January
6
Disney interested in EA? Big media buying video game publishers in 2009?
A recent story in weekly Variety by my colleague Jill Goldsmith, our very experienced and astute Wall Street reporter, was musing on what 2009 held in store for the major media conglomerates and included this fascinating bit of speculation based on interviews Jill did with various financial professionals who follow these companies closely:
That would be quite an event, huh? When you think about it, it makes some sense. Disney has been investing heavily in videogames these past few years. And while its stock is down (31% off its 52-week high), EA stock is way down (67% from its 52-week high), which means buying EA could be a potent way for Disney to jumpstart itself to a lead position in this still relatively fast growing space.
And when you think about it, Disney might not be the only media conglomerate considering such a move. Most of the conglomerates are interested in videogames and have started dipping their toes in the water, some (Disney, Time Warner), Viacom aggressively and others (NBC U, News Corp.) more conservatively. but right now, they're in an interesting position. DVD sales, long the studios' cash cow, have flattened and there's no sign Blu-ray or digital downloads/streaming will pick up the slack (for more details, read this story). So big media is looking for new ways to ignite growth.
The videogame business has been having problems, with growth slowing of late, but it's still red hot compared to movies, TV, and music. And many videogame publishers, not just EA, have seen their stocks take major hits in the past six months, much more than the declines for big media shares. That means videogame publishers are more affordable for the conglomerates than they were a year ago. Which means we could just see a Disney-EA acquisition, or others like it, in 2009
Chris Morris reports on the business and culture of video games and offers analysis of recent events and industry trends.
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@Scott: There are many kinds of value for companies.
One form of money is the stock value (which recently dropped). Another is the company's tangible assets such as buildings, inventory, and cash (which have seen a net increase after the holiday season). Others are less tangible such as employee skills, corporate knowledge, goodwill, and contracts.
Over the past few months stocks have tumbled. Many have seen their market cap (the total value of all stock) drop lower than the physical assets of the company. EA is one of those. A bargain hunter with a really big wallet could theoretically buy EA, fire everybody, sell the properties, make a profit, and still have a whole bunch of valuable contracts.
Many companies -- game companies included -- are going through bizzare times. They are making profits from sales, reduced operating costs from layoffs, hiring the specific talent they want, and yet at the same time watching their stock value drop.
I don't foresee Disney making an offer. Disney has very skilled marketers and a global distribution network. They already own several game studios. The biggest asset EA has that Disney would want are the sports games and the thousands of exclusive contracts associated with them. Other EA properties (such as The Godfather II, Dead Space, and Battlefield Bad Company) are not good for Disney's corporate image.
Posted by: Bryan | January 08, 2009 at 07:25 PM
Haven't Disney been steadily building up their own internal studios. I don't think Disney has trouble acquiring developers in building up to compete with the likes of EA/Ubi/Act but games distribution and marketing are were they're weakest & need to beef up to compete.
I think they'd be a better fit for Disney so I wonder whats Ubisofts price tag...
Posted by: Dan | January 07, 2009 at 03:06 AM
Most Publishers are doing fine, especially considering the economy.
Some, such as EA, are using the current economic climate as an excuse for scaling back due to poor business management over the past few years.
Regarding Disney - they've been a revolving door for years for many of their employees, so I can't imagine how those practices would merge with EA. While is makes for great headlines, i don't honestly think it's very viable.
Posted by: Cris Waters | January 06, 2009 at 04:59 PM
I have to say, this is probably the biggest thing that puzzles me about game publishers and developers: how is it that when growth is so strong, and sales are bigger than ever, can so many companies be losing money? You talk about Midway having $150m in debt, and Brash going out of business, and other companies posting losses and I wonder, where is the money going? Are games more expensive the develop than I realised? I just wonder what the economics of game development and publishing are.
Posted by: Scott | January 06, 2009 at 03:23 PM