Sample Business Research Paper: Examination of Bethesda Softworks’ Business Environment

Business WritingPESTLE Analysis
Dec 2, 2021

Bethesda Softworks is a popular video game publisher and one of the top competitors in the industry. Consumers know the company through its top-selling titles, such as The Elder Scrolls franchise and Fallout franchise. These franchises became pioneers in their genre and acted as quality standards for other developers. Aside from these RPG titles, the company also published the games Doom, Dishonored, Wolfenstein, Prey, and more. The success of these games along with the company’s business environment allowed Bethesda to acquire a competitive position in the video game industry. This research paper will aim to examine Bethesda Softworks’ business environment through the PESTLE analysis and Porter’s Five Forces.

Bethesda Softworks Background

Bethesda Softworks began as a division for the company, Media Technology Limited. During this time, Bethesda Softworks was a video game development division. The division created the first game in The Elder Scrolls Franchise along with other titles. In 1999, ZeniMax Media became Bethesda Softworks’ parent company which created a change in Bethesda’s operation. It was during this time that Bethesda Softworks shifted from video game development to publishing. Bethesda Game Studios, a separate division, became responsible for developing video games for ZeniMax. In 2020, Microsoft bought ZeniMax which made Bethesda a subsidiary of the company.

PESTLE Analysis on Bethesda Softworks’ Business Environment

Political

Certain parties claim that video games can cause violence in teenagers. This is a common topic for traditional parents and groups. Different studies have shown that playing video games has positive and negative effects . Aside from these types of claims, Bethesda Softworks does not face any significant issues regarding the political environment. However, other video game companies have titles that can spark debate regarding political issues. Victura, a video game developer, planned to create a game that realistically portrays the Second Battle for Fallujah. The company initially planned that it will avoid political topics, such as the Iraq War and horrific civilian experiences (Foust, 2021). This exclusion led war veterans to speak against removing politics in a game about war. John Phipps, a Fallujah veteran, argued that war is due to politics and that war is another form of politics (as cited in Foust, 2021). This type of political issue can present itself to other developers, such as Bethesda Softworks which published games that involve themes about war, politics, discrimination, and other political topics.

Economic

The effects of the coronavirus pandemic  caused world economies to decline. Certain countries experienced high unemployment rates, increased debts, and market collapse. Despite these negative effects, the video game industry benefited from the global lockdown. According to Sener et al. (2021) companies in the video game industry experienced increased share values during the pandemic. This increase in share values is due to the public’s high demand for video games. The lockdown led individuals to spend more time at home and in front of screens. Without many alternatives, individuals utilized their smartphones, PCs, and gaming consoles to keep themselves entertained. 

Before the pandemic, Bethesda Softworks had a net worth of $1.9 billion in 2017, $2.1 billion in 2018, and $2.5 billion in 2019. The company showed consistent growth in its net worth before the coronavirus pandemic. In 2020 and 2021, Bethesda Softworks’ net worth grew to $3 billion which shows continuous growth despite the global economic conditions. It is also important to note that the company experienced a $0.5 billion increase in its net worth between 2019 and 2020. This was the period when the coronavirus started and peaked. Despite the poor economic condition during this time, Bethesda Softworks experienced the highest growth in net worth for the past four years.

Social

The lockdown due to the coronavirus pandemic caused a change in public behavior. As mentioned earlier, individuals spend more time at home which increases video game-related activity. According to an NPD survey in 2020, four out of five U.S. consumers play video games. This is due to the easy access to video games through mediums like smartphones, PCs, tablets, and laptops. The pandemic lockdown limited the sources of entertainment to visual media and indoor activities which largely contributed to the changing consumer behavior.

Since visual media has become a common source of entertainment, consumers also frequently consumed content from streaming and similar content-creation platforms. According to Azhar et al., 2020, the pandemic led to a positive development in streaming platforms’ performances. In April 2020, the streaming platform Twitch recorded 1.49 billion video game-related watch hours (Smith, 2020). The data shows that Twitch viewers heavily watch video game-related content. Platforms like Facebook and Youtube also experience an increase in watch hours and video game-related activities. The increase in video game-related activities has a direct impact on video game sales and demand. This social environment condition greatly benefits Bethesda Softworks since the company can experience increased sales for top-selling titles.

Technological

Bethesda Softworks heavily rely on technological advancements that can influence the video game development process including distribution and releases. The company utilizes platforms like Steam, PlayStation Store, and Google Play Store to distribute the games they publish. Innovations regarding these platforms can improve the distribution method of the company and allow it to reach more customers. Advancements in video game platforms like PC, game consoles, and smartphones heavily affect the quality of video games. For example, certain titles may not be available to game consoles due to technical requirements. Additionally, development in the fields of animation, graphic design, and computer hardware will affect the game creation process which can influence release dates and the overall quality.

Internally, most Bethesda titles utilize the Creation Engine. This is a game engine that Bethesda created for its games. A game engine is an integral part of video game development as it acts as the foundation for the video game and sets the limitation regarding the game mechanics. Bethesda continuously works on the Creation Engine to overhaul it and improve upon previous versions. Currently, Bethesda is using an overhauled Creation Engine to develop its new title Starfield (Good, 2020).  Other video game companies also have their own game engines which some Bethesda game utilizes. Improvements to those game engines will also affect Bethesda Softworks operations.

Legal

Bethesda Softworks and Bethesda Game Studios have experienced legal issues regarding false marketing, refund policies, and other unethical practices. The poor launch of Fallout 76 in 2018 was an example of Bethesda’s man legal issues. After the launch of the game, the company received various legal complaints and lawsuits due to misleading marketing practices. The company delivered a poorly performing game that does not contain the contents from the marketing materials. Additionally, non-game products like pre-order collectibles did not meet the standards that the company promised to their consumers. This led to various lawsuits and consumer complaints that negatively affected the company’s reputation.

Currently, Bethesda is facing two legal issues regarding false marketing and unethical practices. The lawsuit regarding false marketing refers to Bethesda’s Fallout 4 Season Pass. Bethesda promised consumers that purchasing the Season Pass will allow them to gain access to all future content. However, the company broke this promise when it released the Creation Club content for Fallout 4. This led various customers to file lawsuits against the company due to their misleading marketing. The second issue, which is the lawsuit regarding unethical practices, refers to a claim that ZeniMax and Bethesda sabotaged a video game developer to protect their titles. Ragnarok Games filed this lawsuit and sued Bethesda for $100 million (Oloman, 2020). These lawsuits can have an integral effect on Bethesda Softworks’ operations depending on the result of the cases.

Environmental

Most video game companies, including Bethesda Softworks, do not have a significant impact on the environment. Most of the company’s operations happen indoors and in a digital space. Video game developers do their work through computers and most of the distribution process for most games is also in the digital space. However, distributing physical copies of video games as well as replacing old hardware results in electronic wastes. Electronic wastes include devices like computer hardware, laptops, consoles, and peripherals. Video game developers and their consumers have the potential to greatly contribute to electronic wastes due to constant hardware upgrades.

Currently, many video games companies have committed to supporting actions to combat climate change. The UN Environment Programme stated that the environmentally friendly action of video game companies can lead to a 30 million tonne CO2 reduction by 2030 (Video Games, 2019). This collective action of video game companies, including Microsoft which is Bethesda’s parent company, shows the active support of Bethesda Softworks towards a healthy environment. The company may utilize sustainable resources and encourage its consumers to practice environment-friendly efforts.

Analysis Using Porter’s Five Forces

Competition in the Industry

The competition in the video game industry is dependent on various factors that influence the development and distribution process. According to Zackariasson & Wilson (2008), the competition in the industry relies on development studios, publishers, console manufacturers, and distributors. The competitive position of a development studio and publisher can affect consumer decisions. For example, Bethesda Softworks and Bethesda Game Studios are popular brands in the RPG genre which puts the companies’ games in a competitive position. Consumers may prefer to purchase Bethesda RPG games due to the popularity of the brand.

The influence of manufacturers and distributors in the competition relies on availability. Not all video games are available on all gaming platforms. Some games are only available on PC while others are exclusive to PlayStation. Distributors like Steam, Epic Games Store, and Google Play Store has a similar effect on the competition. Certain games may be available on all distribution platforms while others are time-exclusive on the Epic Games Store. These factors have a direct impact on the competition since some players may have access to only one console or distributor. For Bethesda Softworks, most of its published games are available on most gaming platforms except for mobile. However, due to Microsoft’s recent acquisition of Bethesda, some published games may be exclusive to the Xbox and Microsoft Store.

Threats of New Entrants

The video game industry has a high threat of new entrants due to its low barriers to entry. In the industry, individuals use the term “indie developers” to refer to smaller game development teams. An indie development team can range from a few individuals to one developer. They often have low budgets, with some relying on public financial support. Technological advancements also allowed single individuals to create a video game without a team. This leads to a low barrier to entry in the industry since any individual that has knowledge about programming can enter. Additionally, distribution platforms like Steam allow these indie developers to publish their games to a global market. This opportunity makes indie game developers a competitive threat against top competitors since they have access to the same market.

Bargaining Power of Buyers

The bargaining power of buyers in the video game industry is high due to active communities of consumers. According to Torhonen et al. (2020), consumers of esports and game review video content purchase more video game-related products. Certain video games, especially multiplayer games, tend to develop communities that review and release regular content regarding the game. This can lead a community to have a unified opinion of a video game or company which can affect sales performance. For example, esport figures that regularly stream and upload video game content can influence their fans to purchase in-game items or try out a new title. Esport fans may try to imitate their favorite players by purchasing the same items they have. Other esport figures may have sponsored deals and try to advertise video game products to their viewers. This gives esport figures and content creators a high bargaining power since they can directly affect the public’s opinion regarding a game.

Additionally, game review content also contributes to the high bargaining power of buyers. Video game consumers utilize different game reviewers to assess a new title’s quality. They may search for Youtube game review channels or visit websites like MetaCritic to look at a game’s review scores. These review platforms can heavily influence consumer behavior due to the collective behavior of a community as well as the opinions of influential figures. These platforms do not only provide high bargaining power to the reviewer but also to the consumers that use them.

Bargaining Power of Supplier

Bethesda Softworks utilizes many suppliers for different aspects of its operations. Some suppliers provide the company with unique products. These suppliers have high bargaining power due to the exclusivity or scarcity of their supplies. Other suppliers provide replaceable assets causing them to have lower bargaining power. Suppliers that have high bargaining power are companies that provide unique assets such as game engines, popular actors, and exclusive services. Epic Games and their ownership of the Unreal Engine portrays the high bargaining power that suppliers have over certain companies. Many video games, including some Bethesda-published titles, utilize the Unreal Engine. As mentioned earlier, a game engine is an integral part of video game development which makes it a significant asset. Epic Games has the practice of creating exclusivity deals with developers that utilize their game engine. These deals involve games being time-exclusive to the Epic Games Store. Exclusivity can have varying impacts on a game which can be positive or negative. A game may sell poorly due to the limited market in the Epic Game Store or it may perform well due to the active community in the platform. This type of bargaining power showcases the direct effect that suppliers can have on a game’s performance.

Suppliers with low bargaining power are companies that supply computer hardware, software, devices, internet services, and other replaceable materials. In the development process, a company will utilize computers and other devices to create the game. While materials like game engines are irreplaceable, developers can easily find alternatives to computer hardware and devices. Suppliers like Nvidia, MSI, and Intel are companies that have many competitors that will be willing to supply Bethesda Softworks or other developers. This ease of access leads to the low bargaining power of these companies, however, similar companies may develop a higher bargaining power depending on exclusive features available in their products.

Threat of Substitutes

In the video game industry, the threat of substitutes does not come from products with similar features, instead, from other video game genres. In Bethesda Softworks’ case, the threat may come from online and multiplayer games. The company mostly publishes single-player games within the RPG, Adventure, and Action genre. In the industry, consumers tend to purchase video games depending on their genre preference. An individual that prefers RPG games will purchase products that are RPG-related and disregard the company that developed them. Some consumers may only purchase RPG games while others may only prefer multiplayer online games. Due to this behavior, the threats of substitutes may come from genres like MMOs, Simulation, and Competitive games. The company has shown its attempt to remain competitive through its release of the online games Elder Scrolls Online and Fallout 76.

Conclusion

The PESTLE and Five Forces analysis revealed that Bethesda Softworks’ business environment promotes positive growth despite certain issues that the company needs to address. The PESTLE analysis showed that the company’s political and legal environment may cause issues due to unethical practices and political agendas. However, the economic, social, technological, and environmental factors indicate that Bethesda Softworks may experience continuous growth due to the opportunities in the industry. More so, the Five Forces analysis showed that Bethesda Softworks is in a highly competitive environment where buyers and suppliers have significant bargaining powers. These factors suggest that Bethesda Softworks’ current business environment provides opportunities to the company but may also require it to practice corporate governance to avoid legal and ethical issues.

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