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Anil MS | Ankit A | Ankita | Deepika N | Kartik D | Sonal D Ambrish A | Ravishankar | Ritutapan N | Aparna MV |Bhuvaneshwari R

AGENDA
Video Industry
Key Characteristics

Electronic Arts
Business Model

The Dilemma
Industry Trends Platform Analysis

Phases & Leaders Comparison with Movie Industry

Core Competencies

Technological Strategy

Way Forward

VIDEO INDUSTRY

KEY CHARACTERISTICS
A. PRODUCTS:
o Capital Intensive Highly Engineered Hi-Tech Expensive :to produce :to distribute :to buy o Low Unit Volume Not mass produced and revenue contribution of each unit was low o Dynamic The products had very limited life and consumers demanded frequent changes/upgrades
(contd)

KEY CHARACTERISTICS
B. GEOGRAPHIC SCOPE:
o North America, Europe & Japan

(contd)

C. DOMINANT ECONOMIC CHARACTERISTICS:


o Seasonality o Low margins on hardware with larger margins on software

D. STRATEGIC GROUPS
o Different periods saw different industry leaders o Nintendo having the largest market share o No collaboration among the leading players
(contd)

KEY CHARACTERISTICS
F. DRIVING FORCES
o Changing/improving technology o Demand for stand alone/portable gaming devices o Consumer entertainment needs

(contd)

G. MARKET SEGMENTS
o Initially targeted children (08 - 15 yrs.), products positioned as toys o Later older children & young adults were also targeted

H. SUCCESS FACTORS
o Managing inventory & software development

o Technological superiority of products


o Originality of concept & content

PHASES & LEADERS


PHASE 4: [1993 onwards]
NINTENDO & SEGA Superior game play 16 bit Genesis Reduced dependency - developers/retailers
AT&T, Microsoft, etc. Extra Memory & special effects in games Convergence: computer, communication, entertainment 32 & 64 bit & CD-ROM

PHASE 2: [1985 - 90]


ATARI Home version of arcade game Electronic & Semiconductor technology NINTENDO Variety of original & creative games Customer service 8 bit NES

PHASE 1: [1970 - 85]

PHASE 3: [1989 - 93]

MOVIE INDUSTRY VALUE CHAIN


Script/
Property Producers

Agents

Studios

Other Distributions

DVD Distribution

Advertise rs

Media Agencies

Theater Distribution

CONSUMERS

COMPARISON WITH MOVIE INDUSTRY Similarities


VIDEO GAME
Driven by Programmers/Developers
Scripts reviewed by a committee for approval Once script is selected then a larger team starts to work on it Software designers are the creative artists A host of background/backstage operations make the game possible

MOVIE
Driven by Producers/Directors
Similar scripts review process Team includes actors, directors, editors, technicians, etc. The writers, recording starts are the creative artists A host of background/backstage operations make the movie possible

Marketing blitzes to generate excitement about the games


Sunk cost: game development

Promotional Ads are launched to create excitement about the movies


Sunk cost: movie production

No single recipe to develop a hit game


Target Holiday seasons

No surefire formula for making a hit movie


Good sales for movies opening during holidays

COMPARISON WITH MOVIE INDUSTRY Dissimilarities


VIDEO GAME
Costs are not very large
Too much dependence on technology Target segment limited to Children & young adults Seasonality is more Distribution systems are more elaborate & need fast response speeds Hit Rule: profit comes from a larger part of output

MOVIE
Very large costs are associated with movies
Technology dependence is relatively less Everyone is a potential consumer for movies Seasonality is relatively less Distribution systems need not be that elaborate or responsive Hit Rule: most profit comes from a tiny part of output

ELECTRONIC ARTS UNTIL 1995


Early 1990s
1982-1989: Excellent Growth 1982: Founded by Trip Hawkins Innovative, high quality games 45% revenue from Affiliated labels Broadened product line 1st 3rd party developer of Sega

1991: Founded 3DO


1992: Clear leader in 16-bit

3 Major decisions Design s/w for PCs Applications across h/w platforms Outsource manufacturing & s/w assembly

1989: Crisis

Focus shifted to stand alone video game market


EA went public at $8 a share

1994-1995 Re-organisation: 4 divisions

Expanded overseas
Invested in state-of-the-art distribution systems

BUSINESS MODEL
Game Scripts, Future royalties Advances, Periodic payments GAME DESIGNERS

EA
STUDIO PERMANENT STAFF

EA PROJECT REVIEW COMMITTEE

FINANCE

DISTRIBUTION

SCRIPT

PostApproval

MARKETING

PRODUCTION TEAM

CORE COMPETENCY
CORE COMPETENCY
Ability to assess market changes and new technologies Flexibility to adapt to the new market needs

CAPABILITIES
Market intelligence, hardware objectivity, frugal system of distribution through economies of scale and scope,

RESOURCES
Tangible Licenses, Techno savvy management teams, Intangible Capacity to innovate, Reputation with customers and distributors, Organizational culture

TECHNOLOGY STRATEGY
TECHNOLOGY CHOICE
Invested in leading-edge computer technology Developed Artist Workstation Compatible across variety of hardware platforms

TECHNOLOGY LEADERSHIP
Pioneering role in 16 bit products Ability to assess new platforms Focus on next generation hardware 3DO

Aversion to dependency on one hardware

TECHNOLOGY ENTRY TIMING


Designing games for 16 bit Sega Genesis Navigational Competence Tiger teams Education and reference applications

TECHNOLOGY LICENSING
Licensing of EA Studios products 3DO designs given away at nominal fees Licensing for 3DO software

EA used its technological capabilities offensively to create new advantage

ALIGNMENT OF BUSINESS & TECHNOLOGY STRATEGY


Direct sales force Strong retailer relationship Quick marketing responses Product forecasting Competitive assessment Celebrity products
CUSTOMER INTIMACY INNOVATION

studio & script model Importance to creative functions Unique entrepreneurial culture

OPERATIONAL EXCELLENCE

EA Affiliated Labels Economies of scale & scope in distribution Broad product line Integration in value chain Artist workstation

INDUSTRY TRENDS
CAPITAL REQUIREMENTS Increasing development cost
Longer product development Higher animation costs Larger teams

Porting applications to new platforms

25-30% of total development costs

Increasing marketing and distribution costs

New channels (specialty software stores , electronic stores) Pre-launch marketing blitzes

(contd)

INDUSTRY TRENDS
PC MARKET Strong Growth
Upgrade kits

(contd)

Sharp price reductions

No drastic changes in interactive entertainment software business

25 % revenue from CD ROM games (predicted) 75 % from non pc based (playstations)

Feasibility of owning a PC

PC relatively expensive

Installation difficulties

(contd)

INDUSTRY TRENDS
INTERACTIVE MEDIA

(contd)

Convergence of communications, entertainment and computing industries Increased role of video game applications in determining success

Possibility of Hollywood studios and other content providers entering the market
ONLINE Rapidly increasing world wide web users New distribution channels

Exploding growth in online services industry Launch of Segas first online video game service

PLATFORMS
Skipped 32 bit generation

NINTENDO

Ultra 64 (250 $) Silicon based cartridge and not CD ROM

2 million times faster than CD ROM


Genesis upgradable to 32 bit

SEGA

Saturn console (480 $) 32 bit, CD ROM based player Adapter for further enhancements Access to content through Columbia pictures

SONY

Playstation (480 $)
32 bit CD ROM player with superior graphics, video and sound quality High performance subsystems Jaguar (250 $)

ATARI

64 bit, CD ROM stand alone platform Fewer games

Processor 8 bit 16-bit 32-bit

Platform Nintendo Super NES Sega Genesis Sega Saturn Sony PlayStation 3D0

Tie Ratio 12 10 10 15 15 15 1 2

3DO Backward compatible unlike Genesis, Super NES, etc. Sound and video quality unmatched Expected tie ratio of 15

PC

PC-Floppy PC CD-ROM

Gross Profit % table Sega Genesis

1996 (E) 42 % 26 % 67 % 40 % 84 % 18 % 62 %

1997 (E) 41 % 25 % 65 % 40 % 80 % 17 % 62 %

THE LUCRATIVE PLATFORMS PC/MAC License/OEM 3DO, Saturn, Playstation

Super Nintendo PC/MAC Other Platforms License/OEM Affiliated Labels 3DO, Saturn, Playstation

WAY FORWARD
Development for 32 bit technologies
o Sony PlayStation, 3DO and Saturn

High gross profit margins


Sony sure-shot success due to its current brand perception o PC/MAC Expected to be the fastest growing

CD-ROMS
o Continue production of cartridges (for Nintendo and Sega) Focus on selling in other countries , in sync with target of 40 % sales outside the US Translation of EA titles into up to seven languages and their distribution in 31 European and Mediterranean countries

Edutainment
o High growth category o Recent acquisitions

WAY FORWARD
Continue to push 3DO development
Should wait for the online way of distribution to develop before venturing
o Fast follower approach rather than first mover

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