Rasmus Soeegaard Kaas

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Rasmus Soeegaard Kaas Rasmus Søegaard Kaas, stud.merc.aud., CBS, 2011 – Strategic Framing In The Video Games Industry Copenhagen Business School, cand.merc.aud., Institute for leadership, politics & philosophy, E65 – Strategic Leadership – Master Thesis STRATEGY FORECAST Next Generation Gatekeeping In The Video Games Industry Hand in date: 28.04.2011 Number of pages: 91 (excl. Front Page, Executive Summary & Appendices), Total: 100 pages Number of keystrokes: 159.541 + 28 figures á 800 = 181.941/182.000 Author: Rasmus Søegaard Kaas - Cpr.: XXXXXX-XXXX Tutor: Søren Dejgaard 1 Rasmus Søegaard Kaas, stud.merc.aud., CBS, 2011 – Strategic Framing In The Video Games Industry EXECUTIVE SUMMARY The objective of this thesis was to provide a strategic forecast of the video games industry hardware market, through the actions of the three gatekeepers, ultimately aiding 3rd party game developers and other stakeholders, in planning their strategies for the next hardware generation. Through a study of major historical industry events and consumer culture, the frame was set from where to research the current industry design. Thus a value chain study of relevant activities was conducted, ultimately exposing the strong linkage between gatekeepers and the developers of 3rd party complementary software. To get a picture of the perceived strengths and weaknesses of gatekeepers in the eyes of these 3rd party developers, an interview with umbrella company NOGAP was conducted, identifying Microsoft as the overall favorite. While Microsoft and Sony had historically followed the performance play strategy, Nintendo had during the last paradigm shift recaptured market leadership through a controlled migration. An analysis of industry profit potential saw a historical downward tendency, where especially the threat of disrupting technologies had a potential of changing the core industry. In leading a direct war on standards, Nintendo was advantageous. Highlighting some of the similarities to the feature film industry and relating them to the proposed decline of Hollywood, provided two major lessons: Never force hardware standards too aggressively and never let risk aversion destroy software creativity. This lead to a historical analysis of video game innovation, ultimately seeing it decline over the years. Drawing on the key lessons of this thesis, the presumed next generation first-mover, Nintendo, were likely to continue their trend of hardware innovation, this time through convergence of their two core markets: handheld- and home systems. Nintendo would become more innovative, through new IP game productions that were harder to imitate than seen with the average Wii casual games. Microsoft and Sony would go for a controlled migration and a performance play respectively. 2 Rasmus Søegaard Kaas, stud.merc.aud., CBS, 2011 – Strategic Framing In The Video Games Industry TABLE OF CONTENTS Introduction ............................................................................................................................................................................... 5 1. Problem Statement ............................................................................................................................................................ 6 1.1. Delimitation .............................................................................................................................................................. 6 1.2. Methodology ............................................................................................................................................................ 7 2. Emergence Of An Industry ............................................................................................................................................... 11 2.1. History .................................................................................................................................................................... 11 2.2. Culture .................................................................................................................................................................... 19 3. The Value System............................................................................................................................................................. 24 3.1. Competitive Advantage .......................................................................................................................................... 24 3.2. Vertical Linkages ..................................................................................................................................................... 32 3.2.1. Digital Distribution ............................................................................................................................................. 32 4. Market Conditions & Rivalry ............................................................................................................................................ 36 4.1. Generic Network Strategies ................................................................................................................................... 36 4.2. Industry Profitability............................................................................................................................................... 38 4.2.1. Industry Rivalry .................................................................................................................................................. 38 4.2.2. Threat of Entry ................................................................................................................................................... 44 4.2.3. Threat of Substitutes ......................................................................................................................................... 45 4.2.4. Bargaining Power of Buyers ............................................................................................................................... 48 4.2.5. Bargaining Power of Suppliers ........................................................................................................................... 49 4.2.6. The Dynamics of Profitability ............................................................................................................................. 50 4.3. Waging A Standards War ....................................................................................................................................... 51 5. Industry Innovation.......................................................................................................................................................... 54 5.1. Hollywood Decline ................................................................................................................................................. 54 3 Rasmus Søegaard Kaas, stud.merc.aud., CBS, 2011 – Strategic Framing In The Video Games Industry 5.2. Video Game Innovation.......................................................................................................................................... 57 6. Strategy Framing .............................................................................................................................................................. 68 6.1. Decoding The Concept Of Framing ........................................................................................................................ 68 6.2. The First Mover ...................................................................................................................................................... 74 6.3. Identifying Externalities ......................................................................................................................................... 75 6.4. Assessing Overflows ............................................................................................................................................... 76 6.5. Seeking Intermediaries ........................................................................................................................................... 78 6.6. Reframing The Strategy .......................................................................................................................................... 79 6.7. Competitor Strategizing ......................................................................................................................................... 84 6.8. Prospect ................................................................................................................................................................. 86 7. Conclusion ....................................................................................................................................................................... 89 Bibliography ............................................................................................................................................................................. 91 Appendix 2.A ....................................................................................................................................................................... 94 Appendix 3.A ....................................................................................................................................................................... 95 Appendix 4.A ......................................................................................................................................................................
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