Why I wrote “Ten games businesses that are doomed”

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Last week, I wrote a post called Ten games businesses that are doomed.

It was very popular (90 retweets and rising; it has already made the Top 5 most popular posts on GAMESbrief ever). It was republished on Kotaku where it spawned over 500 comments.

It also attracted some flak.

Not from the companies, but from people who thought either that this article should not have been written, or that it should not have been republished on Kotaku, or that my motives were, well, suspect. Alec Meer, in particular, wrote this polemic against my post.

So I thought i would explain why I wrote it. Like the original list, these reasons are not ranked.

1. Because I needed to write it

When I stopped being an investment banker, I promised myself that I would stop telling people what I thought they wanted to hear, rather than what I really thought. I was actually pretty good at second-guessing how to massage the egos of CEOs (which is an important part of winning mandates), but after a while, it becomes very tiring.

Not least because you have to spend your time remembering not what you thought about an acquisition, but what you said you thought about an acquisition.

Since 2008, I have just told the truth. And it’s been very, very refreshing.

I’ve been able to express my views openly. I’ve got more new clients. I don’t have to try to remember what I said.

I’ve been able to say what I really think.

Every one of the businesses or projects on this list is something that when I saw it, or read about it, or have been asked about it, I thought “there are big flashing alarm bells over their heads”. I had a little list I was keeping of “projects or companies that worry me”, Many of these companies particularly worried me because so many of them were getting extensive and uncritical press coverage because they were well-funded, or ambitious, or had good heritage.

Just like RealTime Worlds.

After a while, that list wormed its way into my brain until I just had to write it up.

2. Traffic

I would be lying if I said I wasn’t interested in the traffic. Of course I am, I write a blog. However, my stock-in-trade, the one thing that people read GAMESbrief for (and hire me as a consultant, which is one of the main ways I pay my bills) is to provide analysis.

Hit-chasing with shoddy analysis does me no long term favours; quite the reverse.

Michael French of Develop tweeted:

“Perhaps the big thing for me is that whereas the ‘best 10 flops‘ from Jan was full of detail, the 10 biz ones isn’t.”

I accept that criticism. One of the reasons that my post lacked detail is because there are no details when being forward-looking, only estimates, opinions and guesses.

I hope to rectify some of that over the next few weeks by writing some more in-depth analysis of the companies in that list.

I confess that traffic was in my mind when I wrote the post. But it wasn’t at the forefront because chasing traffic at the expense of reputation would be a very short-sighted strategy for me.

3. Because it’s how investors think

One of the things that few people outside the City or Wall Street understand is that investors don’t care about what just happened.

They care about what is going to happen.

(This is particularly true for investors in publicly-listed companies, but is still relevant across the full range of public and private investors.)

I have lost count of the number of times games executives at publicly-listed companies have said to me:

“I don’t understand it: we announced our revenues were up 10%, profits up 20% and the share price fell. What do they want? Blood?”

(To be fair, this is usually not the very top tier of management).

This is what I always answer:

“What you did versus last year is irrelevant. What matters is how you are doing against what the market expected. The market expected your revenues to be up 20% and profits up 40%; they had already priced that expectation into your share price. When you missed your forecasts, they punished the share price.”

At this point, the executive says:

“But we never forecast a 40% increase in profits”

And I say:

“No, you didn’t. But the market did, and you didn’t do a good enough job of managing expectations. Now you are paying the price by seeing your share price fall.”

The executive leaves shaking his head at how the market is foolish, and I find myself staggered how little many executives understand how the stock market works.

So why does that matter here: because investors are being fed the wrong expectations. Breathless reports about the imminent prospects of massive success at these companies in the specialist or the generalist press – excited by the groundbreaking nature of the games or the fact the companies have raised oodles of money respectively – give investors the perception that these businesses are guaranteed sure-fire hits.

So when the company fails, with no-one pointing out the risks in advance, the investment community are horrified.

Because investors hate surprises.

4. Because *not* talking about these potential failures – in advance – is bad for the entire industry

This, for me, was the clincher. This was why I took a deep breath and pressed Publish even though I was very scared.

Big failures that are not predicted will frighten vast swathes of investors away from the industry.

I watched Dave Jones’ keynote at the Game Horizon Conference in 2009 and thought the project was doomed (although I was too chicken to say so). A game designer whom I was sitting next to (and whose views I respect enormously) said:

“We all know it’s not a matter of ‘if’ this fails, it’s a matter of ‘when’. Don’t we?”

I agreed, and did nothing. The industry did nothing. Investors put a further $21 million in to a project many of us thought doomed.

And we did nothing.

(To be fair, I have it on very good authority that the specific investors in RealTime Worlds not only they knew the risks they were taking, they were comfortable with them. Many investors take a portfolio approach to their investments and these investors encouraged RTW to bet the farm, knowing that the company would either hit it out of the park or fail.)

Across that list of ten game businesses that I posted, there are many that I think will fail. If they do I don’t want investors to put a big black line through “the games industry” on their list of “interesting investment sectors”.

I want them to go “Oh well, that company was doomed a while back. We were expecting that failure; it doesn’t mean we want to pull back from investing in games.”

In short, by making investors aware of the risks in games and the companies or projects that my gut, experience, insight and analysis tells me are in danger, I hope that I improve the prospects of the entire games industry.

Some mea culpas

OK, those were some good reasons that I wrote the post. Time to admit to some less honourable points

I used the emotive word “doomed”

I did. And you clicked on it. If I’d said “Ten Games Businesses that need to revaluate their strategy” or “Ten games businesse that might face challenges in the future”, many fewer people would have clicked.

That was traffic chasing. But I wanted people to read my blog post. And it worked.

I described them as “games businesses”

Milo isn’t a business. Nor is Dust. Nor is a Call of Duty subscription model. I toyed with calling it “Ten games projects that are doomed”, or “Ten games things that are doomed”.

But I write about the business of games. So I took a simple shortcut. It was a little misleading, but the best word I could come up with to capture everything I wanted to talk about.

I put Codemasters at #1

The list wasn’t ranked, but I numbered it. That was for ease of reference, but it was a mistake. I did put Codemasters first on the list to draw people in, but not because it is in the most trouble.

I didn’t have hard facts

I agree with Michael above. This post was much more a subjective opinion piece than many GAMESbrief pieces.

But I’ve been following the games industry for 15 years. I’ve worked with publishers, developers and investors. I’ve run my own business.

I like to think that I have a good gut instinct for what will work and what won’t. I try to layer over that rigorous intellectual analysis. This post had a higher proportion of gut over intellect, I grant you.

But I still stand by it.

It’s not about the game

Finally, and in a way that will upset many games journalists, none of my comments in that post were about games themselves.

I hesitate to say this, because of the ammunition it might give my detractors, but I said I’d be honest, so here goes.

I rarely consider the quality of game.

I am not a publisher. I don’t have my eye on the pulse of what sells and what doesn’t. I don’t spend my time playing a vast array of games so that I can determine what will be successful.

Like investors, I don’t evaluate games. I evaluate companies.

When I ran Lodestar Partners (an investment boutique that just advised games companies), I used to visit developers in their studios.

They would usher me in, offer me coffee, settle me on a comfy sofa and ask me which of their games I wanted to see. I said:

“None of them”.

My favourite game of all time is a game called Jagged Alliance 2. It’s a fiendishly-inaccessible, isometric, squad-based tactical strategy game (pretty similar to X-Com in style).

Its sales didn’t exactly set the world on fire.

I am currently playing Darkwind. It’s a fabulous indie game, coded by a single guy, which offers turn-based car combat in a post-apocalyptic world. There are currently only about 1,000 of us playing it.

In the entire world.

(BTW, if this seems like your thing, check it out at www.dark-wind.com. If you sign up give my reference code 6571 – I get a free month’s subscription. If you like the 80s tabletop game Car Wars, you’ll love Darkwind)

My point is that people don’t hire me to judge the commercial potential of a game. They expect me to understand the commercial potential of a games company.

I make my living helping people make money out of games. That means helping publishers understand new ways of making and distributing games, of helping developers self-publish or discover new ways of creating – and charging for – cool content, and helping investors know where to get the best returns from investing in games.

The quality of a game is not a good indicator.

Just to be clear, I am not saying that the quality of a game doesn’t matter. Far from it. Few companies can survive with a string of poor quality products.

I am saying that I am not qualified to judge the quality of a game.

But I am well-qualified to judge the quality of a business model, a management team, a company strategy, a diversification.

I do care about there being great games out there. It’s just that my focus is on helping create great companies that will deliver them.

So what do you think?

I wrote my post for the reasons outlined above. Alec had his reasons for not liking it (and I accept that kicking a project on the basis of a few screenshots at a presentation is a bit harsh).

But I still think it was an important post to write, and I stand by it.

Is Alec right? Should this stuff have been better left unsaid?

Let me know.

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