Electronic Arts' Chief Executive Officer John Riccitiello has commented on Viacom’s plans to sell Rock Band developer Harmonix, saying potential buyers are more likely to be "cut" by the deal than benefit from it.
Speaking to financial news site Bloomberg yesterday, Riccitiello said: “I’m sure some smart investor will buy the business feeling that they can catch a falling knife."
“But more people have been cut trying to catch falling knives than have benefited from getting the timing exactly right,” he added.
While not admitting that Electronic Arts has actively looked at Harmonix, Riccitiello noted that overall in the video game space: "There are probably 25 companies on our radar that would make sense for us at somewhere between 5 and 10 percent of the asking price."
With the recent Gamasutra-sourced news that sales of retail music games in the U.S. have dropped by more than a factor of five since 2008, it's not surprising that Electronic Arts is not coming out with a strong public interest at this stage.
In fact, the company has gained significant revenue from the Rock Band franchise in the past, despite not owning it, via its EA Partners division's distribution of the series to retail.
Nonetheless, with Viacom noting that 'several companies' have expressed an interest in the Boston-based music game franchise originator, it seems likely that Harmonix will be picked up by an external party at some point soon.
Riccitiello is more than lukewarm on the possibility, according to his Bloomberg interview, hinting of his intentions: “We’re still out of favor... Moves that look like I’m doubling down on yesterday would make it harder still to convince investors that tomorrow is the Promised Land.”
I'm not convinced Harmonix/Rock Band is a "falling knife" - RB has a far more sustainable business model (i.e. a focus on DLC) than GH. But I have to admit, I'd prefer to wait to see the Christmas sales before making a grab - I still think sales over this Christmas are going to be relatively healthy, but hey: I'm not the one trying to decide if it's worth spending several hundred million dollars :)
(then too, it probably makes sense for EA to actively avoid owning RB, as it avoids the risk of being drawn into direct competition with Activision)
Regarding his other point: at first glance, it looks like EA is trying to empire-build on the cheap. However, on reflection, there is at least one sector where several companies have high market valuations but limited proof of sustainability/profitability: social gaming. Is EA looking at Zygna and it's ilk?
I think your first instinct is right... this seems like a calculated statement to scare off potential investors so EA can scoop them up at a bargain price. Harmonix may not be the Godzilla it once was, but the moves they have made with Rock Band 3 are thinking long-term, and the reviews on Rock Band were outstanding. If Rock Band can hang around long enough, they will become the entry point to "real instruments" for kids rather than tab books and guitar magazines.
Not to mention Dance Central has largely been called the "first game to buy if you own a Kinect". The sales may not reflect this, but word of mouth has a way of keeping sales afloat.
also to note is how well Dance Central appears to be developed and implemented on a new device (Kinect) shows the Harmonix's ability to be very creative and competitive in today's market.
hopefully this will play out well for the team as they are quite unique in a world of FPS developers.
Rock Band and Guitar Hero are a dying breed. They over saturated the market with too many versions of the games and didn't give enough time to really let the game flourish from one version to the next. I've only played the games a few times and I can't stand to see them or play them for that matter. There is not enough variety and differentiation to make them unique. And so consumers don't know why they should buy the 2nd or 3rd one when the 1st will suffice the need.
Man, thats not a very nice thing to say considering that they are the publisher. Can you picture someone trying to decide if they should go with EA Partners, and then reading these kind of comments? "We publish your games but we're gonna tell the world you're bad business."
True, but there's no reason for 'nice' in business. Companies don't walk away from a sale because the buyer said something that wasn't nice. EA's already got their share for publishing; Harmonix can't take that back. All he's really trying to point out is the music bubble burst and they need to find something new to show continued success in the future to justify the selling price Viacom put on them. It's hard to strike gold twice.
Harmonix is showing via Dance Central that they are a creative studio and worth acquiring for the talent but Viacom's trying to sell Harmonix on the historic quality of their IP... which is tapped out. With 25 potential other companies to buy at 5-10% of Harmonix's price, I think Riccitiello is just trying to inject some reality into the conversation. He could buy 10 of those 25 studios for the same price get some good talent and have 10x the chance of getting that next big IP. It's unwise to put all of your eggs in one basket, especially when that basket has a hole in the bottom.
He cannot buy them period. If he does the shareholders would oust him. No more billion dollar deals in this industry folks. And whilst Dance Central is great fun it's unproven as to whether it would be a successful franchise. How many versions of the same game type but different songs, dance moves and graphics would people really buy. It's just like GH and Rockband. Great fun but long term not a goer. Dance Central is brilliant fun but I sure as hell would not buy a follow up. It's as much a gimmick as it is a laugh mainly because the Kinect is new.
I haven't played it, but just from watching others play it Dance Central seems to have a huge amount of potential as a franchise that could break into new markets. Just imagine what would happen if they made an Indian edition and bundled it with Kinects/Xboxes in India. I remember reading an article or two before of publishers trying to gain traction in that market, and considering how easy you could tie in Bollywood music and their dance moves with the game... it seems like it would be printing money.
(then too, it probably makes sense for EA to actively avoid owning RB, as it avoids the risk of being drawn into direct competition with Activision)
Regarding his other point: at first glance, it looks like EA is trying to empire-build on the cheap. However, on reflection, there is at least one sector where several companies have high market valuations but limited proof of sustainability/profitability: social gaming. Is EA looking at Zygna and it's ilk?
Not to mention Dance Central has largely been called the "first game to buy if you own a Kinect". The sales may not reflect this, but word of mouth has a way of keeping sales afloat.
EA knows this very well.
hopefully this will play out well for the team as they are quite unique in a world of FPS developers.
Harmonix is showing via Dance Central that they are a creative studio and worth acquiring for the talent but Viacom's trying to sell Harmonix on the historic quality of their IP... which is tapped out. With 25 potential other companies to buy at 5-10% of Harmonix's price, I think Riccitiello is just trying to inject some reality into the conversation. He could buy 10 of those 25 studios for the same price get some good talent and have 10x the chance of getting that next big IP. It's unwise to put all of your eggs in one basket, especially when that basket has a hole in the bottom.