Has French video game company Ubisoft Entertainment (OTC:UBSFF, EPA:UBI) kicked itself in the foot by relentlessly pursuing a live service gaming model?
A huge dip in revenues and a bruising share price reaction suggests that this is a distinct possibility.
While chairman and chief executive Yves Guillemot put Ubisoft’s underwhelming annual results released this Wednesday down to “fewer major releases and the impact of a challenging market environment”, it is also possible that gamers are becoming fed up with Ubisoft constantly raiding their wallets.
What is live service gaming?
Live service gaming, or ‘games as a service’ (GaaS), is a model in which video games are designed and developed to provide continuous, evolving content and experiences to players over an extended period.
Of course, those extended experiences don’t come free. Live service games frequently use various monetisation strategies, such as in-game purchases, subscriptions and battle passes.
It is not uncommon for live service games to evolve substantially over their lifetimes. Since they are constantly being updated to justify this subscription-type payment model, they often incorporate dramatically different gameplay systems, characters, aesthetics and in-game currencies.
Just like Walter White in Season 1 of Breaking Bad bears little resemblance to Walter White in Breaking Bad Season 5, so too have popular live service titles like Fortnite and Destiny 2 evolved considerably over their many ‘seasons’.
At face value, this method provides a revenue stream to support ongoing development and updates. On a more subjective level, they can also be seen as greedy or even predatory.
Trailblazers
Gaming phenomenon Fortnite and its ‘Battle Pass’ model is considered the standard setter for how live service games operate.
Fortnite popularised the battle pass system, where players must purchase a seasonal pass to play the game.
But despite being closely associated with this model, Fortnite is roundly praised and held in high esteem by the gaming community for its commitment to delivering fresh and innovative experiences.
Fortnite has pioneered large-scale live events that occur within the game world, such as in-game concerts, story-driven events, and collaborations with popular franchises including Marvel and Star Wars.
It is also free to download, as all live service games probably should be.
Other wildly popular live service games that are free to download and generally well-received include Rocket League, Valorant, Dota 2 and League of Legends.
But that is not also the case.
Pay twice to play
Despite incorporating a live service revenue model, Bungie’s long-running live service shooter Destiny 2 initially required gamers to pay for a copy of the title from the outset (though Bungie has since made the game free to access).
Few would consider it fair to have to pay for the Breaking Bad box set, only to have to pay again to access the first season, yet that was the payment model Bungie went for.
Ubisoft took notes. These days, Ubisoft is considered a titan of live service gaming
Its live service games Tom Clancy’s Rainbow Six Siege, Tom Clancy’s The Division 2, Watch Dogs: Legion, Ghost Recon Breakpoint and more either require an initial purchase, or a paid subscription to Playstation’s Netflix-style ‘Plus’ platform.
These types of money-sucking practices have made Ubisoft a source of disdain among gamers.
Earnings fall off
This brings us to today, or more specifically, Wednesday 15 May, when Ubisoft shares suffered their biggest single-day fall in over a year, directly following publication of its annual earnings.
Per the annual statement, total revenues came to €1.74 billion, down 18.1% year-on-year, with net losses amounting to €494 million compared to a profit of €103 million in the previous year.
Chairman and chief executive Yves Guillemot touted “significant milestones” achieved in the year, but a Gen Zedder would probably call this ‘cope’.
Have we finally seen a repudiation of Ubisoft’s greedy monetisation practices? Even if we have, Ubisoft management appears to be doubling down.
Guillemot cited GaaS as one of Ubisoft’s “two pillars” for “driving profitable growth”.
“Our strategic focus is on returning to leadership in the Open World Adventure segment and expanding our footprint in GaaS-native experiences,” said Guillemot in a shareholder letter.
He continued: “With these core verticals, and leveraging ongoing investments in our technologies to reach and maintain a competitive advantage, we aim to drive growth and recurrence with the objective to gradually expand operating income and generate robust free cash flow.”
Ubisoft also announced the cancellation of one of its few free-to-play titles, Tom Clancy’s The Division Heartland.
“After careful consideration, we have made the tough call to halt development on Tom Clancy’s The Division Heartland, effective immediately. Our priority now is to support the talented team members at our Red Storm Entertainment studio, who will be transitioning to new projects within our company, including XDefiant and Rainbow Six,” Ubisoft told IGN.
It sounds like Ubisoft’s love of live service is here to stay for now; time will tell if disgruntled gamers have the last laugh.