Nintendo

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Nintendo

• Jonathan Leonard

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Man or Plan?
Video Games are bad for you? That's what they
said about Rock 'N' Roll.
Shigeru Miyamoto
Source MiyamotoShrine.org
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Value Creation

• I think that Miyamoto is simply the g-d of video
  games! I have to say that my life would not feel
  complete if I had not journeyed so far with his
  amazing characters in the amazing worlds. This
  man is the g-d of modern video games giving us
  such things as the analog stick, rumble pack, and
  all of the great characters such as Mario, Link ,
  Donkey Kong etc. D. Buffone

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How can Super Marios market cap. exceed Nissan
or Sonys?

• In 1/3 of US and Japanese households
• Value Added
• Value Capture

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Value net

• The amount of value a company can capture is both
  created and constrained by other players in the
  net

Customers
Company
Complementors
Competitors
Suppliers
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Value Net

• Five Forces Threats to Profit
• Value Net Opportunities to Profit

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Common Interests

• A Growing Pie
• Technical Standards
• Favorable Regulations
• Increase Quality and Demand

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Complementor

• A complementors product enhances the value of
  your product. A decline in the complements price
  raises demand for your product.
• Hardware and Software
• Cars, Tires, Gasoline
• Air-conditioning, Houston Real Estate
• Airline Flights, Terminal Retailers (Ryanair)

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Suppliers

• Multiple-Source to limit supplier power
• Limited by suppliers FC.
• Trailing Edge Chip Technology.

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Game Developers

• Used to quickly expand range of games
• Limited games/developer to enhance quality
• Used many developers to limit power
• Offered Developers good return
• Kept in-house capability for initial entry and to
  limit developers power

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Why did EA Play?

• PC market smaller than expected
• Big, growing console market
• Nintendo dominates

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What Kept Developers from Porting Out?

• Legal 2-year Contract Lockup
• Economic Threat of Cut-off (from cartridges,
  from dominant platform, from new games, from
  co-marketing)

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What Kept Developers from Porting In?

• Legal Challenge (Atari)
• Technical Challenge The Security Chip

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Distributors

• Multiple outlets to limit downstream power
• Restrict Supply to Increase Leverage
• Resale Price Agreements (usually illegal)

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Misplaying the Value Net

• Trip Hawkins at 3DO
• The Very Expensive Razor

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DVDs 5 Forces

• Modest BTE
• Weak differentiation
• Satellite and Internet substitutes
• Powerful studio suppliers
• Distributors with power, Circuit City poised to
  launch rival DIVX standard

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DVDs Playing the Value net

• Big opportunity for industry growth and profit
• Manufacturers, studios, and retailers with joint
  interest
• But manufacturers initially priced high to early
  adopters. (1000 DVD player)
• Blockbuster?

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DVDs Playing the Value net

• After initial round of premium pricing (price
  discrimination), DVD players price dropped to
  300, manufacturers turned to mass market
• Studios (Warner) remastered classics and cut
  prices
• Best Buy (and other retailers) cut prices and
  heavily promoted DVDs
• RIP DIVX

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PacMan