A June 12th CNBC report suggested that AT&T is looking to offload its Warner Bros. Interactive Entertainment gaming division and already spoke with top publishers like Activision Blizzard, Electronic Arts and Take-Two Interactive about a possible sale nearing as much as $4 billion.
Neither AT&T nor Warner have gone on record to confirm or deny an impending sale of WBIE. Still, it begs the question of why a media conglomerate would be looking to check out of the video games industry when its annual worth continues to skyrocket.
It’s not that WBIE isn’t pulling in substantial revenue. AT&T’s financial reports show that the “games & other” intersegment revenue at Warner Bros. is slightly higher than Cowen’s estimated $1.5 billion annual average for WBIE itself, which it values as a $4-5 billion asset. But games revenue represents such a small slice of the pie for Warner at a time when its traditional media competitors have essentially abandoned gaming operations, outside of licensing IP.
If AT&T has to lop off one of Warner’s limbs as it aims to reduce debt taken on from its initial Time Warner acquisition and its response to COVID-19’s financial impact, WBIE is a clear option. Especially since it would open the door to perpetual licensing agreements, given the division’s focus on IP wholly owned by Warner Bros., most notably its Batman-led DC properties.
But therein lies a major hurdle, as gaming’s top publishers have mostly moved past a reliance on licensed IP for consistent income, thanks to lucrative live service models that have opened up increasingly integral income streams.
Live services are games that are regularly updated with new content after release, often as a means of boosting microtransactions, a prominent business model where digital content and in-game items are sold at cheap prices that add up easily.
“Hitman 2,” released in 2018, is the closest game from WBIE that fits a live service model, though they elected not to implement microtransactions. Plus, the “Hitman 3” reveal during the PlayStation 5 live event earlier this month confirmed that developer IO Interactive is self-publishing the next installment, having retained the rights when they split from former owner Square Enix in 2017.
A cooperative shooter game is being developed for WBIE by Turtle Rock Studios, and its description as a “new gaming universe” by WBIE president David Haddad implies an intended live service approach, but top publishers are primarily interested in acquiring companies that already wholly own IP built from successful infrastructures, as was the case when Activision Blizzard acquired mobile developer King in 2016, gaining the popular “Candy Crush” as a result.
It’s unfortunate that WBIE has yet to have an existing live service game to lead a potential sale, since Activision Blizzard did lose “Destiny 2” in 2019 when developer Bungie, known for the original “Halo” trilogy, ended their exclusive publishing deal, retaining the rights to “Destiny” per the deal’s terms. Bungie CEO Pete Parsons later explained that this decision was the basis of a five-year plan to turn Bungie into a successful publisher off the back of “Destiny,” not unlike another developer who met that exact goal, amassing an estimated value of $17 billion thanks to the era-defining success of its own live service game.
With only two games scheduled for 2020 (a new “Lego Star Wars” entry and “Cyberpunk 2077” from “Witcher” owner CD Projekt, which WBIE is handling North American distribution for), their release pipeline has slowed down significantly, expanding the question of what exactly WBIE can offer larger publishers in a short timeframe if their developing games are far from publishing and will necessitate licensing fees in the interim.
WBIE’s predicament is fairly unique, as Warner’s direct competitors are far past publishing their own games. Disney licenses classic characters like Mickey Mouse alongside new ones from Pixar for Square Enix’s “Kingdom Hearts,” not to mention “Marvel’s Avengers” due in the fall. Disney also has a licensing deal with EA for several “Star Wars” games, with a multiplayer-focused title comprising the next entry, and charges WBIE for the aforementioned “Lego Star Wars” titles.
Likewise, Universal licensed one of its biggest properties to Bandai Namco, and two successful “South Park” games were published not through any Viacom entity but through Ubisoft. Sony Interactive Entertainment may be an incredibly successful publisher that skews heavily toward single-player experiences, as WBIE games do, but that privilege is afforded entirely by the PlayStation platform and deals primarily with original IP, with “Spider-Man” being one exception.
If AT&T is dead-set on parting ways with WBIE, a more realistic course of action would be to sell off its development studios individually. This would widen the pool of publishers to negotiate with, many of which would be interested in “Batman: Arkham” maker Rocksteady, whose next title is rumored to be a “Suicide Squad” game, since DC Comics IP is still highly relevant from a multimedia standpoint.
However things could play out, AT&T must do something to free up money at WarnerMedia, as they have a new streaming video service to populate with content before original productions delayed by COVID-19 can finish filming, not to mention the obvious pandemic-related dip in revenue at their film studio that needs to be corrected. Video gaming might still be far from peak value, but the context of that value is unlikely to be one that includes WBIE in its current form.