Adios Eidos

Oh the power of these articles! A month ago we were talking about the inevitability of consolidation. Obviously somebody read the article because now it is happening.

The facts are very simple. Eidos cannot survive at their current size. They do not have the global marketing and distribution needed to bring in the earnings necessary to make competetive games.

However Eidos are very valuable to someone else. And obviously not for their marketing and distribution. Their development capacity, both internal and in relationships with externals is well worth having. But the jewel in the crown is the IP. They own a huge catalogue of IP going back to the early days of the industry with firms like Domark and US Gold. Quite frankly the current company has only been scratching the surface of the opportunities this plethora of riches presents.

There are rumoured to be two suitors. Warner and Electronic Arts. It is far more valuable to the latter than the former for the reasons outlined in the previous paragraph.

Basically Warners are an 800 pound gorilla that has seen the light. They realise that games are going to be far bigger than film and music put together so they need to be in, just to survive. They need to be one of that small handful of publishers that are still standing after the consolidation. Their problem is that they started late and are playing catch up. EIDOS to them represents some of that catch up and they already own 10.3% of it. They would probably even retain some of the EIDOS management. What they don’t need is the EIDOS IP, Warners already have vastly more IP than the whole games industry put together. And it doesn’t fit in with their plans to release the film and game of an IP simultaneously to maximise maketing synergies.

Electronics Arts are trying to solve a different problem. They are the biggest games publisher in the world but they are a castle built on sand, and they know it. Their problem is that they have built their business quickly by using other people’s IP. Mainly films, books and sports stars. So they actually own very little themselves, so their worth is just built on current earnings, not real value. To them the vast pile of EIDOS IP is like a gold mine sitting over the motherlode. With it they have more chance of surviving the consolidation.

So who is going to win. Time Warner turned over $44.6 billion in their year to 2006 so it is just petty cash to them. However they would not get anything like the value out of the aquisition that Electronic Arts would. Although EA are a $3 billion revenue midget the value they would get out of the EIDOS IP would be massive, they could easily increase the revenues of these properties tenfold in just 5 years. And they probably will.

Just as a reminder here is a list of some EIDOS titles:

So who do you think is going to go home with the goodies this time? And, more to the point, who is going to be left controlling the industry after the dust settles?

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