Wednesday, June 27, 2012

Futures (part one)

Let's try to figure something out today.

First off, let's look at a few stock charts. Electronic Arts:

That's right: 60 to 12 in less than five years.

Next, Take-Two:

That's 27 to 9 in four years.

Now, THQ:

30 to .56 in five years.

Finally, the big gun, the company that's absolutely killing it compared to everyone else: Activision.

Wait. 18 to 11 in four years? But Activision is the company that's had mega-hits like the Modern Warfare series and an unending money printing press with World of Warcraft!

Yes, that's true, but it's also true that the stock has lost over one third of its value in the last two years, and has been flat for the last four and a half.

I've mentioned this more than once, but I have a very good friend in the industry who said (prophetically): "We need to find a model that works, and none of them work."

He did say that before the rise of free-to-play games, although I don't know if that is--in any way--an answer. COO of Electronic Arts Peter Moore, though, said some provocative things in a recent interview with Kotaku. For example:




Okay, let's ignore for a moment that comparing games to The Gap is the WORST ANALOGY EVER and completely nonsensical. Just the fact that Moore is willing to say this is a clear indication of where things are headed--for EA, at least. A COO isn't going to drop that kind of bombshell by accident.

Certainly, I believe the "we only put out AAA games that need to be mega-hits" era is ending. It's a Catch-22, really, and here's why. Oftentimes--Guitar Hero, for example--breakout hits happen in underserved genres, or even entirely new genres. Yet the basic strategy of only putting out AAA games and established franchises means that studios have significantly cut back on developing new IP. The original Guitar Hero, seemingly, never would have been released by Activision in this era.

Without that, companies have resorted to copying each other's hits as closely as possible. That guarantees genre saturation. Well, over-saturation.

Who has been successful using Activision's strategy? Anyone? I'm not even sure Activision has really been successful, unless you simply compare them to their peer group (a low, low bar financially). And even Activision rests on a very, very shaky precipice. I recently saw an article (sorry, can't remember where) that mentioned there are currently FOUR different studios involved in the Modern Warfare games. Does anyone think that can be managed successfully over the long term?

Here's one other issue, and while I don't see it mentioned often, it's still serious. Stock options are an important method of rewarding performance at technology companies--particularly for managers and executives--and anyone who was given stock options in a gaming company in the last five years is probably underwater. Performance bonuses for company performance? Can't be much, if anything.

Did you wonder why everyone left for Zynga? Stock options. Of course, if they haven't already been cashed in, they're underwater, too.

It's very difficult to retain talented people when their compensation doesn't meet their expectations, and it's difficult to meet their expectations when a company is hemorrhaging money.

Tomorrow, we're going to discuss how decentralized distribution has played a role (perhaps major) in all of this, and what the gaming industry might look like 10 years from now.

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