این فصل را با ذکر تمام تیترهایش (تاکید میکنم تمام تیترهایش) به انگلیسی ساده و روان خلاصه کن     Business Models and Value Creation in the Video and Gaming Market










Since the end of the 1990s, it has been obvious that the video and computer game market has become an important entertainment and economy sector. Computer and video games have been established as a common means of entertainment in large parts of the society. In 2001 the US revenue of computer and video games, which amounted to 9.4 billion USD, exceeded the revenue of the US movie industry (8.1
billion USD) for therst time.
In the year 2017, the worldwide revenue of the computer and video game industry
amounted to approximately 108.4 billion USD. Despite these high revenues, the video and computer game industry is only hesitatingly becoming recognized as a serious part of the media industry. Among other reasons, this is due to its being classied as a niche market which has no mass appeal and only targets children,
juveniles, and“nerds.” 1


	Range of Services

The range of services perceived by the video and computer game users includes additional services besides the main service (game platform and game software), meaning accessories, e. g., peripheral devices, merchandising articles, and services. Beyond the licensing of content which was developed by the game industry, the trade of these licenses is also within the range of services of the video and computer game industry.
“Final Fantasy,” “Mortal Combat,” “Resident Evil,”and“Tomb Raider”are prominent examples of the fact that characters created by game developers are on
the one hand successfully used for other media like print, TV, and motion pictures and on the other hand transferred to completely different service categories within

1See also for the following chapter Wirtz (2011b) and Wirtz (2019b).

 
Ⓒ The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2020
B. W. Wirtz,Media Management, Springer Texts in Business and Economics, https://doi.org/10.1007/978-3-030-47913-8_11
 
171
 

the framework of merchandising (like toys, sweets, clothes, bed linen, etc.). Figure 11.1 provides an overview of the range of services of the video and computer game industry. In the following the range of services, strictly speaking of the game hardware and software industry, will be discussed in more detail.
The hardware, i.e., the game platform, can be characterized by two substantial elements: mobility and compatibility. The computer, for example, is a stationary, compatible platform, whereas the Nintendo Switch is mobile and proprietary. With software, initially two levels–distribution and content–can be differentiated. Since video and computer games represent digital property, a distribution is possible via
Internet-based technologies, besides the distribution on physical media (CD-ROM, DVD, Blu-ray, UMD, andashcard). Thereby it can be differentiated between download and application hosting.
The consumer downloads the game from a server of the download provider to his personal game platform, i.e., the consumer saves the game, for example, on their computer. However, with application hosting, the game stays on the server of the application hosting provider. Hence, the player only acquires the right to use the game but does not save the game software on his platform. The user has to maintain a
connection with the server for the entire duration of the game. Meanwhile, hybrid forms are developing which combine ofine and online elements.
The game manufacturer Ubisoft, for example, distributes its current games“Far
Cry 5”and“Assassin’s Creed Origins”on DVD-ROMs. However, the games can only be started if an Internet connection is active, because scores are saved on the
servers of the company. Thus, the manufacturer realizes a new form of copy protection. Hence, the acceptance by the players is currently very low for single- player games because in case of a failure of the host server, the games can no longer be used, for example.
Regarding the form of content, video and computer games can basically be distinguished by genre. There is a multitude of game types like action, strategy, role-playing, sports, adventure, simulation, shooter, racing games, and children’s games. The possible number of players is also closely connected to the type of the game. At this point there is a distinction between single player, multiplayer, and
mass-multiplayer games.
Single player games, for example, include classical jump-and-run games which are designed for one player. Usually, players have to compete by the score but not interactively. Multiplayer games are characterized by the fact that several players,
on- or ofine, can play together or against each other. Mass-multiplayer online games like“Fortnite”or“World of Warcraft”are online games in which several thousand players play together or against each other via Internet. Most suitable for
this game segment are genres such as role-playing games, fantasy, and shooters.
Figure 11.2 displays the perceived range of services of the game hardware and software industry by the customer. Both the game platforms and the game titles may be distinguished by their single player and multiplayer characteristics, their online and ofine ability, as well as their degree of mobility.
	
	Interactions of Market Participants

To a large extent, the video and computer game market can be called stable. Two substantial groups of participants can be essentially distinguished: on the one hand, the hardware manufacturers who produce the consoles/computers and the accessories and, on the other hand, the game developers or rather publishers who develop and distribute the games for the respective platforms. The hardware and console manufacturers, respectively, develop their individual platforms. However, they partially obtain components such as graphic chips or disc drives from technol- ogy suppliers.
The manufacturing of the actual hardware is mostly outsourced and managed by system suppliers. Revenues of the console manufacturers are generated on the one hand by the hardware sold to thenal customers and on the other hand by royalties of the publishers or rather game developers. The developers or rather publishers are responsible for the production, respectively, distribution, of the games, in which a
rising number of enterprises are found that merge both functions. For example, Nintendo develops and distributes consoles but also games under its own direction. In the console sector, the developers need a license of the hardware manufacturers and licenses or rights of content suppliers and franchise providers before they may develop a game.
Revenues are obtained by the sale of thenished product to the customer as well as advertising in the form of in-game advertising. The customer can acquire the game
hardware through the retailer or the rental shops. A further distribution channel is available to the game software industry via Internet game platforms and online distribution, a channel that is constantly gaining signicance. Figure 11.3 displays an overview of the essential participants and interactions within the video and computer game market.
	Value Creation Structures

When investigating the value creation structures in the video and computer game industry, the value chain of the hardware and software industry needs to be consid- ered separately. Due to the system product character of the video and computer games, these are interdependent. Regarding the hardware market, the focus shall be directed at the game console industry, as in the preceding chapters.


	Game Hardware Industry

The value chain in the game hardware industry can be roughly divided into four stages: development, production, software/license management, and distribution. The development of an actual game platform with its technical characteristics represents the focus of therst stage of the value chain. In this framework the development of a new game console generation and/or additional features for a
current console generation is accomplished. The research and development is executed on the one hand by platform manufacturers and on the other hand by system suppliers.
Different console system parts, such as processors, storage media, and graphic cards are standard modules which are modied for the special needs of the platform and are manufactured for the respective system distributor. The physical production of a game platform represents the second stage of the value chain. It is either done in-house at the platform producer or outsourced to a contract manufacturer.
Microsoft, for example, has outsourced the production of the Xbox One to Flex (former Flextronics).
The software and license management represents the central stage of the value chain in the business and revenue model of the console manufacturers. In this context, the game politics and strategies are specied and implemented. Against this background, models and contracts have to be sketched and software developers and publishers have to be selected and contracted to develop and manage the game portfolio. In thenal stage of the value chain, the games platform is delivered to intermediaries, wholesalers, and retailers and then sold or rented to the user. Figure 11.4 displays the four primary stages of the value chain in the game console industry.


	Game Software Industry

The value chain in the game software industry can be subdivided into three central stages: development, publishing, and distribution/trade. The development of an actual game takes place in therst stage of the value chain. In this stage the game is conceived, programmed, and tested. The game development is the responsibility of independent game developers or development departments of publishers or rather
console manufacturers.
The stage of publishing within the value chain covers specically thenancing, the content procurement, respectively, and/or the license management, the hard copy reproduction, the packaging, and especially the marketing. These tasks are usually
all executed by the game publisher.
An exception is the reproduction of the hard copies for consoles; this task is a responsibility of the platform manufacturers. The disc or ratherash card production may only be done by producers authorized by the game console manufacturer and/or is accomplished by the game manufacturers themselves.
For example, for Microsoft’s consoles Xbox 360 and Xbox One, the European company Arvato, a subsidiary of Bertelsmann AG, is authorized for replication. However, Sony takes care of the CD, DVD, and Blu-ray production of all
PlayStation games in six central production locations in Japan, the United States, Australia, India, Asia, and Europe.
Reproduction, labeling, and packing of all PlayStation games for Europe and South Africa is executed by Sony DADC Europe at the sites of Anif and Thalgau (both Austria) as well as Southwater (Great Britain) (DADC 2010). In the last stage of the value chain–distribution/trade–the physical or digital distribution to the user takes place. The three central stages of the value chain in the game software industry
are shown in Fig. 11.5.


	Core Assets and Core Competencies
Due to the higher media specicity, the following discussion of the core assets and core competencies in the video and computer game industry is focused on the game software market, in particular developers and programmers who work on game
development and programming with complementary abilities. Furthermore, devel- opment teams which are meant to push creative and innovative solutions play a vital role in the context of the core asset employees.
Moreover, the designations of successful game series on the video and computer game market represent brands, e.g.,“Call of Duty”or“Grand Theft Auto.”In addition, the names of well-known game manufacturers like Electronic Arts have to be considered as brands. Franchising content rights are likewise a core asset of game manufacturers.
Franchising content right is the right to use well-knownctional or real persons and stories (e.g.,“Batman,” “Tony Hawk”) as the basis for the development of a new game. Franchising content rights can contribute to a successful conversion of an
attractive service offer as well as an improved image with consumers. Beyond this, a comprehensive network of cooperative partners is a core asset of enterprises in the video and computer game industry. The development and programming, the
nancing, as well as the marketing of video and computer games are arrays of tasks for which not all enterprises possess sufcient competencies.
These competencies are often made available by cooperating enterprises. To use
the core assets, core competencies are necessary. Important core competencies of developers or rather publishers in the video and computer game industry are content sourcing, the content creation, and the promotion. The content sourcing competence includes the ability of game developers and/or publishers to identify content and/or games with a high potential for success and to acquire those contents exclusively, if
 

possible. This depends in particular on the feeling for trends, the know-how, and the contact network.
The content creation competence can be divided into two subcompetencies: the story and the conversion. The story competence describes the ability to develop interesting and exciting storylines and characters which are the basis of the game. This is of high importance for the development of role-playing games. The conver- sion competence covers the relevant abilities which are needed to program a game. The promotion competence covers the ability to address the target group compre- hensively and is based on the know-how, the creativity, and the advertising partner contact network of the enterprise.

	Business Models

Business models of the computer and video game industry are very heterogeneous. Hence, the business models of the console hardware market are rather homogeneous; the business models pursued by the individual market participants of the software market differ strongly according to the service range and depth.
In this section, the revenue models of the video and computer game industry and the service creation model of the game software industry are discussed. In the following, an exemplary business model of the game hardware industry will be displayed.


	Revenue Model

The sales of video game consoles and the sales of ofine distributed games in the user markets are the primary source for achieving revenues. Here the users pay a transaction-dependent fee when buying a game console or rather a hard copy of a video or computer game. With online distributed on- and ofine games, various
revenue models are available. Thus, besides the recipients, advertising companies
are available as a source of revenues. Computer games, in particular in simple, browser-based form, are frequently used and are a popular promotion instrument for enterprises. The game“Chicken Hunter,”for example, was commissioned by the beverage manufacturer Diageo and used purposefully to improve the prominence and image of the whiskey brand“Johnnie Walker.”
Such promotional games are developed as commissioned products for
enterprises. Most of the time these advertising games are offered to the user free of charge on the homepage of the advertising enterprise. In the user markets, transaction-dependent (payment per game, per download or utilization unit, or per transferred data set) and transaction-independent revenue models (gaming subscrip-
tion for the use of a dened quantity of games within a certain period) can be found. Another revenue model that is becoming increasingly common, especially in the
mobile gaming sector, is the free-to-play model. Here the respective software is provided online and free of charge by the manufacturer. The player can play all the
 

standard content of the game by simply investing time. In the game itself, additional content can also be purchased for real money. These so-called“microtransactions” can unlock, otherwise not provided, in-game services, embellishments, extra features, or even game-inuencing virtual objects and are often the only source of income for free-to-play games.
In the computer games market, free-to-play games account for about 69% of total worldwide PC games sales. This corresponds to a turnover of 22.8 billion USD in 2017 through microtransactions alone (cf. Super Data 2018). Free-to-play is also one of the most successful business models in theeld of mobile games. On average, players spend around 87 USD on additional content per mobile game (cf. Stanton 2018). Due to the high reach of mobile games, this represents a very signicant source of revenue for game developers.


	Manufacturing Model

Considerations of the manufacturing model are focused on the game software market, since the manufacturing model exhibits only few media-specic characteristics during the console production. The manufacturing model of the game software industry shows important core processes which occur during the development, the production, and the distribution of video and computer games.
The costs of the manufacturing are of special interest. Upon investigation of the cost structure, central cost drivers of the production of goods and services can be
identied. Figure 11.6 gives an overview of the average manufacturing costs in the computer game software market in the case of ofine distribution by means of physical media.
The cost structure, which is represented in Fig. 11.6, is typical for an average computer game. The portion of thexed costs, i.e., of therst copy costs, is approximately 44% and added thereto are administrative or rather overhead costs (approx. 7%), the licensing fees (approx. 4%), the costs of the game development
and programming (approx. 21%), as well as the expenditures for marketing (approx. 12%). Depending on the project, individual cost positions can vary substantially. The costs of the licenses, for example, vary dependent on the extent of the use of franchising content.
The costs of the actual game development depend considerably on the quality and novelty of the game. The marketing costs are affected by the size of the area of distribution and the desired market positioning.
Just like therst copy costs, the prot margin also varies and is on average 16%. Production and distribution costs account for about 13% of total sales. The produc-
tion costs for the production of computer game copies and accessories vary depending on the production volume and are on average 6%.
With a console game, the costs of the physical copying are about four tove times the cost of a computer game. The reason is the royalty payment obligations to the
console manufacturers. The costs of the localization (consideration of regional characteristics, e.g., language and regulations for the protection of children and


teenagers) only amount to 1% of the production costs. The largest pool of costs within the range of the variable costs is due to the trade, which amounts to 27%. With online distribution of games, the costs of the physical copying are omitted.
The distribution and commercial costs are also reduced if the game is not offered by a stationary retailer and the transport of the game media and the storage are omitted. In contrast, other costs like technical online distribution costs, payment and accounting system costs, and costs for the deployment rise.


	Business Model of a Console Manufacturer

The business model of a console manufacturer is based on the development, production, and the sale of game consoles as well as the sale of licenses for the production of game software for this console. External resources whichow into the system are mostly the individual console system components (graphic card, storage
medium, processor, etc.), which, if necessary, are then modied in the context of the manufacturing process of the enterprise in order to be integrated into the overall
system console. The in-house manufacturing process primarily covers R&D, pro- duction, and marketing, as well as the game portfolio and license management. The business models of current market participants, Sony, Microsoft, and Nintendo, individually differ in the following aspects:
 

•	To what extent the research and development takes place in-house and/or is outsourced to the system suppliers
•	To what extent the physical manufacturing process of the console is accom- plished in-house and/or outsourced to contract manufacturers
•	How restrictively the software license management is designed
•	How strongly the manufacturers are integrated, i.e., to what extent the game development and proceeding is executed by the manufacturers themselves.

Microsoft, for example, falls back on open computer standards for the individual console components as much as possible. Furthermore, Microsoft has outsourced the console production completely, pursues an open, competitive software policy, and develops its own games to a much smaller extent than Nintendo (Metacritic 2018). As a further aspect of the console manufacturer business model, the control of the copying of the game software media needs to be mentioned.
Most of the time, the developer and/or publisher sells thenished game to the console manufacturer or the producer authorized by the console manufacturer, who then takes over the CD-ROM, DVD, Blu-ray, and/orashcard production and often also the packaging. The publisher then may reacquire the produced game in order to
take over the distribution himself or rather to pass it on to a distributor. In Fig. 11.7 a possible business model of a console manufacturer is displayed.
The revenue model of the console manufacturers is based on the already men- tioned“shaver razor-blade model”(Beeson 2002). This is done with the intention to create a large base of the game console hardware as quickly as possible.
The proceeds of the sale cannot cover the costs of the development, production, and marketing of the console. At the beginning, Microsoft, for example, reckoned the loss for each sold Xbox at 150 USD. Cost recovery and prots are only generated
by software license incomes and prot shares of the sales of the game software.
The exact license prot share model is variable and dependent on numerous inuential factors, e.g., whether the game title is a platform-exclusive title or if it is also produced for other consoles and the computer. Such a license revenue model
does not exist for the computer market.
As new ways of business and revenue forms, online business and revenue models of the console manufacturers are often mentioned. Microsoft, Sony, and Nintendo offer online access through their consoles. Sony and Nintendo differ from Microsoft fundamentally in respect to their online business and revenue models. Sony and Nintendo pursue a decentralized, open online business model and Microsoft a closed, central online business model.
As far as possible, Sony and Nintendo leave the aggregation, the distribution, the player networking, the supply of server capacities, and the billing of online games to the game manufacturer or rather independent third parties (e.g., gaming portals).
In contrast, Microsoft has established an individual network and gaming portal (Xbox Live) within the framework of a two billion USD project. Xbox Live is
nanced by direct revenues in the form of transaction-independent subscription fees.