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Q#1 WHAT ARE THE BUSINESS AND ECONOMIC CHARACTERISTICS OF VIDEO GAME INDUSTRY? Characteristics A distinguishing feature or attribute of an item, person, phenomenon. Economic characteristics Economic characteristics describe the economic conditions, economic statistics of a company in a particular city, state, country, etc Business characteristics Business characteristics is a collection of effective, efficient related, activities or tasks that helps to produce effective or to deliver a specific service or product (serve a particular goal) for a particular customer or customers in a any market. Business characteristics of video gaming technology When the video gaming industry was born in the 1980s it was a golden opportunity for aspiring gaming developers who wanted to successfully enter the field. The graphics were not very sophisticated and anyone who had the fortitude to take the initiative to learn the programming skills that were entailed in developing a video game could successfully penetrate the field. Even with Stone Age programming languages such as BASIC or FORTRAN, the technology was fairly easy to understand when developing a simple video game that hobbyists of the time would find entertaining and fulfilling. As technology has evolved, the rules for being successful in the gaming industry have become more complex. Thirty years ago, a high school student in his bedroom could build a video game that could make the Top 50 list. Today, a company could require a team of a hundred or even a thousand developers to accomplish the same feat. The question many entrepreneurs are asking themselves is whether or not it is possible for them to be successful in the video game industry and what they must do. It is still possible for entrepreneurial ventures to utilize gaming technology to develop a product that their customers are going to be inspired to play. One of the key strategies is to use one of the free game engines available over the Internet, such as the Reality Factory Game Engine or Yoyo games. This may Page 1 of 22

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not give developers the opportunity to compete head on with companies such Electronic Arts, but they can still be a profitable alternative to developing a high quality game from scratch. Another option is to outsource some of the development functions. It can be especially valuable for companies to outsource some of their work overseas where they can often get away with paying their programmers a third the salary they would have to pay a local developer. Unfortunately, it is not realistic for a new gaming venture to compete with large companies such as Electronic Arts of Take-Two on their own terms. They are going to have to play by a different set of rules and know that they are unlikely to sell a blockbuster game on their first attempt. One of the biggest suggestions of amateur game developers is to keep the projects as small and simple as possible and try to reuse code and graphics as much as possible until they have a better idea about how to compete in the industry. The next major challenge that smaller game developers must face is finding a way to properly promote and distribute their products. Since they are unlikely to get their games on the shelves of major distributors and lack the finances to fund a large marketing initiative, they must use some creativity to promote their way to success. Popular options these days include distributing these games through social media sites and selling them through popular websites for gaming hobbyists. Wooga is a great example of a company that has created a simple game that has become very successful because they found a creative way to promote it. The popularity of social networking sites and hobbyist web rings may be the salvation for video game developers wanting to fulfill their dream of creating their own video game company without spending tens of millions of dollars in acquiring the technology or marketing their product in order to compete with large developers. The maxims that amateur developers should live by can be summed up as keeping their projects simple and applying creativity in both the development and distribution of their products. ECONOMIC CHARACTERISTICS OF THE VIDEO GAME TECHNOLOGY In 2003 ,the video game industry represented a $31 billion global market up sharpely from about $10 billion in 1995.The industry consisted of makers of video game consoles,handheld players,and arcade machines;game developers who developed games for play on both personal computers and various kind of video game machines;retailor of video game players and video games;and companies that had websites for online game play.Video and computer games were an unforeseen by- product of advancing chip technology .Faster chip processing speeds and growing graphics capabilities opened the way forgame developers to put players in the midst of all kinds of action -filled situations.During the Page 2 of 22

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1990s,video game developers created increasingly sophisticated,multifeatured games that allows players to compete in a host of sports and racing events,pilots supersonic fighter jets and spacecrafts to defend against all manner of enemies.From 1985to 1994,Nintendo and Sega dominated the market for video game consoles with combine market shares of around 90 percent.In 1995,competitive rivalry in video games in video game took on a new dimension when sony entered the market with its new playstation.Nintendo and Sega,the long time industry leaders,found themselves in a fierce battle with sony,and other small-share console makers scramblesd to generate enough sales to survive.In the united states,Sony s playstation captured a 70 percent market share,with Nintendo at 26 percent and Sega at only 4 percent.The entry of microsoft s Xbox in 2002 made the video console business a fierce three way contest.total sales of playstation 2were expected to reach 100 million units by 2005,making the playstation 3 the odds-on favourite to keep sony as the market leader in video game hardware.video game industry sales were projected to reach nearly $ 39 billion worldwide by 2010.

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Q#2 conduct a five-force analysis of the industry . is the industry attractive and what is the potential profitability for new entrants? Porter s Five Forces Model

Porter s Five Forces Model describe competitive forces which are industry members facing. y Competitive pressure associated with the market manoeuvring and jockeying for buyer patronage that goes on among rival sellers in the industry. y y Competitive pressure associated with the threat of new entrants into the market. Competitive pressure coming from the attempts of companies in other industries to win buyers over to their own substitute products. y Competitive pressure stemming from supplier bargaining power and supplier-seller collaboration.

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y Competitive pressure stemming from buyer bargaining power and seller-buyer collaboration.

Five forces analysis of the industry

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Rivalry among competing seller: 1. Competitive pressures associated with the jockeying among rival sellers For global game industry, every company competes violently. From 2000 to 2005, the video game industry represented from $24 billion to 35 billion global market Every company produces video games for different consoles. Consoles are developed in new generations fast, game developer should compete to gain license for new generation console.(stronger) Every video game developer have good capability in faster processing speeds, digital and high-definition graphics capability and on line connectivity to develop new game or new game-playing device, by those ways, they can easily to attract extended consumer The Five Forces Model 2. Competitive pressures associated with the threat of new entrants To enter the game industry is difficult because new entry should possess high technology skill, high capital and well distribution, it s not easy to new entry Entry barriers of global video game industry are high because every global game industry companies cooperates and competes with each other, they have force to influence this market, and new potential entrants are not easy to enter this market According to case, game develop cycle for PS2, Xbox were typically12 to 24 month, but developing game for PS3 Xbox 360, and Wii could take from 12 to 36 month, it would take a lot of money to support development. If a company who do not have a lot of asset and experience, it s difficult to enter global video market. 3. Competitive pressures from the sellers of substitute products : Substitutes are attractively price: Consumer can choose entertainment which cost them lower price than play video game when they have free time, such as movies, DVDs, or music Because many people spent a lot of time playing video game, their parent, spouse, or relative will be unhappy. It will cause game players to choose other substitutes active which are more healthy to do, like travel, and shopping with their relatives 3. Competitive pressures from the sellers of substitute products

4. Competitive pressures stemming from supplier bargaining power and supplier-seller collaboration Because of economic scale, game developers can easily negotiate volume discount, game developer s suppliers are not easy to refuse their request There are many third-party vendors that can produce game titles, pressing of CDs or DVDs and printing of user manuals for game developer companies, game developer companies can easily to choose one of them Game device companies sell their own games Page 6 of 22

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license for game developer to produce, and game device companies charge royalties from game developers. Because most of those games have high demands, game developer should agree to royalties; otherwise, game device companies can give license to other game developers 4. Competitive pressures stemming from supplier bargaining power and supplier-seller collaboration 5. Competitive pressures stemming from buyer bargaining power and seller-buyer collaboration Because game recycle is 50-90 days, there are many games released in a period. Consumers would like to play a new game or new series game; consumer would not care about price For retailers, because new releases game is very popular, retailer is net easy to deal price with game developer, they should get more inventory for their consumer purchasing For a game device company, they might have power to deal price with game developer. Some games which are designed by a game device company are very popular. If game developers do not decrease price, game device companies might give license to other game developer 5. Competitive pressures stemming from buyer bargaining power and seller-buyer collaboration the industry attractiveness and potential profitability for new entrants: The video game industry must be one of the most attractive areas to invest in right now. The business is booming, growing far faster than anyone predicted, as it makes the transition to being popular entertainment for the masses. And the industry is still at its very beginning, it will grow to be bigger than movies and TV combined as it leverages its key advantages of interactivity, connectivity and non linearity. Following are the statistics of video game industry which clearly shows that industry are highly profitable. Actual and projected size of the global market for video games, 2002-2010(in millions) Actual 2002 Console Hardware Console Software(both sales and rentals) Handheld Hardware 1,307 1,501 1,925 1,206 $7,187 14,922 Actual 2003 $6,047 16,449 Projection Projection 2007 2010 $5,358 13,077

$6,445 13,696

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Handheld Software(both sales and rentals) PC Software(both sales and rentals) Broadband Interactive TV Mobile phones Total 290 133 243 $30,115 497 249 587 $31,374 2,137 1,955 3,783 $36,042 4,106 4,130 6,928 $39,024 3,707 3,806 3,135 2,617 2,326 2,238 2,693 1,602

In recent years the industry has fragmented into many genres on many platforms, this trend will continue for some time. Also, technology has changed the marketing, sales and distribution model, significantly reducing the entry cost into many areas of game publishing. And there is the constant specter of piracy, with over half the video games in the world being stolen it is important to invest in areas where at least a majority of customers actually pay for playing the game. The Nintendo (NTDOY.PK) Wii is not worth developing for. It is nearer the end of its life cycle than the other two consoles and it is mainly first party games published by Nintendo themselves that sell. Third party titles from other publishers are mainly low quality shovelware that have now frightened the consumer off. The two handheld consoles, the Nintendo DS and Sony PSP are also not worth developing for despite the immense numbers of these that have been sold. Quite simply, piracy has ripped the market up. Vastly more people will steal your game than will pay for it. Casual gaming is huge and probably growing faster than any other area of gaming. The ability to just drop in and spend a little time having fun then log out and get on with the rest of your life is very convenient. Far more appealing to many people than the commitment needed by hardcore games. There are 200+ million people who play online casual games every month. Both downloadable and browser games. Services such as Pogo.com,Sandlot Games, Big Fish

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Games, Boonty, PlayFirst, Reflexive, RealArcade, and Trymedia Systems. Games are cheap to develop using Flash but the average quality is still very low, something that will change as the market matures. Revenue can come from advertising, premier membership and micropayments. Traditional boxed PC retail games that have been with us for decades are just about dead, with most publishers giving up, killed by rampant piracy. Instead, there is a new breed of PC game centering on online play and sometimes episodic content. With unique user keys and services like Steam these can be made largely pirate proof. The PC game reinvented. Mobile phone gaming has been declining in popularity, largely because the market is doubly fragmented. Too many different platforms and too many different air time providers make it almost impossible as a business model. All this is changing immensely rapidly with gaming on the Apple iPhone(AAPL) and the reinvention of Nokia (NOK) nGage as a software based gaming platform. These two will certainly overtake casual gaming to become the fastest growing sector of the business and have the potential to grow to become one of the major forms of gaming. This is the most exciting place to be just now. There are still more valid business areas in gaming. All three platform holders now sell games online. These are smaller and easier to make then their full price boxed equivalent and the revenue stream is steady over a long period rather than spectacular over a short life. This business can only grow and grow and is well worth investing in, just make sure that you put marketing effort behind your games on these services, you can t expect good sales otherwise. Finally there is gaming on the social networking sites such as Facebook and MySpace. This is still small but has massive potential in video gaming technology.

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Q #3 How is the industry changing? What are the drivers of change and how might they change the industry structure? What are the key success factors of that industry? A number of factors had contributed to growth of the video game industry during the 1990-2003 period. Drivers of change: y y y Broader game content The evolution of video game consoles into multifaceted entertainment devices People who started out playing games in the 1980s were staying in the market and playing in their 30s and 40s y y There had been quantum leaps in the quality of both graphics and play Growing ability on the part of video game developers to capitalize on expanding action movies into popular video games. y The growing capability to play games online, often in hand-to-hand competition with other online players.

How might they change the industry structure: y Broader game content In 2003 , video gaming offered entertainment for the masses, with games involving sports, racing,action , adventure ,edutainment, shooting, fighting and a host of childern s games and family entertainment games. y The evolution of video game consoles into multifaceted entertainment devices People could play DVD movies and music on games machines, expanding the entertainment value for families.

People who started out playing games in the 1980s were staying in the market and playing in

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their 30s and 40s Demographic research indicated that growing numbers of young adults were continuing to play video games past thei teenage and college years. Sports and NASCAR racing were appealing to adults, as were games with mature content.

There had been quantum leaps in the quality of both graphics and play Moreover , another huge leap was coming in next generation cansoles scheduled for introduction in 2005-2006. The chip design in next generation video game consoles featured a revolutionary new architecture that packed the processing power of a hundered 2003- style PCs onto a single chip and, further tapped the resources of additional computer using high-speed internet connections. The next generation consoles, expected to retail for about $300, would have the ability to render real life images, record TV shows, surf the internet in 3-D, play music, and run movielike video games.

Growing ability on the part of video game developers to capitalize on expanding action movies into popular video games. Games developers and Hollywood movies studios were becoming increasingly aware of the merits of working hand in hand on projects like a Harry Porter, Spider-man, lord of the rings or james movies that had both the action components and widespread interest (especially among teenagers) to make a good game. Releasing a game in conjunction with a hit movie could increase sales by three or four times. Sometimes, film stars recorded diagnose for video games and special scenes were filmed specially for use in a game. Game designers would take a movie script and add to the storyline, making it more mission rich multifaced that what appeared onscreen.

The growing capability to play games online, often in hand-to-hand competition with other online players. Online gaming had allowed game designers to extend their storyline by providing new chapters, adding new missions and introducing new characters, thus hooking enthusiasts into playing through a never ending story. Sequels of sports games with the latest players roster and team schedules spurred continuing interest on the part of online players. Most observers contended that online gaming gave game developers a wider vista of game-designing options that any Page 11 of 22

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other prior technology. key success factors of that industry :

The growth in interactive entertainment was expected to continue as 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 experiences into the reach of more consumers. By 2007 players were expected to be playing a yet-to-be released breed of games on a new breed of powerful game-playing consoles. Forecasters at DFC intelligence expected the successors to PlayStation 2, Xbox, and GameCube to be the fastestselling video game systems ever and to offer quantum leaps in graphics quality and gameplaying interest.

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Q#4 What is EA starategy ?which of the five generic strategy EA using? how well is EA strategy is working?what is your assessment of the EA financial situation? Following are the 5 strategies used for getting competitive advantage 1. Overall low cost provider strategy 2. Broad differentiation strategy 3. Focused low-cost strategy 4. Focused differentiation strategy 5. Best cost provider strategy EA starategy among five generic strategy Broad differentiation strategy is used by Electronic Arts. EA S policy was to make games that it could be proud of,which meant that it stayed away from games with profanity ,sex,crime and violence, while some of EA S rivals like take-two interactive,whose best-selling grand theft auto:vice city game involved drug deals,blowing up cars,consorting with a prostitute and then hacking her to death,were willing to create violent or sexually suggestive games, EA had a firm policy of not creating games from mature audience, EA had a firm policy of not creating games for mature audience how EA strategy is working in 2003 EA was market leader of games played on the current generation of 128-bit consoles. so it provided strong foundations for us to say that EA strategy are working extremily well.moreever EA has won 700 awards from 1983-2003 which also justifies our statement. EA financial situation According to the chief operating officer we double the things that work, we tend To stop thing that won t work. If we focus the financial statements of Electronic Arts it is really of different types and is really hard to interpret because EA is market leader in gaming technologies yet they didn t earn any profits.the first of its reason is that they are targeting on almost 6 differents types of technologies in gaming world which helps in minimizing profits of EA,as if they are earning in one technology stream they are losing in other and as far as expences are concerned they are occurring almost equal on each Page 13 of 22

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gaming stream, so if we see that revenue of EA by product line we will clearly see that one product like games for sony playstation 2 are earning $910,692 while on same time revenue from games played on Nintendo game boy advance were just $79,093,so if company remove production for Nintendo game boy advance they will minimize their expences which are great on this stream and focusing on the best revenue earning products. EA S financial performance by business segments, fiscal years 2001-2003(in thousands)

2003 Operations of EA CORE (non online ) business segment Net revenues Cost of Goods Sold Gross Profit Total operating expenses Operating income(Loss) Identifiable assets Capital expenditure0 Operations of EA.com Business Segment Net Revenue Cost of Goods sold Gross profit Total Operating Expense 81575$ 16417$ 65158$ 222468$ 2400669$ 1056385$ 1344284$ 730747$ 613537$ 2287743$ 58328$

2002

2001

1647502$ 797894$ 849608$ 563146$ 286462 1529422 38406$

1280172$ 650330$ 629842$ 506427$ 123415 1167846 51460$

77173$ 16889$ 60284$ 211307$

42101$ 14661$ 27440$ 181171$

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Operating Income(Loss) Identifiable Assets Capital Expenditure (157310$) (151023$) 71790$ 780$ 169152$ 13112$ (153731$) 211072$ 68887$

EA s Revenues by product line, Fiscal year 2001-2003 (in thousand)

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Q#5 what does a SWOT analysis reveal of the attractiveness of EA overall situation? Are the prospects as terrific as top management alleges? Use methodology in table 4.4 of chapter 4 to analyze EA competitive advantage. SWOT ANALYSIS:

1. Strengths:  Leading Electronic Arts (EA) Games, is a global corporation which develops, markets, publishes and distributes video game software, online interactive games, and mobile games.  Leading company who design games for a number of platforms including Sony PlayStation 3, Microsoft Xbox 360 and Nintendo Wii; handheld game systems, including PlayStation Portable (PSP), Nintendo DS and Apple iPod; personal computers (PCs); and mobile phones. The company distributes games in over 35 countries worldwide.  EA games has four segments under their label:EA games,EA sports,The Sims and EA Casual Entertainment.  It has largest percentage of research and development staff.  EA created a strategic alliance with Hasbro including crossover licencing.  It also has a social responsibility programs including software donation etc.  The EA casual entertainment label develops games that intented to be quick to learn and play online,making them easily accessible for a wide audience  Ability to Change, for example: when EA realized that their sales only increased by 4.7% they decided they needed to restructure the way they were doing business. By narrowing the company to four major divisions from 5  EA is most Popular ever Games producer for Example: Madden NFL 07 alone sold over 5 million copies.  Has won 700 leading software awards in period from 1983-2003

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2. Weakness:  EA is market leader in most segments of video gaming technology yet their financial statement are going in loss.  Electronic Arts products are extensive. it produces video game, online game, portable device game. Electronic Arts might not focus on one important segment if demand of one of those segment decreases, Electronic Arts might get lost  EA developing a game take several months or years, also to develop a game should cost a lot of money. If Electronic Arts can not create games on time, it might lose money and The cost of developing new game is also too much high, which reduces its profit.  Dependence on consoles  Weak Global Sales  In order to remain globally competitive, EA must increase sales worldwide and in the valuable Asian market 3. Opportunity:  Mobile Gaming o creating games for iPods

 Increase of Online Gaming like games played on social network sites  Change in Target Consumer  EA can develop games for non-traditional gamers, that is to say women and adults.  new technologies are created, Electronic Are can use those new technologies to produce their game in different segment, such as video game, on line game, pc game and so on. Because of high speed internet and internet is extended to every household, the demand of massive multiplayer online game are increasing, it provide Electronic Arts an opportunity to develop multiplayer online game 4. Threat:

 In video game industry, there are many games for consumer to choose and consumers can Page 17 of 22

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choose different generation of game-playing consoles  Electronic Arts spends a lot of money on developing games and the cost is increasing, but the price of game almost the same,it is equal chances that Electronic Arts might not cover it expenses  The industry fluctuates along with rise and fall of the hardware systems  Increased Software Piracy  As the ability to pirate software becomes easier and cheaper the number of pirated copies continues to increase.  Game release times  Not only are the releases timed for the Christmas season but also for specific sporting seasons and major sporting events. The delay of a game so that it doesn t coincide with these specific time restrictions, could be devastating to sales.

Use methodology in table 4.4 of chapter 4 to analyze EA competitive advantage. Assessments of competitive advantage A: Assessment of competitive advantage by un-weighted Rating scale: Very weak = 1 , very strong = 10 Key success factor/strength measure Rival 1 Electronic Rival 2 arts 10 10 4 7 5 7 10 1 8 8 2 10 1 1 5 3 Rival 3 Rival 4

Quality / product performance. Reputation. Manufacturing capability. Technological skills.

6 6 1 8

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Distribution capability. New product innovation capability. Financial resources. Relative cost position. Customer service capabilities. Unweighted overall strength rating 7 3 10 71 10 10 7 58 5 5 5 61 3 1 1 25 1 4 4 32 10 10 4 4 9 9 5 5 1 1

Thus electronic arts have a total score of 58 signals that it has greater net competitive advantage over rival 3 and rival 4 because they scored much lower then EA and EA has a low net competitive disadvantage over rival 2 and a moderate disadvantage over rival 1.

B: Assessment of competitive advantage by weighted Rating scale: Very weak = 1 , very strong = 10

Key success factor/strength measure

Importance weight 0.10 0.10

Rival 1

Electronic arts

Rival 2

Rival 3

Rival 4

Quality / product performance. Reputation.

10/1.00 10/1.00

5/0.50 7/0.70

8/0.80 8/0.80

1/0.10 1/0.10

6/0.60 6/0.60

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Manufacturing capability. Technological skills. 0.10 0.05 4/0.40 7/0.35 10/1.00 1/0.05 2/0.20 10/0.5 0 Distribution capability. New product innovation capability. Financial resources. Relative cost position. Customer service capabilities. Sum of Importance weight weighted overall strength rating 0.10 0.30 0.15 1.00 6.85 7.70 5.95 2.10 3.70 7/0.70 3/0.95 10/1.50 10/1.00 10/3.00 7/1.05 5/0.50 5/1.50 5/0.75 3/0.30 1/0.30 1/0.15 1/0.10 4/1.20 4/0.60 0.05 0.05 10/0.50 10/0.50 4/0.20 4/0.20 9/0.45 9/0.45 5/0.25 5/0.25 1/0.05 1/0.05 5/0.50 3/0.15 1/0.10 8/0.40

In this matrix, the EA has showed a net competitive advantage over all of its rivals. It has a greater net competitive advantage over rival 3 and 4 but a moderate competitive advantage over rival 1 and 2.

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Q # 6 what recommendations would you make to EA to improve its competitiveness and its long term development?

 The video game industry is developing on day by day basis. The numbers of consumers also increase rapidly. Although EA is a leader in video game industry, there are some many challenges that EA should face. There are some recommendations for the improvement of EA.  Electronic Arts spends a lot of money on developing games and the cost is increasing, but the price of game almost the same , it is equal chances that Electronic Arts might not cover it expenses due to following reasons 1. The industry fluctuates along with rise and fall of the hardware systems 2. Increased Software Piracy 3. As the ability to pirate software becomes easier and cheaper the number of pirated copies continues to increase, so EA should seriously think about it  Game release times  Not only are the releases timed for the Christmas season but also for specific sporting seasons and major sporting events. The delay of a game so that it doesn t coincide with these specific time restrictions, could be devastating to sales.  EA is market leader in most segments of video gaming technology yet their financial statement are going in loss due to their high developments cost so EA should decreases these costs.  development a EA games take several months or years, so EA should mininmized the development times  EA should initate some independent gaming technology because they are heavily depented on consoles of Nintendo,xbox etc  major part of sale of EA are west and north America oriented,In order to remain globally competitive, EA must increase sales worldwide and in the valuable Asian market  EA should develop games for the nternet impact industry Page 21 of 22

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 To set up design studio in China and India

References Brightman, J. (2009). EA Sports Gets Into Real Life Goods. Retrieved on July 13, 2009. CSG Strategies. (2007). Game Impact Theory. Retrieved on July 12, 2009. EA Games. (2009). About Us. Retrieved on July 12, 2009. Edwards, C. and Vella, M. (2008). EA's Game Making Plans. Retrieved on July 13, 2009. Article Source: http://EzineArticles.com/4283372

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