French Video Games: Late Start, High Scores
When it comes to video-game publishing, the French are an ambitious bunch. Competing with American giants like Electronic Arts, Activision, THQ, and Acclaim, and Japanese powerhouses like Nintendo, Sony, Sega, Namco, Konami, Capcom, and Square, four French video-game producers -- Infogrames, Havas Interactive, Ubi Soft, and Titus -- are ranked among the top 15 worldwide.
Is it that famous French touch that has gotten them so far? Not exactly. "If French [video-game] publishers have been able to make a name for themselves, it's more thanks to their managerial skill than to their artistic creativity," says Aurélie Jolion, an analyst at BNP Equities in Paris.
French video-game publishers have certainly learned how and when to seize opportunity, and that is mainly what has helped them make it to the top. Because of the small market potential in their own country, the French were quick to branch out internationally, which has benefited them immensely in the long term. Another disadvantage that developed into an advantage is the fact that the French entered the market relatively late and were, thereby, able to avoid and learn from mistakes made by others.
What has really made the difference, though, is the huge appetite for acquisitions that French video-game producers quickly developed. "Our knowhow comes mostly from understanding how to acquire, at the right time and at the right price, the best foreign studios capable of sharing with us their marketing experience and opening their market to us," says Christophe Ramboz, president for the international division of Havas Interactive.
And those foreign markets are extremely important, considering that 80% of sales and revenues for French video-game publishers actually come from abroad. "Sales in France represent less than 8% of worldwide video-game sales," says Eric Caen, president of Titus. Caen goes on to say that "contrary to the Americans and the Japanese, we were forced very early on to go beyond our borders if we wanted to survive. Today our geographic coverage is, therefore, more complete."
That's not all. By getting a late start, French video-game publishers were able to focus their efforts on what worked, and were able to avoid what had previously failed. "The French [video-game publishing] companies were created roughly between 1985 and 1987, after many American pioneers had gone broke because of the crisis caused by a still-emerging market," says Yves Guillemot, president of Ubi Soft. Indeed, the market value at the time plummeted from $3 billion in 1982 to $100 million in 1984, according to the French market-research group and high-tech consultancy Idate. By the time the French entered the game, they had a great deal more visibility. "The Europeans started with microcomputers, a market that is less lucrative but more stable than console games," explains Guillemot. Since then, French publishers, with the exception of Havas Interactive, have made it a point to diversify, respecting a balance that matches the worldwide market of 70% consoles and 30% PCs.
But if the French have been careful in their market choices, they have been extremely audacious in their acquisition strategy. By taking over the American game publisher Cendant Software in 1998, Havas Interactive, owned by Vivendi, was able to significantly increase its size, boosting its sales from $14 million in 1997 to $470 million in 1998. Infogrames began its acquisition spree as early as 1996. In that year, the company doubled its size by purchasing British company Ocean. In 1997, it acquired the Dutch publisher Philips Media, and in 1999 Infogrames bought out Britain's Gremlin, Sony Psygnosis' French studio, Australian companies Ozisoft and Beam, and America's GT Interactive, which was actually double its size at the time. The result of all that buying adds up to big numbers. Infogrames' sales reached $37 million seven years ago and are expected to reach a huge $860 million this year.
And there's more. Titus' acquisition in mid-1999 of America's Interplay and Britain's Virgin Interactive brought its sales from $29 million to more than $143 million. Even Ubi Soft, which has been more timid about acquisitions, bought out America's Red Storm in August of 2000.
Of course, all these acquisitions inevitably involve risk, especially given restructuring costs and integration difficulties. But here, again, things turn around positively for the French. When risks appear, "that's when the French 'esprit' intervenes," says Bruno Bonnell, president of Infogrames. "We have long-term vision, making bets in order to gain critical mass, whereas too many Americans use short-term reasoning, becoming too fixated on profits for the coming trimester," explains Bonnell.
Even the stock market has been good to French video-game publishers. And for this, too, there is a reason. "Investors have always attributed more value to European companies than to American ones," observes Vincent Treulet, analyst at Merrill Lynch. This way, Infogrames, Ubi Soft, and Titus were able to raise capital nearly every year since their IPOs.
Added to the money that French publishers have made and growth they have experienced thanks to acquisitions is the advantage of having acquired precious licenses for American cartoons, films, and comics. Infogrames now owns licenses for Looney Tunes and Mission Impossible, Ubi Soft for Playmobil, Star Wars, and Dinosaur, and Titus holds licenses for Superman, Star Trek, and Top Gun. And that's nothing considering what Havas Interactive acquires as a result of the Vivendi-Universal merger. French culture buffs may not want to recognize the value of such an arsenal, but it's sure to rocket French video-game producers even further up the ladder of success.
By Gaëlle Macke
Translated by Inka Resch
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