The video game industry
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Current strategy: use PS3 as a loss leader to introduce the Blu-Ray as a standard
Growing video game industry (4%)
Substitutes for console gaming are growing rapidly (such as massive multiplayer online
games)
Consumer market is segmented mainly by age :
- Casual gamers (36%): between the age of 18 and 24 and white
Nintento is aggressively courting non-traditional games in order to increase the market
Sony and Microsoft target the “hardcore group” (11%) that views gaming as their primary
source of entertainment (because play more and buy more games)
Video game industry is sufficiently saturated => no realistic entrants except in related
markets such a portable gaming
Barriers to entry: intense price competition, large economies of scale => potential entrants
would need: experience in consumer electronics, access to capital, significant name
recognition
Sega dropped out when Microsoft entered => only 3 firms possible but current players have a
lot of cash and could afford losses during years
Potential entrants: Blizzard Entertainment, Apple Inc.
Video game consoles are sold at loss, then consumers are locked in
Methods of Sony to compete for customers:
- provide a console-specific gaming experience (ex: Final Fantasy only on PS)
- Backwards-compatibility that reduces secondary game market and increases the cost of
switching to non-Sony consoles.
About the PS- BluRay strategy:
- Price is a significant barrier to PS3 console adoption: 60% of Sony’s target demographic
think that the price of a PS3 is too high
- Sony needs to increase production capabilities to meet market demand: the limiting factor
has been the supply of blue laser diodes used in the Blu-Ray drive. Sony has slightly more
purchasing power than Microsoft because of the sheer purchasing volume across its entire
consumer electronics division. Nintendo does not have as much purchasing power, but
this factor does not matter as much because they use lower cost components.
- Adoption rates of the PS3 are not fast enough to establish Blu-Ray as the dominant format
Sony needs partnerships for hardware and software:
- Hardware: accelerate the life cycle of its PS3 (more Blu-Ray drives and more PS3 units) (a
danger would be then a reduction of entry barriers for partners)
- Software: align their interests with that of game developers
Sony
-
PS2: dominance in the last
generation of gaming
console
PS3: fight against ToshibaMicrosoft for standard in
new generation of disc
player (HD-DVD against
Blu-Ray)
Microsoft
-
In 2001: sold at a $100
loss/unit
Xbox 360: use the internet> social networks on game
consoles
Xbox Live: required
broadband connectivity =>
part of Microsoft LT
Nintendo
-
Nintendo was thought to
be dead after the
Gamecube
Buzz around Wii
Wii targeting more of a
mainstream audience
Wii is a threat for PS3
because released at the
-
-
Launch of the first PS in 94
with 3D and CD
(production cost of
1,5$ compared to the
14$ of Nintendo’s catridge
game)
In 1999: 60% of the US
market
PS2: read DVD at a price on
par with DVD players
PS3: about 250$ loss per
unit
Actually losing significant
ground
strategy to gain significant
knowledge about the game
industry
-
-
same time but at half the
price
Nintendo was a monopoly
until the arrival of the first
PS
In 1990: 90% of the US
market
In 1999: 30% of the US
market
Wii integrates online
functionality (weather,
mails,…)
Possible to buy online old
games (bring older gamers
back to Nintendo)
Focussed on fun games to
people of all ages and
gender and let Sony and
Microsoft battle it out for
the cor gamer
demographic
Has the expertise and
reputation (regain its
superior position)