We don’t do a lot of money/business talk around these parts but this story is worth mentioning because it could foreshadow what the future of this industry might look like down the road. The landscape is changing. Fast.
If you are in the stock market and you have shares of many of the big name game publishers you are likely none too pleased with the current trend — in that you are losing a lot of money.
The big stories in gaming and the market are currently revolving around THQ and Zynga and to some extent Facebook. However, there is a trend at work which isn’t being talked about but this piece over at GIBiz paints a rather murky picture for companies like Electronic Arts and Take-Two. In fact, EA and Take-Two’s stock has fallen faster than the yodeler on the Price is Right.
Electronic Arts’ stock has lost almost 40 per cent of its value since the start of this calendar year – and in fact, since the middle of last holiday season (around November 2011) the company’s stock has been in a steady decline which has now wiped close to 50 per cent off EA’s valuation.
That’s not only bad that’s dangerously bad. This is why:
This fluctuation represents billions of dollars moving out of the company’s valuation, and the fact that it’s a trend which has persisted for six months suggests that investors are genuinely concerned about EA, rather than simply being spooked by rumours or speculation in the short-term.
…while the NASDAQ itself saw fairly solid gains in the first half of 2012, EA went into free-fall. To the 50 per cent loss of value in the stock itself, we now have to tack on around 10 per cent of additional losses – since EA’s stock should reasonably be expected to be 10 per cent higher, if it had only managed to perform on the same level as its peers in the NASDAQ.
So what’s going on here? GIBiz writer Rob Fahey hypothesizes that the decline can be traced to Star Wars: The Old Republic’s launch and subsequent decline in subscribers. There is certainly some evidence that it’s part of the picture. He also puts a lot of the blame on CEO John Riccitiello, and rightfully so.
It’s important to understand, and really why I am even writing about this today, that this is not confined to THQ and EA. Big publishers sinking millions into projects are having a tough time sustaining the status quo. Last fall Ubisoft saw a massive drop in its stock and has only marginally recovered and watch out if Assassin’s Creed III flops.
The industry is evolving at an unprecedented speed. Gamers are picky, there are (much) cheaper options available, there are so many other ways to spend one’s free time and the $60 game is fighting to survive. The mega publishers need to adapt to this or run the risk of becoming a 2nd tier publisher or going the way of former top dogs like Atari.
Many games publishers face a tough transition, not merely to next-gen console hardware next year (which is tough enough in itself), but also to a world of new business models and new competitors. Several of them probably won’t make it unscathed, and the stock market knows it.
It’s a Bob Dylan song. (One of the good ones.)
Take-Two has lost a whopping 30% of its valuation, a staggering number when you consider that the fall occurred well after EA started to slide. As Fahey points out, Activision is one of the few who remain unscathed and as of today has a value three times that of EA. (It helps when you have Call of Duty and Blizzard in the barn.) Still, the #1 US publisher isn’t riding gallantly into the sunset.
The take from that graph?
In short, the games industry’s most bankable company in the USA right now is only just managing to keep up with its tech industry peers, while the other top two publishers are rapidly spiraling down the plughole.
I can’t say I’m surprised. I’d like to believe that the fact that big publishers like these have been more openly anti-consumer in recent years contributed to this as well. Between always on DRM, on-disc DLC bullshit and spitting in the face of used games, why would you want to pay $60 to get fucked in the ass by these companies?
Another factor may be the total stagnation of the $60 AAA market. People already talked about how E3 this year was basically nothing but generic FPS games in your face shooting shit all day. Not because there were more FPS games than usual, but because there was just nothing else on offer. With the rise of digital distribution, we’re seeing a PC resurgence with a pretty thriving indie scene based on lower cost, more creatively risky games that don’t have to sell three million copies just to break even.
The traditional big publisher $60 model has been totally broken for a while now, and it’s finally starting to come crashing down. I’m grabbing my popcorn.
Odd to link to ESPN.com, but it’s in the same vein as this post:
http://espn.go.com/boston/mlb/story/_/id/8084138/former-boston-red-sox-curt-schilling-says-baseball-fortune-all-gone-company-crash
whoa, I had no idea EA’s stock was in free fall. Is that ALL Old Republic?
I know it was a big investment but damn.
Yea 50% in a year isn’t just a dip, it’s a trend. Really I’d be more interested in the 5 and 10 year numbers with game release dates correlated into the graph. It could just be that EA grew really fast with some pretty good releases and now it’s just a correction of the valuation. I’ve also been saying for a couple years that we’re going to see 1983 all over again pretty soon. I think the industry at large had had their proverbial head in the sand for quite a while. The video game industry is not a services industry no matter how companies like Blizzard and Zynga want to try and build on that type of model. Video games are a consumer product and all models of consumer products show high points and low points over time.
I’ve seen couple of interviews with Peter Moore lately and he’s had some very astute things to say about the state of the industry and where it’s heading. Free to play is an inevitability, as is the “games as service” model. One of the more pointed things I’ve seen him say is “We don’t want to wind up like music”.
This is definitely a transitional stage, and I think that we’re going to see things really accelerating as this console generation enters its end stage (which it’s really already in). The big companies are, as you see in both the financials and in statements from stakeholders, heading toward a “adapt or die” footing. The thinking now seems to be training consumers to accept things like the service model and pay-to-play concepts. There is a very pointed and focused move to effectively indoctrinate these ideas in the consumer mind and to make them _acceptable_. Because this is their only hope to stay afloat.
The days of buying a game, oddly enough, may be in their twilight. All that needs to happen is for some numbers to be crunched and projections made and then before you know it Modern Warfare 4 is free to play with a storefront filled with everything from perks to unlocks to weapons skins. If nickel-and-dime monetization means that the majors stay in business…that’s what we’re going to be dealt.
Unless we say no now, and reject these concepts in favor of giving our money to companies that gives us old fashioned quality and value for the dollar.
But I digress, the fact is that there are no safe bets for these companies, production and marketing costs have spiralled out of control, expectations are no longer realistic, and the market value of a video game has hit rock bottom.
I felt like a sucker paying $50 for Lego Batman 2 today.
Well, PC Gamers will pay $27 for Lego Batman 2 today. Just saying. 😉
I highly doubt there will ever be anything like “games as service.” Sure things like WOW lasted a long time and raked in a bunch of dough over the years the decline in MMO participation shows it really can’t be service industry. Look at the basic business model of an ISP and see if it can be modeled into a game. In 1995 you were paying money for a 56.6 connection generally and as speeds increased so did the payments, and that’s a perfect service model. On a basic level you’re not getting anything more just the same service doing the same things. Sure you are looking at downloaded South Park in 1080 instead of 280, but the content is really still the same. Ok maybe now you’re watching Breaking Bad or whatever else, but really your hometown newspaper on AOL is pretty much the same as the high-zoot sites we have today, bulletin boards, same. The one main advantage is all that content is constantly changing so new experiences are being gained.
Now with games you could create something kind of endless with regular new content, but it’s still a single game. Even with free-to-play models it’s still a single game experience. Ok, so the next idea is something like On-Live which I believe has a lot of potential. OTOH it may provide you with a ton of games that you can play anywhere, but they’re still just games. Games are not going bring water or electricity into my house, put fuel into my car, or help me invest my money. Games can’t provide a service beyond a little escapism. Sure you could gameify all that stuff somehow, but that’s not service.
What they need to do is stop trying to be something they aren’t and concentrate on good simple business principles that have been proven to work.
Yeah, but if you told me 10 years ago that people would be willing to pay for weapon skins and avatar clothes, I would have thought you were insane. So don’t dismiss that games-as-service thing. I
I’d like to be the optimist. Maybe gamers as a whole are tired of sequels and clones? This could be a bit of a pushback from gamers wanting something different.
Barnes, you talk about games as if the only ones making them are these big publishers and soon all games will be free-to-play. I just got the Witcher 2. It’s full of value right out of the box and only cost 40 bucks. CD Projekt isn’t complaining. They seem to be doing fine and they haven’t sold but 2 million copies. Kickstarter is doing some crazy things, but those are also all full value experiences without in-app purchase models. Big AAA games? They’re gonna require consumers who enjoy giving them money, and as lucrative as the free-to-play model looks, it may not be the best way to create loyalty.
Oh Bill, I doubt Ass Creed III will flop. In fact that would be a surprise. It’s been a really solid franchise. Too bad the PC versions have that awful, always online, potential save game deleting, performance hogging, invasive DRM.
Oh I doubt it flops too. I’m just saying it’s a dangerous game these publishers are playing with so many eggs in these mega-franchise baskets.
How are you defining flop though?
Is flopping selling 1.5 million copies?
One of the things that caught me about the whole Amalur/ 38 studios thing is how the game sold over 1.2 million copies in the first couple of months, is one of the 10 best selling games of the year, yet caused the studio to fold. How in the bloody hell do you do that?
Seriously, if you are one of the 10 best selling games of the year, and STILL fail to make a profit (to the point that your studio collapses immediately) you have screwed the pooch big time.
I say let ’em fall. Let the bloated, over hyped, over sexed, over fetishized violent fantasies games that AAA creates fail. They need to learn to adjust. The market has changed. The great democracy of digital distribution makes small niche projects viable. New people and ideas are flocking to the small indie and AA (Paradox and the like) scene. Many new games are being made.
Anyone with a basic grasp of economics understands how supply and demand are related. Demand has grown over the last few years, supply has outpaced that demand (in the AAA world) by shifting much of that demand to smaller projects. When this happens prices should drop. When this doesn’t happen then more demand gets shifted to cheaper alternatives (AA games and older games that have dropped in price).
Evolve or Die.
Since they fail to understand that the market for $60 million dollar games has changed then they are overbudgeting beyond reasopnable expectations. Shrink your budgets, or face financial ruin.
They’ve opted to stick to their guns. This will end like a moth getting in a fight with a windshield.
In some ways isn’t this a gradual return to the shareware days?
I can imagine the standard in just 2-3 years will be where I go to a digital shop, and have the option of trying the 1st few levels of any game through a streaming service like onlive. The get to choose whether to buy the single player portion of the game, with a limited trial of the multi player portion of the game included (which I can then opt to buy).
Which in all honesty I’m not sure is such a bad thing.
Being able to play a game before I make my mind up about shelling out more money doesn’t feel like a bad thing to me.
Finally a little question for Bill: Do you think the view count for reviews would drop significantly in a world where most games are f2p, and if it did do you think this would be a good or a bad thing for games writing in the long term.