[Gamesbriefers] The $2.5 billion question

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Question:

So Microsoft dropped $2.5 billion on Minecraft. Unity is rumoured to have turned down an acquisition offer at a slightly smaller number. Facebook bought Oculus Rift for $2 billion.

If you had that kind of money, what would you spend it on?

Answers:

Tim Wicksteed Director of Twice Circled

I don’t agree with large acquisitions from an investor point of view. Essentially all Microsoft are doing in this case is buying a stream of revenue in the shape of Minecraft. If I was a shareholder, I’d prefer Microsoft either funnelled the cash into their own specialist R&D (XBox, Windows) or returned it to me as a juicy dividend (don’t get between an investor and his dividends!).

Putting that on one side, if I had that sort of cash lying around and I wanted to turn it into additional revenue streams, I would look at investing on a much smaller level with higher risk/reward ratio. It’s difficult for high-value companies like Mojang to give a really good return on investment because they are already so big. I have no doubt that the current profit that Mojang brings in justifies its price but can it continue to grow that in powers of 2, 10?

So I would look at setting up a fund for games, looking to invest around £50-200K on each title. I’m massively biased, but I believe smaller teams can do more with less so you’d be more likely on average to get a good return. Having said that, Microsoft already do a fair bit of funding one this scale and there’s only so many games to invest in and $2.5 billion is a lot of money; so if I was them, I’d just go for the dividend and let the shareholders decide where they want to invest it!

Martin Darby Director of Strike Game Labs

Assuming that the growth of future profits from the $2.5billion price tag for Minecraft is justified, I think their challenge is to turn it into a managed evergreen brand such as Lego is for toys.  One that can endure as generations come and go.  Speaking as a creative here, I think the risk at this point would be mis-identifying Minecraft’s perception and how much inherent value is in the kudos of it as some sort of cool, authentic, underground thing, made by an identifiable personality, that is exciting because it is new and the possibilities are yet to be expended.  I don’t know what the answer is yet but if I was in their shoes I’d be going deep to figure it out and plan accordingly.  Like I say, you want to be like Lego, not like some trendy pop group or fashion that goes from underground to mainstream status before rapidly burning out.

Mark Sorrell Free-to-play consultant

Very much agree with the sentiment. You could make 2500 $1 million games for that. Which is basically what I’d do. Fund innovation and own it from the get go. It’s a less predictable strategy, but the potential upside is larger, just as the downside is. More importantly, it would allow MS to have a greater cultural foothold – the difference between making and owning Minecraft is huge. Taking a huge number of huge risks would be good for them, as a corporate culture. A romantic view, perhaps, but I’d love to see what would come of that.

I have to say that I’m happy to suggest the Oculus Rift purchase was a poor decision. I’m one of a not inconsiderable number of people who find VR makes them sick. Hence I’m pretty sure it won’t be a go-er anytime soon. I don’t think the eventual solution to the sort of immersion Oculus Rift et al are going for is ‘trick the eyes! Just the eyes!’

Martin Darby Director of Strike Game Labs

I must say, I disagree with with that notion. Making and marketing that many games would be unmanageable. In my opinion Microsoft as a company is already far too bloated, suffering from a dis-economy of scale and a prioritization of technology/R&D then problem, not problem/user need then solution. This would make the potential for these problems to increase extremely likely IMHO.

For them I think the focus on a big game brand isn’t a problem, the issue is how does the price tag justify the growth of future profits and what strategy and tactics can be used to manage risk and deliver them.

Paul Kilduff-Taylor Mode 7 Games

I’ve spent a while thinking about this and I actually find it an impossible question.

The answer is, “I WOULDN’T invest that amount in games”, mostly for the reasons that people are suggesting: smaller, speculative investments in development are more interesting and also potentially more likely to lead to something big. I think the inflexibility of “let’s buy this existing expensive successful thing and then make it EVEN BETTER” is unattractive, as so much of it is based on having an existing mega-infrastructure in place…which is hard for me to empathise with as I’ve never aspired to building that kind of company!

I do think the problems with VR (nausea, big clunky headsets) will be solved pretty quickly and we’ll move towards that as a new and massively lucrative medium, so going in that direction if you’re really trying to gain a foothold for the future seems wise. However, whether the price and timing were right for Oculus is another matter entirely…

Aside from doing all the usual things you’d want to do with that level of money (charity etc.), the security to do interesting creative things on pretty much any scale would be the most attractive thing about it for us. So I’d spend it on that, but that wouldn’t necessarily be the best investment!

Andrew Smith Director of Spilt Milk Studio

I’m with Paul here…. I jut can’t think of anything on that kind of scale that’s really worthwhile, so if I had 2.5 billion dollars, I’d create a self-sustaining cultural centre for games in central London.

It’d be part museum, part arcade (god I miss them), part shared workspace, part venue. I’d set it up to be self-sustaining and not-for-proft, and invite game devs in to be resident s for periods of time, and maybe even hire a permanent film crew/video production team to keep shouting about it and their work.

Madness, but that’s what I’d do. Any leftover money I’d spend on fuding intereting ideas that came out of the smaller teams who used it.

Nicholas Lovell Director of Gamesbrief

No “buy Unity”?

No “Buy Unreal and make it even cheaper for indies?”

No “create a rival to Steam?”

No “Reinvent Appstores (somehow).

I’m fascinated (but I guess not surprised) by how much the focus was on creativity, not distribution. But then again, while I love and value content, I believe that distribution is king.

Mark Sorrell Free-to-play consultant

Is World of Warcraft content or distribution?

Martin Darby Director of Strike Game Labs

Well, I think that focus on creativity for these numbers is completely mental tbh, and I’m a designer!

Gareth & I were just having a natter in the office about this and wonder whether it would work if they (admittedly parted with more cash) and just bought EA and restructured it. With all their assets and IP being xbox and windows exclusive they could be in a formidable position. The North American sports market, then beyond, would be an ideal test bed, being able to integrate the marketing with their TV partnerships ect. Imagine if you wanted to play FIFA you needed xbox. These sports franchises are proven to endure as the logical conclusion is games with the real players in for fans a la FIFA, NFL, MLB ect.

Considering EA seem to be quite good a spending lots of money on wobbly MMO’s and the like, the focus and restructure could potentially work for their financials too.

Just a thought.

Eric Seufert Editor of Mobile Dev Memo

Take Two Interactive’s current market cap is $1.92BN. I’d offer $2.5BN to take it private (a >25% premium on the current stock price), restructure the company away from console, and focus on free-to-play mobile titles in its various franchises (GTA, WWE 2k, NBA 2k, etc.).

Mark Sorrell Free-to-play consultant

Well it’s not that surprising we’re concentrating on creativity and content given that Microsoft just bought a piece of creative content for $2.5billion.

Martin Darby Director of Strike Game Labs

They bought a brand IMO.  The risk had been taken out the creative process of coming up with and market validating Minecraft by this point.

Paul Kilduff-Taylor Mode 7 Games

Yeah, one of the issues here is that many of us are not people who think in terms of “wait for something else to become successful, then buy it” – that’s the opposite of our entire mindset really, commercially as well as creatively.

That’s not a value judgement – it’s just interesting – and I’m always fascinated to hear from people who *do* have that mindset! I like the “buy Take 2” idea!

If I play the game a bit more, I might think about going really aggressively for something in esports. Maybe acquire MLG and really reorganise that business to encompass something a bit more holistic. They’ve done so much but I think injecting mega cash there could have an interesting effect. This would be super, super speculative as esports is a rock industry at best right now – I do think there is giant growth potential though.

Bernard Chen Director of User Experience design, Ubisoft

I’d like to compare the Minecraft IP to Star Wars. Minecraft = $2.5BN to Microsoft, Star Wars = $4BN to Disney.

So Star Wars was 50+% more expensive. Still, Disney has much more experience extracting revenue from IP’s than Microsoft. Disney has a lot of experience licensing products (probably the most experienced licensor in the world) and they have the ability to make movies and tv shows (how much net profit will the next SW movie generate?). Star Wars is proven to have staying power. As an outsider, this deal looks very expensive to MS.

Is Minecraft making $800MM a year? With licensing and related products, can it? Maybe it’s the cornerstone of a Tablet, Phone, XBox user acquisition campaign and direct revenue isn’t the only benefit. Will we think about Minecraft in a generation? MS has to extract multiples of $2.5BN in the next …5-10 years to make it a worthwhile investment. I don’t think about MS strategy much so maybe this is easier than I think.

Anyway, I don’t know what they should have bought it for $2.5MM. My own inclination is for MS to put more resources into shipping products with industrial design/UX wrappers. There’s lots of tech in the world, commoditization/product-ization is now a blocker. MS has ID/UX R&D in their genetics, but they’ve always missed the instinct it takes to turn prototypes into shippable products.

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