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Video Game Industry

Video Game Industry. Analyst Report to Fidelity Magellan Fund Manager November 20, 2001. Agenda. Market History: Ainsley Quiohilag Platform v. Software: Bei Wei Li Current Market Conditions: Henry Steinberg Conclusions & Recommendation: Dana Kelman. Market History.

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Video Game Industry

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  1. Video Game Industry Analyst Report to Fidelity Magellan Fund Manager November 20, 2001

  2. Agenda • Market History: Ainsley Quiohilag • Platform v. Software: Bei Wei Li • Current Market Conditions: Henry Steinberg • Conclusions & Recommendation: Dana Kelman

  3. Market History • Periods Defined by Two Major Platforms • Atari v. Colecovision • Nintendo v. Sega • Sony v. Nintendo • X-Box new entry • Atari, Sega, & Colecovision failures

  4. Market History • Software Maker Sustainability • Electronic Arts • Activision • Sega

  5. Platform v. Software • Platforms • Loss Leaders • MSFT expects to lose $150 per unit • Gillette business model analogy • Profits derived from software • Platform makers develop software for their consoles • Royalties from third party software developers

  6. Platform v. Software • Software Only Companies • Ability to make software for all platforms • No losses to recover • High profit margins/low marginal cost • Lower fixed costs than companies that make both consoles and software

  7. Current Market Conditions • Major Platform Makers • Sony Playstation 2 debuted last year • Microsoft Xbox and Nintendo Gamecube new introductions November 2001 • Intense competition • More platforms more players • $1 billion marketing blitz for video game industry • Increased size of market (44 million consoles today to 70 million by 2003) • New platform technology facilitates improved game quality

  8. Conclusion • Who wins battle of platforms? • Who cares? • Value added comes from games • Examples: Movie theaters, Sega Dreamcast • Real winners are software makers • Capture whole market regardless of platform

  9. Recommendation • Electronic Arts • Industry leader • Use clout to negotiate deals with celebrities & sports figures • Hedged against platform standard problem – make software for all platforms • Stability • Survived past industry shakeouts

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