EA Buyout Rumor Points to Dark Days for Major Game Publishers
Rumor has it that Battlefield and Madden publisher EA may be planning to accept a buyout from a pair of private equity firms, KKR and Providence Equity Partners, according to the New York Post. Providence Equity Partners already owns one major game publisher, Skyrim developer Bethesda Softworks.
Though initially surprising, EA's alleged decision to sell isn't entirely uncalled for: EA, currently valued at four billion dollars, has suffered from a serious decline in capital, losing 37 percent in the last year. The publisher has suffered from at least one serious sales setback this year,as Bioware's recent MMORPG, Star Wars: The Old Republic, which is in the process of moving from a traditional subscription-based business model to a free-to-play, microtransaction-based plan.
Supporting the buyout theory, EA recently began buying back shares, generating a three percent rise in their stock price, to $14.27 per share as of today.
EA has declined to comment, saying that they do not comment on speculation or rumors. According to an NYP source, EA would make the deal at $20 per share.
EA is just one of many massive game publishers looking stem the tide of steadily declining sales in the past year. In July, the gaming industry generated $548.4 million dollars, substansially less than the 686.3 million spent in July 2011. The declining economy, rise of smartphones and tablets as gaming platforms, and the dragging console generation have most likely all played vital roles in the decline.
EA isn't the only publisher suffering. Activision Blizzard, has also been put up for sale by parent company Viacom in order to deal with their own declining stock price. Viacom currently holds a 67 percent majority stake in the Call of Duty publisher, worth about eight billion dollars. Despite carrying some of the most coveted brand in gaming, Viacom is having trouble attracting buyers.
Another publisher, THQ, just barely dodged being delisted from the NASDAQ stock exchange, pulling a 10-1 reverse stock split to bring their shares up to a tradable level. Since the split, their stock has dropped from $6.20 in late July to $5.04 at the time of this posting.
Even more "forwarding thinking" gaming conglomerates like social gaming giant Zynga are suffering. The Farmville and Words with Friends reported a 22.9 million dollar loss for the second quarter of 2012, leading to 40 percent drop in their stock price and a shareholder lawsuit, as reported by Eurogamer.
Looking at the larger picture, it's easy to see the potential sale as the latest in a series of apocalyptic signs leading to end game publishing as we know it. As many of gaming's largest companies all begin reporting signifigant losses, the path to leading to the end $100 million game development projects looks more and more clear. Activision, in tasking more and more of their subsidiary developers to supporting the greater Call of Duty franchise, are setting themselves up for a massive implosion once the series reaches critical mass and sales begin detiriorating instead of breaking records; a trend analysts fear may start this year with Call of Duty: Black Ops 2.
At the same time, it's a little early to be tilting at windmills. A new generation of consoles - Wii U, "Durango" (Xbox 720), and "Orbis" (PS4) - will, hopefully, raise industry sales by generating a renewed interest in console gaming, and stimulate innovation in the field, which will, in turn, further stimulate industry growth. Ubisoft CEO Yves Guillemot has blamed the console-makers and this extended console generation for their declining sales, claiming that developers have been "penalized" by the lack of new consoles.
It's also worth noting that AAA gaming development, has always been incredibly risky proposition. Just look at 38 Studios, which was liquidated despite the fact that their first game, Kingdoms of Amalur: Reckoning, sold more than 1.2 million copies.
Make no mistake, like the music, television, and film industries, the gaming industry is starting to feel strain of a market sea change. Companies like Double Fine, who have thrived while finding alternative development models, first pivoting to designing solely for the downloadable platform space, then kickstarting Kickstarter with their recording-setting Double Fine Adventure funding drive, will continue to do so. Larger companies like EA, dependent on generating massive revenue to develop massive projects that will lead to massive profits, will continue to struggle as they find that the costs of doing so rises above what is financially viable.
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