service that is quite expensive on credit or acquiring it through a loan has enabled growth and success of video game console industry. 4. Consumers’ age and gender:  Most boys would prefer to buy video games such as playstation and Gameboys unlike girls who will opt to go for makeup, dress, and handbags. According to Paul (2005), consumers are from diverse groups of the society and also of all age set; 28% consist of a group below 18 years, 30% forms an age group of 18 and 35 years, 42% generates a class of over 35. Based on gender, 43% of video game players are women with an average age of 29 while the rest consist of men. Therefore, consumers’ age and gender play a crucial role in the success of video game console industry. 5) Video game industry is dependent on the games produced and distinctiveness of these games in the market, therefore its key success will also depend on the game developer resourcefulness to make it possible for players to reach new levels. Consequently, new video games should have the latest features through utilization of available finance, ensuring brand recognition and greater market power. Most significantly, the technology supremacy should be replicated through the use of Mira technology and its internet connectivity, provision of team playing on-line and direct/normal access to the Internet. REFERENCES Anderson, C. A., & Dill, K. E 2000, “Video games and aggressive thoughts, feelings, and behavior in the laboratory and life”, Journal of Personality and Social Psychology, vol. 78, no. 2, pp. 772-790. Barlow, D 2007, Violent Video Game Effects on Children and Adolescents: Theory, Research, and Public Policy, The Education Digest, vol. 72, no. 6, pp. 792. Flew, Terry; Humphreys, Sal 2005, "Games: Technology, Industry, Culture". New Media: an Introduction (Second Edition). Oxford University Press. pp. 101– 114.  Losh, E 2005, In country with tactical Iraqi: Trust, identity, and language learning in a military video game. In Digital Experience: Proceedings of the Digital Arts and Culture Conference 2005.  Losh, E 2006, Making things public: Democracy and government-funded videogames and virtual reality simulations. In Proceedings of the 2006 ACM SIGGRAPH symposium on Videogames., 123–132. Middleton, P., & Harper, K 2003, Advergaming: A new breed of computer games, International Journal of Intelligent Games and Simulation, vol. 2. pp. 78. Paul S 2005, Kids playing more videogames, Video Business, vol. 25, no. 11, pp. 132. Read More