Video Game and Software Industry

Introduction

The video game industry is very broad in scope and continuously growing at a rapid pace (Exhibit 1) with billions of dollars to be made. Although the large potential for growth cushions rivalry amongst the existing competitors in this industry, video game companies constantly focus on differentiating their products and seize new opportunities to gain and secure their customers loyalty in order to continue in the business. Most of these new opportunities are created through advancements in technology which have a huge impact on the video game industry by enforcing constant growth. Aside, threats like new competitors, substitutes, and regulation influence the video gaming and software industry every day, making the market even more competitive, while an increasing desire for fun and unique products on the customer side force companies to steadily create new and innovative technology. Therefore, competition among companies in this industry can be fierce, with each video game company struggling against the others for market share.

Sales

According to the Entertainment Software Association (ESA) (Exhibit 2) game sales hit $7.0 billion in 2005 for total sales in the U.S. game software market for game consoles (PlayStation, XBOX, etc.) and PC games. With $6.06 billion, the lion’s share of the overall sales came from console game sales, while $.953 billion were cumulated through PC game sales. Expressed in units of games sold, in 2005 190.5 million units were sold for console systems compared to 38 million units for PC games. Historically sales of video games have grown in almost every year since 1996. US based sales (Exhibit 1) in 1996 were $2.6 billion (74.1 million units) and rose to $7.4 billion in 2004 (250 million units), which was an increase about roughly 300%. For 2006, statistics show that 42% of the target audience purchased or planned to purchase one or more games. The following games are the top selling game titles for 2005 (Exhibit 3):

With the release of the Nintendo Wii, and Sony PlayStation 3 (PS3) (which came out at the end of 2006) industry sales can be expected to increase even more, while overall retail sales of game machines, software and accessories for other system should also see more sales. Although Sony’s release of the PlayStation 3 had various initial problems due to supply constraints, the perceived ease of finding the PS3 in online or offline stores is noticeably higher than for Nintendo's Wii. On the other hand, with an average of $249.99 per console the Wii has a much more attractive sales price, while the PlayStation 3 is priced at $599.99.

Controversy and Regulation

Computer and video games are subject to routine controversy and regulation. While not all games have a dark side, sometimes computer and video games include graphic violence, drug usage and profanity. Due to these and other questionable things being placed in games, the Entertainment Software Rating Board (ESRB) was established to police the games and place a rating on every game dependent upon content, similar to the ratings movies receive. The ESRB’s ratings are intended to give truthful and objective information about the substance in computer and video games for consumers to allow them to make a knowledgeable purchase choice more easily. Some challengers of video games include parents' groups, politicians, organized religion groups and open lobby for new laws and legislation to be enforced in the United States (U.S.).

Competition

The video gaming industry is competing with television, movies and music in an overall crowded entertainment market. The capability to play music and movies with game consoles and handhelds (PSP, Nintendo DS) drives overall industry growth, since consumers intend to see video gaming devices as a “do-it-all” media device platform. The video gaming industry has been growing exponentially in recent years and is expected to continue growing in the future. While the video game market is expected to increase mostly driven by online gaming and the continued development of portable gaming devices, the online console gaming market is primed to explode due to advances in networking and online gaming capability along with the increased availability of broadband to the global market. The ability to download games and to access better-quality content, including high-definition video, has increased and plays a major part in influencing the design and features of subsequent generations of video games and the hardware that supports them.

Demographics and Statistics

According to the industry statistics reported by the