The video games industry faces an entirely new rivalry situation. After 11 years of leadership, Sony has nearly lost its strong positions on the market, which gives the other two players – Microsoft and Nintendo - the chance to compete for the leadership. While the goal of Nintendo is to stay in the industry, Sony and Microsoft aim to strengthen their positions on the home entertainment market, which is constantly growing. The key factors, the companies need to consider in order to gain a competitive advantage, are good marketing and well developed distribution, as well as providing a huge range of games with recognizable characters. As the market segmentation increases, it is of crucial importance to put an emphasis upon the new target groups and reqruit as many new players as possible. However, there are also a lot of factors outside and inside the industry, which play a major role and have to be considered in order to become a better idea of the state of the industry, and to estimate its profitability and tendency of growing.
Summary of macro-environmental analysis
Stricter legislation both advantageous and disadvantageous for the video games industry is expected. As governments become more concerned about the increasing violence among teenagers the control of video games content is strengthened. On the other hand the laws against piracy aim to reduce the number of the illegaly copied games.
With the rise of the prices of everyday goods, petrol, etc., while salaries don’t go up as fast, the disposal income declines and for many entertainment becomes a luxury good. People are not willing to spend as much on it as they used to. However, as the average age of the video games players goes up, there are more players with own incomes, who are able to buy more games.
The industry is expexted to grow due to the fact that, as surveys of the NPD Group show, kids spend more time playing and the hardcore gamers spend an avegare of 45 hours per week playing video games. On the other hand the growth prospecst are dampened by the increasing concerns of the parents about their children being too inactive and spending more time playing video games than playing sports or taking part in other activities. However, there is also a tendency of video games being increasingly regarded as an entertainment for the whole family.
The future growth of the industry is theratened by the declining birthrates. Teenagers are the main consumer and less teenagers in the future means less games sold. This effect is compensated by the fact that the avarage age of the video games players goes up. Video games reach a broader audience and more adults and even elderly people start playing.
The technological progress is beneficial for the growth of the industry as the the producers are able to constantly improve the quality of the games and include new features and functions to the consoles. However, this causes higher costs and also the time needed to develop a new game grows.
The growing awareness of environmental issues has also an impact on the video games industry. The implementation of eco-friendly technologies and the constant growth of energy prices cause an increase in the cost for manufacturing of the consoles and the DVDs.
Overall, the video games industry is expected to grow faster than average industry growth rates, particlularly due to the socio-cultural trends and the constant technological progress.
Summary of industry analysis
Due to a range of factors, which make it difficult for a new company to take part in the video games industry, the threat of new entrants is low. First of all, the industry is characterized by huge ecomonies of scale, as the producers need to sell great numbers of games in order to make a profit. Second, the capital requirements are very high because of the increasing costs of games development and consoles manufacturing. It is also costly...