Lorenzo Pellizzari | Ludovic Beauvois | Soong Kah Weng

1. Video Gaming Industry Lorenzo Pellizzari | LudovicBeauvois | Soong KahWeng

2. Fit external position + internal capability 1

3. Fit External Position + Internal Capability (5 Steps)

4. 1. Industry Profitability

5. 1. Industry Profitability • Not recession proof but certainly recession resistant • Held up better than other industry • The whole industry still make an overall operating profit

6. 1. Industry Profitability • Sony Playstation 3 • Launch price $500(20GB ver.) - $600(60GB ver.) • Cost $800 - $840 • Loss of $240 - $300 per units sold • Sony games division posted a $1.97b loss for year ended Mar 07 • Only started to become profitable in Q3 2008

7. 1. Industry Profitability • Positive drivers for profitability • Lower component costs (eg. Blu-ray disc diodes cheaper to manufacture) • Falling hardware cost (eg. Decreasing cost of manufacturing cell microprocessors) • Operational efficiencies • Increase games library

8. 1. Industry Profitability • Negative drivers for profitability • Decreasing production due to decreasing sales, cannot achieve scale economies • State of global economy, increasing unemployment affects discretionary spending • Rise in prices of raw materials and fuel • Lack of new game titles • Increasing substitutes (eg. Ipad, Smartphones) • Weakening of US$ against Yen which will affects Sony and Nintendo, 73% of the market.

9. 2. Key Success Factors • Visionary Leadership • Management creates an environment that encourage experimentation and innovation • Religious Zealous to Innovation • Ability to constantly create products before other companies could conceptualize them.(eg. First to use 32bit 3D graphics on PS1) • Innovative culture

10. 2. Key Success Factors • Human Capital • Especially the top-notch engineers in the R&D department • Able to constantly attract top talents since it is a well-known MNC • Competence in utilizing innovation • IncorporateBlu-ray technology into PS3 • Make use of core competence in miniature technology to create cell-microprocessors for PS3 • Brand Management

11. 3. Implication of KSFs • New product development capability • One of the first to come up with PS1 and PS2 for their respective generations and dominates it • Brand strength • Well known for its innovative and high quality electronics products • As of April 2011, the PlayStation brand is the "most followed" brand on Facebook, with over 11 million fans and followers

12. 4. Appraise resource and competences • Resources • Sony Playstation has relative strength in • Finance • Technology • Brands • Capabilities • Sony Playstation has relative strength in • Product development • Engineering • R&D • Marketing & Sales

13. Assess capabilities through the value chain • Inboundlogistics: • Threshold: Complexinboundlogistics to serve itsworldwide plants • Operations: • Distinctive: linked diversification throughseveralSBUs • Weaknesses: Slow to respond to new marketdemands (eg: they enter tabletswaronlynow) • Outboundlogistics: • Distinctive: • large network of distribution • IT systems to trackorder, products and payments

14. Assess capabilities through the value chain • Marketing: • Distinctive: historical expertise in marketing • Weaknesses: World’s Most Valuable Brands ranking: 94th in 2010 whereas 21th in 2001 • Services: • Threshold: Sony Centers, eSupport, call centers, etc. • Firm infrastructure • Distinctive: synergy management betweenSBUs • thanks to a large base of worldwidemanufacturing plants

15. Assess capabilities through the value chain • Humanresource management: • Threshold: awards, incentives, particular training programs • Technology: • Distinctive: • Historical culture of innovation • StrongR&D • Tacitknowledge • Procurement • Distinctive: High bargaining power • Weaknesses: Dependance to key components

16. VRIN?

17. 5. Strategic Implications • Principal Strength • Strong financial support • ExcellentR&D • Engineers constantly come up with new innovative products and complimentary (eg. Playstation move) • Brand associated with innovation and quality • Key weaknesses • High initial manufacturing costs due to high innovation and technologies involved • Weak sales and marketing program for PS3

18. 5. Strategic Implications • Primary Implications and Future Emphasis • Compete on innovation, quality and brand instead of cost • Developing more exclusive games meant for PS3 that suits a larger market taste • Developing more complementary to enhance gaming experience • Additional fund to improve sales and marketing program to enhance sales and pave the way for future PS

19. Creating strategic intent for the future 2

20. PESTEL • Acquire, Develop or Incubate • Scenario analysis • Vision • Strategic customer • StrategicCapabilities • Mobility Barriers • KSFs

21. PESTEL • Political • Increasing views that video gaming as an act of anti-social, causing violent behaviours, increasing aggression and having negative impact on the youths • Economical • Rapidly emerging market such as China, India and Brazil might provides a greater potential for higher sales.

22. PESTEL • Social • Trends towards social networking, social gaming • Market will have higher expectation out of games and consoles performances • Average age of gamers slowly rising

23. PESTEL • Technological • Advances in IT would require more functions, capabilities, higher performances out of the gaming console. • Shift towards a powerful AIO entertainment utility console • Environment • Emphasis on using environment friendly materials and production process. • Minimizing environmental impact • The needs for energy efficiency

24. PESTEL • Legal • Increase in regulatory protecting the young from violent games. • Increase in protection against intellectual property rights so that “copycat games” will be minimized. • Regulations on stricter privacy (eg. PlayStation Network Flaws)

25. Scenario Analysis • Key Drivers • 2 main drivers: • Convergence towards cloud gaming VS games that can only be played on specified platform or console • Consumers’ preference towards expensive-to-develop complex games (need for performing processors) VS Consumers’ preference towards cheap-to-develop social games (or applications, social networks’ games, etc.)

26. Scenario Analysis – Drive my car • Towards a digital media/content business • Leverage on its current technology in PlayStation Network • Expand the function of its console as an AIO multimedia device • Make full use of advancing internet speed • Towards a disc-less environment • Large developers with hardcore games. • Not only able to buy digital games for playing, but also digital music and videos distribution

27. Scenario Analysis – across the universe • Towards an integrated gaming network • At home, play games, listen music, watch movie through the console • Outside, continue from where you left and do the same through portable console • At office, through the web version • Big number of developers with non-complex creative games • Ensure maximum exposure and gaming experience no matter where the person is.

28. Strategic customer • Decision-making power still lies with • The end-users and platform owners (eg. Apple Store, Playstation Network) • Video gaming consoles are beginning to perform similarly to one another • The end-users will have to decide based on the exclusive games offered by each respective company. • The functionalities of the consoles • The overall value gained from using the consoles

29. Key Success Factors • Future KSFs • Innovation that offers values to end-users • In terms of convenience, experience, performance • Match with the requirements of the platforms • Future market leaders should be offering: • High performance and capabilities integrated consoles • Compact and energy saving consoles • Accessibility and large selection of digital games, music and video files • Able to integrate with portable gaming console and the internet

30. Strategic Group and Capabilities Personal Computer Justification for price premium Video Gaming Console Portable Arcade Gaming Development

31. Strategic Group and Growth PotentialLess/More Personal Computer Justification for price premium Video Gaming Console Portable Arcade Gaming Development

32. Strategic Group and Mobility Barriers • Strategic barrier? • Require the use of miniature technology to produce compact device. • Require to come out with a modified gaming system that works with the arcade Justification for price premium Video Gaming Console • Strategic barrier? • Require huge amount of technological resources and innovation. • Need to have games that can support the consoles. Gaming Development

33. Choosing Strategic Method 3

34. Vision • “ to become a leading global provider of networked consumer electronics, entertainment and services ” • How? • Strengthen each pillars of core business • Innovation for further growth

35. Develop internally, M&A or Ally? • Sony uses the 3 methods to grow: • Internal developments • M&A • Strategic alliances

36. PastStrategic alliances • Development of PlayStation was aided by alliances forged between hardware designers and creative game-software developers • Other alliances:

37. Past Acquisitions • Sony Corporation has made 99 acquisitions while taking stakes at 59 companies. The company has 90 divestitures since 1983. • Sony's biggest acquisition to date is that of Columbia Pictures, valued at U$3.4 billion at the time of purchase.

38. Develop Internally • Internal Development: Focus and Integrate • PlayStation console from the Gaming Division • PlayStation network from the Software Division • Movies from Sony Pictures Entertainment and its subsidiary Columbia Pictures • Music from Sony BMG Music Entertainment • Games from Sony Computer Entertainment • To form a Digital Multimedia Console which can target to a larger market

39. Acquire • Towards a integrated gaming network, Cloud Gaming • No discs, no high end hardware, • playsamegame on PC, Mac or TV • OnLive acquisition? • Current value: $1.8 billion

40. Alliance with Google • Since 20th May 2010 • to provide a range of new and rich entertainment experiences that combine Google's open-sourceAndroid platform with Sony's expertise in technology and productdesign. • First step of this collaboration:

41. Strategy Development 4

42. Externally Imposed Strategy • Government • Video Games to be labeled or censored • Disks to be regional-specified so that only consoles that are manufactured to be sold in that particular region can play it • Tighter database security and control after the Sony Playstation Network security flaws

43. Logical Incrementalism • Sony Playstation and Developers • Developers including Valve found the PS3 difficult to program for • Activision and Blizzard CEO criticized on the PS3 high development costs and inferior attach rate • Sony moves to make the system more developer-friendly • Resulted in Valve developing Portal 2 for PS3 system which would help to make it the best console version on the market • Doug Lombardi VP of Marketing for Valve stated Valve's position, "Until we have the ability to get a PS3 team together, until we find the people who want to come to Valve or who are at Valve who want to work on that, I don't really see us moving to that platform". • GabeNewell of Valve said "The PS3 is a total disaster on so many levels, I think it's really clear that Sony lost track of what customers and what developers wanted”

44. Visionaryleadership and strategic planning • Visionary leadership: Especiallyin the earlydayswith Marita (co-founder): Pocket-sized radio Walkman • Strategic planning Marita: «There are three creativities: creativity in technology, in product planning, and in marketing. To have any one of these without the others is self defeating in business»

45. Ressource Allocation rules • Inside merger • Sony’s Electronics and Game Businesses merged into 2 new strong entities: • Consumer products & devices Group For traditional hardware aim to strengthen coordination of development and strategy planning between final products and their key components • Networked products & services Group For new network differentiation Maximizing coordination and integration between Playstation and consumer electronics businesses

46. The End Q&A