Chinese Online Game Companies Sinking

Online game companies in China are yesterday’s news. Recent financials from Chinese online game companies show that the frenzy is over and seemingly endless growth has receded. The9 dropped 12 percents in Friday’s trading. Despite their massive marketing efforts and stellar game selection, they only managed moderate growth. They are the best on the market and if they produce just ok results, then what is the point of going into Chinese online game market anyway?

Cinemaware acquired by eGames

This is yet another life for Cinemaware, a game company that did well during 80’s and closed down 1991. Lars Fuhrken-Batista bought Cinemaware assets and restarted the company in 2000, now he is selling present Cinemaware assets to eGames. Seems like the business logic runs to the direction in which eGames turns classic Cinemaware game assets into casual games. From Gamasutra.

Electronic Arts settles overtime dispute

Electronic Arts buried the hatchet and agreed to pay 15,6 million dollars in overtime dispute with workers. Furthermore company agreed to change terms for entry-level artists so that they are also eligible for overtime pay.

I think that EA once again made best of poor situation and now they have black on white, in case there are further complaints form workers. It means peaceful working conditions as game companies are heading into new generation game production. Article at Orlando Sentinel.

Carmageddon development halted?

SCI/Eidos is rumored to have halted the development of mega hit Carmageddon. Read more about the news over here.

COMMENTARY
I think that this puts the merger into rather dubious light, because major part of the logic was in the arrangement that Eidos gets some desperately needed extra funding to complete the development cycle of their hits like Lara Croft and Carmageddon. Now big part of that business logic has been amputated. Well, some downsizing will do the trick, just hope that they don’t downsize back to zero.

Vivendi comeback

Vivendi is finally benefiting from the digital entertainment strategy that it chose under the command of Mr. Messier. Blizzard happens to be one of the best performing parts of Vivendi. Company is also making strides in the field of mobile music sharing. As a personal comment, they finally seem to get back into the ring after hanging in the ropes for quite a few years.

Ubisoft has a price?

Ubisoft can't seem to be able to shed the image of being a game stock. Game stock in a sense that they are a catalyst in coming game industry reorganization. Electronic Arts has been mentioned more than once, because they own that strategic 20% of Ubisoft.

Ubisoft itself hints that they would prefer some big media company as their partner in acquisition...

The latest development in this industry drama are the innuendos of Chinese game companies having their eyes on Ubisoft. It doesn't take but an ounce of imagination to put that just-acquired IPO capital into use.

Don't you think it's just so ironic that American capital could still be used to buy Ubisoft off the market?

Eidos management thrown out

It didn’t go exactly as the title says but it wasn’t far from it. Eidos shareholders sealed the fate of top management by voting in favor for the SCi offer. Board members made their own conclusions of the situation. It was out with the old in with the new. Now three persons from SCi govern Eidos. Another chapter has been written in British video game industry.

Ubisoft considers media concerns

This twist has been widely distributed, La Tribune, Market Watch, GamesIndustry.biz, Ferrago etc. Yves Guillemot commented that it could be interesting to team up (merge or something like that) with sizeable media company (Walt Disney or Time Warner) or with an equal game company.

To me it is quite strange how he wants to team up with big media company. Ubisoft would not be in balanced relationship in such a deal. Media giant would just absorb them and turn this little puppet into content transformer - let's make every popular series and movie into a video game...

I would be looking into arena of innovative and technologically advanced companies like Pixar, DreamWorks or maybe some special effects companies. This match would create (well, sure it is only my opinion) very interesting talent pool that could be sold for even higher bundle of money or that could function as an innovative industry leader. In this respect, a merger with a smaller video game company could be the most logical solution as there are no special needs to integrate operations and find special synergies.

Eidos deal locking on

Shareholders of Eidos approved the offer of SCi to purchase the company. Now it seems like there is very little room for any competing offers. Eidos is a goner and SCi is the taker. Great move guys. I hope Brits manage to keep this industry alive as so many others have gone under or been sold.

Game industry stocks fumbling

Electronic Arts, Activision, and THQ have shaken investors expectations for the future. This shows in the stock price of above-mentioned companies. It is especially the short-term expectations, which are rather depressing.

If the giants of the field are shaking, smaller competitors catch the cold in no time. No matter what is the situation of an individual game company, the valuation of these companies is going to fall. Luckily, many companies in the game industry are not public and therefore outside of these short term price fluctuations.

There are three companies that come in mind especially: Infogrames, Vivendi and Eidos. Because of their financial situation, these game companies will have trouble every time when somebody in the game industry sneezes. For example, as SCi’s price has been dwindling, the rumours for new offers on Eidos start to circulate.

Game companies that are working in the area of mobile games are whole different matter. Market size is growing at staggering speed. Development costs, although rising, are quite low. Game development cycle is short so companies are better able to manage revenue flow. Furthermore, just one mobile hit can bring lot of cash for the company.

Electronic Arts is in trouble

Lately we have been reading about the difficulties that Electronic Arts faces. Company seems to have taken the wrong off-ramp and is now stuck in competition and lack of demand for their games. Earnings have plummeted and there does not seem to be much to rave about in their present product slate. Shift to next generation video game consoles will just devour money and the company has also pushed very hard to invest into franchises. Bringing their game titles up to speed with content and technological development.

The problem for Electronic Arts is temporary. In relation to revenue its stock is expensive and near-future development looks dim so expect further decline in the price of the stock. Competitors like Activision and Take Two Interactive are cheaper and smaller. These smaller competitors now have good chances to score big growth with couple of successful games. Expect investors to make some changes in their video game company portfolios. Short-term prospects are appalling for EA, but it will get better just wait and see.

video game ads are coming again

Troy Wolverton wrote for TheStreet.com about advertising in video games industry and inside the games. He concluded that in-game advertising could bring extra one billion USD for the industry that now makes ten billion USD turnover per year.

He goes on and writes about the difficulties the industry is facing with the introduction of next generation game consoles. With next generation comes extensive network connectivity and there is some market speculation that business model will break out from the box. How fitting, because for the moment that model is solely based on retail box sales.

Anyone can see that this is quite a chuck of extra income for the industry. Given the challenges and possibilities of the future, it is quite likely that this new possible source of income will be embraced. As usual, it is likely that money talks or maybe even shouts and ads populate our beloved games.

Elevation Partners is giving up Eidos

Now it is official. Elevation Partners has step down from the race and Eidos is going for SCi. At the moment there are no other possible candidates for the take over race, so apparently it is now quite safe to say that we will have a new SCiEidos on the video game industry map.

Trackback enabled

I have been looking into this trackback thing for some weeks already. Finally I gave up and just used Haloscan's automatic service quick and easy. Ok, now I just have to write something worth tracking back. Like that will ever happen, eh?

Haloscan commenting and trackback have been added to this blog.

Eidos going once, going twice...

Guardian and Financial Times informed us that Eidos is dropping the Elevation Partners offer and moving towards SCi. Like I said earlier, Elevation Partners is in the business of making money, not in the business of making video games. Let me tell you the secret of making money as an investment company. The secret is – buy cheap and sell expensive. Everything in between in just management decisions.

I guess that Elevation Partners just thought that the price was too high. If the price is high at the start, it takes lot of managerial talent to get the price even higher. Let’s face it. Eidos management has almost bankrupted the company by now, so obviously there wasn’t much trust to the management’s ability to show the money.

Therefore Eidos goes to SCi, which happens to be in the business of making video games. They have proven track record and they have plans to elevate once glorious British video game industry back to the highest pedestal where it belongs. Eh, not quite so, but you get the picture.

For the Eidos share price this is sad news. It is quite possible that there will not be competing offer and therefore price starts to fall. If Eidos price falls, then SCi price will fall too. Investors think that it is nonsense to pay such high prices from either of companies, because the case is already settled. Now it is just your stock against mine. This lock-up means that cycle goes both ways, positive and negative. Final result, now it doesn’t take increasing sums to buy Eidos. This is all the excitement we have left. We can wait and see, if someone is dropping hefty offer just before the deal is done.

Nintendo financial results

Another Gamesindustry.biz article. Apparently Nintendo has done well during the past year. Weak yen has done lot to realize the financial standing. They are planning to increase dividends, because owners have been complaining about measly dividends that they have given earlier. Correct me if I’m wrong, but isn’t is so that Japanese companies tend to rely on bank loans more than their own capital. This would mean that banks have stronger lock on the company’s actions than investors and therefore dividends could be lower. Well, just a thought.

Eidos climbing higher

Did you notice that Eidos is again valued over 100 million pounds? Tomb Raider Chronicles had this piece of news. Strong showing, remember what I said about positive pricing cycle? If this positive cycle goes on, then it means that any further offer from Elevation Partners will even raise the tempo, because they just have to set their price so that it estimates even further price increases. For the moment, the dynamics of this deal still work for SCi’s advantage. Elevation has to show more than 100 pounds to turn the tide, so tight the lock-in of Eidos shareholders seems to be.

Another article about virtual items

I noticed yet another mainstream media article about IGE and the new and fascinating way of life as a virtual item seller. IGE estimates market size to be around 880 million dollars and bulk of this value comes from Korea and China. Brokers employ players from poor countries to create the supply. Some comments from Castronova, which makes the article bit more interesting.

Gizmondo hits the retail channels

Gizmondo is reported to be selling well. Half a million pre-orders are in the bag. The Gameindustry.biz story doesn’t tell whether these orders that are now going to retail channels, have already found end user buyers or not. Ingredients are here for similar dud as what happened with N-Gage, nice amount of deliveries to stores but no buzz among the gamers.

Eidos board might get ousted

Telegraph was kind enough to notify of following: things are turning ugly at Eidos as shareholders are threatening to sack the whole board of the company less they manage to recommend owners to accept SCi’s offer. At the moment board is still on the side of Elevation Partners’ offer that stands 50 pence per share, however, the share is currently trading at 66p. Analysts believe that the Eidos board is giving more time for Elevation Partners to up the ante. That’s the spirit, bargain to the very end. Of curiosity, Eidos have to pay 700,000 pounds for Elevation Partners, if they break away and strike a deal with SCi.

I wonder, if that money is enough to cover all the expenses that Elevation Partners have made while preparing the deal? If yes, then they have their backs covered and they can take their time and evaluate current price level of Eidos.

SCi grabbing even bigger share

New Ratings.com notified that SCi has managed to secure the support of about 30% of Eidos owners. Markets seem to count possible purchase as good thing and this has been raising SCi stock price. As SCi offers all-stock purchase the terms for Eidos owners are improving constantly, hence there is a positive cycle that will probably tip the scale for SCi.

Ubisoft mulling to buy Rare?

Coola at XBOX365 wrote that rumours are running rampant and whisper that Ubisoft is going to purchase Rare from Microsoft. Rare is also European company and that is supposed to be the added benefit for Ubisoft. Deal is or is not made official at E3.

In my opinion this will not happen. If Microsoft does this, they are going to loose lot of money. Ubisoft is in no condition to pay hefty sums of 350 million dollars like Microsoft did. On the other hand, Microsoft has deep pockets to cover realized accounting losses and discount selling is a good way to get rid of money loosing operation that ties up lot of capital. Ubisoft has to have excellent plans for Rare if they are going to handle this deal with good conscious.

Analyst firm goes MMORPG

What is it with these ever expanding Chinese companies? My favourite market research firm, covering Chinese markets, Pacific Epoch, is now going MMORPG. Game will be licensed from Korea but later hopes to develop their own games. Game designers should also be able to sub as market analysts. They claim that their office anyhow has free space and they need online game industry analysts. So, apparently it is win-win for everybody. I can’t comment anything but say that barriers to markets must be real low in Chinese online games industry. I could try my luck there, eh?

SCi on the way to get Eidos

SCi is tightening its grip over Eidos as it got Merrill Lynch and Gartmore Asset Management to support their bid. Now as SCi has over 25% backing, they can block the offer of Elevation Partners. There will be no lift off for Elevation unless they show much more money.

Electronic Arts recommendations

It has been quite a rollercoaster what comes to its share price. Before Christmas and after, analysts from several companies raised their recommendations and lifted Electronic Arts as an industry performer. Now we see similar trend taking place, but only reversed. Jyske Bank is refreshingly different, because they have maintained reduce recommendation all this time. It is quite an accomplishment in this hectic economy we live in, or are they sleeping there at Jyske?

Taiwanese Internet Cafes see ligth at the end of the tunnel

DigiTimes had a story about possible revival of Taiwanese online game industry. According to the article, Internet cafes in Taiwan have had troubled time for past few years. Regulations and home electronics have eaten the markets. Now there is a chance for growth again. New online games are bound to increase the demand for Internet cafes, because it is more fun to play games with friends than alone at home.

To my personal understanding, regulations that prevent opening a café near school seriously hamper the business because without good location user amounts drop remarkably and profitability takes a deep dive. On the other hand, I don’t believe that home electronics play especially big role in the demise of the Internet cafes. Chinese family environment can be quite pressuring for kids of all ages and therefore it is natural that they benefit from Internet cafes as they can have their personal space there. Just like the DigiTimes article said. It is more fun to play games with friends (outside home).

Eidos going for SCi?

In Eidos quarrel, the scale is tipping for SCi, which has already managed to secure about 26% of the ownership of Eidos. SCi is also softening up the management at Eidos as they met to discuss the situation. Elevation Partners must show lot more money to turn the heads of Eidos team.

EA hit with class action suit

Electronic Arts found out that shareholders do not have such patience as their game development workers. I took this quote from PR Newswire:

“A class action lawsuit was filed in the United States District Court for the Northern District of California on behalf of all securities purchasers of Electronic Arts Inc. between January 25, and March 21, 2005, inclusive.”

The complaint goes on and lists several points of information that should have been made into public. They claim that management of EA was misguiding investors by giving optimistic estimates.

To my opinion, Electronic Arts will not have any troubles winning this case. Management did not bail out by selling large chunks of shares, seems to me that they just simply made a mistake. A whole different thing is the publicity value for the company that is organizing this class action suit.

Game company valuations rise

Game industry is enjoying lot of interest outside its borders. Namely media companies are looking into expanding their reach into games. This will increase the prices of all game companies, because bigger companies are complete and easy to manage and small game companies, because they are the fuel for bigger companies to grow even bigger.


WHY BUY?
Game development is slow and there is always danger of flops. By purchasing smaller game developers with existing titles, the random market-testing phase for franchise and initial development cycle can be cut away and lot of time can be saved. Such a huge timesavings mean lot of dollars or euros.


WHY GROWTH?
Why the big players need to grow? Huh, beats me, I don’t really understand the logic of perpetual GDP growth, I need my basic stuff and I am not shopping for larger, bigger, better or more expensive. Uh, enough chatter, game industry just mimics other industries. Everybody wants to grow, because they think that their company is special and has the right to remain independent.


MONEY BUYS LOYALTY
If you are a small company and your company’s ownership is divided among several owners, there are going to be some disagreements if somebody introduces big take-over offer to the picture. There are always those who just take the money and run. So, here is answer to the growth. Bigger engine makes more money and if the growth is fast enough, everybody will be happy with the company. Growth means money for everybody in the picture and owners are just one big happy family.


VALUATION CYCLE
So the situation is like this:

• Media companies want to buy game companies to strengthen their competitive position.

• Game companies want to remain independent and defend themselves by buying smaller competitors

• Small game companies fight back by loyal ownership or successful games.

The cycle raises the company valuations from the lowest level to the highest, even the original boost comes from the top. Is there a point that I am trying to make? Next post will tell...

Media companies get ready

The Washington Post has great article called “Media firms piece together new strategies” about media companies. In the article they go through different strategies that media companies are using to adapt present conditions. They shed light on following companies’ plans: Time Warner, Viacom, General Electric, Walt Disney, Sony and Comcast. I found the article from Florida Today some other sources were behind subscription.

Anyhow, the most interesting development from video game industry’s standpoint seems to concern Walt Disney, Viacom and News Corp. News Corp. was old news, but I was positively surprised to read that Viacom is also eyeing a video game company. Walt Disney is on the other hand trying to push their own game development and benefit from outsourcing to China and India.

What this means is that game company market values are going to remain high, because the purchase potential remains high. Media companies are not going after tiny companies but bigger, more established, preferably those game companies, which have their own publishing business. But smaller companies will see their valuations go higher too. Next post is about the reasons why this happens.

Kingsoft maybe listing

According to Pacific Epoch, possibility that Kingsoft is mulling a listing to overseas stock market is growing. They are said to be negotiating with several investment banks. They aim to get 240 million USD from going to public. There have been rumors about this all winter and spring and these rumors just won’t die, I guess there is something in the air.

I wonder, how much money States has for such enterprises? Who keeps buying all that stock? It’s not that these companies are so big that they can get into indexes and therefore into pockets of big investors. It has to be smaller players that are biting into Chinese online game companies. Chinese market is mushrooming competition and margins are dropping, there can’t be basis for sound development for all of these game companies, but maybe investors are banking on proposal that companies with foreign capital are stronger and therefore will survive.

Eidos SOLD, not yet

Surprise, surprice, SCi decided to get into the bidding game in the end. Damian Reece from The Independent wrote a story covering the new development. Some general themes form the article:

Eidos owner Schroders is backing SCi’s offer and that has caused some tension between Eidos management and ownership. Eidos CEO Mike McGarvey expressed his concern over SCi’s ability to manage such a large operation as Eidos is. This new offer from SCi is larger than previous offer, set by Elevation Partners and with at least partial backing of Eidos ownership, is likely to pass, if there will not be new offers on the table.

Market appears to have positive look towards the development as the price of SCi rose during the day. Of course it might just be so that Eidos management is afraid of loosing their positions, because at SCi management costs as compared to turnover are much lower than at Eidos. If SCi deal pushes through things are bound to change at Eidos, but if Elevation deal triumphs, Eidos management maintain operational control.

Eidos SOLD

A venture capital company, Elevation Partners, was the company to finally buy out Eidos. I didn’t speculate with this option, but it was in the end what happened. This means that the case of Eidos is not over yet. Venture companies are in the business of making money not in the business of creating games. Now what happens is that we will probably see that Eidos will focus on its best selling game franchises and tries to get rid of extra projects, which demand resources. It will be minimum personnel, more marketing and investment into distribution and finally the big pay off when somebody else is willing to buy trimmed Eidos.

Electronic Arts revenue estimates too optimistic

Lots of news came out today. In Bloomberg News, Jonathan Thaw wrote about sudden fall of revenue estimates in Electronic Arts. The game industry giant is not able to meet its projections. Reason behind this shortfall is the lackluster sales of their key titles, which were published for the Christmas season. Looks like the gaming engine ran out of gas before reaching the next quarterly checkpoint. Now we have an exciting play to watch as the situation unfolds. Is the hit towards EA a sign of general stalling of the industry or are competitors still doing strong? Personally I am betting that others are still doing fine and that the dip with EA is on the other hand, related to some public relations problems and on the other to misjudgments based on exceptionally well-sold Christmas season. So, I am guessing that this hasn’t tilted industry off the track, but soon this news is forgotten and the train pushes on. That’s a guess...

Yet another Eidos rumor, could it be true?

We are finally getting more news on possible Eidos bid, Bloomberg ran a story about new developments. This time the paper claim that it is SCi Entertainment Group, Eidos’s British competitor.

At last we have news that sound solid, with simple reasoning, this is the most natural way to integrate the game business on the isles. Most of us know what happened to British car industry, the British market is not big enough to support some of the local industries and competition abroad is fierce.

Together Eidos and SCi could fare much better. They would have better distribution to corner their home market and better outposts to conquer foreign markets, not to mention the combined talent that the companies have.

If this deal will go through, Eidos is saved, but the fate of SCi is not that certain. Although financially in better shape than Eidos, SCi is not loaded in cash. It is bit of a gamble from SCi’s part, which could have just waited Eidos to go under and then grab suitable coders from those laid-off former Eidos workers.

Now we can lean back and wait if there are any competing offers, if there are, we will have a bidding contest or maybe even a battle to follow.

Activision mulling game price hike

According to Chief Executive Officer Robert Kotick, Activision is mulling price increase for next generation console games. Kotick used movie industry analogy to make his point in interview with Investor’s Business Daily. Matt Saunderson was kind enough to post this news at Advancedmn. Movies still run the standard two hours but ticket prices have been increasing steadily, while the game industry has seen game budgets double while offering more content for players, despite these developments, game prices have remained steady.

I would say that until now game industry has managed to maintain this price level, because sales have more than doubled, therefore bringing in more revenue – Elementary, my dear Watson. It has been good time for players, better games at the same (high) price. With this evident development of increasing production costs and new generation consoles, well, I am not so certain that market would react to price hike positively. I could be wrong, but I think that raising prices will cut the amount of games that players are buying. This would further drive up sales of those popular and well-marketed games that are in the hands of major publishers. I see a spiralling vicious circle that creates mega franchises, which come out to the markets year after year and monopolize or at least oligopolize that specific genre.

Eidos facing the deadline

Thursday BBC ran a story about the latest blight of Eidos. Share price plummets and deadline to satisfy the loan conditions is speeding closer. RBS bank wants to see an acquisition offer on a table by 25th of March. If Eidos passes this deadline without having a legitimate offer, the bank can force Eidos to start selling their property, in order to recover their loan. This is a binge in which I would not like to be.

Eidos claims to have an offer, but it has not been validated yet so it remains to be seen if the white knight rides to the game. The negotiating position of Eidos is horrible, titles have been postponed or failed and cash flow of the company is in almost as bad shape as the budget deficit of the States.

Situation makes and interesting case for game theorists. Is it better to buy Eidos now, before possible sale of assets, which will most definitely happen in auction style and accept the rather hefty debt load in which Eidos is sailing. On the other hand, one can wait until Eidos has to sell property and bid for those properties against tough competitors that could be expensive. Bigger companies should move in now, because that way they can have just the titles they want and sell the rest.

Two scenarios come to mind:

1. New company on the block - that means a company outside the game industry - comes and buys Eidos and secures good distribution and titles. Eidos continues as a publishing and development company. People rejoice, no matter who was the buyer.

2. One of the old competitors puts the money to the table, takes all the titles they want and sell the rest, which are not complementing their product slate. Eidos publishing arm will be disbanded, while some selected development studios might escape the axe. Proceedings form the sales will go to pay off as much of Eidos debt and then the buyer continues business as usual. People complain and nag on discussion forums and black paint the buyer.

Electronic Arts pays overtime

Electronic Arts is planning to change its compensation policies so that it starts to pay overtime salary for some workers. However, Electronic Arts says that in the future those workers will not be eligible for bonuses or stock options. Compliance is a smart move, but then again, Electronic Arts is know of its excellent track record of smart moves.

This decision will fundamentally strengthen EA’s financial position against overtime claims, because people could be discouraged to make such demands now as they see that things are about to change. This could make those threatening clouds of workers’ legal challenges to go away, hence saving lot of money for Electronic Arts also the company avoids paying for past overtime, so this decision potentially affects only future personnel expenses. There are also added benefits to this decision, which relate to improved goodwill among workers and customers. At least for Electronic Arts it is a win situation.

Yahoo acquires Stadeon

Yahoo makes a push for mobile game industry by acquiring Stadeon a company that has the technology to turn internet-connected phones into game clients. People could be playing against other people connected to internet no matter mobile or fixed line.

Convergence is the everlasting rumor in the ranks of mobile devices. This plays straight into that pocket. Yahoo is already strong in internet content distribution, not that much in content creation. Sensible move from Yahoo as they now are able to strengthen their mobile front and take their net services increasingly to phones. Time schedule is very tight, since we can expect to have the Yahoo branded online mobile games by the end of the year.

WoW will also land on Taiwan

Taiwanese game company Soft World announced today that it had stroke up a deal with Blizzard to publish the World of Warcraft in Taiwan. Blizzard is blowing over all continents, is it the climate change or something?

How WoW will do in China?

Pacific Epoch is such a great source for news on Chinese online games. My Chinese is bit rusty (honestly I can speak and read it), so the fact that they have most of their content in Chinese and give out translated versions for fee is bit of a downer. Anyway, they once again delivered a sound article about online games in China. This time they talked with 64 Chinese gamers in Shanghai to get some first hand market information. Shang Koo wrote the article and it is called “Pacific Epoch WoW Survey”.

Shang Koo states some basic features of Chinese online game market. First, games are not as familiar for Chinese gamers as they are for their Western counterparts, so games that are bit simpler, like 2D “Legend of Mir 2” are doing relatively well. Another point that Shang Koo makes is the somewhat outdated hardware that Chinese gamers are equipped with. It is difficult to run the graphically rich games, a fact that will narrow down the potential user base to well-developed areas.

In the analysis, it was suggested that Lineage II would be the biggest looser as the “World of Warcraft” is launched. Both games require high performance computers so lower level games would not be affected. LAN gamers will also see the “World of Warcraft” as an interesting game, since they are familiar with the game world. However, the analysis suggests, that many LAN players prefer RTS and FPS games and are not attracted to MMORPG. Final results indicate that WoW will not be as popular as hyped and the success that it will get comes from cannibalizing the existing MMORPGs and later on the success of the game will be dependent on hardware upgrades.

Good article, Google it while it still is available somewhere.

Online game copyright case in China

JoongAng Daily, Cho Young-tak and Koo Won-mo as the writers, had a wonderful story about the deal between We Made Entertainment and Shanda. The story is called “China proves both profitable, perilous”, Google it while it still is available in the net.

Anyhow, these companies got together in July 2001 and in the beginning, everything went fine. What the deal was all about was that We Made Entertainment needed an operator partner in China for their online game “Legend of Mir 2” and Shanda wanted to have a quality game for distribution to compete against other Chinese online game operators.

The beginning was absolutely stunning, within a year after the market launch, this online game had become a massive hit, garnering about 65% of the market. With the help of this success, Shanda established more connections to Korean online game companies – soon Shanda had become the market leader in online games. However, problems between the two companies evolved from other basic settings. Whenever there was a technical problem, Shanda had to wait assistance from Korea while customer complaints poured in.

Shanda realized the awkward situation and slowly, with the help of substituting Korean titles, was able to diminish its dependence on We Made Entertainment. Finally Shanda published its very own online game called “The World of Legend” and surprise, surprise, We Made Entertainment thought that it reminded too much of their “Legend of Mir 2” online game. Dispute was laid to the table. We do not have the results of this copyright violation case, as it still drags on in Chinese court. This could be an interesting trend setting case that – I bet – many foreign online game companies are following.

China online game sheet

Pacific Epoch has put together a database of online games in China. All sorts of information and it goes with relatively affordable price, especially if you happen to be an analyst - 500 bucks for initial piece and from then on 100 bucks for monthly update.

This seems to be quite extensive and easy access to Chinese online game industry, so check it out. One thing that is especially interesting is that they promise to offer information on the status of specific online games - is it in commercial use or testing, is it any good etc. I know that I would go shopping if I would actually work for analyst company. Product goes with the name of "China online game sheet, February 2005", I suppose the next update will be called - this will stun you - "China online game sheet, March 2005".

Take-Two Interactive Q1 numbers spell trouble?

Take-Two Interactive had a windfall with the continuing success of Grand Theft Auto: San Andreas. According to the first quarter numbers, publishing increased its share as revenue bringer, compared to distribution. GTA is so hot that Take-Two Interactive suddenly has its pockets full of money, apparently not knowing what to do with it. Sure, they say that they are broadening their product portfolio and extending their market reach. All of these are good plans, but take lot of time to materialize. So, we have a situation, where investors are not willing to add the possible future valuation to the Take-Two Interactive share price (stock has gone up, but that is because of the GTA), because it takes more than just announcing the future plans and buying some talent to turn the future potential into reality. Situation has all the ingredients for hostile take-over. Well-managed company with good product slate and fat wallet, also future plans are mapped but still in such a state of infancy that they are easy to chop off if required. With market valuation of about 1,7 billion dollars, which is about half of Activision’s price tag, Take-Two is a snap for a predatory company.

Play at work

I already wrote about Nexon, the South Korean online game company that is overshadowed by rival NCsoft. I took a note that Kart Rider is one of their strong titles. I went to their homepage and tried to gather some info from those Korean pages. Googling was tiresome and as I didn’t get lucky, I just gave up and concluded that Kart Rider must be pretty decent title.

Now, thanks to the IOL.co.za, I finally got the twist that this game has. Really, really cool it is... hope you don’t mind me writing poetically like this. They have this wonderful feature that allows player to shrink the game window in a flash. Now, if I could be playing online games at work with little help from my game system then I wouldn’t be surprised if my work efficiency would go down. Poor South Korean government, their domestic companies have innovated the work efficiency down the tubes. Nothing good will come from this. It wasn’t only Nexon that had such a handy feature to avoid working, company named CCR has actually applied patent for their “stealth” technology and plans to develop more titles for this new market segment. Hilarious, I must say.

Ubisoft at it again

I did say that Ubisoft needs to roll out news and announcements, in order to convince the investors that they still are a valid investment. But boy, is this getting ridiculous or what? Ubisoft has been pushing out something new every week, purchase this, acquire that, license something else. This time they announced that they are acquiring MC2-Microids' Canadian operations. I think that they just have to shop around to meet their ambitious plans of developing Montreal studios.

Taipei Game Show

Taipei Game Show has passed, but was a huge success. As ever, the show was packed with enthusiastic gamers and game companies. Taipei Times run an article, written by Gavin Phipps, on the show and I also checked some information from other sources, including the show’s homepage (outdated by the way). This game industry trade show is especially close to my heart because I have attended it twice. It is really quite remarkable happening and illustrates very clearly the market potential in Asia. Anyhow, let’s go to the issues, which were at the spotlight in Taipei, this year.

According to the Taipei Times article, this year’s domestic participation was higher than previous years. For long, there have been big local game companies like online game operator Gamania, but this year it was the local game developers, which managed to get publics attention. Two years ago, while I was there, aquarium screensavers seemed to be the brightest financial hope for local ”game” developers, not counting those local online game titles – RPG and RTS clones.

What comes to present trends, Gavin notes that while PC segment is still going on strong, the console market is the way of the future. Reasons are the same business related facts that can also be spotted on other markets – it is expensive to update computer, while consoles have much longer lifespan. Locally the additional advantage for consoles comes from increasingly localized content. Gamers can now get their hands on titles that are culturally closer to Asian mentality than your average Western title. Anime styled games have become more popular and the market has more variety than before.

Slips and slops

It is an awful feeling to be wrong! I just got off from writing about some innovative distribution methods of independent game developers and used Laser Squad Nemesis from Codo Technologies as an example. Little did I know that Got Game Entertainment had already announced that they are going to co-publish the game with Merscom. What I can say, but smart move from Gollop brothers. They are going to get more subscribers for the game and possibly a nice share from retail sales, well that of course depends on their negotiating power.

Funny thing this blogging, one never has enough patience to do proper background check. It is all about putting out that one idea that is bouncing in your head. Another actor in industry that has been putting out is IGE that slipped into sloppily guarded fan community of Vanguard – Saga of Heroes. IGE made few juicy offers, which some fan site operators could not refuse. Other people did refuse and now the whole some-day-to-be-player community of this game is in turmoil. The game’s developer, Sigil Games Online, doesn’t want to have anything to do with IGE, but IGE just can’t pass any opportunity to grab more virtual goods market share.

UbiSoft sports up the game against EA

Troy Wolverton from TheStreet.com wrote an excellent piece, covering the slight setbacks that Electronic Arts has had lately – Ubisoft was one of those companies stirring the boardroom of EA. Ubisoft has signed a deal with Vijay Singh and is obviously laying plans to battle EA’s Tiger Woods franchise. Ubisoft also bought source code to NFL Fever from Microsoft. This is very innovative move from Ubisoft’s part. They take the old wisdom and turn in upside down – if you don’t want to join them, beat them.

Quick look to online game markets in Asia

Square Enix president Youichi Wada spoke about online game market in Asia. GameSpot run an article about it. It was interesting to notice that actual market values are pretty even among the three big areas – China, Japan and South Korea. Therefore the enthusiasm towards China is, as always, because of the huge market potential, well at least that is my observation. Mr. Wada also talked about their business models in China. Arcade income model seems to be perfect fit for China, because people there play the games in internet cafés.

Growing pains for Shanda

It is a great feeling to be correct on something. Just the other day, I speculated that Shanda might have some troubles ahead while trying to integrate all those soon-to-come acquisitions in the areas outside online gaming.

According to the Pacific Epoch, top officers from Shanda subsidiaries – QiDian, Digital Red and Holdfast – told to the press that there are some serious hurdles on the way to fully integrate these subsidiaries to the mother company. However, they all agreed that Sina acquisition would benefit them. I for one, am keeping my fingers crossed for successful integration, it would be a shame to waste shareholders money.

Shanda has been busy on another front too. According to the same source, Shanda is planning for a big announcement later this week. It is said to have something to do with IPTV project that they are in together with Huawei and UTStarcom.

I must once again stress that it is very difficult to be a modern day Leonardo. Company can excel on many fronts, given big enough resources, but with limited financial backing, in order to reach success, company has to insert the genius of the Leonardo into their work. Obviously I am not qualified to judge whether Shanda has that extra something, all I can say is that CEO Chen has lot of confidence on himself.

Anarchy Online gets dynamic ads

In-game dynamic advertising also comes to massively multiplayer online game Anarchy Online. Massive Incorporated will introduce their game advertising solution to Funcom’s online game in the form of dynamically changing billboard ads.

I recently wrote about the possibility that in-game ads might be disrupting the feeling of a fantasy game, and that could lead into situation where the share of futuristic online games might increase, compared to fantasy online games. Presently, TOP 10 of online games is dominated by fantasy titles, but if in-game ads increase the profitability of games with more concurrent theme, they could be the gainers.

Eidos does not interest Murdoch anymore?

Spokesperson for News Corporation ended the speculation about possible Eidos acquisition. For the time being, News Corporation is not in talks with the game publisher and game developer Eidos.

It seems hard to catch ones breath. If the rumours of possible acquisition preparations still are correct, who on earth is the buyer?

NCSoft 2004 financial results

NCSoft was proud to announce impressive financial results for the fourth quarter and year 2004 in general – Yonhap News reported the numbers. Net profit for the year 2004 increased almost 2,5 times from year 2003 and reached nearly 78 billion won. Company is getting more profitable, good news for the investors. For the year 2005, NCSoft expects to reach 305 billion won turnover. In euros this means just about 230 million euros. This company starts to get some financial muscle and the growth rate is still very fast. For example in China, NCSoft’s partner Sina just reported 110000 concurrent users for Lineage II – solid development.

Activision share split

TheStreet.com had interesting article about Activision. They have announced a 4-to-3 stock split. Furthermore, they are calling a special shareholder meeting, in which they propose doubling the authorized share amount. This move, if accepted, will increase the amount of authorized shares from 225 million to 450 million. According to the article such a move typically points to the direction of acquisitions or management compensation.

The article doesn’t say it implicitly, but as the new accounting rule soon makes it expensive to grant options, this could mean that Activision has acquisition plans of its own. Playing field changed all of a sudden, again. What is it that Activision would like to buy? I would go for further mass on their home markets to combat Electronic Arts, so maybe THQ or Take-Two Interactive. This sure starts to feel like Christmas, so much to wait for.

Sina devices poison pill

Traditionally the Chinese way of doing business has involved lot of background checking, before any actions have been made. One had to check up if all the interest groups are ok with the plans. Seems like the culture of making business has changed in China. I personally thought that if Shanda is making such a purchase, they must have, on some level, negotiated with Sina and reached to some sort of an agreement. Sina’s initial comments promised good and the road for acquisition seemed to be open.

What happened? Sine told about poison pill, which makes acquisition of Sina very expensive. Suddenly we have a stalemate in our hands. Shanda doesn’t have the money to buy Sina with these new terms in mind and Sina is not able to develop its business as long as there is a threat hovering over. This makes following Chinese markets even more exciting than European and American.

NCSoft introduces Auto Assault

They did it again. This time NCSoft has chosen that part of male demographics that is interested in cars. I can tell you that this segment is huge. I personally know several car game enthusiast, who will like the concept of demolishing cars in post-apocalyptic future. This reads Mad Max all over, just that they did not pay a dime for any licensing rights. According to the website of the game, features are nothing out of ordinary so we are probably going to have a standard online game.

It remains to be seen, how popular the game becomes, but this could be another major earner for the NCSoft. Production costs are relatively low, marketing channels are there and the world is full of men who like games and cars, but just do not want to see another online fantasy or space game.

Eidos linked to News Corporation

Ancient enemy is raising its head again. Well, not really, it is only Rubert Murdoch’s News Corporation that it once again in the nexus of game industry speculation. Both Pocket-lint.co.uk and Gameindustry.biz wrote about growing speculation over possible Eidos deal. Buyer could be, as earlier mentioned, News Corporation.

This is no surprise, in my earlier analysis of this situation I set a hypothesis that News Corp. will go for Eidos, but will not settle for that but goes on and acquires at least another game company from overseas. Rob Fahey seems to have fairly reliable information sources, so the deal could really be just a matter of time.

If Eidos will be off the markets that will effectively cut UbiSoft’s acquisition possibilities. It is merely theoretical possibility that UbiSoft could have bought Eidos as an attempt to stave off Electronic Arts. Now UbiSoft does not have any other suitably cheap opportunities at hand. Trying to buy any other relatively large game company would just take a serious hit on UbiSoft’s stock price and that would anger the shareholders and they would probably resort into selling their shares for Electronic Arts.

Aren’t these exciting times?

Telltale Games introduces episodic games

I promised an article about a game company that is pushing the envelope. Paul Hyman wrote the original long article, which was called “Startups experiment with online distribution”, I am just going to mention few pointers. This company is called Telltale Games. They believe that in coming years, games will increasingly take the place of TV as a family or friends gather together to play and advance game episodes.

Businesswise they are using the old credit card and download combination but the variation comes in form of episodic gaming. Player would order the game in episodes, therefore lowering the single purchase price and allowing players to tip their toes to the water. If one grows bored with the series, one can stop ordering further episodes. To me this sounds reasonable enough.

According to the article, this kind of game production benefits from the scale of operation, because once the basic framework is done, episodes just need to have new plots and puzzles. Playtime for one episode would be around 4 hours and production costs set somewhere near half a million dollars.

In the article Paul Hyman mentions few other companies, so check it from Google to see if it still is in circulation.

Nexon CEO interview

Kim So-young interviewed Suh Won-il, CEO of Nexon for The Korea Herald. It is very informative article, in which they go through Suh’s past but focus more on Nexon’s business.

In the article, they discuss the phenomenal growth that Nexon has achieved with their popular game titles such as KartRider, Maple Story and Mabinogi. The other contributing factor for financial success, according to 27-year-old Mr. Suh, is that they have stepped up advertising and marketing budgets.

Company has fared especially well on domestic markets, but now they are increasing their efforts to improve their situation at abroad. China is the first natural step. Busy CEO plans to learn Chinese in order to communicate directly with their partners. He has set a goal of being number one in Asia’s online game business. That is a commendable target.

Independent game industry business models

Small game development companies are trying to find ways to cut down the cost of producing games. One popular method is direct online sales, right from the company’s website. This approach is somewhat limited by the modest visibility of the game. As a result, company has much higher margin from direct sales, the sales volume fall far behind typical retail sales distribution.

As I see it, there are basically three ways to work around this problem:

Shareware model
Micropayment model
Service model

The first approach is based on the good old shareware model. In this model, game is finished and shipped via network and people can try it out quite freely. These games have extra features or time limitations, which cut the playing experience short. At this point, if the player wants to have more he has to pull out a credit card or other kind of method of payment. Company gets decent exposure for the game but risks sales with too high prices and suffers from high advance development costs.

Other companies, which follow the second approach, believe that getting people to upgrade or order the real version is possible but difficult if the requested fee is high. They rely on micropayments that must be paid if one desires to advance in the game. These games are often simple and static. They run with straightforward logic and have cycles and to complete one must pay. Casual games, casino games and other money or classic games fit into this group very nicely. Once again, retail level is cut off and customers are served directly. The only problem here is that the whole micropayment business model hasn’t really kicked off. It seems to be all too difficult to agree on common method of doing this and now different technologies are competing and spreading on the market place. At this time, it seems like the companies, which are doing most of the money are actually those, which offer the billing technology for micropayments. For so long micropayment has been popping up here and there, it sure has potential, but when it becomes reality...

Personal memory takes me back twenty years to the time of C64. At that time I was engaged in an exhausting fight to get one for myself. I was on the other side and my parents on the other. They thought that C64 was waste of time and money, so I spent my pocket money on arcade games. Without a doubt by the time I finally got myself a C64, I had blown away enough money to buy two of them. Just to get the record straight, this took a year or two. I repeat, the potential for micropayments is there.

Third approach offers the game as a service. After the player has been lured into playing the game, it is just a question of making the game so interesting that people keep on playing and paying. Laser Squad Nemesis is one example of such a game. Game’s developers started from humble beginning, but they have been constantly improving the game and now it is packed with features. Players like it and compete against each other, and in the end a community forms around the game service. No retail in between.

In the next article I tell you about a company that is trying to push the envelope.

Shanda takes a piece of Sina

Pacific Epoch run stories about connection between Sina and Shanda Paul Waide was the person who posted the news. Last Friday, Shanda Interactive had filed documents with US SEC, saying that Shanda and Skyline Media Limited, which is Shanda’s CEO Chen’s investment company, had bought 19,5% of Sina, between January 12 and February 10. In other Epoch news it was stated that Sina is not planning to device any poison pill arrangements.

So, what do I think about this? Shanda was and still is loaded with cash. They announced their desire to move outside online gaming arena and this they are now doing. Earlier I was raising my concern on their expansion, because they could loose their focus while fostering new businesses. This sudden move towards Sina erases those fears of mine. If they manage to buy Sina, they will have ready entity that can handle on its own.

There are some clouds on horizon. Sina just made a remark that Chinese government plans on restricting the marketing of astrological services and Sina has large revenue coming in from such services. This will shadow Shanda’s growth expectations. Other concern is more traditional, how can they get synergies from this marriage, if it is to happen? It will be very hard to do any cross selling between these companies Shanda will benefit from new advertising channels, so there still are some opportunities to benefit from. Sina claimed that they will not device any poison pill to make it expensive for Shanda to buy more shares. Remains to be seen if Shanda will go all the way. Seems like their CEO is on a mission, though, so I place my money on acquisition.

New business model

This article that I am referring to was in Gameindustry.biz a while back, but I only now got the time to mention it. Good old Rob Fahey was behind it. Anyway, according to the article, new production model aims to lower the costs of concept development. Game Republic is behind the enterprise.

Basic idea here is that developers have their development plans Okayed in the early stages of the process. If format key holders like Nokia, Sony and Microsoft think that the idea will not fly, then there is no need for expensive full scale development. This will speed up the development process, because now those more or less raw ideas can be tested before building an expensive, functional demo etc. Furthermore, accepted projects will get financial backing from early on and development companies can take it easier with capital requirements. Future looks bright for game developers.

Enough article references. My gut feeling tells me that this will unify game genres into standard forms. If the game industry is not yet like movie industry, then this development will further demolish the fences. Buying a game will be easy, because you have seen it being advertised, you find it from the promotional stand in any major shop and it includes some real life sports or movie and game stars.

The ones who benefit are those, already big companies, which can now put their money into good use by garnering all the needed name features that make a good game. Throw the mix on general engine platform and there you have it. Now it is only time to repeat the process as many times as possible and the production numbers take care of the rest. There are bound to be few hits among the titles produced this way so just loop the process.

Why is it so? My guess is that decision makers have already a long career in game industry and they have worked their way up. It needs wits and vision, but their career advancement takes so long that when they finally are in the decision making position, they are bit out of touch with their young audience and therefore they are not making game decision anymore, just business decisions. In such a landscape there is room for many innovative companies that are pushing the envelope, but because of the nature of this business, innovations are quickly copied and major players remain on the top.

If you want to the top, there still might be a window of opportunity open for few years, run for it.

In-game advertising

Chris Morris wrote and interesting article for CNN Money about online game advertising. In the article he lines out some plans that major game companies have in the arena of online game advertising. I recommend you to look it up, good stuff. It got me thinking few ideas like:

Nothing will get your fantasy immersion down like an ad for snack bar while playing some fantasy game. Therefore ads can be safely placed only into a game with current or future theme. It is cool to crack some heads in some pop and ultra violent game from criminal genre and then smoke a cigarette of some specific brand. It is also cool to play some distant future space simulation and notice that there is still some well-known brand existing at that time. Fantasy? Nah, I want my high quality sword from local blacksmith Barnes, not from International Steel.

To me this means that in order to get more revenue out from the games by introducing growing product or advertisement placement, publishers are going to start producing more games with concurrent issues. Good example comes from UbiSoft, which has tied in Clancy books and video games. That is a believable setting for advertising. We see the advertising trend also in the frenzy in which publishers are licensing franchises as fast as they can - the more commercial, the better. Sports are the best as they already are fiercely commercial and players actually expect to see some advertising, it makes the games feel more real.

Virtual realities and communities like Second Life are excellent base for virtual and real advertising. These environments are less game oriented and people have other reasons for their existence than collecting experience points. Those environments will see advertising become an integral part of the setting and important vehicle in achieving objectives.

Overtime class-action suit against Electronic Arts

There are some clouds gathering over the sky of the Electronic Arts. Mark Schwanhausser at Mercury News wrote in an article about another worker of EA, who had filed class-action lawsuit against his employer, seeking overtime compensation.

This opens interesting opportunities for game industry workers. It is not only one person against big company anymore. Now there is the possibility that workers start to get encouraged and raise up to demand better working conditions. It would mean more salary or at least shorter working days. This is basic union mathematics – cause needs people and as the threshold has been reached there is now way of turning the tide. It remains to be seen if other game industry workers join the “movement”.

So how many angry game industry workers does it take to pull off a successful class-action suit against the employer? I wish, I could answer that, but maybe you can comment on the article and suggest something.

Anyhow, what we are seeing now is those out of reach of stock options workers, who are going for class-action suit. These people have no chance of benefiting from excellent financial results of their employers. They are also easy to replace and they have to pull those long hours just to keep their jobs. The cost of their “rebellion” could be their job, but that already is a threat that exists.

From European point of view, this could even the competition between old and new continents. European game companies have been moving their operations away from Europe with increasing speed and one major contributing factor has been higher personnel costs in Europe.

What happens if American personnel costs rise to the level of those in Europe? I bet that the movement towards Asia will speed up. I wonder if UbiSoft made a clever move with their decision to bolster their studios in Montreal. Like with other things, time will tell...

Majesco A GBA Enthusiast

I am broadening up my narrow point of view starting to get to know game companies in a bit more organized manner. Majesco is the first on the list. Compact little company that has profiled itself especially as a maker of GBA content, but they also have products on other platforms. For me, this company appears to have potential as a take over target, because of their relatively understandable focus. Good addition for some big game company that wants to bolster their mobile front.

Analysts have mixed opinions what comes to this company. Just recently stock price dropped markedly and analysts have been busy in restating their views. As I said, mixed bag, ranging from stable to market outperforms. Without going into the numbers, it looks like they have some serious challenges to grow organically. Luckily the competition on GBA titles is not as fierce as it is on consoles. I will add this to my watch list.

Electronic Arts In Dialogue With UbiSoft

According to Wall Street Journal and Reuters, Electronic Arts and UbiSoft are in preliminary talks or as they say “I would not say there's negotiations taking place, but we are having the kind of dialogue that you would expect of a large shareholder with the company". It is not clear what these talks concern, but I could make some wild guesses:

Firstly, they will test the waters on some ownership arrangements. It is very good setting for that because there are some high-ranking UbiSoft managers (there should be) involved in this dialogue, and they are also major shareholders. Impress these guys and the whole UbiSoft will move. Convince them not and the deadlock will remain.

Secondly, there will be discussion on possible cooperation. If direct approach fails, try to lure the partner to see possible benefits of joining forces. This has the added benefit of people of these two companies getting to know each other. However this could backfire too, there are some classic prejudices between the two sides of the great water.

Thirdly, if all else fails that are friendly gestures and mild manners. The only thing for Electronic Arts to do is to turn on pressure to make some changes in the UbiSoft board. Guillemot brothers have the power in company that goes well beyond their ownership. Last chance for EA to gain better hold in this situation is to, as a major shareholder, get their guy into the board.

I am guessing that this is the blueprint for the dialogue.

Renamed!

I thought that I wanted to write about mobile phone games, but it turned out that I mostly wrote about game industry in general and especially those trendy massively multiplayer online games. This new title should fit better for the content.