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Gameloft's Alexandre de Rochefort

Last month, published an interview with Glu Mobile CEO Greg Ballard in which he asserted that the company was the leading independent mobile publisher in the world. Ballard also observed that while rival Gameloft has experienced impressive growth recently, Glu grew "significantly faster" during the same period.

Gameloft has since contacted to contest Glu's claims. In this exclusive interview, chief financial officer Alexandre de Rochefort challenges Glu to publish its figures, as well as discussing why Gameloft won't be following in EA's footsteps by pursuing growth through acquisitions, and why mobile game companies need to start thinking in the long term when it comes to signing deal with videogame publishers. Why are you querying Glu's assertions about their position in the mobile gaming market?
Alexandre de Rochefort

It's very simple. We are the only company in the mobile space that is publishing its results every quarter. Most of our competitors do not publish any figures at all - the only companies doing so are EA Mobile and Gameloft, and that's really it.

Glu has been claiming recently to be number two, but hasn't shown any numbers to prove that. When we look at the market share that we have in Europe and in the US, it's pretty clear to us that we're way ahead of Glu, I-Play and all the other medium-sized companies.

If they were ahead of Gameloft in terms of sales - which is the only measure that is of any interest here - well, I guess they would be publishing those numbers.

I'm just telling Glu, okay, if you're number two, please publish your figures so that we have proof. But you're not publishing those figures, so there must be something wrong here. Regardless of Glu's standing, EA is clearly the market leader. Can you ever see a day when you beat them to become number one?
Alexandre de Rochefort

That's clearly the goal in the long term. The reason why we have not been number one in the recent quarter is that EA has bought Jamdat, so they have been growing by acquisition - whereas we have focused on organic growth. Which, I think, in the longer term will prove to be a much cheaper way of growing the company for our shareholders.

It's true that, in the short term, it's more difficult to grow as rapidly as our competitors. But always keep in mind that EA, to become number one, has made out a big cheque for $700 million. That's a significant cost for their shareholders, whereas Gameloft has grown organically, so that's not the kind of money we've asked our shareholders to put up. Do you think that EA is pursuing the right strategy in that regard?
Alexandre de Rochefort

It makes sense. EA was a bit late in getting into the mobile gaming sector; buying Jamdat was clearly the best move from their point of view. They wanted to move quickly, and in order to do that, going through acquisition was the best move. Why does it make more sense for Gameloft to grow organically?
Alexandre de Rochefort

First of all, again, it's much cheaper for our shareholders. Secondly, we believe that in the long term, we have created more value for the shareholders. We've also created strong studios which are all very integrated within the company.

Today Gameloft has the largest development capacity by far in the mobile gaming industry - we've got close to 2000 developers working in our production studios, we've hired the guys, we've trained them, and we've really created a lot of experience in-house. I think we've created something that's intrinsically worth a lot. Gameloft prides itself on being a "pure player" - a company that focuses on producing mobile games only, rather than ringtones, wallpapers and the like. Why have you chosen to pursue that strategy, when such content has proved lucrative for other companies?
Alexandre de Rochefort

We looked into the ringtones and logos market back in 2000, 2001, to see if there was going to be any significant interest for us. At the time, our conclusions were that there are no or very little barriers to entry in this industry. In the medium term, it seemed obvious that the margins would shrink and it would become increasingly competitive. That's exactly what happened, so we're happy to have focused on mobile gaming.

Look at the valuations and the share prices of all the ringtone and logo companies in France and in the UK - you will see that the business model they've presented to market is no longer stable. It's getting more and more competitive, and less and less profitable.

On top of this, growth in the mobile gaming market is so big that we have a lot on our hands, and there's a lot of work to do for all of us within Gameloft just to answer the demand. We really wanted to focus on games, and I think that's the right choice. Turning to your games portfolio, how successful has your deal with Ubisoft been? Are you looking to establish more deals with other PC and console game publishers?
Alexandre de Rochefort

The Ubisoft - Gameloft partnership has been extremely profitable for both companies. Over the last couple of years, the weight of Ubisoft licenses within Gameloft's portfolio has decreased significantly. In the past, we relied heavily on the Ubisoft brand because the mobile gaming space was very small, and therefore the mobile gaming companies were not in a position to afford the upfront payments that big IP owners were asking for.

The deal allowed us to not pay for those upfront licenses, and therefore come very early to the market with some of the best brands around in the videogaming space. So we were very early to come to carriers with very good brands, and this really opened a lot of doors for Gameloft in the beginning.

This is one of the reasons, in my view, why Gameloft has the largest distribution network by far in the industry. We work with over 160 carriers in over 70 countries, so clearly we're very well positioned.

Between 2000 and 2003, having those Ubisoft licenses was a key element for us. Now that we work with all the major carriers in the world, it has become less of a competitive advantage for Gameloft, and that's why the Ubisoft licenses are less important than in the past.

We are not dependent on the Ubisoft licenses, which only represented 21 per cent of our downloads in the first half of 2006. Just three years ago, it was more than 60 per cent. We're very happy to have this agreement still in place - among our key releases in the second half of 2006, you'll see a lot of Ubisoft brands, such as Splinter Cell, Rayman, Tom Clancy's Rainbow Six, et cetera. I'm just saying we're much less dependent than in the past on the Ubisoft licenses, and I think that's a good thing overall.

As for other videogame companies, clearly we're very open to signing new deals, and we've worked with other companies in the recent past for titles such as Lumines and Meteos. Overall, our main strategy is that if we sign a deal, it will need to be a long term deal. We do not want to make the same mistake some of our competitors have in the past, which is to sign short term deals with videogame companies.

During the two or three years when you have the rights, you open the door for the license at many carriers all over the world; you do all the work for the videogame company to reap the rewards at the end of the deal.

Clearly, EA did this with I-Play in the past - I-Play had the rights for FIFA and Tiger Woods, and at the end of the deal, EA took back the license and started selling the game to the same carriers with which I-Play had developed the relationship. Glu had the rights to Sonic from Sega, and is losing the rights in a couple of months, and basically has opened the door for Sega to sell its game for the next ten or twenty years or whatever.

It's making it easy for videogame companies to reap the rewards of work that has been done by pure players in the mobile gaming space. So if videogame companies want to work with us, it's got to be for the long term. Are you saying the videogame companies have treated mobile game companies unfairly in that sense?
Alexandre de Rochefort

I wouldn't go as far as saying that. Clearly, they're just being smart. I cannot blame videogame companies for doing that - I'm just saying that maybe it's a mistake that some of our competitors could have avoided.

But you know, many of them have a very different agenda from Gameloft. It's pretty clear to me that our strategy is really a long term strategy - whereas many of our medium-sized competitors clearly have a medium or short term agenda, and are trying to increase their sales significantly as quickly as possible to try and sell themselves to another big company.

It's so obvious when you look at the recent deals signed by some of our competitors - I'm surprised that people don't talk about it more often.

Alexandre de Rochefort is chief financial officer for Gameloft. Interview by Ellie Gibson.

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