Activision Case Analysis - Aditya, Ankita, Karthik, Mrudula, Trisha

[pic 1][pic 2]

1. Problem Statement: Should Activision release KSPS in Sep 2002 to capture year end market or delay the launch until March 2003 to avoid competition, spend less on Marketing/promotion and do more customer testing to evaluate the overall game concept?

2.   Situation Analysis:

External: Video game market is growing at a rapid pace and reached $9.4billion in USA. It initially used to cater young generation but by late 1990’s it became a mass market. The shelf life of the game is very short. 50% of the sales occur in first 3months (exhibit 4). Very high costs are incurred to develop a game and only 10% of released games are profitable. But if a game becomes megahit, it can return 30 times its development costs. Introduction of new hardware is very critical in the video game sales. Observed high M&A due to content and IP library. The threat of new entrants is low due to high development costs. But the threat of substitutes (movies, music, smart phones) is high due to the advancement in technology. This is a very competitive industry due to its high development costs and dependency on retailers and platform providers (exhibit 3)

Internal: Developing a game became a complex matter for publisher’s (Activision) as they work with multiple channels: platform/content providers, developers, retailers. Hence following a right process for product development is critical (explained the right stage gate process in exhibit1). Activism implemented the Greenlight process, which will help validating concept, assessing risks, understanding competitive advantage, provides profit estimate, implements cross functional alignment and allows to weed out games before building prototype. But it is a very time consuming process, concept evaluation is based on market research over personal belief, Pressure to continue the project after prototype phase due to high costs incurred (exhibit 2). Partnership with right studio/platform/channel to develop and release the game is critical (partnered with IRC for development and burnt $2 million). Huge competition from platform providers as they are publishing and distributing games.

3. Scenario Analysis:

• Release in Sep 2002: With the development of new wave generating engine and very positive reviews from users at E3 expo, Activision should release and take advantage of holiday season (50% game sales in Q4). Due to heavy costs (loss of $2million with a failed tie-up with IRC), they have to make sure to get the returns soon.

• Release in Mar 2003: With many releases and Activision’s own popular “Tony Hawk” also releasing at the same time, it would be better for Activision to delay the release until March, 2003.  This also helps to avoid the high marketing/promotion costs. Activision will have enough time to assess the market size accurately and build the inventory. This delay also gives time for Kelly Slater to finish his training and get involved in interviews/promotion.
• Additional Development & Testing (Release later): Activision should first understand why they received lukewarm response in Chicago and why competitor’s surfing games are not selling well. They should check if this new game is very similar to Tony hawk game and whether this game has replay value. They should have a successful release to recover the huge costs incurred. Activision should stop thinking about the release and concentrate on customer testing, redevelop the game to bring attractiveness to the overall game concept.

4. Final Recommendations: Activision should release in Sep 2002 to capture year end market. Based on RWW Model, probability of failure for KSPS is low (exhibit 5). Activision should start working on beta testing to provide a bug free product. They should do a unique marketing campaign to attract customers (over competition) by highlighting the features which are not there in competitor’s surfing games and promoting advanced technology to create waves, graphics and user experience. Also select the right sales channel and console partner to have a wide reach.