Electronic Arts and the Global Video Game Industry

Environmental Analysis

Demographic trends

Gaming has become an important part of growing up for people who were born in the last 25 years. Approximately 3.9 - 4.7% of total world population (250 to 300 million people) is ÐŽ§very activeЎЁ or a ÐŽ§frequentЎЁ player of video games or at least owns the necessary equipment. This target group spends five or more hours a week playing video games. The United States is the largest video game market in the world with about 50% of the US population (145 Million people) spending 6.5 hours a week on computers and video games.

The majority of video game players are preteens, teenagers, and young adults (between the age of 20 and 40). A full 70% of college students play video games at least occasionally in a year and 100% had played at some point in their life. The average age of game players in the US in 2003 is 29 years old and hard-core gamers purchase 10-15 new games annually. Indeed, the average age of game players is rising because gamers continue to play into their adult years, of those over age 50, 17% play video games up from 13% in 2000. The number of females who played console games dramatically rose also to about 40%. It is interesting to note that gamers over the age of 35 like to play games on PCs while those younger than 35 preferred console systems.

Socio-cultural

Many people think spending many hours in front of either PCs or video game consoles is not a good hobby for kids. There are many issues such as health, personality, motivation and especially violence and aggression . Some people believe violence in video games and in other media promotes violent behavior among participants. It can contribute to players becoming overweight by decreasing outdoor activity and reducing the capability of eye-sight. The content of violent games could account for changes in the player's mood and cause him or her to become more aggressive or emotional.

Political/Legal

The video game business is an interdependent industry. Companies have to pay a customary royalty to the console makers. The console manufacturer have the power to authorize all games, limited the number of games, marketing plan and even the quantity of production. The guidelines and restrictions put forth by the Software Rating Board (ESRB) effects the content, storylines and features of video games.

Technological

Cell phones, high-speed internet access, interactive TV, and satellite TV services have become commonplace features in recent years. Video games will move from stand-alone game systems such as consoles or PCs to become online games accessible via many devices. Continuous participation of other gamers around the world will make the games more challenging. Moreover, the high performance of next generation of chips and 3-D graphic animations will attract even more gamers to the market.

Global Markets

The importance of the non-US market is growing every year. However, regulations, cultures, language and other attitudes of each country can differ from the US. For example, people play ÐŽ§soccerЎЁ, instead of American football and baseball and different rules exist for the game of chess in Asia and the US. Therefore, the company and industry may need to customize some products and introduce multi-language online games to appeal to the diverse global tastes.

Current Performance

Vision

Chairman ProbstÐŽ¦s vision for Electronic Arts is to overcome traditional entertainment companies like Disney, Viacom, and Time Warner as the biggest and best entertainment company in the world.

Goals

Electronic ArtÐŽ¦s had two stated goals. The first near term goal is to be the market leader of games played on the current generation of 128 bit consoles. The second near term goal is to generate hundreds of thousands if not millions of users to their online EA Sports product.

Corporate Strategy

EA is focusing on video game entertainment at this point. The CEO has plans to turn the company into an entertainment giant by aggressively chasing high growth markets that draw off of the core competencies of the firm.

Business Strategy

EAÐŽ¦s current strategy is to focus on franchise and sports related games that develop loyal followings and repeat sales. They use a unique multi-lingual/multi-platform approach to producing and distributing games around the world. The companyÐŽ¦s three main differentiators are their internal sports culture, ability to localize games, and international distribution.

Functional Strategies

Product strategy: EAÐŽ¦s product strategy is based on the franchise model. 70% of their sales consist of new releases of previous hits. They also seek to be toward the cutting edge of technological innovation.

Sales strategy: The companyÐŽ¦s current sales strategy is to use their field sales representatives and call centers to sell their games to over 80,000 retailers. Internationally EA has strong sales in Europe with a relatively weak representation in Asia. Their strategy in that arena is to spread the fixed costs of producing a game over as many different sales channels as possible.

Marketing Strategy: Sustain leadership status in industry by simultaneously promoting popular EA game titles and releasing localized multi-lingual games on several platforms. EA Sports VP is branding EA Sports as a ÐŽ§sports company that makes games as opposed to a game company that makes sports games.ЎЁ EA sets the price of their products from $30-$50. Electronic Arts has set lower prices for their classic titles.

HR Strategy: To attract creative talent to the company by offering stock options coupled with significant remuneration. Electronic Arts is seeking globally digital animators, programmers, and creative individuals with backgrounds in television, music industry and the movie industry. This strategy will provide EA with talent to better integrate their games with popular action movies.

Manufacturing Strategy: EA uses CDÐŽ¦s and DVDÐŽ¦s supplied by Sony and Nintendo as part of their manufacturing process. The company also engages three other entities to print the game instruction booklets, produce packaging materials and to press the CDs and DVDs. This outsourcing allows EA to lower their costs and to pass these lower costs onto customers. EA also reduces