State of the CCP

Warning: Brain-Fart inbound….

The Acquisition Of CCP?

CCP Games are on the surface a profitable company, but look under the hood and you will realize that CCP has no growth and is not expanding. Its recent attempt at this has been cancelled due to it having no economic benefit for the company (DUST514) and with 2 other “projects” currently under endless development, the future looks less-than bright. Of note, CCP is very seriously working to re-invigorate and transform EVE and if they are doing this with the eye towards integrating other games and media components this could be a powerful move.
Is CCP Games’ last 12+ months of streamlining part of them preparing the company for a next step? With a year-on-year income around the 70-odd million USD, an again-shrinking cash-reserve, dropping profits and expenses going through the roof, something has to give.

Please accept YouTube cookies to play this video. By accepting you will be accessing content from YouTube, a service provided by an external third party.

YouTube privacy policy

If you accept this notice, your choice will be saved and the page will refresh.

Over the last year, there has been some changes in CCP Games, both organisational, and with their games lineup.

One of the possibilities is that we’re seeing Hilmar Pétursson and the owners (General Catalyst Partners and Novator Partners LLP) preparing to sell the company on. Novator specializes in very different business areas than video-games, and it seems they largely are involved due to being run by an Icelandic guy, and GCP is a Venture Capital company that normally looks to “right-ship” companies for sell-off. This is a bit worrying.

EVE:Online seems to be stable, in terms of revenue, both in direct subscriptions and the slowly increasing add-on sales, judging from the financial reports, while other reports point to a growing number of active subscribers. Looking to EVE-Offline.net, the last 6 months have shown a drop in average player-counts from the 27.500 life-time average (measured since March 2006), to around 25-26.000. This can be seen to show that more players are subscribed but the number of consistently active players may not be following. This is a worrying proposition, as there may be a point where a not-insignificant number of players decide to unsubscribe due to inactivity.

 Key Financial Figures H1’12 H1’13 H1’14
Operating Expenses 26,748,476 34,403,589 61,485,199
Loss/Profits 5,910,653 318,511 -22,752,571
Cash 6,576,064 18,224,222 11,382,296

In the world of DUST514, as we covered in a previous piece, assuming that the 300.000 Unique Monthly Players is true, and assuming an (optimistic?) Average Revenue Per User (ARPU) similar to Planetside 2 (another F2P shooter) at around 2.86USD per March 2014, that translates into about 850.000 USD monthly revenue, or just over 10 million yearly. Compare that to the projected total CCP Games revenue for 2014, around 75 million USD (76.7 in 2013) and around 64 million USD in both 2012 and 2011, and this seems to be about the correct levels. Without knowing the actual Burn Rate at CCP Shanghai, it is difficult to say anything, but 10m USD should leave that division in a healthy state, and allow for a skeleton-crew on DUST514, while others work on Project Legion.

 R&D Expenses & Amortization 2012 2013 H1’13 H1’14
 Totals 11,217,029 46,876,130 7,579,526 31,682,958
DUST514 (ca 25-30 mill?)
WoD ca 24 mill

“During the year the company assessed its capitalized development assets and determined that a portion of those assets would likely not have future economic benefits.[…]. Amortization of capitalized development cost in 2013 relates to EVE Online and DUST 514 while amortization in 2012 is almost exclusively due to EVE Online.”
CCP Games, Financial Report FY13, March 2014

But with a 13-year old flagship (EVE), a half-dead horse (DUST514), 2 in-development products, one of which CCP Games is not talking about at all, and cash for about 4-6 months of salary (depending on Burn Rate) would want to buy them?

Well, Microsoft’s XBox division (XBox), Facebook Oculus (Foculus?) and Sony Computer Entertainment (SCE) are all relevant, due to 1 thing: EVE:Valkyrie and the rise of Virtual Reality.

They all have VR products on the way, they all want to have a Killer App for it, and what better way to ensure Exclusivity, than to pick up a ripe CCP? With less than 100 million USD in assets, barely cash for 4 months’ salary and profits that have been hovering around the red line for the last 18 months, it certainly looks like an easy acquisition.

There could well be others, but we’re not seeing any good fits outside of these 3.

 

Microsoft XBox

The one company that is known to aggressively buy up companies is Microsoft, and their recent 2.5 billion USD acquisition of Mojang shows they are still in that game. But they are also busy streamlining their own company, and after Mojang, it’s a question whether the slush-funds are running a bit low.

At the same time, Microsoft’s VR solution seems to be heading in a slightly different direction than Oculus and Morpheus, so there is a basic technical question as to whether it is an easy fit.

DUST514 is a “tainted” product from having been on a Playstation, one Xbox would have little interest in, but getting Legion for both Windows and the Xbox One, would let Microsoft cover part of the FPS arena, where they currently have no real contender.

Sony SCE

Sony know they have an uphill battle with Morpheus against Oculus, and in the past they’ve not shied away from buying up exclusivity in any form. But they are also a bit short on cash these days, which could be an issues.

The EVE:Valkyrie team is still heavily invested in Oculus, incl attending Oculus events in the US recently, so if there is anything on-going, at least it is not leaking out this way.

When my time with the Valkyrie demo ended, I asked the PlayStation rep if the demo was running on a PS4; she said no.
IGameResponsibly.com, March 2014

SCE also have competing products, with Planetside 2 being their go-to sci-fi shooter – if they are looking at CCP Games, likely there will have to be a go-forward decision between Planetside 2 and DUST514 + Legion. With DUST514 being on the PS3, Planetside 2 is really only facing off against Legion, and in that match-up, it is not difficult to see SCE choosing the product that actually exists, and DUST514 being repurposed (via Update 1.9?) from a limping corpse to something that can stay until the PS3 is finally put to rest. In this scenario, Legion would either quietly go away, or be kept PC-only.

If anything more, look to the Sony Playstation Experience event in Las Vegas, the Morpheus area, December 6th+7th  for hints, reveals or updates.

Facebook/Oculus

So far there aren’t really any signs of Facebook and Oculus buying exclusivity, instead focusing on keeping themselves at the centre of VR attention, and working with multiple companies. Facebook certainly do have the funds and the willingness to do an acquisition, but it is not a natural fit business wise; they have historically been happy to let others produce games for their platform. Oculus currently have an exclusive co-publishing deal for EVE:Valkyrie on the PC.

Oculus is also The One To Beat in VR, and developers know they have to consider Oculus; this means they do not need to invest extra in a given product, except to ensure a different party does not buy up a killer app. This makes Facebook and Oculus perhaps the least likely party to make such an investment.

Conclusions

Seize Today, Put Little Faith in Tomorrow.
Quintus Horatius Flaccus, 23 BC

CCP Games are a profitable company, but as said it has no growth and is not expanding; CCP needs to act fast and act now as their window of opportunity is closing, facing an incredibly competitive area in the market for its games, due to Star Citizen, Elite Dangerous and Vendetta Online. My advice to CEO Hilmar Veigar Pétursson is a phrase from an ancient Roman poet, “Carpe Diem, Quam Minimum Credula Postero”.