Analysts on Ubisoft's Cost-Cutting Measures and the Myth of 'Sustainable Growth'
Ubisoft, the French video game publisher, has recently announced sweeping changes to its company structure, sparking discussions about cost-cutting and the elusive concept of 'sustainable growth'. The company's founder and CEO, Yves Guillemot, outlined a plan to restructure the business, leading to game cancellations, layoffs, and a shift towards a more modular development model.
The restructuring involves creating five separate 'creative houses' to manage Ubisoft's various franchises. This move aims to streamline operations and potentially attract investors like Tencent, who have already backed one of the creative houses. However, the industry's current landscape presents significant challenges.
Michael Futter, a video game consultant, highlights the industry's struggle with 'sustainable growth'. He argues that public companies, including Ubisoft, have over-prioritized shareholders, making it difficult to achieve long-term sustainability. Joost van Dreunen, an investor and professor, supports this view, suggesting that Ubisoft's dramatic overhaul is necessary due to internal and external struggles.
David Cole, an analyst at DFC Intelligence, explains that the term 'sustainable growth' is often misused and can mean different things to different companies. In the gaming industry, it reflects a shift in how large publishers operate, emphasizing the need for efficiency and a leaner development model.
Ubisoft's restructuring is seen as a strategic move to reduce fixed overhead and improve execution. The company aims to balance creative control with a more modular approach, allowing third-party investments while maintaining autonomy. This structure also makes it easier to sell off franchises, as each creative house becomes a potential acquisition target.
Amanda Farough, a video game consultant, suggests that Ubisoft's fragmentation is driven by its need for financial support from Tencent. The restructuring, she believes, is a way to maintain control over valuable IP while making it easier to sell off parts of the business.
The industry's current state is characterized by declining revenue and a high number of video games that fail to reach profitability. Matthew Ball, an investor and CEO of Epyllion, notes that large publishers are facing declining batting averages, with fewer games becoming hits. This has led to a focus on 'tentpole' titles that can drive the success of the entire portfolio.
Ubisoft's recent game cancellations, such as Prince of Persia: The Sands of Time Remake, indicate a shift towards a more sustainable investment strategy. The company is cutting costs and restructuring to revitalize its internal processes and potentially break bad habits. However, employees are not entirely convinced, with some expressing anger over the restructuring's impact on games, studios, and employees.
The unions representing Ubisoft employees have called for a three-day strike, demanding accountability from management. The employees believe that their work has contributed significantly to Ubisoft's success, and they are not willing to accept arbitrary decisions without a say.
