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Understanding the Business Model in the Video Game Industry

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Understanding the Business Model in the Video Game Industry Understanding the business model in the video game industry A case study on an independent video game developer MASTER THESIS WITHIN: Business Administration NUMBER OF CREDITS: 30 PROGRAMME OF STUDY: Digital Business AUTHORS: Erik Almér and Gustav Eriksson JÖNKÖPING January 2019 Master Thesis in Business Administration Title: Understanding the business model in the video game industry – a case study on an independent video game developer Authors: Erik Almér and Gustav Eriksson Tutor: Imran Nazir Date: 2019-01-17 Key terms: business model, business model canvas, independent video game developer, case study Abstract Background: Tough competition, time- and resource constraints, and changing consumer demands in the video game industry requires business models that can cope with the pressure. Purpose: The purpose of this thesis is to use business model framework in order to better understand how independent video game developers develop their business models. We aim to contribute to the development of business model literature within the context of independent video game development by further the understanding of how a business model framework can be utilized in this new context. Method: A case study method was used, focusing on a single-case and interviews with participants from the case company. Conclusion: We further develop the BMC by proposing to divide the BMC for independent video game developers into a pre-release and post-release BMC to better describe the business model for an independent video game developer and the business model evolution from pre-release to post- release. i Table of Contents 1. Introduction .......................................................................... 1 1.1 Disposition .............................................................................................. 1 1.2 Background ............................................................................................. 2 1.3 Problem ................................................................................................... 3 1.4 Purpose ................................................................................................... 4 1.5 Perspective .............................................................................................. 5 1.6 Delimitations ........................................................................................... 5 1.7 Definitions ............................................................................................... 5 2. Literature Review .................................................................. 8 2.1 Components of the business model ........................................................... 11 2.1.1 Customer Segments ................................................................................ 12 2.1.2 Value Propositions ................................................................................. 12 2.1.3 Channels ............................................................................................... 13 2.1.4 Customer Relationships ........................................................................... 13 2.1.5 Revenue Streams .................................................................................... 13 2.1.6 Key Resources ....................................................................................... 14 2.1.7 Key Activities ........................................................................................ 14 2.1.8 Key Partnerships .................................................................................... 14 2.1.9 Cost Structure ........................................................................................ 14 2.2 Business models for video game developers .............................................. 15 2.2.1 Customer Segments ................................................................................ 15 2.2.2 Value Proposition ................................................................................... 16 2.2.3 Channels ............................................................................................... 16 2.2.4 Revenue Streams .................................................................................... 17 2.2.5 Key Resources ....................................................................................... 17 2.2.6 Key Partners .......................................................................................... 18 2.2.7 Additional elements of the BMC .............................................................. 18 3. Methodology and Method .................................................... 19 3.1 Qualitative research ................................................................................ 19 3.2 Case study design ................................................................................... 21 3.3 Case selection – independent video game developers ................................. 23 3.3.1 History of Fatshark Studios ..................................................................... 23 3.3.2 Selection of case company ....................................................................... 26 3.4 Data collection ....................................................................................... 27 3.4.1 Interviews .............................................................................................. 27 3.4.2 Reflexivity ............................................................................................. 31 3.4.3 Secondary data ....................................................................................... 31 3.5 Data analysis .......................................................................................... 32 3.5.1 Transcribing results ................................................................................ 33 3.5.2 Within case analysis ............................................................................... 34 3.6 Quality of research ................................................................................. 36 3.6.1 Construct validity ................................................................................... 36 3.6.2 Internal validity ...................................................................................... 36 3.6.3 External validity ..................................................................................... 37 3.6.4 Reliability .............................................................................................. 37 4. Empirical findings and Interpretation .................................. 38 ii 4.1 New BMC for independent video game developers .................................... 39 4.1.1 Pre-release BMC .................................................................................... 41 4.1.2 Post-release BMC ................................................................................... 51 5. Conclusion ........................................................................... 59 6. Discussion ............................................................................ 60 7. Reference list ....................................................................... 63 8. Appendices .......................................................................... 66 8.1 Appendix 1 – Interview transcript 1 .......................................................... 66 8.2 Appendix 2 – Interview transcript 2 .......................................................... 81 8.3 Appendix 3 – Interview transcript 3 .......................................................... 88 8.4 Appendix 4 – Interview transcript 4 .......................................................... 98 iii 1. Introduction 1.1 Disposition This case study represents a master’s thesis in Digital Business at Jönköping University. Part one is concerned with introduction of the research study. A background of the video game industry is presented along with a problem statement discussing current issues leading into the purpose. Thereafter the perspective of the study along with delimitations are presented. Following that are definitions and their respective descriptions, which can be of help for the reader to more easily understand the thesis without resorting to external sources. In the second part a review of the literature is given. Firstly, general literature on business models are presented. Secondly, the business model canvas by Osterwalder and Pigneur (2010) is introduced with the nine building blocks, which is the main theoretical framework used for this case study. Following the literature review is the methodology and method section. Here the methodology selected for the case is presented, together with case study design, with arguments for why the chosen case in this case study has been selected along with a brief history over the case company. In this section there is as well our thoughts regarding data collection, data analysis, and quality of research. The fourth part is the empirical findings and interpretation. Here the findings from the interviews are presented according to the separate building blocks of the business model canvas. The fifth and final section is the conclusion and discussion. Here we conclude the findings, as well as discussing them and suggest possible ventures for future research. Appendices mentioned in the case study can be found after this section. 1 1.2 Background The video game industry is one of the most grueling and toughest environments for companies to compete in; short time frames (Sotamaa & Karppi, 2010) and changing consumer demands
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