The Computer and Video Game Environment

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The Computer and Video Game Environment

 

 

          

  

Written & researched:

James Noton

For: Sir Stuart Challinor

24/11/06

Words:

CONTENTS PAGE

1. Executive Summary

2. Intentions of the Report

3. The Marketing Environment

4. The Micro-Environment

4.1 Suppliers

4.2 Customers

4.3 Competitors

5. Situation Review

6. The European Video Game Industry vs. The US Video Game Industry

7. The Macro-Environment

7.1 SWOT Analysis

7.2 Pestle Analysis

7.3 Porter’s Five Forces Analysis

8. Conclusions and Recommendations

Summary of Abbreviations

Research Portfolio

1. EXECUTIVE SUMMARY.

  • New products make the market ever changing. But profits are decreasing for specialists and generalists. This is mainly due to supermarkets and online specialists.

  • Overall penetration by households remains fairly static at 25-30%, implying that manufacturers are simply selling newer consoles to existing enthusiasts.

  • Nintendo’s Wii attempts to bring casual gamers and families back into the market.

2.0- INTENTIONS OF THE REPORT.

This report measures the extent to which changes in distribution channels have taken place and concentrates on the continuing issue of how different types of retailers’ roles will evolve in this market as technology continues to develop.

3.0– THE MARKETING ENVIRONMENT.

  • Video and computer games is a relatively new market in retailing terms. However the pace of change is such that existing retail formats may have limited endurance, as platforms progress and the means of accessing and using games change.
  • Next-generation consoles look set to deliver new growth to the market. The question is, however, will they attract new users? Manufacturers have successfully sold more and more machines into the market, but household penetration has been largely unchanged at 25-30% for some time now.
  • In 2005, the video games sector increased by 15% in current value terms compared to 2004.
  • The improvement of modern technologies renders the video games market full of life. Manufacturers aim to continue to attract new consumers from all age groups and sociocultural backgrounds.
  • Thanks to the launch two new portable consoles, video-games hardware was the most dynamic subsector in 2005, boosting overall sector value sale in 2005.
  • Sony remained the leading player in video-games hardware in 2005, while Electronic Arts continued to dominate the software subsector in the same year.
  • The video games sector is forecast to increase by 25% in constant value terms over 2006-2011 thanks to a new era of games consoles due to emerge in the coming years.

4.0 THE MICRO-ENVIRONMENT.

4.1– SUPPLIERS.

  • The market is led by the suppliers. The hardware manufacturers and game publishers decide when to launch new products onto the retail market. This makes retailers vulnerable as it may lead to periods where there is a lack of new releases.
  • An example of how retailers’ can be affected by supply factors is Sony’s recent announcement that the launch of PS3 will be delayed until 2007. Some analysts reduced their profit forecasts for Game by millions of pounds because of this delay. Already long awaited by fans, this delay could cause Sony serious problems as it gives its main competitor Microsoft a year to monopolise the market before Sony's hardware is launched.
  • Xbox 360 seems to have launched well but the market is dominated by the prospect of Sony’s new console, the PS3. Nintendo’s wireless console, Wii (pronounced We), is expected in the shops before Christmas.
  • PS3 is going to retail for around £425 for the 60GB model, although a lower-spec 20GB version may be available at around £300. Games for PS3 are being pre-sold at £49.99. Wii is expected to retail for well under £200. These launches will guarantee that the market will get a key boost. The effects of this boost may not be felt until well into 2007. This is because as manufacturers hardly ever produce enough new consoles to satisfy demand in the initial stages of a launch.
  • There is a degree of uncertainty based on not knowing when, at what price and in what quantity new consoles will be available. As these comments show the UK is only a small component in the worldwide games supply industry and the UK management of the manufacturers has little concrete information to provide.

“The manufacturers are very good at keeping their cards close to their chest. They change their mind continuously and keep everyone in the dark until the last minute. Some of this is because their people in the UK are kept in the dark. If you talk to the account managers they know as little as we do.”

  • Games buyer, multiple retailer

4.2 Customers

Research into gaming behaviour has been carried out and five groups of users have been found. All of these usage groups are important for future targeting by manufacturers and retailers alike.

Avid gamers – 22% of adult Internet users aged over 15 describe themselves as ‘Avid’ players, that is they play games once a week or more. This group are skewed to men, under-35s those in groups C2D and E.

Occasional gamers – 26% of the sample play once a month. These gamers are more likely to be men, under-45s and those in C1C2 groups.

Social gamers – 11% of the sample – like to play once in a while with friends or family at their houses. This group has a slight skew towards the more affluent and those in the AB group.

Lapsed gamers – 18% of the sample that used to play regularly but haven’t done so for some time. Those in this group are skewed towards those in older age groups and women.

Non-gamers – 23% of the sample that never have and never will play games. They are not remotely interested in video games and tend to be older people and women.

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Full age, gender and socio-economic details are shown in the Appendices.

  • Hardware sales are increasing. Handheld consoles did especially well in 2006

  • Sales of new platforms such as Xbox 360 also boosted the market for hardware. PS2 continues to account for the largest share of unit sales, but most retailers report that the format is taking a declining share of sales.

  • Handheld formats such as PSP and  DS are growing and some retailers that are effective at selling handhelds report that PSP and DS account for as much as 50% of unit sales at present. ...

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