Comment & Opinion

Has Vivendi just bought an over-staffed, under-skilled company, which is failing to compete in a rapidly maturing market?

Has Vivendi just bought an over-staffed, under-skilled company, which is failing to compete in a rapidly maturing market?

When a hostile takeover bid is successful, the battered company that's been taken-over can only point to the avarice of its shareholders.

After all, in a hostile takeover, both sides are fighting for that most brittle commodity - shareholder loyalty.

And the attacker can sweeten its deal with cold, hard cash.

Indeed, the attacker always has the advantage because before it launches its bid, it knows exactly how much its target is valued and can offer a big premium.

In this example, a Gameloft share was worth €3.10 in September 2015 (that's the 52-week low point).

Valuing the company at $800 million, Vivendi is currently offering shareholders €8 a share to accept its bid.

Small wonder that despite the protestations of the current board, Vivendi quickly gained the support of 62% shareholders, completing its bid in all but technicalities.

Weak hand weakened

In contrast, a company attempted to defend itself from a hostile takeover bid has fewer and less powerful ammunition in its armory.

All it can rely on its the company's recent performance and the promise of jam tomorrow if shareholders stick with them.

Gameloft certainly laid on the latter thick, promising a 2018 sales target of $390 million (€350 million). That's up considerably on 2015's sales of €256 million.

Gameloft was slow to realise how free-to-play games were revolutionising the industry.

And the main reason for this is how Gameloft has been run over the past couple of years.

A mobile gaming giant back in the days of paid games - both in terms of Java/Brew era and the early App Store - like many companies of that time (with the exception of Glu Mobile), Gameloft was slow to realise how free-to-play games were revolutionising the industry.

That's not to say that Gameloft hasn't been run professionally during that time; it employs 6,000 staff across 21 studios and its games has 166 million monthly active players.

It's profitable and experienced sales growth in 2015 of 13%, albeit from a 3% decline in 2014.

Indeed, the paradox of Gameloft is that it's the #2 most successful mobile games company in terms of number of downloads, yet it doesn't have a single F2P game it could highlight as a financial success.

Sure, franchises such as Asphalt, Order & Chaos, Modern Combat and Dungeon Hunter are solid, well-developed games.

But the company and its developers have never got to grips with the sophistication of running a game-as-a-service for weeks, months and years in the same way that Supercell, Machine Zone, King etc have.

What's going to change?

The reason this is important is that this level of experience isn't going to change whoever owns the company.

Sure, Gameloft could and should have been run in a less French and more open manner - it's effectively been controlled by the Guillemot family with little shareholder input since launch.

Gameloft's mistakes in missing the industry's structural changes happened in 2012 and 2013.

But its mistakes in missing the industry's structural changes happened in 2012 and 2013. That's when the gold rush of the F2P game explosion has happened.

It's now over. The winners are Supercell, Machine Zone, King etc, and it's unclear that even with new management and more investment a Vivendi-owned Gameloft can do much to change the situation.

The one opportunity is in-game advertising; something Gameloft has been addressing since it set up its own ad sales team in 2015.

It's since claimed growth of 648% over the past 12 months, with monthly revenue in April 2016 of €1.2 million.

Its 2018 plan claimed 30% of annual sales could be generated by advertising.

Of course, moving from the current level of €15 million in annual sales to c. €100 million even in three years is highly speculative.

On that basis, Vivendi - and hence Gameloft's staff - are likely to have a hard couple of years.

Despite recent restructuring, Gameloft still has too many staff, too many of the wrong staff, and too many of the wrong staff in the wrong places.

Successful free-to-play game development and operations tends not to happen in happen in the low cost countries where Gameloft always concentrated its headcount.

Freedom to fail

In its letter to Gameloft staff, Vivendi's CEO Arnaud de Puyfontaine and COO Stéphane Roussel comment:

"You will now take part in a great collective adventure as Vivendi pursues its ambitious redeployment in content and media.

"In carrying out this plan, we will rely above all on your talents and creative freedom."

But as the staff know better than most, Gameloft has never been about creative freedom but about production expertise.

Sadly then it appears Vivendi has bought an over-staffed, under-skilled company, which is failing to compete in a rapidly maturing market.

No surprise that shareholders are laughing all the way to the bank.


Contributing Editor

A Pocket Gamer co-founder, Jon is Contributing Editor at PG.biz which means he acts like a slightly confused uncle who's forgotten where he's left his glasses. As well as letters and cameras, he likes imaginary numbers and legumes.

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