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Why I wrote “Ten games businesses that are doomed”

By on October 11, 2010
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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.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
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  • There certainly can be self-fulfilling prophecies, particularly when it comes to the stockmarket / investing, but there does need to be those who say, “Woah, this is a bad idea, stay away”. It’s the whole idea of independent analysts / assessors, rather than just PR paid for by the company in question.

    Given the relatively high frequency of high profile flops / mistakes in the gaming industry, there certainly appears to be a lack of insight into the ‘obvious mistakes’. Even basic ones, such as “if you spend $X developing a title, how are you going to earn enough revenue to cover those costs?”. (To be fair, this issue isn’t limited to the gaming industry, but that’s the focus here.)

    One of Meer’s points was that Lovell should have been more positive, but another one (repeated twice) was that the Kotaku crowd shouldn’t have been told.

    Another point was this commentary was destructive since it was against the “bold projects”, but here is where sites like RPS get to hedge their bets – if (say) Dust 514 is successful, they can say, “See? Told you!” but if it flops they can equally say, “See? That was obvious!”. It’s incredibly easy to call for bold, innovative products when you don’t have to invest anything in that call. (Not sure I would have cited Minecraft as a title that somehow refutes the sentiment of Lovell’s original list, either.)

    Lovell’s noted some flaws in his piece, but overall it should have been written.

  • First, the self fulfilling prophecy is a known issue with stock markets and so it does matter how many people see a particular doom prophecy.
    Second, you say: “Tell me what is more negative: an article on a respected site that points out obvious flaws in a business operation that has a chance of those flaws being reconsidered, or everyone remaining quiet and another company collapses?”
    If they were obvious flaws, you wouldn’t need such an article, would you? In addition, Meer’s main beef with the article was the pointing out of flaws, but the sentiment conveyed.

  • I think it was a good article to write. Too many people – including some of those who run gaming companies – appear to forget the business side entirely (and if they come from a game development background, it isn’t their strength anyway).

    I was interested to see RPS basically say they wouldn’t ever write the same kind of article, even if they thought the same thoughts, because it might be somehow negative for the industry. Tell me what is more negative: an article on a respected site that points out obvious flaws in a business operation that has a chance of those flaws being reconsidered, or everyone remaining quiet and another company collapses?

    Then there is the problem of gaming sweeping all those failure cases under the rug with the “bad game fails because it was bad” broom. APB wasn’t a bad game; it was an average game with some nice features that cost way too much to develop, had a confusing revenue model and RTW didn’t really have a clear vision of what the game should offer players. Dust 514 falls into the same confusing blend – console FPS from a PC MMO developer – that sounds like a “wouldn’t it be cool if…” idea has been taken way too far.

    The gaming industry needs devil’s advocates. Gaming press is 99% cheerleading because gaming journalists don’t want to lose access to their interviews / free swag, gaming sites want that game company ad money and most gaming blog sites swoon if someone vaguely official follows them on Twitter. Not everything can be positive all the time and the industry becomes more mature if there are intelligent discussions about where it shouldn’t go.

    Also, I find it very interesting that RPS held less objection to you writing the article than they did to lots of people reading it. So criticism on gaming businesses / products is fine provided the masses don’t see it? Puh-leeze.

  • SirStuie

    Very appropriate article. The only thing I disliked about the original was the ‘doomed’ bit but it was no worse than most headlines.

    To be honest I think the reason people are aggravated is that in a risky industry confidence is important and you attacked that.

  • Nicholas – don’t change what you’re doing, you’re doing it fine.

    How many people have blogged similar content, and been ignored? How many times were warnings about the *same* kinds of stupidity in game-development sounded *long before* RTW went down?

    …how many of them got enough attention for anyone working at RTW to wake up and smell the roses and take concrete action?

    (cue: tumbleweed)

    For me, that’s the most damning indictment. People at that company read this stuff, heard it, were told it – and did nothing. “it won’t happen here”. “I don’t want to rock the boat; how bad could it be?”. Etc.

    I’ve heard from a lot of RTW-ers, heard plenty of good reasons why they did(n’t do) what they did(n’t do) – but if there’d been more press for quite how bad things can (and do) get, then many of them would have had more (political) options, or found it easier to take the actions they may have wanted to but feared to.

    IMHO, 50% of a good critical blog post is provoking enough people that you get wide debate and wider exposure. Otherwise, you’re just pissing into the wind…

    (although I’d appreciate much deeper analysis – you treated most items on the list too shallowly for my taste – but the fact is you probably wouldn’t have finished writing it yet if you had. I’ve got notes on several of these companies that I haven’t posted because I’ve been following them in greater depth. If it’s not posted, it’s worthless…)

  • The truth is, I wouldn’t have seen the post if RPS hadn’t made a big fuss over its reproduction on Kotaku, and the reason that happened is because of the word “doomed” and “ten” in the title. You got the traffic – perhaps at a cost, but a small one, I feel. Now I have my RSS feeder subscribed to your website, so I kinda feel like its mission accomplished.

    However, I wouldn’t have subscribed to a blog that I thought was crap. And despite the emotive language and semantic mistakes in the title, I thought that, in general, the article was really good, and a lot of your choices made good, common sense to me. Also, if you lost any credibility, you’ve got it back with this post. Well done, and I’ll continue reading. 🙂

  • Anonymous

    Nick:

    The industry devolves all too often into cheerful back-slapping (I find MCV unreadable these days, for instance), and a little critical feedback goes a long way. Discussion of these kind of issues is important if the industry is to mature, and speculation is part of the process.

    Talking of ‘quality of games’ as if this is what the industry should be focussed upon obscures the terrible business practices that cause companies – even those that make high quality products – to fold. (Plus, reviewers of games are wildly short of the skills required for adequate criticism, so talk of ‘quality’ tends to be highly misleading… the assessment “I like a game” has no bearing on either the cultural or commercial value of a title).

    That said, the numbering did invite a particularly misleading interpretation, and I doubt most of the people reading it on Kotaku had the background knowledge to understand what you were trying to say. But neither of these are reasons that suggest you shouldn’t have written it in the first place.

    People’s jobs depend on solid business strategies. People’s entertainment time depends on quality games. If our priorities as an industry were straight, we’d recognise that the former is vastly more important than the latter.

    All the best!

    Chris.

  • Allan

    I think the point might be analyse, dont sensationalise. I also think a time frame might make some of the commentary more interesting. Do I see Game Group in business in 10 years? Probably. In 100? Probably not.

  • I am kind of surprised that your last article got mad so much people… But its like people only wants to read what they want read, otherwise they all assume its made for the polemic ( be it true or not) but that doesn’t make the article less good or valid, why shouldn’t you write what you think in your own blog?
    All these are the same people that expect game reviews to be above 9 to justify why do they like their favourite game…
    I liked pretty much your last article, as well as I like this one. So you just got you another subscriptor.
    By the way Jalled Alliance 2 is my favorite game too, I always keep it around. And I played Darkwind for a while last year, but I guess I was busy with something else, I may give it another go.

  • MrDeVil_909

    Hi Mr Lovell.

    I was lead to your piece via Alec Meer on Twitter before he wrote his response. My first thought was that it seemed pretty logical. As such I think it should have been written, I even think it should have been republished on Kotaku because gamers need to know more about the industry that they enjoy.

    Alec did raise a good point though that mainstream exposure of the article could lead to it becoming a self-fulfilling prophecy, but gamers don’t necessarily follow logic in their buying patterns anyway, so I don’t think it would have much of an effect.

    Codemasters is trying interesting things with their business model, and we need to wait a while to see the implications of that. Dust is risky but it really could payoff. All your other points I basically agree with.

  • Kalli

    A very good comeback Mr. Lovell;

    You didn’t really need to write it, as I would think most people in management understood what you REALLY were saying (or at the very least I hope so). But at least the hoi polloi understands what you are getting at. I keep getting surprised by how out of touch core-gamers are with the reality of the games-business.

    But at least I hope this explains to them that; things are changing. Acting like an ostrich is not going to stop the change.