First and Second Generation Console 1972 1985

Atari (2600) Controlled and dominated their market. Started with Pong and then integrated to a console that used interchangeable games (4bit system).

Third Generation Console 1986 1991

Nintendo (NES) 8bit system, created legendary games, and protected their systems to control the supply of games for their system.

Fourth Generation Console 1992 1995

Sega (Genesis) 16bit system, a more powerful systems and games selection propelled this system as market leader.

Fifth Generation Console 1995 1998

Sony (PlayStation) 32bit system, Used CD-ROMs which lowered fixed cost in game manufacturing.

Sixth Generation Console 1999- 2005

Sony (PlayStation2) DVD, Games, Graphics, Internet capabilities and power are the drivers for success.

Seventh Generation Console 2005 Present

Value and interactive entertainment, innovations are the drivers of success. Sales as of 2009 50.4 Million 26.7 Million 30.2 Million

Nintendo Wii PS3 Xbox 360

Video Game Industry

Porter s Five Forces

Threat of new entrants into the industry

0 The video game industry is unlikely to see many new entrants - Video game and console development, production, and marketing costs are very high. 0 Current industry strongholds (Nintendo, Sony and Microsoft) have refined their business processes and gained economies of scale. 0 Large Companies the industry will retaliate via marketing or pricing.

Bargaining power of suppliers

0 Suppliers in the industry are moderately powerful because the industry provides a unique, patented and technological product. 0 Firms depend on effective parts for gaming consoles, such as computer chips and video cards. 0 The industry faces threats that suppliers of hardware components could forward integrate and start producing their own gaming consoles.

Bargaining power of buyers

Buyers have a fair amount of power in the video game industry, especially for Nintendo whereas Sony and Microsoft have other sources of revenue. Buyers have options; if they are dissatisfied with Nintendo s game console or game offerings, they can buy from Sony or Microsoft

Threat of substitutes
0 Customers have a wide range of available substitutes, spanning over all sorts of possible forms of entertainment: television, movies, PC games, board games, literature, sports, etc.

Rivalry
0 Intense in the video game industry. Nintendo, Sony, and Microsoft continually compete to differentiate themselves from each other. 0 When one company introduces an innovative technology, the others must create even more advanced products.

Value Chain of the Industry

Component Manufacturers 0 Console manufacturers formulate their console designs by sourcing best of breed components. The Nintendo Wii is produced by the following components: Korean company Samsung supplies the DRAM memory chip. US companies supply the CPU and accelerator. The controller is provided by an ItalianFrench joint venture. And the wireless LAN and AC adapters come from Japanese companies.[1]

Console Manufacturers 0 Console manufacturers provide platforms that are designed primarily to play games, which are on interchangeable discs. 0 The manufacturers provide software development interface to publishers and game developers and certify the distribution of games. 0 They license games are used with their platform on commercial terms and heavily market and promote these games. 0 Of this $67 billion industry, console manufacturers capture $25 billion value.

Developer 0 Responsible for creating games the consumer will eventually play. Some developers are independent while others are very large. Large publishers consolidate development teams of their own and enter contractual agreements with outside developers.
0 Their primary role is to enter a cycle of trying and failing until they can produce a solidified product. 0 The process is three-phased. Phase one includes conducting research and designing an initial prototype. Phase two is implementation and testing. The final phase is mastering and forming the product [3].

Publisher 0 Publishers capture a $33 billion value the most out of any individual component in the industry s supply chain.
0 Key to linking developers and distributors they pay for the development of games and through market research identify which titles they will pursue and ultimately pass on to distributors.

Distributor 0 The focus of the distributor is to compound and create agreements to connect publishers and retailers. Distributors can be in-house (larger publishers typically have in-house publishers) or they can be licensed.

0 Retailer 0 Console manufacturers and software publishers both distribute their products to different kinds of retailers. 0 Retailers operate both as brick and mortar (Wal-Mart, Target, Radioshack), and virtually (Amazon) 0 Under brick and mortar retailers, specialty stores exist which are organized purely to carry the video game industry s products. 0 Retailers combine to capture $9 billion value from the supply chain.

Value Chain

Market Share

In what sense and for what reasons is this a Winner-TakeAll Industry?

Market in which the best performers are able to capture a very large share of the rewards, and the remaining competitors are left with very little.

Video Game Industry divided into two main segments:

1. Hardware (Video Game Consoles) 2. Software (Video Games)

Video Game Console Industry

Oligopoly Few firms in the industry which between them share a large portion of the industry. (Sony PlayStation, Microsoft Xbox, Nintendo Wii) Two key features of an oligopoly:
1. Interdependence of the firms 2. Barriers to entry

Video Game Console Industry

Oligopolistic Market - Sony playstation, Microsoft Xbox, Nintendo Wii Video Game Software Industry Monopolistic Electronic Arts (19.8%), Konami (9.8%), Take-Two interactive (9.9%), Activision (8.8%), Others (52.7%

Economies of scale The video game industry typically has high advertising, distribution and product development costs as a portion of their total costs. Therefore the market leader is able to minimize these costs per unit.

Key Success Factors of the Video Game Hardware Industry

0 0 0 0 0 0 0 0 0

Product Innovation Identification of Niche Market Identification of Customer Needs Financial Power Marketing Power Branding Low Pricing Network Capabilities Distribution Systems

What does the success of Nintendo s Wii tell us about the changing basis for competitive advantage in this industry?

Nintendo
Innovation
Less processing power and graphics Interactive Game Play New Target Market -Family and casual players

Low Cost
0 Nintendo strategy focused on gaming quality

rather than graphics and processing power.

0 Gaming console manufactured at a

considerable lower cost than competitors Sony and Microsoft

First Mover Advantage

0 Differentiate products from competitors while

satisfying demand First Interactive Motion Game Play

Imitation by Competitors Xbox (Kinect) Play station (Move) imitate.

0 Primary focus on family oriented gaming experience and secondary focus on hard core gamers

Changing the game experience to be more participative and to be used for physical therapy 0 Expand target market to social networking and mobile devices
0

In relation to the next generation of video game consoles, make strategy recommendations for: Sony Microsoft and Nintendo.

Video game consoles and video gaming are important source of leisure entertainment, education and social interaction for all generation. Gaming consoles are a crucial feature for any entertainment centre. Consoles like Microsoft Xbox 360, Sony PS3, and Nintendo Wii have revolutionized the gaming system but they continue to lose money

Rivalry in Video Games

0 Video game consoles and video gaming are an important source of leisure and entertainment, education and social interaction for all generation. Gaming consoles are a crucial feature for any entertainment centre. Consoles like Microsoft Xbox 360, Sony PS3, and Nintendo Wii have revolutionized the gaming system

MICROSOFT - Xbox
Problems High cost associated with advanced technology specifications Fewer games Lacks versatility and design. Sluggish onscreen movements Consumers require space to play Separate payment for multiplayer gaming to access online features. The Kinect had difficulty recognizing voices in a noisy room.

Recommendation
Microsoft must know its market Engage third party developers to ensure steady stream of quality video games Have close relationship with third party developers to ensure that there is no difficulty in developing games for the console. Develop New titles for console faster than 18 36 months.

Problems

Sony- PS3

Challenges of designing a console that would be a favourite

among game players Establishing consoles as the general home entertainment device. The consoles were difficult and expensive to manufacture. Delay in the HD Blu-ray DVD drive which is a central element for Sony. Console were complex and had increased power Cost of games were produced at a higher cost due to complexity. Did not have enough products to sell.

Recommendation
Always have enough products to offer during launching. Keep tight control with third party developers with regards to licensing fees and buying power Produced games at a lower cost for the console. Must have excellent advertising budget Have knowledgeable team for the launch of the product

Nintendo - Wii
Problems 0 technologically lacks the advanced features of the Xbox 360 and the PS3 and graphics

Recommendation
Vigorously continue scanning the demographic environment Manufacture consoles to attract the non-gamers as this is a very

large market. Improve on its technological capabilities over those of the Xbox 360 and PS3 Include multimedia features such as video and music player, web browser, hard drives, graphics and other functions so as to maintain their competitive edge. Nintendo should also continue to use its R & D, marketing department and its resources to increase its innovation technology Efficient manufacturing of consoles at a lower cost than its competitors. Maintain their differentiation strategy.