In this paper, we will examine the video game console industry and apply Porter’s Five Force model to SONY. Sony is a big media conglomerate with businesses in the gaming, music, movies/entertainment and electronics industries. It has a strong brand image, a wide product range and had over $75 billion in sales in 2010. For the purposes of doing this analysis, we will concentrate on Sony’s performance in the video game industry, understand its current position with respect to its competitors and recommend a strategy that it should adopt in the near future. The video game industry (often referred to as interactive entertainment) is the economic sector involved with the development, marketing and sale of video games. Applying the Five Force model to SONY reveals the following:
Rivalry Among Existing Competitors: HIGH
The Sony Playstation faces mostly two rather equally balanced competitors – Microsoft’s XBOX and Nintendo’s Wii. The R&D costs are very high here due to the extensive amount of technological know-how and brand identity needed to develop these products. The switching costs are high since the games are not portable from one platform to another. There is a constant pressure to innovate and churn our faster and more powerful consoles every few years or else the competition will surpass/kill you. The profit margins on the actual game consoles sold are quite low and sometimes even non-existent. This is because the business model of these companies is such that they rely largely on the royalties earned on the actual games (discs) sold. In other words, this is a two-sided market – on one hand the 3 companies in this industry manufacture gaming consoles and there is a separate group of game development companies which make the games that run on their consoles). All these attributes indicate that the existing industry rivalry is quite high.
Threat of New Entrants: LOW
In the video game industry the barriers to entry are quite high. Because of the high...
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