This should be money time for the vidgame industry, the fat part of the five-year hardware cycle between new game consoles when publishers reap billions.
But the gravy isn’t flowing these days, and the SEC is investigating how at least four publishers book revenue on titles that are later returned unsold.
The probe is a headache for publishers, but could have wider impact:
- It may hamstring companies just when they should be banking cash for the expensive 2005-2006 transition to new vidgame consoles.
“If you’re not squirreling away your nuts now, you’re not going to make it through the long, cold winter that’s coming in about two years,” says one insider. “This could hurt everybody.”
- It could complicate the Universal sale. VU Games is a big publisher, and on the block, but an already messy auction of U assets needs no more uncertainty.
- Weakened companies are prime takeover targets, and consolidation seems likely over the next two years.
“If you called our top shareholders and their top shareholders, they’d probably split down the middle about whether it’s a buy opportunity or a sell opportunity,” says John Riccitiello, prexy and chief operating officer for the industry’s bluest chip, Electronic Arts.
With $1.6 billion in cash, EA may go shopping. So could Xbox owner Microsoft, with $49 billion in cash and not nearly enough good gamemakers in its fold. Both reportedly have been kicking tires on takeover targets in recent months.