Industry Analysis Structure The Video Game Industry example essay topic

Environmental Analysis Demographic trends Gaming has become an important part of growing up for people who were born in the last 25 years. Approximately 3.9 - 4.7% of total world population (250 to 300 million people) is! SS very active!" or a! SS frequent!" player of video games or at least owns the necessary equipment. This target group spends five or more hours a week playing video games.

The United States is the largest video game market in the world with about 50% of the US population (145 Million people) spending 6.5 hours a week on computers and video games. The majority of video game players are preteens, teenagers, and young adults (between the age of 20 and 40). A full 70% of college students play video games at least occasionally in a year and 100% had played at some point in their life. The average age of game players in the US in 2003 is 29 years old and hard-core gamers purchase 10-15 new games annually. Indeed, the average age of game players is rising because gamers continue to play into their adult years, of those over age 50, 17% play video games up from 13% in 2000.

The number of females who played console games dramatically rose also to about 40%. It is interesting to note that gamers over the age of 35 like to play games on PCs while those younger than 35 preferred console systems. Socio-cultural Many people think spending many hours in front of either PCs or video game consoles is not a good hobby for kids. There are many issues such as health, personality, motivation and especially violence and aggression. Some people believe violence in video games and in other media promotes violent behavior among participants. It can contribute to players becoming overweight by decreasing outdoor activity and reducing the capability of eye-sight.

The content of violent games could account for changes in the player's mood and cause him or her to become more aggressive or emotional. Political / Legal The video game business is an interdependent industry. Companies have to pay a customary royalty to the console makers. The console manufacturer have the power to authorize all games, limited the number of games, marketing plan and even the quantity of production.

The guidelines and restrictions put forth by the Software Board (ESRB) effects the content, storyline's and features of video games. Technological Cell phones, high-speed internet access, interactive TV, and satellite TV services have become commonplace features in recent years. Video games will move from stand-alone game systems such as consoles or PCs to become online games accessible via many devices. Continuous participation of other gamers around the world will make the games more challenging. Moreover, the high performance of next generation of chips and 3-D graphic animations will attract even more gamers to the market. Global Markets The importance of the non-US market is growing every year.

However, regulations, cultures, language and other attitudes of each country can differ from the US. For example, people play! SS soccer!" , instead of American football and baseball and different rules exist for the game of chess in Asia and the US. Therefore, the company and industry may need to customize some products and introduce multi-language online games to appeal to the diverse global tastes.

Current Performance Vision Chairman Probst's vision for Electronic Arts is to overcome traditional entertainment companies like Disney, Viacom, and Time Warner as the biggest and best entertainment company in the world. Goals Electronic Art's had two stated goals. The first near term goal is to be the market leader of games played on the current generation of 128 bit consoles. The second near term goal is to generate hundreds of thousands if not millions of users to their online EA Sports product.

Corporate Strategy EA is focusing on video game entertainment at this point. The CEO has plans to turn the company into an entertainment giant by aggressively chasing high growth markets that draw off of the core competencies of the firm. Business Strategy EA's current strategy is to focus on franchise and sports related games that develop loyal followings and repeat sales. They use a unique multi-lingual / multi -platform approach to producing and distributing games around the world. The company's three main differentiators are their internal sports culture, ability to localize games, and international distribution.

Functional Strategies Product strategy: EA's product strategy is based on the franchise model. 70% of their sales consist of new releases of previous hits. They also seek to be toward the cutting edge of technological innovation. Sales strategy: The company's current sales strategy is to use their field sales representatives and call centers to sell their games to over 80,000 retailers.

Internationally EA has strong sales in Europe with a relatively weak representation in Asia. Their strategy in that arena is to spread the fixed costs of producing a game over as many different sales channels as possible. Marketing Strategy: Sustain leadership status in industry by simultaneously promoting popular EA game titles and releasing localized multi-lingual games on several platforms. EA Sports VP is branding EA Sports as a!

SS sports company that makes games as opposed to a game company that makes sports games. !" EA sets the price of their products from $30-$50. Electronic Arts has set lower prices for their classic titles. HR Strategy: To attract creative talent to the company by offering stock options coupled with significant remuneration. Electronic Arts is seeking globally digital animators, programmers, and creative individuals with backgrounds in television, music industry and the movie industry. This strategy will provide EA with talent to better integrate their games with popular action movies.

Manufacturing Strategy: EA uses CD's and DVD's supplied by Sony and Nintendo as part of their manufacturing process. The company also engages three other entities to print the game instruction booklets, produce packaging materials and to press the CDs and DVDs. This outsourcing allows EA to lower their costs and to pass these lower costs onto customers. EA also reduces costs by maintaining low inventory levels. Distribution Strategy: EA established a field sales organization and a group of telephone sales representatives to market games directly to retailers. EA's games are distributed through 80,000 retail locations, like Wal-Mart, Toys-R-Us, Target, and Best Buy.

EA currently uses rack jobs ers and regional distributors in areas where direct sales are uneconomical. Sony and Wal-Mart are EA's largest customers with Sony distributing 60% of EA's PlayStation and PlayStation II games. Wal-Mart accounts for 12 percent of EA's total sales. These two suppliers have significant power of Electronic Arts. Procurement: Their strategy is to lower their own costs by using their high volume based leverage on other companies to press their CD's, print their booklets, and package their end game products for customers. Finance / Accounting Strategy: The firm invests heavily in R&D spending over $400 M in 2003.

EA applying cost control measures with respect to large productions of new video games. Research & Development: The next generation of consoles will pack a powerful chip that is over 1,000 times as powerful as current consoles combined with high-speed Internet connections. This demands ever more complex programming and planning. A lot of R&D must be done to obtain to experiment with enough processes and tools to figure out how they will continue to be the leader in video game publishing. Industry Analysis Structure The video game industry is split between the console manufacturers and independent game producers.

The console makers also make games but only for their own proprietary system. The independent game producers make games for any and all consoles they see fit but pay the console manufacturer a portion of their sales for the privilege of making the game for their system. Evolution The video game industry like many other industries has evolved due to advances in technology. The technology changes include highly advanced chip set architecture and online gaming capabilities via broadband internet connectivity.

Gaming programmers have intensified the clarity of animated images and have created games suitable for head-to-head competition with other online players. The new games have created a new interactive form of entertainment. Game developers have also worked closely with movie studios to create games from popular action movies. These changes have blurred the boundary lines of the industry.

The video gaming is integrating in with the movie industry to become a complete package entertainment consortium. Capital Requirements The industry evolution has changed the capital requirements for new entrants into the marketplace. Production costs of games in the early days of the industry were between $100 k and $300 k. The advanced game consoles caused gaming development costs to rise to a range of $2-$7 million in 1996. A hit game would cost as much as $30 million.

The projected average production costs will be $20 million. These costs prevent small players from entering the market and strengthen Electronic Art's industry position within albeit a declining console market. Competition The competition within the industry also changed due to the technology advance. Sega, a company who previously made consoles is now only developing the software. The entrance of Sony's PlayStation and Microsoft's Xbox shifted the balance of power in the console market. This shift was partially due to the fact that both Sony and Microsoft had teams with the capability to design popular games.

These in-house teams give console manufacturers leverage against companies who only develop game software. Microsoft has continued to wield its power by not paying royalties or partial subscription fees to game developers whose games were played on Microsoft's X-box Live. This is a critical factor that Electronic Arts will have to deal with in order to maintain market share in the shrinking console arena. Company Analysis Structure Electronic Arts was founded in 1982 and is headquarter in Redwood City, California. The company is composed of four major brand divisions EA Sports, EA Sports Big, EA Games and Pogo. EA has major design studios in Los Angles and Vancouver BC.

Smaller design studios are located in Tokyo, London, Orlando and San Francisco. Staffing In 2003, the company had approximately 4,000 employees, of those 1,700 were based outside of the United States. Additionally, there are plans to add an additional 1,200 positions, mainly game developers. Processes The process of developing a game from start to finish takes about 18 months. It begins when developers build a quick demonstration prototype of a potential game. If management likes what it sees then the project gets the go ahead to move into the next phase where the story is developed.

From there if the game gets the go-ahead it is built using state of the art software tools. Once complete the game is marketed and distributed. Resources The company has relatively significant financial resources. Revenues for the company were almost $2.5 billion in 2003, double their results from 1999. Net income grew to be over three times higher than in 2003 vs. 1999 and the company has a hoard of over a billion dollars and a half dollars in cash, cash equivalents and short term investments. EA also has a substantial asset in their employees.

Skilled game developers are not easy to come by so this skill gap is definitely a competitive advantage. Similarly, the international dispersion of this staff is a valuable feature. From their design studios in Europe and Asia the company is able to create games in multiple languages that are tailored to local tastes. Culture The culture of EA is one of fun and innovation. Additionally the company is one that encourages creativity but also will pull the plug on ideas in the early stages so that they can concentrate resources on ventures that are more likely to pay off.

Because of this most of the games EA creates are sequels to previously successful franchise brands. Finally, the company is one that prides itself on moral character. EA's Chairman and CEO Lawrence Probst states that! SSE A will not publish games with gratuitous sex and violence. !" This is an important distinguishing point in an industry that is know for pushing the edge of decency with regard to sex, violence and drugs. SWOT Analysis Strengths"X Dominate Player in market"X Great game franchises"X International reach"X Strong talent pipeline"X Moral leadership Weaknesses"X Poor Relationship with Microsoft"X Overly focused business (on games) Opportunities"X Mobile market"X Cell phone market"X In car equipment"X Branch out into other forms of media (TV, movies) "X Online gaming Threats"X Rising production costs".

X New entrants especially in the mobile market"X Console upgrades"X Increasing development costs.