Strategic Analysis of Gaming Industry: Sony, Activision Blizzard, Nvidia, and Valve Corp

This report provides a strategic analysis of four organizations in the gaming industry: Sony Corporation, Activision Blizzard, Nvidia Corporation, and Valve Corp. It includes industry-level as well as company-level analysis of each firm by targeting the USA region. The report also provides key insights into the issues related to ethics, and social responsibilities confronted by each company.

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Running Head: Department Of Business Management
Department Of Business Management

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Table of Contents
Table of Contents.............................................................................................................................2
Introduction......................................................................................................................................3
Industry Background.......................................................................................................................4
Stock summary................................................................................................................................7
Sales and Market Share growth rates...............................................................................................8
Ethics, Social Responsibility, and Current Events........................................................................10
PESTEL Analysis..........................................................................................................................13
Strategic group map.......................................................................................................................19
Summary........................................................................................................................................20
References......................................................................................................................................22

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Introduction
The following report has been designed with an objective of doing strategic analysis of four
organizations in the gaming industry. These four companies are: Sony Corporation, Activision
Blizzard, Nvidia Corporation, and Valve Corp. The report includes industry-level as well as
company-level analysis of each firm by targeting the USA region. The competitive environment
of the companies was assessed using Porter's Five Forces, and PESTLE Model, in order to
understand their market position and business strategies in detail. In addition to this, this report
also provides some key insights into the issues related to ethics, and social responsibilities
confronted by each company.

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Industry Background
The Gaming industry is considered the under entertainment sector which offers a wide range of
virtual games. These games were mainly played on personal computers initially. Later on
console gaming was developed which has lead the users to play game on a device (console)
which can be carried away or are compatible with television, CD and DVD players. At the
present time, the most popular form of gaming is mobile gaming where users are able to play
games on mobile devices and tablets. Online gaming is the current trend which is an evolutionary
change in the gaming industry and provides facility to chat, talk and download games from the
app store (Ell, 2018).
The Gaming industry is one of the fastest growing sectors at the present time. The world’s top
gaming companies generated nearly $94.1 billion in combined software. This indicates nearly a
29% growth in this sector in comparison to year 2016 (Wijman, 2018). In addition to this, the
overall gaming industry consists of mobile gaming, console games and PC games. The
maximum share of 46% is captured by mobile gaming followed by console games have 33%
share and the rest 21% is catered by PC games. The US games market contributed a total of $36
billion in year 2017 which is almost 30% of the global market. The US market also shows an
18% growth in comparison to year 2016 (Statista, 2018). The revenues are expected to be $90
billion by 2020 with an estimated number of 211 million people which is nearly 67% of the total
population.

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Figure 1: Source:Wijman, T. (2018)
History of gaming industry
The introduction of games was started in 1940 when American nuclear physicist Edward Condon
designed the first game named Nim. Another revolution took place in 1960 when arcade and
chess playing computer games was introduced. The core development in the gaming industry is
considered to be from the 1970s when console games were developed on a large level.
Thereafter, there is a continuous increase in the number of users. It can be estimated by the
success of the Sony PlayStation system that led to sales of 20 million units in 1990s. The
industry was unpredictable until the 2000s but later on after the introduction of various mobile
games has lead to boom. The number of users has increased continuously over the past decade
and ultimately led to several thousand billion users (Martin, 2015). In the year 2012-13 the
PlayStation 4 and Xbox One were introduced that allowed the gamers to feature screen remote

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control. At present time, gamers are playing online games and it is possible that virtual reality
gaming will be offered to the users in the near future.
Particulars Explanation SIC NAICS
Sony Corp Games, toys and audio and video
equipments for children
3944 334310
Activision Blizzard Data processing, Hosting and related
services
7374 518210
Nvidia Corp Electrical apparatus and equipments 5063 423610
Valve Corp Industrial valve manufacturing NA 332911
(Source: SICCODE.Com, 2019)
Figure 2: US video games revenue (Statista, 2018)
There is nearly $16460 million revenue in the year 2017 which has increased to $17051 in year
2018 and it is expected to increase year by year and reach to $18460 million till year 2023
(Statista, 2018).

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Figure 3: Number of gamers in US (Statista, 2018)
The above chart indicates that the mobile gamers are increasing day by day and it is having
highest impact in the overall video gaming industry.
Stock summary
Particulars Symbol Stock listed
at
Outstanding
shares
Market
value of
equity
Beta
coefficient
Dividend
paid
Sony Corp SNE NYSE 1.27 Billion $47.02 1.15 No
Activision
Blizzard
ATVI NASDAQ 751.15 million $41.75 1.20 No
Nvidia Corp NVDA NASDAQ 610 million $157.00 1.58 No
Valve Corp - - - - - No

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It is identified that Nividia Corp high market equity value as compared to Blizzard, Valve Corp
and Sony Corp. The main cause of high market equity value is that the company has proper
attention to attract different stakeholders as well as decreasing its operating expenses. In
addition, the companies have not paid dividend as the companies are growing rapidly and want
to invest as much as possible into further growth. Therefore, these companies had not paid
dividend.
Sales and Market Share growth rates
Particulars 2016 (Billion) 2017 (Billion) 2018 (Billion)
Sony Corp 813.00 763.00 855.00
Activision Blizzard 2.39 2.5 2.52
Nvidia Corp 5.01 6.91 9.71
Valve Corp 5.9 7.6 8.164
Sony Corp
Figure 4: Share prices for the period of year 2014- 2018 (MarketWatch, 2019)

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The above graph presents that the share price is continuously increasing after May 2016, which
is a positive sign of growth of the company in the associated industry. However, the share
volume is highly fluctuating. Overall, the performance of equity of Sony Corp is good in the
associated industry.
Activision Blizzard
Figure 5: Share price during the period of 2014-2018 (MarketWatch, 2019)
Nvidia Corporation
Figure 6: Share price of Nvidia Corp 2014-2018 (MarketWatch, 2019)

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The above graph is presenting that the share price of Nvidia Corporation is increasing from
September 2017. The increasing share price and traded volume is presenting that the investors
have positive expectations from the company for better return as the company will perform in the
entertainment industry.
From the analysis of the sales of Sony Corp indicates that the company is having huge sales
across the world and the sales of the company is faced a decline from 813 billion to 763.0 billion
in the year 2017 when compared with year 2016. This situation was incurred due to new entrance
in the industry and increased competition. On the other side, the sales of the company again
improved and reached to 855.00 billion in the year 2018 (MarketWatch, 2019). The analysis of
the sales of Activision Blizzard indicates continuous improvement in the sales of the company
during the three years of analysis from 2.39 in 2016 to 2.52 in year 2018. Similarly, the sales of
Nvidia Corp is also showing increasing trend and reached 9.71 billion at the end of year 2018.
Valve Corporation also faced a similar trend and have sales of 65.2, 68.5 and 81.64 billion in the
year 2016, 2017 and 2018 respectively (Reuters, 2019).
Ethics, Social Responsibility, and Current Events
Sony Corporation
Ethics: Sony's ethics and compliance programs strongly support the ethical business culture at
the global level, through a worldwide and regional compliance network (Sony, 2019). Moreover,
the senior management constantly communicate with the internal management to make them
understand the value of being honest to the customers and other stakeholders.

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Social Responsibility: Sony Corp. is highly committed to carry out activities which encourage a
healthy and positive social environment around the globe. The company also conducts a CSR
materiality assessment by incorporating the interests of stakeholders and encouraging
environmental initiatives, for making the focus areas of its CSR activities lawful.
Current Event: In 2018, an ethical allegation was made by BBC against Sony for its new video
game " Super Seducer", due to inclusion of violence, sex, drugs, and vulgarity (Sony, 2019).
According to a trade publication, this game was criticized for giving immoral decision to the
children and the whole society. In addition to this, the game received a number of negative
coverage from people who have never played the game. It was found unethical for Sony to sell a
product that promotes the idea that women are things. As a result, the company had to block this
new game before its launching, due to the negative social and ethical interest.
Activision Blizzard
Ethics: Activision Blizzard has strong values of integrity and honesty. The Executives make
every effort to conduct all business along the lines of the defined Core Values. The company's
Code of Conduct encloses general guidelines for operating business with the highest standards of
ethics.
Social Responsibility: Activision is committed to strictly comply with all of the rules, laws, and
environmental regulations in every city, and country, where the company operates (Activision,
2019). Moreover, the organization strive to act in a way that respects and protects the human
dignity and rights.
Current Event: In May 2018, Activision was ethically alleged for breaching the gambling law of
Belgium. The director of Belgian Gaming Commission (BGC) found that players of these games

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were "enticed and deceived", and the company failed to apply any protective measures for users
(adults and minors). As a result, the company could face a penalty of €800,000 for non-
compliance (Activision, 2019).
Nvidia Corporation
Ethics: Nvidia believes that the integrity with which the business is conducted is core to their
ability to run successfully and maintain reputation. The directors, managers, and employees are
committed to act with the highest degree of integrity, ethics and honesty.
Social Responsibility: Nvidia is dedicated to integrating environmental and social responsibility
into every aspect of the organization (Nvidia Corporation, 2019). The Directors strive to
champion the human rights of the employees, and carry out business operations using
environmentally friendly practices.
Current Event: In December 2018, Nvidia was alleged for making false and misleading
statements to the gaming market. The company declared that it earned around $1.35b more from
block chain and crypto. However, according to the analysis by RBC Capital Markets analyst,
Nvidia had actually earned nearly $1.95b (Nvidia Corporation, 2019). As a result, the company
could face issues due to this “crypto hangover.”
Valve Corp.
Ethics: Valve is committed to providing employees and managers with educational and training
opportunities in order to enable them to conduct fair and equitable businesses with a high level of
professional ethics (Valve Corporation, 2019).

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Social Responsibility: Valve pays respect to the intellectual properties of third parties, and
complies with all laws and contracts in order to develop own intellectual properties.
Current Event: In 2018, Valve was ethically accused for violating the gambling law of Belgium.
It was found that players of these games were misled as the organization failed to use any
protective measures for consumers (adults and minors) (Valve Corporation, 2019). As a
consequence, a penalty of €800,000 could be imposed for nonconformity of the gambling law.
PESTEL Analysis
Organizations consider rivalry in an industry as a critical factor that should be evaluated. In
terms of economic theory, industry is defined as “a group of firms operating in the same
principal services or products”. Analyzing a specific industry starts with general assessment of
the aspects that have a serious impact on the organization. The main aim is to achieve
competitive advantage of the organization (Hionis, & Ki, 2018). In terms of gaming industry,
Nvidia, Sony, Activision and Valve, with their respective PS 3, hardware’s MS Xbox 360, and
first tier competitors in America. In order to gain a useful insight into the external environment,
PESTEL Analysis helps the organizations. PESTEL refers to analysis of political, economic,
social, technological, environmental and legal factors that can influence to business operations in
big manner. PESTEL analysis for these companies has been done as below:
Political analysis
The political conditions are responsible for influencing the performance of the gaming industry.
The economy of the country as a whole is highly affected by how consumers react to different
products (Moore, 2016). The political factors seem to be favorable for the American gaming
industry, which can encourage the sale of innovative video games, subject to rules and

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regulations. Since the government has become more involved with the development of gaming
systems, the domestic as well as international companies have a great opportunity for expanding
their business in the country, and earn higher revenue (McKenzie, & Smirnov, 2018). In this
light, Nvidia, Activision and Valve are gaining political support because they are based in US.
Also, Sony has an opportunity to gain a larger market share in gaming industry of US.
Economic analysis
The American video game industry plays an important role in generating jobs throughout the
country. At present, the industry provides employment directly as well as indirectly to over one
lakh youngsters across the thirty four states of USA (Schaap, 2010). It shows that the economic
conditions are flourishing for the companies, and are favorable for their future growth. An
average per capita income for direct employees is 90000 US Dollars, producing aggregate of two
billion dollars at national level. However, the industry has become very competitive in US due to
a large number of firms selling video games. In the coming years, an increment up to thirty
percent can be expected in the revenue of the such companies. This shows that Nvidia,
Activision and Valve are already enjoying the economic advantage in the country, while Sony
has an opportunity to increase its revenue and customer base (McKenzie, & Smirnov, 2018).
Moreover, the cost of operations also gets reduced in the US gaming industry due to the
availability of a large number of labour.
Socio-cultural analysis
From an analysis of Entertainment Software Association, it was found that around twenty five
percent of the game players are below the age of eighteen years, forty nine percent of the players
lie between the age 18-49 years, and twenty six percent of the players have age of fifty years and

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above. In addition to this, around sixty four percent of video game players like to play with their
friends and other people (Zackariasson, & Wilson, 2012). This number has increased since the
year 2009. Moreover, American parents also like to play with their children because it creates
fun for the family, and increase parents' interaction with the children. These statistics are higher
than those of other developed countries such as Japan, where the age of gamers lies between 14-
30 years. Also, these video games are attracting a wide range of demographics of male as well as
females (Huntemann, & Aslinger, Eds.). In this context, it can be said that video game users are
increasing dramatically in United States, which offers a great opportunity for domestic and
overseas video game companies to obtain competitive edge in the industry, and earn more
profits.
Technological analysis
In USA, people and businesses are very technological friendly. Recently, augmented reality has
become another new technology that is trending in the gaming industry. Although this
technology has not developed fully yet, it can be seen in the video game consoles in the play
station where the real world images are easily displayed on the computer screen. With the
introduction of augmented reality, the gamers are able to relate effectively with the virtual
objects through software on the screen (Gallagher, & Park, 2010). In addition to this, the yearly
turnover of AR is likely to increase to above 1 billion by 2020. In this context, it can also be seen
that Activision, and Sony are striving to display video games directly on the television or
computer via the internet connection at home. Although the technology is futuristic however
very attractive for the consumers, and has an ability to enhance the life cycle of the current game
consoles. Nvidia, and Valve, therefore need to adopt this technology so as to keep competitive in
the video game industry of America.

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Legal analysis
The laws in the American video game industry are strict. As with most forms of entertainment,
the gaming market is surrounded by the controversies in the USA. These controversies largely
target the presence of violence and vulgarity in the video game (Izushi, & Aoyama, 2010). In
2010, the country had implemented a California law in order to prohibit the sale of aggressive
video games to children consumers without the prior permission from their parents. In addition
to this, Arizona has also passed such laws on violent video games. Under the legislation,
companies who sell adult video games to minors are penalized for $1,000. In a number of
countries, the legal structure and policies are not robust enough to protect the intellectual
property rights of a company (Styhre, Szczepanska, & Remneland-Wikhamn, 2018). Thus, it can
be said that being an American Multinational, Nvidia, Activision and Valve, follow all the laws
to sustain in the market. On the other hand, Sony is a Japanese video game company which
needs to be aware of the American laws in order to compete with Nvidia, Activision and Valve.
Sony should also carefully assess all the legal requirements of the industry before entering the
US gaming market as it can lead to theft of organization’s secret sauce and the overall
competitive edge (Wesley and Barczak, 2016).
Porter’s five forces Analysis
Porter’s five force analysis refers to analysis of the external environment or industry in which an
organization is operating its business operations. There are five elements that analyzed in this
model to understand the competitive elements that can influence to competitive position of an
organization.

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Competitive Rivalry within the industry
There is a significant increase in the competition among the various market players present in the
gaming industry. There are large numbers of players present in the industry such as EA sports,
Sony, Tencent Holdings Limited, Microsoft, Activision Blizzard, Nintendo, King Digital
Entertainment, Nvidia Corp and so on. This indicates a high level of competition among the
rivalries that are competing to attain maximized market share. In addition to this, it is identified
that there are 2457 companies present in the US gaming market. This indicates high presence of
threat among competitors due to intense level of competition (Wijman, 2018).
Threats of new entrants
As the competition in the gaming industry is high at the same time, the cost required to develop
games is relatively low. In addition to this, there are no entry barriers for the entrants due to
association with the technology and use imagination for the development of the games. This
indicates that the threat of new entrants is high in the US market. Gaming industry is also
dependent on innovative ideas that might get popular in short span of time which creates more
threat for the existing players (Rothaermel, 2013).
Bargaining power of Customers/buyers
Bargaining power of customers can be identified as when large number of customers joins
together and it is possible to negotiate in terms of price with the sellers. In context to gaming
industry, the number of users for the games is relatively large and at the same time, it is not
possible to bargain by forming cartel due to huge demand of the games so the bargaining power
of buyers is relatively low (Grant, 2016).

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Bargaining power of suppliers
It is identified that the number of suppliers for the games in US are also high. There are various
developers available in the market which are in need of employment or provides specific services
to the gaming companies. At the same time, due to the compatibility of the games with various
devices it is also good for the companies that deal in gaming devices and other products to
negotiate with the suppliers (Gallagher and Park, 2010). This indicates that the bargaining power
of suppliers is also relatively low in the US gaming industry.
Threat of substitute products
From the above discussion, it can be clearly stated that there are large number of companies,
offering a wide range of games and at the same time the number of gaming users are nearly 67%
of the total population of US. This indicates that there is high threat of substitute products as the
customers tend to switch to other products immediately as they lose interest. In addition to this,
the switching cost from one game to another is also less which creates more threat by substitute
products (Rothaermel, 2013).
From the overall analysis of the gaming industry with the help of Porter’s five forces analysis, it
can be said that Sony Corp and Activision Blizzard are well established companies competing
for a leading position in the US market. At the same time, these companies are needed to focus
on innovation and keep eye on the adoption of new technologies such as virtual reality and
compatibility with the new and advanced tools for remaining competition in this industry (Grant,
2016). Both the companies need to invest in research and development to offer advanced games
in the US gaming market. At the same time, Valve Corp and Nvidia Corp need to focus on
offering new attractive games to gain market share in the competitive market.

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Strategic group map
A strategic group map is an effective technique of looking at the position of a specific
organization in the associated industry. The organizations use this tool as a competitive
analytical tool to analyze the competitive position in the industry among specific competitors
(Pietrzak, Jałosiński, Paliszkiewicz, & Brzozowski, 2015). The strategic group mapping for Sony
Corp, Activision Blizzard, NVIDIA Corporation and Valva Corporation is determined as below:
From the above strategic group map, it is analyzed that all four organizations have different sales
output outside the United States at different prices. The X-axis is presenting sales of different
companies in percentage outside of United States and Y-axis is presenting the pricing level of the
companies in the associated industry. The Sony Corporation is the major player of the market,
which is offering a wide range of entertainment products and has 45% sales outside of United

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States. On the other hand, Valva Corporation has the lowest market share outside United State in
the industry as compared to NIVIDA Corp, Sony Corp and Activision Blizzard. Based on the
strategic group map, it is analyzed that Activision Blizzard has lower sales output as compared to
NIVIDA Corp and Sony Corp. In this concern, there is need for Activision Blizzard to reduce the
price and increase product line to be competitive in the industry. Valva Corp also requires
increasing its product line to attract the customers and be competitive in the gaming industry.
The Sony Corp must manage both pricing and product line strategy to be competitive in long-
term.
Summary
Ethical issues and social responsibilities are considered as essential parts of managing the
operational activities in an effective manner. The lack of proper management of ethical issues
and social responsibilities the organizations cannot operate their business operations in the global
market. In addition, the stock summary of an organization determines the market position in the
associated industry and presents how the company is standing in the industry to attain the
organizational objectives in desired manner. It is also analyzed that the gaming industry is facing
some bad and good things. The gaming companies are facing the issue of marketing and
attracting the audience. There is lack of developers who have innovative thinking to develop the
games. Due to lack of barriers of the developers the gaming industry has affected by increasing
competition. On the other hand, the industry has greater opportunities for further growth. There
is demand of creative games in the community. The industry has scope for the entertainment
organizations to use their creativity and innovative thinking in developing new games and
increase their market share. In addition, the increasing use of smart phones has increased the

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demand of games. Therefore, the gaming industry had wider scope for the existing organizations
to increase their market share with use of their creativity in developing new games.

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