Are videogamers Hollywood takeover bait?

December 7, 2009

By Rolfe Winkler and Rob Cox

Are video-gamers Hollywood takeover bait? With their business models under threat and shares in the doldrums, game publishers like Electronic Arts look ripe for the picking by larger media conglomerates such as Walt Disney. But much as shareholders might hope for a quick exit, they shouldn’t bank on a quick M&A payday.

The argument for entertainment companies buying video-game makers is compelling. Publishing video games is like making movies: Invest millions developing titles and pray for blockbusters. As in Hollywood, the trick is to establish successful franchises and regularly ride them to riches. Studios look for the next Harry Potter. Game publishers search for the next Call of Duty.

The economic lumpiness of the movies eventually drove all the major studios to become subsidiaries of media behemoths like News Corp, Time Warner, Viacom and Sony. These larger groups could lay claim to content and corporate synergies that offset the volatility in performance of the film business.

With some of the biggest gaming groups now struggling, it looks like a buyer’s market for acquisitive media groups hoping to burnish their gaming credentials. From previous highs, EA and Take-Two Interactive Software are off 70 percent and THQ is off 90 percent. Their combined enterprise value is now just around $4 billion.

But there’s no rush. Next year isn’t shaping up well for the gamers so they may get cheaper. EA will be releasing 30 titles, down from 50. Take-Two, creator of Grand Theft Auto, is expected to report its fourth losing year in the last five. THQ has no breakout hits on the horizon, Wells Fargo notes, and faces another difficult year.

All the while, the industry is struggling to adapt to a changing market where packaged games sold through retailers like GameStop are losing ground to online gaming alternatives. That trend motivated EA’s purchase of social networking game developer Playfish for $300 million last month.

It might be comforting for shareholders to have a rich corporate Daddy to support this wrenching transition. But big media can wait. Indeed, it need only look at the bullet EA dodged when it stepped back from a $25.74 a share hostile bid for Take-Two in 2008. That’s over three times Friday’s closing share price.


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For several years now, video games have been generating more receipts than feature films do but, as the Universal-Vivendi experiment has shown, studios are really useless at (among other things) running a good game. Neither are they likely to get any better at it anytime soon. So, for the love of the game, the studios you mentioned should definitely stay out of it altogether.

Part of this is the hefty cost superstructure of anything and everything once a studio conglomerate has taken it over. In larger part, though, it’s the great intricacy of non-linear dynamic writing and design that goes into interesting game development, at which run-of-the-mill CYA studios also patently fail to excel. These days, all the studios are run on CYA first, foremost and last.

From the corporate culture standpoint, EA might be a fit with Disney, or whatever’s left of Dreamworks – also from the point of view of how sterile and insipid its game scenarios tend to be. EA, though, due to its antiseptic internal environment, has literally nothing to match the richness and unruly satirical relevance of game scenarios such as GTA3,4 et seq. from Take-Two’s Rockstar’s subsidiary DMA. For the record, Take-Two did not create GTA. They bought their way in, then paid themselves like TBTF bankers.

Here again, with Take-Two, the real talent is not at studio level, but in the grass roots of the creative department. This sort of talent does not fit into any conventional studio mold for very long.

Why is the creative element more important than most studios realize? The most apt studio-related parallel here would be the attention to story detail given respectively by Dreamworks and Disney animation compared to, say, that of Pixar. Like night and day, Pixar kixar–

And it is precisely this sought-after richness that propels gaming forward, rather than making it just another thing to do for the 8 hours or so before the novelty of any superficial game scenario is exhausted. For which, by the way, 60 bucks is frankly far too steep a unit retail price tag.

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It is also significant to look at other factors, such as the accelerated time between the release of a much-awaited feature film to the theaters and its subsequent release on DVD. There used to be a long wait between the end of the theater run and the release but not anymore; now the DVDs are practically released while the cinema seats are still warm, which tells a significant story about how much profit is made by the shiny discs vs. the tickets (grossly overcharged) in the cinemas (which admit that their profit margin is all in the popcorn and candy, NOT the movies).

The new movie from James Cameron is a perfect example of all of this: Avatar. Before the release of the movie the ‘game’ has already been released, but … dare I ask, what would I encounter in a game ‘based on’ a movie that I have not had the opportunity to see yet? This is an example of cart-horse marketing where the product (the game) may have been ready for release, but the patience of those who developed it should have been exercised just a bit, at which time they would likely have been able to capitalize on the popularity (projected) of the movie … unless it’s a gigantic flop.

Taking the talents that are behind the production of a mega-techno-piece that Avatar promises to be and channeling that material into a video game does not necessarily translate into a game that will be worth playing – particularly if the movie does not live up to its promise.

Perhaps movie-makers are expecting a bit much of their audiences: they are already expecting them to pay exorbitant amounts to see their work in the theaters, now, with the rise of video games based on their movies they want the younger movie goers (through their parents) to pay even more to purchase the ‘game’ based on the movie.

No, there’s no perhaps about it: they ARE asking too much, that’s why I don’t go to the theater anymore, unless it is a very special movie (and they don’t seem to come around all that often).

Peter Amsel – the CrazyComposer

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