Sony Corporation and the Video Game Console Market: 1 A Competitive Analysis

By Ryan Bogner, Peter Hung, Guan Wang, and Steven Wang

This report evaluates Sony Corporation’s strategy in the console gaming market from the top-down perspective of the entire corporation.

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Executive Summary Sony’s current strategy in the video game console market is simple: use the technologically superior Playstation 3 as a loss leader to introduce the Blu-ray optical drive2 into consumers’ homes and leverage that market penetration to drive content sales once Blu-ray is established as the de facto standard for optical storage. It is therefore in Sony’s interest to reach the tipping point for market adoption of Blu-ray as soon as possible. To increase the rate of Blu-ray adoption in the market, we recommend that Sony adopt a “good-better-best” strategy, whereby Sony produces discounted and premium versions of the current Playstation 3 for sale to consumers. This strategy will encourage price-sensitive customers to purchase Playstation 3 consoles without marginalizing power gamers. Nintendo and Microsoft will most likely respond to this strategy with differentiation rather than price competition. If Sony reinforces this strategy with coherent marketing and intellectual property strategies, it can increase Blu-ray adoption rates and make it more likely that the format will be adopted as a standard. The Market for Video Game Consoles is Growing, but Competition is Fierce The market for interactive video entertainment is growing; this market grew four percent over the same period two years ago. 3 However, all players in the market are facing increased competitive pressures. Substitutes for console gaming are growing rapidly (such as massive multiplayer online games, as shown in Figure 1), and as the first generation of console players reach maturity, many players will shift to