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Why a publisher should buy GAME Group

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)

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