Tech

Leila Abboud is a Bloomberg Gadfly columnist covering technology. She previously worked for Reuters and the Wall Street Journal.

Like the band of armed survivors in its video-game smash hit "The Division", Ubisoft's family owners have managed to rally round against a marauding enemy. In this case, billionaire Vincent Bollore.

In the year since Bollore's Vivendi made an unwanted incursion onto his shareholder register, CEO Yves Guillemot has mobilized employees, canvassed white knights, and devised a three-year plan to lift sales by 60 percent and almost double operating margins. The Guillemot family has increased its stake and will probably soon have more voting rights than Vivendi, which owns 22.6 percent of the shares.

All in all, the CEO's effort to convince shareholders he's a better steward than Bollore is off to a decent start. 

Another Division
Ubisoft's shares have outperformed since Vivendi started building a stake. Some of the rise can be attributed to takeover speculation, but the group has also delivered a hit game called "The Division"
Source: Bloomberg

But, as in The Division, there's no time to catch a rest. To maintain control, Guillemot must keep delivering in a rapidly evolving industry. Ubisoft is the smallest of the four big makers of so-called "AAA" games, whose movie-like productions can mean budgets of $60-70 million. It lags Activision Blizzard and Electronic Arts on market share and margins, but is trying to increase its digital sales to catch up.

There are looming decisions over where to invest. The selling prices for marquee games has been falling for decades, once inflation's included, so Ubisoft may have to expand into mobile or virtual reality. Divining what's a passing fad or a real money-spinner is only getting harder, even for someone with Guillemot's talent. Just look at the frenzy over Pokemon Go or Super Mario coming to the iPhone.

Mix Shift
The gaming sector is expected to expand at a compound annual growth rate of 6.6 percent from 2015-2019. The share from the type of big-budget titles that Ubisoft makes is will decline slightly.
Source: Newzoo 2016 Global Games Market Report

One thing's sure, Ubisoft is probably better off without Vivendi. Despite saying it has big ambitions in gaming, the French company's record here isn't reassuring. It did own Activision Blizzard, the leading gaming company, but sold it to reduce debt. It reaped $13.60 a share. Activision stock is about $44 now.

So, investors should hope that Vivendi doesn't force itself onto the Ubisoft board at its annual meeting on Thursday. If it tries, Guillemot has amassed support from shareholders with about 40 percent of the voting rights to try to see off Bollore. If Vivendi's so enamored by gaming, maybe it should just offer a 30 percent premium to buy the whole company and leave it up to shareholders to decide.

Ubisoft shares have almost doubled over the past year, in part because of Bollore's arrival, but the enterprise value is only about 5 times expected Ebitda, well below rivals. And Ubisoft does punch above its weight creatively, churning out franchises such as Assassin's Creed and new hits like The Division. Some 90 percent of sales come from games based on its own intellectual property, versus Activision's 80 percent and EA's 30 percent, according to Wedbush Securities.

Still, rather than sell out and lose some of that edge, Guillemot does have options. He may need to do more in faster-growing mobile games. The family wasn't able to defend its mobile specialist Gameloft from a separate Vivendi takeover. But Ubisoft has just bought Ketchapp in this market.  

It may even one day want to consider bigger acquisitions, such as U.S. peer Take Two, or to collaborate with Asian games makers such as Tencent or Giant Interactive. There's plenty of reason to think this hardy bunch of survivors has a fighting chance.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Leila Abboud in Paris at labboud@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net