Electronic Toys & Games Manufacturing
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Industry Overview
The US electronic toys and games manufacturing industry includes a small number of companies with combined annual revenue of about $8 billion. Major companies include systems makers Microsoft, Nintendo, and Sony, as well as peripheral providers such as Logitech and Mad Catz. The industry is highly concentrated: the top three companies account for the majority of revenues.
Entertainment and games software and manufacturing of personal computers (PCs) used for gaming are covered in separate industry profiles.
Competitive Landscape
Demand is driven by personal income and product innovation. 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.
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, portable players, and peripheral hardware. 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 product lines: Sony's PlayStation, 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 controllers, joysticks, and driving wheels. Peripherals also include upgrades to core products, such as larger hard drives, additional memory, and wireless connectivity devices.
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 console 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. For gaming console makers, revenues from game software, as well as royalty revenues from third-party game developers, can help offset low gross margins in their gaming hardware business.
Electronic game and peripheral makers utilize in-house design teams and third-party developers. Console makers continually upgrade the technology used in their systems to remain competitive. For example, Nintendo's success with motion-activated controllers prompted Microsoft and Sony to launch their own motion-controlled development projects. Peripheral makers are dependent on intellectual property licenses from console manufacturers in order to perform reverse engineering that ensures compatibility.
