While things are stabilizing a bit in the economy (for now), the damage has already been done, and for some developers and publishers, it’s been fatal. Many smaller studios have shut their doors or scaled back operations, but some of the bigger companies are in just as much trouble. Of course, this distress also makes them prime targets for mergers or acquisitions. That leads me to think we may not be seeing the end of companies buying out other companies, but rather the beginning of a period of further consolidation.
In fact, three developers/publishers are particularly ripe and may end up with new owners by the end of 2009:
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Possible Takeover #1: Take-Two Interactive
The biggest name on the block is Take-Two, a company that made its rise to fame based on smart acquisitions at the right time, as well as refusing to bow down to pressure from outside groups when it came to the content of its games. The end result was games like Bully, Manhunt, Grand Theft Auto III, Civilization IV and BioShock, among others. They also struck EA’s weak point, taking that company’s stake in the MLB license after EA forced 2K Games out of the football market with their exclusive NFL deal.
If you look at the company’s overall portfolio, it looks strong, so why is it a candidate for a takeover? Expensive acquisitions of smaller studios had yet to pay out their full dividend, and going head to head against EA in just about every genre was a costly fight. Factor in some poorly timed moves, flops and the overall downturn of the economy, and Take-Two is a company that really needs a bit of help to stay afloat, because all that GTA IV money can’t save it alone.
Potential Suitors: Electronic Arts
Let’s face it, if it’s going to be anyone buying them out, it’s EA or nothing. EA made a very public play for them back in 2008, attempting to buy them out for about $26 per share. IT was rejected, with the statement Take-Two released stating, "In addition to undervaluing key elements of our business, EA’s proposal fails to recognize the value we are building through our ongoing turnaround efforts, which will further revitalize Take-Two."
That was in April, when the stock was over $20 a share. Today, it sits at $8.81, having collapsed twice in the past nine months. EA’s stock is down, too, but they are still in a position to make a move. It’s probably still appealing to them as well, given that a deal would net them a few things they covet: the return of the MLB license (with a studio to develop it), giving them full monopoly once again over the sports game market, the rights to money makers like BioShock, Civilization and Grand Theft Auto, and the Midnight Club franchise, which they could promptly kill off to give them a stranglehold on the racing genre.
The only bad news would be that EA would basically be raiding Take Two: as evidenced by several recent moves, they are trying to become leaner and more efficient, and that likely means shutting down many of Take-Two’s studios and putting hundreds out in the cold. If they don’t get bought out … well, the same thing might happen. Either way, not a good time to be at Take-Two.
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Possible Takeover #2: Atlus
Atlus has long been beloved for their games and for how they embrace those who love them. Few companies have cared as much as Atlus does, with Valve maybe being the only other one that comes to mind immediately. But love doesn’t pay the bills or print money. In March, Atlus’ financial numbers came out, and they were ugly. A $1 million expected profit had crashed into $24 million in losses, which is not very good at all.
Atlus suffers from two major problems:
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1.) They are a smaller company with less room for error or operating loss.
2.) They are a niche publisher and developer: the games they like are loved by core gamers, but not by all core gamers or by most of the new gaming population.
So $24 million in losses compared with $5 million in profits last time around is about a 600% drop in profits. That is bad. Really, really bad. Profit forecasts are expected to be slashed 72%, according to the same report, which leads me to believe rough times are ahead for the RPG developer.
Potential Suitors: Capcom, Konami
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The biggest need Atlus can fill for a company is producing quality RPG titles and bringing on board the popular Persona franchise. That being said, the company most likely to make a move for Atlus is going to be a company that needs a stronger force inside the RPG market, most likely a Japanese developer. To that end, Namco Bandai is out, as is Square Enix, especially after spending so much to acquire Eidos. Nintendo and Sony would likewise probably not be too interested, which really only leaves two Japanese names left: Capcom and Konami. Capcom has the funds necessary to go after Atlus and likely has the need, as outside of Monster Hunter, they really don’t have a strong RPG line-up anymore. Imagine Breath of Fire under Atlus’ hands. ,It’s a drool-worthy prospect. However, at the same time, Capcom has a history of more conservative plays and not liking to eat losses on niche titles (see: Clover Studios), so they may be hesitant to go after the biggest niche developer out there.
Konami, on the other hand, may not have the funding in place yet to scoop up Atlus, but they could really, realy use them to be more competitive in Japan and the U.S. Outside of the Boktai series, they really don’t have anything to speak of in the RPG field (Castlevania doesn’t count here), and grabbing the Persona franchise would be a huge boon for them, giving them something to move forward with as Metal Gear Solid bids adieu (supposedly).
Possible Takeover #3: Midway
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Looking at Midway today is like seeing an old friend you grew up with who was at the head of their class in high school and graduated valedictorian, except now they live in a cardboard box under the railroad tracks, haven’t been able to shower in 3 years and are so despondent they offer to shine your shoes if you take them to McDonalds for a hash brown. What once was one the biggest names in gaming is all but dead, ruined by years of too much debt and poor management at the absolute top of the company, a.k.a. its ownership. In all fairness, I know a few people who work for Midway and they are among the nicest people I’ve ever had the honor of being in contact with, so it pains me to see things turn out like this. Even with all the struggles, they managed to put out three great games recently in Blitz II, Mortal Kombat vs. DC Universe and The Wheelman, so if anything, it’s a testament to how hard everyone doing the hard work at Midway hunkered down and got the job done. But all that hard work has really been for little because it hasn’t been able to save the company they work for, and as they now sit inb bankruptcy, waiting to hear what their future is, a buyout by someone, anyone seems really, really plausible.
Possible Suitors: Whoever wants Mortal Kombat, probably Microsoft
Long story short, it’s the only real thing Midway has that people want that can’t be duplicated by another studio (sorry, Blitz: I love you, but EA could do the same thing if they wanted). Microsoft could certainly use a fighting game franchise of its own and Mortal Kombat would fit well on the Xbox 360 and its target demographic. That is, unless all those rumors about Killer Instinct 3 are really real …
(NOTE: The following article was simple analysis, not stock advice. The author is not involved in the financial industry at all and has only common sense and knowledge from economics classes he took in high school and college. If you choose to actually try and use it to predict the market and get burned, that’s your own damn fault.)