This week’s edition of Gamasutra's 'The Euro Vision' column is full of financial figures and an exclusive graph, as veteran journo Jon Jordan tracks the state of the UK game software market in 2006, as well as his growing delight in following Ubisoft’s share price.
Sometimes I wonder if I shouldn’t become an accountant, such is the hidden beauty I find in a well balanced column of figures. Combined with a low-level interest in graphics, it means I also spend too much time creating graphs. So a generally slow news week in the Europe prior to the launch of Nintendo’s Wii - primed for midnight on Thursday 7th November - finds me scrabbling away with coloured lines in an attempt to track what’s been going on in the UK software market in 2006 so far.
Obviously with the highest selling month of the year still ahead of us, this column should only be taken as a rough guestimate of what’s happening. That said, after a disappointing 2005, it seems that 2006 is looking like a good year for the UK games industry.
Reading Between The Tea Leaves
Of course, scanning the postage stamp-sized graph with three wavery lines that’s above (it shows the UK’s weekly sales figures for 2004, 2005 and 2006), it’s pretty difficult to tell what’s going on. A few key events can be pointed out though.
There’s an early red peak that was due to the March 2005 release of Nintendo’s DS. It stands out because spring is generally quite a weak period for game sales. Interestingly, there is a nice blue peak in April 2006, too. Not as strong as the DS launch, this was due to the release of 2006 FIFA World Cup Germany
into a market already buoyant on the back of Tomb Raider Legend, Football Manager 2006
and The Elder Scrolls IV: Oblivion
sales. Another more recent blue peak (late October 06) was due to the release of Pro Evolution Soccer 6
A more general trend worthy of comment is the very strong end of year sales performance in 2004 (green line), which was mainly due to the releases of GTA: San Andreas, Halo 2
and to a lesser degree Half Life 2
. Winter sales in 2005 were much lower in comparison, but, so far, you can see 2006 is right up there with 2004; something that seems highly likely to continue thanks to the Wii-The Legend of Zelda: Twilight Princess
What’s The Frequency, Jon?
Turning away from lines and concentrating on figures, my rough back-of-the-envelope calculations put 2006 ahead of 2005 by about 1 percent, in terms of software sales to date. But, as already pointed out, 2005 suffered from weak winter sales, so this growth should increase for complete year-on-year sales.
Perhaps more interesting has been the large jump in the total number of software units sold, up over 7 percent to date. This is significant as it demonstrates that the underlying trend of people buying games remains strong. However, with Xbox 360 the only launched nextgen console in the UK at present, the average price of a purchased game is dropping steadily as the PlayStation 2 market becomes more price sensitive. Some more rough calculations suggest the average price of a game sold in the UK in 2006 is around £20. Back in 2004, it was £21.75.
Yet with most analysts suggesting PlayStation 2 is a more stable market than PSone was during the equivalent period in its lifecycle, all-in-all this console transition is looking like it will be pretty good one for everyone - gamers, publishers, retailers and maybe even developers.
Ubi Watch Continues
While I’ve always enjoyed numbers, until I started this column, I didn’t realise how much of a kick I’d get out of tracking developments at publisher-on-the-up, Ubisoft. Still, I almost missed the announcement it was converting 459,013 convertible bonds (issued back in 2001), into 475,998 new shares.
Like Infogrames, at the peak of the French technology market Ubisoft took advantage of the availability of cheap money, taking out various loans. A couple of years ago, it had debts of €170 million: cash that was used in the acquisition of companies such as Red Storm and Blue Byte, and to expand its Canadian and Chinese development divisions. Unlike Infogrames however, Ubisoft’s growth on the back of that investment means it’s been able to effectively manage its loans. In the 2004/05 financial year, its debt was down to €81 million.
One good outcome for Ubisoft of this recent bond conversion - which reduces its overall debt by another €24.2 million - is that the company’s ongoing interest payments are reduced, by over €1 million per annum.
However, as is the way with convertible bonds, these generally don’t provide the lender with high interest payments anyhow. This is their advantage when you’re trying to build a company. The rub is that when the bonds are converted into shares, the shares are priced at a premium to the actual market value of the company’s stock. In this case however, the bonds were converted at €50.84, which thanks to a strong share price rise (in part due to EA’s 20 percent stake in the company), was roughly the current price of Ubisoft shares at the time. To that extent at least, Ubisoft got a great deal: five years of low interest payments and a tiny premium on conversion.
But the addition of around half a million new shares is always going to dilute the overall value of shareholders’ equity. Bizarrely, this has also combined with Ubisoft’s plan to carry out a two-for-one stock split on 11th December.
As suggested by the term, this means that all Ubisoft shareholders will have the number of the shares they hold in the company doubled, while the price of each will be halved. Overall, this means their holding and the company’s market capitalization (ie the share price times the number of shares), remains the same. Usually companies do this after experiencing a strong rise in share price, in the hope that lowering the price of an individual share will psychologically make it more attractive to buyers. Carrying out a stock split is also often thought to show the confidence of the executives in future growth.
In this case however, the proximity of these financial events seems to have had the opposite effect, triggering heavy profit taking. The share price hit a 52-week high of €52.30 in mid November, but this has since dribbled steadily down to around €45. It will fascinating to see which way it goes after the split is complete.
[Jon Jordan is a freelance games journalist and photographer, based in Manchester, UK. He owns no Ubisoft shares or bonds, but probably owes their PR department a round of drinks.]