The Great Video Game Business and Financial (In)Stability Thread

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Let's face it: We love games. We love them enough to collect game company CEO's names like baseball cards, pore over quarterly financial reports, and treat each press release as though Moses just brought it down carved in stone. It's fun to talk "inside baseball," so to speak.

But sometimes we clutter up other threads with such talk. We discuss Microsoft's financials in the Wii U thread, or EA's fiscal insolvency in the Sims thread, or what have you. Threads that are better used to talk about, y'know, video games. I admit I am just as guilty as the next person at doing this.

So let's have a friendly place you can go, game business grognard. A place where everybody knows your name. Where they're always glad you came.

…yeah.

I'll start us off with two discussions:

1.) Some of Microsoft's potential new CEO candidates are discussing spinning off the games/entertainment division altogether. There's also call for MS to do so externally. I'll be honest, were I a shareholder I would be pushing really hard for it; it's outside their core competency, it's hemorrhaging money, and their "we wanna be Apple" unification strategy just isn't coming together like they'd hoped. Time to pare down the unprofitable sectors and return to what they're the best in the business at.

2.) Nintendo: OMGWTFBANKRUPTBBQ. Except, not really. I mean, sales are down from last year (although gross profit is up), but they carry literally $0 debt and have a huge cash war chest which is currently just sitting and garnering them interest. Should they branch into mobile gaming? Should they kill their hardware divisions and just make software for the XB1/PS4? Should I stop asking stupid rhetorical questions?

Minarchist wrote:

Should I stop asking stupid rhetorical questions?

Yes.

When do Ubisoft and Activisin post their earnings? I'm curious to see if they had similar issues to EA in the last quarter.

Activision is Feb. 6th, for Q4. I think Ubisoft only does half-years (not being a US company they are under different requirements, naturally), and they're on a April-March fiscal. So their next report should be May 15-ish.

Minarchist wrote:

I'll be honest, were I a shareholder I would be pushing really hard for it; it's outside their core competency, it's hemorrhaging money, and their "we wanna be Apple" unification strategy just isn't coming together like they'd hoped. Time to pare down the unprofitable sectors and return to what they're the best in the business at.

If they did that, it would run contrary to the current narrative about tech businesses and would have a significant negative impact on their public perception. Right now, the hot idea seems to be tech companies leveraging a core competency to indulge in all kinds of unprofitable side projects that might be the Next Big Thing. Google is sort of the poster child for this, with its search business propping up forays into mobile operating systems, wearable technology, driver-less cars, novel asynchronous online communication tools, and so forth. There has to be a sense in Silicon Valley right now that if you're just focusing on one thing, one core competency, that you're going to get hamstrung when a rival innovates the world out from under you.

I'm curious to see if they had similar issues to EA in the last quarter.

I bet they didn't. In fact, I suspect the SimCity debacle is what's really hurting EA right now, even though it happened last year.

If you were a hotshot programmer, legendary among your kind, would you want to work for a company that's so blatantly willing to lie to its customers? The technical people inside EA knew full well that the 'server required' bullsh*t was exactly that, bullsh*t, that the servers were doing damn near nothing. But they watched their execs lie, double-down on the lie, and then go all-in. (and, a year later, lose.)

So, I'm pretty strongly suspicious that the great talent out there just won't work for those people anymore... deceptive asshole middle management. Programmers despise that nonsense. I think that may be why they're having such a hard time with BF4: talent bleed. Those chuckleheads just can't keep the technical expertise on staff to do what they want anymore.

Malor wrote:

If you were a hotshot programmer, legendary among your kind, would you want to work for a company that's so blatantly willing to lie to its customers?

IMAGE(http://media.giphy.com/media/FnGJfc18tDDHy/giphy.gif)

Malor, I was referring to EA's software sales for the last gen of consoles dropping off significantly, but new gen software sales didn't offset those losses.

Ah, I thought you were referring to their fairly disastrous results with BF4 and the stock price slide.

Malor wrote:

Ah, I thought you were referring to their fairly disastrous results with BF4 and the stock price slide.

Is it even possible for their stock to slide further?

Well, I just went and looked, and was surprised to see that EA isn't far off a 5-year peak. I suspect that there's a fair bit of room on the downside.

I guess that stock price hit was temporary.

First, thanks for the dedicated thread for this discussion. I ain't no business guy or nothin' but I enjoy discussing this stuff.

Minarchist wrote:

I'll start us off with two discussions:

1.) Some of Microsoft's potential new CEO candidates are discussing spinning off the games/entertainment division altogether. There's also call for MS to do so externally. I'll be honest, were I a shareholder I would be pushing really hard for it; it's outside their core competency, it's hemorrhaging money, and their "we wanna be Apple" unification strategy just isn't coming together like they'd hoped. Time to pare down the unprofitable sectors and return to what they're the best in the business at.

Is Entertainment & Devices hemorrhaging money? I know it's running at a loss right now (normal when you're launching new hardware) but it was in profit for a while at least. I also agree their unification strategy hasn't worked out. I recently got a Windows Phone 8 device and like it. It's market share is actually surging outside the US but it still has a long way to go. And while great under the good, Windows 8 is...yeah. It's funny that in their rush to be like Apple (a strategy I think they shouldn't be pursuing), they screwed up the one thing Apple's left alone on their side, the desktop. The thing is though, spinning off the Xbox division means it's certain doom. It needs the deep pockets of a large company to sustain itself right now. And the thing is, I don't see why Microsoft would continue pumping money into it if they didn't see a long-term future in it. Heck, Sony Computer Entertainment is one of the only parts of that company that has any kind of bright spots in the next while so there must be some viability to that.

PC sales are declining and their OS business is dropping a bit as a result and the thing is, I'm certain they saw that coming. Maybe not at the pace it is but the Xbox is one of several plays they're making to mitigate slowing PC sales. That overall strategy seems to be working out too as they just reported a record quarter, despite the slowing PC market. I think we're going to see Microsoft keep working on Xbox and when it doesn't, just close it down. I think spinning it off just means it'll die that much quicker.

Minarchist wrote:

2.) Nintendo: OMGWTFBANKRUPTBBQ. Except, not really. I mean, sales are down from last year (although gross profit is up), but they carry literally $0 debt and have a huge cash war chest which is currently just sitting and garnering them interest. Should they branch into mobile gaming? Should they kill their hardware divisions and just make software for the XB1/PS4? Should I stop asking stupid rhetorical questions?

This was actually covered a lot in the Wii U thread but yeah, Nintendo's not going anywhere. They've had several major flops in their history and come out of it. They have billions in the bank and no debt. Whether their next attempt will work out remains to be seen but they have the means to try again at least once. The fact is, the clicks-through-controversy loving "enthusiast" press always needs a whipping boy to stir up fans. It used to be Sony and now it's Nintendo. I still feel bummed about the Wii U but as Sony demonstrated with the PS4, getting backed into a corner means you get aggressive.

@Minarchist

Thanks for starting this discussion. Your question about Ninetendo interests me most.

As you say, they've banked a pile of cash from their Wii and DS success from the past decade, so there's no chance of them going belly up anytime soon. However, the Wii U is clearly a disaster and it's difficult to see how they can re-establish themselves in the home console market this generation (without simply cutting their losses and releasing a more XBox One/PS4-machine).

I wonder too whether all is well for Ninetendo in the portable console market. I commute to work and I'm also fortunate enough to travel regularly for leisure, and I see fewer and fewer portable consoles where I'd expect to see them (metro trains, airport departures halls, planes, etc). What I see lots of are people gaming on phones and tablets. I don't think this trend is going to change.

So, to come directly to your question, I think Nintendo probably should begin shuttering its hardware division and focus instead software (like Sega did).

Parallax Abstraction is right, of course, about their financial might. But that's worth little without a business strategy that ensures that it's wisely spent.

Malor wrote:

Well, I just went and looked, and was surprised to see that EA isn't far off a 5-year peak. I suspect that there's a fair bit of room on the downside.

I guess that stock price hit was temporary.

Well, they've been going through some pretty significant management changes, and have been shedding a lot of their unprofitable ventures.

For those that care about actual numbers, I present Investor Relations pages:

Nintendo: http://www.nintendo.co.jp/ir/en/
Microsoft: https://www.microsoft.com/investor/D...
Sony: http://www.scei.co.jp/corporate/inde...
Konami: http://www.konami.co.jp/en/ir/
Capcom: http://www.capcom.co.jp/ir/english/

Oh, you want direct links to the sales numbers? Here:
Nintendo: Hardware - all consoles sans Virtual Boy with software totals and software top sellers.
Microsoft: hardware and software. They seem to have stopped indicating software sales numbers after 2012.
Sony: Hardware and software.

What's that you ask? Do I have this saved in a google doc? Why yes, yes I do. Because I got sick of having to find the links again any time some spouted off saying the Wii only sold Wii Sports. It sold nearly 9 games for every 1 console.

I never found much else when I looked, like for 2K and such.

Also, Nintendo is the only one I can find showing individual titles anymore and that makes it anywhere near easy to pull up lifetime sales numbers and gives you the units. Sony's software LTD sales for the PS3 is listed at 4,332 but no units and adding up the yearly totals doesn't match it in any way, unless you assume that the yearly includes downloads and since the lifetime notes it does not and so more than half of the LTD software sales are downloads and their units are in 100,000's on the LTD, but millions in the yearly reports.

Parallax Abstraction wrote:

First, thanks for the dedicated thread for this discussion. I ain't no business guy or nothin' but I enjoy discussing this stuff.

Minarchist wrote:

I'll start us off with two discussions:

1.) Some of Microsoft's potential new CEO candidates are discussing spinning off the games/entertainment division altogether. There's also call for MS to do so externally. I'll be honest, were I a shareholder I would be pushing really hard for it; it's outside their core competency, it's hemorrhaging money, and their "we wanna be Apple" unification strategy just isn't coming together like they'd hoped. Time to pare down the unprofitable sectors and return to what they're the best in the business at.

Is Entertainment & Devices hemorrhaging money? I know it's running at a loss right now (normal when you're launching new hardware) but it was in profit for a while at least. I also agree their unification strategy hasn't worked out. I recently got a Windows Phone 8 device and like it. It's market share is actually surging outside the US but it still has a long way to go. And while great under the good, Windows 8 is...yeah. It's funny that in their rush to be like Apple (a strategy I think they shouldn't be pursuing), they screwed up the one thing Apple's left alone on their side, the desktop. The thing is though, spinning off the Xbox division means it's certain doom. It needs the deep pockets of a large company to sustain itself right now. And the thing is, I don't see why Microsoft would continue pumping money into it if they didn't see a long-term future in it. Heck, Sony Computer Entertainment is one of the only parts of that company that has any kind of bright spots in the next while so there must be some viability to that.

PC sales are declining and their OS business is dropping a bit as a result and the thing is, I'm certain they saw that coming. Maybe not at the pace it is but the Xbox is one of several plays they're making to mitigate slowing PC sales. That overall strategy seems to be working out too as they just reported a record quarter, despite the slowing PC market. I think we're going to see Microsoft keep working on Xbox and when it doesn't, just close it down. I think spinning it off just means it'll die that much quicker.

Minarchist wrote:

2.) Nintendo: OMGWTFBANKRUPTBBQ. Except, not really. I mean, sales are down from last year (although gross profit is up), but they carry literally $0 debt and have a huge cash war chest which is currently just sitting and garnering them interest. Should they branch into mobile gaming? Should they kill their hardware divisions and just make software for the XB1/PS4? Should I stop asking stupid rhetorical questions?

This was actually covered a lot in the Wii U thread but yeah, Nintendo's not going anywhere. They've had several major flops in their history and come out of it. They have billions in the bank and no debt. Whether their next attempt will work out remains to be seen but they have the means to try again at least once. The fact is, the clicks-through-controversy loving "enthusiast" press always needs a whipping boy to stir up fans. It used to be Sony and now it's Nintendo. I still feel bummed about the Wii U but as Sony demonstrated with the PS4, getting backed into a corner means you get aggressive.

The prevailing thought is the the division is only profitable because of the ludicrous Android licensing fees Microsoft collects (guesstimated at $2B in 2013 and projected to climb to $15-$17B in the near future lol) and that if MS took those out the entire division would be in the red.

Would that make Microsoft stronger? I'm not sure anyone can answer that question. Certainly the division produces significant revenues..it's just not enough to offset the expense that Microsoft currently spends running the division. What we can't really know is how much expense is directed to Surface and/or the Phone side (which I suspect are dragging down the division FAR more than the Xbox currently does).

From what I can gather "everyone" at Microsoft believes the division (notably the Xbox) is a Trojan horse that will end up selling MORE of Microsoft's cloud services and through corporate synergy will lead to more profits in other areas that simply can't be easily traced to the Xbox. You may or may not believe that and I'm not sure I believe it either.. What Microsoft gets from is is my yearly Xbox Live Gold Sub, my Xbox Music Pass, and whatever digital purchases I make. I tend to not purchase any digital movies or TV from Xbox..since I'm fairly deep in with Apple at this point so I'm comfortable continuing to build my digital content catalog through Apple. If Apple ever offered something similar to Xbox Music pass then I would probably cancel that subscription.

I'm certainly not going to pay for anything Skype related.. and I'm in with Dropbox at this point deep so I'm unlikely to switch to Skydrive (Onedrive) no matter how much free storage Microsoft throws at me (though perhaps I should and save the yearly $ I spend with Dropbox).

Certainly the traditional console business is suffering... we see YTY drops in hardware sales and software sales as taste and consumer habits change.. I don't think the Xbox One will change that significantly either.. Microsoft will probably struggle to sell as many Xbox One's as they did Xbox 360's. So with lower unit sales comes lower accessory sales (Where the real margins are).. opening up the platform significantly to indie developers as well results in lower licensing profits. With a hit driven business your home runs are HUGE but your overall revenue from licensing fees has probably dropped significantly YTY since 2007.

Right now the entire console biz is really a huge cash sink for Sony and Microsoft that exists seemingly only to make a few titles huge money and some indie devs decent money but very little in the way of profit to the platform holder.

Long term Microsoft seems to be banking that the Xbox Platform will generate sales in digital media/services that have healthier margins.. We'll have to see over time if that plays out.

Sony's Q3 numbers were just released. PS4 numbers look good, overall, as expected. However, the Vita numbers are... wow.

http://www.sony.net/SonyInfo/IR/fina...

2.0 million combined PSP and Vita units shipped in Q3 2013. On the bright side, that puts them just under the 2DS sales for the same period.

On the other hand, those 2DS numbers didn't include Japan, and the other two 3DS models outsold the PSP systems by about 800%. Year on year, handheld sales are down from 2.7 million in Q3 2012.

Overall, this is not good, at all. Considering that Sony reduced the 2013 year handheld sales to just 5 million combined, I honestly don't know what they can do to fix this at this point. Which is a shame, because the hardware really is good. There just aren't any games, and developers aren't willing to put more than token iOS/Android ports on it. It's also disturbing that Sony isn't pressuring their 1st party studios to make games for the system.

Any idea how those numbers split between PSP and Vita? Obviously Sony lumped them together to get the number up, but just how much did the PSP contribute?

Yeah, that's a shame. The Vita has enough of a back catalogue of PSP and PS1 games that I still expect to get plenty of enjoyment out of mine. I also got it while deployed, so probably not too many regrets anyway.

My 3DS still drives me nuts because of its non-functioning on my network-ed-ness. :-p On whole though, I like both the 3DS and the VITA. (I despise my phone/e-readers for anything but garbage games, so this trend upset me.) Oh, well. STEAM 's my ace in the hole

cube wrote:

Sony's Q3 numbers were just released. PS4 numbers look good, overall, as expected. However, the Vita numbers are... wow.

http://www.sony.net/SonyInfo/IR/fina...

2.0 million combined PSP and Vita units shipped in Q3 2013. On the bright side, that puts them just under the 2DS sales for the same period.

@cube

The Vita's sales numbers are sad, but exactly what I'd expected (and I speak as a proud PSP owner, steadily accumlating a nice little catalogue of now-dirt-cheap old titles). Consumer and developer/publisher goodwill towards Sony's handhelds has been ebbing away for years.

For me, the nail in the coffin was the PSP Go; released in November 2009 and superseded by the announcement of the Vita in January 2011. I simply didn't have the confidence to buy into a Sony handheld again after that.

But the price of the unit and the lack of compelling new content hasn't helped either.

Is this when we start saying that Sony needs to get out of the handheld market?

Chaz wrote:

Is this when we start saying that Sony needs to get out of the handheld market?

I think we might as well just combine the two phrases now:

Getting out of the handheld market is better on the Vita

Chaz wrote:

Is this when we start saying that Sony needs to get out of the handheld market?

They should just publish their games on the 3DS.

Chaz wrote:

Is this when we start saying that Sony needs to get out of the handheld market?

Nintendo should buy Sony's console division and Sony should buy Nintendo's handheld division!

ClockworkHouse wrote:
Chaz wrote:

Is this when we start saying that Sony needs to get out of the handheld market?

They should just publish their games on the 3DS.

Maybe if you could duct tape two 3ds's together, you could port the Vita games over?

ClockworkHouse wrote:
Chaz wrote:

Is this when we start saying that Sony needs to get out of the handheld market?

They should just publish their games on the 3DS.

I lol'd and I didn't feel bad about it.

ChipRMonk wrote:
ClockworkHouse wrote:
Chaz wrote:

Is this when we start saying that Sony needs to get out of the handheld market?

They should just publish their games on the 3DS.

Maybe if you could duct tape two 3ds's together, you could port the Vita games over? ;-)

Oh, come on, surely you could get at least two of the four Vita games running on the 3DS. It can't be that hard to port from the PS2 again.

Wow, I think that just filled my trope bingo card.

ClockworkHouse wrote:

Any idea how those numbers split between PSP and Vita? Obviously Sony lumped them together to get the number up, but just how much did the PSP contribute?

Adding up numbers from VGChartz (I know, I know), it looks like the PSP contributed roughly 30% of that Portable Entertainment System number, which works out to 1.4 million Vitas shipped in that time period.

(The totals track roughly correctly from VGChartz, if you were curious. Adding up platform sales by week from the week of Oct. 5th to the week of Dec. 28th—roughly the time period covered in Sony's financial report—totals 1.89 million Sony handhelds sold: 561k PSPs, 1.33 million Vitas.)

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