Specialist
Former senior executive at Ubisoft Entertainment SA
Agenda
- Ubisoft’s (EPA: UBI) H1 FY23 earnings outlook
- D2C initiatives – strategic vision, structure and implemented strategies
- Ubisoft Connect – service offerings, DRM (digital rights management), reception and outlook
- Ubisoft+ – expansion into subscription-based services, relationship with console subscription services and cloud gaming platforms, positioning vs EA Play (NASDAQ: EA) and success factors
Questions
1.
Could you discuss the greater themes impacting Ubisoft? At the time of our previous Interview [see Ubisoft – Performance Inhibitors & Take-private Considerations – 16 May 2022], mega PE was looking to take the business private and a management buyout was potentially on the table. We also thought Vivendi might look at building its stake in the business again. Against that backdrop, Tencent increased its stake in Ubisoft – I think it’s about 11% currently. You previously said Tencent’s relationship with Ubisoft, while it did have a degree of stake investment, didn’t really materialise into anything when it came to building out in the China market or developing the mobile game strategy. What’s your view on Tencent’s recent stake increase in Ubisoft?
2.
Do you think Ubisoft accepted the lower price from Tencent because it was a safer partner to have? A big thing we’re tracking is the standstill that was eventually preventing Vivendi from buying stocks in – or increasing its shares in – Ubisoft, so that comes to an end around spring 2023. Do you think Ubisoft took the lower price to prevent this? Is there still any potential threat of another hostile takeover approach by Vivendi, or do you sense that entire drama between the two families has come to an end?
3.
A specialist in a previous Interview [see Ubisoft – Intellectual Property Slate & PRI (Player Recurring Investment) Strategy – 15 July 2022] discussed Simplify Ubisoft, which is essentially restructuring the EMEA and NCSA [North, Central and South America] divisions together into global publishing. In our previous Interview with you, we discussed lots of the issues that were impacting Ubisoft across the board organisation, slower pipeline of game development and workplace cultural issues. How is Simplify Ubisoft aiming to solve for these, and when might it start seeing effect? I’ve heard it might be 1-1.5 years away, so how do you assess the time frame?
4.
Ubisoft talks a lot about wanting to expand in and focus on the mobile gaming and F2P [free-to-play] realm. You were a bit sceptical about this in our previous Interview. Given the recent Tencent stake increase, there is some viability for this to expand further. You said it’s interesting that the mobile division sits in a separate team away from the recent restructuring with Simplify Ubisoft. How are you tracking Ubisoft development in the mobile gaming space and segment? What are the current red flags and what are you noticing?
5.
Ubisoft’s FY21 sales were EUR 2.1bn, with EUR 300m each coming from three flagship IPs – Assassin’s Creed, Far Cry and Rainbow Six. It’s interesting that the two major releases for FY22 are the Avatar game and Mario + Rabbids, so the company actually isn’t getting the huge boost that’s supposed to come from the three major IPs. What is the potential risk or benefit of this? How do you evaluate that risk-reward, given it doesn’t have any major IPs coming out except for third-party IPs such as Avatar and Mario?
6.
What’s happening in Ubisoft’s D2C initiatives? I understand this kicked off in 2009 with Uplay, and has now morphed into Ubisoft Connect and Ubisoft+. How this has evolved over a decade, and how did it go from Uplay into what we’re seeing today?
7.
I understand Ubisoft Connect is an achievement and trophy system, while Ubisoft+ is more about the subscription model. How are these two services integrated together?
8.
Thinking about the origin of Ubisoft Connect, which is the achievement and trophy system, there was a lot of belief that you could utilise these trophies in the games and redeem them for skins or other accessories within the games. It was also thought that this could lead to further purchasing through in-game microtransactions. How has this worked out for Ubisoft as a whole? Has it actually led to this increase in microtransactions, and therefore the PRI [player recurring investment], or has that not materialised for the company?
9.
You mentioned Ubisoft Connect is effectively used to launch the game when it’s used on PCs. I believe this works into it being a DRM [digital rights manager], so it needs to be run even if the game is purchased through another third-party storefront such as Steam or Epic. My understanding is that when this was launched, there was significant backlash from fans and critics. How does Ubisoft Connect work as this launcher, and why do think there was such significant backlash?
10.
It’s my understanding that Ubisoft wanted to utilise Ubisoft Connect as a method for driving multiplayer and communication services as a whole. How well has this fared for the business? This links into what we discussed around it potentially struggling a little in the multiplayer space. How was Ubisoft Connect supposed to alleviate those issues, at least theoretically, and how has that materialised?
11.
What were your biggest concerns or considerations around Ubisoft Connect as a whole? How should we be tracking its development? What potential pain points do you anticipate for this D2C initiative?
12.
Ubisoft is no longer available on Steam, and I think this goes back to what you mentioned around how you want to see that relationship materialise. How significant a loss was it for Ubisoft to no longer be available on Steam? Do you think Ubisoft Connect or even Ubisoft+, if you had to extend the definition into subscription gaming, were able to offset the losses as players were no longer able to download via Steam?
13.
When it comes to Ubisoft’s relationship with Epic, given the company will be focusing more on its D2P [direct-to-player] initiatives, do you think there’s a threat of it doing something similar with Epic as it did with Steam and no longer releasing games on the platform? How viable a threat is that for the business, and if it were to take place, how much could it really impact Ubisoft’s ability to gain revenue from back catalogue sales?
14.
I believe Ubisoft+ is more focused on subscription models within the gaming ecosystem. We can assess the viability and economics of subscription-based gaming from two sides – the consoles are doing this, so Game Pass, PS+ and so on, and we understand they’re acquiring publishers, and on the flip side, pure-play publishers such as EA are going ahead with initiatives such as EA Play, renamed from Origin. Of course, now you’ve got Ubisoft Connect. How do you assess the viability and the economics of subscription-based gaming services for the vertically integrated consoles vs pure-play publishers? What’s the trade-off for the two?
15.
Looking at Ubisoft+ as a whole, and this comes down to the company’s game slate, how do you assess its offerings for a consumer vs other publishers such as EA Play or EA Origin?
16.
Around the time of our last Interview in May 2022, the news broke that Ubisoft+ will be available on the PlayStation Network on PlayStation Plus. Can you outline all the console offerings Ubisoft+ is currently available on? I’m trying to perhaps link this to the relationship with Switch and whether it’s available on Switch online.
17.
What is the nature of the relationship between the D2C or D2P initiatives from publishers such as EA Play and Ubisoft+? How do they work with Xbox, Game Pass or PlayStation? Could you help me link out what margins they’re losing across their entire ecosystem?
18.
What are your final takeaways around the viability of the subscription-based model and how it could fundamentally change the playing field for Ubisoft as a whole? From what we’ve discussed, it doesn’t really seem to be taking off materially in consoles. There is some traction in the PC space, but that is also complicated. What should we monitor here, and do you think it could be materially beneficial for the company?
19.
Thinking about Ubisoft as a whole and the development of a trans-media entity, and looking at CD Projekt’s CDPR [CD Projekt Red], Edgerunners recently came out for CP77 and it was believed this would help drive the business. You saw The Witcher being beneficial for CDPR as a whole, even though the relationship with Netflix was based on the books and not on the game. When it comes to how Ubisoft is approaching the new development of the Assassin’s Creed-focused show with Netflix, do you sense it can materially drive up the numbers? A key thing around Assassin’s Creed is there’s a lot of belief that this has been the cash cow for the company and it is being milked to a very large extent. Of course, Valhalla changed this to a certain degree, but do you think having this trans-media capability for something such as Assassin’s Creed will be meaningful in terms of sales?
20.
Ubisoft has had a recent relationship with Netflix, as we discussed, and Netflix is looking at cloud gaming. You said that perhaps at least Ubisoft Connect could lend itself to the cloud gaming space and ecosystem. Do you still think Ubisoft as a whole is a potential target or attractive proposition for big tech looking at entering this space, or perhaps PE?
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