Friday, April 13, 2007
Overview
For our project, we have decided to create a memo for executives and program managers at HP on the effects that game consoles from Nintendo will have on their business in the future. Specifically, we are focusing on HP’s MediaSmart line of televisions, a relatively new line of business for them, and why the current and next generation game consoles from Nintendo may erode their profitability in the future. Finally, we propose that a strategic partnership between HP and Nintendo, where HP embeds Nintendo hardware into it’s MediaSmart televisions, will be beneficial to both companies.
Television Industry Trends
Significant technological changes are currently guiding the direction of the television industry, including the prevalence of High Definition televisions coupled with either LCD or Plasma screens. Many television manufacturers are attempting to gain a competitive advantage within the industry by adopting new technologies in order to capture market share. Major players within the industry include Sony, Samsung, Sharp, Phillips Magnavox, Panasonic, and Hewlett Packard. As technology continues to evolve, advancements within the industry are enabling considerable changes to consumer trends.
Consumers’ awareness and knowledge of home entertainment systems is increasing and their interests are changing. First, the level of interactivity attained from personal entertainment systems has become an important feature, especially with the rise of the internet. The incorporation of television and the internet has allowed consumers to stream content from the web onto their televisions. Second, consumer trends are moving in the direction of an All-In-One type system, where peripheral devices are included as a part of televisions. And third, the concept of “On Demand” is becoming more popular within the television industry. Consumers are now afforded the ability to view television programs and movies at their convenience, instead of being constrained by the regularly scheduled time slots.
While manufacturers are quickly trying to capitalize on these changes within the industry, HP is doing the best job of incorporating consumer interests. The HP Media Smart TV, released in 2006, allows individuals to integrate television and internet by allowing direct connectivity through wired or wireless connections with a myriad of digital services. In addition, the MediaSmart television, equipped with an LCD screen, broadcasts in HD and projects 3D sound quality.
Consumers’ awareness and knowledge of home entertainment systems is increasing and their interests are changing. First, the level of interactivity attained from personal entertainment systems has become an important feature, especially with the rise of the internet. The incorporation of television and the internet has allowed consumers to stream content from the web onto their televisions. Second, consumer trends are moving in the direction of an All-In-One type system, where peripheral devices are included as a part of televisions. And third, the concept of “On Demand” is becoming more popular within the television industry. Consumers are now afforded the ability to view television programs and movies at their convenience, instead of being constrained by the regularly scheduled time slots.
While manufacturers are quickly trying to capitalize on these changes within the industry, HP is doing the best job of incorporating consumer interests. The HP Media Smart TV, released in 2006, allows individuals to integrate television and internet by allowing direct connectivity through wired or wireless connections with a myriad of digital services. In addition, the MediaSmart television, equipped with an LCD screen, broadcasts in HD and projects 3D sound quality.
Video Game Industry Trends
The market for video game consoles has been growing steadily for years and accelerated in 2006 with the introduction of next generation consoles from Microsoft (Xbox 360), Sony (PlayStation 3), and Nintendo (Wii). Advances in technology have made it possible for game console companies to affordably deliver powerhouse systems to consumers, providing them with an unparalleled level of game play.
As the video game industry continues to mature, many surprising consumer trends are beginning to emerge. First, graphics are no longer dominating consumer choices. People are looking for interesting and involved game play and are willing to sacrifice visuals if the game is fun. Second, consumers have shown a preference toward online play and user communities. Finally, customization and personalization have come to be almost commonplace.
Of the new crop of next generation consoles, only Nintendo seems to have truly capitalized on what users are demanding. While all three consoles include online gaming, both Microsoft and Sony decided to pack their machines with top of the line hardware. Nintendo decided to take an alternative path, including simpler hardware and instead concentrating on game play.
Two key features of the Wii exemplify this focus. First, Nintendo completely revolutionized the way games are played, including motion sensitive controllers that enable an added level of game play. Users are now required actively move and interact with games rather than just mash buttons. Second, Nintendo allows users to create Miis, personal avatars that can be used in various games. Miis can be sent to other Wii consoles and stored on the controllers so that users can bring their own characters with them. Also, Nintendo has set up "channels" which are available via the Wii where Miis can interact. For example, in the "Voting Channel" a user can use their Mii to cast votes and view worldwide results to various questions.
As the video game industry continues to mature, many surprising consumer trends are beginning to emerge. First, graphics are no longer dominating consumer choices. People are looking for interesting and involved game play and are willing to sacrifice visuals if the game is fun. Second, consumers have shown a preference toward online play and user communities. Finally, customization and personalization have come to be almost commonplace.
Of the new crop of next generation consoles, only Nintendo seems to have truly capitalized on what users are demanding. While all three consoles include online gaming, both Microsoft and Sony decided to pack their machines with top of the line hardware. Nintendo decided to take an alternative path, including simpler hardware and instead concentrating on game play.
Two key features of the Wii exemplify this focus. First, Nintendo completely revolutionized the way games are played, including motion sensitive controllers that enable an added level of game play. Users are now required actively move and interact with games rather than just mash buttons. Second, Nintendo allows users to create Miis, personal avatars that can be used in various games. Miis can be sent to other Wii consoles and stored on the controllers so that users can bring their own characters with them. Also, Nintendo has set up "channels" which are available via the Wii where Miis can interact. For example, in the "Voting Channel" a user can use their Mii to cast votes and view worldwide results to various questions.
Shifting Target Market
The introduction of the Sony PlayStation and Microsoft Xbox launched a new era in the video game market. Both consoles featured “lapsed” games that frequently spanned over forty hours of play and were known to be thought provoking and entrenched with strategy. These systems were primarily aimed at adult males, ages 18-24, who had grown out of the traditional “casual games” offered by Nintendo and Sega. This strategy proved very successful for both companies, especially Sony’s PlayStation 1 and PlayStation 2.
Today, this niche market appears to be losing its edge; both Sony and Microsoft have been targeting the same audience for years and have effectively alienated a wider potential audience. The past console successes have ignored both the older population as well as women when marketing their products. More specifically women, both teenage and older, have frequently been ignored by video game giants as their interest in this industry has been underestimated and they have never been seen as a large potential source of revenue.
However, Nintendo appears to have realized this shift in target market and has successfully created a product that attracts a wide range of fans. The Wii has begun to gain back an audience of adults who played Nintendo as children; this market has become tired of the intense, strategy devoted games of Sony and Microsoft. In addition, Nintendo is also trying to appeal the women and older gamers historically alienated from the industry. The Wii promises “casual games” that are much shorter in length and aimed at a much larger audience, as is evident in their current marketing campaign and television commercials.
Today, this niche market appears to be losing its edge; both Sony and Microsoft have been targeting the same audience for years and have effectively alienated a wider potential audience. The past console successes have ignored both the older population as well as women when marketing their products. More specifically women, both teenage and older, have frequently been ignored by video game giants as their interest in this industry has been underestimated and they have never been seen as a large potential source of revenue.
However, Nintendo appears to have realized this shift in target market and has successfully created a product that attracts a wide range of fans. The Wii has begun to gain back an audience of adults who played Nintendo as children; this market has become tired of the intense, strategy devoted games of Sony and Microsoft. In addition, Nintendo is also trying to appeal the women and older gamers historically alienated from the industry. The Wii promises “casual games” that are much shorter in length and aimed at a much larger audience, as is evident in their current marketing campaign and television commercials.
The Problem: HP-Nintendo
While the threat to the HP MediaSmart television may not be apparent, there is significant overlap between the features offered by the television and the Nintendo Wii. The only features offered by the HP MediaSmart that are not available on the Nintendo Wii are the ability to do home networking and play back various audio and video formats. Also, since it is a television, the MediaSmart has a built in display and speakers. On the other hand, the Nintendo Wii has superior customization features and allows for gaming. It appears that there is significant overlap in their target markets.
Below is a comparison of the features offered by the HP MediaSmart television and the Nintendo Wii:
Below is a comparison of the features offered by the HP MediaSmart television and the Nintendo Wii:
Digging a little deeper, Nintendo may have a couple of aces up its sleeve that will make it the more attractive option of the two. First, Nintendo has smartly enabled the Wii to receive software updates via the integrated internet. It will only be a matter of time before the developers roll out an update that will allow for audio (MP3, WAV, etc) and video (DivX, XviD, etc) support and another that will allow the user to hook in to their home network. Second, the Wii costs a fraction of what the MediaSmart does, at $250 compared to $1500. If Nintendo sees their market being eroded by the MediaSmart, they can tout the fact that people can pair the Wii with a traditional LCD television and still come in under $1500.
All in all, the HP MediaSmart may come under fire from an unsuspected source, the Nintendo Wii.
All in all, the HP MediaSmart may come under fire from an unsuspected source, the Nintendo Wii.
The Solution: HP+Nintendo
Our solution would be to partner up with Nintendo and create a next generation MediaSmart television that includes an integrated Nintendo gaming system (be it the Wii, it’s successor, or a generic piece of hardware endorsed by Nintendo). The integration would be simplest for HP to pull off, as the Wii’s hardware is the least advanced of any of the next generation consoles. While getting Nintendo to buy in to the idea may prove difficult, there are benefits to be had by both partners.
The benefits to HP are obvious. While direct competitors to the MediaSmart are hard to come by at the present time, copycats will soon emerge. Technology has become almost a commodity, and HP may lose out to manufacturers who are better known in the television world. Partnering with Nintendo gives them a unique edge over their competitors for various reasons. First, it ties the name of a titan in the video game world to the MediaSmart television, lending HP more credibility. Second, it enables the MediaSmart to play the full library of Nintendo’s games, something that will be impossible for other television manufacturers to replicate. Finally, social networking, which is supported by the Wii, may provide ever important network effects for HP.
The benefits to Nintendo are slightly less obvious, but no less real or important. First, consoles are loss leaders for all game console manufacturers, as they are merely a catalyst for game sales. As aforementioned, the Wii is the closest to the MediaSmart in terms of technological capability, meaning Nintendo could integrate at extremely low cost. This would free Nintendo to concentrate on its forte, gaming, and let HP handle what it is good at, hardware production. Second, it would help them penetrate further into the home. People considering purchasing a next generation television are already spending $1000-$2000. Those who may not be willing to spend $250 for a game console may be willing to spend an additional $50 for a version integrated into their television. This may prove to be the edge that Nintendo needs to win the console wars.
The benefits to HP are obvious. While direct competitors to the MediaSmart are hard to come by at the present time, copycats will soon emerge. Technology has become almost a commodity, and HP may lose out to manufacturers who are better known in the television world. Partnering with Nintendo gives them a unique edge over their competitors for various reasons. First, it ties the name of a titan in the video game world to the MediaSmart television, lending HP more credibility. Second, it enables the MediaSmart to play the full library of Nintendo’s games, something that will be impossible for other television manufacturers to replicate. Finally, social networking, which is supported by the Wii, may provide ever important network effects for HP.
The benefits to Nintendo are slightly less obvious, but no less real or important. First, consoles are loss leaders for all game console manufacturers, as they are merely a catalyst for game sales. As aforementioned, the Wii is the closest to the MediaSmart in terms of technological capability, meaning Nintendo could integrate at extremely low cost. This would free Nintendo to concentrate on its forte, gaming, and let HP handle what it is good at, hardware production. Second, it would help them penetrate further into the home. People considering purchasing a next generation television are already spending $1000-$2000. Those who may not be willing to spend $250 for a game console may be willing to spend an additional $50 for a version integrated into their television. This may prove to be the edge that Nintendo needs to win the console wars.
Competitive Response
HP+Nintendo can expect to see a strong competitive response from competitors in both the television and console market. In the short term, television manufacturers will include significant price reductions on their latest television releases, especially those featuring HD, and LCD or Plasma technology. Looking to the future, these companies may attempt to forge their own alliances with video game companies in order to produce a similar, competing product.
Sony, who has enjoyed the dominant position within the console market with the release of both PlayStation 1 and 2, will definitely retaliate against the joint venture of HP and Nintendo. Initial responses may include drastic price reductions to the PlayStation 3 in order to prevent large market share losses. In the long term, as Sony is already a leading television manufacturer, the company will be able to produce a copycat product by combining their next generation PlayStation and televisions.
While Microsoft will likely take the same action as Sony in the short term, by lowering prices on the Xbox 360, the company will have a harder time in the long run in terms of retaliation. As they are not currently a competitor within the television manufacturing industry, Microsoft will have to partner with a leading manufacturer in order to create their copycat version of the product. Likely partners for Microsoft include the aforementioned competitors within the industry, Samsung, Sharp, Phillips Magnavox, or Panasonic.
Sony, who has enjoyed the dominant position within the console market with the release of both PlayStation 1 and 2, will definitely retaliate against the joint venture of HP and Nintendo. Initial responses may include drastic price reductions to the PlayStation 3 in order to prevent large market share losses. In the long term, as Sony is already a leading television manufacturer, the company will be able to produce a copycat product by combining their next generation PlayStation and televisions.
While Microsoft will likely take the same action as Sony in the short term, by lowering prices on the Xbox 360, the company will have a harder time in the long run in terms of retaliation. As they are not currently a competitor within the television manufacturing industry, Microsoft will have to partner with a leading manufacturer in order to create their copycat version of the product. Likely partners for Microsoft include the aforementioned competitors within the industry, Samsung, Sharp, Phillips Magnavox, or Panasonic.
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