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.