Case Study: Sony

During the 30-year history of video games, the industry had experienced significant changes not only in who played video games - the average computer and video game player in the United States was 33 years old while the average age of the most frequent video game purchaser was 40 years old - F2F but in how they were conceived, developed, priced, and ultimately sold, all of which had significant implications for Sony as it prepared for the launch of the PS3 and the competitive response that would inevitably ensue. (Figure 1 breaks down video game players by age and gender). 

Figure 1 Video Game Players by Age and Gender, 2005 

Microsoft, Nintendo, and Sony would all be launching their new generation of video game consoles at a time when the industry was ripe for a new growth spurt. In 2005, the U.S. video game and PC game retail industry - including the sales of portable and console hardware, software and accessories, and PC game software - generated nearly $10.5 billion in revenue in 2005, a 6% increase over 2004 (Figure 2). Of this amount, software sales totaled $7 billion (229 million units), a slight drop from the $7.4 billion generated in 2004.

Figure 2 Video Game Software Sales (in US$ and units) 

The software sales decline was mostly due to the industry's transition to the next generation of gaming hardware. Those consumers interested in purchasing a gaming console were willing to hold off a year until the next generation had arrived, while those with current generation consoles such as the Xbox and PS2 were reluctant to purchase new software for a system that would soon be outdated. Most industry forecasts, however, were very optimistic, with firms such as PricewaterhouseCoopers estimating that the industry would grow to $46 billion by 2010 (11.4% CAGR).

The industry had traveled leaps and bounds from the days when Atari was providing U.S. households with the newest and greatest inventions in electronic entertainment.