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Video Game Industry
Analyst Report to Fidelity Magellan Fund
Manager
November 20, 2001
Agenda
 Market History: Ainsley Quiohilag
 Platform v. Software: Bei Wei Li
 Current Market Conditions: Henry Steinberg
 Conclusions & Recommendation: Dana Kelman
Market History
 Periods Defined by Two Major Platforms
 Atari v. Colecovision
 Nintendo v. Sega
 Sony v. Nintendo
 X-Box new entry
 Atari, Sega, & Colecovision failures
Market History
 Software Maker Sustainability
 Electronic Arts
 Activision
 Sega
Platform v. Software
 Platforms
 Loss Leaders
 MSFT expects to lose $150 per unit
 Gillette business model analogy
 Profits derived from software
 Platform makers develop software for their consoles
 Royalties from third party software developers
Platform v. Software
 Software Only Companies
 Ability to make software for all platforms
 No losses to recover
 High profit margins/low marginal cost
 Lower fixed costs than companies that make both
consoles and software
Current Market Conditions
 Major Platform Makers
 Sony Playstation 2 debuted last year
 Microsoft Xbox and Nintendo Gamecube new introductions
November 2001
 Intense competition
 More platforms more players
 $1 billion marketing blitz for video game industry
 Increased size of market (44 million consoles today to 70 million by
2003)
 New platform technology facilitates improved game quality
Conclusion
 Who wins battle of platforms?
 Who cares?
 Value added comes from games
 Examples: Movie theaters, Sega Dreamcast
 Real winners are software makers
 Capture whole market regardless of platform
Recommendation
 Electronic Arts
 Industry leader
 Use clout to negotiate deals with celebrities & sports
figures
 Hedged against platform standard problem – make
software for all platforms
 Stability
 Survived past industry shakeouts

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Videogames.ppt

  • 1. Video Game Industry Analyst Report to Fidelity Magellan Fund Manager November 20, 2001
  • 2. Agenda  Market History: Ainsley Quiohilag  Platform v. Software: Bei Wei Li  Current Market Conditions: Henry Steinberg  Conclusions & Recommendation: Dana Kelman
  • 3. Market History  Periods Defined by Two Major Platforms  Atari v. Colecovision  Nintendo v. Sega  Sony v. Nintendo  X-Box new entry  Atari, Sega, & Colecovision failures
  • 4. Market History  Software Maker Sustainability  Electronic Arts  Activision  Sega
  • 5. Platform v. Software  Platforms  Loss Leaders  MSFT expects to lose $150 per unit  Gillette business model analogy  Profits derived from software  Platform makers develop software for their consoles  Royalties from third party software developers
  • 6. Platform v. Software  Software Only Companies  Ability to make software for all platforms  No losses to recover  High profit margins/low marginal cost  Lower fixed costs than companies that make both consoles and software
  • 7. Current Market Conditions  Major Platform Makers  Sony Playstation 2 debuted last year  Microsoft Xbox and Nintendo Gamecube new introductions November 2001  Intense competition  More platforms more players  $1 billion marketing blitz for video game industry  Increased size of market (44 million consoles today to 70 million by 2003)  New platform technology facilitates improved game quality
  • 8. Conclusion  Who wins battle of platforms?  Who cares?  Value added comes from games  Examples: Movie theaters, Sega Dreamcast  Real winners are software makers  Capture whole market regardless of platform
  • 9. Recommendation  Electronic Arts  Industry leader  Use clout to negotiate deals with celebrities & sports figures  Hedged against platform standard problem – make software for all platforms  Stability  Survived past industry shakeouts