Ubisoft Bets on Cloud, AI to Stay Ahead of Vivendi Threat

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  • Guillemot sees independence key to keep increasing profit
  • ‘A videogame company cannot grow within a media conglomerate’

Ubisoft Entertainment SA, the French video-game company that’s racked up the fifth-best performance among Stoxx 600 members this year, has a plan to keep revenue and profit growing -- if it can maintain its independence from French media giant Vivendi SA.

The industry will expand at a rate of 15 percent to 20 percent over the next several years, Ubisoft Chief Executive Officer Yves Guillemot said in an interview ahead of the company’s annual meeting on Friday. To capture its share, the French video-game company plans to accelerate a push into new technologies such as cloud-based gaming and expand in promising Asian markets.

Yves Guillemot

Photographer: Troy Harvey/Bloomberg

Guillemot, 57, squirmed out of Bollore’s grip before last year’s AGM by persuading shareholders that Ubisoft was more valuable on its own. He’s delivered, with the stock up 70 percent in 12 months and annual sales projected to rise 18 percent. But with Vivendi still on the prowl and poised to gain added voting rights in November, investor support is even more crucial now. Guillemot argues that ties to Vivendi would snuff out opportunities, not increase them.

"A videogame company cannot grow within a media conglomerate," Guillemot said, citing Walt Disney Co.’s failed expansion. "In our industry, independence is needed to take risks, to be innovative. That is not compatible with Vivendi’s way of operating."

Ubisoft is outperforming the Stoxx 600

Guillemot, who co-founded Ubisoft in 1986, expects future growth will come from further changes in technology, such as cloud gaming, artificial intelligence, machine learning, virtual reality and augmented reality. Some of these features will also improve the feedback on how people play, showing Ubisoft developers new ways to customize and adapt their products.

In addition, Ubisoft is targeting geographical expansion, Guillemot said. The company’s goal is to take advantage of new markets, such as Asia or Russia, that it isn’t yet covering very well. Gaming growth is huge in Asia, especially in China, where mobile games are booming. 

Ubisoft has increased its efforts in mobile gaming since Vivendi took over another family-led company, Gameloft, which focused on mobile games. Ubisoft expects China to become its second-largest market, up from its current sixth ranking.

Vivendi, the owner of Universal Music and Canal Plus, currently owns 26 percent of Ubisoft. The company, led by billionaire Vincent Bollore, hasn’t decided whether to make a bid for Ubisoft or sell the stock, Chief Operating Officer Stephane Roussel said in an interview after the AGM.

Vivendi has requested a board seat at Ubisoft but was rejected by management, and refrained from seeking a shareholder vote at this year’s AGM, Roussel said. Later this year, double-voting rights will increase Vivendi’s power to close to the 30 percent threshold, past which it would be required to make a bid under the French law.

Mario & Rabbids

The video-game company’s shares have advanced 74 percent this year, as Guillemot and his team take advantage of a transition to online gaming, increasing profit by concentrating on fewer big titles, like Tom Clancy’s Ghost Recon: Wildlands and a tie-up with Nintendo Co., Mario & Rabbids: Kingdom Battle.

Last year, Ubisoft gained shareholder support by backing its financial outlook and pledging to offer better returns alone than as a unit of the French media giant. Ubisoft similarly in July confirmed its forecasts for the fiscal years ending in 2018 and 2019. The company is generating more recurring revenue as consumers increasingly buy digital copies of its games and stick with the titles through monthly subscriptions, paying for regular updates and in-game perks.

"We’ve developed a more profitable business in part because players have a lot more content, services and opportunities within our games, and in turn they can buy more while playing," Guillemot said. "We also now have a much better understanding of our clients’ needs and gameplay preferences, thanks to our online games and enhanced data management systems."

Despite the conflict over control, Guillemot had been hoping the French media company would support a resolution to grant free shares to employees. But for the second year in a row, Vivendi abstained from voting on all shareholder resolutions, including the one granting free shares to employees, and the measure failed. (Vivendi would have voted yes to granting free shares to lower-ranked employees, Roussel said.)

Ubisoft has other alternatives, including granting phantom shares, but they would be more expensive because they trigger higher taxes, Guillemot told reporters after the AGM.

He said shareholders would have voted against Vivendi should it have sought a board seat.

“Our shareholders don’t want creeping control,” he said.

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