Activision Blizzard Porter's Five Forces
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Activision Blizzard Porter's Five Forces

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Taking a look at Activision Blizzard through the lens of Porter's Five Forces.

Taking a look at Activision Blizzard through the lens of Porter's Five Forces.

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Activision Blizzard Porter's Five Forces Activision Blizzard Porter's Five Forces Presentation Transcript

  • Activision Blizzard NASDAQ: ATVI Porter’s Five Forces 1
  •  Porter’s Five Forces is a model named after Michael E. Porter that takes into consideration five market forces that play out on any given company or industry. The five forces are: power of buyers; power of suppliers; threat of substitutes; threat of new entrants; and industry jockeying.  This model examines these forces thereby helping to determine a given company’s strengths and weaknesses.  Porter’s Five Forces is also a way to view the potential risks to which any given company may be exposed.  Porter’s is a valuable yet somewhat subjective tool. It is a starting point meant to encourage further discussion. 2 What is Porter’s Five Forces?
  •  Please note there is no official method to score the model. This method is simply a way to further categorize companies.  Each market force is scored on a scale of 1 – 5 with 1 representing the lowest threat and 5 representing the highest threat.  All five forces are totaled for a final score. The lowest possible score is 5 and the highest possible score is 25. implies a lower threat rating. implies a medium threat rating. implies a higher threat rating. 3 Scoring
  • Power of Buyers  Estimates are that 17% of the global population are gamers. That breaks down to about 1.2 billion; purely discretionary.  Mobile means many games are living much shorter lives.  Of the global Internet population 44% plays online games (about 700 million).  Digital distribution has changed the game; power is shifting more directly to the consumer.  Even powerful franchises like World of Warcraft don’t last forever.  New titles with long lives is huge. The subscription model may be in big trouble.  Score – 4 4
  • Power of Suppliers  Suppliers in this case are the talent that churn out the hits. The company also pays licensing fees for the various distribution platforms.  Digital distribution is bringing the cost of production down margins expanding.  There are plenty of substitutes in the gaming world. Attracting and keeping the best talent is important meaning the suppliers hold some of the cards here.  ATVI has a reputation as having the resources and distribution for producers to get their games out to the largest audiences as well.  Score – 3 5
  • Threat of Substitutes  Think back to the day of the Atari. Video games have come a long way since then.  There are plenty of substitutes where gaming is concerned. Particularly with the proliferation of mobile devices.  Gaming is more than just gaming though; it’s entertainment and there are more forces out there competing for our entertainment dollars today than ever before.  Partnerships in and out of the industry can help mitigate the threat of substitutes.  Consoles today are virtual entertainment centers offering much more than just gaming options.  Score – 5 6
  • Threat of New Entrants  Of course there is always the threat of new entrants. But how will new entrants affect ATVI? Will gamers leave ATVI to try other options out there? Is there any kind of brand loyalty toward ATVI? (Thanks Paul C!)  King Digital and Zynga are examples of two companies that have taken advantage of public market mania to raise capital.  Economic barriers for new entrants are low, at least in the beginning. ATVI has traditionally held an advantage in distribution over any new entrants. HOWEVER…  App stores and mobile are changing the landscape in a big, big way.  Score – 4 7
  • Industry Jockeying  IBISWorld projects annual growth of 3% in the US sector over the coming five years.  Video games are purely discretionary purchases. As the consumer recovers, there should be more opportunities in the space.  Mobile technology is opening up the space as well, changing the dynamic from a traditional console market.  IBISWorld pegs 60% to 70% of downloadable mobile games as free, raising the hurdle for purchasing and/or subscriptions.  Game development is becoming more global, more revenue realized internationally.  Score – 4 8
  •  Power of Buyers – 4  Power of Suppliers – 3  Threat of Substitutes – 5  Threat of New Entrants – 4  Industry Jockeying – 4 9 Score