Unformatted text preview: [ELECTRONIC ARTS AND THE GLOBAL VIDEO GAME INDUSTRY] May 17, 2011
WHAT ARE THE BUSINESS AND ECONOMIC CHARACTERISTICS OF VIDEO GAME INDUSTRY?
A distinguishing feature or attribute of an item, person, phenomenon.
Economic characteristics describe the economic conditions, economic statistics of a company in a
particular city, state, country, etc
Business characteristics is a collection of effective, efficient related, activities or tasks that helps to
produce effective or to deliver a specific service or product (serve a particular goal) for a particular
customer or customers in a any market.
Business characteristics of video gaming technology
When the video gaming industry was born in the 1980s it was a golden opportunity for aspiring gaming
developers who wanted to successfully enter the field. The graphics were not very sophisticated and
anyone who had the fortitude to take the initiative to learn the programming skills that were entailed in
developing a video game could successfully penetrate the field.
Even with Stone Age programming languages such as BASIC or FORTRAN, the technology was fairly easy
to understand when developing a simple video game that hobbyists of the time would find entertaining
As technology has evolved, the rules for being successful in the gaming industry have become more
complex. Thirty years ago, a high school student in his bedroom could build a video game that could
make the Top 50 list.
Today, a company could require a team of a hundred or even a thousand developers to accomplish the
same feat. The question many entrepreneurs are asking themselves is whether or not it is possible for
them to be successful in the video game industry and what they must do.
It is still possible for entrepreneurial ventures to utilize gaming technology to develop a product that
their customers are going to be inspired to play. One of the key strategies is to use one of the free game
engines available over the Internet, such as the Reality Factory Game Engine or Yoyo games. This may
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not give developers the opportunity to compete head on with companies such Electronic Arts, but they
can still be a profitable alternative to developing a high quality game from scratch. Another option is to
outsource some of the development functions. It can be especially valuable for companies to outsource
some of their work overseas where they can often get away with paying their programmers a third the
salary they would have to pay a local developer.
Unfortunately, it is not realistic for a new gaming venture to compete with large companies such as
Electronic Arts of Take-Two on their own terms. They are going to have to play by a different set of rules
and know that they are unlikely to sell a blockbuster game on their first attempt. One of the biggest
suggestions of amateur game developers is to keep the projects as small and simple as possible and try
to reuse code and graphics as much as possible until they have a better idea about how to compete in
The next major challenge that smaller game developers must face is finding a way to properly promote
and distribute their products. Since they are unlikely to get their games on the shelves of major
distributors and lack the finances to fund a large marketing initiative, they must use some creativity to
promote their way to success. Popular options these days include distributing these games through
social media sites and selling them through popular websites for gaming hobbyists.
Wooga is a great example of a company that has created a simple game that has become very successful
because they found a creative way to promote it. The popularity of social networking sites and hobbyist
web rings may be the salvation for video game developers wanting to fulfill their dream of creating their
own video game company without spending tens of millions of dollars in acquiring the technology or
marketing their product in order to compete with large developers. The maxims that amateur
developers should live by can be summed up as keeping their projects simple and applying creativity in
both the development and distribution of their products.
ECONOMIC CHARACTERISTICS OF THE VIDEO GAME TECHNOLOGY
In 2003 ,the video game industry represented a $31 billion global market up sharpely from about $10
billion in 1995.The industry consisted of makers of video game consoles,handheld players,and arcade
machines;game developers who developed games for play on both personal computers and various kind
of video game machines;retailor of video game players and video games;and companies that had
websites for online game play.Video and computer games were an unforeseen by- product of advancing
chip technology .Faster chip processing speeds and growing graphics capabilities opened the way
forgame developers to put players in the midst of all kinds of action -filled situations.During the
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1990s,video game developers created increasingly sophisticated,multifeatured games that allows
players to compete in a host of sports and racing events,pilots supersonic fighter jets and spacecrafts to
defend against all manner of enemies.From 1985to 1994,Nintendo and Sega dominated the market for
video game consoles with combine market shares of around 90 percent.In 1995,competitive rivalry in
video games in video game took on a new dimension when sony entered the market with its new
playstation.Nintendo and Sega,the long time industry leaders,found themselves in a fierce battle with
sony,and other small-share console makers scramblesd to generate enough sales to survive.In the
united states,Sony s playstation captured a 70 percent market share,with Nintendo at 26 percent and
Sega at only 4 percent.The entry of microsoft s Xbox in 2002 made the video console business a fierce
three way contest.total sales of playstation 2were expected to reach 100 million units by 2005,making
the playstation 3 the odds-on favourite to keep sony as the market leader in video game hardware.video
game industry sales were projected to reach nearly $ 39 billion worldwide by 2010. Page 3 of 22 [ELECTRONIC ARTS AND THE GLOBAL VIDEO GAME INDUSTRY] May 17, 2011
conduct a five-force analysis of the industry . is the industry attractive and what is the potential
profitability for new entrants?
Porter s Five Forces Model Porter s Five Forces Model describe competitive forces which are industry members facing.
y Competitive pressure associated with the market manoeuvring and jockeying for buyer
patronage that goes on among rival sellers in the industry. y Competitive pressure associated with the threat of new entrants into the market. y Competitive pressure coming from the attempts of companies in other industries to win buyers
over to their own substitute products. y Competitive pressure stemming from supplier bargaining power and supplier-seller
collaboration. Page 4 of 22 [ELECTRONIC ARTS AND THE GLOBAL VIDEO GAME INDUSTRY] May 17, 2011
y Competitive pressure stemming from buyer bargaining power and seller-buyer collaboration. Five forces analysis of the industry Page 5 of 22 [ELECTRONIC ARTS AND THE GLOBAL VIDEO GAME INDUSTRY] May 17, 2011 Rivalry among competing seller:
1. Competitive pressures associated with the jockeying among rival sellers For global game industry,
every company competes violently. From 2000 to 2005, the video game industry represented from $24
billion to 35 billion global market Every company produces video games for different consoles. Consoles
are developed in new generations fast, game developer should compete to gain license for new
generation console.(stronger) Every video game developer have good capability in faster processing
speeds, digital and high-definition graphics capability and on line connectivity to develop new game or
new game-playing device, by those ways, they can easily to attract extended consumer The Five Forces
2. Competitive pressures associated with the threat of new entrants To enter the game industry is
difficult because new entry should possess high technology skill, high capital and well distribution, it s
not easy to new entry Entry barriers of global video game industry are high because every global game
industry companies cooperates and competes with each other, they have force to influence this market,
and new potential entrants are not easy to enter this market According to case, game develop cycle for
PS2, Xbox were typically12 to 24 month, but developing game for PS3 Xbox 360, and Wii could take from
12 to 36 month, it would take a lot of money to support development. If a company who do not have a
lot of asset and experience, it s difficult to enter global video market.
3. Competitive pressures from the sellers of substitute products : Substitutes are attractively price:
Consumer can choose entertainment which cost them lower price than play video game when they have
free time, such as movies, DVDs, or music Because many people spent a lot of time playing video game,
their parent, spouse, or relative will be unhappy. It will cause game players to choose other substitutes
active which are more healthy to do, like travel, and shopping with their relatives 3. Competitive
pressures from the sellers of substitute products 4. Competitive pressures stemming from supplier bargaining power and supplier-seller collaboration
Because of economic scale, game developers can easily negotiate volume discount, game developer s
suppliers are not easy to refuse their request There are many third-party vendors that can produce
game titles, pressing of CDs or DVDs and printing of user manuals for game developer companies, game
developer companies can easily to choose one of them Game device companies sell their own games
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license for game developer to produce, and game device companies charge royalties from game
developers. Because most of those games have high demands, game developer should agree to
royalties; otherwise, game device companies can give license to other game developers 4. Competitive
pressures stemming from supplier bargaining power and supplier-seller collaboration
5. Competitive pressures stemming from buyer bargaining power and seller-buyer collaboration Because
game recycle is 50-90 days, there are many games released in a period. Consumers would like to play a
new game or new series game; consumer would not care about price For retailers, because new releases
game is very popular, retailer is net easy to deal price with game developer, they should get more
inventory for their consumer purchasing For a game device company, they might have power to deal
price with game developer. Some games which are designed by a game device company are very
popular. If game developers do not decrease price, game device companies might give license to other
game developer 5. Competitive pressures stemming from buyer bargaining power and seller-buyer
the industry attractiveness and potential profitability for new entrants:
The video game industry must be one of the most attractive areas to invest in right now. The business is
booming, growing far faster than anyone predicted, as it makes the transition to being popular
entertainment for the masses. And the industry is still at its very beginning, it will grow to be bigger than
movies and TV combined as it leverages its key advantages of interactivity, connectivity and non
linearity. Following are the statistics of video game industry which clearly shows that industry are highly
Actual and projected size of the global market for video games, 2002-2010(in millions)
Actual Actual Projection Projection 2002 2003 Console Hardware $7,187 $6,047 $6,445 $5,358 Console Software(both 14,922 16,449 13,696 13,077 1,307 1,501 1,925 1,206 2007 2010 sales and rentals)
Handheld Hardware Page 7 of 22 [ELECTRONIC ARTS AND THE GLOBAL VIDEO GAME INDUSTRY] May 17, 2011
Handheld Software(both 2,326 2,238 2,693 1,602 3,707 3,806 3,135 2,617 Broadband 290 497 2,137 4,106 Interactive TV 133 249 1,955 4,130 Mobile phones 243 587 3,783 6,928 Total $30,115 $31,374 $36,042 $39,024 sales and rentals)
PC Software(both sales
and rentals) In recent years the industry has fragmented into many genres on many platforms, this trend will
continue for some time. Also, technology has changed the marketing, sales and distribution model,
significantly reducing the entry cost into many areas of game publishing. And there is the constant
specter of piracy, with over half the video games in the world being stolen it is important to invest in
areas where at least a majority of customers actually pay for playing the game.
The Nintendo (NTDOY.PK) Wii is not worth developing for. It is nearer the end of its life cycle than the
other two consoles and it is mainly first party games published by Nintendo themselves that sell. Third
party titles from other publishers are mainly low quality shovelware that have now frightened the
The two handheld consoles, the Nintendo DS and Sony PSP are also not worth developing for despite
the immense numbers of these that have been sold. Quite simply, piracy has ripped the market up.
Vastly more people will steal your game than will pay for it.
Casual gaming is huge and probably growing faster than any other area of gaming. The ability to just
drop in and spend a little time having fun then log out and get on with the rest of your life is very
convenient. Far more appealing to many people than the commitment needed by hardcore games.
There are 200+ million people who play online casual games every month. Both downloadable and
browser games. Services such as Pogo.com,Sandlot Games, Big Fish Page 8 of 22 [ELECTRONIC ARTS AND THE GLOBAL VIDEO GAME INDUSTRY] May 17, 2011
Games, Boonty, PlayFirst, Reflexive, RealArcade, and Trymedia Systems. Games are cheap to develop
using Flash but the average quality is still very low, something that will change as the market matures.
Revenue can come from advertising, premier membership and micropayments.
Traditional boxed PC retail games that have been with us for decades are just about dead, with most
publishers giving up, killed by rampant piracy. Instead, there is a new breed of PC game centering on
online play and sometimes episodic content. With unique user keys and services like Steam these can be
made largely pirate proof. The PC game reinvented.
Mobile phone gaming has been declining in popularity, largely because the market is doubly
fragmented. Too many different platforms and too many different air time providers make it almost
impossible as a business model. All this is changing immensely rapidly with gaming on the Apple
iPhone(AAPL) and the reinvention of Nokia (NOK) nGage as a software based gaming platform. These
two will certainly overtake casual gaming to become the fastest growing sector of the business and have
the potential to grow to become one of the major forms of gaming. This is the most exciting place to be
There are still more valid business areas in gaming. All three platform holders now sell games online.
These are smaller and easier to make then their full price boxed equivalent and the revenue stream is
steady over a long period rather than spectacular over a short life. This business can only grow and grow
and is well worth investing in, just make sure that you put marketing effort behind your games on these
services, you can t expect good sales otherwise.
Finally there is gaming on the social networking sites such as Facebook and MySpace. This is still small
but has massive potential in video gaming technology. Page 9 of 22 [ELECTRONIC ARTS AND THE GLOBAL VIDEO GAME INDUSTRY] May 17, 2011 Q #3
How is the industry changing? What are the drivers of change and how might they change the
industry structure? What are the key success factors of that industry?
A number of factors had contributed to growth of the video game industry during the 1990-2003 period.
Drivers of change:
y Broader game content y The evolution of video game consoles into multifaceted entertainment devices y People who started out playing games in the 1980s were staying in the market and playing in
their 30s and 40s y There had been quantum leaps in the quality of both graphics and play y Growing ability on the part of video game developers to capitalize on expanding action movies
into popular video games. y The growing capability to play games online, often in hand-to-hand competition with other
online players. How might they change the industry structure:
y Broader game content
In 2003 , video gaming offered entertainment for the masses, with games involving sports,
racing,action , adventure ,edutainment, shooting, fighting and a host of childern s games and
family entertainment games. y The evolution of video game consoles into multifaceted entertainment devices
People could play DVD movies and music on games machines, expanding the entertainment
value for families. y People who started out playing games in the 1980s were staying in the market and playing in Page 10 of 22 [ELECTRONIC ARTS AND THE GLOBAL VIDEO GAME INDUSTRY] May 17, 2011
their 30s and 40s
Demographic research indicated that growing numbers of young adults were continuing to play
video games past thei teenage and college years. Sports and NASCAR racing were appealing to
adults, as were games with mature content. y There had been quantum leaps in the quality of both graphics and play
Moreover , another huge leap was coming in next generation cansoles scheduled for
introduction in 2005-2006. The chip design in next generation video game consoles featured a
revolutionary new architecture that packed the processing power of a hundered 2003- style PCs
onto a single chip and, further tapped the resources of additional computer using high-speed
internet connections. The next generation consoles, expected to retail for about $300, would
have the ability to render real life images, record TV shows, surf the internet in 3-D, play music,
and run movielike video games. y Growing ability on the part of video game developers to capitalize on expanding action movies
into popular video games.
Games developers and Hollywood movies studios were becoming increasingly aware of the
merits of working hand in hand on projects like a Harry Porter, Spider-man, lord of the rings or
james movies that had both the action components and widespread interest (especially among
teenagers) to make a good game. Releasing a game in conjunction with a hit movie could
increase sales by three or four times. Sometimes, film stars recorded diagnose for video games
and special scenes were filmed specially for use in a game. Game designers would take a movie
script and add to the storyline, making it more mission rich multifaced that what appeared onscreen. y The growing capability to play games online, often in hand-to-hand competition with other
Online gaming had allowed game designers to extend their storyline by providing new chapters,
adding new missions and introducing new characters, thus hooking enthusiasts into playing
through a never ending story. Sequels of sports games with the latest players roster and team
schedules spurred continuing interest on the part of online players. Most observers contended
that online gaming gave game developers a wider vista of game-designing options that any
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other prior technology.
key success factors of that industry : The growth in interactive entertainment was expected to continue as game-playing hardware
and software continued to improve , hardware and broadband penetrated more homes, and
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