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The AAA Game Market Crash of 2019


Kendo 2

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First, the irrefutable facts; all four major players in the video game industry (Take-Two Interactive, Electronic Arts, Activision Blizzard, and Ubisoft) are getting hit this fiscal quarter with losses.

 

Year-to-date market summaries; (Click on the images to redirect to current reports.)


Take-Two Interactive

01TT.jpg.e24e8dcf71b58b70babac7e839d0fe5b.jpg

 

Electronic Arts

02EA.jpg.5cdeaa86cf2bafddcdc2e39810d786c6.jpg

 

Activision Blizzard

03Bliz.jpg.092a6c8d6ad04672097debccbf10b7b1.jpg

 

Ubisoft

04Ubi.jpg.077b1650da25d2ee11ec795bfc06b9c8.jpg

 

These losses are not the market correction all software and tech companies experience prior to the year-end fiscal quarter; brokers are low-balling the profits for the next quarter and/or investors are dumping the stock.  Another indicator is new releases being price slashed within a week of release.  $80-$60 USD game goes down to $40-$30 USD because accountants over-sold investors on a game’s potential profit.

 

So why is this happening?
There could be several causes; product fatigue in consumers, market research doesn’t match reality, governments taking interest in unregulated industry practices like microtransactions and pay-to-win, public relations blunders that damage the companies, etc.

 

So why should gamers care?
When corporations start losing money they stop innovating and taking risks.  They stick to proven and profitable formulas; FIFA, Madden, COD, Assassin’s Creed, etc.  The developers might want to introduce a new IP or franchise and it dies in board meetings because no one wants to lose the company money.

 

In summation; there will most likely be layoffs, budget cuts and product streamlining to keep the corporations in the black.  Don’t expect any new ground-breaking games anytime soon.  Also realize this downward turn can be a snowball that keeps building momentum until it breaks the market model.  If that happens investors will lose interest and look at more profitable industries.

 

DISCLAIMER: This topic is for information and discussion.  It is not an excuse for people to be dicks or launch personal attacks because something is said they don't personally agree with.  If I see any of that I'm reporting it.  If you can't be sane and rational then don't post.

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32 minutes ago, dagobaking said:

Isn't this consistent with the over-all stock market movement over the last few months?

The only stock that hasn't dropped half in price is the lowest traded one, Ubisoft.  Its payout has remained basically the same; the other three got kicked in the nuts.  EA's peak and dump were early in the quarter, around the time the Battlefield5 controversy was in full swing.  Both Take2 and Blizzard peaked and dumped mid November.  Blizzard taking a dive can can be explained with Diablo Mobile, but the drop in Take2 shouldn't be happening.  RDR2 is a success but the market value doesn't reflect that income.  All four companies taking a hit at the same time (including safe-bet Ubisoft) means there's outside influences.  The industry is taking a hit and brokers don't have faith in the stocks.  If they did the projections for Take2 would reflect it.

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lel.

 

Stock prices are shifting the same way they did last year about this time, and Take2 just made the most amount of money of ANY entertainment product (of any kind ever) in human history.

 

Your premise is utter bullshit, simple as.

 

You're conflating quarter gain/losses and expected stock value per shareholder with the actual net, which is not a thing in the charts you provided.

 

You also conveniently failed to mention that all four companies you mentioned made 60% of their NET profits in aftermarket microtransactions, which the stock monitoring also doesn't cover, which is one of the reasons the EU is sniffing all over two of these companies for gambling and consumer violations, meanwhile in good ol USA the opposite is occurring and one of the writers of hilariously bad Star Control III is in DC as we speak, lobbying that electronic interaction companies should be able to charge whatever they want for aftermarket content, and he currently has two different congressional/governmental committees  "reviewing" his counter-proposition, one of whom is chaired by Ajit Pai, and if you think Pai is going to be all Truth Justice and Apple Pie in the face of raw money, welp I got good  arizona beach you buy from me while you're at it.

 

Your speculation there at the bottom is also p lol as a new console cycle is about to start in about a year and change so the industry is going to fork between the two sets of consoles per manufacturer so overall profit growth will be down next year because of split SKUs for both M$ and Sony, again nothing new.

 

As for new stuff, none of these companies is doing new IPs to begin with, the most growth in new IPS is squarely in Asia right now, amongst AA devs like From/Softbank/Arc and a few AAA like Bamco.

 

UBI has been doing reskins of FC for three years and people buy them like candy, Activision just got done fucking blizzard out of their senior staff and has pretty much determined that esports that aren't overwatch and hearthstone and the expenses going with it can fuck right off, so they're gonna have plenty of money and layoffs/incentivized retirements have already been underway since q3 of this year, Take2 just made the most amount of money ever for a thing, and EA has two sports DLC MTX unveilings coming up that netted them one and half BILLION dollars in revenue last year coming up, and we haven't even mentioned the chinese mobile market just opened up to two of these companies. You know why For Honor keeps getting DLC? China.

 

This apocalypse you're talking about already happened two years ago, and that AAA is unsustainable is also a known thing for about a decade, and in the meantime all four companies will laugh all the way to the bank, and falling stocks mean jack, EA got shithammered over andromeda and SWBF2 and here they are all smiles once again, cause FIFA and Madden is quite literally money for nothing and chicks for free.

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I'm not conflating anything so let's burn that strawman right now.  Stock values in the companies were averaged $20 USD higher at this time last year, except for Ubisoft which holds steady at around $15 USD per share.  The down-tick in Nov 2016 (loosing on average $4 USD per share) in not the same thing as loosing a third to a half of their value after one year of recovery. And you're welcomed to your opinion just like I am.

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Markets are a response to sales and company activity. To take market trends to try to predict what will happen with games and the games market in the (near) future is turning the world upside down, despite the back-and-forth influence that does exist when companies list.

 

That makes the entire premise of this thread, despite its seemingly interesting nature, completely moot.

 

The only thing you can really say is that AA titles didn't do that well which reflects in market trust and shares.

Sales do NOT need to be the reason for this, I've worked with many companies that simply did bad investments, had higher personnel costs, calamities (such as bad firings which cost a lot of money and severance payments, etc..etc..) and in turn did bad on the market, even though they sold better than ever. With that last fact in mind, all this is, is wild guessing.

 

To then claim to 'expect worse quality' is almost laughable (sorry I don't want to personally attack you, it's just wrong and a wild, WILD guess).

 

Where does my knowledge come from? (What are my credentials? you might ask).

Almost 15 years of financial working and IT experience with trust and finance companies, before I went into medical.

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16 minutes ago, Reginald_001 said:

That makes the entire premise of this thread, despite its seemingly interesting nature, completely moot.

With that last fact in mind, all this is, is wild guessing.

Precisely.  Aside from the stock downturns (facts) everything else I said is pure speculation.  Glad someone gets it.  TBH, every post on this forum that isn't about a mod or mod support is moot?

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Assuming this all does lead to a AAA crash and these behemoth lords of gaming slink off to farm money from their reliable, stupid audiences, what does this mean for gaming? Well indie games have been at the front of "innovation" for years now, with people expecting little to nothing from the AAA guys. That's why their "new" and "risky" titles do varying degrees of well, because people are blown away at the fact that these soulless corpses had an idea.

 

We're not gonna see a market crash like E.T. caused so many years ago because the industry isn't monopolized. One of the most highly regarded and critically acclaimed games ever made was done by one nerd in his basement, funded by stuff like GoFundMe and Patreon. If these AAA bastards go under (which is unlikely), it'll be a welcome event because then the actually skilled devs and writers will no longer be shackled to oppressive overlords like EA and can start their own, smaller companies.

 

Personally I'd like to see gaming turn out more like the film industry, where talented people pool together on individual projects, making production companies for them, then disbanding when they're done. Having these massive beasts, making products that require millions upon billions of dollars, hiring hundreds upon thousands of people, is why games are shit. They find what works and mass produce it so they can profit. If people didn't demand the shiniest graphics all the time the game's budget wouldn't need to be $594M.

 

In short, fuck AAA development and we're better off without them. Even if it means IPs you love dying, given today's age of nostalgia someone'll eventually come along, pick up the old thing, and make a "remastered" or "revised" or "revelations" or "reconstructive genital surgery" edition.

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Yeah he's one of the good ones.

 

Some of these shares have dropped by around 40% compared to earlier this year. As mentioned, mostly around November when shit hit the fan.

For ActiBlizz, there are a number of reasons I think: Reaction to mobile focus at Blizzcon, lackluster support of existing titles (D3, and now Hots), disappointing Destiny 2 sales, disappointing WoW addon, CoD not meeting expectations (because not a new record is never enough), oh and they have lost active players as well... after that they went into panic mode with more microtransactions in Destiny 2, CoD, Hots esports dropping and layoffs (see today's other news). Of course those measures don't exactly build up trust with investors and that's why it may have fallen so much and may continue once the stock warnings are hitting.

 

With EA, I think the Battlefield stuff has hit them more than anything else, as well as the mobile debacle of C&c rivals that wasn't exactly good PR. Their insistence on lootboxes is going to be an interesting topic as I think around 15 countries and states are investigating the issue and there have been a few studies in Britain, Italy and Belgium I think that tackled possible links between gambling addiction, gambling by underage people and mtx.

 

Can't say much about Take2. Weren't they also involved in lootboxes and appeased to gamers to report to local politicians that they wanted lootboxes? Other than that, RDR2 sold well? Don't know why their stock dropped so much; same with Ubisoft. Capcom's venture into advertisement with Street Fighter 5 and Preorder Microtransactionbonusses (??) for Devil May Cry 5 haven't sat well with many fans, either.

 

With Bethesda it's more clearcut given Fallout 76 wasn't a very good launch and Todd Howard said there were multiple other branches and studios like id software involved. They don't have stock, but they do have investors and those aren't going to be happy either. Given there are rumors that Starfield production isn't going so well either due to engine limitation and internal gameplay review I'd say people are nervous over there.

 

Combining this with the aforementioned outlook on lootboxes, of course investors are getting nervous. Wouldn't say I mind them taking one for the team however. Most innovation these days comes from smaller studios anyway. Not necessarily independant studios, but smaller studios. Look at Celeste, Gris, Dead Cells for example, or Life is Strange. Or Warframe. Larger companies, as Jim Sterling fittingly said, just don't want enough money - they want ALL the money. They make games for that, and I doubt they make games for the love of it.

 

https://www.fool.com/investing/2018/12/20/why-shares-of-activision-blizzard-and-electronic-a.aspx

https://www.eurogamer.net/articles/2018-09-17-15-european-gambling-regulators-unite-to-tackle-loot-box-threat

https://www.forbes.com/sites/insertcoin/2018/11/02/fallout-76-shows-bethesdas-engine-has-gone-from-meme-to-liability/

https://www.polygon.com/2018/12/6/18129237/street-fighter-5-ads-sponsored-content

 

 

https://www.techspot.com/news/77923-next-aaa-games-crash-imminent.html

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11 hours ago, Kendo 2 said:

Also realize this downward turn can be a snowball that keeps building momentum until it breaks the market model.  If that happens investors will lose interest and look at more profitable industries.

Market trends don't work like that, and no sane investor would abandon the industry over a bad quarter.

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10 hours ago, Hugh Reckum said:

It's more dramatic, S&P has shed 20% ish, these are more in the -40% range. So yes, this industry is getting hit pretty hard atm.

That's pretty normal since those indexes are more in line with averages.

10 hours ago, Kendo 2 said:

The only stock that hasn't dropped half in price is the lowest traded one, Ubisoft.  Its payout has remained basically the same; the other three got kicked in the nuts.  EA's peak and dump were early in the quarter, around the time the Battlefield5 controversy was in full swing.  Both Take2 and Blizzard peaked and dumped mid November.  Blizzard taking a dive can can be explained with Diablo Mobile, but the drop in Take2 shouldn't be happening.  RDR2 is a success but the market value doesn't reflect that income.  All four companies taking a hit at the same time (including safe-bet Ubisoft) means there's outside influences.  The industry is taking a hit and brokers don't have faith in the stocks.  If they did the projections for Take2 would reflect it.

It doesn't look like the industry is taking a hit to me. It looks like we are having an economic downturn and video games get cut from the budget before gas and potatoes are.

8 hours ago, MadMansGun said:

i'm not seeing a crash here, they are just going back to 2017 levels.

Yep. Like the rest of the economy. Eventually, printing money stops working for everyone.

28 minutes ago, novatul said:

Market trends don't work like that, and no sane investor would abandon the industry over a bad quarter.

Indeed. Everyone, please sell me your video game stocks at a huge discount now that they aren't worth anything!

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46 minutes ago, dagobaking said:

It doesn't look like the industry is taking a hit to me. It looks like we are having an economic downturn and video games get cut from the budget before gas and potatoes are.

Confidence in the stock is at a two year low and is approaching 2015 numbers.  Investors aren't in it to break even; they want profits and they want them big.  The game industry isn't  delivering on that.  Other tech and software companies are taking the same dip they always do this time of year.  Game company stock isn't taking a dip, it's in a full-blown nose dive compared to where they were 6 months ago and compared to stocks as a whole.  Microsoft, Sony, Coca-Cola, and Pepisco are rock solid and those corporations are the canary in the coal mine for any economic downturn.  What's happening to game company stock is industry specific.

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14 minutes ago, Kendo 2 said:

Microsoft, Sony, Coca-Cola, and Pepisco are rock solid and those corporations are the canary in the coal mine for any economic downturn.

But the downturn isn't speculative needing canaries. The entire market on average has seen gains and then losses in the exact same pattern as the game stocks. This suggests that it doesn't have anything to do with the industry and is about the economy.

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11 hours ago, dagobaking said:

[Checked Dow Jones and it's a very similar pattern over same time period...]

image.png.38f0bc615604a7a0307b0d8c2070c5fd.png

 

Can't even find a place on the 5 year chart where the Dow Jones would need to be in order for your statement to be true. 

 

From it's high of 26,743.5 back in Sep 2018, Dow would need to drop to under 13,800 points (red line underneath the chart) in order to have a similar haircut to the -48.5% that EA took over the last few months. 

 

Wiping out years of market gains in a few months, still in freefall, and it isn't clear where the bottom is, that's a cliff, and right now, these Co.s are falling knives.

 

But, imo, these companies will be fine in the long run. Market does shit like this all the time, it's basic business cycle / market cycle / correction stuff and a confluence of factors that is getting these Co.s hit hard short term. Probably a good discount on some of these stocks in 2019.

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