Why Ubisoft Can’t Keep Up With the Games Market

Ubisoft logo sinking
Illustration: VIP+: Adobe Stock

French video game publisher Ubisoft’s start to 2023 has found the company in disarray.

For the past few years, Ubisoft has been consistently plagued by internal issues involving alleged misconduct at the highest levels and struggles to grow company sales and live services beyond breadwinners like its “Assassin’s Creed” franchise and “Tom Clancy’s Rainbow Six Siege.”

Now, an emergency meeting the company held with investors in January acknowledged “major challenges” by way of 2022 sales that significantly underperformed expectations, as well as several game cancellations and delays. The stock has since sunk to its lowest point in more than seven years.

This follows a more drawn out but extensive stock decline stemming from an announcement last fall that Chinese tech giant Tencent upped its preexisting stake in Guillemot Brothers Limited, the entity holding the most shares of Ubisoft, to just under 50%. Overall, Ubisoft projects about $537 million in losses for its current fiscal year, which concludes in March 2023.

Game delays have become part and parcel for AAA publishers, as games take longer to develop and studios attempt to better address internal complaints of excessive overtime.

But Ubisoft in particular has encountered difficulties in keeping its most anticipated titles on track with their release schedules. Big upcoming titles like “Avatar: Frontiers of Pandora,” “Assassin’s Creed Mirage” and “Skull and Bones” were once expected to have shipped by the end of 2022 but all remain without release dates.

One of the many discouraging developments covered in Ubisoft’s recent investor meeting was the most recent delay for “Skull & Bones,” which was only a few months away from releasing in the first half of 2023 but was delayed for a sixth time. A multiplayer naval combat game set in the age of pirates, it entered development as far back as 2013 and is part of the company’s efforts to launch more successful live services.

The 2020s have seen exceptional growth in the global video games market as the popularity of live services and their in-game-spending revenue model has prevailed. While 2022 saw a 5% year-over-year decline in U.S. consumer spend, it was still well above pre-pandemic spend, per NPD data.

Unlike its competitors, Ubisoft had taken longer to significantly benefit from in-game spending but is at last making strides through a greater emphasis on licensing its IP through mobile partnerships, on top of at least one successful live-service in “Rainbow Six: Siege,” which has 85 million registered players and saw 18% year-over-year revenue growth in the first half of the company’s current fiscal year.

Overall, in-game spending at Ubisoft accounted for just over 60% of net bookings over the same period, up from under 50% in the prior fiscal year. This brings Ubisoft closer to the in-game spend of publishing rivals like Activision Blizzard, Take-Two Interactive and Electronic Arts, all of which have extensive live services under their belt on top of significant mobile acquisitions.

“Grand Theft Auto” steward Take-Two was already earning 65% of its net revenue from in-game spending in 2021 before acquiring mobile company Zynga in 2022, while companies like “Angry Birds” developer Rovio are still getting scooped up by larger firms.

However, Ubisoft is not able to benefit from such M&A participation and instead needs to downsize. In its last earnings report, the company highlighted the need to “stabilize headcount” by the end of the fiscal year and currently has over 20,000 employees across its studios and corporate operations, far more than its rivals who pull in more revenue. Even with Zynga’s headcount added, Take-Two's headcount is around half of Ubisoft’s.

If Ubisoft were smaller and already had more live services like “Skull and Bones” or “XDefiant” out the door, it could have conceivably generated more revenue to help aid development of other projects like their open-world “Avatar” game, which has now missed the window to release alongside the first of four film sequels to its originating and mega-popular franchise, which is already the sixth highest-grossing film ever.

All in all, the plight of Ubisoft is emblematic of the difficulty of developing AAA games in a new console generation without having fully caught up to the trends providing the bedrock of support needed to stay at the top of a market that is still expected to grow.