Sunday, December 11, 2011

Insights and Learning from the Video Game Industry. 

The following are the insights about the Gaming Industry characteristics, opportunities and threats from 2011 to 2016, studied from the different perspectives of six established incumbents in the sector.

Insights from Carl about the Gaming Industry and Sony: 

 As we make progress in technology and gaming consoles become more similar, the battle is going to shift to content creation even more. This is the only true way that gaming giants like Sony will be able to survive. Consoles are a means to play games, and for the most part, a loss-making enterprise.

Nintendo has a proven track record of creating great games that are only sold on their console. This is one of the main reasons that they own the biggest market share of console sales*. XBOX and Sony have been sharing some of the best game developers for quite a while and this has cost them in market share.

Immersive gameplay will also be a big differentiator because of the different approaches that the console manufacturers have taken to enter this market. So far, Nintendo has the first-mover advantage, but Microsoft has created a wholesome solution with the Kinect and will be able to revolutionize the market once again, especially since they have integrated the system into their home entertainment system and beat Apple in creating the next generation “TV.” Sony’s solution is lackluster.

Having said that, Sony just released one of the best commercials I have seen (http://www.youtube.com/watch?v=mdWkKKSckNk) in a while and this has signaled to me that they are not ready to give up, and that they are turning to their partners for exclusive game content. They have an uphill battle against Nintendo and Microsoft, but they have years of experience, deep pockets, and some pretty loyal fans of the PS2 era. I will be glad to be an observer for the next five years and enjoy the benefits of these giants competing.

 *Thormahlen, C. IBISWorld Industry Report NN003, Video Games in the US. IBISWorld, March 2011 

Insights from Elana Horowitz

 As players in the video game industry struggle to find mindshare in a day and age when there is no shortage of titles and platforms, they will have to think of new ways to differentiate themselves. While some such as XBOX have connected to the world of television, others like Nintendo have penetrated the education market. Companies that originated in one layer are now integrating vertically, both up and down, in their stacks to offer a more comprehensive tool. Soon enough each layer with be completely saturated with hundreds of players that occupy all levels.

Much like Apple, the company that will eventually be declared the winner will demonstrate creativity in developing a new layer. A visionary company will come in and find a way to monetize an extended feature of video games in a way that will gain them a first mover advantage in the space. As the demographic of gamers expands, this task becomes more difficult and easier at the same time. The gaming company will need to fulfill the demands of an extremely diverse group but will also have more options to consider which is great for the creative process. It is also very likely that the technologies that will facilitate further layer expansion have yet to be developed.

Insights about GameStop from Akshay Shah

 As we look at the network model for the gaming industry over the next few years, a few trends emerge. Even over the past five years, more firms who were traditionally platform providers or content creators have moved into distribution, leveraged by content digitization and with the strategic goal of cutting the middle man . We have seen companies such as Microsoft, Apple, and Nintendo develop direct consumer relationships -- areas once controlled by GameStop, Target, and other brick and mortar retail stores. We have seen this play out in the music industry and more recently with ebooks.

GameStop, however, is not seeing these trends. For example, it is continuing to purchase real estate to build new retail locations. One of the core competencies I identified during the mid-semester analysis was GameStop’s familiarity with its customers. As customers move to digital products on digital platforms, GameStop will lose its relevance. Though there is still time while physical content is still being consumed, they need to act quickly as services such as GameFly can potentially do to them what Netflix did to Blockbuster.


Insights from Paul Taylor 

 Creative and inspiring content is becoming the driving force in the gaming industry, but it is also the biggest struggle for many game developers. There is enormous pressure from game enthusiasts as well as console manufacturers for developers to create the next “Mario”, “Halo”, and “World of Warcraft”. However, there are enormous costs associated with bringing games to market that developers are not venturing to undertake that risk. More often than not, successful IP is similar to the idiom “even a blind squirrel can find a nut” because success is often unexpected. Buildup and expectations for games are so great that many fail to live up to them and a sequel will never see the light of day. Once IP has a successful following, the developer and publisher will continue to milk that franchise for as long as possible hoping that the content will never become stale. The two giants in the software and publishing layer, Electronic Arts and Activision Blizzard, have released several iterations of popular franchises like Call of Duty, Guitar Hero, and Madden Football. This strategy is not sustainable and there is now an opportunity for the rise of a new layer.

Fortunately, or unfortunately depending on the perspective, a new layer has emerged that will become a major player in the future of gaming, which is Mobile and Online Gaming. The game developers in this layer have a much different business model and are able to produce original content at much smaller costs. Not only do they have to pay the enormous licensing fees that console manufacturers are charging for SDKs, but they can publish their games on platforms like Apple’s App Store and the Android Market for the fraction of the cost. As a result, they are able to charge a significantly reduced price to consumers. This trend already struck fear into one long established giant. Nintendo has lashed out at developers for selling games for only $0.99 and vowed that they will never release their content on the mobile platform. While this is seen as a move to protect their interests, Nintendo has already recognized this movement as a threat to their long-term viability in gaming. It will be interesting to see how the next 5 years play out in this sector… 

Insights from Todd Valentine 

This industry is posed for significant change in the next 5 years, and competition between the big players in the industry will dictate the nature of the industry in 2016. Consistently delivering value to consumers in regular cycles will enable the console manufacturers to capture a larger slice of the market, and developers will follow the console manufacturer with the largest audience and best developer tools.

Insights from Humberto Silva 

The Gaming industry, as other Information businesses industries, is experiencing a significant change with the disappearance of the physical media and the advent of social media and cloud computing. This trends disrupted the field changing the rules of the game and the different balances of power and influence across the value chain. New layers has emerged -online distribution and social media- and the older ones -content development and brick and mortar distribution- keep losing ground.

Almost all the big players in the industry have reacted trying to adapt their long term strategies. Electronic Arts, the 2nd biggest content creator and distributor in the video games sector acknowledge the transformation of the business deciding to focus their effort in create Origin, a online digital store they expect to become a platform for content distribution, while investing in the social media gaming arena through mergers & acquisitions, Popcap Studio was acquire by EA in early 2011 for S1.3B (a third of EA’s current revenues).

I believe EA strategy is adequate because it is focused on the current trends. However this industry have been always leaded by innovations, either in hardware or software. Incorporating an statement about the importance of the innovation process EA could strengthen it current position in the video games battlefield.

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