The big issue with publicly traded companies is that the line they need to go up isn’t lifetime revenue, it’s quarterly profit. If they consistently make $1 million in profit every quarter, that’s a failure. They need to be making more profit year on year. Even if they’re consistently producing excellent products that make a lot of people happy, and are treating their employees well, that’s not good enough.
IDK, I think consistent profit is really valuable for investors, and they’d much prefer that to large swings in profit. So games studios have an incentive to produce good enough games frequently, not to make fantastic games infrequently.
Personal Anecdote
We just had a presentation by our CTO, who noted a shift in company strategy going forward. We basically had four business units:
A - produces raw materials, about half of which is sold as a commodity and half is used
B - high margin product, sale companion to products made from A
C - service based product serving a region; uses packaged version of product A
D - service based product serving a region; used bulk version of product A
Segment A is highly volatile in profit based on commodities prices. One year it’ll make more profit than the rest of the business, and the next it’ll have a net loss. But on average, it has competitive profit, perhaps better than much of the rest of the business, and all of our products use it as a raw material.
Our business strategy was to sell the plant, thus reducing our profit, but also reducing volatility in profit. This makes us more attractive to investors, because investors would rather see a smooth line going up than a constant up and down with an upward trajectory.
That’s like the games industry. Investors want to see franchises like COD or FIFA that have consistent sales, not periodic hits like BG3, even if the studio has a good track record. So $1M/quarter is more attractive than $15M every 3 years, even if the latter has higher overall return.
In other words, a bird in the hand is worth two in the bush. Private companies can go for both birds in the bush.
The big issue with publicly traded companies is that the line they need to go up isn’t lifetime revenue, it’s quarterly profit. If they consistently make $1 million in profit every quarter, that’s a failure. They need to be making more profit year on year. Even if they’re consistently producing excellent products that make a lot of people happy, and are treating their employees well, that’s not good enough.
IDK, I think consistent profit is really valuable for investors, and they’d much prefer that to large swings in profit. So games studios have an incentive to produce good enough games frequently, not to make fantastic games infrequently.
Personal Anecdote
We just had a presentation by our CTO, who noted a shift in company strategy going forward. We basically had four business units:
Segment A is highly volatile in profit based on commodities prices. One year it’ll make more profit than the rest of the business, and the next it’ll have a net loss. But on average, it has competitive profit, perhaps better than much of the rest of the business, and all of our products use it as a raw material.
Our business strategy was to sell the plant, thus reducing our profit, but also reducing volatility in profit. This makes us more attractive to investors, because investors would rather see a smooth line going up than a constant up and down with an upward trajectory.
That’s like the games industry. Investors want to see franchises like COD or FIFA that have consistent sales, not periodic hits like BG3, even if the studio has a good track record. So $1M/quarter is more attractive than $15M every 3 years, even if the latter has higher overall return.
In other words, a bird in the hand is worth two in the bush. Private companies can go for both birds in the bush.