Overview
Infogrames Entertainment SA (IESA) has acquired Hasbro Entertainment to obtain the rights to
the Atari name. Infogrames wants to avoid being taken over by a larger software company and
they also want to increase their market share and take over industry leadership from Electronic
Arts. CEO Bruno Bonnell has decided to implement a name brand strategy whereby IESA will
become Atari. Bonnell’s decision was presumably based upon the positive recognition given to
the Atari name brand by teenagers, and adults in their 20’s and 30’s. The key issue facing
Infogrames is whether name branding is a source of sustainable competitive advantage.
Conclusion and Recommendations
Infogrames’ implementation of a name branding strategy will not be successful for two reasons.
First, the following analysis reveals that there are three key success factors for software
companies participating in this industry. Infogrames’ acquisition of Hasbro does not help them
to better meet any of these three objectives. Second, Infrogames has rationalized the acquisition
of Hasbro based on the name branding strategy using the Atari moniker. The analysis, however,
reveals that there is no competitive advantage gained on the software side of this industry for
name branding. In short, consumers do not appear to make their game purchases with any regard
whatsoever for the company that produced the game. As such, the acquisition of Hasbro, and the
name branding strategy, will be a failure for ISEA because neither the acquisition nor the
branding strategy contributes to the key success factors identified for this industry or to
achieving a sustainable competitive advantage.
Analysis
External Environmental Conditions (General Industry): The gaming industry is growing, but
it is consolidated, which produces a high level of competition between companies fighting for
market share.

Life Cycle: The gaming industry cycle is 3-5 years long and begins with the launch of a
new hardware platform. Software companies increase production to meet the high level
of sales typically experienced during the first two years of the cycle. During the third
year of the cycle, software sales for the new platform tend to level off and profits reach a
maximum. Hence, producing software titles for new hardware releases, and timing those
releases to coincide with the new business cycle, are key success factors.

Market Size/Growth Rate: In 2001 the video game industry had grown almost as large
as the movie industry, at $10 billion in annual sales, and was still growing. In that same
year, four of the top gaming software companies (EA, Take 2, Activision, and Atari) had
net revenues of over $3 billion.

Structure: The industry is consolidated with a few companies dominating the software
side of the gaming industry.

Competitors: Industry competition primarily comes from within the gaming industry
itself. Electronic Arts has dominated the software gaming industry since at least 1999,
with its niche in the sport motif. Activision has managed to obtain the rights to several
popular movies and television shows, a strategy similar to Atari’s. Take 2 has dominated
the adult or “mature” segment of the market with its Grand Theft Auto series. Beyond
other strictly software publishers, the software industry faces competition from both Sony
and XBOX, hardware producers who publish their own games. Finally, the entire
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gaming industry is competing against cable, satellite, and DVD for the consumer’s
entertainment dollar.

Complimentors: The hardware consoles are essential to the success of the software
publishers, and vice-versa; the hardware companies cannot exist without the software
companies, and the software companies cannot exist without the hardware companies.
Nintendo, XBOX, and Sony are the major producers of gaming consoles.

Customers: The “average American gamer in 2000 was 28 years old, 58% of the
consumers were over 18, and 21% were 35 or older.” Obviously, video games are no
longer aimed primarily at teenagers and adolescents.

Product Characteristics: The success of any single game is difficult to predict. Some
top-grossing games may only maintain their performance for a short time and be off of
the charts in a matter of months. Others seem to be able to hold their rankings for longer
periods of time. Although not explicitly stated in the case, it appears that games tied to
movies and games that satisfy a market niche – such as EA’s sports games – tend to
outperform other games. Due to this volatile nature of video game performance in the
market, another key success factor is producing a game that is tied to a blockbuster movie
or one that satisfies a market niche so that the game has some staying power.
Internal Analysis (Resource Based Model): Good tangible resources, limited intangible
resources and capabilities.

Tangible Resources: Atari’s strongest tangible resources are the licenses it owns to
produce games based on “Looney Tunes, Mission Impossible, Mission Impossible II,
Men in Black, Stuart Little 2, The Matrix, Terminator 3, Survivor, Dragon Ball Z,
Monopoly, and Unreal Tournament.” Atari has also acquired a strong management
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team with experience at some of the top entertainment corporations. The company also
has an extensive network of retail outlets in the U.S. and Europe to facilitate the
distribution of its games. Finally, the company has outsourced some of its programming
to Vietnam, which saves on programming costs.

Intangible Resources: Atari’s primary intangible resource is its name brand.

Capabilities: The case does not provide any specific capabilities that Atari performs
well, but one must assume that their ability to program and produce video games, and
manage that process, is above the industry average given the management team they
possess and their standing in the software rankings.
VRIN Table
Capability
V
R
I
N
Conclusion
Licenses
Y
Y
Y
N
Temporary Competitive Advantage
Management
Y
Y
Y
N
Temporary Competitive Advantage
Retail Outlets
Y
N
N
N
No Advantage
Outsourcing
Y
N
N
N
No Advantage
Brand Name
N
Y
Y
N
No Advantage
Summary
The narrative provided no information about the macroenvironment at the time of the case. As
such, the external environmental analysis was focused on the industry. This analysis reveals that
there are three key success factors in the gaming industry. One, software companies must have
their product releases timed in synch with new hardware platform releases. New platform
releases mark the beginning of a new business cycle for this industry. As such, software
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companies must increase their production during the first two years of the new platform release
to meet consumer demand. Since the majority of a software companies profits are made during
the first three years after the platform release, failure to adequately prepare for the new business
cycle will most certainly result in decreased revenues.
The next two success factors are both derived from product characteristics. Historically,
games that are linked to blockbuster movies and those that satisfy a specific genre - sports, for
example - tend to be the better performing games. As such, securing the rights to produce games
based on blockbuster movies is an important success factor. Also, creating innovative games
that satisfy specific genres is another key to success.
In short, to succeed on the software production side of this industry, a company must take
full advantage of the business cycle, produce games based on blockbuster movies, and create
games that satisfy market niches or genres (sports, mature, etc.).
From a resource perspective, Atari has five capabilities: licensing, management, retail
outlets, outsourcing, and brand name. The VRIN Analysis reveals that of these five, only
licensing and management provide any sort of competitive advantage, and those are only
temporary. Retail outlets and outsourcing are easily copied, not rare, and there are substitutes
available (big chain stores). As for brand name, its major drawback is that there is no value in a
brand name in this industry. That is, there is no evidence, direct or anecdotal, that consumers
make their software purchases based in any way upon which company produces the software.
There may be some brand loyalty among consumers for the hardware they purchase, but there is
no evidence of the same for the software.
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Conclusion
Infogrames Entertainment SA had two primary reasons for acquiring the rights to Hasbro and
implementing the Atari name-branding strategy. For one, Infogrames wanted to avoid being
absorbed by a bigger software company and two, they wanted to increase their market share and
take over the top spot in the industry from Electronic Arts. The above analysis reveals that the
keys to success in this industry are taking advantage of the business cycle, producing niche
games, and producing games based on blockbuster films. The current strategy employed by
IESA does not help the company meet those key factors. That is, the acquisition of Hasbro and
the rights to the Atari name have not helped Infogrames in any of the three key strategic areas.
Further, Infogrames was relying on Atari’s brand name recognition to increase its sales. The
VRIN Analysis reveals that there is no competitive advantage associated with branding in the
gaming software industry. Based on the above analysis, it is my conclusion that the acquisition
of Hasbro and the name branding strategy will be a failure for IESA.
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