1. Effective competitive strategy is central to strategic management. Use Porters Generic Competitive Strategies framework (Figure 7.2) to identify and discuss the competitive strategy approach(es) used by Nintendo for competing in the gaming console industry. As part of the answer, include prior, current, and intended competitive strategies: i.e., in the past (since its entry into console gaming) as well as what it is currently (2023) doing and planning for its future competitive strategy. Build on the analysis above for the following: - Use Porters Generic Competitive Strategies framework (Figure 7.2) to identify and compare the competitive strategy approaches used by each Microsofts Xbox Game Studios and Sony Interactive Entertainment for competing in the gaming console industry against each other and against Nintendo. Briefly discuss similarities and differences between the three firms competitive strategies: Nintendo, Microsofts Xbox Game Studios, and Sony Interactive Entertainment. How does each keep its costs down and/or differentiate itself? - Porter suggested that an organization which combines generic strategies but fails to achieve any of them is stuck in the middle. Do you agree with this opinion? Why yeso? Illustrate your argument with examples from your analysis above. - Build on your analysis to conclude with two recommendations for Nintendo on the actions it should take with regards to its competitive strategy.

2. The strategic choices made by organizations pertain to organizational scope and diversification. Use Ansoffs framework on Corporate Strategy Directions (Figure 8.2) to identify and discuss the directions that have been relevant to Nintendos diversification over the years. You can include examples from its past and any diversification it is currently (2023) undertaking or considering for the future. Build on the analysis above for the following: - Use Ansoffs framework on Corporate Strategy Directions (Figure 8.2) to identify and compare the directions that have been relevant to the diversification of the Microsofts Xbox Game Studios and Sony Interactive Entertainment. Briefly discuss similarities and differences between the three firms diversification: Nintendo, Microsofts Xbox Game Studios, and Sony Interactive Entertainment. - Identify, briefly discuss, and compare any changes in vertical and horizontal integration that each of the three firms has undertaken in the gaming console industry (Figure 8.4). - Use your analysis to conclude with two recommendations for Nintendo on actions it should take with regards to its scope and diversification.

TechScape: How Nintendos stayed the most innovative tech company of our time:

https://www.theguardian.com/technology/2023/feb/14/techscape-nintendo-innovation-tech-company

- this year growth should return. Gaming is likely to expand faster than any other broad entertainment category. Its value has already surpassed that of books, music or the cinema. It now vies with television to be the largest media business. Consumers spend more on digital games than on streaming services such as Netflix, and will soon spend more than on pay-TV, Overall television revenues are still greater than those for games, but the gap is narrowing. A poll in 2021 by Deloitte, a consultancy, found that whereas Streaming subscriptions have revolutionised music previous generations of Americans picked TV and film as their favourite home entertainment, Generation Z (those under 25) and television. What will they do to gaming? ranked gaming first. "The dominant position that video entertainment has held could be challenged," Deloitte suggested. This special report argues that, as gaming evolves into a mass strategy. The company is the leader in digital streaming of video, medium comparable to television, its development will mimic with 23om subscribers paying for access to its huge online library other media. Consider distribution, where Hollywood has been of films and TV shows. But now Netflix is looking into whether it upended by a revolution in streaming and subscription models. could stream somethingelse: video games. Companies like Netflix are exploring whether something similar Over the past 15 years the music and TV industries have seen might work in gaming, Or look at changing production. As games huge changes in digital-media distribution. In 2008 Spotify began become more technically sophisticated, making a smash-hit title offering online access to a catalogue of music for \$1o a month. starts to resemble making a blockbuster movie, and game studios Similar services were offered by Apple and Amazon. Streaming have to mitigate the risk and cost just as fil m studios did. now generates two-thirds of the recorded-music industry's revenue. Netflix has since done something similar for movies. Most The new champion Hollywood studios now have their own streaming platform, sellParallels between TV and video gamescan also beseen in so-called ing shows direct to consumers. Streaming accounts for over a user-generated content. YouTube and TikTok have turned home quarter of TV viewing in America. movies into a multi-billion-dollar industry that steals attention Many wonder if streaming could now disrupt another media from professional media. Apps such as "Roblox" and "Minecraft" industry. Like records or DVD, video games once came in boxes. are finding ways to exploit home-made creations in gaming. On- Technology now allows them to be streamed over the internet, line hits like "Fortnite" derive the most fun from interaction with Spotify-style. And companies are tryingout subscription access to other players. As games rely more on input from other users, de- game libraries, rather than selling games as one-off purchases. velopers are grappling with the same content-moderation dilem- The twin innovations of streaming and subscription could "remas that social networks found when they invited hundreds of shape the competitivelandscape" of the gaming industry, says the millions of people to mix anonymously online. Competition and Markets Authority, Britain's antitrust regulator. Just as moving pictureshelped shape societyinthe zothcentu- Streaming-only services account for less than 1% of games ry, gaming exerts growing influence on theculture of the 21st. The spending, says Ampere Analysis, a research firm. But some are soft power of Hollywood to project norms and ideals is comple- placing bets on it. Microsoft's Xbox Game Pass Ultimate service mented by the cultural influence of games, which are grabbing the lets users stream games to devices ranging from phones to smartimaginations of the young. The difference isthat game production TVs. Sony's PlayStation Plus Premium offers streaming to its conis far from the American monopoly that film has long been. Chi- sole and to PCS. Nvidia has a game-streaming platform called GEna's growing power is already causing a similar disquiet to TikTok, Force Now. Amazon has one called Luna, available only in Ameria video app that many American congressmen want to ban. ca. Netflix, which began offering mobile games just over a year From consoles to phones, and from "Fortnite" to "Wordle", ago, says it is "seriouslyexploring" launchinga streaming service. gaming is becoming a true mass medium, with all the social con- Streaming games may be more rewarding than streaming musequences that entails. This report will draw lessons from other sic or TV. The most demandingso-called AAA games require users media to understand better the development of an emerging in- toinvest inexpensive, often bulkyhardware, in the form of a highdustry in which nearly everybody will soon be a player. Ready? end PC or console. Streaming allows a game to be processed in a remote data centre, while its video and aud io are relayed to the user's screen, so the latest games can be played on any internet-con- nected device. Users can start a game on their TV and pick it up lat- Game on er on their phone or laptop. Removing special ised hardware opens Global a bigger market. Phil Spencer, chief executive of Microsoft's gaming division, sees its potential audience as not just 200m households with a console, but 3 bn-plus people who play games on any device. In some markets nearly a third of Xbox customers play only by streaming, he says. "We definitely find more and more customers where streaming is the only platform we see them on." Yet streaming is a tough business, Google closed its Stadia game-streaming service in January after barely three years. One obstacle is technical. Games' interactivity makes them less forgiving than video or music over "latency", or internet speed. Stad ia worked well but was not the console replacement that some had expected. "[Google] said, 'It's going to be awesome from day one.' And then that wasn't true, and I think they turned consumers off as a result," says Strauss Zelnick, head of Take-Two Interactive, some of whose games were on the platform. Mr Spencer says it is The Economist March 25th 2023 Special report Video games 6 Special report Video games The Economist March 25 th 2023 - gave up making games of its own, struggled to keep Stad ia sufficiently stocked. Some developers see subscriptions as a good way of gaining exposure to wider audiences. Mr Utsumi of Sega says subscription libraries are good for reaching families and occasional "hobby gamers", so putting "Sonic Racing" on Apple Arcade has got the famous hedgehog in front of more people when Sega is also pushing Sonic movies and other spin-offs. The biggest games tend to make more moneyby maintaining a long period of exclusive retail release. With subscriber numbers an order of magnitude lower than tho se of Netflix, "The subscription services typically don't have the financial wherewithal to buy us out of our windows," says Mr Zelnick, who sees subscription working mainly for older titles "at the far end of the value chain". Some smaller developers are reluctant to sell because their venture-capital backers want to maintain unlimited returns that come with unit sales, rather than cash out upfront. Many of the largest games, such as "Fortnite", already have direct-to-consumer subscriptions of their own. Subscriptions are likely to grow. Microsoft's Game Pass should get a bigboost with Activision Blizzard, whose trove of popular titles would make the bundle much more attractive (per haps too attractive, say regulators in America, Britain and the European Union, who are scrutinising the deal). As consumers manage their inflation-eroded budgets more carefully, subscriptions may also appeal more. A year's access to hundreds of games for roughly the price of two new ones can seem good value. Yet gaming's concentrated consumption patterns, and the difficulty of acquiring thirdparty content, will limit their appeal. Unlike music a nd television, streaming and subscription seem more likely to complement existing forms of distribution than replace them. 500. Leaps in graphical fidelity have created jobs that did notexist; six or more people might work only on lighting effects In some have a language and a process that everyone understands," he says. With games, "you have to reinvent the camera every time." Across the industry, an AAA game (the highest-fidelity sort) Video games are getting more expensive to make, might take anything between three and seven years to make. Budbut cheaper to play. Why? gets are kept quiet, but "Cyberpunk 2o77", one of the biggest reTTIGH TECHNOLogy fills the headquarters of NcSoft, a South KoPrean developer of such popular video games as "Lineage". But by Hollywood standards. in a basement studio, Lee Seung-gi is a master of low-tech tools. As games become more like films, movie people move in. Mr Lee, who spent eight years in the film industry, makes sound "There's a lot of crossover now with these various labour mareffects. To conjure the noise of a skeletal monster rising from the kets..the skill set is very interchangeable," says Asad Qizilbash, ground, he crunches crab shells. For a lasergun, he hooks a slinky head of PlayStation Productions, which makes films and TV series to the back of a chair and flicks it: peeoww! Hardest, he says, are based on Sony's games. Neil Druckmann of Naughty Dog, who simple footsteps, recorded in a tray of gravel: the trudge of a sad created "The Last of Us", a hit PlayStation game, co-wrote a TV adcharacter sounds different from the light step of one in love. aptation released by H Bo in January; H o's cinematographer paid Making a blockbuster game is now like making a blockbuster a return visit to Naughty Dog to share TV techniques. In Los Angemovie. As technology lets games grow larger and more lifelike, les actors and writers increasingly divide their time between they have taken on Hollywood-style budgets and timetables. And filmed and interactive entertainment: Keanu Reeves had a role in as the line between film and digital games blurs, that has two ef- "Cyberpunk 2077", and George R.R. Martin, creator of the Game of fects. One is that labour markets and production techniques for Thrones series, wrote the backstory for "Elden Ring", one of last gaming converge with those of the film business, to the point year's biggest games, The only bit of Hollywood that hasn't transwhere some envisage a single production process. The other is lated to gaming is comedy, which one developer attributes to that ga me stud ios become more focused even than film studioson ga mes' long gestation periods: "No joke is funny for three years." monetising a few successful franchises. As the video-game industry sucks in movie talent, Hollywood When Allen Adham and two college chums founded what is feeds off games' intellectual property (IP). Film adaptations of now Blizzard Entertainment in 1991, making a game didn'trequire games have a poor record "One of the worst movies I've ever seen" many people. "Rock n' Roll Racing", one of Blizzard'searly hits, had is the verdict of one gaming boss on Hollywood's interpretation). a development team of ten, he recalls. Today at Blizzard's campus, But things are changing. Sega's "Sonic the Hedgehog 2" and Sony's south of Los Angeles, some games are developed by teams of over "Uncharted" were amonglast year's highest-grossing films. A new w The Economist March 25 th 2023 Special report Video games 7 then they're going to shoot a movie in it," says one Hollywood executive. "It will happen. And it's probably not too far away." Companies thatspan films and games are well placed. Sony has sat out video "streaming wars", declining to launch its own version of Disney+. But it has a pilot in Poland where subscribers to its PlayStation Plus gaming service get access to Sony movies. Such a service could one day let customers watch films like "Gran Turismo" before seamlessly switching to a game, orvice-versa. The growing cost of gamemaking makes them like Hollywood in another way: repetitiveness. Many film fans complain that the box office is overrun with sequels and remakes, as studios become less willing to risk blockbuster bud gets on unknown products. All of 2022 's ten highest-grossing movies in America were part of a franchise, from "Avatar" to "The Batman", Games, whose lead time makes it even riskier to try new things, have become more predictable. Seven of last year's ten most-played games on pCs and consoles featured in the previous year's top ten, says Newzoo, a data company, which studied 37 mainly rich markets. One of this year's big releases is the 16th instal ment of Square Enix's "Final Fantasy", a Japanese series runnings ince 1987 . Subscriber models Where movies are locked in endless sequels and prequels, gamemakers have found different new ways to wring money from old hits. Developers used to finish making a game and go on holiday. Today, "Shipping the game is just the beginning. The real work starts after that," says Mr Adham. Rather than merely release sequels, Blizzard has turned "World of Warc raft" into a subscription service, with regular updates to maps, m is sions and characters for those willing to pay. This setup, which isknown as "games as a service", keeps gamers engaged (and spend ing) year after year. The model has proved itself. Take "PUBG", a "battle royale" "Mario" movie from Nintendo is due in April and a "Gran Turis- shooting game released by Krafton, a South Korean publisher, in mo" film from Sony in August. Netflix has dozens of game adapta- 2017 . In its first four years the game sold 75m copies at $30 each. tions out or in the works; future ones include spin-offs of "Assas- But, facing competition from rivals such as "Fortnite", it went free sin's Creed", "Splinter Cell" and "Bioshock". in January 2022, instead charging players for extra features. "To More sophisticated games make better material for film adap- get more users we went free-to-play, because more users is more tation, notes Mr Qizilbash. Today's producers, who grew up with fun," says Kim Chang-han, Krafton's chief executive. It is also lugames, are keen. "If you talk with Hollywood people, they're big crative. Last year the mobile version of "PUBG", which has been fans of gaming. They know all our IPs," says UtsumiShuji of Sega, free to play since 2018, was the second-highest grossing mobile who likens his company to a "treasure island" of properties that game in the world, generatingrevenue of $2.1bn, says Sen sor Toware ripe for exploitation. Julia Alexander of Parrot Analytics, a re- er, a data firm. In the past five years, updates and new features search firm, says "Gaming will be in the 2020 what comics IP was have persuaded "P uBG Mobile" users to part with morethan \$9bn. in the 'oos and '1os." Games are no longer simply consumer packaged goods. They Turning games into films and vice-versa is becoming easier as have become live services. That means the name of the game is no the two use the same technology. Game "engines", 3D-modelling longer just to attract players, but to retain them," says Jack Buser, tools used to make realistic playable environments, canalso make who runs gaming at Google Cloud. Having failed to crack the virtual sets for TV productions such as "The Mandalorian", a Star game-streaming business withitsdefunctStadiaplatform, Google Wars spinoff made by Disney with the help of Epic Games' Unreal has repositioned itself to focus on helping developers run liveEngine. For the "Gran Turismo" movie, digital models from the service games. A live platform needs servers, scalable databases PlayStation game rehearsed stunts and shots, says Mr Qizilbash. and analytics tools, says Mr Buser. His pitch to developers is: "Let The process works in reverse: Sony plans to scan cars from the us solve the hard computer-science problems...and that means movie and put them in the next update of the game. you can focus on building the world's best game." The same digital "assets" (sets, cars, Live-service games have made the ind ustry less hit-driven, etc) could one day be shared between says Strauss Zeln ick of Take-Two Interactive. His company releasgames and movies. For now, a game's envi- es blockbuster sequels to franchises like "Grand Theft Auto" (GTA). ronment is more interactive than a film's; Gamemakers But it also runs "GrA Online", a game with continually refreshed and films' backdrops are higher fidelity have found content. Last year it launched GTAt, a \$6-a-month subscription than games'. But the two production pro- different new giving players access to more in-game features. It has similar oncesses are converging from the gaming - line versions of games like "Red Dead" and "NBA 2K ". These bankside. "The gamemakers have a more de- ways to wring able properties keep revenue coming between sequels, making mandingset of requirements for these vir- money from the business less lumpy. "It used to be a much more volatile busitual worlds than the film-makers do. So old hits ness than it is today," says Mr Zelnick. "If you want to use an old somebody's going to invest in a [gaming] old medianalogy, welooked a lotmore like the moviebusiness-and simulation that's photo-realistic. And now it's much more like the television business." Abstract "There's a lot of crossover now with these various labour markets...the skill set is very interchangeable," says Asad Qizilbash, head of PlayStation Productions, which makes films and tv series based on Sony's games. Neil Druckmann of Naughty Dog, who created "The Last of Us", a hit PlayStation game, co-wrote a tv adaptation released by hbo in January; hbo's cinematographer paid a return visit to Naughty Dog to share tv techniques. For the "Gran Turismo" movie, digital models from the PlayStation game rehearsed stunts and shots, says Mr Qizilbash. Many film fans complain that the box office is overrun with sequels and remakes, as studios become less willing to risk blockbuster budgets on unknown products. Business The Economist February 5th 2022 Schumpeter Epic battle How Sony can outmanoeuvre Microsoft in the console wars ture to compete with it in the cloud. The Bungie deal, which is big for Sony, makes the gap between the two companies' financial firepower starkly clear. Thomas Aouad of Drawbridge Research, an analysis firm, likens it to taking a spoon to a gunfight rather than a knife. To outmanoeuvre Microsoft, Sony must do something different-and uncharacteristically bold. For starters, it could make the case that streaming and subscription services are no gua ra nteed road to riches. Yes, streaming dispenses wi th the need for a costly console, which could draw in casual gamers. But unlike Netflix viewers, players interact with streamed material, often at speeds measured in the milliseconds when their fingers are on the trigger. Low latency, or lag, over an internet connection is a life-and-death matter for a player's avatar. The business model is unproven, too. Sony and Microsoft have long used consoles as loss-leaders to sell high-margin games to which they often hold exclusive rights (think Gillette razors and razor blades). The approach has benefited their overall gaming businesses, as well as independent game developers. In contrast, selling blockbuster content via monthly subscriptions involves vast outlays and fewer barriers to entry. It may attract lots of new users. Microsoft's Game Pass service, which grants access to a library of games to run on consoles for up to $14.99 a month, has C OR THE uninitiated, which includes your columnist, there are 25m subscribers; Netflix is getting into games. But such services I two things to know about video gaming. The first is that some could face brutal competition and need constant replenishing things never change. For all the virtual worlds they can create, with blockbuster titles to reduce customer churn. Indeed, Sony, gamers, a mostly male bunch, like nothing better than to blow with a deep catalogue of music and films, has profited from being their on-screen opponents to smithereens. The second is that the source of such replenishment for video-andmusic-streamers. everything else is in flux. Gaming is moving from consoles, PCs As an alternative gaming strategy, on February and it outlined and smartpho nes to streaming and the metaverse. It is not just av- plans to double down on "live service" games such as "Destiny 2", atars that are being shot to shreds. Business models are, too. which are regularly upgraded and hence easy to monetise. That is Bear both points in mind when making sense of recent deals not enough, though. It also needs to outline a strategy that draws involving the two biggest rivals in the console wars, Microsoft, on its efforts to break down the silos between its gaming, music, maker of the Xbox, and Sony, producer of the PlayStation (Ninten- film, electronics and image-sensor businesses. As Kato Mio, who do is in its own orbit). To cater to those itchy trigger-fingers, both publishes on Smartkarma, an investment-research site, puts it, want to expand their bestselling "first-person shooter" rosters. while other firms, such as Meta, talk of building the metaverse, Microsoft's $69 bn acquisition of Activision Blizzard, a publisher, Sony already has many of the ingredients for immersive enterwould give the tech giant ownership of "Call of Duty", one of the tainment (including virtual reality) at its fingertips. It needs to most successfulshoot-em-up franchises of all time. Sony's $3.6bn turn its conglomerate structure into a virtue. takeover of Bungie brings it "Destiny 2", a nother popular shooter. That means cross-fertilising its entertainment business, by reThe large sums of money changing hands highlight the second leasing games as films, for instance. More ambitiously, it should point: that everything is up in the air, even the relative strength of put its cutting-edge technologies in better service of the future of each firm. For years Sony has had the advantage. Its latest con- entertainment. Here, its small stake in Epic, a maker of hit games soles, PlayStations 4 and 5, have far outsold equivalent Xboxes. It such as "Fortnite", and gamemaking technology such as Unreal has more exclusive games, which draw in fiercely loyal players. Engine, could be a building block. If Tencent, a Chinese tech giant, Yet Microsoft's acquisition of Activision, if it fends off antitrust were ever minded to sell its 40% stake in Epic, Sony should conconcerns, could alter the balance of power. According to Newzoo, sider raising its investment. With Epic as a partner, Sony could a data-gatherer, it could put Microsoft's game-software revenue hold its own much better against Microsoft. ahead of Sony's, even combined with Bungie. It underscores Microsoft's commitment to a subscription and strea ming service, Mutually assured destruction funded by a mountain of cash and supported by its Azure cloud In the near term, So ny needsa strongenough slate of content re rebusiness. It reflects a willingness to be open to a range of devices taliate if Microsoft tries to deprive the PlayStation of Activision and business models, including free-to-play games and ad-sup- titles (Microsoft says it won't). It has other problems to confront, ported ones. It could, literally, be a ga me-changer. such as a slowdown in PlayStation 5 sales due to the supply-chain Like Netflix in video, Microsoft hankers after vast subscriber crunch, and game developers' demands that console-makers cut growth. That fits with the current zeitgeist that everything in busi- the commissions they charge. In the longer run, Sony's strength is ness, from media to Microsoft's Office 365 programs, should be that gaming, which accounts for over a quarter of its revenues, is based on subscriptions, rather than one-time sales-and reliant crucial to its future. For Microsoft, it is less existential. That is an on the cloud. But while it is tempting to think Sony should chase incentive to think big-and laterally. Sony has a panoply of enterafter Microsoft, it has neither the money to outspend it on content tainment and technology businesses to turn to, as well as a potennor, despite a foray into streaming called pS Now, the infrastruc- tial partner in Epic. To safeguard its future, it should do so