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Comparison of Game Development Company Performance

Disclaimer: This work has been submitted by a student. This is not an example of the work written by our professional academic writers. You can view samples of our professional work here.

Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

Published: Wed, 11 Oct 2017

Information about given companies Act Blizz (Activision + Blizzard by turn) Electronic Arts and Ubisoft. Revenues, top/down lines/R&D Spendings

At the main goal of this work is to compare companies, which are representatives of digital entertainment industry, firstly, it is crucial to get some insight about the industry itself, as well as specific companies.

The digital entertainment industry could be identified by the creation, distribution as well as selling of digital content and electronic devices, which are commonly used to entertain their owners in the way of consumption of purchased media.

Digital entertaining industry is highly segmented; hence, there are several branches of the industry, containing device manufacturers, such as Samsung, Nokia, etc., distribution networks (CBS, Satellite), network access providers, such as AT&T, Comcast), producers of digital content (Electronic Arts, Ubisoft, Universal, Activision Blizzard), and multi – business conglomerates (Sony, Microsoft).

The main idea behind the research is to analyze the performance of the digital content producing companies.

During the last two decades, video game industry became one of the powerful contributors to the world economy. Now the video game industry’s profits overcame book sales and music sales, and comparable to movie revenues in the United States.

(http://www.marketingcenter.de/lmm/research/publications/download/Marchand_Hennig-Thurau_JIM_2013_Video_Games_Industry.pdf)

The graph below shows historical data as well as forecasts of the total revenues made in video games in three biggest markets- USA, Japan and China.

(http://www.pwc.com/gx/en/global-entertainment-media-outlook/segment-insights/video-games.jhtml)

The graph showed the dynamics of growth for the video game industry and some predictions about the future growth. As it is seen, the predictions, as well as the growth are positive and average growth for the markets in general by 8 per cent annually.

Global video gaming market’s growth is powered by the expanding of internet connection to new places on the planet. Source of growth is represented by growing number of people preferring playing video games over all other entertaining activities as well as gradual total growth of internet users and smartphones or tablet owners. According to We Are Social organization (http://fr.slideshare.net/wearesocialsg), the average internet penetration in the world exceeded 35% and constantly growing as well as mobile penetration, which already exceeded 93% global average with only 21% mobile broadband, high speed internet connection on mobile devices in the world. This implies a great potential for the gaming industry to grow in future, covering new regions.

Consumers like and search for the interactive, virtual world controlled by their actions. Moreover, this interest reflects in the global growth of the industry. The global video game industry growth, consisting of online, mobile, console and PC games is represented in the graph below.

(http://www.pwc.com/gx/en/global-entertainment-media-outlook/segment-insights/video-games.jhtml)

As it is seen from the graph, the overall tendency of video game market growth does not hold in the case of PC video games. The projections show the decline of the industry, while other parts of the industry will grow.

Talking about the main consumers of such kind of leisure, the ages differ greatly, fluctuating between 5 to 45 years and are likely to extend in future. The recent studies approved that 29% of people over 50 years old played computer, console or mobile game at least once. Talking about the gender structure, needless to say that it is surprising, the average percentage of women who prefer playing computer games instead of traditional ways of leisure amounts to 47% out of total number of women in the States.

As it was said before, the industry is likely to be divided into two integral parts: software and hardware sub-industries. Hardware industry presents the production of the physical instruments of the interactive entertainment, such as PC’s, gaming consoles, smartphones and mobile tablets. Software industry, in turn, presents software developing, which is used on the hardware gadgets. The main condition of the rapid and profitable growth of both sub- industries is in their cooperation. Nevertheless, software developers are likely to receive higher revenues than hardware producers.

Dynamic technical progress allowed people to use smartphones and mobile tablets to spend leisure playing favorite computer games everywhere they want. According to recent research, 2/3 of the total money spend using mobile phones or tablets were spent on video games. In addition, 30 per cent of the overall downloads, made on these devices were games as well. (Newzoo mobile gaming trend report)( http://www.newzoo.com/trend-reports/mobile-games-trend-report/). The table below shows the global revenues made from selling video games on mobile phones and tablets, and the share of mobile video games sales in comparison with total video games segment.

(http://www.pwc.com/gx/en/global-entertainment-media-outlook/segment-insights/video-games.jhtml)

As ones can observe from the graph, the revenues increased almost twice in six years. As well as the mobile games share out of the total video games share increases on 1 per cent annually on average.

Talking about console video gaming, it is represented by the specially designed and created devices for the game experience only and the market is separated from other game markets, like PC and mobile game markets do as well. The main reason of that lies in the way, how the firms – owners of the consoles are controlling the incoming games on their hardware. The market is considerably old and first generation of game consoles were created in 1970s. Nowadays, the eight’s generation of the consoles is being sold on the market. The producers of the consoles struggle with endless technical progress and preferences of gamers in order to achieve technical advantage over their competitors. Among the leaders of this struggle stands Microsoft Company with its X Box One, Sony, with PlayStation 4 and Nintendo Company, with Wii U.

Console video game revenues since 2011 with forecasts for the further years are represented below. In addition is it ought to say that only the leading regions of the world by revenues from console sales were chosen for the graph.

As it is seen from the graph, the revenues in the North America and Western Europe are much higher than in Asia Pacific region.

But at the same time, industry has some difficulties.

One of the features of the industry is that the vast majority of the game developing companies have their product sales tightly connected to the sales of video game platforms for this games, which are manufactured by the third parties, as Microsoft Xbox, Sony’s Playstation and Nintendo’s Wii and DS. The success of the firms business is correlated with the performance of the firms, which are producing game consoles. Hence, the video game developers have to predict which game platforms will have good sales on the market, and develop commercially successful games for these platforms.

Another feature of the market is intense competition. The firms operating on interactive software industry meet tough competition from the side of other publishers of PC, console or mobile entertaining software. The difference in scale could be tremendous. Small companies are struggling in order to market and sell their single product, which they were creating for years, huge companies, like Microsoft or Sony have whole departments of video game developers, working on different multimillion projects at the same time. And the scale of the company sometimes does not guarantee the best quality of created video games and the possibility of the specific product to be successful. As much of the video game industry is based on the pure guess, what type of games will have success in future. Considering the time of the developing good in terms of quality video games, which sometime lasts for couple of years, it would be almost impossible to predict future tendencies on the market. Many small companies received billions from sales of their small-scale video game project, which was made by couple of enthusiasts, only because the product received success and recognition among gaming society. At the same time, the relatively short history of video game developing is full of fails of multimillion projects, which were created by well-known companies.

The most crucial problem, related to the digital entertainment industry is developing piracy. Unauthorized copying of products affects sales of all companies within the industry, as they are taking billions of losses on their own content which was distributed by the third party without obeying the laws concerning intellectual property. As the vast majority of the developers are selling their products all around the word, intellectual property laws of other countries may not protect the firm from the unauthorized copying of their products. Furthermore, the fast expansion of the broadband internet may sharpen the piracy problem, as the transfer of data becomes more easy and fast.

Among huge variety of game developing companies, I chose three biggest and most popular ones that in my mind are the best representatives among other companies of the same industry. On the bar chart below you can observe the top 10 game developing companies, by their revenues of the fiscal year 2013 (in billions of US dollars).

The companies, which I’ve chosen for my research are colored in red. Such specific choice that I’ve made could be explained from the perspective of their core activities. To be more precise, companies which are present on the bar chart among the biggest by revenue, have a side activity.

As it is commonly known, Microsoft produces a large amount of products, as well as own video console brand, and their activity lies much aside from game development, marketing and retailing, which are only the additional activities of the company. Sony is another example of the huge company with only little part of activities, focused on video game development and, as well as Microsoft, Sony owns a series of video game consoles. Nintendo and SEGA, in turn, have their own console brands in production, and also cannot be considered as pure game software producers.

Activision Blizzard, Electronic Arts (EA) and Ubisoft are the only companies, which do not produce any consoles or any other goods, except video games, hence my choice was determined by that arguments. In addition, the companies are big enough in order to make the comparison analysis of their performance. However, before analyzing the companies’ performance, it is crucial to get some insight about the core activities of all three companies and their history, in order to make right conclusions.

Activision Blizzard, Inc is an interactive entertainment company. The main activities of the company are publishing online, personal computer (PC), game console, tablet, handheld and mobile games. The main regions of activity of the company are North America, Europe as well as Asia Pacific. The headquarters are situated in Santa Monica, California. As for 2013, the company employed 6700 people.

The company uses a long term growth strategy of growth, participating in creation of products on different platforms and various geographical regions. Activision Blizzard develops and publishes games on many different consoles, handheld platform as well as on PC. The company sales games that are relevant on all most popular consoles, like PlayStation 3 and PlayStation 4, Nintendo Wii and Nintendo Wii U and Microsoft Xbox 360 and Xbox One. As for handheld systems, it offers its products on Nintendo Dual Screen and Nintendo 3DS. In addition, in also offers mobile gaming products on Apple iOS and Android devices, as well as on PC.

Activision Blizzard has a solid portfolio of the online subscription-based games, in the category of MMORPG. The main subsidiary which is responsible for online games is Blizzard. It develops and publishes PC oriented video games and maintains own online-game service, named Battle.net. There are about 7.8 million people, playing Blizzard’s World of Warcraft, according to recent company’s report in the end of financial year 2013.

The company has created a number of subsidiaries across the world. At the beginning of 2013, the company coordinated the activity of the 53 facilities in 18 countries. In addition, the net revenues from internationally conducted sales were approximately about 50 per cent in 2012 and 2011 respectively. The main offices of the company are located in Canada, the UK, France, Germany, Ireland, Sweden, Netherlands, Spain, South Korea, China, Australia and the USA.

In order to follow the growing trend in the entertaining software, company offers online and packaged software and games with the content, which was regionally adjusted to a specific regions. Such diverse range of activities and geographical regions of the company protects it from risks associated with adverse economic trends which are likely to appear in a single region.

(swot у меня в папке act blizz annual reports)

The performance of the company at a glance one can observe on the chart below.

Activision Blizzard reported significant growth of profits. The net income was $1,149 million in 2012, with an increase of 5,9 per cent over the previous 2011 year. The improved profitability of the company indicates on the better cash generating process from total revenues to net revenues. Furthermore, the increase in profit margin indicates in the efficiency of the pricing strategies of the company as well as the ability to control own costs and expenses. In addition, it indicates on the ability of the management to invest in the profitable ventures.

Next company is Electronic Arts – and American publishing, developing and distributing company as well as one of the biggest electronic entertainment industry companies in the world. The company was founded in 1982 and throughout its history was creating video games. Since 2007, company started to purchase smaller game developing and publishing studios.

EA consists of divisions, called labels. Among them are EA Games, EA Sports and EA Play. In addition, there is a smaller sub-division called EA Interactive, which controls studios, creating games and software for mobile platforms.

Some performance indicators of the EA Company are presented below.

Company had major difficulties in terms of transferring its revenues into net income for almost the whole period of company’s observation. The main reason of it lies in an increase of the debt, take be the company for financing activity. As it is seen from the Debt to Equity relation, total liabilities of the company were gradually increasing over the period of observation and during 2012-2013 exceeded the amount of shareholder’s equity which is present in the company. Generally speaking, the company has some difficulties in the business operation and further analysis will reveal more details about the specific trends.

Ubisoft was created in 1986, starting its activity as a distributor of the games, made by EA, Sierra and other American game-developing companies. It is a French developer, publisher and retailer of the video games on various game platforms. The company is considered third biggest independent game publisher, following by Activision Blizzard and Electronic Arts. Company consists of 29 studios in 19 countries and all studios are focused on specific game segment or task, with the main development studio located in Montreal, Canada.

Because of the recent global economic recession and the increased competition from the mobile games, as well as recent acquisition of Red Lynx developer, company’s down line was negative during the 2010-2011, as it is seen from the graph.

However, the company’s net revenues started to return to normal after 2011. The company achieved the increase in its net cash by cutting R&D costs and decreasing borrowings, as it is seen from the decrease of debt to equity ratio.

(http://www.indeed.com/cmp/Ubisoft)


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