Each segment in the video game industry is subject to a gamut of different factors such as price cuts and number of units sold that play an important role in determining their respective revenues. The video game industry in the US has grown at a CAGR of 8. 5% from USD 13,300 million in CY2006 to USD ~ million in CY2012. (PR, N. 2013, March 7). The video game console industry is still postured to grow despite the already rapid growth from CY2006 to 2012. Opportunity still exists for new entrants into the video game console industry. Statement of the Problem.
The video game console industry is a very competitive segment. Entry into this market is still feasible. From a cultural standpoint, games have never been bigger. Nielsen found that half of all American households have a console, and the amount of time spent playing games has increased 7% since last year (due mostly to mobile and tablet games). But the current crop of consoles is aging rapidly: Xbox 360 is seven years old; Wii and PlayStation 3 are six. As a result, hardware sales are down 15% over the past year, and software isnt faring much better.
Even factoring in projected Wii U sales, NPD analyst Anita Frazier expects physical video-game- Case Analysis: Video Game Console Industry in 2012 Page 2 industry revenue to be around $14. 5 billion for 2012. That would be 15% lower than 2011. Meanwhile, two of the biggest movements in games”the rise of social and mobile gaming”were pioneered not by the establishment but by outsiders like Apple, Facebook, and Zynga. (WARREN, J. (2012). Based on research, timing is critical for a new entry into the video game console industry.
A console start-up must wait for current console giants: Microsoft and Sony gaming consoles to age to the point where interest drops. This drop in interest can be an opening a start-up needs to jump-in prior to Microsoft and Sony releasing new consoles. So, the statement of the problem would be when to enter the video game console industry. Causes of the Problem The main obstacle facing a start-up video game console company from entering the industry is saturation of the market from the larger video game console makers or the big three Nintendo, Microsoft, and Sony.
The big three tend to release new game consoles around the same time frame and compete head to head for sales. During the time frame it is impossible for a new entry to jump into the fray. 2010 was a banner year for video console sales Sonys PS3 sold 14 million units followed by Microsofts Xbox 360 13 million and surprisingly Nintendos Wii led the big three selling 17 million units. After the 2010 release of all three consoles sales started to decline for each company. Nintendo took the largest sales loss at 72% in 2013 only 747,000 were sold compared to the 4.
7 million sales boom in 2010. Sony took a 20% hit and Microsoft absorbed a 31% loss in sales from 2011-2013. (DAngelo,2013). If the market shares were broken down by the big three it would look like this for 2013: Sonys PS3 30. 4% Nintendos Wii 39%, and Microsofts Xbox 360 30. 4%. (D Angelo,2013). Looking beyond the market share, Case Analysis: Video Game Console Industry in 2012 Page 3 sales dropped during 2013 due to lagging interest in game titles and anticipation of new console release. Decision Criteria and Alternative Solutions
Decision to enter the video game console industry would be based on strategic timing. Most consumers view gaming consoles as a generation when released. If a gaming console is released before others than it could not be considered next-generation. Timing is also important in the aspect of capturing a sagging market before the competition releases newer products. Another decision is what price the console should be sold for. The price must be enough to penetrate the market but, still enable the entry company to make a return.
A good way to do this is to come into the market with a good price point slightly below the competitions products and once sales are established lower the price of the gaming console. Another way to enter the market is to offer a competitive price and free product/web content. All of these mentioned decisions must me made prior to implementing a plan to enter the video game console industry. Without weighing these considerations a product launch will fail. Recommended Solution, Implementation and Justification
Entering an already established industry can be tricky. Research must be conducted on the competition and history of the market to establish a baseline and to decide if the market is already saturated. Key strategies to enter a competitive market include: competitive pricing, distribution processes, the biggest strategy would be marketing. Without marketing a demand would not be created for the new gaming console. Marketing can include promotions, comparing and contrasting systems and displaying unique capabilities.
Case Analysis: Video Game Console Industry in 2012 Page 4 A new video game console could enter the industry. The console must offer a capability that stands-out. If I was running the company I would create a system that can allow for cross-platform capability. I would have a cloud based system that allows the customer to log on from their home console or mobile device (tablet, smart phone). Despite the numbers and how tight of a grip it seems Sony, Nintendo, and Microsoft have on the game console industry there is still room for growth.
A capability that is still not used more often is mobile devices. I feel that if an entry company signed top-tier programmers or publishers like EA Sports for example. It would give much more creditability and popularity to the software line and overall raise consumer interest. I would market the unique capability to play at home or on any mobile device for a monthly subscription. Top game publishers would be used, a console would be purchased for home use but, it would use just wireless technology to the internet.
There would be zero moving parts because everything would be streaming from the cloud based system. No need for holding out every five years waiting for the next-generation system to be released. This would save the company money as well as the customer. The customer would buy the console for home use or download a web app to the mobile devices. Once an account is created, a monthly subscription fee will be charged. Long-term this fee would create more profit. Consumers want simplicity and this system would offer that.
I feel this would be an effective way to enter an already competitive market with a new product but still appeal to traditional game console consumers.
References PR, N. (2013, March 7). The US Video Game Industry Outlook to 2017 Transition from Console to Online and Mobile Gaming. PR Newswire US. WARREN, J. (2012). NOT YOUR CHILDHOODS VIDEO-GAME SYSTEM. Fast Company, (170), 70-72 DAngelo, W. (2013, May 2013). 2013 year on year sales and market share update to May 18th. Retrieved January 27, 2014, from VGChartz: www. vgcartz. com.