Activision Case Study

 

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Activision:  The  Kelly  Slater’s  Pro  Surfer  Project   Team  1:  Amrit  Thind,  Arjun  Singh,  Kevin  Castlunger,  Oliver  Huber,  Paris   Koumbarakis,  Vitor  Mascarenhas   05.02.2015    

Course:  New  Product  Development  and  Service  Innovation    

 

  1a)  What  are  the  competitive  dynamics  of  the  video  game  industry  in  2002?         The  main  competitive  dynamics  in  the  video  game  industry  in  2002  can  be  drawn   through  the  different  levels  in  the  whole  supply  chain  in  the  gaming  industry  (see   Appendix,  Figure  1  for  further  information  regarding  the  single  players).  In  the  video   game  industry  the  top  three  competitors  in  2002  regarding  the  Platform  Providers  were   Sony,  Microsoft  and  Nintendo  (Sega  exited  the  market  in  2001).  All  three  were  slashing   prices  to  capture  market  share  and  promote  adoption.  This  price  war  was  initiated  by   Sony  in  mid  2002  by  cutting  its  Playstation  2  price  from  299$  to  199$  (Smith,  2005,  p   12).  Critical  competitive  components  that  directly  influence  strategic  developments  can   be  found  besides  the  competition  at  the  Platform  Provider  in  each  of  the  other  chains   (Appendix,  Figure  1).  Looking  for  examples  for  the  developers/studios  competition   could  arise  in  form  of  a  forward  integration  in  the  value  chain  (even  though  only  a  few   independent  studios  could  afford  to  finance  their  own  games).  ID  Software,  for  example,   the  creators  of  Doom,  funded  each  release  itself  and  relied  on  publishers  such  as   Activision  only  for  marketing,  PR,  and  distribution  to  retailers.  Publishers  such  as   Activision  should  pay  attention  to  the  whole  supply  chain.  Furthermore,  they  should  be   able  to  learn  from  the  “failures”  of  their  main  publisher  competitors  such  as  Ubi  Soft   (with  Surf  riders),  Rockstar  (with  Surfing  H30)  or  Mattel  (with  Championship  Surfer).   Looking  at  the  reviews  of  each  of  those  titles  it  seems  clear,  that  the  new  title  of   Activision  clearly  has  the  potential  to  outrun  its  competition.   1b)  What  does  Activision  need  to  do  well  to  compete  effectively  in  this  industry?     Factors  such  as  using  the  increased  technology  to  provide  better  graphics,  including  a  2-­‐ player   mode,   simplifying   the   control,   reducing   a   repetitive   game   play,   increasing   the   visuals   and   camera   effects,   including   good   music   and   providing   a   playable   (not   too   difficult/not  too  easy)  game  title  could  bring  the  KSPS  title  huge  success.  Crucial  in  that   sense   is   also   to   provide   a   “bug   free”   solution   with   a   beta   test   phase   to   insure   smooth   game  play.   Furthermore,  they  should  look  at  the  current  titles  from  Ubisoft  (Sunny  Garcia  Surfing)   and   Infogrames   (TransWorld   Surf)   and   provide   additional   features   the   other   titles   don’t   have  (such  as  Mini-­‐Missions,  different  wave  break  elements,  populated  waves  etc.)   Besides   the   technical   aspects   of   KSPS,   it   is   also   important   to   focus   on   the   right   target   groups  (see  Figure  2),  use  the  right  sales  channels  (for  example  Wal-­‐Mart  and  Best  Buy),   use   the   right   studio   to   develop   the   game   (here   they   had   slight   problems   with   IRC),   increase   awareness,   provide   a   unique   marketing   campaign   and   provide   the   KSPS   on   the   right   consoles   at   the   right   time   like   the   Christmas   quarter,   since   sales   boom   at   the   beginning  “over  50%  of  a  game’s  sales  occurred  in  the  first  three  months  after  its  release   (Maccormack  &  D’angelo,  2005,  p.  2).“     Last  but  not  least  we  know  that  by  2002,  60%–80%  of  the  company’s  games  were  based   on   well-­‐   known   brands   or   names,   such   as   Spiderman,   the   Star   Trek   franchise,   or   skateboarder  Tony  Hawk.  Moving  on  with  that  process,  Activision  additionally  increased   its   development   capacity   through   the   acquisition   of   studios,   thereby   expanding   its   IP   library.   Given   the   steady   consolidation   in   the   industry,   Activision’s   goal   to   take   advantage  of  scale  should  be  used  as  a  competitive  advantage.  Smaller  companies  were   facing  constrains  concerning  capital,  had  higher  cash  flow  volatility,  and  had  to  spread   their   fixed   costs   over   a   smaller   revenue   base.   Providing   a   game   title   with   such   a   well-­‐ known   brand   and   name   (like   Kelly   Slater)   Activision   should   therefore   generally   make   use  of  their  strategic  and  organizational  resources.    

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2) Evaluate   Activision's   Green   Light   process   for   game   development.     What   are   its   strengths  and  weaknesses?    How  would  you  improve  this  process?       The  Green  Light  process  (Appendix,  Figure  2)  shows  a  clear  guideline  to  develop  a  game.   Following  table  shows  the  main  pros  and  cons  of  the  process.  

    Staged  approach  allows  to  weed  out  the  less   successful  games  earlier  in  the  process.  

Time  Consuming  Process  (Involvement  of  senior   managers)  

Tracking  &  monitoring  of  progress   Risk  &  excessive  Investment  reduction  for   potentially  unsuccessful  projects  

  Higher  costs     Danger  of  sticking  with  a  because  as  “once  you   get  beyond  prototype,  it’s  hard  to  see  a  project   cancelled.”  

Budgeting  allows  rough-­‐cut  profit  &  loss  forecast  

Competitive  analysis,  besides  positioning,  allows   early  stage  evaluation  and  modifications     Prototype  allows  first  impression  of  how  the   products  looks  like,  gives  a  common   understanding  and  where  improvements  are   needed   Coordination  between  production,  brand   management,  marketing,  and  finance   Provides  an  opportunity  for  constructive   feedback  from  a  big-­‐picture  perspective  

  If  Market  Research  isn’t  done  probably  the   danger  exists  that  good  projects  got  squeezed  out   even  though  they  could  have  been  successful.        

   

 

Improvements:  As  there  will  always  remain  a  certain  risk,  the  whole  Green  Light  process   seems  quite  elaborated.  Slight  improvements  can  be  made  in  regards  to  the  high   influence  of  the  marketing  department  (as  seen  for  games  such  as  Tony  Hawk  or   Mechwarrior  2).  In  that  sense  a  more  diverse  and  elaborated  market  research  study   with  a  higher  involvement  of  the  employees  can  increase  the  success  rate  even  more.   3) When  should  Activision  launch  the  “Kelly  Slater's  Pro  surfer”  game?     Be  prepared  to   share  your  reasoning  and  analysis  in  class.   Looking   at   the   big   picture,   most   video   game   sales   occur   in   the   fourth   quarter.   Additionally   the   majority   of   new   game   sales   happen   in   the   first   three   to   five   months.   Activision  faced  slight  problems  as  competitors  were  already  releasing  big  titles  for  the   Christmas   rush.   Furthermore   other   surfing   titles   were   already   released   a   year   before   and  last  but  not  least  Kelly  Slater  was  not  as  involved  with  interviews  or  publicity  due  to   his  training.   Our  suggestion:  Nevertheless  based  on  the  information  of  the  case  it  seems  reasonable   to  recommend  Activision  to  release  its  new  title  KSPS  in  September  as  it  would  allow  the    

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game   to   be   part   of   the   Christmas   rush   where   about   50%   of   the   sales   of   video   games   occur.   Therefore   Activision   would   have   to   get   started   on   its   beta   testing   to   work   out   the   final  bugs  for  the  KSPS  title.     What  happened:  Looking  at  the  actual  case  they  released  KSPS  for  the  main  consoles  in   September  2002  (for  Mobile  Phone   and  Microsoft  Windows   in  2003)  where  reviewers   such   as   websites   like   GameRankings   and   Metacritic   gave   the   different   version   on   the   different  consoles  in  average  of  8  out  of  10  points.  Finally,  when  comparing  KSPS  sales   with  the  ones  of  the  competitions  titles,  it  shows  that  KSPS  outsold  them  by  a  substantial   amount.     Appendix,  Figure  1:  Video  Game  Industry   Platform  Providers     • Chief  source  of  revenue  came  from  royalties  received  from  publishers     Content  Providers     • Content  owners  typically  received  royalties  of  10%  of  the  retail  price  of  the  game     Developers  (or  Studios)     • Independent  or  owned  by  either  a  publisher  or  a  platform  provider     • Independent  studios  typically  looked  to  publishers  for  linancing   • Cash  advance  covering  costs  plus  a  small  margin   • Publisher  was  granted  publishing  and  distribution  rights         • If  volume  requirements  are  met,  the  studio  receives  royalties  ranging  from  5%  to   20%  of  sales.     Publishers    (Activision)   • Venture  capital  funds,  assessing  market  opportunities,  linancing  game   developments,  marketing  and  promoting  the  resulting  products     Retailers     • Specialty  toy  stores,  electronics  superstores  and  discounters     • Large  retailers  such  as  Wal-­‐Mart  and  Best  Buy  accounted  for  almost  50%  of  sales     • Average  game  price  40-­‐50$,  gross  margins  of  retailers,  25%–30%    

 

    Figure  2:  Target  Market   •

 2.2M  kids  surf  in  the  US  (25.6%  participation  growth  in  past  year)    

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75%  of  kids  who  read  Surfing  Magazine  are  24  and  under  -­‐  Crossover  to  video   game  industry    

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74%  surfers  (who  read  Surfing  Magazine)  said  they  own  a  PlayStation    

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37%  said  they  own  a  GameBoy    

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79%  said  they  have  Internet  access    

 

 

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Figure  3:  Green  Light  Process  

 

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