Indie Game Publishers Face Challenges Due to Weaker Subscription Deals

The decline of subscription deals and poor performance of certain games have significantly affected Devolver and TinyBuild, as stated by Goodbody, a stockbroking firm. Both companies, which went public in 2021, have seen their share prices drop substantially over the past two years, with Devolver experiencing a 92% decrease and TinyBuild a 95% decrease since their peaks in January 2022. According to Patrick O'Donnell, a technology and video gaming analyst at Goodbody, "The current state of subscription deals is under pressure, as seen in the cases of Devolver and TinyBuild." He further explains, "The payments from Sony and Microsoft are no longer as substantial as they once were, creating problems for companies heavily reliant on this aspect of the market." TinyBuild, in particular, has been severely exposed due to its dependence on these deals. Devolver, although also affected, is less exposed. The recent decline in Devolver's share price can be attributed to the company's decision to delay several major titles, resulting in poor year-on-year comparisons. This is partly due to the success of Cult of the Lamb, a hit title released last summer. Initially, expectations for Devolver's current financial year were between $115 million and $120 million, but these have been revised to $90 million. This reduction is primarily due to the delay of major releases until 2024, a decision made for the right reasons, despite potentially disappointing investors in the short term. Additionally, although Devolver's back catalog remains resilient, pricing has decreased by 5%, negatively impacting their EBITA. The absence of major games to offset this decline has further exacerbated the issue. However, O'Donnell believes that Devolver has the potential to recover, citing the company's track record of producing high-quality products and its ability to create hit-driven games. The upcoming release of Human: Fall Flat in 2024 is expected to be a significant factor in the company's turnaround. In contrast, O'Donnell expresses concerns about TinyBuild due to the disappointing performance of Hello Neighbor 2. The game's poor showing on Steam, combined with a severe downgrade of 80% on their adjusted EBITA, has raised concerns. The appointment of a new CFO without prior experience has also been questioned. TinyBuild is now shifting its focus towards premium, full-priced games, a strategy that comes with risks, particularly in the challenging third-party publishing landscape. Despite this, the company has seen success with Punch Club 2, and the decline in share prices for both Devolver and TinyBuild has led to speculation about potential buyouts. O'Donnell notes that both companies are currently undervalued, making them attractive targets for strategic investors. Netease and Sony, investors in both companies, may consider acquiring these businesses and taking them off the market. In a more positive note, Team17, another British IPO, has not struggled like Devolver and TinyBuild. This is partly due to Team17's conservative approach to setting expectations. The company has seen a 55% increase in Steam unit sales over the past seven months, driven by the success of Marauders and Dredge. Team17's acquisition of Astragon and its strong simulation games, as well as the performance of Story Toys, have contributed to the company's resilience. The upcoming release of Blashphamous 2 and the company's broader audience play are expected to drive growth. Although Team17 is undergoing a CEO change, with Steve Bell replacing Debbie Bestwick, O'Donnell remains confident in the company's prospects. Team17's conservative approach to expectations and its strong cash generative business model position it for potential deals and further growth.