Electronic Gaming Products
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Industry Overview
The electronic gaming products manufacturing industry includes about 100 companies with combined annual revenue in North America of about $7 billion and worldwide sales of about $20 billion. Major companies include Microsoft, Nintendo, Sony, and Logitech. The industry is highly concentrated: the top three companies account for more than 80 percent of revenue.
Entertainment and games software and manufacturing of personal computers (PCs) used for gaming are covered in separate industry profiles.
Competitive Landscape
Demand is driven primarily by personal income. The profitability of individual companies depends on effective marketing, competitive product design, and manufacturing efficiency. Market success drives additional revenue via royalties paid by third-party game developers. The industry is capital-intensive: average annual revenue per employee is about $700,000.
Electronic gaming products compete with PCs, TV, and other forms of electronic and non-electronic entertainment for consumer leisure time.
Products, Operations & Technology
Major products are video game consoles (50 percent of revenues); portable players (25 percent); and peripheral hardware (25 percent). Video game consoles are computers specially designed to deliver entertainment and game software, using a TV as a monitor. Video game console sales consist of three competing products: Sony’s PlayStation 3, Microsoft’s Xbox 360, and Nintendo’s Wii. Portable players are handheld gaming devices, like the Nintendo DS and Sony PSP (PlayStation Portable). Peripheral hardware includes devices that elevate the human-machine interaction (HMI) such as game pads, joysticks, and driving wheels. Peripherals also include upgrades to core products, such as larger hard drives, additional memory, and wireless connectivity.
Most parts are manufactured and assembled offshore. The essential components of a system include a central processing unit (CPU); memory; optical drive; hard drive storage device; chassis; power supply; and controller (sometimes referred to as a game pad). Products are manufactured in high volumes using highly automated assembly lines. Process controls and testing procedures minimize product defects.
In addition to upgrade products offered by manufacturers, peripheral devices are often manufactured and marketed by third-party vendors directly to consumers. Some peripheral manufacturers are granted licenses from console manufacturers that give access to proprietary design information. They may also be granted rights to use manufacturers’ logos.
Hardware system costs may vary greatly depending on final design and components. Frequently, the initial selling price of next-generation hardware is below manufacturing cost. Companies anticipate falling component prices as product volume increases and therefore price products to grow market share. Royalty revenues from third-party game developers also help offset initial low gross margins.
CAD is used extensively in developing advanced technologies contained in video game hardware systems. Advances made available through CAD include high definition displays, multi-function audio and video capabilities, online gaming and other communication features, and wireless connectivity. Peripheral manufacturers may use reverse engineering to ensure functional equivalency with console manufacturer offerings.
