Publisher consolidation

So EA now owns 25% of Ubisoft. This purchase really should come as no shock and I am suprised there isn’t more of it yet. There soon will be. The simple fact is that there are far too many games publishers in the world and they have no option but to consolidate. And the reason for this is simple economics.

As a game becomes more expensive to make you need to sell more in order to break even. So you need to have marketing and distribution in every country possible. To keep this global machine going you need a steady stream of games that sell well. The publisher with the best distribution generates more money and so can spend more making their games. They can buy the best licenses and employ the best talent. Anyone without total global sales and marketing gets left behind because they are not generating enough money to make the best games. We are seeing this now.

So harsh economic reality is that there will only be a very small number of publishers and they will be global. This is exactly what has happened in the film and music industries. If you want to sign Robbie Williams for an album or make the next Harry Potter film then it is going to cost you a lot of money. You can only compete against others wanting to do the same thing if you have as much or more money than them. Global sales and marketing reach is essential. Each of these industries now has less than a handful of mainstream players.

So how many mainstream publishers can the games industry support in the world? Well looking at other industries I would guess three or four. So that is a massive amount of consolidation to come. And my guess is that they will all be American, the Europeans just do not have their act together. If you think three or four is bad look at the civil aircraft market. These things are so expensive to develop that the global market has distilled down to just two manufacturers. One in Europe and one in America.

So if you are a publisher what do you do? Well basically you need to see if you are able to buy other companies, sell yourself to a competitor or amalgamate. EA, big though they are, are still buying. The reason being that it would only take a couple of amalgamations for them to be number two. And they don’t want that, so they are just trying to stay one jump ahead.

Of course computer games are complicated because all three platform holders are also publishers. Because they each only publish on their own platforms, combined they are the equivalent of one big global publisher. This will reduce the rest of the available market in the world to just two or three independent publishers. This is getting worse by the paragraph! The only escape for a publisher is to become a niche player. This happens in film, in music, in books and even in aircraft making. By avoiding competition in the mainstream markets you can carve out a position were you can compete and make money. This is already happening in games.

One final consideration is that in the age of the internet it should be possible to do your sales and marketing online so you don’t need the global infrastructure and anyone can publish. This is starting to happen in the music industry. The problem with games is that the business model of the platform holders precludes it. They can (currently) only run their business if they ship lots of plastic and carboard round the world. So there is no easy escape from the inevitable.

So am I wrong again or is this a useful insight? If you have any thought put them down for others to see. This is important stuff that will reshape the industry.


  1. I don’t think your sentiment is wrong, but there is another potential scenario.

    Though apparently easy to dismiss, I would not rule out the manufacturers as being “the sum of one publisher” because if you look at the economics of it, a manufacturer-publisher is far more profitable and efficient in the current industry than any third party. They make more out of their development and more out of their sales, and all three have deep pockets.

    In that vein, I can easily see a scenario in 5 or so years’ time where there simply are no third parties at all. If the pressures on third parties continue to squeeze as they have done during this decade, it is entirely conceivable that all of the major third parties will themselves be purchased, including EA, by larger companies than themselves in key territories.

    The easy split of that would be that the US publishers would come under Microsoft’s wing, while the Japanese ones would come under Sony’s, and Nintendo would keep themselves above the fray. In reality, it could just as easily be that Microsoft acquire Square, while Sony acquire Activision, but who can say.

    Vertical integration and format consolidation is very much where the industry is pitching its tent because that’s where the power is. The eventual natural outcome of that is that all third parties get melted in the fullness of time to the great Cthulhu.

  2. I think this is true however it seems a little slow at the moment – companies like atari and Midway dont have a lot of hot IP and have been near takeover a few too many times. Do you believe that publishers will take a much bigger step in this direction during this new cycle than previously? And also – do you think the Uk will be able to compete with other EU or Us companies? It seems Sci and Codemasters have found it tough albeit with their recent restructures and re-directing strategies….?

  3. If there are just 2 or three independent publishers then , on current form, none of them are going to be from the UK. They probably don’t have the management horsepower to put the deals together. Ubi could have been the European champion till EA took such a big stake. They are by far the best managed European publisher.

    When I was at Codemasters I suggested that we formed a strategic alliance with an American publisher that was weak in Europe. Thus creating some nice synergies. This was discussed but never acted on due mainly to short termism. My idea was to then form a three way alliance with a Japanese publisher with possible eventual equity swops to create a global player in simple, easy stages.

    We should see more consolidation this cycle as those who are not truly global find it more difficult to compete at the much higher level of development costs.

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