introduction The video games industry faces an entirely new rivalry situation.

After 11 years of leadership, Sony has nearly lost its strong positions on the market, which gives the other two players ± Microsoft and Nintendo - the chance to compete for the leadership. While the goal of Nintendo is to stay in the industry, Sony and Microsoft aim to strengthen their positions on the home entertainment market, which is constantly growing. The key factors, the companies need to consider in order to gain a competitive advantage, are good marketing and well developed distribution, as well as providing a huge range of games with recognizable characters. As the market segmentation increases, it is of crucial importance to put an emphasis upon the new target groups and reqruit as many new players as possible. However, there are also a lot of factors outside and inside the industry, which play a major role and have to be considered in order to become a better idea of the state of the industry, and to estimate its profitability and tendency of growing. Summary of macro-environmental analysis Stricter legislation both advantageous and disadvantageous for the video games industry is expected. As governments become more concerned about the increasing violence among teenagers the control of video games content is strengthened. On the other hand the laws against piracy aim to reduce the number of the illegaly copied games. With the rise of the prices of everyday goods, petrol, etc., while salaries don¶t go up as fast, the disposal income declines and for many entertainment becomes a luxury good. People are not willing to spend as much on it as they used to. However, as the average age of the video games players goes up, there are more players with own incomes, who are able to buy more games. The industry is expexted to grow due to the fact that, as surveys of the NPD Group show, kids spend more time playing and the hardcore gamers spend an avegare of 45 hours per week playing video games. On the other hand the growth prospecst are dampened by the increasing concerns of the parents about their children being too inactive and spending more time playing video games than playing sports or taking part in other activities.

It is also costly for the customers to switch to a new producer. Also the costs for the input are high relatively to the total purchase. particlularly due to the sociocultural trends and the constant technological progress. because this would mean they have to buy a new console. the threat of new entrants is low. The future growth of the industry is theratened by the declining birthrates. Video games reach a broader audience and more adults and even elderly people start playing. which their input has for the final product. The implementation of ecofriendly technologies and the constant growth of energy prices cause an increase in the cost for manufacturing of the consoles and the DVDs. Suppliers pose a medium level of threat. the capital requirements are very high because of the increasing costs of games development and consoles manufacturing. Teenagers are the main consumer and less teenagers in the future means less games sold. However. First of all.However. The main reason is the crucial importance. the video games industry is expected to grow faster than average industry growth rates. the concentration of the suppliers is relative low as they are many video games publisher but just three producers of . the industry is characterized by huge ecomonies of scale. The growing awareness of environmental issues has also an impact on the video games industry. this causes higher costs and also the time needed to develop a new game grows. Second. This effect is compensated by the fact that the avarage age of the video games players goes up. which make it difficult for a new company to take part in the video games industry. Overall. as the producers need to sell great numbers of games in order to make a profit. Summary of industry analysis Due to a range of factors. The technological progress is beneficial for the growth of the industry as the the producers are able to constantly improve the quality of the games and include new features and functions to the consoles. However. there is also a tendency of video games being increasingly regarded as an entertainment for the whole family.

The biggest threat comes from computer games. the industry is considered to show a relatively high level of profitability. so strong incentives for buying exist. To have the newest console or play the latest games is considered to be a sign of ³coolness´ at school. As a result of the stage of these five forces in video games industry. However. particularly for buyers. The power of substitutes is considered to be low to medium. buyers don¶t have a lot of bargaining power. especially when video games are regarded as a family or group activity. The video games industry is charaterized by medium rivalry. which determine the profitability of the industry. due to the fact that some of the big publishers of video games have the ressources to try to enter the industry. Their concentration relative to the industry is low and they have to face high costs if they want to switch to one of the substitutes (buy a computer for example).consoles. because of their complexity. which is getting more intense lately. Threat of forward integration exists as well. Mostly the macro-environmental trends have an impact on the forces. that compete among each other and every one of them try to outsell the others and become the market leader. the lack of multiplayer function impairs their perfomance. Interconnections and interrelationships between the two analyses There are several interconnections between the macroenvironmental analyse and the industry analyse that can be found. Due to the fact that almost every family possesses at least one computer. The rivalry is enchanced by the low level of product differentiation and the high fix costs of the manufacturing of the consoles. However. Sticter . Although there are some substitues for video games and the differentiation is fairly low. the rivalry is reduced by two major factors: the switching costs for the buyers are high and there is a lack of understanding of the technological differencies of the consoles. who are addicted to playing video games. The industry grows slowly as they are three establishes players. computer games are a cheaper alternative to video games as one doesn¶t have to buy the console. The switching costs are high as well and the buyer propensity to switch is fairly low.

the power of substitutes will rise. as the producers aim to establish the consoles as the central tool for any kind of home entertainment. so more information and communication with the customers is required. Important issue regarding the extra features is the fact that many of the users are not aware of them. as well as the bargaining power of buyers.regulation of the video games content limits the scope of games a new company can present to the market while trying to enter the industry and make this more difficult for them. Furthermore the extra features of the consoles have to be further developed. Economical factors such as decreasing disposalble income have also an impact. With the rapid advance of new technologies it is to be expexted that new substitutes for video games will be introduced to the market for enertainment in the near future. the demand for a larger library of games rises. Recommendations With the competition in the video games industry getting more intense. This leads to an increase in the power of suppliers due to the fact that the producers need them to develop more new games and develop them faster. The companies have to learn by the mistakes of the past and try to . As a result video games become amore attractive kind of entertainment for a broader audience. not just for video games playing. The increasing licensing fees for the exclusive rights to intellectual property of media companies or sport organisations are addtitionalobstracles for entering the industry as they enhance the capital requirements. sell them cheaper and expand their target group. As the number of video games players goes up. The bargaining power of buyer becomes higher as well. Thus. the next market leader will be the platform provider that manages to offer much more different gaming experience. The growing rivalry in the video games industry prompts the companies to improve their products. as buyers condition their purchases on the price-performance ratio of the product. the next steps of the players become of crucial importance for their positioning on the market. People start searching for cheaper substitutes so the power of substitutes for video games grows. Due to the low product differentiation.

as well as perfectly realised marketing campaigns. directed towards the interests of these players.com. How to Cite this Page MLA Citation: "Rivalry in Video Game Industry. Another factor that needs to be considered is a better control of the games and their distribution.asp?id=168037>.com/view. The possible entrance in the industry of some of the big games publisher creates opportunities for establishing of alliances. the companies should make an effort to reqruit new players from the new target groups: females and older people. ." 123HelpMe. 23 Jan 2011 <http://www.avoid making them again. as this was proved to be a major factor for success in the past. and more intensive advertising. It is of significant importance to develop a much larger library of games before the introduction of the next console. As the video games audience becomes broader. by creating a greater range of games. An alliance between one of the platform providers and a major publisher will give them a very strong position on the market and a sustainable competitive advantage. Thus. The new image of the video games as family entertainment has to be extended as well. they will have the best chances to become the new leader of the industry.123HelpMe.

SWOT Analysis of Gaming Industry: Microsoft. as well as globally. Thread.e. and Nintendo SWOT is acronym for Strength. Nintendo . PS 3 and Nintendo Wii illustrate the first tier competitors in U. Sony. In terms of gaming industry. ‡ Penetration of new markets in ME ‡ Penetration of untouched markets by means of bundling ‡ Partnership with Hollywood studios Threat ‡ Lower cost competitor i. and Nintendo with their respective hardware¶s MS Xbox 360. Microsoft Xbox 360 Strength: ‡ Integration of next generation DVD players i.e. Nintendo ‡ Anti trust issues in Europe ‡ Hardware complication Sony Play Station 3 Strength: ‡ Integration of next generation DVD players ‡ Backward compatibility with previous PS2 ‡ Mostly Free Online product ‡ Recent decline in profits Weakness: ‡ Expensive hardware and games Opportunity ‡ Great product lunch covering global spectrum. In Essence a SWOT analysis is geared toward predictability of obvious and hidden factors that may influence the outcome of marketing and sales. Opportunity. Weakness. Microsoft.e.S. HD technology ‡ Backward compatibility with previous Xbox games ‡ Online product ± the first of its kind ‡ Lower price than most comparable competitor PS3 Weakness: ‡ Expensive hardware and games ‡ Production flows ‡ Direct competition with Nintendo because of equally large customer base Opportunity ‡ Penetration of new markets in ME ‡ Penetration of untouched markets by means of bundling ‡ Partnership with Hollywood studios Threat ‡ Lower cost competitor i. Sony.

‡ Delays in production ‡ Constant strategy change Nintendo Wii Strength: ‡ Uniqueness of hardware motion detection ‡ Low cost hardware and software ‡ Intuitive usage Weakness: ‡ Joystick liability ‡ Limited selection of software Opportunity ‡ Penetration of new markets in ME / Europe / Asia ‡ Marketing to novice gamers including seniors and adults Threat ‡ Loss of potential customer because of lack of software selection and sophistication of games. ‡ Software developers abandon game development because of lack of adequate profits. .

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