Why is MS selling its best first party studios?

[ERP]

MS's business model revolves around 3rd parties, it's largely the old Sony model.

I think they'd prefer to own the content and IP than to own the developers, the whole internal vs external thing s pretty cyclic in this industry, MS just don't seem to be on the same cycle. External development is generally better focussed and more efficient but at the cost of trusting the developer with the funds and the product quality.

As I understand it the Bungie thing was amicable, what's better? let the team go and continue to potentially work with them, or loose frustrated key personell? Now I'm speculating here, but there are certain realites to working for a large company and money doesn't make people happy or productive if they don't like those realities.

 

[rekator]

MS only sold Halo.

Bizarre, Bioware, Pandemic and Irrationale are all 3rd parties that have recently been purchased by a new publisher.

So I guess the real question is, why didn't MS purchase one or more of these studios.

Personnally, I have a other point of view… why these studios want to become a total exclusive plate-form?
You speak like MS can bought everybody… but Studio and shareholders of Studio have their goals also…

Look at Bizarre, did you really think they want to made PGR until the end of day?
Bioware, Pandemic they're allready multi-support…
Bungie for the moment are under the MS guidance, so it's a 2nd party with strongly attach with MS…
And also 360 was very good plate-form for 3rd party, did you think if MS bought Bioware and Pandemic, Bizarre, etc, that's not be a sign for EA, Activision, THQ, UBI, etc, we have strong 1st party go away from our buziness…

It's seem MS prefer to deal with editors than got many studios…

 

[archangelmorph]

Keeping them also has risks, see factor 5.

Factor 5 is an independant entity..

 

[AlphaWolf]

Factor 5 is an independant entity..

So are most of the studios in the OPs list. Factor 5 is/was(?) operating under an exclusive partnership deal with Sony. Letting go doesn't necessarily refer to selling, an exclusive deal also nets you a bigger share of the risk.

 

[archangelmorph]

So are most of the studios in the OPs list. Factor 5 is/was(?) operating under an exclusive partnership deal with Sony. Letting go doesn't necessarily refer to selling, an exclusive deal also nets you a bigger share of the risk.

Sure but in the context of your response to jayco's post, Sony never had to deal with any of the overhead costs of running and maintaining Factor 5 as a studio since it's an independant entity..

Not to mention the fact that the investment Sony made into Lair didn't pay dividends due to Sony's own eagerness to rush the title to market, resulting in a sloppy, buggy mess..

Seriously, I really thought we'd come to the point in the industry today where publishers would forgo rushing larger projects and in all cases strive for quality (especially whyen you've already invested such tremendous amounts into the project..) Judging from Lair's critical reception leading upto it's release there was definitely alot of positivity towards the game and even though early previews addressed some of the games short-comings, there still remained alot of optimism (or maybe it was just blind faith in Factor 5 as a studio) that they'd get resolved before launch..
I'm pretty sure that if the game would have been given another 6 months of development time then it would have heralded much greater critical acclaim and thus seen much better sales overall (possibly, being a pretty 'hardcore' game and all..)
Instead they chose to rush the game to market in the form of a broken, buggy mess, completely unplayable to most & a pretty big dissappointment to all those gamers hoping for AAA heavy hitters to fill up the PS3 library..
I hope Sony have learn't something from this; PS3 gamer's don't want more games.. They want more good games..

/rant

Ooops.. Sorry for hi-jacking the discussion..

 

[AlphaWolf]

Sure but in the context of your response to jayco's post, Sony never had to deal with any of the overhead costs of running and maintaining Factor 5 as a studio since it's an independant entity..

As I alluded, the context is kind of screwed up with the OPs misconception about the relationship between the studios and MS. Letting studios go is more a reference to not tying up their services in the future. We could have ended this whole discussion on post 2 with a comment that none of those studios were ever owned by MS except bungie of which MS still owns a large share.

Not to mention the fact that the investment Sony made into Lair didn't pay dividends due to Sony's own eagerness to rush the title to market, resulting in a sloppy, buggy mess..

There could be issues there we don't know about, its possible that Sony lost confidence in Factor 5s ability to release a quality product in any reasonable time frame without sinking in too much money and just decided to cut their losses. We can argue all day about whose was at fault, but I agree ultimately the responsibility for letting it release like that does have to land on Sony.

 

[mister slim]

Perfect Dark Zero and Kameo sold over a million and Viva Pinata has done over 500k. Microsoft's policy isn't hard to see, so I don't why there is always discussion over it. When Ed Fries and Seamus Blackley was there, we got games like Blinx and Azurik. Since Shane Kim has taken over, we've gotten Gears of War and soon to be Mass Effect, among others. Microsoft swings for the fences now instead of singles and doubles.

Ed Fries gave Gears of War (and possibly Mass Effect) the green light. Shane Kim killed Psychonauts and Oddworld Stranger.

 

[Johnny Awesome]

MS only sold Halo.

In particular, Bioware would've seemed like a no-brainer, but I guess MS felt they couldn't afford $805 million for both Pandemic and Bioware. I don't think you could do much better than thsoe two studios for a 1st party acquisition. Both Bioware and Pandemic are AAA studios IMO, and between the two could release a steady stream of exclusives and strong IP's. Huge missed opportunity for MS imo.

But $805 millon is not a good investment IMO. They wouldn't be able to produce more than one AAA per year. If each title sold 2 million units and they were thus able to save about $20 million in development expenses every year, that's only a 2.5% return on their money. Not really worth it.

I think MS has realized something crucial: There's no money in developing games, but there's money in publishing them and collecting royalties. Especially with rising dev costs. That's why they want to get out of the dev business and into the pub business. It's cheaper for them to buy exclusives with money hats than it is to development them.

Sure you have the odd hit like Halo, but for every Halo there are 10 PGR4s - money pits.

 

[Johnny Awesome]

Don't think they are gonna leave now that finally have some profits.



Could be more profitable, but what about the quality of the product, what about if PGR5 is done by any other studio and it turns out to be a bad game, no one will buy any other PGR if it's not done by Bizarre. Letting go the studios that had made some of the best games for your system could be dangerous.

PD: Again, sorry for my english

No one bought PGR4 anyway. It's a dead IP.

 

[Dr. Nick]

Perfect Dark Zero and Kameo sold over a million and Viva Pinata has done over 500k. Microsoft's policy isn't hard to see, so I don't why there is always discussion over it. When Ed Fries and Seamus Blackley was there, we got games like Blinx and Azurik. Since Shane Kim has taken over, we've gotten Gears of War and soon to be Mass Effect, among others. Microsoft swings for the fences now instead of singles and doubles.

And they should but I will say that IMO Rare still hasn't shown themselves to be worth it especially when studio's that aren't even owned by Microsoft have been doing more for the brand than they have. I do think they are one of the main reasons why Microsoft have not been acquiring more studios. Sorry if there are any developer from Rare here.

Another problem with purchasing development houses is that in many cases there is a mass Exodus of talent, which of whom are the main reason products from that studio are successful. Why would you want to own the name of a studio when the talent leaves? It would make for good marketing but if all they release afterward is meh, you're not going to get much from your investment. Worst than that is when the talent goes to work on some high profile title for the competition.

 

[scooby_dooby]

But $805 millon is not a good investment IMO. They wouldn't be able to produce more than one AAA per year. If each title sold 2 million units and they were thus able to save about $20 million in development expenses every year, that's only a 2.5% return on their money. Not really worth it.

2million copies would bring in around $120 million in revenues.

And it's impossible to factor in the income MS would recieve from selling additional consoles due to a stronger exclusive library.

And, it's not like these studios are worthless in 5-10 years, they can always be re-sold. I believe Elevation Partners purchased Pandemic/Bioware for around $300million, and in the space of 2 years, have sold it to EA for $800million. I'm not sure the specifics of the deal, but Elevation must have made an excellent return on investment...

 

[archie4oz]

I think MS has realized something crucial: There's no money in developing games, but there's money in publishing them and collecting royalties. Especially with rising dev costs. That's why they want to get out of the dev business and into the pub business. It's cheaper for them to buy exclusives with money hats than it is to development them.

Ok that simply doesn't really make sense. "No money in developing games?" Where do you think the development money comes from, the tooth fairy? Publishers. Publishing is the high-risk investment that funds development. I'd also call into question the notion that they're "getting into the publishing business" since they've been pretty much publishing even during the Xbox days, in fact I'd argue they're publishing less now than they were 5 years ago (which would concur with ERP's position that they're rotating into the old Sony model).

 

[Johnny Awesome]

2million copies would bring in around $120 million in revenues.

And it's impossible to factor in the income MS would recieve from selling additional consoles due to a stronger exclusive library.

And, it's not like these studios are worthless in 5-10 years, they can always be re-sold. I believe Elevation Partners purchased Pandemic/Bioware for around $300million, and in the space of 2 years, have sold it to EA for $800million. I'm not sure the specifics of the deal, but Elevation must have made an excellent return on investment...

2 million copies might bring in $120 million in revenue, but the publisher only sees a fraction of that when you figure marketing costs and what the retailers get, and the royalty fees which they would get anyway from a third party.

On your point about Pandemic/Bioware: Possibly, but studios like that are rare (no pun intended) and I would argue that Bioware the exception and not the rule. Every version of PGR sold less than the one before it. That tells me that BC wasn't really worth keeping.

You have to look at opportunity costs in these situations. If MS has Bioware making Mass Effect non-exclusively, does it really hurt the X360 all that much? Not really IMO, as they knew that Halo 3 and Gears of War would drive adoption at the $349-$399 pricepoint anyway.

Is it worth $805 million to make sure that Bioware isn't multi-platform. No way. Bioware still knows that the Xbox brand is the home of the western-style console RPG. MS made the right call there.

 

[Johnny Awesome]

Ok that simply doesn't really make sense. "No money in developing games?" Where do you think the development money comes from, the tooth fairy? Publishers. Publishing is the high-risk investment that funds development. I'd also call into question the notion that they're "getting into the publishing business" since they've been pretty much publishing even during the Xbox days, in fact I'd argue they're publishing less now than they were 5 years ago (which would concur with ERP's position that they're rotating into the old Sony model).

I'm saying that they are moving towards more side-deals like ERP mentioned, with less focus on actual development. When you think about it $805 million dollars buys you 20 $40 million budget games. That's pretty insane when you think about it. That's four AAA games every year for a whole generation of consoles. What's more is you get variety.

The problem with MS is that they aren't as good at picking winners as Sony is. The only things that have every really worked out for them 1st party wise are Halo, Fable, and Forza. Second party games like PGR have done alright, but haven't exactly lit the world on fire. In the end a high budget 1st/2nd party racer should be able to outsell the craptacular Need for Speed and yet none of MS racers do.

Disclaimer: Everyone here knows I love my X360, including PGR series, but MS has a ways to go in the publishing/developing area before they match Sony 1st/2nd party. It's probably one of their biggest weaknesses.

 

[Cheezdoodles]

Did they include that in their financial results? I mean, Q2 profits were "real"?

The 1 billion for hardware replacements where put aside and reported in fiscal 2006 or Q1. Not this quarter anyway.

 

[AlNom]

The 1 billion for hardware replacements where put aside and reported in fiscal 2006 or Q1. Not this quarter anyway.

Correct, it was in their statement for Q4 2007. The "exact" billing was $1.057 billion.
http://www.microsoft.com/msft/earnings/history.mspx#fy2007

 

[LunchBox]

But if you looked at the contract to make Bungie independent... they're not really independent... I think Microsoft made a really good decision... whatever Bungie makes they will still make profit from it

 

[assen]

Take a look at the latest VGChartz fairytales about weekly sales in the US:

http://www.vgchartz.com/aweekly.php

1 Guitar Hero III: Legends of Rock Activision 1 798,671 798,671
2 Guitar Hero III: Legends of Rock Activision 1 271,053 271,053
3 Guitar Hero III: Legends of Rock Activision 1 254,596 254,596
4 Wii Sports Nintendo 50 146,934 5,873,149
5 Guitar Hero III: Legends of Rock Activision 1 113,040 113,040
6 Halo 3 Microsoft 6 88,586 4,135,051
7 TimeShift Vivendi 1 78,195 78,195
8 Wii Play Nintendo 38 77,184 2,710,566
9 Naruto: Rise of a Ninja Ubisoft 1 71,233 71,233
10 Manhunt 2 Take 2 1 57,894 57,894
11 Manhunt 2 Take 2 1 51,371 51,371
12 The Legend of Zelda: Phantom Hourglass Nintendo 5 50,471 518,375
13 The Simpsons Game EA 1 47,685 47,685
14 Ace Combat 6 Namco 2 45,089 156,145
15 Ratchet & Clank Future: Tools of Destruction Sony 2 44,548 141,603

Microsoft has just made 25% more money off Guitar Hero 3 than Sony and Nintendo COMBINED, with their "ten-year-plan" PS2, "honestly, third parties are welcome" Wii and... choose your own punchline for the PS3, it's too easy. It's selling 7:1 better than on the PS3. Where have the mythical PS2 gamers waiting at the sidelines gone? This is in many ways a much more severe blow for Sony than "Halo Month" in September.

At the bottom of the chart, see how a critically panned iteration of a somewhat long in the tooth series, Japanese at that, has beaten Sony's finest effort for this year. (If you think Uncharted will do significantly better... well, let's not risk the banhammer and say we'll wait.) Sony are getting maybe $20 of return for each copy of R&C sold vs. MS's fee of $10 for Ace Combat 6, but I highly doubt MS have spend anything close to half of R&C's budget moneyhatting NAMCO.

This chart validates the decision to support third parties instead of amassing a huge internal studio payroll.

 

[scooby_dooby]

The chart really indicates the continuation of lackluster software sales among the PS3 userbase.

Why aren't these game selling?? Heavenly Sword, R&C neither are seeing blockbuster sales, meanwhile, mediocre games like Dead Rising and Lost Planet sold 400-500k in their first few weeks on 360, with a similarly sized install base.

It's a strange phenomenon. I guess the simple answer is the MS hype-machine is just that much more effective at creating hype for their exclsuive titles, while Sony is struggling to capture awareness with theirs...

 

[archangelmorph]

The chart really indicates the continuation of lackluster software sales among the PS3 userbase.

Why aren't these game selling?? Heavenly Sword, R&C neither are seeing blockbuster sales, meanwhile, mediocre games like Dead Rising and Lost Planet sold 400-500k in their first few weeks on 360, with a similarly sized install base.

It's a strange phenomenon. I guess the simple answer is the MS hype-machine is just that much more effective at creating hype for their exclsuive titles, while Sony is struggling to capture awareness with theirs...

Or PS3 is still suffering from the stigma placed on it indicating that "there are no good games for it yet.."

This situation is not too far away from what happened with the PSP too..

EDIT: Also I don't think it's wise to underestimate the strength of the Capcom brand, especially in NA...