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"All Eggs In One Basket" Strategy Not Wise for DVD Content, Either

20 Jul, 2005 By: Holly J. Wagner

A while back, I think it was E3 2004, the president of the video game trade group warned game makers that they were swimming in dangerous water if they counted on movie titles as the basis for video games.

That didn't seem to stop any of the game companies, or even slow them down. One after another they continue to introduce games based on TV and movie characters. Some do well, others not so much.

But that warning seems to be playing out. Most readers will remember back in May when DreamWorks announced it would have soft results for the quarter and revised a forecast because too many copies of Shrek 2 were getting returned unsold. Then the same thing happened with Pixar and Buena Vista Home Entertainment's The Incredibles.

Both DreamWorks and Pixar's announcements triggered analyst downgrades and, it seems to me, triggered a search party among media industry analysts looking for any company that relies too much on DVD for revenue. Downgrades are starting to cut a wide swath across media companies.

Now it's even having a cascade effect. Shareholders filed investor lawsuits against DreamWorks after its revision and downgrades. Last week, Majesco, maker of games based on Madagascar and other DreamWorks films, revised its forecast and moved one game release back to next fiscal year to coincide with the movie release. Then the CEO bailed out.

The results? Now Majesco is facing its own investor actions, in which lawyers claim the company's executives gave misleading statements about the company's health and performance. The specifics are about the same as the DreamWorks action: higher-than-expected product returns and sluggish sales. Specifically, one set of lawyers claims, Majesco “inundated its retailers with product in excess of demand.”

Same song, different company. It only goes to show that putting all your eggs in one basket isn't the wisest business strategy.

It's hard enough to tell what will do well as a film. For me, it's even harder to figure for games. But it seems clear that relying too much on any one title or storyline is an all-or-nothing proposition for investors and a very high-risk strategy.

Given the way things are going for movies and DVD this summer, if I was running a game company, I'd be looking for other things to base games on. And if I'm looking for an investment, I'll look for a company that has a broader, more diverse line of characters and storylines, so even if the movies don't do well, there's a fallback position.

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