Electronic Arts and the Global Video Game Industry

Electronic Arts and the Global Video Game Industry

Submitted to:

Dr. Ahsan Durrani

Course Instructor

Strategic Management

Iqra University

Submitted by:

Noman Ahmed - 14319

Amin Muhammed - 16426

Iqra University

February 23, 2012

1. What are the Industry Dominant Economic Traits?

Market Size & Growth rate:

The video game industry represented a $31 billion global market, up sharply from about $10 billion in 1995.

Faster chip processing speeds and growing graphic capabilities opened the way for game developers.

The Wave of video game sales are expected to peak in 2004 before slackening off in the run-up to the expected launch of next generation consoles in 2005 - 2006.

From 1995 to 2003 the market growth rate is 32.25% and it is increasing day by day.

Scope of competitive Rivalry:

Most of the rivalry compete globally, the major area for the competition is the U.S. market.

Number of Rivals:

For Console: From 1985 to 1994, Nintendo and Sega dominated the market for video game consoles, with combined market share around 90 percent, but when in 1995 Sony entered in the market with PlayStation both the industry leader run away from the market. In 1998, Sony's PlayStation captured a 70 percent US market share.

For Software: The software segment of the video game industry is highly competitive. The developer of software games ranged from small companies with limited resources to large corporation with significantly greater resources for developing, publishing and marketing video game software.

Electronic Arts, Activision, Take-Two interactive, Capcom, Eidos, acclaim Entertainment, Sega, Lucas Arts, Infogamers, THQ, Konami, Namco, Vivendi Universal, Midway Games and 3DO are the independent developers and Sony, Microsoft and Nintendo are develop the games with their respective consoles, and they all competing in one arena.

Buyer Needs and Requirements:

There are different visions to play video game, which include:

 Its Fun

 They're challenging

 Like to Play with friends and family

 Lots of entertainment for the price

 Like to keep up with the latest technology

 Interested in the stories

Production Capacity:

The Industry trends shows that game prices are decline once a generation of consoles had been in the market for a significant period of time. The price of games for older 16-bits and 32-bit consoles in 2003 were considerably lower than the prices of the game for the newer 64-bit and 128-bit consoles.

Pace of technological Change:

Game Playing hardware and software continued to improve, hardware and broadband penetrated more homes, and technology continued to evolve in ways that brought more game-playing experience into reach of more consumer.

The software segment of the video game industry was highly competitive, characterized by continuous introduction of new games and updated game titles and the development of new technologies.

Degree of Product Differentiation:

Competition among the game developer was based on game features and product quality, timing of game release, access to distribution channel and retail shelf space, brand-name recognition, marketing effectiveness, and price.

Product Innovation:

As the technology changes day by day, the new innovation will come in the video game industry like people before not able to play game online with their friends and peer but it possible now.

The industry required an active R & D, who can research about new technology and also they can search about the upcoming events so they can develop & launch their product accordingly. For Example If Cricket World Cup is near so they launch new version of Cricket games.

Vertical Integration:

The video game software developers have must to integrate with the console manufacturer, to develop games for respected console. It is not possible to survive in the video game software market without integrating with console manufacturer.

Economies of Scale:

The industry characterized with the economies of scale, if they can develop a more games with existing developing team so they can safe wages.

Learning and Experience curve effects:

The more experience developer can develop game more efficiently and economically.

2. What kind of Competitive Forces are industry member facing?

Threat of New Entrants/Entry Barriers:

Factors Highly Unfavorable (1) Moderate Unfavorable(2) Neutral (3) Moderate Favorable (4) Highly Favorable (5)

Economies of Scale Small * Large

Capital Required Low * High

Access to Distribution Channels Ample * Restricted

Expected Retaliation Low * High

Differentiation Low * High

Brand Loyalty Low * High

Experience Curve Insignificant * Significant

Govt. Action Low * High

1 2 0 16 10 3.625

Economies Of Scale: If a company have good developers and they can develop a games in shorter time and market.

Capital Required: Some game tittles could entail development cost upward of $30 million. Cost to develop the hit games for next