While the gaming industry occasionally gives the audience a peek behind the curtain into how the business side operates, it rarely goes over well. The contrast between “This is for the gamer” and having the gamer being reduced to a number on a profit line can be jarring and is often met with resistance and or misunderstanding of the message.
Lately, it seems the curtain has been taken completely off the rail and we are being treated to an unusual dose of corporate insight. Between Electronic Arts closing a “sweetheart” studio, Ubisoft providing microtransaction heavy fiscal numbers and the Entertainment Software Association (The ESA) endorsing a Tax bill that nobody likes, a lot of gamers have been left blinking in the corporate florescent lighting.
Where is the fun?
Why are all these companies losing sight of what matters most? Creative fun and engaging video games to enjoy? Does everything HAVE to revolve around maximum profit? Why are they ruining fun like this? In short, because they are obliged to, by law. It’s called “fiduciary duty” (Not related to Call of Duty) and it’s likely the reason why we are seeing all these companies chasing the money into a direction that we, the gamer, might not like.
The easiest way to think about “fiduciary duty” is to understand what a corporation is in the eyes of the law: namely, a collection of money and other assets contributed by a large group of investors, but controlled by a small group of people like your CEOs and directors.
That larger “investor” group has contributed their money on the understanding that the company will put it to its best use to increase the overall value of the corporation (i.e., to generate profit) doing whatever it is the corporation was formed to do.
Because the investor group can’t directly control the actions of the corporation, the law requires that the corporation’s directors and officers always be exercising “reasonable care” to keep moving the corporation in the direction that the investor group intended when they put their money in: towards maximizing profitability. That is the board and officers’ primary “fiduciary duty”; in other words, the duty of those in charge of a corporation to act as fiduciaries (trustees) of the funds that have been entrusted to their care. They are the guardians of the bank vault and they can’t simply “waste” that which they have been entrusted to protect.
This means that the board and officers of a corporation always need to be considering if the actions they are taking with the corporation and its assets are in the best interest of the corporation’s stockholders.
But if nobody likes the trend towards monetization, lootboxes and a heavy reliance on expansions and season passes, why is everyone starting to implement these “Devious” methods in their games? Well, because the data isn’t telling these companies that “nobody likes” their methods.
All of the data
What we are starting to see now in the video game industry are statistics, reports, and financial statements that show such high levels of Games as a Service (GAAS) profitability over and above that realized by traditional single-player content, that they suggest that every board of every video game company needs to at least consider whether the assets they hold wouldn’t be better spent on pursuing GAAS solutions. For a board of directors to ignore this data would be to violate their duty to exercise “reasonable care”.
Now, “reasonable care” does not mean they are obliged to follow these trends.
There are plenty of reasons for a company to determine that pursuing single player is just fine. If you are Nintendo, you have arguably some of the best single player developers in the world and a one-time hit of Mario money might very well be a better investment than trying to build “Mushroom Kingdom Live” with expertise you don’t have.
If you are Naughty Dog, your shareholder is Sony, whose own shareholders understand both that:
A: Video games are just one piece of a much larger corporate puzzle and ;
B: Single player exclusives may well be a justifiable “loss leader” (as compared to a GAAS payday) to enhance console sales.
Finally, if you happen to be a true independent, owned by only a single individual or small group of like-minded folks, you can do whatever you want, because the duty you hold is to yourself. No one will be in a position to sue you over loss of your own money.
This investor pressure is why most every company’s board and officers, save for the true independents, need to worry about meeting their fiduciary duties, though some may determine that they meet them simply by “staying the course”.
The present pattern of the data coming out of the industry might be uncomfortable or not in every gamer’s best interest, but from a legal perspective it makes perfect sense. When an EA sees these tailwinds, they have an obligation to their investors to at least explore these trends. That’s why the investors gave them the money in the first place, after all. When the consumer proves them right, over and over again, it would be financially irresponsible to not consider following them.
Tough pills to swallow
We might not like the idea of a GAAS-only multiplayer future, but, by law, these corporations have to analyze the data they are getting carefully, and consider the possibility. Clearly EA has determined that GAAS is where the money lives and is aiming to please their investors first, always.
Knowing this, decisions like shutting down a sweetheart studio might be easier to digest. It can also help inform why an industry trade group like The ESA endorses a tax plan that benefits its members. They are doing their duty as a representative of a larger group. Does this mean the consumer is completely powerless in this? Absolutely not. The trends that these companies are following are based on our own behavior. We are complacent enough to help push the monetization slider further up until we aren’t.
We might not LIKE loot boxes, but people are buying them in droves and the market responds (and will continue to respond) accordingly.
As with most things, “voting with your wallet” is the loudest signal you as a consumer can give, but at some point you have to ask yourself an uncomfortable question;
“Am I still the demographic?”
If you are in the group of people unwilling to spend, you might not be.
That hurts, but that is where your relationship with any industry or major corporation ends.
Richard Hoeg (“Rick”) graduated in the top 5 of his class from the University of Michigan Law School and is the founding member of The Hoeg Law Firm, PLLC (www.hoeglaw.com) specializing in the fields of corporate governance, venture finance, and mergers and acquisitions. An avid gamer and technologist, Rick expanded his practice to include information technology, software licensing, and related contractual and intellectual property law issues, with a focus on Software-as-a-Service and custom software development. Rick currently lives in Northville, Michigan with his wife and two daughters. You can follow him on Twitter