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General Overview of the Video Game Console Industry

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General Overview of the Video Game Console Industry:

The Video Game Console industry began in the late 1940's when television engineers began experimenting with programs developed for users to play. The first gaming devices were simple games like tennis for two developed by Brookhaven National Laboratory researcher William A. Higginbotham. The first set of these games were not very well made because of technology limitations at them time, and so the public did not really respond very well to this new innovation. It was not until the 1977 launch of the Atari 2600, the first home game system to achieve success, when it eventually sold more than 30 million 2600 game systems (Gamble c-199).

In 1985 Nintendo came to the rescue of consumers who were thirsty for a more advanced in home game system with the development of the Nintendo Entertainment System (NES). This system was the first or it's kind, and was bundled with what is now considered a Nintendo staple, Super Mario Brothers (Gamble C-199). From this point on Nintendo has been in constant competition with other video game manufactures for market share in this highly competitive industry. Sega was the next to try to steal market share from Nintendo, with the development of Sega Genesis, and its staple game Sonic the Hedgehog, but that success was short lived, because in the late 90's Sega retired from the Video Game Console industry. Nintendo continued to develop better machines that would refresh gamers, and did so successfully with the development of the Super NES, and the Game Boy. It was not until the mid 90's when home entertainment giant Sony developed the Playstation that Nintendo took a hit to it's market share. Sony has developed a game system that took the industry to new levels, when concerning graphics, and processing speed. It was then that Nintendo launched the N64 to combat the Playstation produced by Sony. A few years after the N64 launch it was time for major developments concerning the gaming industry, when Sony manufactured the Playstation 2, Nintendo came out with it Nintendo Game Cube, and software giant Microsoft used its core compotencies to develop it's first generation video game console, the Xbox. Now with three major players in the video game console market, the rivalry for competitive advantage, and market share increased dramatically.

Today these are still the three main competitors in this industry, and the competition is greater than ever. Every holiday season there is a new "hot" gaming console, the parents stand inline hours to buy for their children. In recent market development the "new age" video game systems have been developed and are being marketed toward gamers are this present time. Microsoft was the first mover during the present time period with the new and improved video game system, when it launched it's Xbox 360 almost a year prior to Sony's Playstation3, and Nintendo's Wii. Microsoft really scored big being the first mover, because this allowed its system to have all of the game developers working on games that would be compatible with the Xbox 360 capabilities. Almost a year later, and a few weeks before Sony's launch Nintendo came out with a system that has revolutionized the gaming industry. Nintendo's Wii has been developed, with its wand technology where movement of the controller allows you to pitch a ball, and swing a bat among other things. This development is trying to differentiate itself by marketing towards kids and families, and cutting down on the system's learning curve. Finally, a few weeks later Sony launched it's Playstation 3, which had superb graphics, and superior game play to go along with the next generation video entertainment system Blue Ray. All of this came at the steep price of $600, which was twice that on the Nintendo Wii. In the early going it seems as if the Nintendo Wii, and Xbox earned the early victory, and the Playstation 3 because of it's late launch suffered. We would expect now that the Playstation 3 will see increased sales, coupled the announcement that Blue Ray will be the dominant DVD experience of the future.

At the present time the market for Video Game consoles have moved from the traditional buyers of video games who where predominantly kids, and males in their mid to late teens, to now the average players age is 37 (Gamble C-201). You have seen this shift come about in recent years, because of Microsoft, and Sony pushing their more complex games towards more mature audiences. The market has also swelled from the originally NES users to what it consists of today, predominantly because of the improved capabilities of the systems. In order to be profitable a firm must rely heavily on competitive product design, effective marketing, and efficient manufacturing. This industry is a very top heavy industry in which over 80% of the market share the top three competitors hold. Revenues in this industry are made up of the game console (50%) games (25%) and add-ons (25%). One common trend in this industry is that the actual console is sold at below the cost of production, and that



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