The Handheld Gaming IndustrySony vs. Nintendo

Teddy Nickolov T’05MBA Fellows Project

The Handheld Gaming Industry:Sony vs Nintendo

Teddy NickolovApril 20, 2005

Project overview

Overview of handheld gaming industry

Sony profile

Nintendo profile

Sony PSP vs. Nintendo DS

Nintendo’s strategy against Sony

Agenda

Project background

May 2003 – Sony announces PSP– PSP is most advanced handheld ever

January 2004 – Nintendo announces DS– First handheld with touch-screen

December 2004 – PSP and DS launch in Japan

April 2005 – PSP launch in US

Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy

Project overview

Overview of handheld gaming industry

Sony profile

Nintendo profile

Sony PSP vs. Nintendo DS

Nintendo’s strategy against Sony

Agenda

History of handheld gaming is history of Nintendo

Microvision

1979

GameBoy

1989 1994

Super Gameboy

GameBoyColor

1998 2001

GameBoyAdvance

GameBoyAdvance SP

2003

Nintendo DS

2004

Atari LynxTurboGrafx

Pocket ProWonderSwanNeoGeo Pocket

Nokia N-Gage Sony PSP

1999 2003

Nintendo

75%

Others

25%Nintendo

96%

4%

Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy

Shift towards a more mature audience

GameBoy Advance

(2001)

GameBoy Advance SP

(2003)

Teens/

Juvenile

(55%)

Teens/

Juvenile

(49%)

Others

(28%)

Others

(16%)

Adults

(35%)Adults

(17%)

Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy

Project overview

Overview of handheld gaming industry

Sony profile

Nintendo profile

Sony PSP vs. Nintendo DS

Nintendo’s strategy against Sony

Agenda

Other2%

Financial Services

8%

Game10%

Electronics63%

Music7%

Pictures10%

Game group revenue is important for Sony

Sony org chart Revenue breakdown (FY2004)

Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy

Sony is about gaming consoles

Sony creates the first

tape recorder

1950

Sony partners

with Nintendo to create the

PlayStation

1990 1994

The first PlayStation is launched

The PS One is

announced

1999 2000

The PS2 is

launched

2004

The PSX is announced

2005

PSP launched in March

The PS Two is

announced

2003

The PS3 is

announced

2005

Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy

Technology– Sony was ahead with the PS, and then with the PS2– The PSP is two generations ahead of the DS

Games– A plethora of games– New franchises– Aimed at a new demographic compared to Nintendo (and

even edgier than Sega)

Relationship with game developers– Freedom to develop any game they want (no age limit)– Scale to have the games played on 100M consoles– Tools to help developers create better games cheaper

Sony has a solid position in the gaming market

Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy

Project overview

Overview of handheld gaming industry

Sony profile

Nintendo profile

Sony PSP vs. Nintendo DS

Nintendo’s strategy against Sony

Agenda

Nintendo today at a glance

Result in FY 2004

Revenue : $ 4.9 billions

Operating margin : 10.3%

Net margin : 6.5%

Hardware

(57%)

Software

(43%)Handheld

(62%)

Console

(27%)

Others

(11%)

North

America

(49%)Japan

(27%)

Europe

(23%)

Others

(1%)

By product By platform By region

Market share (Hardware)

in FY 2004

Handheld : 99%

Console : 7%

Revenue break down (FY 2004)

Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy

Nintendo is very profitable

Nintendo

Sony (Game segment)

Industry (excluding Nintendo & Sony)

Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy

Nintendo also has many strengths

Ability to generate large volume of software sales– Strong internal development capabilities and excellent

relationships with third-party developers

Donkey Kong

(since 1981)

Super Mario

(since 1985)

PokeMon

(since 1996)

Cost effective hardware strategy – Use available, affordable technologies that are core to

“gaming experience” only

Focused business makes financial model efficient

Most importantly, strong brand recognition among kids due to its famous characters

Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy

Project overview

Overview of handheld gaming industry

Sony profile

Nintendo profile

Sony PSP vs. Nintendo DS

Nintendo’s strategy against Sony

Agenda

VS

Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy

Sony PlayStation Portable (PSP)

Most advanced handheld

PS2 port content

Strong 3rd party support

Multiple functionality

Sony capabilities

Strengths

Short battery life

Limited new content

Untried storage format

Appeals to unproven mkt

Expensive?

Weaknesses

Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy

Nintendo Dual-Screen (DS)

Nintendo brand name

New functionality

Strong 1st party content

Longer battery life

Backward-compatible

Strengths

Limited “new” content

Unproven functionality

Shorter battery life: GBA

Expensive?

Weaknesses

Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy

Market impact of Sony PSP introduction

PSP appealing to a different audience market expansion– 40% growth by 2007?

PSP only $50 more than DS really strong competition– More innovation?– Nintendo in trouble?

If analysts correct, PSP profit over $400m by 2007

Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy

Project overview

Overview of handheld gaming industry

Sony profile

Nintendo profile

Sony PSP vs. Nintendo DS

Nintendo’s strategy against Sony

Agenda

Nintendo’s short term response:Defend market share by differentiation

Play on price

Refine value proposition of DS

Product segmentation/tiered offering

Enhance 3rd party support

Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy

Nintendo’s long-term response:Expand revenue sources

Create new winning franchises

Diversify revenue sources

Expand geographically: China, India

Expand demographic base

Partner to improve features

Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy

QUESTIONS?

Project • Industry • Sony • Nintendo • PSP vs DS • Nintendo Strategy