Competition in Video Game Consoles

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GBA 687
Hong-Chin Chen
Competition in Video Game Consoles: The State of the Battle for Supremacy in 2008 1. What are the strategy-shaping business and economic characteristics of the console segment of the video game industry? What is the industry like?

1-1 Segmentation: The industry was segmented into console hardware, console software (both sales and rentals), handheld hardware, handheld software (both sales and rentals), PC software (both sales and rentals), broadband, interactive TV, and mobile phones.

1-2 Market Size:
Table 1: Size of the Global Video Games Markets, by Sector, 2000, 2003, and 2005, with Projections for 2010 ($ in millions)

| 2000| 2003| 2005| 2010|
Console hardware| $ 4,791| $6,047| $3,894| $5,771|
Console Software (both sales and rentals)| 9,451| 16,449| 13,055| 17,164| Handheld hardware| 1,945| 1,501| 3,855| 1,715|
Handheld software(both sales and rentals)| 2,872| 2,238| 4,829| 3,113| PC software (both sales and rentals)| 5,077| 3,806| 4,313| 2,955| Broadband| 70| 497| 1,944| 6,352|
Interactive TV| 81| 249| 786| 3,037|
Mobile phones| 65| 587| 2,572| 11,186|
| 24,352| 31,370| 35,248| 51,292|
Source: Informa Telecoms & Media, “Games Market to Score Big in 2007,” press release, October 24, 2005, and “Games Industry Boom Continues,” press release July 24, 2003, both at (accessed September 8, 2006).

As we can see the table above, the market size has grown from $24.352 billion in 2000 to $51.292 billion in 2010. In other words, the video game market becomes bigger and bigger.

1-3 Market growth rate 
Table 2 Compounded Annual Growth Rates For the Video Game Industry 2000 – 2005 and 2005 – 2010 (projected) 

 | CAGR (2000-2005)| CAGR (2005-2010)|
Console Hardware| -4.1%| 8.2%|
Console Software (both sales & rentals)| 6.7%| 5.6%| Handheld hardware| 14.7%| -14.96%|
Handheld software (both sales & rentals)| 10.95%| -8.4%| PC software (both sales & rentals)| -3.2%| -7.3%|
Broadband| 94.4%| 26.7%|
Interactive TV| 57.5%| 31.04%|
Mobile Phone| 108.7%| 34.2%|
Total| 7.7%| 7.8%|
CAGR is compound annual growth rate. The formula is(VtnVt0)1tn-t0-1. V (t0): start value, V (tn): finish value, tn − t0: number of years. The numbers above are calculated from table 1.

1-4 Entry/Exit barriers
The three existing companies are one of the entry barriers of other potential companies that would like to enter this market. Video game industry needs huge capital to invest on research and development department. Also, the entrants need to recruit skillful engineers and other talent staff to develop the products and make efficient marketing strategies. Combinations of all the entry elements, the entry barriers level is high for the perspective entrants. However, the software development is easier to enter this market than the hardware part. Potential entrants only need to focus on the software for the existing companies’ hardware products. This will have less cost than develop entire hardware and software. 1-5 Scope of rivalry

Sony, Nintendo, and Microsoft are the three main companies in the video game industry. Before 2001, there was one more competitor, Sega, in the market. It tried to compete with Nintendo and Sony but it finally was out of the industry in 2001. After 2001, video game industry has entered new war. Sony, Nintendo, and Microsoft compete with each other by gaining sales and increasing installed base. Play Station 2 from Sony has significant unit sold in $299 each; however, its newest generation, Play Station 3 has not successful result in the market. Play Station 3 was beaten by Xbox and Wii which are from Microsoft and Nintendo respectively. As the result, Nintendo and Microsoft were substitute Sony to compete the leadership position in recent year. In addition, the retails which those three main companies...
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