The Britsoft Paradox?

The "Britsoft Paradox?"

In Britain, as in France or in the United States, it became obvious in the mid 1990s that the ability to raise funds on financial markets was essential to compete in a context of accelerating consolidation. In clear contrast with French publishers, however, the leading British publishers did not implement an aggressive external growth strategy. They performed few significant acquisitions and raised much less capital than the French publishers. As a result, in 2000, the revenues, profits, and head counts of the leading British companies were much smaller than those of their French counter-parts (Table 1.6.2).

Table 1.6.2: Revenues, Net Profits, and Employees of Leading French and British Videogame Companies, in millions. Information adapted from Thomson Analytics database [Thomson].

	Revenues (€m)					Net Profits (€m)					Employees
	1996	1997	1998	1999	2000	1996	1997	1998	1999	2000	1996	1997	1998	1999	2000
Infogrames	57.02	100.38	223.76	306.13	521.59	3.12	5.95	12.76	20.28	-24.60	485	503	583	1186	2150
Ubi Soft	37.43	52.33	96.48	132.58	186.50	1.32	2.40	4.43	6.26	10.94	393	573	933	1474	1625
Cryo	8.31	14.84	23.72	36.43	50.09	-0.10	-0.95	0.87	1.92	10.62	-	180	193	236	455
Titus	6.64	21.24	7.94	26.54	142.81	0.12	1.43	-2.94	1.36	-27.57	-	-	-	124	691
Kalisto	n.a.	7.13	8.24	16.48	2.86	0.50	1.20	0.29	1.70	-28.10	46	136	176	240	270
Eidos	3.48	105.96	216.98	338.34	324.72	-1.83	8.66	17.18	32.26	42.01	-	-	-	458	485
Rage	11.54	9.98	5.05	13.52	6.66	-3.64	-22.61	1.32	4.06	-4.15	-	185	99	103	165
SCi	1.29	7.60	.30	12.30	5.28	-4.93	1.81	4.65	2.58	-4.15	-	79	-	38	38
Empire	-	13.30	17.40	11.80	17.40	-	0.20	0.20	0.30	-2.80	-	66	75	71	75
Argonaut	-	7.70	8.90	3.80	7.00	-	-1.00	-1.30	-4.10	-1.00	-	-	-	109	141
Warthog	-	-	0.50	1.50	4.00	-	-	0.00	0.50	0.30	-	-	-	-	170

In the case of Eidos, the leading British publisher, the company did not perform significant acquisitions apart from the seminal ones through which it transformed itself into a videogame company in 1996. Subsequently, it implemented a strategy of "cherry-picking" industry talent by taking minority stakes in many small development companies; for example, Innerloop (Norway, 25%), Clockwork (Britain, 25%), Pure (Britain, 26%), Elixir Studios (UK, 5%), Pyro (Spain, 25%). Typically, these investments were connected to a publishing deal, sometimes on an exclusive basis. This arrangement gave small developers the benefit of Eidos' financial support for game development while enabling them to remain independent. For Eidos, the arrangement helped to ensure that the development team would remain intact and motivated, outcomes that would not necessarily be forthcoming when the autonomy of the team was challenged in a full acquisition. At the same time, Eidos thought that minority investments would give them greater control over the studios than a regular advance on royalties; a notion that the company subsequently determined to be ill-founded. Since 1999, Eidos has not been involved in any acquisition activity, in part because the strategy of minority acquisitions has not lived up to expectations, and in part because Eidos has faced severe financial problems. Indeed, since 1999, Eidos has been more an acquisition target for other companies—particularly the French—than a potential acquirer itself [Paquette02].

Apart from Eidos' minority stakes in developers, British publishers made only a few small acquisitions in the last cycle, usually of companies within the broad British development base. Argonaut acquired three development studios: LTStudios (Britain), Just Add Monsters (Britain), and Particle Systems (Britain). Gremlin took over three development studios as well: Dream Weavers (Britain), DMA (Britain), and Mainstream Interactive (Australia). SCi took minority stakes in two developers, Stainless Software (Britain, 25%) and Pivotal Games (Britain, 10%) and acquired one small publisher, Actualize (Britain). Finally, Rage, as part of its strategy to make the transition to publishing, has increased its development capacity by acquiring or taking minority stakes in about eight studios, among them Splinter (Britain), DID (Britain), Wayward Design (Britain), and Denki (Britain, 20%).

As a result, while the French publishers were climbing the ranks of the world's top independent publishers, the British publishers saw only modest growth. After losing €5.4 million on sales of €4.6 million in 1998, SCi implemented a radical change in strategy towards "pure publishing," cutting its total employment to 38 by shedding its internal development capacity. Rage is still struggling to achieve its transition to publishing; in recent years it has vacillated between being an external development studio and an independent publisher. Argonaut is one of the world largest independent developers, but does not intend to switch to publishing.