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Postage And Fees Paid 
S. International Trade Commission 





A COMPETITIVE ASSESSMENT 
OF THE U.S. VIDEO GAME 
INDUSTRY 


UNIVERSITY OF ALABAMA 


1 005 212 409 


Report on Investigation 
No. 332-160 Under Section 
332(b) of the Tariff Act 
of 1930 


Trans. #: 548922 


Title A competitive assessment of the U.S. video 
game industry : report on investigation no. 332-160 
under section 332(b) of the Tariff Act of 1930, 
Call# ITC 1.12:332-160 Annex 


. L i *2 H fC Y 

U, S, DOCUMENTS 


P T Patron: 

j~J | Due: 06/09/17 -Pieces: 1 
Ip rS ILL# 176227409 11111 111 I 

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USITC PUBLICATION 1501 


Loaned To: GAT 


MARCH 1984 


Phone: 205-348-7368 gmarcks@ua.edu 


United States international Trade Commission / Washington, D.C. 20436 









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PREFACE 

On February 25, 1983, on its own mption and in accordance with section 
332(b) of the Tariff Act of 1930 (19 U.S.C. 1332(b)), the United States 
International Trade Commission instituted investigation No. 332-160 to assess 
the current and prospective competitiveness of the U.S. video game industry. 
This study analyzes the rapid growth of the U.S. industry, the importance of 
overseas assembly of video games, and markets for those games in the United 
States, Europe, and Japan. The study also assesses conditions of competition 
among U.S. producers and major foreign producers. Notice of the investigation 
was given by posting copies of the notice of investigation in the Office of 
the Secretary, U.S. International Trade Commission, Washington, D.C., and by 
publishing the notice in the Federal Register of March 22, 1983 (48 F.R. 9968) 
(app. A). 

In the course of this investigation, the Commission sent questionnaires 
to 88 producers and 26 importers of video games and components. Responses 
were received from 54 producers, 31 of which also imported video games and/or 
components, and 17 additional importers. The respondents are believed to have 
together accounted for over 90 percent of the value of U.S. producers* 
shipments of video games and components and over 95 percent of U.S. imports in 
1982. Information was also obtained from published sources, from interviews 
with corporate executives representing producers, importers, and distributors 
of video games, from the Commission’s files, and from other sources. 


ii 















iii 

CONTENTS 

PaRe 

Preface-*- 7 -—--- 1 

Executive Summary- —" * x 

Description and uses: 

The product------- - --- 1 

Coin-operated video games----—-■- 1 

Video game systems and game software-------- 1 

Hand-held video games—---*----*- 2 

Manufacturing process: 

Coin-operated video games------*-— 3 

Video game systems and cartridges---------- 4 

Hand-held video games----—-----—-- 4 

U.S. tariff treatment------—--*-—- 4 

Profile of the U.S. industry: 

Producers: 

Coin-operated video games-—-—--- 7 

Video game systems---- —t-------- 9 

Game software-—----------- 7 - 11 

Hand-held video games- ; ---*-'- 

Production, capacity, and capacity utilization: 

Coin-operated video games-—----- 11 

Video game systems------ 12 

Game software-—---- 12 

Hand-held video games-----"-*- 13 

Producers' shipments and exports- - - 13 

Coin-operated video games--------- 

Video game systems----— --— 7 —- -- I 9 

Game software-—-—— --—*-—- - -~ 7 — 2 ® 

Hand-held video games-■-—-- - --*- 2 ^ 

Inventories; 

Coin-operated video games--—•»**- - --- - 2 ^ 

Video game systems-—--— 7 — - 22 

Game software and hand-held video games-— -- — 7 — 7 - 22 

Employment-------- 22 

Coin-operated video games— --- - —-— -r- ---— - 25 

Video game systems--- — 7 ---—- 25 

Game software— -■---——— ---- 26 

Hand-held video games-—--- - -—-~ 26 

Capital expenditures—-----—---—--—---- 26 

Research and development expenditures —-—----— 7 ----— - 26 

Coin-operated video games-—-—-*------- 2 ^ 

Video game systems-----—--- 27 

Game software— --——— ---------- - - 29 

Hand-held video games—--— --- - —-—■- - -- 29 

Income and expenditures from the licensing of copyright video games- 29 

Major foreign markets and competitors: 

Japan: - ! 

Coin-operated video games-——-------—- 30 

Video game systems and software---——*——-——-- 31 

Hand-held video games—--——-— -——- - -- 31 















































CONTENTS 


Major foreign markets and competitors—Continued ^ 

Hong Kong—-—----—’ "7 " ~ 7_ ___ 32 

Video game systems and software-' 

Hand-held video games—--- 

Taiwan: 33 

Coin-operated video games--—-- 

Video game systems and software—-' 

Europe: 

Coin-operated video games—’-- “ qA 

Video game systems--—---—-—’ 

Game software—---^ 

Hand-held video games—-■---- “ ~ ' 

Other markets----“ 

U.S, imports: 

Importers -•— -- ' ' I ”_ 36 

Coin-operated video games---- ’ T ‘~ ” 

Video game systems-—- - ' ~ 

Game software-—---- - 

Hand-held video games—-— 

Imports for consumption——-' ~ qq 

Coin-operated video games-- T — “ ?q 

Video game systems---“ ' 

Game software----- - ” LCi 

Hand-held video games------ AA 

Imports under TSUS item 807.00—-• 

The U.S. market: 

Description of the market: A9 

Coin-operated video games--—• T ' r ~ LL 

Video game systems-----—--- 

Game software— -■-:- r " ” ~~ 46 

Hand-held video games—---- ' " ' “ ” ” Af> 

Consumption-“ Lft 

Coin-operated video games— -- ' ~ 

Video game systems-——’-— »• - “ T AQ 

Game software-----' " : ~ hq 

Hand-held video games—- ,_iw -~ ” ""”11111 III’I 49 

Factors of competition------ ~ ~ _ 50 

Providing games with player appeal - ' ' “ ^ 

Research and development—-■ , ~ i ^ 

Licensing-- 

Production technology: ^ 

Coin-operated video games——— 1 " ^ 

Video game systems--———~- ~ 

Game software—-— —~ 

Hand-held video games-—- - - — 

Marketing: 

Coin-operated video games: ^ 

Distance from the market—— -■ 1 r- ' 

Channels of Distribution—--- 

____ 54 

Other-----——— - 


v 


CONTENTS 



Factors of competition—Continued 
Product quality and price: 

Coin-operated video games-— -— - 54 

Video game systems and game software--*-*- - --— 56 

„ Hand-held video games---—-—----•“ 58 

Future trends: 

Coin-operated video games—*---— -—-■- 58 

Video game systems--=—---*-- r ----- 59 

Game software--:----- r '—----— 59 

Hand-held video games-------——* r------- 60 

Appendix A. Notice of investigation---»-—■— -»-.— - 61 


Appendix B. Video games and components: nontariff barriers experienced 

by U.S. producers in foreign markets—--— «■----*r--—•— 

Appendix C. Assessment by U.S. producers and importers of the competitive 
position of U.S.-made video games and components versus that of foreign- 
made products----------——---- 


Figures 

1. Video games: U.S. producers’ shipments, imports for consumption, ap¬ 

parent consumption, and exports of domestic merchandise, 1978-83—- 15 

2. Video games and components: U.S. exports of domestic merchandise, by 

principal markets, 1978-83-*-* —’---- 

3. Video games and components: Average number of production and related 

workers, 1978-82, January-Jqne 1982, and January-June 1983——— 24 

4. Video games and components: Investment in domestic operations by 

U.S. producers, 1978-83-’— ----—— 1 --:- 28 

5. Video games and components: U.S. imports for consumption, by princi¬ 

pal sources, 1978-83--—---- t-—-—- 38 


Tables 

1. Video games and parts thereof: U.S. rates of duty, present and 

negotiated, by TSUS items—-’-- —---—■ — - 6 

2. Coin-operated video games; U.S. production, production capacity, 

and capacity utilisation, 1980-82, January-June 1982, and January- 
June 1983---——-- t--*' -— 12 

3. Video games and components: Shipments of domestically produced 

video games and components in the U.S. market and U.S. exports of 

domestic merchandise, 1978-82, January-June 1982, and January-June 

1983-— -——-—-— -—- 14 

4. Video games and components: U.S, exports of domestic merchandise, 

by principal markets, 1978-82, Ja,nuary-June 1982, and January-June 
1983-—---—-— “ 16 

5. Coin-operated video games: Shipments of domestically produced video 

games in the U.S, market and U.S. exports of domestic merchandise, 
1978-82, January-June 1982, and January-June 1983--- 18 









































































vi 


CONTENTS 


i j ., ii q pYnorts of domes 1 1 c merchandi se > by 

rn\ n-ooerated video games: U,S. exports uj. 

principal markets, 1980-82, January-June l 98 2»^and January-Jun^_ 

Game^softwarel U~S^~exports of domestic merchandise by principal 
markets, 1980-82, January-June 1982, and January June 19 
Coin-operated video games: U.S. producers' inventories as _ 

Dec. 31 of 1980-82, June 30, 1982, and June 30, 1983 
Average number of employees, total and production and related 

workers employed in establishments producing video games and com 
ponents, by types, 1978-82, January-June 1982. and 

Videogames: Man-hour sworkadby'productlon and related workers, by 

types, 1978-82, January-June 1982, and January June 19 
Coin-operated video games: 'Average number of man-hours worked per 
unit^produced, 1978-82, January-June 1982, and January June 1983 
Video games and components: Capital expenditures for U.S^ facili 
ties used for production, warehousing, and marketing, by typ s, 
1978-82, January-June 1982, and January-June 1983-- “ 

Video games and components; Expenditures for research and dev p 
ment, by types, 1978-82, January-June 1982 , and^January Jun_ 

Income^and'expensefromthelicensingof rights to copyrighted video 

games, 1978-82, January-June 1982, and January June 19 - - 

Video games and components: U.S. imports for consumption, by prin¬ 
cipal sources, 1978-82, January-June 1982, and January-June 18 
Video games and components: U.S. imports for consumption, b y_*-ype^ 
1978-82, January-June 1982, and January*June 19 " 

Video gam^ and components: U.S. imports under TSUS item 807 00, by 
principal sources, 1980-82, January-June 1982, and Jan uary June _ 

Videogames: U.S. producers’ shipments, imports for consumption, 

. apparent consumption, shipments of imported video games, and do¬ 
mestic consumption, 1978-82, January-June J.982^ apdJTanuai ry- June 

VideOgames: Apparent U.S. consumption, by types, 197 8-82, January^ 

AssessmenOby^fsOproducerOanOimportersoftheoverallcoinpetitive 

position of U.S.-made video games and components versus foreign^ 

made products during 1978-83, by types 7”.. . 7_ 

Video games and components: Number of responses indicating non 

tariff barriers experienced by U.S. producers in foreign markets, 

bv specifled barriers , 1978-83 ~ , . 

Coin-operated video games: Assessment by U.S. producers and im 
' Sorters of video games and components of the competitive position 
of U.S.-made coin-operated video games versus foreign made pro 

ducts during 1978-83-- " “ . , f 

Video game systems: Assessment by U.S. producers and importers of 
video games and components of the competitive position U - S ’- 
made video game systems versus foreign-made products during 

1978-83——--‘ 




CONTENTS 


Home computers: Assessment by U.S. producers and importers of 
video games and components of the competitive position of U.S.- 
made home computers versus foreign-made products during 1978-83— 
Video game software: Assessment by U.S. producers and importers of 
video games and components of the competitive position of U.S.- 
made video game software versus foreign-ms.de products during 

1978-83-——---------- 

Hand-held video games: Assessment by U.S. producers and importers 
of video games and components of the competitive position of 
U.S.-made hand-held video games versus foreign-made products 

during 1978-83—-----——■—-■—-——- 

Video game consoles: Assessment by U.S. producers and importers of 
video games and components of the competitive position of U.S.- 
made video game consoles versus foreign-mede products during 

19 78-83-----—-—--- 7 - 

Video game controllers: Assessment by U.S* producers and importers 
of video games and components of the competitive position of 
U.S.-made video game controllers versus foreign-made products 

during 1978-83-------—-— 7 -—- 

Game logic boards: Assessment by U.S. producers and importers of 
video games and components of the competitive position of U.S.- 
made game logic boards versus foreign-made products during 

1978-83-----—- 

Custom-made video game computer chips: Assessment by U.S. pro¬ 
ducers and importers of video games and components of the com¬ 
petitive position of U.S.-made custom-made video game computer 

chips versus foreign-made products during 1978-83--- 

Keyboards for home computers: Assessment by U.S. producers and 
importers of video games and components of the competitive posi¬ 
tion of U.S.-made keyboards for home computers versus foreign- 

made products during 1978-83--——---— —- 

Disc drives for home computers: Assessment by U.S. producers and 
importers of video games and components of the competitive posi¬ 
tion of U.S.-made disc drives for home computers versus foreign- 

made products during 1978-83 —*---— - 

Cassette recorders for home computers: Assessment by U.S. pro¬ 
ducers and importers of video games and components of the com¬ 
petitive position of U.S.-made cassette recorders for home com¬ 
puters versus foreign-made products during^1978-83-—- 




































i x 


EXECUTIVE SUMMARY 

Video games were first introduced in 1972 as M T.V, games.” Coin-operated 
versions which supplemented the more traditional pinball machines were 
introduced the following year. Although demand proved to be strong for both 
coin-operated and home video games in the immediately ensuing years, the most 
rapid growth in the industry occurred during 1979-82, as U.S. consumption rose 
from $215 million (1978) to $3.7 billion (1982). Developments giving impetus 
to the rise in consumer interest in video games were the initial sales of 
programmable home video games (employing game cartridges) in 19/7, the 
introduction of hand-held video games in 1978, major technical improvements in 
coin-operated video games in 1979 (making it possible to increase the level of 
difficulty of game play in phases), the widespread licensing of popular arcade 
video games for use in programmable home video games in 1980, and the 
evolution of video games into home computers during 1982 and 1983. 

The market for video games more than doubled in 1980 and again in 1981, 
and continued to expand in 1982 despite the recession. Many companies in the 
toy, game, record, and movie businesses responded to a significant loss in 
their share of the consumer's entertainment dollar to video games by entering 
some aspect of the video game business themselves. As new companies entered 
the market and competition intensified in terms of price, quality, and product 
development, U.S. firms increased their use of foreign production and assembly 
facilities. 


U.S. consumption in the first six months of 1983 was 27 percent less than 
in the same period of 1982. This industry is still in a dynamic state as new 
laser disc games are being introduced and the video game systems merge with 
home computers. 

The major findings of this study are summarized below. 

1. Structure of the U.S. and foreign industry 

o The U.S. vid eo game industry i s highly internation alized, 
composed of b o th U.S. and fore ign-own ed companies, and 
makes e xten s ive use of foreign com po nents and offshore 
production facilities . 

The establishment of foreign production facilities by U.S. manufacturers, 
the operation bf domestic manufacturing plants by foreign-owned companies, and 
worldwide sources of components for both U.S. and foreign firms have 
internationalized the U.S. video game industry.* Many of the video games 
popular in the United States are produced domestically under license from 
copyright holders in Japan, The license agreements sometimes require logic 
boards (programmed integrated circuits assembled on printed circuit boards) 
for arcade video games to be imported from the copyright holders. 

Furthermore, several Japanese eoin-operateq3 video game manufacturers, have 
production facilities in the United States, Similarly, many U.S. and Japanese 
producers of such games have joint ventures or license agreements with 
assemblers of coin- operated video games in Europe, U.S. producers export some 
electronic components for coin-operated video games to manufacturers in 








X 


Japan. U.S. producers o f *- video = ,^£££ ^ 

offshor^producers S. these are either owned or 

contracted by U.S. producers. 

o * clgMuelv small numbe rjg_£lmJ ^ n "*" the producti on 
of video games in the United States- 

Although 16 firms ^^^fo^overone-htlf of U.S. 

three largest companies together accou foc the ma jority of home 

production. Four or fewer firm portride.es and hand-held video games 

video games, home computers, video game cartridges, 

produced in the United States. 

„ „ s pmDl ovment in U 1 e J dde^n ! e_indMtE^ 

~ To 5 7S8dSTw ak ? " nrt continued to expand th e 

first half of 1983, . 

U.S. employment of production and a 

industry nearly quadrupled during shipments (to both the domestic and 

22 -percent reduction in total pro ^® r ed with those in the January-June 

foreign markets) in January ; aune 1983 compared with ^ industry 

X982, employment of production and in the production of 

increased by 13 percent to 9,2 * g3 more than offset decreases in 

video game software and home comput segments of the industry, 

the video game system and coin-operacea viu & 

O investment by j r^jroducer^vi deo games i^ their^omestjc 
operations increase d ea ch year duri ng-• 

The expenditures by U.S “-/^^^^^^^r^pient^andTe 3 rights to 

operations for capital investment res 1978-82, from $19 million 

produce c«H»yrl|ht.d *«,-. «««Lent rose by 73 percent in 
in 1978 to $262 million in 1982. Such inve ? minion. 

January-June 1983 over that in January-June 


2. The world market 

o Manufacturers based _in^heJ7nit ed States Japan, and ?aiw _an 
Tupolv most of__ Ui^worli^ - vldeo * **>& ■' 

J , .. u „i ¥ *A qv ates and Japan develop almost all of the 

Producers based the United most of the game logic boards 

world's copyrighted vld ®° 6 ames ' J L ® ts for mo st arcade video games are 

available to the rest of the worid. Cabinets tor boards complet ed in 

produced in local markets an market for video game systems 

s*.&w;;.3K 

l “ a "" ■■ ■* 




XI 


as the bulk of the game software. The U.S. market for hand-held video games 
is supplied by domestic sources and imports from Hong Kong, whereas the 
European market is supplied by imports from the United States, Japan, and Hong 
Kong, and the Japanese market, by local producers and U.S.-based companies 
which manufacture the games in Hong Kong. 


3. The U.S. market 

o U .S.-based firms play a dominant role in the domestic market 
for video game products . 

U.S. -based firms supplied over 95 percent of the market for video games 
in 1982, accounting for 82 percent of the value of apparent U.S. consumption 
of coin-operated video games, 99 percent of the hand-held video games, and 
over 99.5 percent of the video game systems, home computers, and game software. 
Although all major U.S. companies develop copyrighted video games, none of the 
firms manufacture products in all of the categories. 

o The market for video game systems expanded in 1982 despite 
the recession . 

Apparent U.S. consumption of video game systems grew by 75 percent in 

1982 over 1981 while most other industries were experiencing slower sales. 
Industry experts attribute this market growth to an increased consumer 
tendency to entertain at home during the uncertain times of the economic 
downturn. The options that utilized existing televisions, such as connections 
for video games, home computers, and video recorders, were particularly 
attractive. 

o U.S. consumption of arcade video Karnes and video game system s, 
peaked in 1982 . 

Apparent U.S. consumption for all video games expanded from $215 million 
in 1978 to $3.7 billion in 1982, but was down by 27 percent in January-June 

1983 versus the similar 1982 period. The decline in arcade video games was 

primarily attributable to reduced player interest as fewer hit games were 
introduced. This reduction in new game innovation was linked to lower product 
development expenditures by domestic manufacturers as the profit margins per 
machine were eroded by the increasing penetration of relatively low priced 
game machines from Taiwan. Three factors contributed to the downturn in the 
video game systei^ market in 1983: (a) affluent families with teenage males, 

the initial target market, neared saturation in 1982; (b) there was a dearth 
of hit games necessary to trigger consumer interest; and (c) sales were lost 
to computer manufacturers as they slashed prices and promoted the game-playing 
features‘of their home computers. Although retail sales of game software 
continued to grow in 1983, producers’ shipments fell as the market absorbed 
the huge inventories which went unsold during the Christmas season of 1982. 

o The markets for video same systems and home computers have 
merged . 

All of the principal suppliers of video game systems market home 
computers, and some of them also offer units to expand their video game 









systems into computers. In doing so, they are competing head on with 
companies more experienced in the computer field. The ensuing price war has 
diminished the profit margins of nearly all of the competitors in the video 
game system/home computer market. 


4. U.S. imports 


games. However, the long lead time involved in supplying U.S. customers makes 
imported, finished, coin-operated video games noncompetitive with the 
domestically produced games. In order to gain a share of the market, several 
Japanese producers established manufacturing facilities in the United States 
to assemble Japanese-made game logic boards with locally made cabinets. Some 
Japanese producers limit their U.S. activities by only licensing the rights of 
their game copyrights to U.S. producers. 


0 U.S.-based firms accounted for 80 percent of U.S. imports of 
video games and components in 1982 . 

U.S.-based firms which perform at least some manufacturing operations in 
the United States accounted for 80 percent of U.S. imports of video games and 
components in 1982. Furthermore, foreign-based companies which produce or 
assemble video games in the United States accounted for 18 percent. Imports 
containing some U.S.-made components accounted for 64 percent of total U.S. 
imports in 1982. Although all U.S.-based suppliers of arcade video games 
perform all of their production domestically, most incorporate varying 
quantities of imported game logic boards in accordance with licensing 
agreements with Japanese copyright holders. Despite the lack of foreign-based 
suppliers of game software, a significant portion of game cartridges in the 
U.S. market are assembled in low-wage-rate countries. 

o The share of apparent U.S, consumption of video Karnes ac¬ 
counted for by imports declined steadily during 1979-83 . 

The rapid growth in imports of video games during 1979-82 (from 
$170 million to $576 million) did not keep pace with the even faster expansion 
in U.S. producers' shipments to the U.S. market (from $218 million to 
$3.1 billion). The share of apparent consumption accounted for by imports 
dropped from 44 to 16 percent during the period as the role of hand-held video 
games, (the majority of which are imported) became overshadowed by arcade 
video games and programmable home video games. Import penetration declined 
further to 12 percent in January-June 1983 as imports fell faster than 
producers' shipments. 


5. Factors of competition. 

° The ability to create or license video games with a high 
degree of play appeal is critical for success . 

In each category of video game product, the ability of a firm to create 
or obtain licenses for games which will appeal to large numbers of players is 
the key to success in the industry. Producers in the United States and Japan 
are the leaders at creating popular games. 

o Finished arcade video games from legitimate foreign sources 
are not competitive in the U.S. market . 

High transportation costs of ocean freight from Japan keeps the price of 
imported finished arcade video games competitive with that of U.S.-made 



° Copyright infringing of coin-operated game machines and 

game software has been substantial and harmful according to 
the domestic industry . 

Arcade game manufacturers responding to the Commission's questionnaire 
cited copyright infringement for substantial loss of sales, with infringers 
typically supplying 30 percent of the market for popular games. By avoiding 
research and development expenses and licensing fees, importers of infringing 
games from Taiwan and other sources are allegedly able to sell counterfeit 
arcade video games at 30 to 40 percent less than legitimate producers. 

Reduced revenues and unit profit margins of legitimate producers have 
reportedly reduced new product development efforts, contributing to the recent 
industry decline. Software infringers import game logic boards rather than 
complete games to circumvent detection by the U.S. Customs Service rather than 
to reduce costs. 

o The introduction of conversion kits has enabled many marginal 
arcade operators to stay in business . 

By marketing conversion kits (the programed electronic components and 
artwork which differentiate one game from another), subsidiaries of Japanese 
producers have enabled many financially marginal arcade video game operators 
to stay in business. U.S. producers were slow to market conversion kits, thus 
allowing the Japanese subsidiaries to increase their share of the market. 




o Several factors discourage foreign competition in the market 
segment for video game systems . 

There are no foreign companies operating in the domestic market for video 
game systems. U.S. firms have assumed a dominant position through the 
marketing of popular games and through product innovations. U.S. producers 
have an advantage over' foreign manufacturers in economies of scale, strong 
distribution networks,, experience in R. & D., and the quantity and reported 
quality of games available from software companies that are designed 
specifically for U.S. hardware. Furthermore, since some of these U.S, 
companies perform most of their manufacturing operations in Hong Kong and 
Taiwan, potential foreign competitors do not have lower labor costs in their 
favor. 

o Domestic manufacturers of game cartridges and discs are 
unchallenged by foreign-based producers . 

U.S. producers or assemblers of game cartridges and discs have the 
advantages over potential foreign competitors of economies of scale, affilia¬ 
tions with hardware producers, technological experience, proximity to the 












xi v 


1 


market, and a lack of language or cultural barriers. Furthermore, se yeral 
domestic software designers already assemble cartridges in low wage rate 

countries to minimize labor costs. 


DESCRIPTION AND USES 
Product 


o price and quality are both important in the hand-held video 
game market segment . 


Foreign producers of hand-held video games have gained a substantial 
share of the U.S. market through lower prices vis-a-vis those of domestic 
competitors. U.S. firms, however, still supply over one-half of market, 
due principally to the superior graphics, sound, and play action of U.S. games. 


6. Future trends 

o Laser disc video games are expected to rejuvena te the 
coin-operated video game industry . 


The introduction of new arcade video games employing laser disc 
technology is expected to bring life back to the industry. However, some 
undercapitalized arcade operators will probably continue to go out of 
business, It is anticipated that the concept of replacement laser discs will 

reduce the industry’s costs, 


o The video game system and game cartr idge industries will most 
likely be absorbed bv the home computer industry,, 


Only video game manufacturers which are successful at marketing home 
computers are expected to survive the merger of the video game system and t e 
home computer markets. Similarly, game cartridge manufacturers must explore 
applications programs to maintain their reputation and marketability. 


o The hand-held video game market will be li mited, 

Industry sources believe the market for hand-held video games will 
relatively stable with peak sales occurring during the Christmas season. This 
is due primarily to the proliferation of game-playing home computers. 



Video games are electronic games which are displayed on video screens. 
There are four aspects to any video game: one is software and the other three 
are hardware. The term software has three usages. One usage refers to the 
actual intelligence and concept which make up a computer or game program. A 
second usage refers to the integrated circuits or logic board on which the 
game program is stored. A third usage, which will be employed frequently in 
this report, refers to cartridges and discs which carry game programs. The 
hardware consists of the video screen which displays the game, the controllers 
which control the action in the game, and the device which transmits the 
message from the logic board and the controllers to the video screen. Video 
games are available in three basic hardware formats: coin-operated video 
games, video game systems (including home computers), and hand-held video 
games. Logic boards programed with game software can be hard wired to the 
hardware or cartridges housing game logic boards or computer discs programed 
with video games can be inserted into video game consoles or home computers. 


Coin-operated video games 

Coin-operated video games, also called arcade video games, consist of a 
cabinet, usually of wood; an integral monitor, typically a cathode ray tube 
(CRT) with a 19-inch screen; a game logic board, consisting of integrated 
circuits and other electronic components assembled to a printed circuit board; 
a control panel; and wire cables, called harnesses, which link the logic 
board, control panel, and video screen. Some recently introduced arcade games 
employ a laser disc and laser disc player as well as a logic board. 
Coin-operated video game machines are usually in the form of arcade-style 
uprights, but are also made in cocktail table, table top, and bar top styles. 
Although some gambling machines have similar features, they are not considered 
to be video games. 


Video game systems and game software 

Video game systems, also called home video games, usually consist of a 
game console and game controllers. The console, also referred to as a game 
player or master unit, is the central unit to which the game controllers are 
attached. Cables connect the console with any television or computer monitor, 
which serve as a display screen for the game. Game controllers can be an 
integral part of the console (hard wired) or they can be connected by cables. 
Typical types of controllers are push buttons, joy sticks, X-Y controllers, 
roller controllers, steering wheels, touch pads, and paddle controllers. 

First generation video game systems were dedicated to playing a single 
set of games. The game logic boards were hard wired to the console. The 
advent of programmable video game consoles quickly made dedicated video games 
archaic. Cartridges—plastic boxes housing game logic boards—are inserted 
into the console of a programmable video game system. 







2 


Various peripherals can be added to recent generations of video 
systems. Additional memory can be added to the conso e , .. 

of same cartridges with more sophisticated graphics, sound and play on, 

requiring more memory than the original system was ^signed to “comodat 
Voice synthesis modules enable the console to play cartn g p S . . 

games w£ich ’’talk" to players. System changers (or adaptors) wtuch attach to 

home computer. 

industry analysts estimate that betwee"If^^UUiSs ^or'woo 8 " 
sold for use with home computers h^me computers are 

less during 1978-83) are programed with ismes Such ho t(j bg 

used chiefly as sophisticated video game sy Conversely, video game 

video game hardware for the purposes of this study. 3/ Conversely, via g 

systems have added the ability to perform computer Stscs lnstLd 

games. Some home computers are designed to accep . v 0 CODV than 

of cartridges. However, since cassettes and discs are easier to copy than 

cartridges, many license holders of copyrighted games make their softwar 
available only in the form of cartridges. 

A small portion of video game systems contain integral video screens hard 
wired to the console. These screens are usually thin and based on 
vector technology rather than employing a CRT. 


Hand-held video games, 

eSSSS^a- 

s SSfSSS?3S£!~r 

g «L. cannot be replaced with new games) , some programmable models have 
developed which use very thin cartridges. 


TTTaura Landro, "Paramount Pursues New Markets as Changes Confront Movie 

expected to continue to fall. rhicaeo Show 

3/ Gary Putka, "Spotting Which Electronic Games are Hot at Chicago Show 

Could Put zip in Stocks, TOO," The Wall Stree p Jour nal, June 3, 1983. 


Manufacturing Process 










Coin-operated video games 

The most expensive aspect of producing an arcade video game is the 
manufacture of the logic board. It accounts for 33 percent of the direct cost 
of producing a typical coin-operated video game machine; the monitor accounts 
for 23 percent; the cabinet and wire cables, 12 percent; the control panel, 

7 percent; and other raw materials, 12 percent. Labor and overhead account 
for only 12 percent of the direct costs. 1/ 

The game logic board carries the computer memory that distinguishes one 
game from another. Each logic board has two types of memory circuits: EPROM 
(erasable programmable read only memory) and RAM (rand.om access memory). An 
EPROM is an integrated circuit containing a processed silicon chip. The 
integrated circuit includes transistors, resistors, and diodes, which have 
been programed for the storage and retrieval of information by interconnecting 
the components in a defined logical pattern. The integrated circuit also 
usually includes a dual end line carrier 1/2 inch by l<-l/4 inches and 3/16 
inch thick. The carrier usually has 12 metal prongs on each of its 2 long 
sides to facilitate insertion onto a printed circuit board. The chip is 
usually wire bonded to the prongs (lead frames) of the carrier. The entire 
program for an arcade game usually requires between 5 and 14 EPROM’s. Each 
EPROM has a discrete memory storage capacity. A small glass window is in the 
middle of the top of each EPROM. Removing the gummed label, which covers the 
window, and exposing it to ultraviolet light will erase the program on the 
EPROM and allow it to be reprogramed. 

EPROM's or Read Only Memories (ROM’s) (programs for the latter cannot be 
erased) control how the game is played. On the other hand, RAM's can have 
memory inserted or withdrawn at any time. RAM's are used for such purposes as 
recording high scores, initials of players, self-diagnosis, and volume of 
coins received. Arcade games seldom contain more than 2 RAM's. A programmable 
read only memory (PROM) acts as the microprocessor (also called a central 
processing unit (CPU)) and coordinates the functioning of the EPROM's and 
RAM's . 

The largest coin-operated video game manufacturers make printed circuit 
boards in a highly precise and automated process utilizing computer controlled 
drilling, routing, plating, laminating, chemical treating, lithographic 
etching, and testing. Unprogramed integrated circuits are usually purchased 
from domestic suppliers (which may or may not have produced the integrated 
circuits in the United States) and then programed by the arcade video game 
producers. Sequencing machines arrange the components in order and automatic 
insertion machines stuff (insert) the boards with RAM's, PROM's, EPROM s and 
other electronic components automatically. Only oversized components such as 
large capacitors, connectors, and power transistors, as well as specialized 
integrated circuits, need to be inserted by hand. The leads of such hand- 
inserted components extending through the printed circuit board are trimmed 
manually before the entire stuffed board undergoes wave soldering. 

1/ Christopher D Kirby, The Video Game Industry: Strategic Analysis, 

Sanford C. Bernstein & Co., Inc., New York, 1982. 










4 


5 


Smaller coin-operated video game manufacturers purchase printed circui 
boards from the larger producers or other sources and then stuff the boar s 
with integrated circuits they have programed. 


U S. producers of coin-operated video games that have licensed 
copyrighted games from developers in Japan can import either the complete 
logic board, just the EPROM's programed with the game, or only the master PR 

Most monitors are purchased from domestic suppliers; however, these 
suppliers often furnish monitors either imported from Japan or assembled in 
the United States from components made in Japan. Some monitors are importe 

directly from Canada. 


Some coin-operated video game manufacturers produce the wood cabinets 
themselves, and others contract the cabinet and silk screen work out. The 
assembly of the wire cables connecting the monitor, game logic board, and 
control panel inside the cabinet is a highly labor-intensive process. 


Most laser discs for the arcade video game industry are pressed either in 
the United States by a limited number of contractors or in Japan. All laser 
disc players must be imported from either the Netherlands or Japan. Laser 
discs have video games encoded onto an optically reflective disc. The disc 
player uses a laser—an intense, monochromatically pure beam of light^ to 
receive the encoded data and transmit them through an EPROM board to be 
displayed by a monitor. 


Video same systems and cartridges. 

The process for producing video game systems begins with the injection 
molding of the plastic housing for the game console, controllers, and other 
peripherals. Integrated electronic components, wire cables, and a plastic 
housing are then assembled into a complete unit. The assembly of components 
for a computer keyboard for home computers or video game systems with computer 
capability tends to be more labor intensive than the assembly of other video 
game/home computer components. Video game cartridges consist of a game logic 
board enclosed by a plastic housing. Home video games are usually programe 
onto a single EPROM, making the game logic board for a game cartridge much 
less sophisticated, smaller in size, and less expensive to manufacture than a 
logic board for an arcade game. 


Hand-held video games 

Hand-held video games consist of integrated circuits, logic boards, 
wiring, and LCD or LED screens which are assembled into a compact plastic box 
which contains an integral control panel. 



The rates of duty in column 1 are most-favored-nation (MFN) rates and are 
applicable to imported products from all countries except those Communist 
countries and areas enumerated in general headnote 3(f) of the Tariff 
Schedules of the United States (TSUS). 1/ However, such rates do not apply to 
products of developing countries which are granted preferential tariff 
treatment under the Generalized System of Preferences (GSP) or the Caribbean 
Basin Initiative (CBI). 

The rates of duty in column 2 apply to imported products from those 
Communist countries and areas enumerated in general headnote 3(f) of the TSUSA. 

The GSP is a program of nonreciprocal tariff preferences granted by the 
United States to developing countries to aid their economic development by 
encouraging greater diversification and expansion of their production and 
exports. The GSP, implemented by Executive Order No. 11888 of November 24, 
1975, applies to merchandise imported on or after January 1, 1976, and is 
scheduled to remain in effect until January 4, 1985. It provides for duty-free 
treatment of eligible articles imported directly from designated beneficiary 
developing countries. 

The CBI is a program of nonreciprocal tariff preferences granted by the 
United States to developing countries in the Caribbean Basin area to aid their 
economic development by encouraging greater diversification and expansion of 
their production and exports. The CBI, implemented by Presidential 
Proclamation 5133 of November 30, 1983, applies to merchandise entered, or 
withdrawn from warehouse for consumption, on or after January 1, 1984, and is 
scheduled to remain in effect until September 30, 1995. It provides for 
duty-free entry of eligible articles imported directly from designated 
developing countries in the Caribbean Basin area. All of the articles subject 
to this investigation could be eligible for such duty-free entry. 

The U.S. Customs Service has determined that the power supplies, 
integrated circuits, and cables used in video games, as well as certain types 
of game controllers, have applications other than with video games. 

Therefore, these items are classified in general use categories. Game logic 
boards for arcade games and cartridges used in video game systems are 
classified as parts of video games (item 734.20). However, game software 
(cartridges, cassettes, and discs) designed for use with computers and logic 
boards for computer games are classified as games, not specially provided for, 
in item 735.20. Monitors imported separately for use with coin-operated video 
games or home computers are classified as television apparatus. Separately 
imported game consoles for use with video game systems that have computer 
capabilities are classified as parts of computers. 


U.S. Tariff Treatment 

The principal, classification for imported video games and parts thereof 
in the Tariff Schedules of the United States (TSUS) is item 734.20, which 
covers game machines and parts thereof. Table 1 shows the current rates of 
duty which apply to imports of video games and parts thereof. 



1/ The only Communist countries currently eligible for MFN treatment are the 
People’s Republic of China, Hungary, Romania, and Yugoslavia. 











6 


Table 1.— 


TSUS item 
No. 1/ 

734.20 (pt.)A* 

735.20 (pt.)A* 


Video games and parts thereof: U.S. rates of duty, present 
and negotiated, by TSUS items 


676.15 (pt.)A 
682.60 <pt.)A* 
685.90 (pt.)A* 


687.74 (pt.) 


688.15 (pt.)A* 


(Percent ad valorem) 

“ : Present 

Description :col. 1 ra 


Video games and parts 
thereof. 

Game cartridges, cassettes, 
discs, and parts thereof 
designed for use with 
computers. 

Home computers--—---- 

Power supplies---- 

Joy sticks, X-Y control¬ 
lers, keyboard control¬ 
lers, and antenna switch 
boxes. 

Monolithic integrated cir¬ 
cuits not assembled to a 
printed circuit board, 
Cables used to connect con¬ 
soles with monitors. 


col. 1 rate 
of duty 2/ 

4.5% 

5.92% 


4,5% 

4.7% 

6.5% 


Negotiated 
col. 1 rate 
of duty 3/ 


4.64% 


3.9% 

3% 

5.3% 


Col. 2 rate 
of duty 4/ 


1/ The design ation "A" or "A*" indicates tTat the item is eurc.ntly designated as 
an _ eligible article for duty-free treatment under the U.S. Generalized System of 
Preferences (GSP) . "A" indicates that all beneficiary developing countries are 

eligible for the GSP. "A*" indicates that certain of these countries, specified in 
general headnote 3(c) of the Tariff Schedules of the United States, are not 

eligible. 

3/ Rate°negotiated 1 In 1 the*Tofcyo round of the Multilateral Trade Negotiations in 
Geneva, to be achieved through 8 annual reductions, with the final 
effective Jan. 1, 1987. This is also the preferential rate of duty reflected in 
the "LDDC" column of the TSUS which applies to products of deVel P 

developing countries, enumerated in general headnote 3(d) of the TSUS. 

4/ Statutory rate. 


The U.S. International Trade Commission has received two complaints which 
alleged violations of section 337 of the Tariff Act of 1930 with regard to 
video games. On June 9, 1981, in investigation No. 337-TA-87 , Certain Coin 
Operated Audio-Visual Games and Components Thereof the Commission determined 
that a violation existed in the importation and sale of certain coin-operated 
audiovisual games, kits, and components which infringed on the copyrig 
audiovisual work if a U.S. manufacturer, infringed that company's common law 
trademark and bore false designation of origin. On June 25, 1981, th 
Commission ordered that such products be excluded from entry into the 

States. 


7 


The domestic producer filed another complaint with the Commission on 
April 17, 1981, alleging that it was being injured by the importation and sale 
of certain coin-operated audiovisual games which infringed on its copyrights 
in the audiovisual works of two more of its games and which also infringed on 
its common law trademark rights. On June 22, 1982, in investigation No. 
337-TA-105, Certain Coin-Operated Audio Visual Games and Components Thereof, 
the Commission determined that there was a violation of section 337 with 
regard to one of the games as alleged, but there was no violation with regard 
to the other game, because production of that game had ceased and there was no 
longer a U.S. industry to be injured by infringing imports. On July 1, 1982, 
the Commission ordered that coin-operated game machines which infringed the 
first game’s copyright and trademarks be excluded from entry into the United 
States. The Customs Court of Patent Appeals later ruled that there was a 
violation of section 337 with regard to the second game and remanded the case 
back to the Commission in November 1983 for a determination of the proper 
remedy. 

Former employees of two firms filed for adjustment assistance with the 
Department of Labor in July 1983, contending that competition from imported 
video games had caused their unemployment. One of the firms manufactured 
printed circuit boards for coin-operated video games, and the other company 
made video game systems. An estimated total of 250 to 400 employees working 
on video games were laid off from the two firms in January-June 1983. 


PROFILE OF THE U.S. INDUSTRY 
Producers 


Coin-operated video games 


Twenty firms manufactured coin-operated video games in the United States 
by the end of 1983, compared with four such firms in 1978. Seven of these 
firms are subsidiaries of Japanese producers. The bulk of production in 1983 
occurred in the Chicago area and in California near San Jose and Los Angeles. 
The two largest companies together accounted for over one-half of production 
in 1983. However, the market share of specific firms varies greatly from one 
year to the next, depending on which companies have introduced hit games that 
year. A principal arcade game manufacturer is also the largest supplier of 
video game systems and game software and one of the five major suppliers of 
home computers to the U.S. market. 


The first recorded development of a video game was by a graduate student 
at the Massachusetts Institute of Technology in 1962*. 1/ A decade later, a 
graduate student at the University of Utah developed another video game and 
started marketing a coin-operated version of it in 1973. The game was 
designed to be easy to learn in order to appeal to players who might be 
discouraged by complex instructions. By 1974, approximately 100,000 
coin-operated versions of this game had been produced, but only about 


1/ Computer Buyer's Guide and Handbook , Computer Information Publishing, 
Inc., Chappaqua, N.Y., 1982. 

















8 


9 


10 percent had been manufactured by the originator's . 1/ ^he success 

of theinitial coin-operated video game encouraged a number of pinball and 

juke-box manufacturers to enter the dapan and the 

subsidiary of a Japanese firm manufacturmg arc 6 coin-operated video 

United States introduced the first microprocessor-based ■coil n ? 
game in 1975 and the first game which increased the level of difficulty 
phases in 1979. Both of these developments were major influences 
increasing the appeal of arcade video games. 

The largest domestic producer of coin-operated video games is largely 

it a strong competitive position. 2/ 

~-=rj s srsss zsz 

are programing the integrated circuits wi * dB to form &arae logic 

circuits and other components onto printed ci . „ \n\-n t-he final 

boards, and assembling the components and electronic cables into the final 

product. 

A large portion of the integrated circuits and monitors used in 

To varying degrees, almost all of the manufacturers conduct research 
io vaijuife & , _ nn mAr v.et Most rely on a combination 

development to create games which they can mar ice . TaD anese 

compariies"'"At° 1 east ^ne* 1 c omp any Market s''only^ames 1 which it develops in-hou.e . 
A. few companies specialize as talent scouts ^ search out 1 { hted 

" r=- srs: s=ir.sy = £.>«. 


1/ The audio-visual work was not copyrighted. ... R _n v »* 

Y, ’’Williams Electronics May Sell Certain Assets of Games Unit to Bally, 


The Wall Street Journal, Nov. 30, 1983, p. A. 





Most of the U.S. subsidiaries of Japanese producers import game logic 
boards from their parent companies and assemble the logic boards with other 
components purchased in the United States to produce complete games. However, 
several of these companies and a few U.S. firms package the game logic boards, 
along with new control panels and decals for the cabinetry, as conversion 
kits. By replacing the logic board of a game that has lost its player appeal 
with a new logic board, and changing the artwork on the cabinet, an operator 
can convert an old game into a new gajae without losing his investment in the 
cabinet and monitor. The typical price for a conversion kit is $400 to $700 
compared with complete games (in their cabinets) at $2,200 to $2,800 (Laser 
disc video games cost arcade video game operators between $4,000 and $5,000. 
each). U.S. producers began making conversion kits available to operators in 
early 1982. 


Video game systems 

Five U.S. producers dropped out of the home video game business during 
1978-83. Of the four that remained, three also produce hand-held video games, 
and three make home computers. 1/ A large proportion of the industry makes 
extensive use of overseas production facilities. To varying degrees, each 
offshore manufacturer incorporates some U.S.-made components, such as 
programed integrated circuits, into their systems and also performs^some 
manufacturing, assembly, and/or packaging operations in the United States. 

The bulk of the software sold for use with home computers is programed 
with video games. 2/ In effect, home computers h*ve been used chiefly as 
elaborate video game systems. Home computers differ from personal computers 
in that the latter find their primary use in business applications, even it 
located in the home. Most home computers had a base retail price less than 
$800 during 1978-83 and they possess less memory capacity than personal 
computers. 3/ 

The chief areas for the production, assembly, and packaging of video game 
systems and home computers are located near San Jose and Los Angeles, Calif., 
Dallas, Tex., Albany, N.Y., and Hartford, Conn. 

The first video game system was introduced in 1972 by a foreign-based 
firm manufacturing a variety of electronic products in the United States. A 
U.S. firm followed with a home version of its arcade game in 1975. Both of 
these systems weije dedicated (hard-wired) video games. However, because of 
reduced interest in dedicated games, programmable video game systems were 


1/ The five largest U.S. producers of home computers accounted for 84 
percent of worldwide shipments in 1983. Mark Halper, ’’Embattled Home CPU 
Suppliers Face High-End Challenge," Electronic News , Jan. 2, 1984, p. 50. 

2/ Andrew Pollock, "The Coming Crisis in the Home Computer Industry," The 

New York Times , June 19, 1983, p. 1. . 

3/ David E. Sanger, "The Giant and It’s New Peanut," The New . York Times , 

Aug. 19, 1983, p. Dl. 






10 


introduced in 1977. 1/ By the end of that year, other companies^introduced 
programmable video games. A large inventory of programmables built up by 
1978, precipitating the departure of some firms from the market; another left 
in 1980 to concentrate on the arcade business. By mid-1981, most video game 
system components were produced or assembled in Hong Kong and Taiwan. 

Although the largest producer of video game systems brought some of its 
production to the United States early in 1982, most was returned to Hong Kong 
and Taiwan later that year in order to cut costs in the face of stiff price 
competition. 2/ 

All of the video game system manufacturers produce software compatible 
with the hardware they produce. The appeal of the games offered by these 
system producers is very important in the competition between them. One 
company specializes in obtaining licenses to produce popular arcade games, 
another specializes in space games developed in-house, and a third specializes 
in the quality of the graphics for its sports games. The initial response to 
the intercompany competition was to obtain the rights to games projected to 
have player appeal or to games similar in format to games with proven player 
appeal. The second response was to introduce a second generation of hardware 
which had greater memory power, enabling the manufacturer to promote the 
improved graphics, sound, and game action of its systems and companion 
software while reducing the price of the first generation systems. 3/ The 
third response, beginning in 1982 and escalating in 1983, was to market 
adapters which would allow software designed for another producers' hardware 
to be played on the company’s system. 

With access to software and the quality of graphics decreasing in 
importance, video game system producers sought to differentiate their products 
in 1983 by adding expansion units which would turn the systems into home 
computers. 4/ They were also pressured to add computer capability in 1983 
because home computer manufacturers, recognizing that the chief use of their 
products was to play games, began promoting home computers as both game 
players and as aids for educational and other interests. With a large number 
of companies offering products which could perform similar functions, the 


1/ Peter D. Petre, "Atari and the Video Game Explosion," Fortune , July 27, 
1981, p. 40f f. 

2/ Martha M. Hamilton, "Fragile Frontier: Atari's Departure Illustrates , 
Flows in High-Tech Job Situation," The Washington Post , Feb. 27, 1983, p. F4. 

3/ Mark Sullivan, "Varied Marketing Strategies Key Growth of Electronics," 
Playthings , April 1980, p. 48ff. 

4/ Laura Landro, "Living Room War: Video Game Firms Take On Computer 
Invaders; Atari to Unveil Keyboard for its Machines Today," The__Wa.ll Street 
Journal . February 29, 1983, p. 54; and "Video Games Enter Computer Age," Chain 
Store Age , General Merchandise Edition, October 1979, p. 79. 


11 


ultimate weapon in gaining a larger share of the market for video game 
systems/home computers was through price reductions. 1/ 


Game software 

Video game system suppliers accounted for over one-half of the U.S. 
production of video game software in 1982. Some of the other home computer 
producers also made game software. In addition, over 100 independent software 
producers offered game programs for use on the variety of game systems and 
computer hardware in 1982 and 1983. 2/ Several of the largest game cartridge 
producers assembled game logic boards in low-wage-rate countries using EPROM's 
programed in the United States. . However, most of these firms performed the 
final assembly, combining the logic board and plastic housing, in the United 
States. The chief manufacturing locations for game software are California, 
Texas, New York, and Puerto Rico- Much of the overseas subassembly work is 
done in Singapore. 



The world’s largest producer of hand-held video games is a U.S. company 
which manufactures its games in Hong Kong. It introduced hand-held video 
games to the U.S. market in 1978. It was followed by three firms which 
produce the games in Connecticut and Massachusetts from a combination of 
domestically produced and imported components and another U.S. company which 
makes its games in Hong Kong. 


Production, Capacity, and Capacity Utilization 


Coin-operated video games 


U.S. production of coin-operated video games rose sharply during 1978-82, 
more than doubling in 1981 alone, As shown in table 2, production peaked in 
1982, and, reflecting the reduced market, production in January-June 1983 fell 
by 56 percent compared with that in January-June 1982. 


With the entry of several new firms during 1980-82 and the expansion of 
existing operations, capacity to produce coin-operated video games more than 
doubled between 1980 and 1982, Reacting to production beyond practical 
capacity levels in 1981, producers increased capacity by 39 percent in 1982 
(table 2). However, production rose by only 6 percent in 1982, bringing 
capacity utilization down to 80 percent that year. As'the market for arcade 
video games contracted in 1983, capacity utilization dropped to 34 percent in 
January-June. 


1/ Michael Rogers, "Trouble in Computer Land," Newsweek . Sept. 26, 1983, 
P. 72. 

2/ Laura Landro, "Atari Fiercely Tries to Protect Its Share of Video Game 
Sales," The Wall Street Journal . June 10, 1982, p. 33; and Andrew C. Brown, 
"Cashing in on the Cartridge Trade," Fortune . Nov. 15, 1982, p. 125f. 




12 


Table 2 -Coin-operated video games: U.S. production production capacity 
capacity utilization, 1980-82, January-June 1982, and January June 19 _ 


Item 


production-1,000 units — : 175 : 359 : 379 : • 

Production capacity • ■ ' /i7A . ?7 c . ' 

1,000 units-: 207 : 341 : 476 . 275 . 

Capacity utilization '• • ; gl 

percent—: 85 . • 

1/ Data for 1978 and 1979 were withheld to avoid disclosing operations of 
individual companies. 

Source: Compiled from data_submitted in response to questionnaires of the 

U.S. International Trade Commission. 


January-June— 


Video games systems 

U S. production of video game systems in 1979 was roughly one-third the 
1978 level, reflecting decreased interest in dedicated games and an inventory 
overhang from a poorer-than-expected Christmas selling season in 1978. 1/ 
However with the conversion to programmable video game systems, production 
surpls^d the 1978 level in 1981 and more than doubled in 1982. Production in 
January-June 1983 was below that of January-June 1982, because a major 
producer began transferring the remainder of its production to the 

Despite the sharp downturn in production in 1979, capacity utilization 
actually increased, because several companies dropped out of the dedlc »te d 
video game system business. During 1979-82, production capacity more than 

quadrupled. 

The production of home computers began in 1979, but did not become 
significant until 1982. In January-June 1983, the production of hom 
computers nearly equaled that of video game systems. 


Game software 

The production of game software, chiefly video game cartridges, increased 
more San fifteenfold during 1978-82, peaking at 104.8 million units in 1982. 
However an overly optimistic view of the market resulted m large inventories 
of cartridges after the record-setting, yet disappointing, Christmas selling 
season of 1982. Consequently, production was 27 percent lower in January 
1983 than that during January-June 1982 (34 million units compared with 

47 million). 


1/ Precise data have been withheld to avoid disclosing operations of 
individual companies. 


13 


Most software publishers, including those manufacturing video game system 
hardware, use contractors for both the subassembly of the game logic boards 
and the final assembly of the logic boards with the plastic housing. Since 
the questionnaire respondents did not report the production capacity of their 
contractors, it was not possible to calculate the capacity utilization for 
video game cartridges. 



Although no hand-held video games were produced in the United States in 
1978, several domestic toy and game producers entered the market in 1979. 
Production reached 2.6 million units in 1979 but declined to 2.1 million the 
following year. During 1981 and 1982, however, most of these producers went 
on to start manufacturing video game systems, home computers, and/or game 
software as demand shifted to those products. Accordingly, production of 
hand-held video games was reduced, particularly in January-June 1983. 


Producers* Shipments and Exports 

U.S. producers* shipments of all video games increased from $218.1 million 
to $3.1 billion during 1979-82, but fell by one-^quarter in January-June 1983 
compared with those in January-June 1982 (table 3, fig. 1). 1/ U.S. exports 
of complete games, on the other hand, rose more than sixfold during 1978-82 
and continued to rise during January-June 1983, by 65 percent. Increased 
exports of game software (up by $40.7 million) more than offset falling 
exports of coin-operated game machines daring 1981 and 1982 (down by 
$24.3 million). U.S. exports of components for video games peaked in 1980 at 
$10.9 million, consisting chiefly of game logic boards. However, strong 
growth was exhibited in January-June 1983, led by game controllers and disc 
drives. 



1/ Data describing the production of video games in 1978 have been withheld 
to avoid disclosing operations of individual companies. Production increased 
significantly in 1979 from 1978. 





















14 



1978 


1979 


1980 


Table 3.—Video games and components: Shipments of domestically produced complete 
video games and components in the U.S. market and U.S. exports of domestic 
merchandise, 1978-82, January-June 1982, and January-June 1983 


Item 


1981 


January-June— 
1982 ! 1983 


1982 


1/ Certain data are not provided to avoid revealing the operations of individual 
companies. 


Source: Compiled from data submitted in response to questionnaires of the U.S. 

International Trade Commission. 


Complete games: 

Shipments of domes¬ 
tically produced 
video games in the 
U.S. market 
(million dollars) — 
y.S. exports of do¬ 
mestic merchandise 
(million dollars)— 
Components for video 

games: 

Shipments of domes¬ 
tically produced 
components in the 
U.S. market 
(million dollars)— 
U.S. exports of do¬ 
mestic merchandise 
(million dollars)— 


18.0 


10.9 


132.6 


37.8 


55.6 


1,094.5 


62.5 


63.7 


18.7 


218.1 


29.4 


76.6 


84.4 


41.2 


137.3 


15 


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16 


17 


Game logic board components and disc drives ^p^^stparateirtrthe U.S. 
of the value of U.S.-made video game components shipped sepa 

market in 1982. 

The principal markets for U.S. exports of video have been^Canada, 

West Germany, Italy, and the Unrtec Kingdom ^ ^ co^nent. in 1982 

accounted for 60 percent of U.S. exports or vi 6 

(table 4) . 1/ 

, tt q pxoorts of domestic merchandise, by 

Table A p ;ul! d p :; 1«. «* ^ua^une 1W 

(In thousands of do_llarsJ— 


Market 


Western Hemisphere: 

Canada- 

Mexico- 

Other- 

Europe: 

United Kingdom- 

West Germany- 

France- 

Italy- 

Other- 

Australia- 

Far East: 

Japan- 

Hong Kong- 

Singapore- 

Other 
All other 
Total 


1978 


1979 


1,859 

3,271 

20*629 

5 

41 

72 

5,115 

5,634 

8,997 

822 

4,962 

5,077 

829 

2,100 

10,058 

2,090 

3,265 

7,028 

1,243 

2,086 

2,215 

6,503 

5,008 

15,981 

370 

676 

8,167 

3,730 

8,486 

1,453 

_ 

— 

179 


_ 

39 

82 

16 

30 

55 

50 

7,567 


1980 


1981 


39,443 
204 
5,928 

11,392 

10,197 

6,167 

1,561 

5,942 

3,497 

1,098 

1,695 

29 

89 

1,966 



1982 


60,512 

60 

8,373 

1,728 

11,860 

5,766 

7,965 

8,943 

5,615 

1,306 

12,579 

314 

320 

12.304 

137,645 


January-June— 


1982 


30,439 

30 

2,639 

906 

67 

359 

2,425 

645 

587 



1983 [ 


28,010 

80 

2,172 

634 
8,033 
2,397 
8,017 
7,084 
2,045 

2,812 

2,742 

168 

34 

_3_,106 

67 ,334 


Source: Compiled from data submitted 

International Trade Commission. 


T/ App. B lists the barr iersto international 
of video games and components in response to que 
International Trade Commission. 


trade cited 
stionniares 


by U.S. exporters 
of the U.S. 




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H <0 
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Coin-operated video games 


The growth in producers' domestic shipments of coin-operated video games 
slowed in 1982 after more than doubling in 1981 (table 5). Shipments to the 
domestic market dropped to 82,000 units or by 60 percent, in January-June 
1983, reflecting the deteriorating arcade market. 


Table 5.—Coin-operated video games: Shipments of domestically produced video games 
in the U.S. market and U.S. exports of domestic merchandise, 1978-82, January-June 
1982, and January-June 1983 


Period 


1978 - 

1979 - 

1980 - 

1981 - — 

3.982- 

January-June— 

1982 - 

1983 - 


Domestic shipments 


Quantity 

1,000 

units 


Value 

1,000 

dollars 


Unit 

value 


Quantity 

1,000 

units 


U.S. exports 


Value 

1 ~ 000 
dollars 


24 

39,828 

$1,632 

1/ 

1/ 

1/ 


1/ 

1/ 

1/ 

1/ 

1/ 

150 

255,731 

1,709 

28 

52,312 

$1,849 

342 

643,137 

1,881 

30 

52,864 

1,793 

355 

716,006 

2,016 

15 

28,635 

1,884 

208 

429,642 

2,061 

8 

14,842 

1,876 

82 

164,296 

2,003 

3 

5,045 

1,545 


Unit 

value 


1/ Certain data have not been published to prevent the release of information 
which might reveal the operations of individual companies. 

Source: Compiled from data submitted in response to questionnaires of the U.S. 

International Trade Commission. 


The difficulties experienced by arcade video game producers in the U.S. 
market occurred 1 year earlier in Europe. The decline in the market for video 
games in Europe was exacerbated by reduced player interest caused by large 
numbers of low quality games from Taiwan. The growth in exports to all 
markets slowed in 1981, and then fell by 48 percent in 1982. The sharp slide 
continued through January-June 1983, dropping by 58 percent from January-June 

1982. 

Table 6 reflects the fact that proximity to the Canadian market allowed 
U.S. producers to be competitive there until the collapse of the market in 

1983, whereas in Europe, U.S. exporters lost market share to less expensive 
imports from Taiwan beginning in 1981. The drop in average unit value of U.S. 
exports to Europe to $509 in 1983 from $1,224 in 1982 indicates that U.S. 
producers were trying to regain a larger share of the European market by 
exporting conversion kits. 




19 


Table 6.—Coin-operated video games: U.S. exports of domestic merchandise, by 
principal markets, 1980-82, January-June 1982, and January-June 1983 


(Quantity in units; value in thousands of dollars) 


Market 


Europe-- 

Western Hemisphere- 

All other- 

Total--- 


Europe--- 

Western Hemisphere— T - 

All other—---- 

Total--- 


Europe----— 

Western Hemisphere- 

All other- 

Average- t--— 


16,889 

10,486 

917 

28,292 


31,172 

19,437 

1,703 

52,312 


$1,846 

1,854 

1,857 

1,849 


15,881 

12,079 

1,518 

29,478 


26,587 

23,974 

2,303 

52,864 


$1,674 

1,985 

1,517 

1,793 


Quantity 

1,479 

13,131 

592 

15,202 

Value 


1,883 

25,632 

1.120 

28,635 

Unit value 


$1,273 

1,952 

1,892 

1,884 


January-June— 


890 

6,926 

_95. 

7,911 


1,089 

13,594 

159 

14,842 


$1,224 

1,963 

1,673 

1,876 


700 

2,462 

103 

3,265 


356 
4,505 
184 
5,045 


$509 

1,830 

1,786 

1,545 


Source: Compiled from data submitted in response to questionnaires of the 
U.S. International Trade Commission. 



Shipments of U,S.-produced video game systems to the domestic market fell 
during 1978-80 as consumers grew bored with dedicated video games. Shipments 
more than doubled in 1981 over those in 1980, however, as programmable systems 
grew in popularity. Shipments more than doubled again in 1982, but declined 
slightly in January-June 1983. The growth in shipments of home computers 
offset this decrease seven times over. The average unit value of video game 
shipments was halved between 1981 and 1983, and the average unit value of home 
computers in 1983 was barely over one-half of what it was in 1982. 


, The value of exports of home video game systems reached $31 million in 
982, surpassing the value of arcade video game exports for the first time. 

The quantity exported in January-June 1983 was nearly double that exported’in 
anuary-June 1982, but the value declined as the average unit value was 
reduced sharply. Exports of home computers in January-June 1983 were ahead of 
hose in all of 1982 in terms of quantity and value. 


Canada was the dominant export market for home video game systems 
roughout 1978-83. On the other hand, Italy rivaled Canada as the chief 
market for home computers in 1982 and January-June 1983. 











































20 


21 


Game software 

„. S . producers' llZll\Ts^ 

£ S£ of 

January-June 1983 compared with that in January-June 1982. 1/ 

u.s. exports of video game »ofta»r« «r* ^“^exSrt. in 

condition, however, fallins just perce were approximately triple those 

January-June 1983 (table 7). Exports in 198 We ™* Ppr °as the * arge * t sin5 le- 

country d market*i n ^1980°and^l981 but^was overshadowed by West Germany, Hong 
Kong, and Australia in 1982. 

„ p*. u S exports of domestic merchandise, by principal 

Iab le 7.-:Gam ! sof w r !R U j S n export^ ^ ^ January _ June 1983 



Canada- 

Europe- 

All other- 

Total-*- 


Canada- 

Europe- 

All other- 

Total- 


Canada- 

Europe- 

All other--- 

Average- 


Quantity 


1,339 

44 

1 Lfxl 

580 : 308 : 127 s 

652 : 1,762 : 100 : 1.5*6 

714 : 2.183 : *7_j - 

o stsn « 

" 1 446 : 4.253 : _g74^-1,400 

Value 

2,914 

667 

S.644 

12 951 : 3,228 : 1,600 : 5,789 

5 938 : 30,123 : 1,710 : 18,690 

4.191 : 30.404 : l,KZ_i-ixMl 

. Q 

■■ « ™ , 63.755 : 4.437 : -JfUA™ 

* Unit value 


$2.18 

15.02 

3.85 


$22.32 
9.11 
19.58 


$10.47 

17.10 

13.93 


$12.57 

17.10 

23.98 


3.24 


15.96 


14.99 


16.19 


$14.82 

12.09 

6.60 

9.84 


Hand-held video sames 

U.S. producers’ shipments of domestically made hand-held video games in 
the U.S. market reached a peak in 1982 after slumping in 1981. The number of 
units shipped in 1982 was slightly higher than that in 1980. However, in 
January-June 1983, shipments were less than one-half the volume recorded 
during January-June 1982. 

With the deterioration of the U.S. market in 1983 because of competition 
from video game systems/home computers, producers of hand-held video games 
interviewed during this investigation stated that they are placing more 
emphasis on foreign markets. In this connection, the ratio of exports to 
production rose from approximately 2 percent in 1982 to 18 percent in 
January-June 1983. Canada has been the leading market for U.S. exports of 
hand-held video games. 


Inventories 


Coin-operated video Karnes 

Inventories did not become a problem for arcade video game manufacturers 
until 1983. Growing demand helped keep the ratio of inventories to production 
below 2.3 percent annually during 1980-82 (table 8). However, as the market 
contracted in 1983, this ratio rose to 21.1 percent. This rate is especially 
high for an industry with many manufacturers which produce only to fill orders 
and maintain a working inventory. 


Table 8.—Coin-operated video games: U.S. producers’ inventories as of 
Dec. 31 of 1980-82, June 30, 1982, and June 30, 1983 


Indicator 

1980 

1981 

1982 

January- 

-June— 

1982 

1983 





Inventories as of 

Dec. 31 or June 30 

1,000 units— 
Ratio of inventories to 

1.9 

1/ 

8.8 

7.1 

20.5 

production-percent— 

1.0 

2/ 

2.3 

3.2 

21.1 


1/ Less than 50 units. 

2/ Less than 0.05 percent. 


Source: Compiled from data submitted in response to questionnaires of the 
U.S. International Trade Commission. 








































22 


23 


Video frame systems 

Inventories of dedicated video game systems were relatively high at the 
end of 1978 and were a factor in at least two companies departing from the 
industry in that year. However, since 1978 and the conversion of the market 
to programmable video game systems, inventories have not exceeded 5 percent of 
production. 

Despite the rapid growth in producers’ shipments and exports of home 
computers, production has grown at an even faster rate. Consequently, 
inventories were relatively high on June 30, 1983. High inventories were 
cited as one of the reasons why one of the largest home computer manufacturers 
exited from the low end of the computer market in late 1983. 


Game software and hand-held video games 

As with home computers, production of game software outstripped even 
record domestic shipment and export levels. Nearly one-third of the year's 
production was in inventory on December 31, 1982, following a less-than- 
spectacular Christmas season. Producers’ inventories of hand-held video games 
were consistently high during 1979-83, ranging between one-quarter and one- 
half of production. 


Employment 

Employment of production and related workers in the domestic video game 
industry quadrupled during 1978-83, from 2,249 to 9,225 (table 9, ig. >• 
Employment continued to rise in January-June 1983 compared with that in 
January-June 1982, by 13 percent, from 8,176 to 9,225. Although the larges 
producer of video game systems initiated layoffs during January-June 1983 
preparatory to closing its U.S. production facilities in favor of overseas 
production, expansion of the workforce involved in manufacturing home 
computers and game software more than offset this loss in employment. 

Man-hours worked by production and related workers reflect the changes in 
the workforce. Man-hours worked in the production of all types of video games 
more than quadrupled during 1978-82, from 3.8 million to 11.8 million hours 
(table 10). 


Table 9.—Average number of employees, total and production and related workers 
employed in establishments producing video games and components, by types, 
1978-82, January-June 1982, and January-June 1983 


Item 

1978 

1979 

1980 

1981 

1982 

January-June— 

1982 

1983 

All persons employed 
in establishments 
producing video 
games and compo¬ 
nents--- 

13,742 

15,170 

17,213 

19,355 

23,668 

21,605 

25,051 

Production and re¬ 
lated workers: 

All products- 

9,126 

9,821 

11,264 

13,017 

13,851 

13,315 

14,376 

Video games and 
components: 
Coin-operated 
video games- 

1,491 

1,361 

1,978 

3,193 

3,070 

3,408 

2,688 

All other- 

758 

986 

1.352 

3,439 

5,688 

4,768 

6,537 

Total-—- 

2,249 

2,347 

3,330 

6,632 

8,758 

8,176 

9,225 


Source: Compiled from data submitted in response to questionnaires of the U.S. 
International Trade Commission. 




























COIN-OPERATED VIDEO ©AMES 

OTHER VIDEO GAMES *Nt> COwv*»UtKT3 

all video games a. components 

SOURCE. COMPILED FROM DATA IN RESPONSE TO QUESTIONNAIRES OF THE I.T.C 


25 


Table 10.-.-Video games: Man-hours worked by production and related workers, by 
types, 1978-82, January-June 1982, and January-June 1983 


January-June— 


Type 

1978 

1979 

1980 

Coin-operated video 

games--- 

All other--- 

2,497 

1,270 

2,339 

1,612 

3,011 

1,599 

Total---— 

3,767 

3,951 

4,610 


4,473 

3,425 

7,898 


4,614 

7,147 

11,761 


2,378 

3,032 

5,410 


2,687 

5,477 

8,164 


International Trade Commission. 


Coin-operated video games 

The coin-operated video game industry employed 3,408 at its peak in 
January-June 1982, more than double the level in 1978 (table 9). Within a 
year, however, the market had collapsed, and employment of production and 
related worker was reduced by 21 percent to 2,688 in January-June 1983. 

Man-hours worked in the production of arcade video games nearly doubled during 
1978-82, from 2.5 million to 4.6 million hours. Man-hours worked actually 
rose in January-June 1983 over those in January-June 1982, despite a decline 
in production. As a result, man-hours worked per unit produced climbed from 
10.7 to 27.7 (table 11). This reversed the trend which had brought this 
indicator of productivity down from 56.8 hours in 1978 to 12.5 hours in 1981. 

Table 11,—Coin-operated video games: Average number of man-hours worked per unit 
produced, 1978-82, January-June 1982, and January-June 1983 


January-June— 


1982 ' 1983 


Coin-operated video games-: 56.8 : 35.4 : 17.2 : 12.5 : 12.2 : 10.7 : 2 

Source: Compiled from data submitted in response to questionnaires of the U.S. 
International Trade Commission. 


Video game systems 


Employment of production and related workers involved in producing video 
game systems more than quintupled during 1979-82. However, releases due to a 
shift in production to overseas facilities cut employment roughly in half 
during January-June 1983. The expansion of employment in the production of 
home computers between 1982 and January-June 1983 approximately offset the 

























26 


impact of this move offshore. Also growing is employment involved in the 
production of game controllers and disc drives for video game system/home 
computers . 


Game software 

The number of workers producing game software rose from 57 to 5A2 during 
1980-82, and to 1,305 in January-June 1983. 1/ Theoretically, employment in 
the software segment of the video game system industry should continue to grow 
even after the saturation of the market with video game system/home computer 
hardware, because consumers will continue to buy new games for their installed 
hardware. 



Reflecting the U.S. market, employment in the production of hand-held 
video games, which began in 1979, peaked in 1980, and made a resurgence in 
1982, but was sharply reduced in 1983. 


Capital Expenditures 

Table 12 shows the capital expenditures for U.S. facilities for 
production, warehousing, and marketing video games and components. 

Expenditures grew each year during 1978-82, from $6 million to $52.2 million, 
and climbed in January-June 1983 to an amount which was double that spent in 
January-June 1982 (fig. A), The bulk of the expenditures in each year was for 
machinery, equipment, and fixtures. 


Research and Development Expenditures 

An indication of the commitment of U.S. companies to the continued 
competitiveness of the domestic industry is the level of expenditures for R, & 
D. Such expenditures rose in each year during 1978-82, from $12.2 million 
to $97.7 million, and nearly doubled in January-June 1983 compared with those 
in January-June 1982 (table 13, fig. A). The only type of video game not to 
exhibit a trend toward increased investment in R. & D. was hand-held video 
games. 


Coin-operated video games 


Investment in research and development for the arcade video game industry 
rose from $5.5 million to $27 million during 1978-82 and climbed by 12 percent 
in January-June 1983 over that in January-June 1982 (table 13). 


1/ These figures do not include employment by contractors performing 
assembly of video game cartridges and discs. 


27 


used for production^ warehousinland market^ U ‘ S ' facilities 
June 1982, and January-June 1983 6 ’ y ypes > 1978-82, January- 


Capital expenditures 


Land and land im¬ 
provements--- 

Building or lease¬ 
hold improvements— 
Machinery, equip¬ 
ment, and fix¬ 
tures-- 

Total-! 


J_In_ thousands of dollars^ 


5,316 
5,96A 


3,078 


5,479 

9,179 


1980 


1,990 


7,603 

9,678 


6,880 

4,997 


33.767 
45,6AA 


11,640 


40,230 

52,215 


January-June- 


3,965 


15,296 

19,606 


9,793 


International Trade Co^i ssion 5 ^™ 1 U reSponse to questionnaires of the U.S. 


33.532 

43,556 


13. Video games and component's* Pvnnnf) 11 - ^ 

bV 1978-83, aanuar^une^r^ '££££ 


Coin-operated video 

games- 

All other- 

Total- 


-(In thou sands of dollars 


5,543 

6.324 

12,230 


5,598 

10.745 

17,375 


1980 


8,343 

18,481 

29,001 


18,129 

23,726 

43,547 


26,985 

58,659 

97,709 


January-June— 


12,446 

24.275 

43,324 


International Trade CoZission SUb "^"^~^ response to questionnaires of the U.S. 


13,968 

51,204 

80,536 


Video game systems 

....-SrSi'S 5- .... nat 

and development was evidenced again in^anu^-J^mS"" 14- ”* k ° rSSearCh 

than for"any V q ther"video g^ p^ducT^cC? »•« compnters 

year during 1979-81 and in 1983. ’ cludln S vlde ° game systems, in each 

































t ® 

a u. 


i *2 2 


-Q < 

&*- < 
Q 

r 

_ia 8 
we a 
>&. i»* 


29 


Game software 

Expenditures for research and development in game software increased 
geometrically in each year during 1978-82, except 1981. More was invested in 
software research and development in January-June 1983 than in the full year 
1982. Nearly as much was invested in research and development related to 
software in 1982 as in video game systems. 


Hand-held video games 


Investment during the period in research and development for hand-held 
video games peaked in 1982, and slowed in January-June 1983. Investment for 
hand-held video games was generally less than for other types of video games. 
The producers of hand-held video games are apparently placing more emphasis on 
other types of games. 


Income and Expenditures From the Licensing of Copyrighted Video Games 

Expenditures for licensing copyrighted video games grew annually during 
1978-82, from $0.8 million to $112.A million (table 14, fig. A). These fees 
are usually paid by arcade video game producers to game developers in Japan, 
or by game software manufacturers to arcade video game producers (both 
domestic and Japanese), or to other software producers. The size of the 
expense is indicative of the pressure to obtain rights to games which are 
judged to be potential hits. 

Receipts were relatively meager until July 1982-June 1983. Royalty 
payments to Japanese game developers probably accounted for the gap between 
the royalties paid and received during 1980-82 (table 1A). 


.-AUtUlllB U.UU 


uum tne licensing or rignts to copvri 


video games, 1978-82, January-June 1982, and January-June 1983 


'-'t'j *■ 1511 i,eu 


(In thousands of dollars) 


Expense-- 

Income-— 


783 

5,369 


3,593 
A,211 


12,930 

3,098 


28,A60 
2,661 


112,354 
2A,030 


January-June— 


1982 * 1983 


AA,753 
3,574 


49,549 

61,759 


Source: Compiled from data submitted in response to questionnaires of the U.S. 
International Trade Commission. 
























30 


MAJOR FOREIGN MARKETS AND COMPETITORS 


Japan 


rnin-operated video Rames 


Nearly AO companies entered Japanese^arke^for^oin^operatedsVide 

games in response to the success P copies of copyrighted games, 

The market quickly became saturated with » J> deve i opment budgets. With few 
driving down prices and drying market underwent a severe 

hit ! t0 t ° ff 1n S ere l ; U h o^^ntes survived the shakeout. With a 

contraction in early ■ * factU rers, the remaining 

plethora of hardware in arcades own y d the production of 

producers have concentrated their activities toward P 

conversion kits. 


or ... approilmetel, 1» 

coin-operated video games in P • of the firms a re basically 

account for the bulk of Production. _ trol panels, integrated circuits, 

assemblers—purchasing monitors, cable , f acturers. However, most 

printed circuit boards, and cabinets from ^her manutac ^ ^ 

transportation costs put producers began licensing 

foreign markets. As a result^ * c * rs of coin _ oper ated video games in 1978 

copyrighted video games to . • P market. As the popularity of 

in order to share in the wealth of the^^ Japanese copyri ght holders also 
arcade video games grew » th. oducers of home vide o game systems, computers, 
licensed their games • • P Qn -e P nroducers reconsidered this practice, 

and hand-held games, ^--/^^shed subsidiaries in the United. States 
however, and by 1982, they ^ boards with U.S.-made cabinets or 

to either assemble Japanese-made g 6 European market, Japanese arcade 

to market conversion kits. T ° game logic boards to Italy, where they are 

also°ass^mbled^with S locally^made cabinets or marketed as conversion kit.. 

A U.S. Producer of laser «« a 

Japanese company pioneered the appl1 ^ the limited production capacity 

laser disc arcade video games. 

.... •< .pip-.p.p.«. 

yet interdependent, relations ip.wi P 1 ; degrees on the research and 

complete ^a-i^f 

-y 


. ■■ ■■■■■■ . I -L... .. . U UU ... 


31 


Furthermore, the distribution network in Japan is even more tightly controlled 
by local manufacturers than in the United States. As a result, the only 
practical way for a U.S. firm to share in the Japanese market is to license 
copyrighted games to Japanese producers. Although this has been done, only 
two games marketed in this fashion have become hits with Japanese game 
players; one was a game developed in France whose copyright was purchased by a 
U.S. firm and then licensed to a Japanese manufacturer. 

One of the most significant developments in the Japanese market in 1983 
was the more stringent enforcement of copyright laws. 1/ Reportedly, after a 
complaint is filed with Government authorities, an official of the company 
holding the copyright accompanies the authorities to identify infringing game 
machines. The machines are destroyed and the parties responsible for the 
infringement arrested. 




The market for video game systems in Japan began taking off in the spring 
of 1983 and is not nearly as developed as the U.S. market. Three companies 
together account for the bulk of Japanese production of video game systems. 
Personal computer manufacturers in Japan began entering the home video game 
market in 1983 but have not become an important factor. These hardware 
producers also manufacture most of the game software marketed in Japan. 
Although the three largest producers of video game systems have subsidiaries 
in the United States for the assembly of arcade video games or the licensing 
of copyrighted video games, none of these firms export video game systems to 
the United States. 

One U.S.-based firm has been successful at marketing its line of video 
game systems in Japan on an equal footing with the three principal Japanese 
producers. However, because of language and cultural differences, it is rare 
for U.S.-made game cartridges to be exported to Japan. 


Hand-held video 


The market for hand-held video games in Japan went through a period of 
boom and bust during 1978-81. Although still strong, the market is expected 
to lose ground with'the ascendancy of video game systems in 1983. Even though 
several companies pyoduce hand-held video games in Japan, the market is 
dominated by two firms. Attempts by Japanese companies to market hand-held 
video games in the United States have been, for the most part, unsuccessful. 
Two U.S. firms, which manufacture their games in the Orient, have an 
appreciable share of the market in Japan because of their high quality. 
Hand-held video games are rarely imported from the United States, because 
their relatively high prices would not allow them to be competitive. 


V "Amusement Equipment Makers Seek Protection of Software/* The Japan 
E conomic Journal . Jan. 25, 1983, p. 17. 










32 


Hong Kong 
». largest „ «... 

: , r2tr.,K , sir.is 1 2'- »~ 
ssss.rsj?sw?i , 3ia. - - — 

companies. 1/ 

,.,„s ^••-a-JKSrJSrsSSS:^-' 

-s.r.t.rSriiS: sr=p?*--- —■* 

Video game systems an d software 

Bv mid 1977 seven companies were making dedicated video B ame systems in 

„on B Kons chiefly for Joir^ntures with 

Germany. However, two . • prosrammable video same systems in 

*As^ these°two^operation^came°to°dominate the market, most of the other 

competitors in Hons Kons exited from ^ ji deo ^^“^^“perclnt of Hong 
remainins company markets a system in Japan. In 1981 98 per 

Kong' s exports of video ^^^the^woTs.-bafed coipanies One of theU U.S. 
producers began Assembling its video game cart £*** e ® ^ b?l AAod!cAr i T 

ss-irs?- - 

computers from California to Hong Kong. 


Hand-held video garner 

T he first company to produce “l ^petttors. 

manufacturing the games in ' states \ u.S.-based company contracted 

wit^a^manufacturer^in Z^n^t^ Action ot hand-held video games 
•> r hq-xq Rv I ate 1978, the U.S.-based company had transterrea 

production to'one of its own plants in Hong Kong, ^n^l^ompany's 6 *" 

... r r™k«. “ 


~ 1/ "Hong Kong Studies Electronic Toy Exports," AEU, Dec. 1982, 7- 32ff^ 
2 / "Programmable and Handheld TV Games are Attracting Maker Inter 
Kong,” Electronics , Hay 1978, p. 148ff. 


33 


Taiwan 


Coin-operated video games 


Since 1978, Taiwan has been the chief source of coin-operated video games 
which allegedly infringe on copyrighted audio-visual works. 1/ Initially, 
unlicensed copiers in Taiwan exported arcade video games, complete with 
cabinets, to the United States, Japan, Europe, the United Kingdom, Canada, and 
other less significant markets. By 1982, most of the alleged infringers had 
adopted the strategy of exporting just the game logic boards to foreign sites 
where the logic boards would be assembled with locally manufactured cabinets. 
This practice served the purpose of both reducing transportation costs and 
import duties and making detection of the infringing games more difficult at 
customs ports of entry. 


According to import specialists of the U.S. Customs Service interviewed 
during this investigation, testing equipment from copyright holders loaned to 
the Customs Service in 1982 improved the ability of import specialists to 
detect which imported game logic boards were infringing on copyrighted works. 
However, to circumvent these efforts, by mid-1983, most alleged infringers in 
Taiwan were exporting the programed EPROM’s in separate shipments from the 
rest of the logic board components, with the EPROM’s to be assembled to the 
printed circuit boards in the foreign countries. This practice has made 
protection of copyrights for video games extremely difficult. In addition, 
the import specialists explained that EPROM’s bearing infringing programs are 
usually declared to be unprogramed integrated circuits at only a fraction of 
their true value, thus avoiding significant duty assessments. Furthermore, 
this practice of infringement frustrates the collection of official statistics 
measuring international trade in coin-operated video games and parts and leads 
to the understatement of the actual volume of trade. 


Video same systems and software 


A U.S.r-based company established its principal manufacturing facilities 
for video game systems in Taiwan in 1980, and by mid-1983, had also 
transferred the production of home computers to Taiwan. Another U.S.-based 
company began manufacturing some of its video game systems in Taiwan in 1981. 
Some independent U.S.-based suppliers of game software assemble game logic 
boards in Taiwan; only a few assemble finished cartridges there. Most 
U.S.-based firms operating in Taiwan use a mixture of components manufactured 
in Taiwan, Japan, and the United States and use local contractors for some of 
the assembly or processing of the components. 


1/ This information was developed from interviews with representatives of 
firms which produce coin-operated video games in the United States and Japan 
and with import specialists of the U.S. Customs Service. 









34 


Europe 


r.nin-QP prflted videg_games. 


Officials of both U.S. and 3apa "® S ® 0 ?^p“Itedvideo games became 
japan and the United States, P^, ra ?^ .analogic boards programed with 

prevalent in Europe in 1978. ^.-'exported to Italy where they 

copyrighted gomes were copied 1 , . with high transportation 

were assembled with locally p ?° in & terms of most European currencies, t e 

charges and the dollar appreciating in term the majority of 

rising prices of most U.S. -made arcade video^« games . However, 

European operators to turn o reportedly inferior to that of 

the quality of the infringing games was repo t y er intere st in the 

U.S. -made games. The reduction in h .J d the flyback period of even 

arcades. Reduced revenue per m&chin ooor quality counterfeited games hurt the 

&S7ZX 5S."S ”- -«••• 

video games had nearly halted. 

The current European market is boards from 

subsidiaries of U.S. and Japanese fllocally made cabinets or market 
their parent companies an ‘ ' 1 which license copyrighted 

them as conversion kits, V (2) V cabinetmakers (usually in 

games from the United States and Japan, a from the orient (usually 

Italy) which import infringing 6 discoura&es the Japanese 

Taiwan). 2/ Competition with inf in Europe more aggressively, 

manufacturers from marketing the P arcade video games had been 

ssrs srr u- *- '•••' 

disc video games to Europe in 1983. 


Video ga me systems 

The disenchantment of “deM* syl^^ ■ 

of arcade * aa ^exporter, the Umited choices in television 

according to a major u.o e of televisions in Europe. 

s: d the price of 

imported video game systems. 


C °2/ a ?iere are no significant manufacturers of logic boards for coin-operate 

V ^:;::i l sch™--B. Video C T » Set to world Market," ** 

Washington Pos t,. Mur. 20, 1983, p. G1. 


35 


The European market for video game systems is supplied by one local 
manufacturer (which also produced video game systems in the United States from 
1972 to 1983) and three U.S.-based suppliers. One of these U.S. firms exports 
the systems directly from its production facilities in Hong Kong, and the 
other two export from the United States, 


Game software 

A major distributor and exporter of software stated that U.S.-made game 
cartridges for video game systems and home computers are preferred in Europe 
over game software from other sources. Cartridges from the United States have 
a reputation for higher quality in production standards and in graphics, game 
play, and sound. However, countries which require programs to be written in 
the local language and countries which do not allow prepayment reportedly 
present barriers to U.S. exports. European video game players tend to take 
more interest in sports-oriented games than their counterparts in the United 
States. 

The chief competition for U.S. producers in the European market is from 
counterfeit game software which duplicates copyrighted programs carried on the 
EPROM’s of U.S.-made game cartridges. Industry sources indicate that most of 
the counterfeit software is made in Taiwan, Hong Kong, and the Republic of 
Korea. 



Hand-held and tabletop video games are still very popular in Europe 
because of the large portion of the population without household television. 
Demand is strongest for sports games. Nearly all of the hand-held video games 
in the European market are imported from Hong Kong, Japan, and the United 
States. Games marketed by U.S.-based suppliers have a reputation for high 
quality. Games produced in Hong Kong and Taiwan by foreign firms usually have 
the advantage of lower price. According to a principal U.S. exporter, 
hand-held video games produced in Japan have a minority share of the European 
market, because they tend to be priced above games by manufacturers based in 
Hong Kong or Taiwan but do not carry a reputation for quality as high as that 
attributed to games by U.S. companies. 


Other Markets 

U.S, producers were successful at marketing coin-operated video games in 
Canada for a period, but the strength of the U.S. dollar and the value-added 
tax contributed to make arcade games appear overpriced compared with other 
forms of entertainment. Import substitution policies and higher duties for 
finished goods than for components make the export of conversion kits the only 
feasible way to enter the markets in Australia and Latin America. Some 
countries, such as Singapore and the Philippines, have banned coin-operated 
video games, because they allegedly caused increased truancy among school-aged 
children. 1/ 

1/ "Zapped: Singapore Bans Video Parlors," The Washington Post , 

Aug. 27, 1982, p. A34. 










36 


. *j p( 4 U S. producers in gaining 

Similarity in culture and U " S ^ e ^ V for'6ame software, video game 
h-c-ut^ i® 8 Canada, Australia, and tte .eputlrc of Sou 

Africa. 


U.S. IMPORTS 
Importers 

over 200 companies imported questionnaire probably 

1978-June 1983. Respondents to the fche value q{ „ s . imports during 

together accounted for over 9 per n ^ ed to the Commission’s 

that period. manufactured video games or components an 

rnt S ted 0 St a ati;: ""these producers -e^forelgn^ ln 

manufacturers together accountei f * roducinB in the United States 

1982, the 9 foreign-owned manufactur P compan ies not Involved in 

together accounted to,: lj> P.«; /^nUd for only 2 percent of the 

manufacturing domestically togetner 

imports. 


CojjUiOj2erated__yideo_gwne£ ith 

~ « ““ - **• - 

complete games. 


Video_game^ystems _ T978-83 U S. 

Ten firms imported video game systems at -e^time during ^ f 

producers with —seas product on f acilit tw0 U.S.-based 

imports. Five companies l*P or «® " 
manufacturers of video game systems. 


name software # . f 

Seventeen «--!.• S"' 

foreign-made components. 


H a nd-held__yideo_ 


, • n i-v,e» npriod. The majority 

Ten firms imported ^;^V“!^Ln«f«turer. using overseas 
of imports were accounted for by u.u. 
production facilities. 


37 


Imports for Consumption 

Imports of all types of video games and components rose annually during 
1978-82, from $84 million to $766.5 million (table 15). Imports in 
January-June 1983, however, were 31 percent less than the in January-June 1982. 


Table 15.—Video games and components; U.S. imports for consumption, by principal 
sources, 1978-82, January-June 1982, and January-June 1983 


Source 


Japan- 

Hong Kong and 

Taiwan- 

Singapore and 
Philippines- 

All other- 

Total- 


73,674 

6,184 

3,337 

83,973 


(In thousands of dollars 


3,990 

154,161 

19,500 

323 

177,974 


23,749 

298,012 

21,587 

680 

344,028 


55,601 

402,124 

44,035 

30.826 

532,586 


171,637 

485,061 

90,828 

18.936 

766,462 


74,488 

233,166 

21,449 

6,734 

335,837 


-June— 


43,026 

134,387 

53,941 

1.980 

233,334 


Source; Compiled from data submitted in response to questionnaires of the U.S. 


▼ . L « 1. S A *1 Ty» r\ A n Pntnm \ r P 1 rtft 


Together, Hong Kong and Taiwan supplied over one-half of the imports of 
video games and components in each year during the period (fig. 5). Imports 
from Hong Kong and Taiwan rose from $73.7 million to $485.1 million during 
1978-82, but were 42 percent ($98.8 million) less in January-June 1983 than 
those in January-June 1982. Imports from Japan grew from $0.8 million to 
$171.6 million during 1978-82, but also fell by 42 percent during January-June 
1983. On the other hand, imports from Singapore and the Philippines not only 
climbed from $6.2. million to $90.8 million during 1978-82, they also more than 
doubled during January-June 1983 compared with those in the corresponding 
period of 1982. The principal imports from Hong Kong and Taiwan were video 
game systems and hand-held video games, imports from.Japan consisted largely 
of coin-operated video games and logic boards, and Singapore and Taiwan 
specialized in the ^assembly of logic board components and video game 
cartridges. 

Imports of complete video games increased from $80.9 million to 
$575.9 million during 1978-82, but, at $155.4 million, were 43 percent less 
during January-June 1983 than those in January-June 1982 (table 16). 

Hand-held video games accounted for over one-half of the.value of total 
imports of complete games during 1978-80. After 1980, video game systems 
accounted for over one-half of the value. 

Imports of components for video games increased geometrically during 
1978-82, from $3.1 million to $190.6 million (table 16). Unlike imports of 
complete games, imports of video game components continued to rise during 
January-June 1983, up 23 percent over those in January-June 1982 to 

















1R 



187e 187S 1880 1881 1882 IS* 3 


39 


1 Com P° nents for S™* logic boards accounted for roughly 
period V imported video game components during the entire 


Table 16.-Video games and components: U.S. imports for consumption, by types 
978 82, January-June 1982, and January-June 1983 


Type 


Complete video 

games- 

Components for video 

games- 

Total—- 


3,1 

8A.0 


(In millions of dollars) 


1979 


170.2 

_ 7.8 

178.0 


317.2 

26,9 

344.1 


446.1 

86.5 

532.6 


575.9 

190.6 

766.5 


January-Jun 


272.6 

63.2 

335.8 


..surg«i si,*° -"-“i—- « 


Coin-operated video games 

Imports of coin-operated video games were negligible in 1978 and 1979 
but rose to $12.4 million in 1980 and $60.9 million in 1981. The popularity 
particular copyrighted game led to another substantial increase in 
imports in 1982, but as the game began to exhaust its player appeal in 1983 

gSs in 1978 but Loan , T ^ a1 ^ supplied all of the imports of arcade video' 
g es m 1978, but Japan became the leading supplier the following year 

wMrh r ^ ^ lnant . SUpplier of lo & ic boards ^r arcade video games, 

which became a significant item of trade in 1981. 

Video game systems 

. Imports of video Same systems were quite small in 1978 and 1979 became 
significant in 1980, more than tripled during 1980-82, but declined 

lun^ n ^ ly . f" 1983 - y H°ng Kong and Taiwan were the leading 

suppliers during 1978-83. 6 

Home computers were first imported in 1981, and although the value has 

As P of X June e i983° U T led ^ ** baSlS ’ ^ V ° lume is relativel y small. 2/ 

nifl n!f 1983 ’ J f? an WaS the leadin 6 source. In addition, a U.S. 

nufacturer assembled home computers in the Philippines. 


ff ta for 1978 ’ 1979 » 1982, and 1983 were withheld to avoid disclosing 
operations of individual companies. 6 

2/ Data were withheld to avoid disclosing operations of individual companies 



















AO 


„ „ 4 - j mnn r}-pd in 1981; such imports reached 

Game controllers were firs P figure in 1983. 1/ Hong Kong and 

$6.1 million in 1982 and should surpass that figure in 

Taiwan are the principal suppliers. 

Game software 

4 rasr-raw- s^rs srai’’ 

and reached $39.2 minion 11 — nf 1QR2 however, as orders 

8 percent below those in the correspon ing 1982. Host imported 

were affected by the inventory over-at r.ta 1 from 19*2.^ 

video game cartridges contain "tegrated clr ( Qf game logic board 

components .^Hong ' Kon^and ^aiwtn were the chief suppliers of video game 
cartridges in 1982 and 1983. 

Imports of logic boards for video ^ 
logic boards were “ U “ or e, and Hong Kong were the most important 

^urLTof logfc'bLd! for ^ame software, and Singapore and the Philippines 

“ ere Cassette^recorder s e for°home m computers° r supplied^principally by Singapore, 

Hong Son «d J.p«. are rapidly becoming a significant import item. A/ 



imports of hand-held video games peaked in 1980 more than^doub ing 
1978 volume, and accounted for tbe bulk of the value of hand -held 

imports in each .J*“ n d "j;* w ” 7 ^; e t^ of such value in 1980. 5/ The 

;^i 8 P r.rc % B i s-S“«U. .-v ap ‘ n t i.ru«« 

components for hand-held video games achieved a significant level in 1982. 
Such components are made in Hong Kong and Taiwan. 


Imports under TSUS it em 807.00 6/ 

There were no imports of video games or components under TSUS item 807^00 
in 1978! such imports in 1979 were insignificant. U.S. produ cers began more 

~rrS^Ta for 1981 and 1983 were withheld to avoid disclosing operations of 

^Tuformo'nd 1981 were withheld to avoid disclosing operations of 

'“S^forSwwi were withheld to avoid disclosing operations of 

“J^f^ were withheld to avoid disclosing operations of 

i 1) V Da U ta 1 for?9 a 78!81 and 1983 were withheld to avoid disclosing operations of 

^^Undei ?sus a item 807.00, imported articles assembled injoreign^countries 

are\ubjecrto d duty P upon t the t 'fIu a v e alue e of m the Imported product less the value 
of the U.S .-fabricated components contained therein. 


41 


^ ?f° V i S !° n ° f TSUS item 807 - 00 in 19 81 after Taiwan and 
ng Kong had lost eligibility for duty-free entry under the GSP program with 

Hmit in iLT t e V 34 ' 20 b6CaUSe th6y had 6XCeeded the competitive^" 

$21 million in 1,80^ . CUrabed ^ 

minion in 1982. 2/ Although every type of video 

TSUS i tert^RO? nr> eV .h y ty ? 6 ° f video 8arae component has been imported under 
807.00, the principal products imported under this provision were 
video game systems and logic board components for video game cartridges. The 

as&r&x m l ” *» «w».«. 


Table 17.--Video games and components: U.S. imports under TSUS item 807.00 
by principal sources, 1980-82, January-June 1982, and January-June 1983 


(In thousands of dollars) 


Source 



Taiwan and Hong Kong- 

Singapore and the 

Philippines- 

All other- 

Total- 


14,000 


6,180 

781 

20,961 


227,448 


20,282 

1.337 

249,067 


432,136 

55,773 

6.315 

494,224 


January-June— 


229,519 

18,348 

2.884 

250,751 


105,472 

34,626 

5,448 

145,546 


U s° U InUrn C r Pil i ed T f T data submitted in response to questionnaires of the 
u.s. International Trade Commission. 


of video aarne H 807 00 accounted for just 6 percent of total imports 

and 1982 to A !nd I™*™*** ln 198 °' However - this rati ° increased in 1981 
Rn? nn 82 b « 6A percent, respectively. In 1982, imports under item 

807.00 accounted for 89 percent of all the imports of video games and 
components from Hong Kong and Taiwan. 


- y Sec. 50A(c) of the Trade Act of 197A provides that an eligible article- 

ill not receive duty-free treatment if it is the product of a beneficiary 

of U theVs 1C ? ln P r . eaedin S.y e *r (1) supplied 50 percent or more by value 
the \ P • h ! SrtiCle ’ ° r t2) SUpplied imports valued at or above 

m2 is adiulted 6 ll “ ltat10 ^ < This amount, which was $52.3 million in 

n.o 'g^sfratmalTo^t)" the baS1S ° f the PerCe " taSe ° f ^ ^he 

companies. ^ ^ Wer ° Withheld to avoid disclosing operations of individual 



















THE U.S. MARKET 
Description of the Market 

Coin-operated vide o Rames 

An industry survey in 1981 indicated that a ^"g^p^ent°are'teenagers . 
those who Play video E anes n arcades “?^teenage males. The video 

Arcades function as a soc J ali ““°" ^tainment. A major part of the appeal of 
games at the arcades provide ^ h ® e " their peers with high scores. 1/ 

the games is that players want ^ locations for coin-operated video 

Many teenagers find the arcades socU1 interaction than playing video 

games more suitable for this arcade video games generally have superio 

gamest became their greater memory capacity permits 

more detailed programing. 

Despite the social function of the arcades ,J» -ade.^p.^^ss. 

entertainment appeal of the vi eo 6^® financial success in 1982. The 

A series of factors began working agains * fche prolif eration of game 

market became saturated with game mach 1^ 2/ competed for the attention 

machines in both arcade an stree generated by each machine 

of a finite number of players, the wee y operators at many 

declined. In an effort to. ’"“""lS « cent, to as low as 10 cents. 3/ 

locations lowered their price per play from 2 reduced the wee kly revenue per 

The resultant price war a»™E „„ than in 1982. This, in turn, 

machine to an estimated tiln e it would take a machine to 

lengthened the payback P-«od--th. length of ^ machine by the 

earn enough revenue to offset the co P , f in „ in operation in 

operator. It is estimated hat f he 9 # ^ portion of th? 

1982, 20 percent went out of f icult i es , shipments by manufacturers in 

l^r^linrb^P^xim^ly one^alf from.ose U ^ 

vide^game^manufacturers*translated into smaller funds for research and 

development to create games with player appeal. 

in addition, nearly every arcade game manufacturer 
Commission's questionnaire .® l ® C Qf sa ^ es with infringers typically 

factor contributing to their f p ; iar games. A/ Since infringers do 

supplying 30 percent of the market t P P expenses in their cost 

not have research and dev ® d °Pf in ^ { pric e A0 percent below that of 

structures, they often se ® reduced their allocations for R. & D- 

non-infringing games. As manufactur often variations on the themes of 

because of reduced revenues, new games were 

earlier successful games. .__._ 


N °2/ Michae^Schrage, ’’Video Arcade Industry is Suffering A Glut, 

HS g i f t 5®;flSi. 2 4i^o 2 G« Industry Comes Do™ to Earth," 

“iaro^Po^sh! 8 "^'Late.t Video Game: Electronic Rip-off," The 
Washington Pos_t, July 4 , 1981, p. D8. 


43 


The plethora of similar games and paucity of hit games both confused 
players and led to their declining interest in arcade games. The combination 
of reduced average playing time by typical game players, the price war, market 
saturation, and lack of hit games led to extremely difficult times for both 
game operators and game manufacturers in 1983. 

According to officials of smaller U.S. producers and subsidiaries of 
Japanese producers interviewed for this study, the influence of the largest 
manufacturers on the channels of distribution may also limit the potential 
market. Most arcade games are distributed by subsidiaries or sister companies 
of major producers. Some smaller manufacturers have contended that when these 
producers pressure their distributors to market games currently in inventory 
that are newly projected to have limited player appeal, it absorbs the capital 
resources of many operators and prevents them from purchasing games with more 
potential for generating revenue. 

Recognizing that their success depended on the ability of machine 
operators to stay in business and to purchase new games, U.S. manufacturers of 
coin-operated video games began offering conversion kits in 1982 instead of 
requiring operators to purchase new games complete with cabinets. 
Representatives of U.S. producers interviewed for this study stated that in 
doing.so, domestic producers were following the lead of importers. The 
markets in Europe, the United Kingdom, and Japan had become so saturated with 
complete games in 1981 that in 1982, sales of conversion kits far outnumbered 
sales of complete games. Smaller producers with less capital invested in 
cabinet manufacturing facilities have not been as reluctant as the largest 
firms to market conversion kits. 

Another change in the market occurred in July 1983, when a joint venture 
of three companies in California introduced the first laser disc game marketed 
in the United States. 1/ (Although a company had previously introduced a game 
operating on the same principles in Japan, it did not export the game to the 
United States.3 Many coin-operated video game operators postponed purchasing 
new games during the late summer and early fall of 1983, preferring to wait 
until late in 1983 to place orders, when 10 manufacturers were scheduled to 
introduce new games based on the application of interactive laser disc 
technology at a trade show. 2/ The initial price tag, which ranged from 
$4,000 to $5,000, did not scare off most potential buyers, because conversion 
kits were planned for the second round of games. These conversion kits would 
cost much less than a new machine since the existing hardware, such as the 
laser disc player, the monitor, and the cabinet, could be reused. It was 
anticipated that th'e high-resolution graphics and imaginative game play of 
laser disc games would entice players back to the arcades despite the price of 
50 cents per play. 


1/ Cathleen McGuigan and Peter McAlevey, ’’Mini-Movies Make the Scene,” 
Newsweek . Aug. 8, 1983, p. 79. 

U Curt Suplee, ’’Lasers in the Arcade: Video Games Come of Age With the 
Latest Technology,” The Washington Post . Nov. 30, 1983, p. B1. 




44 


Not all operators of ^ 

the anticipated renaissance of bto „. g . producers interviewed 

video gomes. According to repr three tiers of locations for 

during this investigation, there loca tions—excellent, average, and 

coin-operated video games: , » account for 10 percent of the total, B 

marginal, respectively^ oca percent. New games are usually sold 

for 50 to 60 percent, and C for30 to ^ locations are then ordered by B 

to A locations first. Games tha from A an <i b locations. In 1983, 

locations. C locations. of ten and c locations were losing money. 

B locations became margins yP designed to be converted to new games 

s-rs t=.rrx- 

™ *• »* 01 ““ 1 " “ 11 "" 
to continue. 



Until 1983, the home tides 6 ^ l ^f em A ithou6h y the 1 success t of one 1 " comp any 
of various hit games to sell V * m of its sports games, most system 

was chiefly the result of the hig q x in the arcades. One system 

suppliers licensed games proven to be P°? graphics, and another company 

supplier gained a reputation for high-resolution grap ; t0 be played 

had the advantage of having the largest number gam 
on its hardware. 

The chief market for ^deo game^ys^e^^is^household^with male children 

other households. I 18 e ri ~ T . rP nt in 1980 to 17 percent in 1982. 1/ 

with teenage males was much higher. 

Two approaches were taken b * ^ems ‘teken'in'late 1982, was 

of households owning video game s V ste ™ s . systems available to less 

to lower the price of the h « d “ a ^°“f* a f to upgrade the quality of the 
affluent customers. The second PP R0M power to improve the quality 

second generation of systems y 6 fc llow the performance of computer 

Of the graphics, sound and game play and to T ^°« econd P approach was aimed at 
functions with the addition of a y g who might have been exposed 

broadening the appeal to more afflu computers and would be attracted 

in the work place ^ the utility^f ^“^'« cated game player, at 
by the computer capabilities nrov iding machines that could more 

An additional reason for e ? ter M'® ^fordeiTbyVme consoles, where 
product with higher profit margins tha n those aftoroeo ______ 

1/ Kleinfield, op. cit. _ . t0 Regai n Top Spot in Consumer 

2/ Laura Landro, ’’Warner s Atari 1 Y B 33 

Electronics,” TheJWall_l^^ July 6 ’ 19 ’ P ‘ 


45 


price cutting in an effort to expand the market for first-generation games and 
to increase market share had sliced deeply into profits. However, computer 
manufacturers responded to this encroachment into their market by lowering 
prices on their home computers in 1983 and by promoting the game-playing 
capabilities of their machines. As a result, profit margins on home computers 
became similar to margins on video game consoles—virtually nil. 1/ 

Computer functions for game players took on added importance in 1983 as 
the previously described dearth of hit games in the arcades took its toll on 
the demand for home machines to play games introduced in the arcades. 

Game software 

Until 1981, nearly all home video game cartridges were supplied by 
producers of the hardware for video game systems. However, by 1983, at least 
30 independent companies manufactured game cartridges as their principal 
product. In addition, over 200 suppliers of computer software added video 
games to their repertoire of programs available on discs. 

Unlike hardware suppliers, software producers were not hurt by slumping 
sales of video game systems in late 1982 through 1983. After all, consumers 
still bought new game cartridges to play on old systems, and by mid-1983, an 
estimated 16 million U.S. households owned video game systems, and another 2.5 
million owned home computers. Instead, software suppliers were hurt in 1983 
by the lack of hit games in arcades to stimulate interest in home games. " 
Furthermore, a huge backlog of inventory of cartridges at the retail level 
which accumulated during the Christmas season of 1982, much of it from a 
single manufacturer, made retailers reluctant to purchase sizable orders in 
1983. 2/ Indicative of this severe inventory backlog was the fact that ROM 
suppliers built memories for an estimated 90 million to 100 million game 
cartridges in 1982, but for only 50 million to 60 million in 1983; 3/ 
meanwhile, the number of cartridges sold at retail was projected to be higher 
in 1983 than in 1982. 4/ 


1/ Pollack, op. cit., p. 1; Laura Landro and Susan Chase, ’’’Adam’ Bolting 
Pricing Tactics in Computers,” The Wall Street Journal . June 9, 1983; David 
Stipp, ’’Texas Instruments is Seen Getting a Boost from Move to Quit 
Home-Computer Field,” The Wall Street Journal . Oct. 31, 1983, p. 2; Bill 
Abrams, et. al. , ’’Hawking Hardware: Home Computer Firms Begin to See 
Marketing as Industry’s Salvation,” The Wall Street Journal . Sept. 12, 1983, 
p. 21; Laura Landro and James A. White, ’’Computer Eirms Push Prices Down, Try 
to Improve Marketing Tactics,” The Wall Street Journal . Apr. 29, 1983, p. 35, 
and Susan Dentzer, with Peter Me Alevey and Connie Leslie, ’’The Wolf at 
Warner’s Door,” Newsweek . Oct. 24, 1983, p. 105. 

2/ Michael Schrage, ’’The High-Tech Dinosaurs,” The Washington Post . 

July 31, 1983, p. FI. 

3/ Sabin Russel, ’’Video Game Slump Causes Glut of Dedicated ROM’s,” 
Electronic News . Sept. 5, 1983, p. 1. 

4/ Kathryn Harris, ’’Video Game Industry in Shakeout,” Los Angeles Times , 
Apr. 30, 1983, p. 1. 










46 


Although the home computer market provided a new opportunity for game 
software producers, software makers were forced to speculate which brands o 
hardware would be popular with the consumer and then manufacture cartridges or 
discs to be compatible with two or three of these hardware systems. 1/ 

Perhaps the most basic problem for software producers, however, is that 
the market is not large enough to support the number of competitors curren ly 
in the field. 2/ 



The market for hand-held video games peaked in 1980. The proliferation 
of video game arcades and the jump in the proportion of households owning 
video game systems sharply cut the demand for hand-held video games However, 
the major U.S.-based participants in the hand-held video game market were not 
adversely affected by this development, because three of the five entered the 
video game system market, a fourth became a successful supplier of game 
software, and the remaining firm became one of the leading suppliers of home 

computers. 3/ 

Consumption 

The apparent U.S. consumption of all types of video games combined grew 
in each year during 1978-82, from $215 million to $3.7 billion (table 18). A/ 
However, in January-June 1983, consumption fell by 27 percent from that in 
January-June 1982 to $1.2 billion. Imports did not rise as rapidly as U.S. 
producers’ shipments to the U.S. market during 1979-82 and dropped more 
quickly in January-June 1983. Consequently, the share of consumption 
accounted for by imports decreased from 44 percent in 1979 to 12 percent in 

January-June 1983. 


Coin-operated video games 


The apparent consumption of coin-operated video games increased without 
interruption during 1978-82, from $39.9 million to $836 2 million, but fell by 
62 percent during January-June 1983, when the market collapsed, to 
$186 7 million (table 19). The share of apparent consumption supplied by 
imports rose to 9 percent in 1981 and still higher in 1982, but dropped 
slightly in January-June 1983 as consumption of both U.S.-produced and 
imported arcade video games declined in the shrinking market. 


1/ "The Challenge of Cartridges,” Inc., December 1982, p. 23. 

2/ Laura Landro, "Video-Game Firms Face Tough Christmas As ^ dus ^ 

Approaches a Major Shakeout," The_Wall Stre ei ^raal, Sept^ 29, 3 p. 33. 

3/ "Why Electronic Games Will be Hard to Find," Busin ess Wee k, Nov. 19, 1979, 

P, 4/ 2 "Video Games are Suddenly a $2 Billion Industry," Bu siness Wee k, May 24, 
1982, p. 784. 


47 


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48 


f ,, , consumption, by types, 1978-82, 
Table 19. -Video games: Apparent ^ ! June 1983 

January-June 

in thousands.oLjffiitSLi-XSlJiS-^r^^T^^name^^H^Hand^held" 

- software nr ias°Jg!Si 

Period . y^deo ftames : sys tems—•—- ' 


j Home : Game ■ — 

^ PftTnputers :_so fj~ wnrf> ^ ide0 

Quantity, ' _;_ 



24 

1,522 : 

1 / 

1/ 

1/ 

1978- 

1/ 

1,190 : 

1 / 

9,557 

1979-- 

158 

2,117 : 

1 i 

33,981 

1980- - 

355 

6,202 : 

iJv 

653 

79,589 

1981- 

439 

10,356 • 



1982 — 

January-June 

1982- 

254 

102 

5,257 : 

3.470 : 

128 

970 

31,685 

29.782 


Value 




39,924 

75,033 : 

■i / • 

1/ 

1978- 


1/ 

78,322 : 

T / 

103,928 

1979- — ' 


268,130 

285,178 : 

90 Q 

464,361 

1980-- 


704,075 

/87,231 • 

o^/i 7A7 

1,268,575 

1981- 


836,196 

1,204,257 : 



1982- 

January-June 

• 

• 

491,883 

561,262 : 

86,297 

546,929 

458,957 

1982 - 

1983 - 


186,738 

378,839 : 

201,/uu 



1 / 

8,971 

11,207 

4,107 

6,583 

951 

2,367 


1 / 

192,318 

241,916 

114,516 

134,032 

36,334 

23,610 


-TT-^in datTliave - been withhST"from 
0 f~in£ormation about individual companies. 


Source■ Compiled from data_submitted in response 
U.s international Trade Commission. 


publication to prevent the release 
, response to questionnaires of the 


Video fflinp. systems. 

The apparent consumption °f video game ays‘^/interest in^ 

sssa'ir 

with pla-y P p tQ 1QA million units, valued at $ • lacfc of appealing game 

conversion of consumer int ® r ® st h ?“ e t ^° m consumption of video game systems 

_——-— -—r~~^r n ii Woll Slump slows Sales of 

—31. 

Durables," Th^Wall^treeWournal. May , 


The apparent consumption of home computers rose from nil in 1978 to 
653,000 units, valued at $234.7 million, in 1982 (table 19). Consumption in 
January-June 1983 exceeded that for full year 1982 in terms of quantity, 
rising to 970,000 units. Imports supplied well under 10 percent of the 
consumption of home computers in 1982. 

Game software 

Apparent consumption of game software increased geometrically during 
1978-82, reaching 79.6 million units, valued at $1.3 billion. The inventory 
overhang from 1982 led to a 6-percent reduction in consumption in January-June 
1983 compared with that in the corresponding period of 1982. In 1982, imports 
supplied 8 percent of consumption in terms of quantity and 3 percent in value. 



The apparent consumption of hand-held video games peaked at 11.2 million 
units in 1980, dropped by 63 percent in 1981, and then recovered somewhat to 
6.6 million units (valued at $134 million) in 1982. However, in January-June 
1983, hand-held video games lost in the competition with home computers and 
video game systems for the attention of the consumer. Even though the 
apparent consumption increased to 2.3 million units during January-June 1983 
from 0.9 million units in January-June 1982, actual domestic consumption 
declined from 1.3 million to 0.9 million units, as most of the hand-held video 
games imported during January-June 1983 remained in importer’s warehouses by 
June 30, 1983. Imports supplied over one-half of the quantity of hand-held 
video games in apparent consumption throughout 1978-83. 


FACTORS OF COMPETITION 1/ 

U.S. manufacturers of all types of video games indicated during field 
interviews that they benefit from several competitive advantages which 
discourage the import of finished video games from foceign-pwned producers. 

(1) The largest U.S. producers have a greater degree of vertical integration 
than any of the foreign manufacturers. (2) U.S. producers are more likely to 
have state-of-the-art production processes for the capital aspects of their 
operations. (3) U.S. companies use assembly facilities in low-wage-rate 
countries for many 'labor-intensive production operations. (4) High investment 
rates help U.S. producers maintain their lead in product innovations, quality 
of construction, and efficient manufacturing processes. (5) The largest U.S. 
firms benefit from long-term relationships with arcade operators and 
retailers, 'some for products dating to the era before video games, in which 
the producers have developed reputations for high-quality and speed of service. 

1/ The information used in this section of the report was obtained during 
interviews with corporate executives representing domestic manufacturers, U.S. 
subsidiaries of Japanese producers, and independent distributors of video 
games, and from responses to questionnaires of the U.S. International Trade 
Commission. 




























50 


i. n as sess the competitive 

U.S. producers and importers were * mponen ts versus forei&n-made products 
position of U.S.-made video times and results of this survey are 

with regard to nine factors generally scored highest in tern* 

located in Appendix C. • e Vmrfrer delivery time, overall 

of warranties and service 9^ lty ; o ^ n _ made video games and components 
availability, and terms of sale Jove 6 ability to supply 

scored highest in the areas of lower purchas ^ &dvantag e Table 20 

nroducts at various market price lev , ; mnnr ters of the overall 

provides an assessment by U.S. “ ea and components versus foreign- 

competitive advantage of VJ. -made vi*“^ n .rally Indicated higher scores 
made products by types. This rating s 8 systems, software, and 

zz&rz s i: v :r«tngr res 

zhszh in Taiwan and HonB Kons! 

and game logic boards made in Japan and Taiwan. 

P Un^ficant to specific types of 

some factors of competition are mor ej gn ficant^ of P competUion a , e (1) 

;^dtr 6 renrtbT^ he ^- ^ 

and (4) product quality and price. 

Providing Games With Player Appeal 

The ability of a firm to '“ate or license ^^^f^^ts'been the key 
develop these ideas into games w th ca e^ va “"® t P J coin-operated video game 
competitive factor in the US. ^ software, and hand-held v deo 

create^the VZTZ7lle video game systems and game software an 
revitalized the hand-held video game market. 


Apr. 23, 1983, p. 55. 


51 


Table 20.--Assessment by U.S. producers and importers of the overall competi¬ 
tive position of U.S.-made video games and components versus foreign-made 
products during 1978-83, by types 

: Average rating 1/ of the overall competitive ad- 
: vantage of U.S.-made video games and components 

Type 

__versus products made in— 


Coin-operated video games- 

Video game systems—■—-- 

Home computers-— 

Video game software-» 

Hand-held video games- 

Video game consoles-- 

Video game controllers- 

Game logic boards--—■— 

Custom-made video game com¬ 
puter chips-*-,- 

Keyboards for home compu- 

ters--- 

Disc drives for home compu¬ 
ters--- 

Cassette recorders for home 
computers- 


Japan 


Taiwan 


products m 
Hong 
Kong 

ade in— 
European 
Communitv 

2.0 

3.0 

2.5 

3.0 

2.6 

2.0 

2,6 

2.0 

1.5 

3.0 

2.3 

3.0 

1.5 

3.0 

3.0 

2.0 

2.5 

2.5 

1.0 

3.0 

3.0 

3.0 

1.0 

1.0 


Other 


— - * — - c uuv0.11 uagb as ueing 

domestic,” ’’foreign,” or ’’same.” A score of 3 was assigned to a domestic 
advantage, 2 to same, and 1 to a foreign advantage. An average rating close 
to 3.0 indicates that a consensus of the respondents listed a domestic 
advantage; the closer that the average rating is to 1.0, the greater the 
consensus is toward a foreign advantage. 

Source: Compiled from data submitted in response to questionnaires of the 
U.S. International Trade Commission. 


Research and development 

Nearly all copyrighted video games are the product of research and 
development in the United States and Japan. 1/ Although U.S. firms have 
invested a significant portion of their revenue into R..& D., industry sources 
indicate that Japanese companies tend to re-invest an even higher portion of 
their income into research and development than most U.S. manufacturers. 

These sources attribute the popularity of Japanese-developed games to the 
higher research and development budgets. 


1/ Ted Knutson, "The Martians Have Landed and They Talk Computer,” The 
Wa shington Post . Nov. 5, 1980, p. D3. ' 














1 


52 


Whereas many games have cross-national appeal, the popularity of a 
significant portion of video games is based on nuances of language and 
culture. Recognizing this, some Japanese manufacturers of video games perform 
R. & D. in the United States. Similarly, some U.S. producers have begun 
R. & D. in Europe. 


Licensing 

Industry sources indicated that, since the bulk of sales of video game 
cartridges are games that have been ’’hits'’ in arcades, the heaviest burden for 
research and development falls on coin-operated video game producers. 

Pressure to create and discover games with hit potential is intense. Although 
a small number of arcade game producers pride themselves in developing games 
in-house, most are anxious to obtain the rights to any game copyrights which 
might improve their revenues. 

The search by domestic arcade game producers for game concepts coincides 
with the preference of some video game producers in Japan not to compete in 
the U.S. market in terms of shipping complete games. Instead, these companies 
license certain rights to their copyrighted games to U.S. producers in order 
to share in the wealth of the U.S. market. Separate licensing agreements are 
usually made for the rights to the coin-operated video game market, the home 
video game cartridge market, and the computer game market. Agreements are 
usually made with the software producers only after a game is proven to be 
popular in the arcades. 1/ These agreements typically provide the Japanese 
copyright owner a flat contract fee plus a royalty for each game sold. 
According to field interviews, the contracts often include a guarantee by the 
U.S. manufacturer of the minimum number of games that will be sold. 

Frequently, the license agreement requires the U.S. producer to use game logic 
boards built by the Japanese copyright owner. Occasionally, the rights to 
other markets outside of Japan are sold to U.S. manufacturers. 

Although both U.S. arcade game producers and Japanese video game 
manufacturers license copyrighted games to domestic makers of game software, 
they do not actually compete with each other directly. Any successful arcade 
game will be in demand by software companies. The size of the contract 
between copyright owner and licensee will depend on the anticipated revenue 
generation by the game rather than on competition between copyright owners. 
Industry sources state that it is common for game cartridge manufacturers and 
hand-held video game producers to have contracts with both U.S. arcade game 
producers and Japanese companies for the right of first refusal to produce 
games developed by them in the respective formats. 


1/ Laura Landro, ’’CBS to Make, Market Home Video Games Under 4-Year 
Licensing Pact With Bally,” The Wall Street Journal . Apr. 21, 1982. 


53 


Production Technology 

Co jiLropecated viHpn 

largest domestic^oin-operated^id^ 6 m&Vket ' the cora Pany that became the 
circuit boards both for u S6 in i s°,5T lcturer producing printed 
for sale to manufacturers of other products 60 acc^H* arC ? de game mach *nes and 
interviewed for this study, this cornea™* ’ c ? ordln g to company officials 
and in computer-assisted production gave itTcomn"^f ^ electroni “ fielc 

emerging arcade video game industry a P ? ^ advanttt Be in the 

market growth allowed it to maintain ,t [ ! f period ° f rapid 

printed circuit boards. Production Jff*®-of-the-art equipment for producing 
allowed it to enjoy higher profit Ir.f .T 16 ! ^ economles of scale 6 
Revenues were used to develop new RaniL" 8 -!*^ ^ r6St ° f the indust ry. 
Japanese producers, and to purchase comMn- 0611 ^^ 13 ^ 1611 ^ Sanies from 
latter practice resulted in the comonnv^ w ^ lch supplied components. The 
integration unparalleled either domestically or Jn Japan®”® ° f V ' rtlC41 

early .uccMrin^oth'thrwcSr^o’S anTh"”^^’ Capitallzin S on its 
developed economies of scale and a deerL „f * Jj?" 1 ® v f deo Same markets, also 
it an advantage over foreign producers Most lnt f&ration which give 

manufacturers are on a par with the T«n fl ” * f th ® remainin S domestic 

production technology and vertical integration * K “* PC ° ducers in terns of 


Videp _game systems 


required in engi^erin^ the hi * h de S^ of skill 

programers gives U.S. game soffJ^T J th ex P eriena e of domestic 
foreign-based competitors. Producers an advantage over potential 


Hand -held video games 


U.S. 

hand-held 

advantage 


in this competitive factor 


Marketing 

gojn=^ Egrated video games 


Distance from 
manufacturers over 


the_market.—The dis 
Japanese producers i 


tinct competitive 
n marketing arcade 


advantage of 
video games 


domest 

led 


c 









54 


c Murine and/or assembly 

several of ^e lapanese produce- to^ocate^anu^ distance fro^ P -tarl 

h i gh^ t r an s po rt a t i0^costs^for th. *1*.«-*£for atter-aales 

-^r::r "?** .*«»■«“'»« »*'■“■? * 

Sfe---- — - — d of 

— t t^^r^uanr/ 8 
IZolTl^^ * rely ° n these channels 

to other producers, incluai & 
of distribution. 


' MLjve advantage to either 

_ ~j&i ss - "■""•■ - 

hand-held video games. 

Product Quality and Price 

several indust r y 

: aSSg|#S£? 

does not give producers in either 

advantage. . _ perated video games obtain 

DOme lectronic J compontnts°torld W ide, with little ^^^^enfof Japanese 

53s"rr.“Esr=£r -rw^f r r.‘X«r* 

subsidiaries in comb ined with monitors, usual y operations do not 

1-V« »-*"t ~ wi- » ";"n™ r ’Tu: ! r ’ 

copyrlghte . sa ? ds imported from Japan varies gr manufacturers are 

.hsidiarUs of Japanese producers tend to^be^P ^ place u base d 

those made by U. S -^-« d than on price considerations. 

on the Player appeal of S_1^7^77^ 


55 


However, U.S. producers and importers asserted that price does become an 
important advantage when considering competition between Japanese-made 
conversion kits and complete U.S.-made games. Japanese producers reacted more 
quickly than most U.S.-based firms to the need for arcade game operators to 
reduce costs by offering conversion kits. Since the conversion kits sold for 
approximately one-quarter to one-third the price of a complete game, resulting 
in a savings of as much as $1,500 on a single game, many operators turned to 
Japanese subsidiaries as a source of new games when the games offered by 
Japanese companies were believed to have player appeal comparable with that of 
games offered by U.S. producers. However, this increased role for imports 
diminished as more U.S. manufacturers began offering conversion kits. Some 
U.S. companies feel that it is necessary to sell complete games in order to 
recover research and development, expenses and continue to resist the trend .to 
conversion kits. 

Industry sources stated that price is the critical factor for imported 
infringing games to be competitive in the U.S. market. Infringers usually 
benefit from the use of both low-cost labor and low-cost, low-quality raw 
materials in addition to avoiding research and development expenses and 
licensing fees. Most of these allegedly infringing imports come from Taiwan, 
but Japan, the Republic of Korea, and Italy are also important sources. 
Infringing conversion kits currently sell for $200 to $300 compared with $500 
to $700 for domestically made kits by licensed manufacturers and $1,200 to 
$1,500 for infringing upright games compared with $2,200 to $2,800 for 
complete games made by license holders, It is estimated that 20 to 30 percent 
of all coin-operated video games in the U.S. market are illegal copies. The 
deprivation of profits to legitimate producers leads to smaller funding for 
research and development and dimmer prospects for the introduction of hit 
games. Furthermore, the lower quality of the infringing games damages the 
reputation of the licensed producers when operators believe they have 
purchased games from license holders. 

According to both domestic and Japanese producers, counterfeit arcade 
video games are usually misrepresented to be manufactured by license holders. 
Operators usually erroneously assume that the counterfeit games have the same 
quality of construction and components as the games they are copying. One 
method legitimate manufacturers have of gauging the volume of counterfeit 
games on the market is the number of complaint calls their service departments 
receive from operators who have—it is learned after inspection—unwittingly 
purchased infringing games. 1/ 


1/ Additional information on the role of counterfeited coin-operated video 
games in the U.S. market is presented in Commission Report on Investigation 
No. 332-158, The Effects of Foreign Product Counterfeiting on U.S. Industry, 
USITC Pub. 1479, January 1984. 







56 


Since it is illegal to import infringing games, importers of such games 
go to great lengths to avoid detection by the U.S. Customs Service 1/ As 
Customs increased its examination of containers for in ringing complete arcade 
video games, counterfeiters responded by deleting the trade dress from the 
Imports, adding the cabinet markings after entry. However, import specialists 
were trained to recognize copyrighted audio-visual displays, e "^ling them 
detect infringing gomes by turning the game on. The importers then began 
bringing in S-e S logic boards, programed with infringing audio-visual work, 
and assembling them with other components and the cabinets in ^e United 
States. When properly appraised, the high average unit value of these 
declared printed circuit boards was a signal to import specxalists that these 
were actually game logic boards. With equipment donated by domestic 
manufacturers, Customs was able to display the program of the game logic 
boards to test for infringing imports. Importers then responded by ^porting 
EPROM's separately from the printed circuit boards, making it impossible for 
Customs to test what program was burned onto the EPROM's. According to 
Customs officials, in addition to violating copyright laws, importers often 
declare EPROM's to be unprogramed integrated circuits (programing does not 
change the physical appearance), with a value not reflecting the worth of the 
programing on the EPROM's, and thus illegally avoiding the proper impor 
duties. Legitimate manufacturers and the Customs Service are sti 
endeavoring to devise a method to curb the latest practices of copyright 

infringers. 



Corporate officials interviewed contend that it is unlikely that 
potential foreign competitors could match the quality or price of video game 
systems or game software produced by U.S. suppliers because of the practice of 
purchasing components and labor internationally by U.S. companies, the 
economies of scale that they enjoy, and the experience of their research and 
development departments. Because of the intense competition ™ 0 n 8 themselves 
and other home computer producers, U.S, -based suppliers of vlde0 Sam« systems 
and game software use international sources of supply for raw materials 
electronic components. Where labor costs in their production processes are 
important, they take advantage of overseas assembly in regions that have lo 
labor rates and high worker productivity. 2/ 

According to industry sources, the chief form of foreign-based ^ 
competition reportedly comes from counterfeiters of game cartridges in t e 
Orient that have used devices to copy programs from the PROM s in cartn g 
produced by license holders. Counterfeiters usually enter the PROM', or 
EPROM's and the printed circuit boards separately to avoid detection by 
customs; they are then assembled in the United States or other export markets 
with cartridge housings which copy the trade dress of the infringed games. 


1/ U.S. Customs Service, Seattle District, Audio Visual Games; CoEirlsliUl- 

Tr-aHpmflrk.B . and Product Piracy. , 1983, p, Iff. . _ , c nme 

2/~Eduardo Lachica, "Hong ^ng Takeover Could Open China to More Trade, 


U.S. Investors Say," The Wall Street Journ al, Nov. 8, 1982, p. 34. 


57 


States. All of these^irfrire U headquart f V d d *° IT* SyStems in the United 
firm does the bulk of its manufacturing domestlcaUy ^ ° ne 

lEfSES 3 P asIembly f tllV 

assembly ZlTslTs ^"th 

production facilities incorporate U s f U ^ Wlth forei & n 

subassemblies into larger components assembled Sad ^ 

States h qui ckly^glined^market P share P on the^'° Perations the United 
Play of the cartridges designed for , /St the qUalHy and the S™ 

J t s hardware was priced between the tun ^ psrad ® d hardware introduced in 1982. 
facilities. By the end of MM ? lar 6 est BU PP liers with offshore 

computer marked also m L “? f 8lS the U ' S ' h ° me 

However, all of the major suppliers of horn ° VerSeaS ass ™bly facilities. 1 / 
States. 2/ PPliers of home computers were based in the United 

hardware do some assembly wor^on^an^softwal^ 0 8ame Eystem/home computer 
use integrated circuits programed n ! overseas. All of these firms 

integrated circuits to printed elrluit w"! t6S '’ m ° St aSSemble 

final assembly and packaging in the United States"®^! and . SOme P 6rf °™ the 

companies which do not manufacture hardwl™ * e' ? ly a feW software 
assembly costs. rdware use foreign labor to reduce 

videogame ^ C ° mpetitive - the U.S. market for 

establish production facilities ’offlhl™ ™ ^ “- S -- baBed companies to 

other rather than to respond II I™ \ t0 be m ° re c ° m Putitive with each 

advantage for U.S. coZITet to tZf l * ^ forei 6" firms ' »a chief 
software offshore was to minimize labor coJJSoSr^ont"''^ ^ ^ aSS6mble 
as production methods are standardized and the TfT tr< T becomes important 
of various manufacturers narrows The dlffarence between the products 

suppliers in the electronic g^e fieW led toTv ,*■^^° f the U ' S - baaad 

video game systems in the Orient without establish* initlatlon of Production 
domestically, a third relor«t-AH ,, ub establ1 shln 6 comparable facilities 

Orient in re^ponslb^a^qllele^ol" II u” ‘kV 'T Calif °" ia b ° bba 

control. 3/ Profits were saueer^H . that heightened sensitivity to cost 

share and to make the product afffrdable^IT Wer ® reduced to maintain market 
productivity (output per man hour) was ° l6S f a f fluent consumers. Worker 
low labor rates in losing ^ « 


Computer , '• >“ a BS i^Its Hot-Selli„g Home 

Small-Computer ^Market Wali%f L * ttbe Success in the U.S. 

3/ "What sent At„i ^ 21 > 1983 ' P- 27. 

"Atari to Idle 1,700 at CalifornifilffV^; ^ i “' 1983 ’ P- 10 2«; a "d 
Journal . Feb. 23, 1983, p a SitG ’ M ° Ve J ° bs fc0 Asia .” The Wall Street 






58 



company officials interviewed asserted that Market because 

5 - ZS&. eor 

the^superior^quality*""of 6 their^construction and tbe use of licensed co P yri S bted 
game programs. 


Both U.S.-based and f °” i6 ""^i®t e rn™ionll d sources°of 0 rlw materials and 
hand-held video games use the sam ^ U.S.-based firm which 

low-cost labor in the Orien . 0 * Q ient competes on the basis of 

produces its hand-held v!deo games in the^Ori^ hand _ heXd video games 

quality rather than price. The r ,_: 0 t. arv ea mes. They remain competitive 

in the United States market on y P"? pr i ces and use of relatively 
with imported games despite their high P f copyri6 hted programs, 

high-cost U.S. labor because of the player app 


future trends 

Coin-Operated Video Games 

The coin-operated video game ^^“^"t^thrinterel^ofgme players, 
periodic technolgical developments imp o rt ers of arcade video games 

It is the consensus among P r °? uc ®” t bhe introduction of several new 

interviewed during the investigate.on' h approximately 2 years. 1/ 

laser disc games should rejuvenate ^he industry £ oVn _ 0 p e rated video games 

It is their opinion, however, that more_ope ^ ^ of $Ai00 0 t0 

will go out of business as most ^ current price of 50 cents per play is 
$5,000 per game prohibitive. rproV er their investment in the 

reportedly necessary for operatorst° to be red uced as they are able 

machines. However, operators c0 ®^ L cha nging discs and applying 

to convert their machines to new games that this will enable 

new artwork to the cabinets. Ind “ y d eaX t o new customers currently 
operators to lower the price per play and that the limited 

leary of the 50-cent charge. Some P” d “ c ® hould kee p copyright infringement of 
number of laser-disc-pressing faci participants believe that Japanese and 

the new games to a minimum. Indust ry pal for laser disc video games, 

U.S. producers should dominate th appeal of the games rather than 

Competition will most likely be based on the appeal o * with 

on Price. Producers entic£«.Xye e "d TnUors , new sales will he 

restricted^to^conversior^kits^accompanying new laser discs. 3/ 


■. "Mini-Movies Make the Scene," 

"-^^s.VlTo^te New Videodisk Games on the^Way. May Benefit 
arcades,’* The WaU,_St reetJournal, Apr. 19 , 1 


59 


Video Game Systems 

Most industry observers expect that video game systems which cannot be 
upgraded to computers will soon become obsolete. 1/ The price war in the home 
computer market has made home computers available to anyone who can afford a 
video game system. 2/ Some manufacturers believe that only two producers of 
video game systems will survive this merger with the home computer mar¬ 
ket. 3/ Their current advantage over other low-priced home computer 
suppliers is reportedly the volume and quality of the game software designed 
for their video game system/home computer hardware and the superior quality of 
their game controllers. 

Some industry observers speculate that the current availability of system 
adaptors and expansion units is a bridge to the point in the long term when 
all home computer components will be compatable with hardware by the various 
producers. A/ Certain corporate officers indicated that as product 
differentiation diminishes and price competition continues, home computer 
producers will stay alert to opportunities to cut costs through the use of 
overseas assembly or production. They also projected, however, that the 
intense competition and low profit margins in the home computer market should 
deter Japanese computer manufacturers from entering this market segment. 5/ 

A few industry analysts speculated that a possible long-term development 
is the integration of a single laser disc player that will function with a 
household’s stereo system, computer system, and video game system, and that 
will also project movies to be available in laser disc format. 


Game Software 

Most industry observers advise that companies currently making only game 
cartridges will have to act soon to add education and household planning 
programs to their repertoire or lose their credibility in the home computer 
market. 6/ Until full compatibility becomes a reality, software manufacturers 
will still be faced with the dilemma over which hardware to design their 
cartridges and/or discs to function with, 7/ Already occurring is the trend 

1/ Michael Mella, ”A Price War Blasts Open the Home Market,” Business Week , 
June 13, 1983, p. 108. 

2/ Michael Schrage, ’’Consumer Electronics Has Everything But the Profits,” 
The Washington Post . Aug. 7, 1983, p. G1. 

3/ Laura Landro, ’’Warner Denies it is Considering Leaving the Computer 
Business due to Losses at Atari," The Wall Street Journal . Oct. 17, 1983, p. 5; 
and Mark Halper, "Milton Bradley to Fold Consumer Electronics Subs.,” 

Electronic News . Dec. 12, 1983, p. 86. 

4/ Michael Schrage, "Atari Plans Computers That Use IBM Programs," The 
Washington Post . Oct. 12, 1983, p. Dll. 

5/ Mark Halper, "Japanese Firms in Uphill Fight in U.S. Home CPU Market," 
Electronic News . Dec. 26, 1983, p. 1. 

6/ Mark Halper, "Atari, Activision Plan to Broadcast Game, CPU Software," 
Electronic News . Dec. 19, 1983, p. 19. 

7/ Michael Schrage, "Showing Off: Home Computer Makers Target the Masses," 
The Washington Post , June 12, 1983, p. FI. 










60 


61 


for hardware producers to make their own copyrighted software available in a 
variety of cartridge designs in order to reach the market that has already 
purchased another company’s hardware. 1/ A corporate officer projected that 
one current video game system/home computer manufacturer is likely to quit 
making hardware and concentrate on the production of software. 

Some analysts indicated that a distant prospect for software producers is 
that the eventual format of choice for recording programs may be the laser 
disc instead of cartridges, cassettes, or floppy discs. 

Hand-Held Video Games 

Most industry observers concur that the market for hand-held video games 
has reached its zenith. The proliferation of game-playing home computers is 
expected to preclude any significant resurgence in demand. However, industry 
participants believe that hand-held video games should remain a staple gift 
item for children, particularly during the Christmas season. 


appendix a 

notice of investigation 




1/ ’’Warner’s ’Atari Unveils Video Games that Run on Rival’s Machines,” The 
Wall Street Journal , Oct. 27, 1983, p. 37. 














63 


UNITED STATES INTERNATIONAL TRADE COMMISSION 
Washington, D.C. 

(332-160) 


A Competitive Assessment of the U.S. Video Game Industry 


AGENCY: United States International Trade Commission 

of T 1930 (19 uTc^ll-mb^ P ^ OVi f ionS of section 33 2 (b) of the Tariff Act 
(, y u.S.C. 1332(b)), the Commission has instituted on its nun 

investigation No. 332-160 for the purpose of assessing the current 

E ; £i;frF - 

ssa ~ »• -r - - -“22.1 rsrs iss. 

Hong Kong. ? 3nd producers in Europe, Canada, Japan, Taiwan, and 

EFFECTIVE DATE: February 25, 1983 

FOR FURTHER INFORMATION CONTACT: Mr. Ralph Watkins or Mr. Rhett Leverett 
General Manufactures Division, U.S. International Trade Commissi 
shington, D.C. 20436, telephone 202-724-0976, or 202-724-1725, respectively 

WRITTEN SUBMISSIONS: While there is no public hearing scheduled for this 
study, written submissions from interested parties are invited CoLerrS 1 
financial information which a party desires'^ C AL oT o LeatTs " 
confidential must be submitted on separate sheets ^paper , each “early 
marked Confidential Business Information" at the top. All submissions^^ 

sectio S n 1 201 C 6 n of d th ti r 1 must confo ™ wit h the requirements of 

;? 20 . 1 : 6 ° f the Commission's Rules of Practice and Procedure no rvp 

-Emissions, S^T ept for confidential business 

addressed to the Secretary at the Commission's office in Washington, D.C. 

By order of the Commission. 


t Secretary 

Issued: March 22, 1983 






























Table B-l.—video games and components; iw, - 

v :; e ;i d fS: d at s r ^? r ; 9 f 78 ^r ier3 experienced by u - s - ln foreign markets< 


67 



. . . 




' " 1 ' 11 " 1 ■ 1 " ' < -' 11 i';■; ;■; ;■ - ;■ ;• ;■. .. 

* i i i i i i 




. . .mV 


..■■’- 7 7 7 7 7 7 777r7"777;-7-77-77V 


■ ■■■..7 7 7 7 7 7 7 7-.T 7 7 7 7 7 7 7;-77; ; --7--;-;---7 7r77r; 


..7 . 

11 1 1 1 i » i i i i | 


. 


' ' ' ' 1 ' 1 ' 1 i'~ i' I' il';'. 

1 * i - 1 i i i i i 


- 


' 1 1 1 N 1 1 1 i ' i 1 .1’ i ]' ]';■ v ;•;. 

* 1,1 1 ' 1 ' i i i i i t i , 
































Table B-l.—Video games and components: Number of responses indicating nontariff barriers experienced by U.S. producers in foreign markets. 

by specified barriers. 1978—03—Continued 


68 


i | i i i | i ^ i i i i i i i i i i — i i i 1 i 1 1 iiiii iiiii-^i 


squauiaaanbaa SupSeqaea 


^ j , , ^ I I I i . .'tiillllllllll i — — I I lllllll 


sapqppEuiaog aEqnsuoo 


| ,,, | | | | | I , I I '■ | | | | | I | I I I I (till .'I 


saapqaEad Sufdinnpfauy 


I , I , I I I I - I I I I I I I I I I I I I I I I I I I i I ^ lllllll 


squamaapnbaa ^aemapBai 


,1,1 , j _ | | I | I | I I I I n | I | t | - I I -* I I I » 1 I 1 I w l 


squamaapnbaa Suaqaew 


, | | | i | | | - | I I I i I I I I - l I I I I I I lllll lllllll 


squamaapnbaa quaquoa qonpoad 


..-Ill lllll- 


squamaapnbaa aaupEquoa put? 8uppaqBq 


I | | i | | | l | I I I I l I I I l I I I I I lllll I I I l I l 


spaspuBqs 8ufssaaoad 


, | | | 7 I I — I I I I I eJ I — I I I — I I I I'.I I. . 


spaepueqs XqajEs pur qqpaaH 


.I I I I I - I I I I I I I - I I. . 


smaqqoad Aoppod quainuaaAoS pEiauag 


| | | I | <M 1 | N I I I |l I— I I I II—— lllll I I I I I ' 


sqaodmp 

a8eanoospp qapqw saapqaEjd pue s«Bq 


, | | I | I | l I I I I I - I I I I I I I I I I I I I I .. 


saspqauEaj aApsnpaxa puis 
‘sappodouom quainuaaAoS ‘Suppeaq aq^as 


I I I I l I I I I I I I I I I I I I I I I 1 I - I I lllll lllllll 


spiE aaqqo pue sapppsqns quamuaaAoq 


2 I « 

I E L — 
j E I <r> 
O « 

a * 

<8 OJ 
I C Ui »i 
I 18 it 
a ai a ai 
a. a.— x 

E O T P 
L Tl 3 
3 3—0 
U HI C V> 





i i ! | i o i 

5.! | ® - 

3 C >, U Hi X t- 

*J -H —i 01 -X 3<t- 

i. « a « l a« 

o Q. +J t- 3 0/ 

A CO H (3 h a 


i « [ -S 
; <s> L b 
if c it * 

— -H — '2 

« a- * 

i « a * ? 
C c -H J. w 

X 5 I 

£ h a « * 


1 


































appendix c 


FOREIGN-MADE products 












73 


.--~:-HLQducfcs made in— 


Lower purchase price 
(delivered)-.-. 

Ability to supply products at 
various market price levels- 

Exchange-rate advantage. 

Quality-.. 

Terms of sale-.-.-. 

0U ^^ ] ^Ability (what you 
want, where and when you 
want it)-.....' 

Shorter delivery time-. 

Warranties and service-. 

H1 ship! 0 ! 1 . ! UPP1 * G r rG lation- 

Overall competitive advan- ■ 
cage—.-.-------__-- ‘ 


J apan : Tai wan ; Hong Kong 


European 

Commun ity 


Other 


2,4 

2,3 : 


1.5 

2.0 

2.3 

: 1 . 

1,5 

2.0 

2.3 

1 .! 

1,4 

2.0 

3,0 

l.C 

2,8 

3,0 

2.3 

3.0 

2,5 

3.0 

2.3 

3.0 

2.3 

2.5 

2.3 

2,0 

2,5 : 

3,0 

3.0 

3.0 

2.8 

3.0 

3.0 

3,0 

_ 2.8:’ 

_ 3,0 ; 

__ 3,0 

O R 

2.2 

2.0 

3.0 • 

_ £ , O 

1.0 


2 n fi™r ; oth P " r ::; Taiwan ^ 2 ! 

ms, other sources, y ' rlrms ' the European Community; and 

advantage ^fo^ign^^or > W " «"*nt*g e in each factor 

foreign advantage. ll0 ' the greater the consensus toward a 

International^rade Commission SUbmitted *" response Questionnaires of the U.s. 































74 


Table C-2 .-“••Video game systems: Assessment by U.S. producers and importers of video 
games and components 1/ of the competitive position of U.S.-made video game 
systems versus foreign-made products during 1978-83 


Factor of competition 


Lower purchase price 


Average rating 2/ of the competitive advantage of 
U.S.-made video game systems versus products 
made in— 


Japan 


Taiwan 


(delivered) —...... 

1.8 

1.5 

2.0 

2.7 

3.0 

Ability to supply products at 






various market price levels — 

1.8 

1.5 

2.4 

2.7 

3.0 

Exchange-rate advantage- .. — 

1.8 

1.4 

2.5 

3.0 

3.0 

Quality- ----- -— 

2.3 

2.8 

2.0 

3.0 

3.0 

Terms of sale - - -- - ---— 

2.6 

2.5 

1.8 

2.3 

3.0 

Overall availability (what you 
want, where and when you 






want it) -- —. . . . 

2.2 

2.3 

3.0 

3.0 

3.0 

Shorter delivery time'— . - .. 

2.4 

2.5 

3.0 

2.3 

3.0 

Warranties and service- .-.—— 

2.8 

2.8 

2.3 

3.0 

3.0 

Historical supplier relation- 






5 ^ ^ ........... 

2.8 

2.8 

2.3 

2.3 

3.0 

Ov e ra 11 compel :i. tive ad van- 






tage ...—.-.-.— 

2.5 

2.2 

2.5 

3.0 

3.0 


Hong Kong 


European 

Communitv 


Other 


1/ Data were supplied by 6 U.S. producers and importers assessing products made 
in Japan; 6 firms, Taiwan; 6 firms, Hong Kong; 3 firms, the European Community; and 
1 firm, other sources, 

2/ The questionnaire respondents listed the competitive advantage in each factor 
as being "domestic," "foreign," or "same." A score of 3 was assigned to a domestic 
advantage, 2 to same, and 1 to a foreign advantage. An average rating .close to 3.0 
indicates that a consensus of the respondents listed a domestic advantage; the 
closer that the average rating is to 1.0, the greater the consensus toward a 
foreign advantage. 


Source: Compiled from data submitted in response to questionnaires of the U.S. 
International Trade Commission. 




75 


games and components 1 / of the^omoetiK U ‘ S ' producers and importers of 
mS f ° rei 9"-d e Products duri: g P l9^83 P ° Siti0n ° f ho*. 


Factor of competition 


Lower purchase price 
(delivered).-.-.... 

Ability to supply products at 
various market price levels- 

Exchange-rate advantage-. 

Qua 1 i ty-... 


Terms of sale-.... 


Overall availability („hat you 
want, where and when you 
want it)-. 

Shorter delivery time-.. 

Warranties and service.. 

Historical supplier relation- 

s h i p.-.. 

Overall competitive advan¬ 
tage--. 


jTapan ’ Taiwan ; Hong Konq : Eur ^Pean T'~. 

; — 1 -■*——-W—-_ J Commu nity . Other 


1.7 : 

1.5 ; 

1.4 : 

1.6 : 

2.0 

1.9 : 

2.0 : 

2.0 : 

1.6 : 

2,5 

1.8 

2.0 : 

a 

3.0 :’ 

2.3 

2,5 

2.6 : 

2,5 ; 

a 

• 

3,0 ; 

2.7 : 

3 .0 

2.3 : 

2.0 : 

a 

■ 

» 

2.2 ; 

a 

» 

2.0 : 

2,0 

2.8 : 

... : 


2.3 : 

2.5 

2.5 : 

2,8 : 

2.3 : 

2.3 ; 

2.5 

3.0 : 

3.0 : 

3,0 : 

3.0 : 

3.0 

2.7 

_ 2,7 ;* 

3,0 : 

2 3 • 

O A 

2.3 : 

2.5 : 

r 

2.0 : 

2,3 : 

3 , 0 

2.7 


—- . ' : 2.0 : 2,3 : 9 

y Data were supplied" hv 77T - o--—•'--- J _ : • ! 

3 n f?r m P r ; othe f r rmS ' 5 

rms, other sources. Firms, the European Community; and 

a f bein 9 "dome L stic?'i r "foreTgn d '' n or ^ advantage in each fac tor 

advantage, 2 to same, and 1 to a foreton'ad 6 ° f 3 Was assi 9 ned to a domestic 

indicates that a consensus of the respondents" auera9e ratin 9 dose to 3 0 
oser that the average rating is to 1 o 'th l llSt f d a don >Gstic advantage; the 
foreign advantage. 9 ° X ‘°' the 9^ater the consensus toward a 

International"Trade C^i££n! Ub,, ' lttad response to questionnaires of the U.S. 



























76 


Table 04..Video game software; Assessment by U.S. producers and importers of 

video games and components 1/ of the competitive position of U.S. -made video game 
software versus foreign-made products during 1978-83 


Factor of competition 

Average 

U 

rating 2/ of the competitive advantage of 
S.-made video game software versus 
products made in— 


Japan 

Taiwan 

Hong Kong 

European 

Communitv 

Other 

Lower purchase price 

(delivered)-.... 

2.1 

2.0 

2.0 

2.0 

3.0 

Ability to supply products at 
various market price levels.- 

2.1 

2.3 

3.0 

2.0 

3.0 

Exchange-rate advantage--— 

1.8 

2.0 

2.7 

2.0 

3.0 

Quality-.—.-....— 

2.7 

2.3 

2.8 

2.3 

3.0 

Terms of sale-.-.-—...— 

2.5 

2.3 

2.5 

2.3 

3.0 

Overall availability (what you 
want, where and when you 
want it).—....-.. 

2.8 

2.6 

2.8 

2.7 

3.0 

Shorter delivery time.-. 

2.5 

2.3 

3.0 

2,7 

3.0 

Warranties and service.— 

2.8 

2.6 

2.8 

2.7 

3.0 

Historical supplier relation- 

2.7 

2.5 

2.5 

2.0 

3.0 

Overall competitive advan- 






ta9e .“.— 

2.4 

2.5 

2.6 

2,0 

3.0 


1/ Data were supplied by 8 U,S. producers and importers assessing products made 
in Japan; 8 firms, Taiwan; 7 firms, Hong Kong; 3 firms, the European Community; and 
1 firm, other sources. 


2/ The questionnaire respondents listed the competitive advantage in each factor 
as being ‘'domestic, 1 ' "foreign," or "same." A score of 3 was assigned to a domestic 
advantage, 2 to same, and 1 to a foreign advantage. An average rating close to 3.0 
indicates that a consensus of the respondents listed a domestic advantage; the 
closer that the average rating is to 1.0, the greater the consensus toward a 
foreign advantage. 

Source: Compiled from data submitted in response to questionnaires of the U.S. 
International Trade Commission. 




77 


Of Video games and^componentTi/ of S the S competiti S ' pr °l Jucers arid importers 
Hand ' held " ide0 ™ foroign-mad^products^uring 1 1978^33 * ’ 


Factor of competition 


Lower purchase price 
(del ivered)- 


^ofTs F 

Of U.S.-made hand-held video games versus 
-p roducts made in— 

Japan * Taiwan : Honq Kona : European" - " 


Ability to supply products at 
various market price levels— 

Exchange-rate advantage_ 

Qua l j. ty-... 

Terms of sale-....... 

Overall availability (what you 
want, where and when you 
want it)-.... 

Shorter delivery time-. 

Warranties and service--.-__ 

Historical supplier relation- 
ship-......... 

Overall competitive advan¬ 
tage-...... 


±j uc * were, supolled hu r n o i— --—..—-__ : 

made in Japan; 6 firms, Taiwan;' 6 firm^^onq^ona^ 0 ^^? p Ssessin 9 ProdU^tT' 
Community, ' Hon 9 Kon 9> and 1 firm, the European 

2/ The questionnaire respondents , 

factor as being M c(omestic," "foreign " or tiye ^vantage in each 

to a domestic advantage, 2 to same 9 and t e A score of 3 was assigned 
rating close to 3.0 indicates that'a rnn! f ° r T 3n advantage. An average 

domestic advantage; the closer that i-ha SGnSUS of the respondents listed a 
the consensus toward a foreign ad^ntage " 98 “ t0 l '°' the neater 

U.S. International Trade Commission**^ response to questionnaires of the 


l 

> 



1.7 ; 

1.3 : 

1.2 

3.0 

1.5 : 

2.0 ; 

1.3 : 

3.o ; 

1.7 : 

1.8 : 

2.3 : 


1.7 : 

2.0 : 

2.0 : 

3.0 

2.0 : 

2.4 : 

1.8 ; 

i 1 

3.0 

1 j 

2.2 : 

2.8 : 

• 

i 

t 

2.2 : 

| 

3.0 

2,6 : 

3.0 : 

2.5 : 

3.0 

2,2 : 

2.6 : 

2.6 : 

3.0 

1.8 : 

2.0 ; 

1.8 ; 

3 0 

1.5 : 

1.5 : 

1.5 

3,0 t 






















78 


Table 0-6...Video game consoles: Assessment by U.S. producers and importers 

of video games and components X/ of the competitive position of U.S.-made 
video game consoles versus foreign-made products during 1978-83 


Factor of competition 

Average rating 2/ of t 
of U.S.-made video 
products 

he competitive advantage 
game consoles versus 
made in— 


Japan 

Taiwan 

Hong Kong 

European 

Community 

Lower purchase price 

(delivered)-.—.-.-. 

2,0 

2.0 

2.0 

3.0 

Ability to supply products at 
various market price levels— 

1 , 8 

2.0 

2.3 

3.0 

Exchange-rate advantage.—.— 

1,7 

1.0 

1.5 

- 

Qua 1 i ty—.-.-..-.— 

2.3 

2.6 

2.0 

3.0 

Terms of sale..- 

2.8 

2.4 

2,3 

3.0 

Overall availability (what you 
want, where and when you 
want it).-.- 

1.8 

2.0 

2,3 

3.0 

Shorter delivery time..- 

1.8 

2.0 

2,3 

3,0 

Warranties and service.- 

2.8 

2.6 

2,7 

3.0 

Historical supplier relation- 

2.5 

2.4 

2.3 

3.0 

Overall competitive advan- 





tags.-.— 

2.3 

2.4 

2.3 

3.0 


1/ Data were supplied by 4 U.S. producers and importers assessing products 
made in Japan; b firms, Taiwan; 3 firms, Hong Kong; and 1 firm, the European 
Community. 


2/ The questionnaire respondents listed the competitive advantage in each 
factor as being "domestic," "foreign," or "same," A score of 3 was assigned 
to a domestic advantage, 2 to same, and 1 to a foreign advantage. An average 
rating close to 3.0 indicates that a consensus of the respondents listed a 
domestic advantage; the closer that the average rating is to 1,0, the greater 
the consensus toward a foreign advantage. 

Source: Compiled from data submitted in response to questionnaires of the 
U.S, International Trade Commission. 


79 


Table C-7. —Video game controllers: Assessment bv ll q 

video games and components 1 / of the competitivo ? roducGrs ^d importers of 

controllers versus foreign-made ° f U ' S '"" ade S™. 


Factor of competition 


Lower purchase price 

(delivered).-.-... 

Ability to supply products at 
various market price levels- 

Exchange-rate advantage- 

Qua 1 i ty-....... 


A uT 9 Ld r e tin H 9 y of th ~ s ' 

S.-made video game controllers versus products 
-...-mad e in— 

Japan ; Taiwan ' Hong Kong : European : 

- —j— --—__ : Community ; 


Terms of sale—...... 

Overall availability (what you 
want, where and when you 
want it)—.. 

Shorter delivery time-__ 

Warranties and service-. 


Historical supplier relation- : : 

ship------; ; : : : 

--U-f,-2. 5 ;_3 .0 :_ 

Overall competitive advan- ! : : : 

_ta ge--,0 | , 6 | ,, j | ,, 

in Japan? Tfirm? P ^aiwan? t fims^Hong^ong^Vf? orte ^» asTessing^TSJSj. 

1 firm,, other sources-. ' 9 9 ' 3 firms ' thc European Community; and 

2 / The questionnaire respondents l-ishoa 4 - 1 ™ „ . ., . 

as being "domestic," "foreign,"' or "sam^" a advanta 9 6 in **ch ■-■ Lor 

advantage, 2 to same, and 1 to a foreign'advanf^T °I W * 8 assi 9 ned to « domestic 
indicates that a consensus of the L, l' f 9 An aUGrage rating close to 3.0 
closer that the average rating is to 1 0 *thl *!j om ® 8tic advantage; the 

foreign advantage. ’°' thG greater the consensus toward a 

International Trade Commission! UbmittGd ^ rGsponsG to questionnaires of the U.S. 


























80 


Table C-8,-.Game logic boards: Assessment by U.S. producers and importers of 

video games and components 1/ of the competitive position of U.S.-made game 
logic boards versus foreign-made products during 1978-83 

"" 7~Average rating 2/ of the competitive advantage 


Factor of competition 

of l 

.S 

-made game 
products 

logic 

made 

boards 

m— 

versus 


Japan 

Taiwan 

Hong 

Kong 

European 

Community 

Lower purchase price 








(del i vered)-.-..—-- 

1 

4 

1 

8 


2.5 

3.0 

Ability to supply products at 








various market price levels— 

1 

6 

1 

9 


3.0 

3.0 

Exchange-rate advantage—.—.— 

1 

6 

1 

2 


2.0 

- 

Quality.-.-..-.. 

2 

1 

2 

6 


2.5 

3.0 

Terms of sale...-.-.- 

2 

6 

2 

5 


2.0 

3.0 

Overall availability (what you 








want, where and when you 








want it)..-.-.- 

2 

3 

2 

1 


3.0 

3.0 

Shorter delivery time-.- 

2 

4 

2 

1 


3,0 

3.0 

Warranties and service.—...- 

Historical supplier relation- 

2 

8 

2 

8 


2.5 

3.0 

2 

4 

2 

6 


2.5 

3.0 

Overall competitive advan- 
tage...-.. 

1 

8 

1 

6 

3.0 

2.0 


1/ Data were supplied by 14 U.S, producers and importers assessing products 
made in Japan; 8 firms, Taiwan; 2 firms, Hong Kong; and 2 firms, the European 
Community. 

2/ The questionnaire respondents listed the competitive advantage in each 
factor as being "domestic," "foreign," or "same." A score of 3 was assigned 
to a domestic- advantage, 2 to same, and 1 to a foreign advantage. An average 
rating close to 3,0 indicates that a consensus of the respondents listed a 
domestic advantage; the closer that the average rating is to 1.0, the greater 
the consensus toward a foreign advantage, 

Source: Compiled from data submitted in response to questionnaires of the 
U.S. International Trade Commission. 


81 


uT-made ° f ^ de0 9ameS and c ^P°^nts te 1 r / C of P th e fl " 9, ?? ,8nt b * U.S. produce 


factor of competition 


Lower purchase price 
(de 1 i vered)—.-.. 

Ability to supply products at 
various market price levels- 

Exchange-rate advantage-.-. 

Quality™.-..... 


Average ra t i ng“ 27 o f ThT---;..- 

U.S.-made cust7m- m I d e ^liZT of 

-products l e l g f“ COmput - <*ip» 


Terms of sale- 


overall availability (what you 
want, where and when you * 
want it)... 


Shorter delivery time-_ 

Warranties and service. 


Historical supplier relation¬ 
ship--.... 

Overall competitive advan- 
tage-- 


Japan 

. Taiwan 

; Hong Kong 

: European 

' Commimi t-i 

, ’ Other 

1.3 

1.7 

; 2.5 

2.0 

L ■ 

■ 2.0 

1.7 

2.0 

2,5 

; 2,0 

2.0 

1.6 

1.5 

2.0 

2.5 

: 2,0 

2.3 

2.3 , 

2.5 

; 2.0 

2.0 

2.5 

2.0 

2.5 

2.0 

2.0 

2,5 

2.7 

3.0 

3.0 

3,0 

2,3 

2,0 

2.5 ; 

2.5 : 

2.0 

2.5 : 

2.7 : 

2.5 : 

2,0 : 

2.0 

2 , 6 _ j _ 

_ 2.3 : 

_ 2,5 : 



2.0 ; 

'oducer 

2.0 ; 

S finrl 1 

2.5 ; 

1 - —' 

... *<••-> , 

2.5 ; 

_ „2 T ) 

2.0 


1 firm, Other .oure.T 2 ^ng; 2 firms the ^ 

K The questionnaire respondents ,• *. , Commuruty; and 

2TTK 

mt":::;C0 r :iis:^ SUbmitted in to questionnaires of the u.S. 





































Table C-10.—Keyboards for home computers: Assessment by U.S. producers and 
importers of video games and components 1/ of the competitive position of 
U.S.-made keyboards for home computers versus foreign-made products during 
1978-83 


Factor of competition 


Average rating 2/ of the competitive advantage 
of U.S.-made keyboards for home computers 
versus products made in— 



Japan 

Taiwan 

Hong Kong 

European 

Community 

Lower purchase price 





(delivered)—-- 

1.0 

1.0 

1.0 

2.0 

Ability to supply products at 
various market price levels— 

1.0 

1.0 

3.0 

2.0 

Exchange-rate advantage--- 

1.0 

1.0 

3.0 

3.0 

< ? ualit i'.-—--- 

2.5 

2.0 

1.0 

3.0 

Terms of sale..—.— 

2.0 

1.0 

3.0 

2,0 

Overall availability (what you 
want, where and when you 
want it)....- 

3.0 

3.0 

1.0 

2.0 

Shorter delivery time—... 

2.5 

1.0 

1.0 

2.0 

Warranties and service---— 

3.0 

3.0 

3.0 

2.0 

Historical supplier relation- 

s h i p—.-.-.-.. 

2.0 

2.0 

3.0 

2.0 

Overall competitive advan- 





tage .. 

2.5 

1.0 

1.0 

3.0 


1/ Data were supplied by 2 U.S, producers and importers assessing products 
made in Japan; 1 firm, Taiwan; 1 firm, Hong Kong; and 1 firm, the European 
Community. 

2/ The questionnaire respondents listed the competitive advantage in each- 
factor as being "domestic," "foreign," or "same." A score of 3 was assigned 
to a domestic, advantage, 2 to same, and 1 to a foreign advantage. An average 
rating close to 3.0 indicates that a consensus of the respondents listed a 
domestic advantage; the closer that the average rating is to 1.0, the greater 
the consensus toward a foreign advantage. 

Source: Compiled from data submitted in response to questionnaires of the 
U.S. International Trade Commission. 


83 


sfcr —«.**s»;s8rA, 


Factor of competition 


ST-Le^isc £ 27 ^ 

3 ror home computers produ. 



. Data w ®re supplied bv ? TTq __ 

35 be " g "domestic/^Tforeignf""or C ° mpetiti '' e advantage in each factor 

Closer that the average rating is to 1 o 1 . 3 domGstic advantage; the 

foreign advantage. 9 is to 1,0, the greater the consensus toward a 


Internationa^Trade CoZss^n"^^ reSp °" se to <m««onn.ir.. of the U.S. 






























84 


Table C-12..-Cassette recorders for home computers: Assessment by U.S, pro¬ 

ducers and importers of video games and components V of the competitive 
position of U.S.-made cassette recorders for home computers versus 
foreign-made products during 1978-83 


Factor of competition 

Average rating 
of U.S.-made 
computers 

2/ of the competitive advantage 
cassette recorders for home 
versus products made in— 


Japan 

Hong Kong 

European 

Community 

Lower purchase price 




(delivered)~... 

3.0 

1.0 

1,0 

Ability to supply products at 




various market price levels— 

3.0 

1.0 

1.0 

Exchange-rate advantage-..— 

3.0 

3.0 

3.0 

Quality--- 

3.0 

1.0 

3.0 

Terms of sale-.... 

3.0 

1.0 

2.0 

Overall availability (what you 
want, where and when you 




want it)-—..- 

3.0 

1.0 

2.0 

Shorter delivery time.- 

3.0 

1.0 

2.0 

Warranties and service.- 

3,0 

3.0 

2.0 

Historical supplier relation- 




s h i p-.- 

3,0 

1.0 

2.0 

Overall competitive advan- 




tage.- 

3.0 

1.0 

1.0 


f/ Data were supplied by 1 U.S. producer assessing products made in Japan; 1 
firm, Hong Kong; and 1 firm, the European Community. 


2/ The questionnaire respondents listed the competitive advantage in each 
factor as being "domestic," "foreign," or "same." A score of 3 was assigned 
to a domestic advantage, 2 to same, and 1 to a foreign advantage. An average 
rating close to 3,0 indicates that a consensus of the respondents listed a 
domestic advantage; the closer that the average rating is to 1.0, the greater 
the consensus toward a foreign advantage, 

Source: Compiled from data submitted in response to questionnaires of the 
U.S. International Trade Commission.