PORTERS MODEL FOR THE GAMING INDUSTRY

SWOT CASE FOR SONY PS3

Pratik Chitre Siddharth Dikhale Jitin Kewalramani Rohan Nair Vijay Panchbhai Kaushik Sunderrajan Hardikkumar Sanghavi

INTRODUCTION
Over the past 30 years, video games have become an integral part of the lives of the people living in developed countries particularly Video games industry has become a multi-billion dollar behemoth, as the entertainment industry is taking new shape with video games as a major player Video games now capture a similar market size as the movie box office and music sales During the last few years, video games have been appealing to a broader demographic base, and, for example, average American is spending much more time (75 hours in 2003) in playing games than the past The average game player age is increased to 35, and 65% of American households play computer or video games In 2008, 26% of gamers were over the age of 50 Out of total American gamers, 60% are male and 40% are female

PORTERS FIVE FORCES MODEL

Bargaining power of Suppliers
(Medium to High)

Bargaining power of Customers

(Fairly High)

Competitive Rivalry
(Very Low) (Very High) (High)

Threat of new entrants

Threat of substitute product

DEGREE OF RIVALRY
Industry Concentration
Concentration for the video game system industry is very high We use the herfindahl index. If the herfindahl index is greater than 1800, then it can be assumed that the potential for rivalry is reduced It is evident in our HI calculation of 4,502 that the preceding statement is true for the video game system industry.
Amount of Video Game Systems sold in 2008 for the Three Competitors

DEGREE OF RIVALRY
This is typical for this industry, because when a new system hits the market it is priced incredibly high due to consumers excitement about the newest product innovation. However, once that system has been on the shelves for a considerable amount of time, the price decreases in order to keep the sales level high.
Prices for PS3, XBOX 360, and Wii from 2006-2007

Most of the original systems were discontinued after a short period of time and replaced with consoles that had higher gigabytes of memory - Major contributing factor to the reduced price over the following years.

DEGREE OF RIVALRY
Switching Costs The biggest switching cost to consider is the fact that when a consumer wants to switch to a new system, they have to buy a whole new console and all of the necessary controls and accessories that go along with the new system The second issue that arises with switching systems is the games that go along with it. Competitors have their own games that can only be played on that specific system. Thus these two switching costs reduce the level of rivalry dramatically, and encourage consumers to steer towards one particular system maker. Furthermore, consumers may be more likely to purchase an IPhone over the PlayStation Portable or the Nintendo DS because of the multiple uses the IPhone offers.

DEGREE OF RIVALRY

BARRIERS TO NEW ENTRY

New entrants bring new capacity, the desire to gain market share, and often substantial resources

Capital Requirements
Huge capital is required for development and research and development since continuous innovation is the trend of the industry

Access to Distribution Channels

Sony and Microsoft use their retailers as their distribution channels. It becomes imperative for a new entrant to develop an effective channel in order to minimise costs

Excess Capacity
Capacity is associated with product development and branding Also, since, most of the systems are outsourced, warehousing costs are huge.

Product Differentiation
Each of the major players have their unique selling propositions. A new player would have to bring something radical to the marketplace

THREATS OF SUBSTITUTES
Personal Computers
In 2003, according to the US Census Bureau, 61.8% of households had a computer. and the Entertainment Software Association has reported that computer game software sales totaled $701.4 million. Recent announcement by Valve to release its Steam content delivery platform to Macintosh operating systems. Considering Apples recent increases in the market share of personal computers, in particular premium priced units, their chances for success as it relates to video games should be promising

Hand-held devices
Recent statistics show that the IPhone is a force to be reckoned with when it comes to using it as a gaming device. Since July 2008 over 30,000 games have been released in the IPhone App Store. By 2009, Apple was responsible for the sale of 19% of all portable game software, which is an increase of 5% from their 2008 numbers

BARGAINING POWER OF SUPPLIERS

Supplier Concentration
The suppliers in this industry are very concentrated to ensure consistency with the manufacturing of the gaming console. This will allow a better relationship between the suppliers and the companies in our industry; however having concentrated suppliers could potentially decrease future profits.

Supplier Substitutes
This industry tries to maintain good relationships with fewer suppliers because they want consistency in the production of their consoles. The demand of these systems is huge which puts a lot of pressure on both the manufacturers and the big three.

Importance of Supplier Input

The suppliers depend on the design offered by the big gaming producers like Sony, Microsoft, and Nintendo. The suppliers then manufacture the gaming console as well as provide feedback on how to be more efficient and cost effective

Threat of Forward Integration

Even though the suppliers have the manufacturing know how, we feel the threat is very low because Sony, Microsoft, and Nintendo have already established themselves as brand leaders in this industry.

BARGAINING POWER OF BUYERS

Switching Costs
Switching between suppliers may lead to different ordering systems, purchase agreements, and possible shipping standards and also console systems

Availability of Full Information

Basic information on different products in the industry will be available through trade groups, news articles, and key publications.

Threat of Backward Integration:

Even though the industry requires a great deal of in house design teams and third party developers, a big box store like Wal-Mart could get someone to design a console for them. Large retailers have been known to produce private label items. These store brands are likely to cost less and have fewer features

Buyer Size
The retailers selling video game consoles are some of the largest and most influential operators on the planet. Wal-Mart has tremendous control over their suppliers and vendors to get a low price. Best Buy is the leader in electronic retail space. They have gained bargaining power with suppliers over the past few years

SWOT ANALYSIS Sony Play Station 3

STRENGTHS
Strong brand name of both Sony and PlayStation with a large installed base of the PS3 Strong network of game licensees Strong global market position since Sony is a highly diversified corporation High quality Blu-Ray function Strong multimedia support with graphics and audio capabilities Best raw computing power provided by its Cell processor High vertical integration

WEAKNESSES
A product invention backlog which leads to a delay in launch Less innovation when compared to its competitors like Wiimove and the Xbox-Kinect Basic online service portal as compared to additional features offered by other competitors No remote control for Blu-Ray playback. No self-owned OS that establishes loyalty of customers

OPPORTUNITIES
Blu-Ray may become the new high-definition standard since demand for Blu-Ray is growing exponentially Voice controller under development which leads to tremendous room for innovation Synergies with other products of Sony. Production cost could go down via manufacturing scale-up and improvements
Since, majority of raw-materials are outsourced, up-scaling could be used as a strategy to benefit from economies of scale

High demand of 13% CAGR for a larger variety of games could lead to loyal customers Capitalising on console-specific gaming could also strengthen consumer base

THREATS
HD-DVD may become the new high-definition standard making the USP of the Blu-Ray player redundant Continuous improvements by competitors may lead to loss of market for the PS3 Sony must rapidly build a larger network to attract game publishers for PS3
Entering into console-specific games could be beneficial for PS3

Communication of the game console as also a Blu-Ray player may lead to conflicting messages understood by consumers

S-O Summary
Blu-ray emerges as one of the latest trends in the technological arena.
The Blu-ray market in USA grew by 58% in the third quarter of 2011. Sonys high quality Blu-ray function exploits this opportunity since this type of discs enables huge storage capacity and prevents copying of discs.

Brand name, reputation and reliability plays a key role in the purchase of a high value item like the PS3.
Production of other multimedia products creates positive synergies for Sony with the PS3 which works tremendously well with consumers.

There exists great scope for different game releases every year.
Sonys strong network of game licensees enables Sony to cater to these demands.

The best audio and video functionality can lead to develop more advanced products.

W-O Summary
Technological advances are leading to various innovations based on various gameplay options.
Sony has to come up with something new and innovative.

Addition of various accessories to the console could emphasize the multi-purpose benefit offered by the console Leveraging on the Sony brand name in OS emerges as a key opportunity for Sony.
However, lack of presence in the OS domain limits this opportunity.

Provided that the PS-Move is available as an optional add-on, the PS2 could be competitive against Wii by offering comparable gaming experience at a lower price. It is important for Sony to keep the PS3 market separate from the PS2 market in order to effectively fill their respective niches.
Sony should have the PS3 compete with the Xbox 360 in the high-end market and have the PS2 compete with the Wii in the low-end market. To do this, Sony should first develop a large number of exclusive games for the PS3, as many hardcore PS2 owners have delayed the upgrade to the PS3 due to the lack of PS3 games.

S-T Summary
The PS3 has incorporated multiple functions including highend gaming, Blu-Ray playback and various others.
However, advances in the HD-DVD market could prove discouraging for the sales of the PS3

Sony should market the PS3 as a core component to a home game and entertainment system allowing various accessories as a bundled offer. There exists a great need of a variety of games for specific consoles.
Sony has various licensees in order to exploit the threat posed by various competitors.

To increase the value of the PS3, the Sony could imitate the Wii-move, which can be called PS-move.

W-T Summary
Competitors like the Nintendo and Microsoft surpass Sony in the domain of innovation.
As compared to 18.2 million units of Xbox 360 sold by Microsoft, Sony sells only 10 million units per year. Sony may further loose market share if it does not keep track of the inventions that could be made in this sector

Level of trust in the OS by Microsoft greatly influences purchase decision for choosing a console.
Hence, a highly developed, bug-free OS backed by the Sony goodwill in the hardware sector must be emphasised.

The greater online experience provided by Xbox-Live could be another deterring factor for purchasing the PS3.
Adding to features provided by Sony could sustain its stand for a longer period.

Future Trends in Gaming Industry

Artificial Intelligence Technological Convergence Console Less gaming Multi-Industry growth potential Anti-Piracy Measures