165. EA Aftermath Analysis
Now that the "Corrections" I predicted as far back as 2017 are arriving, how is the EA sale going to play out? What are the hidden details and politics? What, if anything, will be spared?
Back in 2017 I predicted a massive industry-wide correction, and explained in detail what was going to cause it. Later that year I then explained why the doomed trajectory of EA was non-recoverable. I tried multiple times to assist EA, both in my writing and privately with their various studios. But as I predicted there was no possibility of them changing course. I take no pleasure in the situation, a lot of people will lose their jobs and gamers will find many of the assets they purchased over the years losing value. I’m not an emotional person and I don’t have an ego. I just want to make the gaming space more commercially successful and enjoyable for consumers.
That said, I’m big on consent culture and you have to let people choose for themselves. So on to my analysis.
The Deal
I’m not a big fan of corporate raiders, but I know enough to explain what’s going to happen next. The purpose is not to turn EA around and make it profitable. There was a brief window between 2017 and maybe 2020 where that would have been possible, but not under their existing leadership. The reason the $20B debt burden is so large is because this is necessary to make the deal profitable for the buyers. Here’s how it goes:
All existing production will be terminated.
All workers assigned to terminated projects will be released.
The IPs that can be made revenue net-positive will generate passive income. By laying off the staff that would normally make new content for those IP, overhead can be minimized to get to net positive.
While I am still available to assist with this process (I’m the Cleaner I mentioned in those above papers), existing leadership would never permit that.
While it would be rational to assume that the people responsible for the demise of EA would lose their jobs, I think it’s going to be more complicated than that.
As you might guess from my Force Wars paper, I think Disney is a silent partner to this acquisition. They are going to play it cool and not announce that right away.
Disney related IP will be transferred from EA to Disney at a juicy discount. I assume that EA leadership will golden parachute out of EA and into Disney. The culture of the two companies is sufficiently similar to support this.
Disney wasn’t a fan of my predictions and between EA and Disney they have made it hard for me to get work. So while I would be willing to help Disney also, I think that’s unlikely to occur. I don’t have an ego so I’m good either way.
Once the IP that is valuable to Disney has been transferred, the other assets that can be milked for passive income will be split off to new companies, similar to what Ubisoft did earlier this year. While Ubisoft and EA were the two companies I was certain were going to fold, this formula may be repeated in other AAA companies, especially as the DFA (Digital Fairness Act) approaches.
The remaining unprofitable assets, and any other debts and responsibilities that can be clustered to it, will be packaged into one entity. That entity will then declare bankruptcy. This could erase $30+B in responsibilities.
“Erase” is the politically correct way to say this. What’s going to happen is that the stockholders that aren’t in on the deal, and who don’t read my papers, will be left holding the bag. Just like what happened when people didn’t read my Zynga Analysis prediction paper and lost it all after the Zynga IPO. Wow that was 14 years ago, time flies. I find it interesting how history keeps repeating.
Back in July I did a recap of Force Wars, Part 1 and Part 2, to put the impending sale of EA into modern context. As I explained there, this isn’t just about games anymore.
What Disney is Up To
I embarrassed Disney in 2013 at the Panama ICPEN regulatory summit by showing regulators Marvel Superhero Squad Online. I didn’t intend this, I didn’t know until I got there that it would just be me and the VP of Disney making presentations. I gave the VP the courtesy of warning her the previous night when I had dinner with her. She didn’t seem concerned at the time.
Despite their embarrassment, they seemed to make it about me and not their product. So that game (and Gazillion Entertainment) went merrily on until late 2017. Then Disney needed to convince EU regulators to let them buy 21st Century Fox. regulators have long memories, and they demanded a sacrifice. So Gazillion was shut down almost instantly. Everyone lost their jobs without warning, and without severance pay.
Satisfied with the size and quality of the sacrifice, EU regulators approved the merger. If this sounds familiar, it should. History is repeating itself. Disney will need approval to complete the Disney/EA merger. Not from the EU this time, from the White House.
Jimmy Kimmel was the sacrifice, and I believe it was considered a large enough sacrifice to appease the powers that be. But then one of those Black Swan events threw that all into disarray. Now how was Disney going to make amends? They pulled a fast one and the sacrifice was now going to need to be bigger.
Insert Jared Kushner. No he’s not going to be sacrificed. He’s going to be a partner in this whole deal and a LOT of money is going to move into his hands. Money is always an acceptable medium of sacrifice if the sum is large enough. Since this is a legitimate deal, there will be no need to launder anything.
The Star Wars IPs will go to Disney and the sports IPs (especially FIFA) will be retained by the Saudis. I’m not expecting additional content to be created for either. This isn’t that sort of deal. It’s not an investment. EA will get chopped into pieces and anything valuable will get moved out. The fetid remains will be burned in bankruptcy.
But, What About the Gamers
Right, about those… They were always going to be the big losers here, and this isn’t confined to just Ubisoft and EA. Virtual assets (microtransactions) are only valuable if you can use them. When these games gets shut down, those things will just vaporize. The legal framework has already been set to allow these companies to shut down their servers at will.
Of course this will cause gamers to stop spending. But they’ve already been doing that for a while as I predicted since at least 2013. Thus to milk positive net revenue from these IPs, the staffing cuts have to be almost total. Just the people needed to keep the games online will be retained. No new games will come out, that’s not what this is about.
This isn’t a pack of pissed off Jedi (regulators) boarding the flagship. This is the Empire boarding the flagship, and they look… disappointed. There is going to be an orgy of Force Choking. Gamers will turn to Indies for their games, and eventually a new breed of AAA developers will rise from the ashes. My substack is a wealth of information to coach them into how to avoid following the path of Activision, Ubisoft, and EA.
The Saudis win (if they are smart about this), the White House wins, and Disney wins. Not a win for gamers. Definitely not a win for stockholders if they are left standing when the music stops. Alas, if people are buying stocks due to enthusiasm generated by developer layoffs, no need to feel too bad for them. There is a term for this in Buddhism…