Why a publisher should buy GAME Group

by Dylan on January 18, 2012

I was speaking at the European Cloud Gaming Summit yesterday and amidst warning people about the upcoming under-12 revolution I made the suggestion that some of the well-heeled publishers in the room should buy GAME Group (the troubled UK retailer). Cue most people’s jaws dropping. Buy a retailer? Are you nuts?

GAME Group has about 3.5M store visitors every week. That’s about 182M people who are interested in games every year predictably walking into a property that you own. Think about that for a second. This is a network of 182M people, specifically interested in games, who are coming to you. They also convert approximately 19% of them into customers so their premium user group is about 36.5M. The company also has a reasonably sophisticated loyalty system (15M users) plus their new pre-paid currency just being rolled out.

As of today, their market cap is £12.1M. Interested? Yeah, me too.

Let’s just try and value the retailer in online game industry terms:

  • Openfeint had 75M users within its network when it was acquired by GREE last year for $104M. On this valuation basis, GAME is worth about $252M.
  • Zynga has about 223.5M MAU within its network and it’s market cap yesterday was $6.5B. GAME’s MAU count is a bit murky but let’s go with 14M. That puts GAME’s price tag at about $407M.
  • From a social gaming perspective, a $2 CPA isn’t unreasonable, giving you a $364M price tag.

The calculations above are approximate at best. And it doesn’t take into account GAME’s debt and net cash (so you’re looking at a minimum of £103M-thanks to Paul Heydon for the maths) plus potential lease obligations. But here’s the thing, if I was a games publisher (specifically non-console) the opportunity to acquire a network of gamers who I can then distribute my content to (and perhaps selected content from my partners) which also gives me a near monopoly on a strategically important market, is a very rare commodity indeed.

As someone who’s seen both sides of gaming (my last company was acquired by a retailer), I’ve probably seen more data on this than most. GAME’s future should be as a games publisher with a retail network. There is serious value here.

(btw, I don’t own any stock in GAME Group)

  • http://www.smallbusinessrebels.com DC Cahalane

    Makes perfect sense in a business sense. 

    Sometimes I think people have an over exaggerated sense of the industry. We hear all the great stories, huge market caps, huge sales figures for popular titles etc but often forget that just because games are fun that doesn’t necessarily mean that the business of games is fun. For instance its great to talk about the sales figures for Battlefield 3 or MW3 but its estimated that Battlefield 3 spent in excess of $50m on marketing that title alone. 

    So after spending 50M to attract interest from the gaming public in one title, I can definitely see the appeal of buying GAME and instantly getting access to a pretty well run business and the audience and marketing data that they’ve built up. 

  • Anonymous

    People sometimes forget that fundamentals are cross-sector. Distribution (even if it’s physical) is still very much a valuable commodity.

  • http://twitter.com/KieranO Kieran O’Neill

    Interesting thoughts Dylan. I agree at £12.1M market cap there’s room to maneuver for some meaningful upside. A couple points though:

    1) As you point out toward the end, GAME’s lease obligations are distinctly non-trivial. Buying GAME out of administration (where the leases could be ended) would likely be much more attractive than an outright sale.

    2) GAME has 3.5M unique visitors per week, but that doesn’t mean you can multiple by 52 to get the yearly visits, as a large percentage of their visitors are repeat visitors. For example, in Week 1 there are 3.5M unique people, but in Week 4 likely 50%+ are people who visited in the preceding 3 weeks. As such, the yearly figure is likely to be significantly less than 182M.


  • dylancollins

    @twitter-17656392:disqus      1) Yep. Although not quite as straightforward as that either. Requires a lot of negotiation.2) Also, yep. But I was simplifying to illustrate the value locked inside it :) 

  • Brightredshoes

    Right so here’s the thing, the emerging market for new computer games (and I’m being deliberate in makeing the distingtion) is moving online.  Software distibution in general is moving to the cloud, The days of pimply teenagers heading into their local games shops to spend their sweaty fivers as dissappearing. So I dont see the advantage of an established publisher aquiring a brick and mortar infrastructure that is already in trouble. Wouldnt it make more sense to find a chain of amusment arcardes rather than a retail chain? What are gamers payng for when they buy a computer game, the disc and packaging or the experience? what the computer games industry is selling, is a service, a form of entertainment, not merely hard copies of DVDs and periphrials.

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