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this post was submitted on 16 Feb 2024
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Games
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But what does it mean for the studio if line goes down? They still need to worry about if their team will be able to be paid.
The big issue with publicly traded companies is that the line they need to go up isn't lifetime revenue, it's quarterly profit. If they consistently make $1 million in profit every quarter, that's a failure. They need to be making more profit year on year. Even if they're consistently producing excellent products that make a lot of people happy, and are treating their employees well, that's not good enough.
IDK, I think consistent profit is really valuable for investors, and they'd much prefer that to large swings in profit. So games studios have an incentive to produce good enough games frequently, not to make fantastic games infrequently.
Personal Anecdote
We just had a presentation by our CTO, who noted a shift in company strategy going forward. We basically had four business units:
Segment A is highly volatile in profit based on commodities prices. One year it'll make more profit than the rest of the business, and the next it'll have a net loss. But on average, it has competitive profit, perhaps better than much of the rest of the business, and all of our products use it as a raw material.
Our business strategy was to sell the plant, thus reducing our profit, but also reducing volatility in profit. This makes us more attractive to investors, because investors would rather see a smooth line going up than a constant up and down with an upward trajectory.
That's like the games industry. Investors want to see franchises like COD or FIFA that have consistent sales, not periodic hits like BG3, even if the studio has a good track record. So $1M/quarter is more attractive than $15M every 3 years, even if the latter has higher overall return.
In other words, a bird in the hand is worth two in the bush. Private companies can go for both birds in the bush.
BG3 took 6 years to develop and because of all of that time spent on enhancing the quality, it was the most-hyped game ever in 2023, winning all of the awards and making a shitton of money. A corporation that is only focused on quarterly profits would never go for long-term planning like that.
You can have deep wells if cash if your profit doesn't go to shareholders. This can help sustain your team when times are tough.
Though I share your shareholders are bad sentiment, it ain't that simple
Apple has the most cash out of any company in the world and they're still "giving their profit to shareholders"
You don't need to pay dividends to shareholders if it isn't in the companies best interest. I don't see how simply being publicly traded means you can't hold a cash reserve
Yeah, most public companies hold big cash reserves. Its part of flexibility and long term growth, and the ability to weather downturns and be able to take advantage of opportunities.
Not everything is a rush to the bottom, it's more of a middle ground. Not saying it won't end up there, but like everything, it's not so black and white.
Sure, but they don't need to worry about the line going up constantly. They can take on longer term projects if they have the cash for it, even if that's not necessarily the best way to make money in the short term or even overall. They can take time to build trust with consumers instead of shareholders.