167. Zombie Companies and Studios
When a game, or even an entire studio/company finds their service has become obsolete, the options are limited. Here I discuss what can trigger these states, and what those options are.
A “Zombie” company is one that is non profitable and likely to become more so. It may still externally appear alive or even profitable, but the truth is that it is walking dead.
Companies and their underlying technologies come and go over time. It is natural that core technologies will become obsolete over time and be replaced with new methods. In some cases those companies will invent those technologies themselves and pivot to that new tech. This is usually because they had a strong R&D budget and/or the top scientists in the field in their employ. When a competitor develops a new technology that renders the first company’s product obsolete, this often spells the end of that company’s lifespan.
Other times a company may have a product that is initially popular, but then later it is discovered to have some negative public health effect (I would include environmental effects here). If the effect takes a long time to take effect, that negative effect may only be an issue after the product is well established. In some cases these products are addictive so that complicates the obsolescence of the product. This was the case with original Coca Cola, which contained cocaine from 1886 until 1929. Due to cosy and secretive alliances with the USA government, they were allowed to pivot to a non cocaine drink and were allowed to be the only American suppliers of cocaine, which was sold to drug companies instead of being put into their drink.
I will define a Pivot as a substitution of an inferior (but still profitable) product for the original superior (but problematic) product. A similar situation occurred with asbestos suppliers that pivoted to using fibreglass. Tobacco companies somehow managed to just keep selling product with marketing and labelling restriction. They eventually pivoted to “vapes” which ended up not being any safer.
When a new technology replaces a previous technology and forces obsolescence, I will describe that as a Paradigm Shift. The original technology may not be harmful, just inefficient relative to the new tech. This occurred when horses were replaced with internal combustion engines (cars) and then the ICEs were in turn replaced by electrical vehicles (EVs). I describe the process of how to shift from one paradigm to another in my Moneyballification paper. It is never an easy process. As described in Moneyballification, the actual people inside a company will attempt to resist the process despite this being destructive to the company. The reason here is because people also don’t like to become obsolete, and the objectives of the employees can become misaligned with the objectives of the company (and shareholders) in such scenarios.
The Western automotive industry is an interesting example because it has survived multiple paradigm shifts. Of course Henry Ford trigged the first one with his assembly line technology. But Western automakers got lazy and kept making bigger and bigger (and less efficient) cars peaking with vehicles like the Cadillac 1974-1976 Fleetwood Brougham. My mother had one of the first Toyotas (~1970) and it would break down all time. Cadillac drivers would stop to give her a push. Those Cadillacs were beasts. But the October 1973 OPEC oil crisis would hit these dinosaurs like a cosmic meteor, and soon those little Japanese cars were decimating the cars from Detroit.
Later in the 1990s General Motors would pioneer modern electric cars with their EV1. They would also kill and bury their own invention. A movie was made about this. This attempt to pioneer then kill/delay the next paradigm shift would prove to be catastrophic. Tesla would be seen as the future of cars and ended up being worth more than all American car companies combined. Its CEO would become the world’s richest man.
Another way that a company can deal with impending obsolescence is to try to sell off their assets before it becomes public knowledge that the company is under threat due to impending paradigm shift or pivot forced by regulators in response to some public health issue. I will refer to this as a Dump. When Take 2 asked me to research Zynga, in regards to their interest in acquiring it back in 2011, I produced Zynga Analysis. The paper took me 2 days to research and 2 days to write. I determined that the company was being overvalued because Facebook was closing the exploit that Zynga had depended on for their user acquisition success. Thus Zynga’s methods were not a paradigm shift, just an exploit. But they marketed it to investors as a paradigm shift, and apparently no one bothered to question this since I was the only one to successfully predict the Dump. The Zynga IPO was the worst in history for investors, but the Dump worked out fantastically well for CEO Mike Pincus.
The valuation at the time of the IPO was $7B, with news media (like the Los Angeles Times) suggesting it was worth much more. I made it clear that the company was grossly overvalued. The value of the IPO would plunge would plunge from $7B to under $2B. If Take 2 had purchased Zynga for $10B prior to the IPO, to prevent the IPO, then they would have lost ~$8B which might have bankrupted them. So I think it is fair to say I saved them $8B with four days of work. Ten years later they would buy Zynga for $12.7B. I was not involved in that acquisition. It would appear that Zynga has been a drag on the company since then, so in hindsight it would seem that again they succumbed to overvaluation. But foresight is much more valuable than hindsight, so if they had employed this domain expert again, it is reasonable to assume they would have saved at least another couple billion dollars on that deal.
The Key Factors Threatening Large Western Developers
Looking at Western developers through the lens of Paradigm Shift, Pivot, and Dump, let’s look at the imminent threats to larger (“AAA”) Western developers:
Ancient/Mismatched Business Model Tech: The F2P w/microtransaction (and especially “Pay to Win” versions) business model introduced by Nexon in 2001 on their Maplestory game was initially effective in the East because consumer budgets at that time in the East were much smaller than in the West and the lower (zero) price point of F2P allowed much higher participation rates. The “free” players were sold as “wild game” to the paying “pay to win” customers, so those free players became the product.
New Paradigm Tech Already in Play: Tasked with solving the impossible “gold farmer” problem in 2005, the solution was achieved and authenticated by Professors Mike Zyda and Henry Jenkins in 2009. The tech went from theoretical to outperforming legacy models when deployed to Microsoft’s Project Spark (2012/3) and Wargaming’s World of Tanks Blitz and World of Warships in 2014. Because the tech is scientific, not intuitive, deployment times are 20% or less of legacy methodology. It was transferred to Gods Unchained (2020, Immutable) in only 3 weeks, marking its successful adaptation to web3 applications.
Regulatory and Consumer Backlash: Microtransactions were never popular with Western gamers. They didn’t take off in the West until Zynga combined them with the Facebook UA exploit, that was quickly closed. But Pincus’ claim that this model and “data driven design” was a paradigm shift (it wasn’t, as evidenced by the IPO implosion) and boosted by mass media caused its wide adoption. Once widely adopted, “sunk cost fallacy” and resistance from previous-paradigm (pro “data”) employees delayed/blocked new paradigm implementation. This was analogous to GM burying their popular EV1’s to delay EV paradigm introduction. As consumer complaints mounted, regulatory efforts gained steam worldwide. These are slow acting and consumers have organised to retaliate against companies using these models without waiting for regulatory relief.
There is a lot here to unpack. Different companies have varying degrees of understanding of their plight, but in all cases their knowledge is fairly limited to what’s on an excel spreadsheet. These typically show stock values but do a poor job of showing trends. Further, these excel spreadsheets are prepared by the “data” people who are most under threat from the new paradigm and thus have motivation to fudge the data presented to people who could fire them. Because of the complexity of the data reports, leadership is forced to trust the reports without challenge.
I explained in my Data Implosion (2017) paper that the use of “data” driven design to raise prices results in a short term bump in revenue (like any rise in price) and then a significant drop in revenue as purchase rate drops. The rise is credited to the data personnel and the “dip” is credited to anyone else, whoever is most vulnerable to gaslighting. My friends who are data people all agreed with my conclusions, but were of course a bit unhappy that I put that out in the public space. I couldn’t have picked a stronger faction to poke. Alas, when it comes to helping companies, I’m laser direct and don’t play politics. I don’t think any scientist should alter their conclusions based on prevailing politics or even self preservation. If they can’t handle the heat, get out of the kitchen.
There is a lot of misdirection in this industry, and unless you understand things very well, its easy to get duped. When Pincus (at Zynga) wanted to obfuscate the friend notification exploit that he was using he credited his company’s success to “data driven design” and microtransactions. The world pretty much fell for it (except me it seems) and that’s why I was the only one that predicted that his model would collapse once FB closed the exploit (which they did pretty fast). This was similar to how the USA Olympic team was the first to play around with steroids in 1968. I know because I worked with one of the coaches in later years. When asked how their guys got so big, they answered “isometrics”. Which was of course a bullshit answer if you are a physiologist like I am, but laypeople didn’t know any better. So isometrics became super popular and still are today (more than 50 years later) even though they are the lowest quality exercise.
Then came Moneyball which credited the 24 year old data guy in the movie with revolutionizing baseball. But it was the subject matter expert (SME) that revolutionized baseball, and that took him 30 years (pretty standard for an SME). He was omitted from the movie. Just not sexy. So when various industry leaders asked me for help with their new data teams (including the VP of Blizzard) I told them they needed an SME. That never happened, the data people probably killed that even though they know they are pretty useless without an SME to interpret data.
While AAA was focused on neutralizing me and the rest of the regulatory process, gamers were organising as I predicted in my Force Wars paper (also 2017). I’m pretty easy to neutralize since I don’t have a university backing me up. But you can’t neutralize your consumers. You don’t exist without them. Regulators (and me, their chosen SME) just exist to serve consumers. If we do a bad job, or are stymied/neutralized, eventually consumers will go vigilante and take justice into their own hands. That’s what you’ve seen and AAA has been getting crushed despite trying to put a pretty face on it. The three Zombified Companies that I’m about to discuss all knew internally that they were in trouble even in the absence of regulatory changes. Since there is a synergistic relationship between consumers and regulators, the more pissed off and organised consumers get, the stronger regulators get.
All they had to do was put out pretty looking data and narrative to shareholders while they tried to execute an escape plan. Who produced all the “data”? It wasn’t the artists or programmers. This is a case where the interests of employees and the company were misaligned and the company/shareholders were going to lose due to sabotage.
Activision/Blizzard: Bobby Kotick is a notoriously smooth operator. He was accused by his own employees of sabotaging the company by lying to the board, and covering up numerous cases of sexual harassment, discrimination, and rape. Kerri Moynihan even killed herself at work while her male fellow employees were sharing pictures of her vagina with each other. Then they attempted to cover the whole thing up. This occurred years before Microsoft bought Activision, but the wrongful death lawsuit was announced after.
Do you think Activision was properly informed of all the liabilities and risks before the purchase? I’m not sure which would be worse: knowing all this and still buying the company, or failing to do basic due diligence before spending $69B. Did they know about the regulatory threat posed by the EU? I’m guessing not. If they didn’t, I’d classify the sale of Activision/Blizzard as a Dump. Of course Microsoft will not want to admit to either of the above fail states, because they both look really bad.
Because Microsoft lawyers silenced me for 4 years without explanation, preventing me from even saying I had worked there, and then failed to credit me with my work, I left them and went to Wargaming. I assumed this was basic racism. Over 630 people in the small studio were credited with Project Spark. Even the dog walker’s pet rock was credited (slight exaggeration). But the person who created the template for the project and designed the metagame and business model (me) wasn’t credited anywhere. So it would be rational for them to assume I would not help them with their Activision problem, before or after the purchase.
This means that they have no options to deal with impending regulation other than to convert all their IPs to subscriptions. Clearly this would not be enough to sustain those IPs and they are facing a near total wipe. Their “Hail Mary” move was to raise the price of XBox Gamepass to a whopping $30 a month. The proposal is being ridiculed by gamers and even normally sympathetic (because their job depends on it) mainstream gaming journalists. If this worked, it would be a Pivot post-Dump.
Hint: It’s not going to work.
Thus Activision/Blizzard is likely a post Dump Zombie Company only still walking because it is being propped up by Microsoft. MS will do their best to cut their losses, which means a lot of layoffs. If they can, they will try to Dump the company again. Like a hot potato.
Ubisoft: This company had one of the worst reputations out there for monetisation exploitation. I didn’t really write a lot about them because I didn’t find their product line-up all that interesting. I’m a big fan of Heroes of Might and Magic but that IP just seemed to go there to die. My nose was twitching and I smelled blood on March 25th of this year, and DID write about Ubisoft. I already considered Ubi to be a Zombie Company and had to point out that their Hail Mary pass was not going to work. I had previously offered to help them but they didn’t seem too serious. Ubisoft’s buyout was announced on March 27th, 2025, two days after I published that paper.
This is sort of a Dump, especially if the buyers were not aware of the impending regulatory risk from the EU’s Digital Fairness Act. They may have also not read my paper 2 days earlier or didn’t care. If they understood all that and bought it anyways, then this would just be a Pivot. The terms were very unfavorable for Ubisoft, so this is possible. It seemed like a very (appropriately) desperate move on the part of the Guillemot family. To be honest, their games aren’t really social enough to be commercially viable even in the absence of regulation. But the DFA is going to absolutely crush them since they are based in France and are so die-hard consumer antagonistic.
Electronic Arts: This is probably the most complex of the Zombie Companies. They’ve been very unpopular with the public for years, winning “Most Unpopular Company in America” award twice. In a row. A record. This company may have been a Zombie for a while. The public was well aware of EA’s anti consumer ideology even back in 2012. I would imagine it was a victory for creative math that it even got this far.
I haven’t written much about EA specifically because nothing I could have written would have been particularly newsworthy. Except… their research into and patent of EOMM. Hundreds of millions of consumers were harmed by this “tech”. It would take a small to medium miracle to get EA past the DFA, and that would be totally impossible under current leadership.
Apparently the deal maintains current leadership, at least for now. The deal is expected to complete by June 30th 2026. So the big question is, did the buyers know anything about the DFA? The DFA has “Kill EA” written all over it. If they didn’t know about the DFA, then this is a master class Dump. Smooth as hell. If the buyers don’t know, that’s just really a careless use of $55B. In such a case, then it just seems like a passion project by well endowed Arab fans who want to keep EA’s games alive. If so, you go boys! I can see how that might tie in with their existing esports projects.
If they didn’t know about the DFA and got duped, well they have 9 months before the deal completes. I’m no lawyer so I don’t know if they can pull out, and how Jared would feel about that, but it might be worth considering. I don’t know if even I could save their games from regulators, but if the price was right I would definitely give it an enthusiastic attempt. Having EA’s properties converted to consumer-friendly models would be a huge win for gamers everywhere. In the meantime, I expect a lot of layoffs, and not the right layoffs.
I explicitly used EA as my example in my Force Wars paper in 2017 for good reason. I explicitly detailed what would happen when (not if) there were massive layoffs at the company. 8 years ago. Every time one of their studio heads desperately tried to hire me a letter would appear from corporate within hours (often at like midnight in the USA) saying they had “found a better candidate”. In their sleep, using their psychic abilities. So to even safely put me in that studio you would have to fire so many trouble makers that even if I repaired all their designs, who would be left to run the games?
If this deal survives to June 30th, then the question becomes “When does the DFA deploy?” If before then, that’s going to be one hot flaming mess of ghoul carrion. If afterwards, if the EU sues the new owners of EA right out the gate… All I can say is…you really don’t want to piss off the Arabs to that level. Seriously, think about it. I would love to assist this situation but it is just so political (even without Jared there) that it would be an extreme assignment. My reputation for honesty might really work against me there. What a mine field. The Saudi situation doesn’t bother me at all, I would love to do some work there. I’d probably have a lot less issues with my ethnicity.
I will take a look at the rest of the ESA membership and see if I can identify any more pending Zombie Companies. If it’s not clear, I’m not going to say anything. I don’t want to unfairly damage anyone’s reputation. If there are more out there, then I think it is important to identify them before investors put themselves at risk.