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Why a publisher should buy GAME group

By on January 19, 2012
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Dylan Collins is the former CEO of Demonware (sold to Activision), CEO of Jolt (sold to Gamestop) and is currently chairman of Fight My Monster, a collectible card game aimed at 8-12 year old boys. This post is republished from his blog with permission.

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I was speaking at the European Cloud Gaming Summit yesterday and amidst warning people about the upcoming under-12 revolution I made the suggestion that some of the well-heeled publishers in the room should buy GAME Group (the troubled UK retailer). Cue most people’s jaws dropping. Buy a retailer? Are you nuts?

GAME Group has about 3.5M store visitors every week. That’s about 182M people who are interested in games every year predictably walking into a property that you own. Think about that for a second. This is a network of 182M people, specifically interested in games, who are coming to you. They also convert approximately 19% of them into customers so their premium user group is about 36.5M. The company also has a reasonably sophisticated loyalty system (15M users) plus their new pre-paid currency just being rolled out.

As of today, their market cap is £12.1M. Interested? Yeah, me too.

Let’s just try and value the retailer in online game industry terms:

  • Openfeint had 75M users within its network when it was acquired by GREE last year for $104M. On this valuation basis, GAME is worth about $252M.
  • Zynga has about 223.5M MAU within its network and it’s market cap yesterday was $6.5B. GAME’s MAU count is a bit murky but let’s go with 14M. That puts GAME’s price tag at about $407M.
  • From a social gaming perspective, a $2 CPA isn’t unreasonable, giving you a $364M price tag.

The calculations above are approximate at best. And it doesn’t take into account GAME’s debt and net cash (so you’re looking at a minimum of £103M-thanks to Paul Heydon for the maths) plus potential lease obligations. But here’s the thing, if I was a games publisher (specifically non-console) the opportunity to acquire a network of gamers who I can then distribute my content to (and perhaps selected content from my partners) which also gives me a near monopoly on a strategically important market, is a very rare commodity indeed.

As someone who’s seen both sides of gaming (my last company was acquired by a retailer), I’ve probably seen more data on this than most. GAME’s future should be as a games publisher with a retail network. There is serious value here.

(btw, I don’t own any stock in GAME Group)

About Dylan Collins

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  • Anonymous

    Actually what you describe is similar to the wargame figures (the original Warhammer) and trading card games (Magic: The Gathering) shops model. Those are often places where players gather to play against each other, trade cards or show off their latest work of art (painted figures). It is not very mainstream but I have seen it in several cities in France and I know there are similar things in UK and US. However, I have not often seen video games shops doing this. Of course, it is more costly to set up TVs and consoles just for that purpose vs a few tables and chairs necessary to play wargames or cards. This said, having co-organized and played at Halo: CE tournament events, I know for a fact that even in the age of online gaming, gamers like to gather and experience the thrill of playing with people in the same room 🙂

  • Anonymous

    Numbers based on their last annual report but yeah, in online terms would be broadly be equal to ‘unique visits’ rather than ‘unique users’.

    In any case discounting down on that basis still leaves you with an impressive network of people engaged in games.

  • Daniel Griliopoulos

    Are Game international then? Because, AFAIK, there are only 60-70m people in the UK and the rest of their smaller markets ( don’t reach 182M. I’d guess that 3.5m in a week is the equivalent of a website’s ‘hits’ – and what we’re really interested in is the equivalent of a website’s Monthly Unique Users.

  • Anonymous

    Overstate multiples? Me? 🙂

    The calculations were fairly quick so there’s a *lot* of analysis that could be done here to make it all much more accurate. 

  • Anonymous

    Well, yes there is lots of uncertainty but I think if it was completely obvious somebody would have done it already. 

    It does assume that *something* will keep people walking into retail for the next few years. Realistically though, while physical AAA sales will certainly reduce over time, it will take many years for this to reach zero.

  • I think that retail bricks and mortar will only survive as an “experience”. Think of the Apple stores for example.

    If I wanted an MVP, I would create a Star Wars: The Old Republic pop-up store in San Francisco. Sure, I’d sell some games, but I’d have merchandise, fan events, signings, meet the devs (hence in San Francisco, near EA HQ) and so on. 

    If no one turns up, buying GAME Group to build experience stores would be crazy. If not, then maybe the idea has some legs.

  • I certainly agree that Dylan has over stated the multiples. But the idea has some interest even at a lower valuations.

    just to be clear, I don;t think it’s going to happen, but I thought the idea was interesting. 

  • CZKelly

    3.5M customers in a week doesn’t necessarily equate to a network of 182M customers surely? I would expect that a considerable number of these customers return to Game often over the course of a year.  Even a relatively conservative average of a customer going into Game once ever 3 months reduces the 182M to a much more conservative  45.5M and with a 19% conversion that actually means that Game have 8-9M customers?

  • Ed

    It’s almost as if valuations of retail might be based on real cash generation potential rather than wacky multiples. Or less skeptically that retail has wrung out its profitability while online businesses have a long way to go. Either way apples and oranges.

  • Surely this only makes sense if we presume that bricks and mortar retail is going to continue.  If cloud gaming, for example, cannibalises AAA retail then that ‘network’ will need converting from brick and mortar customers to digital ones.  Does the amount of uncertainty there not then make it quite difficult to place a value on GAME/their customers?