Ubisoft's Ongoing Struggles: A Look at the Company's Challenges

Since its initial public offering nearly thirty years ago, Ubisoft has faced numerous attempts to take over or gain control of the company. Initially, it was primarily a European distributor for other companies' games, but it has since grown into a major publisher and developer of its own titles. However, this growth has also made it a target for larger companies seeking to expand through acquisition. In 2004, EA acquired almost 20% of the firm, which Ubisoft executives believed was a prelude to a hostile takeover attempt. Although EA sold its shares in 2010, Ubisoft faced another serious takeover attempt a few years later, with the founding Guillemot family engaging in a three-year corporate battle to prevent media giant Vivendi from gaining a controlling share of the company. The impact of these battles can be seen in the company's share price graph, which has been declining over the past year. The pandemic-era spike in valuations for games companies was short-lived for Ubisoft, and the company's latest stumble came with the commercially disappointing launch of Star Wars: Outlaws. Looking back, Ubisoft's high valuations in the years leading up to 2020 were largely due to the corporate battle with Vivendi, which saw the Guillemot family increasing their shareholding and voting rights. The company's share price soared, but this price inflation was not sustainable, and the company has been struggling to regain its footing. The recent open letter from an activist investor demanding that Ubisoft offer itself up for takeover by a private equity company is not a serious solution to the company's problems. The letter is amateurish and lacks a deep understanding of the games business. The prescription offered is the same 'snake oil' that is often touted as a corporate cure-all: selling out to private equity, which would lead to slashing headcount, selling off assets, and ultimately collapsing the company. Despite the flaws in the activist investor's letter, the core thesis that Ubisoft's problems are real and show no signs of improvement is correct. The company underperforms compared to its publisher peers in terms of commercial success, and it has struggled to translate its popular IPs into serious commercial success. The company lacks a 'money-printing machine' like Activision's Call of Duty or EA's sports games, and its attempts to develop new IP have not been successful. Ubisoft's problems are editorial, and the decisions made at an executive level have failed to focus the company's efforts effectively. The company has a large headcount and publishes many games, but it fails to generate revenues on a per-employee or per-game basis that compare to its rivals. This suggests a problem at a high level within the company, and the ultimate arbiter of editorial decision-making is the CEO. Yves Guillemot has fought hard to maintain his grip on Ubisoft, but it is not unfair for investors to question whether he has the skills to direct the company's product slate and make good strategic decisions. The cure offered by the activist investor is far worse than the disease, and selling out to private equity would be the death knell for Ubisoft. The company remains an important part of the games industry landscape, and its health is crucial for the industry as a whole. However, achieving a healthier and better-managed state may require real change at the top of the company.