Time for a bit more publisher consolidation?

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Publisher consolidation is an ongoing story in any form of IP publishing. The competitive advantages of scale are so great and are becoming greater. It is something of an ongoing saga in the game industry too and we are going to see plenty more.

The internet has changed the rules in two ways. Firstly it has focussed all IP publishing (including books, TV, film etc) into a smaller number of big hits. This makes the risk/reward equation ever bigger. We are at the point where a single game can gross a billion dollars at retail, yet most non blockbuster games make a loss. Secondly it has reduced the entry barriers to publishing to nearly zero. Anyone can set up a business with instant global distribution, just put a game on Facebook, App Store, Steam, XLA or any of the other online distribution channels. So now we have around 100,000 active publishers in the world!

I see consolidation in the video games industry now taking four forms.

Firstly I don’t think that mid sized console publishers are a tenable business model any more. They have insufficient titles to spread the risk and if a single iteration of one of their blockbusters bombed they would be in very severe trouble. Take Two and Sega are perfect examples. So these sort of companies will be the subject of M&A activity. They will merge or be taken over so that their IP can flourish within a big enough organisation. Some publishers may well go bust as their accumulated debt becomes too much for anyone to take on. When this happens the IP will live on in the hands of others.

The second form of consolidation will be the big general media companies enhancing the gaming side of their portfolios. Companies like Warners and News Corporation know they have to be in gaming in a big way. Nobody is safe from being bought by these guys, for a long time I have thought that Electronic Arts is a prime target, but don’t be surprised by who ends up being owned by them.

The third form of consolidation will be the small self publishers like those that have sprung up on the Apple iPhone App Store in the last 18 months. 99% of these have no idea about marketing and no idea about finance, so they are currently not going anywhere. However they are a hotbed of creativity and innovation. So those few that do understand marketing and finance will end up owning those that don’t. This is exactly what happened 20ish years ago with home computer game publishing.

The fourth is the acquisition of publishers for their IP by platform holders to give themselves exclusives. This has dropped off in recent times but could become a lot more prevalent when Apple join the home console market.

But it is this third form that can be the most exciting, as we are seeing with Playfish and Zynga. Done just right a publishing startup company could easily go from zero to a billion dollars turnover  in just a few years. All you need to do this is the right people following the right business plan.

6 comments ↓

#1 Answer Me Please on 12.18.09 at 2:12 pm

Mr Everiss, you say “We are at the point where a single game can gross a billion dollars at retail”, and yet in:

http://bruceongames.com/2008/03/25/piracy-imagine-software-and-the-megagames/

you claim that piracy is killing games. How can games be dying, when, according to your own figures, a single game can “gross a billion dollars”?

Please answer this post, instead of just deleting it.

#2 Bruce on 12.18.09 at 2:29 pm

Game development only works as a business when the people who are users of a game pay for the work that has gone into it. However people generally have no compunction whatsoever in stealing if they think they won’t get caught.
One of the answers to this conundrum is technical protection. And consoles are the ultimate technical protection in that their main economic purpose is to act as an anti piracy dongle.
The only reason for the success of the consoles is that piracy was so rife on the 8 and 16 bit home computers that preceded them. In fact this piracy was so bad that it forced many game developers and publishers out of business and much great talent left the industry, never to return.
Of course the technical protection of a console can be broken, as we saw at the end of the PS1 generation, this created very difficult times for the whole of game development as customers stole instead of paying. In the current generation the PS3 is unbroken and the Xbox 360 and Wii both have bricking strategies to deter the stealing of games. Hence the possibilty of grossing $1 billion.
There are many platforms that have been destroyed from a development perspective by piracy. In addition to the PS1, 8 and 16 bit computers already mentioned there are boxed stand alone PC games and games for the two handheld platforms, the DS and the PSP. Already the iPhone App Store is being very badly effected by piracy.

Obvious really.

#3 Paul J on 12.18.09 at 2:50 pm

Many companies also prospered in the 80′s. If a game was of a high quality kids wanted to buy the original (i know i did). If i received a C90 from a friend with a ton of games on i might play one just a few times and be thankful I didnt waste 9.95 on that game (When i only got a quid a week pocket money !).

Ultimate did very well in the 80′s as did Ocean. Imagine Mk I released dire games and it seemed a lot of the staff lived their life like international playboys with fast cars etc.

When a game was good (Elite games for example) I would buy them whatever back in the 80′s, even if i had a copy of a friend. The game was so great i wanted to have the original.

If it was dire (Jack and the Beanstalk for example) I was happy as anything i didnt waste money buying that game.

PC games still sell bucketloads, i could go to a pirate site and see tons to download but I dont. When a games quality you’ll see people buying it whatever.

We’re back to the old Imagine argument, Imagine went bankrupt because of bad decisions (Bandersnatch ?!?), poor games and bad decisions by the execs. Not because of a bunch of schoolkids copying ‘Jumping Jack’.

Imagine Mk II was far superior to the original Imagine. They produced better games of a high quality and management made good decisions. Kids wanted to buy these games (Instead of a copy on a C90) as they were excellent.

Obvious really

#4 Bruce on 12.18.09 at 3:24 pm

So it is alright to steal if you don’t have the money for something that you want! I fancy a new Ferrari and by your logic it is perfectly OK for me to go and steal one.

Or it is OK to steal if you think the product quality is less than the best. So it is OK to steal a Ford Mondeo but not a Bentley. You make no sense.

Boxed stand alone PC games don’t still sell by the bucketloads. Go into any game store and see how much shelf space they now have.

Ultimate did so well that they gave up on making games for home computers and moved to consoles as Rare. Ocean did so well that they were bought out.

I am glad you know so much more about Imagine than someone who was a board director and who worked there every day.

Everything in my comment above is 100% correct and irrefutable. You are just trying to make excuses for stealing, none of which hold water.

Also, as this is my blog, I am not going to OK any more comments about software thieves and stealing here. The subject is Publisher Consolidation.

#5 Docred on 12.19.09 at 5:22 pm

I think you are on the mark with your comments about consolidation for the most part Bruce. A business with a core of creative and talented programmers will still likely fail if they don’t have business savvy people in place, or knowledge of running a business themselves (by business, I am encompassing administration, finance, and marketing for simplicities sake).

A friend of mine, an amazingly talented chef with many years experience in the industry, decided to open his own restaurant. The food could not have been better…but he lasted only 3-4 years because he had no real idea how to run a proper business. His amazing menu could not balance the books by itself.

As an extension of marketing and business models, how do you feel the online free games (not the debacle that is Evony and its ilk) but more reputable ones with more balanced microtransactions such as Combat Arms etc, will do Bruce? Do you see them surviving and prospering if they can keep their transaction model reasonably balanced and fair?

#6 Ray on 01.10.10 at 10:24 pm

I’ve stolen games, years ago before I realised the damage it can cause, but I’ve downloaded games because I’ve lost/damaged the disc, or because the game can’t be bought any more (like ones from the 70s/80s). But I’ve also done it because of DRM, my previous computer would blue screen every time SecuRom tried to install. Which meant, I paid for games, but I couldn’t install them, so I downloaded an illegal cracked version. But in my opinion, and I’m sure most others, since I paid for the game, and the company refused to provide any support. So, not all downloads are people who haven’t paid for them, I have also downloaded two games and then paid for them after trying them.

Seems I’m just rambling, but I have a point, both the games and music (and probably the film) industries have said sharing will kill for 20 years or so.

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