Midway Games

Midway Games Inc.

Case Analysis

Strategic Management

William McKeown

December 6, 2007

Strategic Purpose and Case Analysis Purpose

Midway Games "develop(s) and publish(es) interactive entertainment software for the global game market."4 The company began in 1988 focusing on the coin operated game sector, and the development of home console and handheld versions that proved to be successful in the coin operated market. In 2001, the management team at Midway Games made the decision to exit the coin-operated segment of their business and "focus exclusively on the rapidly growing home console and handheld video game software market." 4 Over the past several years, Midway Games has suffered significant financial losses. Because of these losses, Midway Games must identify a new strategic purpose: double market capitalization within four years.

Situation Analysis/Market Study

General Environmental Analysis

By 1983, so many bad games had hit the market that consumers began to turn away from video games for entertainment. The market had become hyper-competitive and consumers were less willing to spend their money on video games that they thought were boring or not challenging. Midway Games entered the video game industry in 1988; five years after the market suffered its crash. From its start, Midway Games focused on coin-operated games and developed home console or handheld games only if it was proven successful in the coin-operated market.

Demographic

* 60 percent of gamers are 18 or older (25 percent of these are 35 years old or older).2

* Average age of consumer is 33 years old and has been playing for 12 years. In 2007 24% of gamers were over 50 years old.2

* "69 percent of American heads of households play computer and video games." 2

* Adult gamers have been playing for an average of 12 years. 53 percent expect to be playing for the next 10 years or more.2

Economic

* Games being sold are priced competitively.

* Costs for game development and distribution are increasing.

* Difference in European market - the Euro is stronger than the US dollar, which may affect Midway's financials.

* Fluctuation of disposable income has an effect on the success of this industry.

* 73.4 percent of American households have a personal computer in their homes.6

Political/Legal

* Threat of lawsuits alleging damages against players.

* Lawsuits are pending in the United States District Court for the Northern District of Illinois against Midway Games, Inc. and certain of its officers and directors, which allege that the defendants violated the Securities Exchange Act of 1934, August 2007.6

* Licenses, patents, copyrights, etc. must be obtained to protect business interests.

Sociocultural

* There is a risk that consumers can turn against violent video games such as Midway's Mortal Kombat series which are rated "M" for mature, and pressure the government to ban certain aspects or games altogether.

* Trade organizations have established rules about rating systems and labeling of games. A rating change from "T" to "M" could delay a release date.

* People are spending more time indoors without exercising, e.g., more and more people are becoming "couch-potatoes." "Gamers devote more than triple the amount of time spent playing games each week to exercising or playing sports..."1 The obesity rate in our country is currently averaging about 34 percent of the adult population. 3

* Parents play video games with their children and view it as an opportunity to socialize/have fun with them and to monitor the game's content.2

Technological

* Research and development should support artificial intelligence (AI) technology, multi-genre action games, and over the top sports games.

* Home computers became more popular in the 1980's and the individual console market collapsed.1

* The internet boom of the 1990's not only led to increased communication, but also the ability for gamers to play together [the beginning of the Massive Multi-player On-line Game (MMOG)].1 2005 gamer data facts indicate that 44 percent of frequent gamers prefer playing on-line games, up 19 percent since 2000.2

* Pocket-sized games were also introduced in the late 1990's.1

Global

* Pirating of software and games in foreign countries, which is very hard to track and regulate.

* Translation of games into other languages and adjust to other cultures.

Industry Analysis

Threat of New Entrants

* Gaming is a very competitive market - also try to keep larger firms from achieving economies of scale.

* Access to compete in the personal computer game market is easy as there are minimal barriers. Anyone who has an idea for a game and can find someone with the software writing know-how is a potential threat. Technology, e.g., new console technology, is also a threat because of the cost of licensing and royalties. However, little capital investment is required for cost intensive items such as heavy-duty machinery, equipment or large manufacturing facilities.

Power of Suppliers

* "The manufacturing of the home and handheld video game platforms may manufacture the video games for Midway or require Midway to use their designees."4 The bargaining power of suppliers relates to the need to obtain licenses, copyrights, etc., to manufacture for specific consoles and/or utilize names or characters, e.g., professional sport teams, movie characters,