Thursday, December 11, 2008
Game Publishers Getting Shredded: Two Perspectives
Jeff Tunnell has written a piece on Make It Big In Games explaining why he - once neck-deep in the "mainstream" game business - doesn't own stock in any of the public game publishers. His rationale is sound.
As a dude who has gotten seriously into stock and option investing over the last year (and I've actually managed to keep my head above water the last few months - unlike my professionally managed mutual funds), I have been asked by friends if I hold any positions in public game companies. After all, that's one of the big pieces of advice guys like Phil Town offers with his "Rule #1" system - you invest in companies that have meaning to you, and that you understand.
In spite of having worked in it for years, I can't pretend to understand the machinations of the video game industry as well as a guy like Tunnell, but I do understand it enough to stay far away. Those companies just don't meet my criteria (though I've been tempted to short a couple of them this year... but EA wasn't as clear-cut a shorting opportunity as Las Vegas Sands or Lehman Brothers...)
Jeff Tunnell: Why I Don't Own Stock In Game Publishers
Tunnell's prediction is that - long-term - the whole boxed-game / brick-and-mortar / pay to "buy" a game model is going to gradually go the way of the dodo. He predicts that within a few years, people will no longer be paying for games directly. Do I agree? I don't know. I buy boxed sets of DVDs of TV shows that once aired on television for free. I buy stuff directly that I could have enjoyed for free. What's wrong with that?
I think it means that you'd better not bank on the market evolving in a single direction. It's diversifying.
Leigh Alexander, one of my favorite "game journalists", has a completely different, disappointed look at EA's poor showing this year. You see, this was the year that EA tried to repent. It tried to focus on quality, on new (and risky) properties - on more innovation and all those things we gamers say we want. They brought us some strange titles, and took some creative risks.
And it bit them on the face.
Alexander comments, "A kinder, more creative EA does not make money." I think the overall economy may have a bit more to do with it than that, but it doesn't change the likelihood that they'd not have had to have so many layoffs if they'd concentrated on pumping out (quality) sequels and milking the same ol' cash cows.
On which they, no doubt, are already re-focusing.
Leigh Alexander: Stop Making Sense
So I guess you've got three areas to cast blame:
#1 - The core business model is broken and obsolete. Long live web-based games!
#2 - The games were simply not what gamers wanted to buy. As much as we claim to want innovation - it simply doesn't sell as well as the sequel / clone to last year's big hit.
#3 - The economy sucks, hurting everybody. The videogames business is not as "recession-proof" as it claims.
I think all three are contributing factors, but I don't know that they are all created equal. I think the economy was probably the biggest issue. It's taking too many publishers down too hard and too fast. Sure, they all tend to make the same mistakes, but there's simply a market reality to face. Beyond that, though, I don't have a clue as to ratios.
What I do know is I have a lot of friends in the games business (or should I say, formerly in the games business) who have lost (or been forced to quit) their jobs this year. As a friend of mine used to say, it's not all fun and games - sometimes its just games.
Labels: Biz, Mainstream Games
- posted by The Rampant Coyote @ 8:26 AM (Permalink)
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There are two aspects of computer/video games in a financial crisis - depending on the target audience.
On one hand they are offering an escape from reality - and in times of a crisis (lots of people unemployed or in really "stressy" situation) this could increase sales. Especially with nerd type customers (fantasy or manga fans for example).
On the other hand games are more and more becoming a casual recreation for Joe Sixpack and his wife.
For them video games are somewhat of a luxury article (like going to the cinema or in a fine restaurant) - and people tend to abstain from buying them in hard times.
I think it's very interesting to see, how it would turn out.
As for the shares (I don't own any from games companies) I wouldn't be so critical like Jeff Tunnel - if boxed software isn't sold any longer the publishers will already have a "plan B" (downloadable content being one example) and I don't see why shares would automatically lose their value.
On one hand they are offering an escape from reality - and in times of a crisis (lots of people unemployed or in really "stressy" situation) this could increase sales. Especially with nerd type customers (fantasy or manga fans for example).
On the other hand games are more and more becoming a casual recreation for Joe Sixpack and his wife.
For them video games are somewhat of a luxury article (like going to the cinema or in a fine restaurant) - and people tend to abstain from buying them in hard times.
I think it's very interesting to see, how it would turn out.
As for the shares (I don't own any from games companies) I wouldn't be so critical like Jeff Tunnel - if boxed software isn't sold any longer the publishers will already have a "plan B" (downloadable content being one example) and I don't see why shares would automatically lose their value.
# posted by 
: December 11, 2008 9:17 AM
: December 11, 2008 9:17 AM
I don't see boxed products or consoles going away for a long time, but I don't see them growing. All of the game publishers still see their stocks as growth stocks, and still plan their businesses around a 15% annual growth rate. My prediction boils down a simple theory that this isn't going to happen, and their stocks will respond accordingly.
My own wild-eyed, uneducated prediction is that in two console generations (so approximately 7 years from now), downloadable content will start overtaking physical media. You'll see many (most?) "big" games sold in either format - like we're starting to see with PC games on Steam now.
So yeah - boxed games will probably still be around 20 years from now. But it'll be about like buying a CD today. I still buy them - from Wal*Mart or Amazon. But what happened to all those record stores of my childhood? That could very well be GameStop's fate.
@Calibrator - I know that many publishers are considering more digital distribution options, but they are so deeply involved with the retailers (and that's STILL the side their toast is buttered on - especially Wal*Mart) that they can't be too hasty or flexible lest they piss them off.
Also remember that stock prices are forward-looking. That's why share prices often go down on good news and up on bad news. It all depends upon how much the anticipation of that news was "baked" into the stock price. Right now, stocks are down because investors are guessing what it is going to mean for earnings for the next 2-5 years. So if EA has a plan "B" - it's meaningless to investors. They are just looking at current sales and projections, and the projections are going south.
Another one to look at is GameStop (ticker symbol GME). They've been tanking with the rest of the economy - though I think short-term they might have an edge. I think in rough times, a lot of people might be thinking used games. That's a huge chunk of Gamestop's revenue. Longer-term, though, I think they are at even more risk than the big publishers. They do have online sales, but I'm not sure of their ability to leverage their brick-and-mortar presence into online sales in the future.
So yeah - boxed games will probably still be around 20 years from now. But it'll be about like buying a CD today. I still buy them - from Wal*Mart or Amazon. But what happened to all those record stores of my childhood? That could very well be GameStop's fate.
@Calibrator - I know that many publishers are considering more digital distribution options, but they are so deeply involved with the retailers (and that's STILL the side their toast is buttered on - especially Wal*Mart) that they can't be too hasty or flexible lest they piss them off.
Also remember that stock prices are forward-looking. That's why share prices often go down on good news and up on bad news. It all depends upon how much the anticipation of that news was "baked" into the stock price. Right now, stocks are down because investors are guessing what it is going to mean for earnings for the next 2-5 years. So if EA has a plan "B" - it's meaningless to investors. They are just looking at current sales and projections, and the projections are going south.
Another one to look at is GameStop (ticker symbol GME). They've been tanking with the rest of the economy - though I think short-term they might have an edge. I think in rough times, a lot of people might be thinking used games. That's a huge chunk of Gamestop's revenue. Longer-term, though, I think they are at even more risk than the big publishers. They do have online sales, but I'm not sure of their ability to leverage their brick-and-mortar presence into online sales in the future.
My personal opinion, again highly uneducated:
As one of said people who protested and decided NOT to buy either Spore or Bioshock BECAUSE of the DRM...
... I really don't know that it made a difference. It was probably a small impact that was counter-balanced by the small impact the DRM scheme had against piracy.
But it sure didn't generate much goodwill for EA, did it?
As one of said people who protested and decided NOT to buy either Spore or Bioshock BECAUSE of the DRM...
... I really don't know that it made a difference. It was probably a small impact that was counter-balanced by the small impact the DRM scheme had against piracy.
But it sure didn't generate much goodwill for EA, did it?
FWIW (which admittedly is not much) the activation limits have been removed from BioShock now. It still requires the online activation but the activation server always says "yes, ok". (Why they haven't released a patch yet to completely remove the activation mystifies me.)
@Calibrator: I seriously think you are misreading the target markets over here.
When you get down to it, boxed videogames with heavy DRM are a luxury.
You're right, sometimes gamers need some degree of escape. So they're going to start looking at cheaper and yet equally absorbing avenues of entertainment. They're gonna go for MMORPGs. They're gonna go play indie games. They're gonna decide that free and open-source games are the way to go. They're going to stop gaming and do something that is worth more of their time (like indie tabletop roleplaying games, comics, TV shows). They're gonna focus more on things that will reward them more for less money.
What they will stop buying, or perhaps buy less of is Fallout of the Oblivious BioGod World of HaloCraft 3. Maybe they'll wait for it to come out in budget.
When you get down to it, boxed videogames with heavy DRM are a luxury.
You're right, sometimes gamers need some degree of escape. So they're going to start looking at cheaper and yet equally absorbing avenues of entertainment. They're gonna go for MMORPGs. They're gonna go play indie games. They're gonna decide that free and open-source games are the way to go. They're going to stop gaming and do something that is worth more of their time (like indie tabletop roleplaying games, comics, TV shows). They're gonna focus more on things that will reward them more for less money.
What they will stop buying, or perhaps buy less of is Fallout of the Oblivious BioGod World of HaloCraft 3. Maybe they'll wait for it to come out in budget.
@coyote
Spore was the most heavily pirated game ever.
The DRM may have succeeded at it's intended purpose of ruining used game sales, though.
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Spore was the most heavily pirated game ever.
The DRM may have succeeded at it's intended purpose of ruining used game sales, though.
# posted by : December 15, 2008 9:18 PM
: December 15, 2008 9:18 PMLinks to this post:
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