PEST and Industry Analysis Kenny Erskine. Three Main Divisions ◦ EA Sports, EA Games, EA Play Published 158 titles in the fiscal year of 2010 across.

Electronic ArtsPEST and Industry Analysis

Kenny Erskine

Three Main Divisions◦ EA Sports, EA Games, EA Play

Published 158 titles in the fiscal year of 2010 across all platforms (including mobile)

Total assets remained unchanged from 2009-2010 ($217M)

Electronic Arts

No title accounted for 10% or more of total revenue

55% of total net revenue generated in North America

Key International Markets Include:◦ Europe (39%)◦ Asia (6%)

Electronic Arts

Laws being passed that limit young people’s access to mature video games

European Union continues to pass protectionism laws

Political Analysis

The video game industry grew 10% from 2005-2009, faster than the overall economy.

The overall economy is rebounding in the US and around the world.

Economic

Older gamers continue to play games Younger people get involved in gaming

every day Consoles like the Wii, Kinect, and

Playstation Move introduce older people and families

With these advances, mothers and others are now playing games

Social

Technologies are always expanding and making more opportunities.

Upcoming advances like 3D and improvements on the Wii will bring more people.

Online gaming becoming a much more popular trend.

Mobile gaming is surging, accounting for 48 published titles in 2010.

Technological

Factor Trend Evaluation Importance (1-High 5-Low)

Ranking of Importance

Political Maturity laws being passed

European protectionism

Threat

Threat

3

5

3

Economic Industry is growing

Overall economy growing

Opportunity

Opportunity

1

2

1

Social More people playing

Younger people playing

Opportunity

Opportunity

1

2

2

Technological Upcoming 3D advances

Easy Download

Opportunity

Opportunity

4

4

4

PEST Analysis Chart

Industry◦ Video Game Software Industry

Participants◦ Buyers are Playstation, Xbox, Wii, and PC Owners◦ Suppliers are the software companies that create

programs EA uses in development

Industry Analysis

Participants (cont.)◦ Competitors are any other video game making

companies. Major ones include: 2K Sports, Blizzard Entertainment, Ubisoft

◦ Substitutes are anything else people do for leisure, serious threat.

◦ With the advent of Facebook games and mobile phone apps, the threat of new entrants is very high.

Industry Analysis

Factor Effect on EA

There are many buyers Positive for EA

Buyers purchase in small volume Positive for EA

Buyers view products as differentiated

Positive for EA

Buyers have low switching costs Negative for EA

Buyers cannot threaten backward integration

Positive for EA

Porter’s Five Forces – Buyer Power

.

Threat of new entrants is high.◦ There are many established big players in the

industry.◦ However, due to social media (Facebook) and

mobile games being incredibly inexpensive, it is cheap to enter this industry.

Threat of New Entrants

Factor Effect on EA

Video game software industry is more concentrated than general

software industry

Positive for EA

Suppliers are heavily dependent Positive for EA

Low switching costs for EA Positive for EA

Low differentiation of general software products

Positive for EA

No realistic substitute products Positive for EA

Possibility of forward integration Negative for EA

Bargaining Power of Suppliers

Type Description Threat?

Do Without Consumers may choose to find other forms of

entertainment due to high prices

Yes

Buy Used Many consumers trade in games and buy used games. Yes

Do It Yourself Not a concern as not many people create their own

games.No

Threat of Substitute Products

Situation Analysis Effect on EA

Numerous competitors of equal

size

Companies like Blizzard, Ubisoft,

and 2k Games are similar size and

power.

Threat

Industry growth is booming

Video game industry grew 10% from

2005-2009.

Opportunity

Exit Barriers are High

It is very tough for anyone to exit this

industry.

Threat

Rivals are committed and seek market leadership

Blizzard Entertainment is the

biggest company here and will keep pushing forward.

Threat

Intensity of Rivalry

Buyer Power◦ Positive force for EA because buyer power is very

low Threat of new entrants

◦ Facebook and mobile gaming make an inexpensive entry possible.

Supplier Power◦ Low switching costs and differentiation give EA a

very positive outlook towards their suppliers.

Porter’s Five Forces

Threat of Substitute Products◦ An area of concern due to consumers buying used

products or finding other hobbies that are not electronic.

Intensity of Rivalry◦ A concern for EA due to the amount and size of

competitors in the industry as well as a high exit barrier.

Porter’s Five Forces

Currently this industry is very set in its ways.◦ Players are set and industry is defined.◦ Carving a new path would be difficult, but not

impossible. Expanding virtual reality and 3D gaming

could open up market segments currently not used.

Blue Ocean Strategy?

Industry Analysis◦ Industry is favorable to EA, but there are definite

threats.◦ Many competitors surging to the industry with the

ease of creating mobile and social media applications.

◦ Very high market share of sports video games PEST Analysis

◦ The industry and economy overall is growing.◦ More families and non-traditional gamers are

picking up games.

Conclusion

Porter’s Five Forces◦ Very favorable overall to EA◦ Threats do exist, however

Rivalry with 2K Sports could be an issue Threat of substitutes is very high

The industry and forces favor EA very much to continue their path in the video game industry.

Conclusion

Electronic ArtsCompetitor and Market Analysis

Company Key Games Net Revenue

Segments Net Revenue by Segment

Electronic Arts

FIFA, NHL, Tiger Woods,

The Sims, Dead Space

$3.6 Billion

EA Games $2.1 Billion

EA Sports $1.2 Billion

EA Play $300 Million

Activision Blizzard

World of Warcraft, Starcraft,

Call of Duty

$4.8 Billion

Activision $3.2 Billion

Blizzard $1.2 Billion

Distribution $423 Million

Konami

Pro Evolution Soccer, Metal

Gear Solid, Castlevania

$3.6 Billion

Digital Entertainment

$2.2 Billion

Gaming & System

$216 Million

Health & Fitness $1.1 Billion

Other & Eliminations

$163 million

Key Competitors

Company Key Games Net Revenue

Segments Net Revenue by Segment

UbisoftAssassins

Creed, Tom Clancy Series

$97.8 Million

Development

$79.2 Million

Publishing $10.8 Million

Distribution $7.8 Million

ZyngaFarmVille

FrontierVilleMafia wars

Est. $500 Million - $1

BillionFacebook Gaming

N/A

GameloftAssassins

Creed Mobile, Prince of

Persia

$19.4 Million

Mobile Gaming

N/A

Key Competitors

Component Analysis

Specialization PC and Console

Strategy Blizzard is very good at creating “launch hype” for their games. Consumer anticipation for their games is a big factor in their success.

Assumptions Activision/Blizzard will likely assume that popular titles like Call of Duty, World of Warcraft, and Starcraft will continue to be top sellers.

Resources $4.8 billion total net revenue26% operating margin$1.2 million operating income

Objectives Worldwide leader in distribution of interactive gaming software.

Activision Blizzard Est. 1991

Konami Est. 1969Component Analysis

Specialization PC and Console

Strategy Digital entertainment segment created 60.2% of total net revenue. Konami will continue to develop titles and market them accordingly.

Assumptions Konami will assume they cannot compete with major video game software companies outside of Japan.

Resources $2.9 billion total net revenue$1.4 billion total assetsOperating margin projected to increase.

Objectives To attain a larger share in the North American market.

Ubisoft Est. 1986Component Analysis

Specialization PC and Console

Strategy To use innovative R&D to stay at the forefront of the newest high-tech games.

Assumptions Assassin’s Creed line will continue to be a top 5 title and further development of Gameloft will help mobile sales.

Resources $1.4 billion net sales$6.7 million net revenue$61.6 million loss in consolidated earnings

Objectives Due to the industry decreasing 10%, Ubisoft will likely try to hold firm at current productivity.

Zynga Est. 2007Component Analysis

Specialization Social Media Gaming (Facebook)

Strategy To continue to stay at the forefront of Facebook gaming. Expanding internationally with offices in India.

Assumptions Zynga will assume that Facebook games will continue to grow in popularity.

Resources Company reported to be worth more than $3.3 billion$100 million revenue reported last year

Objectives To connect people through social media gaming. Using Facebook Zynga can reach the entire global market.

Gameloft Est. 1999Component Analysis

Specialization Mobile Gaming for Android, iPhone, Blackberry

Strategy To produce the most popular mobile games and apps for iPhone, Android, and Blackberry handhelds.

Assumptions Gameloft will assume further development of Ubisoft games made mobile will help.

Resources €122 million consolidated revenue€6 million net profit11% growth in sales in 2009

Objectives To continue to hold its market share in mobile gaming and block potential entrants into this segment.

Factor Data Analysis

Growth 10% industry growth rate from 2005-2009

Big opportunity to charge ahead in a growing industry

Demographics

40% of all players are women.Women over 18 is fastest growing demographic.67% of homes own a console or PC.

Massive opportunity to target this fast growing market segment.

Wii, Kinect, PS Move

Families play these, bringing more people to the market.

Pushing games for these systems could give EA a huge advantage in rising demographics.

Market Analysis

North America

Video Game Sales By Genre

EMEAA Region◦ Europe, Middle East, Africa, Asia◦ Projected to grow 10.2% in 2011◦ 4.7 million consoles purchased in 2010

Analysis◦ Big opportunity to keep a hold in this major

market region. ◦ EA is very strong in this region already.

Market Analysis

Mobile Gaming◦ One of the biggest growing markets.◦ EA produced 12 of the top 20 downloaded iPhone

games. $55 million mobile revenue in the first quarter of

2010◦ Projected to grow $18 billion by 2014.◦ Apple and Android’s AppStores have made

purchasing and installing games easy.

Market Analysis

Facebook is essentially the biggest game platform in the world.◦ 350 million Facebook users per month◦ 100 million play Facebook games

Acknowledging this, EA Purchased Playfish for $400 million◦ Facebook has traditional “non-gamers” playing

feverishly with titles like FarmVille.

Social Media Gaming

Region Software Sales Percent

Worldwide 113 million -------------------

Americas 65 million 57.7%

Japan 11 million 9.8%

EMEAA 36.7 million 32.5%

Software Sales by Region

•Main focus should continue to be on the Americas.•Be wary of these figures, they do not include Mobile games and free Facebook applications

Factor Group Percent Analysis

Age Under 18 25% Target market is obviously the 18-49 range.

18-49 49%

50+ 26%

ESRB Rating

Everyone 42% With the rise in families playing

together, emphasis

should be on the “Everyone”

category.

Everyone 10+ 12%

Teen 28%

Mature 15%

New Gamers Vs. Established

67% of new gamers are

between 25-54 N/A

Pay attention to new gamers of all age groups

and not just the young

newcomers.

Age has little difference in the percentage of established

gamers.

Demographics

Mobile Gaming◦ EA needs to continue to increase its share of the

mobile gaming market. Facebook

◦ EA needs to break into this market. It is the fastest growing market.

◦ Facebook gaming is huge because of the attraction of non-gamers.

Conclusions

Must be wary of competitors.◦ Blizzard/Activision continue to grow daily in the

major North American markets.◦ Konami will attempt to increase its share of the

North American market.◦ Zynga will be very tough to knock off its Facebook

throne, but the market is wide open to new entrants.

◦ Gameloft will be a mobile threat, but EA has a strong hold in the industry currently.

Conclusions

Electronic ArtsInternal/SWOT Analysis and Competitive

Positioning

EA became incredibly successful with a brilliant business model.◦ Base a product on a popular sport or movie◦ Market the item effectively◦ Publish a new version of the game every year.◦ Ex: FIFA, NHL, NBA, Tiger Woods, James Bond

series

Internal Analysis

EA has suffered setbacks along this strategy and is now adopting a new style.◦ EA Los Angeles Implemented a “cell system” for

their developers to become more innovative. Development staff broken up into 6-8 person “cells”

to rotate on projects Helps reward innovation and new ideas

Internal Analysis

President Peter Moore acknowledged disc-based games as a “burning platform”◦ Can stay on the platform and face certain death◦ Jump into the water and face possible/probable

death Working to innovate towards more disc-less

features. Acknowledges the likelihood of a console

without a disc drive in the near future

Internal Analysis

Year 2006 2007 2008 2009 2010

Net Revenue

$3.6 billion

$4.2 billion

$3.6 billion

$3.0 billion

$2.9 billion

Gross Profit $1.7 billion

$2.1 billion

$1.8 billion

$1.8 billion

$1.7 billion

Net Income (Loss)

$(677 million)

$(1.1 billion)

$(454 million)

$76 million

$236 million

Electronic Arts

Operating Figures

Published 48 mobile game titles in 2010. This is a 60% increase from the 30 published in 2009.

Acquired Playfish Limited to gain a larger share in the free-to-play social gaming market.

Change In Distribution/Sales

SWOT Analysis

Strengths

• Ability to change• Excellent focus on R&D• Popularity and customer loyalty

Weaknesses

• Dependence on consoles• Weak global sales (particularly Asia)

Opportunities

• Mobile Gaming• Online/Social Media Gaming• Expanding into Asia

Threats

• Potential of Consoles dissipating• Software Piracy• Social Media gaming giants

SWOT Analysis

Division Quadrant Analysis

EA Sports StarHighest costing and

grossing division. Majority of titles here.

EA Games Cash Cow

Games like The Sims own the market in their industry but

have low development costs.

EA Play Question MarkRelatively unknown due to uncertainty because this is a young division.

BCG Matrix By Division

Section Analysis

Inbound Logistics A very small portion of EA’s overall operation. The majority of EA’s raw materials are digital and is handled virtually.

Operations EA works to develop, market, publish, and distribute video game software throughout the entire world.

Outbound Logistics EA has distribution centers and properties on every continent but focuses primarily in North America and has a growing distributing presence in Europe.

Marketing and Sales EA has a very strong marketing department. They are able to create extreme hype for their games and then push new versions of these games out every year as a main focus to their business model.

Service EA offers downloadable content and updates for their games through consoles and PC. Many bug fixes or patches are able to be downloaded free of charge.

Value Chain

Section Analysis

Technology Development

Most important division to EA besides possibly marketing. EA is always striving to create the newest and most cutting edge technologies.

General Administration EA is focused on creating and publishing the most cutting edge new technologies possible. They focus on making their products better than their competitors while promoting a cooperative comfortable corporate atmosphere.

HR Administration EA works to promote a very employee friendly atmosphere. They offer many incentive plans and rewards programs for excellent achievements by their employees.

Value Chain

Strategy Clock

Electronic Arts Strategy Focused Differentiation

◦ Competes by making products superior to that of their competitors.

◦ This justifies the premium price EA charges for their products.

Why Focused Differentiation?◦ As an established brand with brand-loyal

customers, EA can charge a higher price.◦ High prices allow EA to continue to create high-

quality products

Element Analysis

Organic Growth EA will continue to create, market, publish, and distribute their games worldwide. EA will continue to push more into the “New Age” of gaming that includes mobile and social media gaming in the near future.

Mergers and Acquisitions

EA is always acquiring new companies to increase its market share in the video game industry. In 2010 EA acquired Playfish Unlimited to increase market share in social media and free-to-play gaming.

Grand Strategy

Continue dominance in the sports video game market.

Continue to push further into the mobile and social media gaming.

EA could make a great profit from pushing into Asia.

EA needs to find a way to become less dependent on consoles.

Future Plans

EA is a market leader in the video game publishing and distribution industry.

EA can afford to push higher-cost items due to its differentiated and superior products.

EA is gaining market share in sectors it had no real presence through acquisitions.

Staying on the cutting edge of R&D and new games along with becoming less console dependent will lead EA well into

the future.

Conclusions