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Obsidian CEO on acquisitions: "Find a partner who's going to be all-in"

Feargus Urquhart offers advice on successful mergers and acquisitions, and why Obsidian joined Microsoft

The key to good game development acquisitions -- from the perspective of the acquired studio -- is finding a partner who is "all-in" on your studio and your game, says Obsidian Entertainment CEO Feargus Urquhart.

The co-founder of the Californian studio behind The Outer Worlds spoke openly about some of his experiences with publishers and why Obsidian ultimately decided to join Microsoft's in-house studio group at GI Live: London earlier this month.

"There has to be a cultural fit. And there has to be an understanding of why they're purchasing you. There has to be absolute clarity in that," said Urquhart.

He revealed that Obsidian was approached by another major publisher before signing with Microsoft in 2018. Urquhart was having lunch with one of the publisher's key figures, who revealed it wasn't truly interested in allowing the studio to continue with its own projects.

"They said: 'Well, have you ever thought about being acquired?' I said: 'Yeah, of course'. And then ultimately what they then said is: 'Well, yeah, I mean, we're just having a real hard time hiring people right now, so it would be great to be able to just buy your studio, then we can take all your people and put them on our projects'.

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Feargus Urquhart, Obsidian Entertainment

"I guess, maybe the number can be large enough and that would be fine for you. But I always felt that we always want to be a service to our people that have been with us.

"So, I guess that's the thing. It's understanding what's your number. Understanding your finances. Understanding why [potential purchasers are] making that decision. And then also it just does have to be a cultural fit. You have to be cool being you.

"They have to be people you want to sit down and have a beer with at points in time. And if it's not that, then I think you have to reconsider."

Urquhart encouraged developers to be honest when faced with potential suitors, and not to fear rejection if the other party isn't willing to explain contractual details.

"There's only so much due diligence both sides can do. And it also still relies upon people being true and honest... And it really is these two companies that are just hoping it's going to work.

"I think the best advice I can give to people that are looking through acquisitions is just be upfront. Don't try to hide stuff.

"Because, okay, it would suck if an acquisition doesn't go through. But a lot of times, and this was with Microsoft, we just ended up talking about all the things.

"I mean, if there's something uncomfortable in a contract, don't worry about bringing it up because you're worried they're just going to walk away. If the other side is going to walk away because of some small point in the contract you don't understand, they probably would have walked away anyway.

"Use the acquisition period to kind of learn as much as you can about the other party. A lot of that is just asking questions, sometimes uncomfortable ones... it's like speed dating immediately followed by marriage!"

When asked about what Obsidian's best experiences have been working with publishers, Urquhart had more educational thoughts to share.

"I think publishers all bring different things to the table," he said. "So, there are times that working with a publisher is great financially. Sometimes it gives you a lot more notoriety. Sometimes you're learning something you didn't learn before."

"If there's something uncomfortable in a contract, don't worry about bringing it up because you're worried they're just going to walk away"

One of Obsidian's first major publishing deals was with LucasArts for Knight of the Old Republic II. He said, initially, he wasn't sure he wanted to work on a Star Wars game at that time, but it was a good fit financially and for the studio's reputation.

"It was one of the best pieces of advice that Ray [Muzyka] and Greg [Zeschuk] from BioWare gave me, because I was still [feeling like], 'Do I want to do a Star Wars game?'. They said: 'Look, dude, when you walk into a bank and you're looking for that first loan and you say you're working on Star Wars, everybody knows what that is'. So, there was a benefit to that."

He praised the marketing and PR support of Bethesda and Take Two as particularly positive during their relationships. "That is what's amazing when you're working with a publisher and they're all-in on something. That's incredible," he said.

He added that Obsidian's experience making Armored Warfare for Mail.ru "taught us a lot about free-to-play games. So much so that, you know, maybe we don't want to do free-to-play games".

In contrast to these positive experiences, Urquhart said the studio has faced challenges, and the number one hurdle was with quality assurance.

"We've had challenges with a fair number of our publishers on the QA front," he said. "It's often a fight, and even to the extent that in our contracts we would often try to get things in, like, 'You have to put this number of QA people on this month', and be super-specific about it."

Urquhart described one of the studio's earliest encounters with QA difficulties: "So, long ago on Neverwinter Nights II, we were working with Atari, and we were having a challenge on the QA front. We were able to sort of work together on a solution, which was we actually created our own QA department here [at Obsidian].

"We actually at one point had 30, or maybe even as many as 35, people in QA just working on Neverwinter Knights II. And that was the solution there, because they [Atari] were having a challenge getting enough QA people."

Urquhart was initially unsure about working on a Star Wars game, until BioWare's Ray Muzyka and Greg Zeschuk convinced him it would making securing funding much easier

Urquhart was initially unsure about working on a Star Wars game, until BioWare's Ray Muzyka and Greg Zeschuk convinced him it would making securing funding much easier

Throughout the discussion, Urquhart emphasised the importance of reading contracts thoroughly, so developers understand what they will receive and have ownership of as part of their agreements.

"In the end, all that matters is: What you are getting paid? How are you getting paid? What are your royalties? How do you get your royalties?"

"The one thing that publishers don't want to do a lot of times is be specific, which I understand -- they want to give themselves the opportunity to decide later or make decisions when it makes sense," he said.

"But I would say that there are certain things that we learned over time, like with QA. Where's our logo going to be on the box? Because if it's not talked about in the contract, it might not be on the box at all. Or it might not even be in the [start-up titles]."

He continued: "This is the advice that I give to people, because you might have to sign a contract that's 60 pages, which is just ridiculous. But in the end, all that matters is: What you are getting paid? How are you getting paid? What are your royalties? How do you get your royalties? Not just the amount, but at what point do you get them? You've got to spreadsheet it out. You've got to understand your termination. You've got to understand what you own and don't own coming out of this."

Closing the discussion, Urquhart was asked about what new business opportunities he feels fledgling developers and indies should be getting involved with. The medium or business category itself isn't what matters, he feels. He encouraged developers to focus on building the game they want to make first, and then looking for a partner who's "all-in" on their game.

"Maybe that goes back to what we were talking about before, when you work with a publisher who's all-in," said Urquhart.

"If you're interested and you feel like you can be successful with one of these new options, whether it's monetisation or Game Pass or other kinds of subscription-based stuff, then you should find a partner who's going to be all-in on your game. That feels like the way that you need to go after it."

You can watch the full interview below, or download the podcast version here.

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