Situation analysis

To: Kim Madeleine

From: Eric Zimmerman

Subject: Paper #1

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  Ubisoft’s mission is to create, publish and distribute innovative, high-quality video games by focusing on the creation of strong brands, in-house development, and a vast global distribution network.
  
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  The company’s culture is progressive and innovative.
  
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  They are very ambitious and constantly expanding through the acquisition of other video game titles and companies, growing to become the third-largest independent publisher of video games in Europe and the fourth largest in the United States. (ubisoftgroup.com)
  

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  Although Ubisoft earned record high profits as a company in 2007, sales have been drastically lower since 2009.
  
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  Slow sales of Nintendo DS games (industry-wide) and a lack of new releases from Ubisoft lead to a decline of sales in 2009 by 51 percent compared to 2008.
  
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  U.S. market share also fell by 0.8 percent in that time.
  
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  Last year’s (2010) sales were lower than they’ve been in 5 years (since 2005).
  
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  Electronic Arts, a leading competitor, also holds a 19.9 percent interest in Ubisoft, as purchased in 2004 (galenet.galegroup.com).
  

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  Computer and video game companies posted records sales in 2007.
  
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  The industry sold 267.8 million units, leading to an astounding $9.5 billion in revenue.
  
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  Game console software sales totaled $6.6 billion with 153.9 million units sold; Computer games sales were $910.7 million with 36.4 million units sold.
  
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  There was a record $2.0 billion in portable software sales with 77.5 million units sold.
  
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  On average, nine games were sold every second of every day of 2007.
  
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  By 2009, however, almost all leading video game publishers suffered profit losses in part due to the effects of the economic recession.
  
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  At the start of 2011, video game sales were much lower than they were during the boom of 2007 and 2008. (theesa.com)
  

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  The genre with the greatest growth was “Family Entertainment,” which grew 110 percent over the previous year (2006).
  
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  Family games accounted to 17.2 percent of all games sold in 2007, more than one of every six games sold, up from 9.1 percent in 2006.
  
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  Of the games sold in 2007, 57 percent were rated “Everyone” (45 percent) and “Everyone 10+” (12 percent), 28 percent “Teen” and 15 percent “Mature.” (theesa.com)
  

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  With family games earning an increasingly dominant place in the video game industry, and with the recent advent of motion-sensor game technology such as Nintendo’s Wii MotionPlus, Microsoft’s Kinect and Sony’s Play Station Move/Eye, Ubisoft should look to either adapt some of their established brand games such as Imagine or Petz into new motion games, or start a new game franchise that is geared specifically to accommodate family-oriented motion games. Ubisoft should not, however, give up on the action/adventure games that helped launch their success, as this genre still holds a leading 22.3 percent of all video game sales.
  

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  Sixty-five percent of American households play computer or video games.
  
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  The average game player is 35 years old and has been playing games for 13 years.
  
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  Forty percent of all game players are women. In fact, women over the age of 18 represent a significantly greater portion of the game-playing population (33 percent) than boys age 17 or younger (18 percent).
  
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  In 2008, 26 percent of Americans over the age of 50 played video games, an increase from nine percent in 1999.
  
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  Thirty-six percent of heads of households play games on a wireless device, such as a cell phone or PDA, up from 20 percent in 2002.
  
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  The average age of the most frequent game purchaser is 40. (theesa.com)
  

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  There are 7 primary types of video game players/consumers, each of which is motivated for various reasons.
  
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  (1) Casual gamers often purchases games designed for ease of game play (i.e. games that offer little competition but with instant success/gratification)
  
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  (2) Hardcore gamers spend a more significant amount of time and effort in their game play and are often more willing and interested in games that require large amounts of time and involvement, such as Role Playing Games
  
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  (3) Professional gamers are heavy users of competition-based games, including both sports games and “shooters,” playing video games in competitions and at events as a source of income (inspirational to non-professional competition types)
  
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  (4) Newbie (or novice) gamers are new to the industry and widely vary in their game preferences
  
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  (5) Import gamers focus on playing/collecting video games produced internationally, often games that are not released outside of their country of origin (usually Japan)
  
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  (6) Retro (or classic) gamers play and collect older games, such as arcade-style computer and video games, recreating the feel and effect of the games that helped launch the industry.
  
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  (7) Girl gamers can be any one of the above types of gamers, but females are an expanding demographic that is taking a larger role in the sale of video games, reaching and estimated 40 percent. They often play games for the same reasons as males but enjoy styles and features in games that are specifically geared toward females (theesa.com)
  

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  Gamers claim to want “imaginative, artistic and flair-filled games” and often ridicule the “sequel-heavy death of originality,” but it is often the “un-original” sequels that sell the most copies and the “fresh, experimental” games that tank in sales (gamesradar.com)
  

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  Despite multiple types of game players, the majority of video game consumers fall on the higher resources end of the VALS typology, frequently under the Innovators and/or Actualizers category, as they are open to trying new/modern products including the latest electronic gadgets and equipment.
  
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  Other common motivation categories include the Ideals and Self-Expression Motivated consumers, or more specifically, the Thinkers/Fulfilleds as primary “hardcore” gamers (i.e. RPG) and Experiencers as more “casual” gamers (i.e. motion-based exercise games). (aranet.com)
  

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  The top ten U.S. gaming cities are: (associatedcontent.com)
  

1. 
   Seattle
   
2. 
   Minneapolis-St. Paul, Minn.
   
3. 
   Atlanta
   
4. 
   Detroit
   
5. 
   Phoenix-Mesa, Ariz.
   
6. 
   Washington, D.C.
   
7. 
   St. Louis
   
8. 
   Boston
   
9. 
   San Diego
   
10. 
    Philadelphia
    

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  Although obvious, it is important to note that these are all Urban environments, which are known for higher populations and thus higher sales forces, increasing the total number of consumers (and in this case gamers). As it is, however, these urban regions help place the gaming consumers in social groups such as Urban Uptown, Midtown Mix, and possibly some Elite Suburbs on the PRIZM scale.
  
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  Although Ubisoft is a France-based company, they have major offices in Montreal, Canada, and recently opened up a sales office in Dallas, Texas (12^th highest gaming city). Together, these help cover both the northern and southern regions of the U.S.
  
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  Ubisoft's revenues are diversified by region, with almost an even split between North American and European revenues. This implies minimal market penetration in Asia, which the company has begun to address with more local development, such as studios in China, Singapore, and India announced in FY 2008. (ubisoftgroup.com)
  

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  As stated before, although video game consumers claim to want “imaginative, artistic and flair-filled games” and often ridicule the “sequel-heavy death of originality,” it is often the “un-original” sequels that sell the most copies. (gamesradar.com)
  
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  Ubisoft has managed to capitalize on this fact, releasing 8 Ghost Recon sequels, 8 Rainbow Six sequels, 7 Rayman sequels, 6 Prince of Persia sequels, 5 Splinter Cell sequels, and 4 Assassins Creed sequels all within the last 8 years (across multiple platforms, but not counting any original games). (ubisoftgroup.com)
  
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  Unfortunately, this has lead to the consumer perception that, although some of the original Ubisoft games were innovative and entertaining, their new/current releases are “un-original” and often considered “shovel-ware,” a term used to denote software that is known for its content quantity and poor quality/usefulness (like buying the new edition of a textbook that has few changes in it).
  
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  The good news is that with Ubisoft’s constant expansion and purchasing of other gaming companies and titles, it now owns some of the most popular game franchises on the market (including the Tom Clancy series -- Ghost Recon, Rainbow Six, Splinter Cell -- Assassins Creed, Red Steel, etc.) and has the capability to continue making quality sequels that statistically sell best; Ubisoft should refrain from pumping out “shovel-ware” sequels that will only upset the gamers who are loyal to the game franchise, unless immediate sales ever out-weigh long-term profits.
  

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  Leading direct competitors include Atari Corporation; Electronic Arts Inc.; Vivendi S.A.; Microsoft Corporation; Activision Blizzard Inc.; and THQ, Inc. (galenet.galegroup.com)
  
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  Indirect product competitors include board games, card games, movies, books, and other entertainment related products.
  
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  In 2008, Ubisoft was ranked 5^th in the market with 5 percent of shares (down 1.4 percent from 2007) behind Take-Two Interactive with 6 percent, Nintendo of America with 17 percent, Activision Blizzard with 17 percent, and Electronic Arts, which lead the industry with 20 percent. (galenet.galegroup.com)
  
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  In 2009, Ubisoft spent $206,000 on selling and marketing (total revenue $1,068,000) while Electronic Arts spent $691,000 (total revenue $4,212,000) and Take-Two Interactive spent $148,000 (total revenue $968,000). (LexisNexis.com)
  
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  In other words, EA spent 3.3x as much on selling/marketing as did Ubisoft, but EA earned 4x more, which means EA had a better return for it’s selling/marketing output
  
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  In 2010, EA spent 3.7x ($730,000) as much as Ubisoft ($198,000) on selling/marketing, but earned 4.2x ($3,654,000) as much as Ubisoft ($871,000), which is 0.5x less of a gap compared to 2009. (LexixNexis.com)
  
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  At this rate, Ubisoft will surpass Take-Two Interactive and begin narrowing the gap between itself and the top three, which each hold 3 or 4 times as many shares as Ubisoft.
  
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  Electronic Arts controls more of the sports video games whereas Ubisoft is known for its action/adventure RPG games.
  
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  Take-Two Interactive competes with Ubisoft for popular action/adventure RPG titles (THQ is a slightly lesser competitor but in the same category), while T2I also competes with EA in the sports genre.
  
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  Activision competes with Electronic Arts on the music game front, with Microsoft for first-person-shooter games, and with Ubisoft for movie/TV -adaptation games.
  
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  After being purchased by Vivendi, Activision joined up with Blizzard and is currently working out a deal with Microsoft and Bungie that could potentially create a super-conglomerate software company, one that might be even more difficult to compete with.
  

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  Big name video game franchise ownership (primarily Tom Clancy and Assassin’s Creed)
  
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  Entirely in-house development allows for more freedom as to the design and content of the games
  
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  Studios all over the world create an efficient global distribution network
  

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  Poor relations with the PC gaming market due to the original use of StarForce which lead to hardware problems and compatibility issues, and the emphatic use of its Online Services Platform that forced players to remain connected to the internet while playing, which lead to a whole slew of problems
  
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  Declining consumer perceptions as a result of insignificant sequels to big name game franchises that are being likened to “shovel-ware”
  
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  Ubisoft does not own a video game platform and must design its games to fit those offered by companies such as Microsoft, Nintendo, and Sony, each of which also develops its own games and is likely to center around those first.
  

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  The increasing popularity of family entertainment games offers a new genre for expansion
  
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  The advancing capabilities of portable devices is increasing the amount of time people can potentially play video games, such as while out and able to use one’s cell phone or PDA; (e.g. Prince of Persia: Warrior Within has been adapted as an application game for the iPad and iPod Touch)
  
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  The new motion-sensor systems, such as Wii MotionPlus, Xbox Kinect, and Play Station Move, offer another area of increasing popularity that is consistent with the current health/fitness craze (Ubisoft’s success with the teenage-girl game Imagine might offer some potential for a cross-over into a fashion runway show on a motion-sensor system)
  

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  The recent economic recession of the last 3½ years has resulted in a dramatic decline of sales across many industries, and although video games weren’t affected as bad as others, most companies, including Ubisoft, has suffered and must keep working its way out
  
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  Electronic Arts holds a 19.9 percent interest in Ubisoft and they remain direct competitors
  
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  Video game violence has always been a controversial factor in the industry, and some of Ubisoft’s most famous titles heavily incorporate violence into game play.
  

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  Moderate to heavy users (more hardcore gamers) who play action/adventure and RPG games and who have likely played at least Assassin’s Creed I on a major system who also own (or wish to own) a portable game device but have not played an AC game on it.
  
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  Male bachelors just out of college
  
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  Ages 20 to 35
  
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  Technical, sales, and administrative support occupations
  
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  Household income $35,000 to $75,000
  
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  Resides in either U.S./Canada or Western Europe
  
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  At least some college education
  
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  Single or recently married, at most 1 child
  
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  Urban dwellers
  

Combination Play Station 3 + Assassin’s Creed Brotherhood :60 TV spot: http://www.youtube.com/watch?v=ocjHbWIKLZM

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  Positive- Economic turn-around from the previous recession that increases consumer spending, especially amongst technology users
  
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  Positive- The standardization of smart phones and mp3 players being able to double as portable game devices
  
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  Negative- A stagnant economy that refuses to work its way out of a recession and that continues to hurt the gaming and technology industries
  
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  Negative- Increased public attacks by younger individuals who are blamed for having played “too many video games”
  

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  Like movies, many video games are able to run a 3-part trilogy in a successful course, but are forced to restart after that (like the Batman movies or Prince of Persia video games)
  
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  The Assassin’s Creed series has released two main titles (Assassin’s Creed and Assassin’s Creed II) along with four lesser parts as portable device games (Altair’s Chronicles, Bloodlines, Discovery, and Project Legacy) and an in-between, main-platform continuation (Brotherhood)
  
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  Another portable device game is due to release this year for the new Nintendo 3DS (Lost Legacy), and soon to be followed by Assassin’s Creed III
  
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  Therefore, this product is on the downward slope of its life cycle, nearing the end of the current Assassins Creed line and beginning to enter the need for a new spin on the original series
  

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  Female game players
  
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  Women who own portable device systems such as the Nintendo DS, a PSP, or an iPod Touch and who are looking for more games to play on their systems (the portable device games are much simpler and shorter than the TV systems)
  
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  This is not a primary market for the video game industry, but it is one that is rapidly growing and therefore deserves some attention and consideration. It is a unique group/market.
  
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  By enticing females with the portable versions of the Assassin’s Creed series, Ubisoft should be able to help spur an interest in the main saga.
  

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  Product- Awareness --- Acceptance --- Preference --- Insistence
  
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  Company- Awareness --- Acceptance --- Preference --- Insistence
  
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  Explanation- Those who have played any one of the Assassin’s Creed games often insist on purchasing and playing the other available story arcs, but players would remain loyal to the series even if another company picked it up. Also, if Ubisoft released a new game, gamers might accept it as a valid product, but would not buy it out of trust or preference for the Ubisoft brand. In other words, the Assassins Creed title has better loyalty and equity than Ubisoft itself.