Greed is Good: In Defense of EA
Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms -- greed for life, for money, for love, knowledge -- has marked the upward surge of mankind.
- Gordon Gekko, "Wall Street"
Every time the word "consolidation" (or even "EA") is in a headline, the gamer reaction seems to immediately be "this is horrible." It's as if we - the deep geek gamer community - have decided that big = bad without equivocation. It's the same mentality that assumes all indie movies will be good, and all unsigned bands are somehow more pure and therefore better.
I have a low tolerance for this.
The headline, in this case, is that EA has offered $2 billion in cash for Take-Two Interactive. EA's offer is, on the surface, great for Take-Two shareholders, and merely expensive (short term) for EA shareholders. Consequently EA shares sank 5 percent, while Take-Two shares rose 50 percent yesterday.
Normally that would be the entire headline, but in this case Herb Greenberg, a Wall St. Journal columnist known for doing his legwork (and being unforgiving of Take-Two), has connected some rather interesting dots for the Take-Two shareholders. Specifically, he thinks Take-Two's already slightly-questionable management enacted a classic poison pill - a barrier to being taken over - with a particularly self-serving twist. In a normal poison pill, the board of a public company puts in place provisions that make it really, really expensive for an outside firm to start gobbling up shares and take over. Poison pills usually benefit a large portion of shareholders, creating backstops like "in the event we get acquired, all shareholders get double their money." This time, it looks like only senior management gets the benefit. So far at least, the new Take-Two management doesn't seem a whole lot more reputable than the old.
So is this just another case of the gigantic fish swallowing the simply big fish? Death to innovation! Long live the Borg!
Not so fast.
Screw the money, what about the games?
Large players - those with big, big capital reserves - are extremely important. While the Horatio Alger version of the American dream makes for good theater, the struggling ragamuffin rarely goes on to be Mr. President. Big companies like Microsoft, the old AT&T and HP can afford to spend money on science experiments. Without the occasional pool of unfettered funding, Bell Labs would never have invented radio antennas or discovered cosmic background radiation; HP Labs wouldn't have developed the atomic clock or the LED. Apple, which, with a market cap 5 times Electronic Arts, can hardly be considered scrappy anymore, would never have made the iPhone without cutting their teeth decades earlier on the Newton.
So even in a vacuum, with no additional information, I'd be reluctant to buy into the big = bad argument. But lets look at recent history. ERTS CEO John Riccitiello has been on the job for less than a year. Before this he was pulling together Bioware and Pandemic, and I haven't heard many complaints that Mass Effect-in-progress was pressed flat under the thumb of an oppressor. It's premature to say that Riccitiello is somehow poison for games outright.
Riccitiello says he wants to model his company along a "label" line, like a giant movie or record company. If he delivers, this is a good model. A company like News Corp. has tremendous power to make good things happen simply because they can afford to make so many bets. For every FOX News there's a wonderful piece of children's animation coming from Blue Sky. For every 20th Century Fox brings you "Alvin and the Chipmunks," there's Fox Searchlight presents "Juno" or "Garden State."
The model of large-distributor/small-label model works, and works well. Distribution, financing and production lend themselves to economies of scale; creativity, arguably, doesn't. But with games I'd argue that the two have to live hand in hand. Why are we so quick to dismiss EA and praise Valve, when Valve is simply doing what Riccitiello says he wants to do with EA (Portal anyone?)
Partly because as consumers we're entitled to be skeptical. EA has had its share of missteps in the past. Between labor disputes, craptacular games, and all sorts of balance sheet and board room shenanigans, they've earned our skepticism. But let's give them credit where it's due. EA is a tremendously solid distributor of games. As a developer, they make multi-platform titles and they make money - an important thing to the health of the industry. And they can make good games. The Sims was a flat out brilliant game, and the sequels, even the endless expansions, have been well done. Everyone I trust has told me that NHL '08, the product of EA Canada, is the best EA sports game in years. There are few games I've ever been as excited about as Spore. And while EA publishes a ton of games it doesn't develop, how EA handled Rock Band speaks volumes for their commitment to customers regardless of the studio that did the heavy lifting.
There's also evidence they're committed to getting things done right, rather than fast. Spore seems to have been given as much time and money as it wants, and how EA has handled Army of Two delays strikes me as wise. Sure, we can look at the mediocrity that is the EA Sports portfolio and claim all this other stuff is exceptions, but that's a bit like overlooking the glory of the XBOX 360 community system to instead focus on how much you hate Windows Server 2003.
As a potential benevolent overlord, Riccitiello is saying all the right things. Does he look like a used car salesman? Absolutely. Has he been unbelievably honest and self-deprecating for the CEO of a $20 billion public company? Absolutely. Whether you believe him or not, it takes phenomenal balls to say things in public like (paraphrasing) "we missed the Wii" or "sequels suck." While the gamerati have been lambasting him for the mandatory "synergistic efficiency thrombobulator" comments he's had to make while dodging direct questions on this deal, lets give the guy props for making the comments all over the web in the first place. Far more than most CEOs, Riccitiello has gotten in front of his customers - not just his analysts - and been vocal and straightforward since he took the helm. When was the last time we heard Ben Feder talk about gaming? Not about filings and takeovers, but about the actual state of the industry, games development, how games are made and played? How many people even know that Ben Feder is even Take-Two's CEO?
Is Greed Good?
Obviously, it's not all roses and sunshine. Business never is. EA is making the bid because they think it makes them money long term. Some of this is as simple as getting the teams and brands of Irrational and Rockstar in-house. But it's also about consolidating sports. EA will benefit from consolidating the EA and 2K sports lines in a way no other acquirer would. While I'd love to see three competing titles for every major sport, we don't live in that world. Competition is important, but the ultimate competition for Madden '09 is not in fact 2K Sports' All Pro Football. The competition is watching TV, going outside, reading a book, or playing a different kind of game altogether. Ultimately, crappy games won't sell as well as good ones, because we as consumers have unfettered discretion as to how we spend our entertainment dollars and hours.
I also believe that capitalism is ultimately a good thing. I'm not willing to go all the way down the Gordon Gecko path and claim that greed is inherently good, and personally I'd love to think that Dwarf Fortress developers Tarn and Zach Adams could rule the world. But getting good independent games to the mass market takes real money, and the Adams' brothers still struggle to pay the rent. Investors - particularly venture capital investors - don't back an independent company without an exit strategy: a way to actually get cash back out of the company they're supporting. And the only two exit strategies for a small, independent game company are go public or get bought. Large players with cash and a penchant for spending it provide the path for entrepreneurs to back new companies.
Put aside Take-Two's sordid past, or even what Bill Harris so appropriately called "skullduggery" in how they've managed their otherwise business-as-usual poison pill. I have a strong belief that Riccitiello at least understands that in order to make an assbucket of money, gamers have to buy his games. This means, whether they are casual games or hardcore games, they eventually have to be good. I believe Riccitiello understands this, and that it means you have to treat Spore differently than Madden, and that you have to be willing to delay Army of Two and take the PR heat from GTA IV head on. The best I can say of Take-Two is that they let Levine make his game, and they've been afraid enough of Rockstar to leave them alone while they sit around doing calculus and looking up precedents in the boardroom.
I don't particularly care about Take-Two, the company. I care about the properties and people who live inside it. Take-Two is not a company with a long history of plain-dealing and wise management. There is no outcome in Take-Two's future that has it disperse into a half dozen small, scrappy, innovative and profitable companies in a kind of retro-fantastical unconsolidated wild west. This is reality. I'd rather see the games I love and the teams I respect end up in the hands of competent, stable management than squirm in the grip of unprofitable and seemingly unsure hands.