Double Buffered

A Programmer’s View of Game Design, Development, and Culture

Game Development vs. the Stock Market

Posted by Ben Zeigler on April 11, 2010

I read a pretty businessy article at Edge Online today, about the fact that there are no longer any publicly held game development studios in England, and how there are virtually none worldwide. The article talks a lot about why this is, but I think the best answer is given in the last paragraph, as a quote from the CEO of Climax: “I am very glad we didn’t list Climax now. There is an inherent tension between the short-term view of capital markets and the long-term nature of game development”. If you look around at the most successful game development studios in the industry you’ll see one of two patterns: completely private ownership like Valve, or elite studios inside very large public publishers that are mostly shielded from quarter-to-quarter financial issues (Blizzard appears to still be immune).

The current Activision vs. Infinity Ward debacle is a superb example of the direct conflict between short term and long term thinking. The heads of Infinity Ward, at least as far as I can tell from rumor mill, really wanted to try and work on a new franchish, which would possibly fill an important long term goal by spawning a new franchise and keeping employee morale high. Activision corporate can’t deal with that kind of thinking, because they have to worry about what’s happening in the short term. Activision is looking about 2 years out (because that’s really the min dev cycle possible) because when you’re a publicly held company without incredibly strong leadership and market position that’s the most you can look forward before you get fired by your board of directors or large shareholders.

Game industry stocks are basically treated like Tech industry stocks, and what are the shareholders looking for? They want Growth, and that’s all they care about. They need the revenue numbers to keep getting bigger and bigger, because that means the company is more valuable, and they can resell with a profit. Dividends, which work to encourage long-term holding of stocks, are largely absent in the tech center because of a lack of profits and the investors don’t look for it anymore. For most of the people who would buy the public stock of a game publisher, any actions the management team take that take even 5 years to bear fruit are 100% worthless.

This is why I wouldn’t feel too secure if I was John Riccitiello right now. He’s tried to renovate the image and developer prestige of EA, and these actions will bring great fruits in the years to come. I feel like he’s done a good job of turning around EA as a long-term going concern. But, that won’t be enough for him because EA’s revenue is down a bit over the last year.

A public corporation is explicitly chartered to do what’s good for it’s stockholders. But, what’s good for the  stockholder is NOT good for the company, the employees, or the industry as a whole. Google can get away with largely ignoring the stock analysts, but not the smaller publishers or independent publicly owned developers. They HAVE to live quarter to quarter because that’s what their fickle owners demand. And working to maximize your revenue for the next fiscal year is simply not what game development is about.  If you want to know why a certain company doesn’t seem to really care about it’s reputation or long term prospects, it’s because the very structure of the corporate funding model doesn’t let them, and they’re not talented or willing enough to resist.


4 Responses to “Game Development vs. the Stock Market”

  1. poz said

    Though it’s the conventional wisdom that long term thinking is not “good for the stockholders”, it’s a fallacy. The financial sector wants us to think this because they make a lot more money when people trade in stocks than they do when people hold stocks. Time was (and it wasn’t too long ago, really) that a stock that paid continuous stable dividends over time was greatly valued. It’s unfortunate that the trading value of a stock is practically all people look at today. It emphasizes short-term, high risk bets rather than promoting stable and robust growth.

    • JZig said

      Yeah, it’s unfortunate that “growth is the only thing” is apparently what the business world learned from the internet boom/crash cycle. Even if the shareholders ACTUALLY start to value long-term investments, there will be tons of lag while the companies figure that out.

  2. Karl said

    I’m reminded of a recent MetaFilter post.

    • JZig said

      Good one, missed that before. “Customer-driven capitalism” sounds like the perfect model for the games industry.

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