it's late September and just after a brutal fortnite a board meeting is called shareholders are addressed and before today's story properly hits the public Ubisoft leadership breaks the news that everything is changing and that because of that they've had to slash their financial targets year to dat their stock is down 60% month over month it's down 47% and just today it dropped 20% what once traded at 94 EUR is now trading for 9.2 this is dire you're no doubt here because of Outlaws and shadows and I will get there there's a lot to talk about
but there's an entire angle driving this that you're probably not aware of because usually it's presented in a dry and boring way so let me fix that an internal shareholder Revolt led by an activist investor essentially boiled down to this they said that CEO EES gilmo and the 10 cents deal which basically shored up their control of the company in the view of the activist investor is unfair to minority shareholders and to get around this problem they want to crack open the company using EU law they want more control they want major changes and in
their Vision they want to leverage what they learned as an investor of Activision Blizzard have a long-term vision and make sweeping changes it is that pressure that leads us here Ubisoft you see is a family business defending control has been a massive theme over the last decade and that means that CEO e gilmo now more than probably any time in his professional life is feeling the Heat and that is why we see this the mother of all bright glass in case of emergency changes things that basically are giving players what they want and removing a
bunch of bad business model things and here the job of me and my team is to break down the business and the strategy of how games are made so that whenever you see the insane depressing bollocks of the news you're actually left understanding why and to help that mission and to get more content I would really appreciate it if you click the Subscribe and like button and my reason's really simple it takes you a few seconds it's free and what it does does is send the YouTube algorithm a good signal and that helps us get
the word out we've had an incredible month so far that's because of your support and uh let's just say things are going in the direction where I will be able to invest in making the show better and invest more in the team which is damn exciting okay let's talk about the change Ubisoft are upending their entire business model beyond the bit where you know they're still going to be selling you video games but paid for advanced access is Dead season passes are dead and the whole thing of steam releases Just Happening a year after well
that's also dead and that's amazing the whole thing that they wanted to do on the PC platform was to put you in up play to have a up play subscription button right beside the most expensive edition of whatever game it is so that you get you play premium and of course they didn't want the steam fee they tried that and it's obviously hurt them so now their games are going to be on Steam and for consumers this is unambiguously a good thing season passes are often misused Advanced access basically sucks and we all hate it
those going is good and that's because they're psychologically forceful Revenue optimization squeezes that are just applied to all players seeing a AAA incumbent go against that is good and it's good even if you never plan to buy a Ubisoft game the reason is this is now somewhere where the big companies can compete with each other by actually being less of a dick but of course this happening in the first place can only mean one thing that internally things were absolutely on fire and that this is sheer desperation things began to look strange when Assassin's Creed
Shadows pulled out of Tokyo game show that was a major marketing beat of course it's a game set in Japan and it's Tokyo game show it's also one that Microsoft are going to be having a presentation at so eyes would be on it rumors of a delay immediately began to swirl and very soon they were confirmed and we got statements we got reasons and the big one is Star Wars Outlaws Ubisoft confirmed that analyst assessments of the game underperformed are true it's softly they say despite solid reviews that's how they frame it but uh solid
does not Scream by me now outstanding does and the reviews were not outstanding look at the reviews and you see that polish is a problem you see that Minor Details Matter every in-depth review mentions them and as an example my colleague who's editing this video a lifelong Star Wars fan the literal Target of this game almost quit at the very beginning or close to it because of how a stealth segment was framed tuned and was inconsistent with the rest of the game it led to an experience that was that frustrating now AP patch has since
fixed that but the point is it launched the way that it did how many players bounced off clearly quite a few and this lesson obviously impacted Shadows I think it's very clear they expected something similar to happen now they say the game is feature complete but the based on Outlaws the game needs more polish Vibes wise that makes sense this is a game that has had multiple different dramas swirling around it since it's very unveiling I also would wonder if pre-orders have overtime been weak now back in May Tom Henderson who runs Insider gaming and
has got loads of sources in the industry his people told him multiple of them that pre-orders of the game were strong but that was in May I think since then things may have changed and armed with the lesson and the numbers of Outlaws they're learning lessons what's happening now is that all pre-orders of the game are cancelled and refunded so I would love to see what their payment processing fee is for that one the reason why though is clear it's because the product itself has changed there is no season pass there is no Advanced access
and those are the two things that defined the modern Ubisoft special which was leveraging a powerful psychological hook that is called the Goldilocks effect what you do is you have your base Edition just be what it is you then have a very very expensive maxed out Edition with some you know knick-knacks like Cosmetics but in the middle you've got the thing that you actually want people to buy so their use of the Goldilocks effect fact was increasing their sale price $69.99 for the bass version to $19.99 for the version with the season pass and of
course that premium Early Access the whole point is that you think you're getting a great deal because you're getting all of those extra perks but obviously it isn't really it's a great deal for Ubisoft that's because 6 months after release the base game will be cheaper and you can just buy DLC if you want to the Gold Edition never was a good deal it was just leveraging the Goldilocks effect very well conventional logic then says that in doing this they are sacrificing hundreds and hundreds of millions of dollars and so if they're doing that we
know it must be desperation now make no mistake average sale price is still the goal but they're going about it a different way this is the new strategy anyone who pre-orders shadows will get the first expansion for free and that includes steam because yes it is launching on Steam day one pre-orders of course are amazing they lock in that launch pricing and hey you get a free expansion that is actually a good incentive that's all to get people back but to get them back at day one pricing and for Ubisoft that narrative shift with her
audience matters take Valhalla it's been a backbone of their business it has actually done massive numbers even though it's not the most respected game at least based on its launch what it's had is loads and loads on loads of DLC it's a single player live service basically the thing is though you can't sell DLCs to people who aren't there hence this situation with shadows on the topic of Outlaws then weak sales and soft reception basically make it hard to justify future content I mean if it's underperformed why spend loads of money making DLC for it
but of course if you make that financially prudent short-term decision what you do is ensure that Outlaws never turns into a long-term business like Valhalla did so what they're doing now to try and solve this situation is quote fully mobilizing to address player feedback and quality of life they're going to do loads of patches and then on November 21st they're going to launch the first expansion and launched the game on Steam and hey it's even got Lando kissian I mean very cool me personally I clapped when I saw him in Disney Star Wars Episode 9
rise of the Skywalker yeah maybe it'll work but for some tone let's hear things from the horse's mouth here's a quote from EES gilmo CEO our second quarter performance fell short of our expectations prompting us to address this swiftly and firmly with an even greater focus on a player Centric gameplay first approach and an unwavering commitment to the long term value of Our Brands yeah that's absolutely regular CEO talk yes but there's actually a deeper reason because if you've read the shareholder letter that I talked about last week you'll actually see crossover and don't worry
that gives us a hell of a note to finish today's video on strategically then what we can anticipate is a spiritual second launch of Outlaws basically big wave of news big patch announcements deep discounts and probably a bundle with the EXP expansion so they can hit the Christmas game playing audience pretty hard and really it's all narrative if you lose the narrative you've got a negative multiplier on every single thing that you do that means your investment is just nerfed and that's why even though this is dire and this is a crisis for Ubisoft for
us it's actually good news it shows that you cannot disregard your narrative that you cannot do these sorts of things time and time and time again without it actually incurring a cost and taking at all and for just a taste of how quickly they got loned by reality as I record this video going to the Ubisoft site you still see the November release date for this game you still see the old Gold Edition they actually haven't even had enough time to change their own website that's how quick this has all went down so with that
said let's talk about the future their plan and then the uh the skull duggery and the massive opportunity that's going to make some people a shitload of money okay let's talk about ubisoft's fate the strategy is pretty damn clear increase average sale price by juicing up day one sales but doing that in a way that is more player friendly and sets their franchises up for good day one on long-term success that's the plan now let's talk about that shareholder Revolt you see the core point of the activist investor who's leading that is to do an
Activision stick to the big franchises only now you can't do that if you kill those franchises take Ghost Recon breakpoint if you're Ubisoft right now it sure would be lovely to be fresh off the back of Ghost Recon wildlands talking about the next Ghost Recon that's going to continue to bring that franchise back but no breakpoint killed it Far Cry ran dry you just couldn't milk it anymore Assassin's Creed is their King franchise and that's why this happens with shadows because if you kill Assassin's Creed Ubisoft is finished and I'm going to put the games
aside strategic right they need Safe products that means eliminating risks so doing Advanced access from a position of weakness is risky not launching in the world's largest gaming platform in day one is risky so for all that they may think that the village building and shadows or the jewel protagonists with different gameplay that that's innovating the game or that Outlaws saying hey do you want to play our game without yellow paint and map icons as much as they might think oh that's making our games better well the hated commercial trends that they've went to those
have done damage to the products meaning the games themselves often don't matter now a source at Ubisoft leaked an internal memo to Insider gaming and in that memo CEO EES gilmo said this in today's ultra competitive market players expect extraordinary experiences and Ultra polished games on day one that's not Outlaws we need to continue to improve when it comes to fine-tuning our games and delivering outstanding gameplay this is what will enable Ubisoft to again create the best games in the industry and looking at that I think it's hard to say that Eaves is wrong it's
also insane to think that none of this was obvious years and years and years ago what it is is the tcid admission of their place in today's market which is actually a week Market if you're a weak competitor in a weak Market you're going to die UK game sales are down 30% EU down 1.6% which was a surprising difference to me either they're perfect data and the same methodology and the UK really is as screwed as it seems to be and the Germans just will never stop playing RPGs Grand strategies and Sim games or it's
different methodologies that both Point downwards even when we go to the US a single digigit decline is actually expected for the first half of 2024 and that's shocking because of Hell divers 2 and EA college football which massively propped those numbers up so my point is everyone is going down by default it's a vicious market so product strategy that is designed to make the most money in a time of Plenty will obviously be the first to crumble and for the activist investors eyeing up the company well they know this doesn't work when you're expensive seven
and a half out of tens are fighting everybody else's games while your Critical Hits are uh you know your small scale Sid scrollers so let me explain how investors are going to and plan to make a shitload of money from this number one Ubisoft is cheap it's €9 so if you can buy it cheap and sell it high you're going to make money how do you get that stock price up then well one way to do it is to have massive successes and and all of that but you can't guarantee a success what you can
do is sort of 8020 principle where you're you comes from safer products better long-term vision and most importantly eliminate costs fire the nft people fire the metaverse you can get rid of that stupid goofy you can then divest Studios sell them to other people though unfortunately for them there's not an embracer group ready to gobble up everything in Europe anymore and that means you can shut down some studios you can reduce headcounts in other Studios you can take the decision making that led to hey we've got Tom Clancy so let's do an extraction shooter late
a Cod competitor late a battle royale late and the Myriad other strange projects that just died you could stop doing those stop pissing away your money they will look at how Elon handled Twitter they will inhale the smelling salts of business they will look lovingly at their picture of Paul Graham they will touch it and they will whisper to themselves it is time to engage founder mode and if you know what that is you know they'll ask themselves can we run Assassin's Creed division Siege and a select other few things while reducing headcount by 40%
now big picture there's two ways to make money here number one the stock goes up you bought it cheap you can sell it high happy happy but uh number two is almost certainly what they want to do in my opinion and that is to take Ubisoft private to gain more control so what they would do right is they would plan changes they would you know establish a thesis you would then fund taking the company private with private Equity so what that would involve is basically a number per share and buying out the uh the public
shareholders in doing that there would be way more control over the company it wouldn't have to deal with quarterly and all that tasty private Equity could perhaps be put to some work and hey maybe you can make it a leveraged buyout so that Ubisoft itself get saddled with loads of debt and the private Equity people get to be extra super mega happy now the thing is the activist investor basically says there have been opportunities to get loads and loads of private Equity money and they've basically said no now the reason there is EES has done
a lot to ensure control over the company it's a whole big long story but it's why him and the deal with tensent give them loads of control over the company and yes to the point where this investor wants to use EU law designed to protect minority shareholders to crack open the iron grip that e gilmo and tens Cent have got for themselves over the company and what's telling is the investor who's leading this charge started increasing their position in Ubisoft recently at alltime lows they're not doing that because they want to burn money they're doing
that because they think that Ubisoft the financial asset can be turned around and to understand that fool's situation watch this video next because in light of today's news it hits so much harder
