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Roundtable: Our Best Bets in Gaming

Roundtable: Our Best Bets in Gaming

Thu 04 Oct 2012 2:50pm GMT / 10:50am EDT / 7:50am PDT
Business

The staff gets together for a fantasy sports style draft of gaming's top companies

There's been plenty of doom and gloom in the gaming industry of late. The traditional gaming market is limping to the finish line of the longest console generation ever, and this year's retail sales have been historically bad. Meanwhile, the hip new thing that was supposed to be the industry's future, social gaming, is having a bit of a crisis of confidence as Zynga's stock price has dropped more than 80 percent since the beginning of March. Even the silver cloud of the mobile and tablet business' success has a gray lining, prompting us to ask grim-faced questions about the future of the dedicated gaming handheld market.

But there is a more optimistic tack to take on the industry these days. (There is, after all, plenty of room for improvement.) So in the interest of focusing on the opportunity side of this particular crisis, the GamesIndustry International staff convened a roundtable to point out our own picks for companies with bright futures ahead of them.

If there were a fantasy sports draft for video game companies, who would be our first round picks? Which companies not only have room for improvement, but are likely to take advantage of it? Who do we expect to be pestering for interviews about how they conquered the industry and silenced the doubters? In short, if we want to be hopeful for the future, where should be looking today? And just like in the fantasy drafts that sparked this idea, picking a company takes it off the board. So we'd better have a number of outfits we're optimistic about, or at least ones we could talk ourselves into picking!

James Brightman: Electronic Arts

My first round selection goes to Electronic Arts. Sure, the publisher has seen its share of struggles, its stock has essentially been cut in half in the last year and many investors are losing patience with the company and CEO John Riccitiello, but it's not as if the competition has been excelling in the mean time. The entire industry has been depressed on the retail side, and EA is actually one of the few traditional publishers that's primed to really capitalize on the transition to digital, whether on mobile, social or streaming/downloads on PC.

"So with Steam, Valve is already on top of the world, and now we're looking at the prospect of it securing a foothold in the living room as well?"

Brendan Sinclair

EA Mobile consistently tops the charts, many of EA's big IP have been successfully extended to online and free-to-play for emerging (and Western) markets, and the company's Origin service continues to push forward. EA Labels boss Frank Gibeau is clearly eyeing the future and thinking about how EA will be ready for it. "For us, the fastest growing segment of our business is clearly digital and clearly digital services and ultimately Electronic Arts, at some point in the future...we're going to be a 100% digital company, period. It's going to be there some day. It's inevitable," he told me earlier this year.

The long-term prospects for EA, in my view, will be strong.

Brendan Sinclair: Valve

While I applaud James'… boldness… in taking Electronic Arts first overall, I'll mail in what I consider a safe bet in Valve. I see the PC as the healthiest platform in gaming right now, and Steam is a huge reason why. Despite its at-times inscrutable gatekeeping decisions, Valve has effectively married the most important aspects of a controlled, console-like experience with most of the benefits of an open platform like the PC. There are obviously compromises on both ends, but Valve has made them wisely, and as a result, Steam is the default place to go for purchasing PC games.

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Sure, there are notable and popular exceptions to its catalog (Blizzard), but iTunes seemed to get by OK without The Beatles for all those years. So with Steam, Valve is already on top of the world, and now we're looking at the prospect of it securing a foothold in the living room as well? Even if I were to assume that never turns a dime for the company, I would still take Valve with this pick, without hesitation.

The biggest threat to Valve's future success is the idea of Microsoft's built-in Windows 8 store doing to Steam what Internet Explorer did to Netscape Navigator, but that relies on the OS-maker actually executing on its ambitions and giving consumers and developers compelling reasons to not only move to Windows 8 but to start using its storefront as well. It's possible, sure. But having formerly owned a Vista PC, I know all too well the mistake of assuming Microsoft can impose its will on the market unilaterally.

Dan Pearson: Microsoft

I'm not a gambling man, nor am I a dabbler in the stock market. But, looking back at Microsoft's stock ticker for the last decade, the Redmond monolith looks like the perfect pick for a man not interested in taking too many risks. Aside from the phenomenal swing between the high of November 2, 2007 and the low point of March 6, 2009, Microsoft's stock has bumped along happily - the relative diversity of the revenue streams available keeping a fair amount of income consistency.

Looking at those highs and lows - neither the launch of the original Xbox in 2001, nor the 360 in 2005, had a huge impact on pricing. The year of the spike, 2007, was the year that Vista released and Office was significantly overhauled, which, alongside a smart share purchase in Facebook, pushed stocks up fast: profits were at an all-time high. The low point of 2009 was the year that Windows 7 hit shelves, and was another year when Microsoft was starting to feel huge pressure, from an all-too familiar rival in Apple, across a wide range markets - primarily mobile and home computing.

So, if a new OS is a risky proposition, a new console seems neutral and Microsoft's rivals are stronger than ever, why pull them out of the hat? Brendan's right - Windows 8 is going to shake things up, one way or another. Launching it alongside a new console, presumably featuring the new OS itself, makes the proposition a strong one, and the comments from its pre-emptive detractors make me even more confident.

What's more, when looking specifically at the console market, Sony is looking weak - struggling under the financial weight of a slow start for Vita after enduring long years of relatively neutral performance from the PS3. Also, ongoing pressures from a crippling exchange rate are rendering other revenue streams like flatscreens almost untenable, even with the planned co-operation between Sony and other TV manufacturers. In short, MSFT looks like at the very least a safe bet, and potentially a solid gain.

Mike Williams: Oculus

My first round pick is going to be a small one: Oculus, the company behind the Oculus Rift headset. Having demoed with the device, I can say it's an interesting game-changer if the startup behind it can work out the kinks.

"The world of AAA development is harsh and unforgiving, but over the last five years Epic has made a series of astute business decisions to stay on the industry's cutting edge"

Matt Handrahan

The technology for the stereoscopic 3D Rift headset is definitely there, but Oculus needs to make sure the price and developer support are spot-on. Price the headset too high and most consumers won't be able to afford it; too low and they won't see a lick of profit. And developers need to be courted to provide the device with great software tailored to its strengths.

Oculus got an awesome start because of a great prototype and the good word of everyone's favorite designer programmer John Carmack. Now the company needs to build on that with a finished device at the right price and a load of games that support the headset. If they can, it should be a truly magical product for consumers and businesses alike.

Matt Handrahan: Epic Games

To a large degree, this console generation belongs to Epic Games. Indeed, the first time I got a clear sense of what "next generation" technology would mean for games was Gears of War, which pushed visual and aural fidelity to new heights and established perhaps the most distinctive multiplayer experience to emerge since Halo. The subsequent games only confirmed Epic's skill with the broad, high-octane blockbusters that have come to define this generation. Between its chunky, cover-based action gameplay and Horde mode, Gears of War may just be the most quietly influential franchise outside of Activision-Blizzard.

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Of course, the success of Gears of War doesn't guarantee the success of Epic's next project, but the smart money is on another big win.

 The world of AAA development is harsh and unforgiving, but over the last five years Epic has made a series of astute business decisions to stay on the industry's cutting edge: the acquisition of Chair Entertainment led to Shadow Complex and Infinity Blade, among the biggest hits on Xbox Live and iOS respectively. And this year the company sold a sliver of its independence to the Chinese internet giant Tencent, pointing towards significant global expansion and a possible move into free-to-play in the near future.

Did somebody say Unreal Engine 3? Frankly, no discussion of this console generation would be complete without a nod towards Epic's ubiquitous engine, and the income from this alone would be enough to counterbalance any number of Bulletstorms. Can Epic sustain that dominance with the Unreal Engine 4? If its promise of an engine that can scale from PC to console to mobile devices proves accurate, it's difficult to imagine anything but big success and bigger revenues.

ROUND TWO

James Brightman: ZeniMax Media

My second round selection goes to ZeniMax Media. As the parent company for Bethesda Softworks, id Software, ZeniMax Online, Arkane Studios and Tango Gameworks, this publisher is absolutely loaded with talent and plenty of potential. Talented game designers drive this industry, and luckily for ZeniMax, it has them in spades. With Todd Howard, John Carmack, Harvey Smith, Raph Colantonio, Matt Firor, and Shinji Mikami (creator or Resident Evil) under its roof, it's actually hard to make a bad game. 

Skyrim has seen nothing but accolades, Dishonored looks impressive, Elder Scrolls Online is shaping up (despite some fans' concerns), and Mikami's next horror project (codenamed Zwei) is very eagerly anticipated - especially after some were disappointed with Capcom's Resident Evil 6. On top of that, ZeniMax has former founding members of Starbreeze Studios at MachineGames in Sweden working on an id Tech 5-based title. Admittedly, id hasn't produced a blockbuster in a while, but discounting Carmack would be foolish. He's also been a huge advocate in helping to push gaming with virtual reality for Mike's first-round pick, Oculus.

ZeniMax may not be a publisher on the scale of an EA or Activision, but it's made some careful and smart acquisitions and I'd certainly bet on their success for the next few years.

Brendan Sinclair: Nintendo

How has nobody picked Apple yet? How am I not picking them right now? Probably because I like the "buy low, sell high" idea, and it doesn't get any higher than Apple these days. So who's around to buy low? I'll go with Nintendo.

"Square-Enix stock is cheap right now, and with a slate of hotly anticipated titles due soon, I can only see it heading up"

Dan Pearson

Of course, I have a few reservations about the company in the long term, but I think they're going to do significantly better than people expect in the near future, specifically with the Wii U.

First off, gamers are desperate for a new console. The last generation lasted just four years after all the players launched, and even then 2005's launch of the Xbox 360 felt overdue. Tack on an extra two years to that wait and the core audience will need very little convincing to pick up a Wii U this holiday season. Even if the system isn't the breakout mainstream hit that the Wii was, there's still enough interest in that core audience (and enough concerns of supply shortages) to make the system a surefire sellout until the New Year.

Assuming the Wii U has a full year head start before Microsoft or Sony joins the next-gen party, Nintendo has some time to construct a convincing case for owning the system, and will almost certainly build market share over what it's had for the last couple years as the Wii has entered its dotage. I don't think Nintendo will get back to where it was before the casual crowds ditched the Wii and original DS in favor of tablets and smartphones, but it's hard to picture the downward trend continuing when the company still has so many of its first-rate franchises ripe for re-invigoration on the Wii U and 3DS.

Matt Handrahan: Tencent

Thanks to a canny bit of business earlier this year, it's only a short hop from my first round pick, Epic Games, to the Chinese online giant Tencent. Like Gree and DeNA, Tencent was already huge when it started to look towards international expansion. As the grand old companies of the Western games industry largely stumbled to catch up to a digital world full of smartphones, these Asian players made it all too clear that huge markets like China have already resolved the problem.

The question now is which of these companies has the smartest plan for global domination, and for me it's Tencent. Around 40 per cent of the company's total sales now come from games, and its activities this year indicate that gaming will be a key part of its business for many years to come. The deal with Epic is a direct line into one of the most respected developers, of games and technology, in the world, and it has strong content partnerships with both EA and Activision - Tencent will operate the free-to-play Call of Duty Online in China, which should be highly lucrative for all parties.

And while we're talking about lucrative, there's the fact that Tencent owns a majority stake in Riot Games, the developer of the world's most played PC game, League of Legends. When the news broke that Tencent had paid around $400 million for its share I admit I was sceptical, but it now seems like one of the smartest deals of the last few years. League of Legends is spreading across the globe at an alarming rate, and it's a prime mover in the increasingly lucrative world of eSports. In 10 years time, the name Tencent will resonate with gamers in the way that Activision or Electronic Arts do now.

Dan Pearson: Square Enix

Well, having taken a safe-ish pick in round one, I'm going to take a bit more of a risk here and plump for a company which is undergoing something of a metamorphosis: Square-Enix.

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I like Square-Enix. I'm no fanboy, but I like the company's products, especially since the very smart acquisition of Eidos and the subsequent re-booting of almost all of that studio's properties. Moral outrages aside, both Hitman and Tomb Raider look excellent, cannily repositioned to hit new markets without upsetting the old. Sleeping Dogs was a bold and successful refit of an IP which had been stagnating in the hands of others for years, hitting the sweet spot between controlled development costs and fun factor, which made up for a few rough edges with an excess of character. As a result of that, and a smart release window, it sat at the top of the charts for several weeks. Deus Ex, despite concerns over its new direction, performed admirably under the scrutiny of both critics and customers.

"Ubisoft is still a solid, hungry contender. The publisher pounces on every market where it can gain ground"

Mike Williams

As well as a resurgent core business, Square-Enix has shown both innovation and bravery in developing markets and business models. Core Online is a well realised service which could prove to be the game-streaming service which actually works, thanks to a sensible balancing of server-side demands and local processing keeping costs down. Of course, customer demand still needs to make itself felt, but Wada is very open about the fact that this is an experiment, with a flexible business model allowing for plenty of fine-tuning. If Square-Enix's back catalogue is applied properly here, the company could be looking at a significant new revenue stream.

Square's iOS presence is a strong one, too - albeit one which divides opinion thanks to a dogged adherence to high price-points. Repurposing older titles to smartphones is cheap and popular, but keeping those price tags high also protects the brand, an important factor when the series is still alive. How long that can keep working is a moot point, but a lot of pure profit has been turned so far.

It's not all rosy. Final Fantasy is, in short, a mess at the moment, with the core titles continuing to disappoint and spin-offs falling flat. Yoichi Wada himself is under the spotlight (and the subject of a petition to be fired) thanks to relocating the company headquarters after a consultation with a fortune teller. Stock price is low, especially compared to the glory years, and consumer confidence in the company's home territory is failing as the move to become a global business continues. In fact, it's Eidos which gives the most hope for now, although that might be a consequence of a Western viewpoint.

As I said, it's a riskier prospect - but Square-Enix stock is cheap right now, and with a slate of hotly anticipated titles due soon, I can only see it heading up.

Mike Williams: Ubisoft

Where's the love for Ubisoft? Assassin's Creed, Rayman, Far Cry, Splinter Cell, Ghost Recon, Just Dance; that's a solid slate of IP the company has going for it.

Ubisoft has kept the Assassin's Creed franchise fresh despite converting it to a yearly development cycle. Rayman has seen a return on numerous family-friendly platforms, including Android and iOS. Ghost Recon and Far Cry are aimed squarely at the core shooter fan that everyone is gaga about. Just Dance is one of the few third-party games on the Wii to sell like it was published by Nintendo. The publisher is even looking towards the growing eSports phenomenon with Shootmania Storm.

Have there been stumbles at the company? Of course. PC gamers are still treated like second-class citizens, even if the always-on DRM problem has gone away. Ubisoft's portable and mobile teams can still be accused of fire-and-forget development at times: just shoving titles on platforms without taking the time to craft a great experience. Assassin's Creed III Liberation and Rayman Jungle Run show that the company may be doing better on that regard. And Ubisoft's multimedia options are still in flux, with Ubisoft Motion Pictures still acting as a large question mark.

Even with those stumbles, Ubisoft is still a solid, hungry contender. The publisher pounces on every market where it can gain ground, like the Wii U launch where it has almost as many titles as Nintendo. Hopefully, that hunger will pay off in the end.

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