Introduction to the Market

There are two broad geographic markets – similar to continents:  Roundland and Starland. 

•   Roundland has a population of 125 million and could resemble North America.  Roundland is the home country of all the major competitors in the market and is thus the market where new offerings are assumed to be launched first.  

•   Starland is about the same size as Roundland, with a population of 130 million:  it could be viewed as similar to Europe, with multiple languages and countries.  Investment in geographic expansion into the Starland market is financially rewarding, although it requires more investment since there are fewer region-wide players and each market has its own cultural and business idiosyncrasies.

The total video gaming market consists of hardware (the video game consoles) and software (the video games themselves).  Hardware and software each account for about 50 % of the $7.4 billion market. 

The current video console market is thus worth $3.8 billion annually.   Annual sales peaked at $5.0 billion 5 years ago, but unfortunately the market has been in decline since then.  Over each of the last three years it has declined as shown on Figure 2 below.

The household penetration of video game consoles in Roundland and Starland is about 53% - so, over half the homes in the market have at least one video game console, and many have more than three!  These have accumulated in households over many years, as each console is replaced by a more powerful and sophisticated one as the industry drives relentlessly to exploit the exponential technological improvements within the broader computer and electronic entertainment device industries.

Figure 2 – Market size and growth rates over the last 4 years

 

The video games industry has been through peaks and valleys in the past.  What creates a new ‘peak’ is mostly the long-awaited launch of ever more powerful and sophisticated gaming consoles.  Technological novelty and sophistication is a strong driver of consumption in the industry, especially amongst the core customer group.  Once they mobilize behind an offering, the rest of the industry’s customers follow suit.