About this sample
About this sample
Words: 594 |
3 min read
Published: Dec 5, 2018
Words: 594|Page: 1|3 min read
The main industry in which ATVI operates is the video games software industry. This section starts with a description of the volume and growth of the industry. Afterwards, the cost structure is explored followed by a summary of the main players and trends in the industry.
By taking advantage of the technological evolution and greater accessibility to internet and mobile devices, the video games software industry has been growing at an impressive 12% compound annual growth rate (CAGR) from 2010 to 2016 and a positive trend until 2021 is expected, reaching total sales of $135 billion, worldwide.
Additionally, from the amount of revenues attributed to each platform, most of the growth in the U.S. is derived from mobile games (see Figure 3).Sales of mobile games have experienced dramatic growth over the last years. While growth in mobile gaming will drive much of the new market space, continued growth in the sale of console games is expected due to the continued release of new consoles every six or seven years.
This industry has a particular cost structure when compared to the average costs of all industries. Figure 4 shows the video games software industry costs (left) and the average costs of all industries (right) as a percentage of revenues for 2016.
As can be seen in Figure 4, 46% of the costs are allocated to “Other”. This category includes product development and marketing expenses. In this industry, innovation and game development are crucial factors for growth. Another group that stands out is wages, accounting for 27,7% of revenues. This is because the industry is an intellect-intensive one. The outcome of product development investments is highly dependent on the quality of the employees. Therefore, companies offer better rewards to the best employees.
The top five companies have a combined market share of 23% worldwide. Figure 5 shows the regional market share in 2016.ATVI has the leading position in most regional markets. Therefore, it ranks first worldwide with a market share of 8%, followed by Electronic Arts with 7%.
“Blockbuster” Games Similarly to the film industry, companies in the video games industry are employing a “blockbuster” business model in their games. These games, often called “AAA” games, have high development and marketing budgets and are aimed at larger audiences. Most of ATVI’s franchises are considered “AAA” games. Additionally, the concentration of revenues among key titles is evident. The top ten brands account for a combined market share of 17% worldwide . ATVI’s CoD, WoW and Candy Crush Saga are part of the top rankings in most regions in terms of market share. Since ATVI has significant experience in producing successful “blockbuster” gamers, it benefits from a loyal customer base of hardcore players and distinct value proposition which positions their products among the best.
As previously mentioned, the emergence of digital delivery channels will increase the profitability of the firms in this industry. Not only are the manufacturing and production costs reduced but capital can be allocated to more adventurous projects, potentially increasing revenues. Also, this creates new revenue opportunities. Instead of just selling a full-game, companies are able to upsell additional in-game content, such as map packs and in-game consumables. In the U.S., the sale of digital games is expected to reach $18 billion in 2021, accounting for 71% of the total industry, while the sale of physical games is projected to reach $7 billion by 2021. Figure 6 shows revenue growth by distribution channel.
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