Responding To Wii

Responding to Wii

Corporate Strategy - Group Project

Ameya Patkar, Rohith Jaggi, Naveen K R, Janhavi Anand, Prabodh Shahi

6/15/2013

Executive Summary

Gaming segment is a major revenue earner for Sony and contributes close to 11% to its top line. However the segment has been in structural decline over the last couple of years. The reason for this can be traced to delay in launch of new consoles over the last couple of years as well as below par performance of new hand held gaming device PS Vita. Weak global economy has dampened spending power of people in Sony's core European and American markets further adding to its woes. Sony tried to tide over the crisis by slashing price of its console as well as offering free download of certain versions of PS3.

The company has now launched "Sony Entertainment Network" in order to rebrand and consolidate its network service under a single brand. A major organisation restructuring has given "Game" a standalone segment status; this segment has been recognised as a major pillar of its electronic business.

If Sony has to achieve the target of earning 70% of total sales and 85% of operating income from electronic business it has to focus on below key aspects:

➢ Launch cloud gaming feature at the earliest and encourage more users to sign up for its online gaming platform.

➢ Increase game portfolio to appeal to both core as well as casual gamers. Allow used games on console to expand online community.

➢ Integrate all its living room utilities including console into one standalone "Media Recreational Centre" offering.

➢ Continue loss leader strategy to drive out Nintendo from competition. Losses could be rationalized by lowering hardware costs.

➢ Concentrate on emerging economies to capture more market share leveraging on existing product offering and distribution channel.

I. Introduction & Brief History

Video game industry started off in 1972 when Magnavox introduced the first video game "Odyssey". This was followed by the entry of Atari which launched its first game in an arcade format before venturing into the home console market in 1974 with the "Pong system". Pong only had a set number of games that were hardwired and consumers did not have the option of adding more games.

In 1976, Fairchild Camera introduced the Channel F which altered the industry forever. Channel F system could play multiple games stored on interchangeable cartridges. Atari followed suit and introduced the Video Computer System 2600 which ran on interchangeable cartridges and also had a joystick. Atari dominated the gaming industry till the industry crashed in 1983. The crash was blamed on the proliferation of cheap and uninspired gaming software. By 1985, the industry had lost 97% of its annual sales volume, and Atari was sold at a loss in 1984.

Nintendo revived the home videogame industry by introducing Nintendo Entertainment System to the home console market. In order to avoid low quality game proliferation that haunted Atari, Nintendo decided to enter into licensing agreement with 3rd party game developers, to develop games for its platform. The contract allowed Nintendo to extract royalty as well from the developers. Nintendo dominated the gaming industry from the late 1980's to the early 1990's cornering a whopping 90% market share.

For a brief period, Sega dominated the 3rd generation gaming consoles with the introduction of its 16-bit Genesis system. Sony entered the home console industry with its PlayStation (PS) system in 1995. PlayStation targeted a more mature gaming audience and allowed third-party developers to create new games by giving them development tools and software. Sony introduced new features like internet connectivity, DVD compatibility, advanced graphics and backward compatibility thereby dominating the 4th and 5th generation console sales.

6th generation of video game console saw the introduction of Microsoft Xbox and the permanent exit of Sega from hardware console business. The era also saw the rise in prominence of online gaming which in previous generations had been the exclusive domain of PC games. Microsoft offered an online service called Xbox Live that allowed multi-player gaming as well as acted as delivery service, this prompted Sony to boost online capabilities of PS2. The generation also saw major game publishers like Activision, Electronic Arts and Ubisoft adopt a cross-platform strategy and release versions of their games across all major consoles. GameCube's poor performance prompted Nintendo to change tactics and target non-traditional users. It's offering Wii though technically inferior to Xbox and