The Handheld Gaming Industry: Sony Vs. Nintendo

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The Handheld Gaming Industry: Sony Vs. Nintendo The Handheld Gaming Industry Sony vs. Nintendo Teddy Nickolov T’05 MBA Fellows Project The Handheld Gaming Industry: Sony vs Nintendo Teddy Nickolov April 20, 2005 Agenda Project overview Overview of handheld gaming industry Sony profile Nintendo profile Sony PSP vs. Nintendo DS Nintendo’s strategy against Sony Project background May 2003 – Sony announces PSP – PSP is most advanced handheld ever January 2004 – Nintendo announces DS – First handheld with touch-screen December 2004 – PSP and DS launch in Japan April 2005 – PSP launch in US Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy Agenda Project overview Overview of handheld gaming industry Sony profile Nintendo profile Sony PSP vs. Nintendo DS Nintendo’s strategy against Sony History of handheld gaming is history of Nintendo 1979 1989 1994 1998 2001 2003 2004 GameBoy Super GameBoy GameBoy GameBoy Nintendo Gameboy Color Advance Advance SP DS Pocket Pro Microvision Atari Lynx WonderSwan Nokia N-Gage Sony PSP TurboGrafx NeoGeo Pocket 4% Others 25% Nintendo Nintendo 96% 75% 1999 2003 Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy Shift towards a more mature audience Others Others (28%) (16%) Teens/ Teens/ Juvenile Adults Juvenile Adults (55%) (35%) (49%) (17%) GameBoy Advance GameBoy Advance SP (2001) (2003) Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy Agenda Project overview Overview of handheld gaming industry Sony profile Nintendo profile Sony PSP vs. Nintendo DS Nintendo’s strategy against Sony Game group revenue is important for Sony Sony org chart Revenue breakdown (FY2004) Financial Other Services 2% 8% Pic tur es 10% Mus ic 7% Game Electronics 10% 63% Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy Sony is about gaming consoles 1950 1990 1994 1999 2000 2003 2004 2005 2005 Sony Sony The PS One The PS Two The PS3 creates partners is is is the first with announced announced announced tape Nintendo to recorder create the PlayStation The first The PS2 PlayStation is launched PSP is launched The PSX is launched announced in March Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy Sony has a solid position in the gaming market Technology – Sony was ahead with the PS, and then with the PS2 – The PSP is two generations ahead of the DS Games –A plethora of games – New franchises – Aimed at a new demographic compared to Nintendo (and even edgier than Sega) Relationship with game developers – Freedom to develop any game they want (no age limit) – Scale to have the games played on 100M consoles – Tools to help developers create better games cheaper Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy Agenda Project overview Overview of handheld gaming industry Sony profile Nintendo profile Sony PSP vs. Nintendo DS Nintendo’s strategy against Sony Nintendo today at a glance Result in FY 2004 Market share (Hardware) Revenue : $ 4.9 billions in FY 2004 Operating margin : 10.3% Handheld : 99% Net margin : 6.5% Console : 7% Revenue break down (FY 2004) By product By platform By region Others (1%) Others (11%) Europe (23%) North Software Console Hardware America (43%) (27%) (57%) Handheld (49%) (62%) Japan (27%) Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy Nintendo is very profitable Nintendo Sony (Game segment) Industry (excluding Nintendo & Sony) Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy Nintendo also has many strengths Ability to generate large volume of software sales – Strong internal development capabilities and excellent relationships with third-party developers Cost effective hardware strategy – Use available, affordable technologies that are core to “gaming experience” only Focused business makes financial model efficient Most importantly, strong brand recognition among kids due to its famous characters Donkey Kong Super Mario PokeMon (since 1981) (since 1985) (since 1996) Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy Agenda Project overview Overview of handheld gaming industry Sony profile Nintendo profile Sony PSP vs. Nintendo DS Nintendo’s strategy against Sony VS Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy Sony PlayStation Portable (PSP) Strengths Weaknesses 9 Most advanced handheld 8 Short battery life 9 PS2 port content 8 Limited new content 9 Strong 3rd party support 8 Untried storage format 9 Multiple functionality 8 Appeals to unproven mkt 9 Sony capabilities 8 Expensive? Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy Nintendo Dual-Screen (DS) Strengths Weaknesses 9 Nintendo brand name 8 Limited “new” content 9 New functionality 8 Unproven functionality 9 Strong 1st party content 8 Shorter battery life: GBA 9 Longer battery life 8 Expensive? 9 Backward-compatible Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy Market impact of Sony PSP introduction PSP appealing to a different audience market expansion – 40% growth by 2007? PSP only $50 more than DS really strong competition – More innovation? – Nintendo in trouble? If analysts correct, PSP profit over $400m by 2007 Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy Agenda Project overview Overview of handheld gaming industry Sony profile Nintendo profile Sony PSP vs. Nintendo DS Nintendo’s strategy against Sony Nintendo’s short term response: Defend market share by differentiation Play on price Refine value proposition of DS Product segmentation/tiered offering Enhance 3rd party support Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy Nintendo’s long-term response: Expand revenue sources Create new winning franchises Diversify revenue sources Expand geographically: China, India Expand demographic base Partner to improve features Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy QUESTIONS? Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy.
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