Will Consolidation Hurt the Video Game Industry?
A new week, a new Weekend at Dave’s! This episode brings us some juicy subject matter, as we delve into Gearbox, stonks, and video game industry consolidation.
Catch the full episode here:
(Note: Despite the acquisition, 2K shared that it will continue to publish the Borderlands games.)
(00:29) Hi everyone! My name’s David Silbert, and you’re listening to Weekend at Dave’s. Each week, we dig deep into a topic in the entertainment industry—usually to do with games.
(00:39) This week’s discussion is particularly spicy, and comes hot on the heels of the announcement that Gearbox Entertainment—the makers of Borderlands—will be acquired by Embracer Group in a deal worth 1.3 billion dollars.
(00:51) If you’re unfamiliar with Embracer Group, they’re a Swedish holding company, meaning they hold majority stakes in a bunch of other companies. Their subsidiaries include THQ Nordic, Koch Media, Saber Interactive… and now Gearbox. (Side note: There are some bizarro policies that come along with holding these subsidiaries—case in point.)
(01:04) The finer details of the deal are pretty complex, but the long and short of it is that a major game company just got bigger. And when you consider this is just the latest in a string of industry M&As—Microsoft buying Bethesda, EA buying Codemasters, etc.—it begs the question:
(01:19) Should consolidation in the video game industry concern us?
(01:23) There’s a case to be made that it certainly should. In a piece for GamesIndustry.biz, Simon Carless of GameDiscoverCo related these consolidation moves to the ongoing stock market bubble. As institutional and retail investors fixate on deep value stocks—to the moon!—the speculative value of these game companies is getting further and further removed from reality.
(01:44) Carless used the examples of Unity (NYSE: U), which launched an initial public offering (IPO) in August 2020, and Roblox (NYSE: RBLX), which is gearing up for an IPO of its own. Based on current valuations, Roblox would be worth more than Unity, despite the fact that it’s less established and currently operating at a loss.
(02:00) I encourage you to read the full article, as it raises some great points. That said, given I’m certainly not a financial expert, I’d like to focus on a different piece of this discussion entirely. And that’s the impact of consolidation on game makers and players.
(02:13) Consolidation has always been a part of this industry. Think back to 2007, when Activision and Vivendi (the owner of Blizzard) announced they’d be joining forces. If you’re an RPG lover, think even further back to the days of Squaresoft, Enix, and the subsequent merger.
(02:29) No matter where you look, publishers and studios are always changing hands, and that undoubtedly has an impact on the gaming landscape.
(02:36) The best example I can think of is that of the so-called “AA” studio. In the past, we had mid-sized studios like Telltale, Obsidian, and Focus Home. And these studios would put out compelling games, albeit at a fraction of the budget of your Uncharteds and your Halos.
(02:50) But then in 2018, Telltale went under. And Obsidian, quite possibly to avoid a similar fate, joined Team Xbox. While we still have Focus Home, Iron Galaxy, and other studios that live in that precarious mid-tier, they feel few and far between. The Gearbox acquisition only drives this point home.
(03:09) Of course, for the studios getting acquired, this consolidation isn’t necessarily bad. If anything, it’s a good thing! It’ll ensure they have financial footing, and can pursue their true creativity without fear of failure… within reason. Their new parent publisher will have its own rules and expectations, and there’s no guarantee of a blank check.
(03:28) Still, it’s better than ending up like Telltale, or Midway Games, or THQ. (Incidentally, THQ didn’t disappear completely. Embracer Group would later scavenge those THQ assets to resuscitate, in the form of THQ Nordic.)
(03:43) But to return to the bigger picture, consolidation is a problem. As that middle tier falls out of favor, we’re left with two extremes: massive industry vets like Microsoft, and small-scale indie publishers like Devolver Digital, Team 17, and Yacht Club Games.
(03:58) These indie studios may have their place in the market now, but that could change five, 10 years down the road. And that’ll only make it harder for new game developers and companies looking to break into the industry.
(04:08) Further complicating matters? The industry is only growing. Esports and streaming are on the rise. Revenue for major publishers continues to soar. And tools like Unity and Unreal Engine make it easier for passionate programmers to start their dream project.
(04:23) So, I guess I see it two ways. On the one hand, gaming is still in its infancy, and the market will correct itself as things mature. On the other hand… gaming is still in its infancy. If it’s one-sided now, it’ll only get more drastic in time.
(04:38) As video game popularity soars, more programmers and artists will flock to the industry. More games will hit storefronts like Steam and the Nintendo eShop, and the market will become even more saturated than before. On top of it all, publishers will continue to lean on predatory monetization models, simply because they know consumers will pay.
(04:55) And so the flywheel turns. Demand fuels AAA games, AAA prices, and AAA crunch. The rich get richer, the poor stay poor, and everyone else gets lost in the shuffle. This is a far cry from the current landscape—at least I hope it is—but it’s hard not to think about moves like Gearbox and not hit the panic button.
(05:14) So, what’s the fail safe? Don’t let the big ones win. Support the indie games you care about. Make sure those studios grow, and push back on microtransactions that’re causing companies like EA and Activision to skyrocket.
(05:27) As a player, your voice goes a long way. Don’t let it go to waste!
(05:33) Well, that got a little depressing, didn’t it? In any case, I hope you enjoyed this food for thought. Agree with my take? Think I’m way off? Let me know over on punishedbacklog.com, or Tweet me @David_Silbert on Twitter.
(05:46) With that off my chest, all that’s left to say is thanks, stay safe, and peace out.