Activision-BlizzardSummaryHeadquartered in Santa Monica, California, ActivisionBlizzard, Inc. is a worldwide pure-play online andconsole game publisher with leading market positionsacross all categories of the rapidly growing interactiveentertainment software industry.Activision Blizzards portfolio includes best-selling videogames such as Guitar Hero, Call of Duty, and TonyHawk, as well as Spider-Man, X-Men, Shrek, JamesBond and TRANSFORMERS, leading franchises such asCrash Bandicoot and Spyro and BlizzardEntertainments StarCraft, Diablo, and Warcraftfranchises including the global #1 subscription-basedmassively multi-player online role-playing game, Worldof Warcraft.
Porter’s Five Supplier Power• Industry is rather concentrated – Most successful titles are almost exclusively developed by established companies rather than new startups.• Volume of sold games is of utmost importance – Fixed development cost but minimal distribution costs – Failing to cover the development costs can therefore ruin a company• Products in the market are differentiated – Differences in quality are large – Gamers are usually loyal to certain types of games and are unlikely to accept substitutes• Even major publishers are not forward integrated – Rely on the customary types of distribution.• Compared with the rest of the computer industry, the average cost of computer games lies well below the average cost of the whole software industry.
Porter’s Five Barriers to Entry• Technically no barriers to enter the market of computer games as any teenager with a computer and sufficient knowledge can develop a game.• Nevertheless, starting a larger company requires major investments (teams consisting of coders, graphical designers, music composers, game designers, and marketers). With increasing complexities of the games, these costs are understandably increasing.• The companies have very limited absolute cost advantages as they cannot patent their technologies and development costs are very similar for the single companies.• The possibility that governments might outlaw certain types of games because of objectionable content poses a risk for game publishers. Nevertheless, it is very unlikely that any such steps will be actually taken.
Porter’s Five Threat of substitutes• The switching costs on the market are virtually non- existent and the market is very competitive.• Nevertheless, the buyers are very unlikely to accept substitutes and the aggregate game sales are usually down prior to the release of a long awaited title.
Porter’s Five Buyer Power• The companies do not have long-term agreements and are dependent on a small number of customers who generate large percentages of the sales (game store etc.). These have large bargaining power as the companies must reach an agreement with every single one of these chain stores whereas the stores do not.
Porter’s Five Degree of Rivalry• The industry is growing rapidly. The size of the whole market is now almost USD 12 billion.• The corporate stakes are high as the single corporations are dependent on the revenue solely from the one sub-industry (apart from giants such as Sony or Microsoft).• There are very few exit barriers as the companies, apart from its staff and computers, do not own much.• Companies who want to exit the market are more likely to be acquired by another company rather than go out of business completely.
SWOT Analysis Strengths• Very strong franchises (Starcraft, Diablo, World of Warcraft, Guitar Hero, Call of Duty); the previous titles in the various series were critically acclaimed and sold in the millions• The Blizzard name is highly valued by customers; arguably the most highly esteemed in PC gaming• Multi-year agreements with companies like DreamWorks granting exclusive rights to create video games based on their theatrical releases (games based on movies tend to sell very well)• Diversity: the company releases products on all major gaming platforms, including PC
SWOT Analysis Weaknesses• Near total reliance on a limited number of franchises• Failure of any of these would pose a significant threat to the company’s profitability
SWOT Analysis Opportunities• Growing gaming industry• Another MMORPG in the works; their current one is the most successful in the genre and provides approximately $165 million in revenue per month• Sequels to their Starcraft and Diablo franchises slated for release in late 2009 / early 2010; previous titles in the series sold millions of copies• Releases of more Guitar Hero titles later this year• X-Men Origins game, Transformers 2 game in time for the movie releases• The company has expressed interest in future acquisitions of successful small- to mid-size game developers
SWOT Analysis Threats• Delays in product releases; the life of most games is relatively short and the vast majority of revenues from a given title come within the first few months of release• Loss of customer interest in current franchises (like Guitar Hero, which will likely prove to be a “fad”)• Every game title that is produced for a specific gaming console requires a license from the manufacturer of that console; if said manufacturers were to increase their licensing fees, ATVI would suffer• Product development costs are likely to increase with the advent of new technology; new technology forces developers to make ever more sophisticated games, which in turn raises the cost of their development