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Conclusion
There is no doubt that the UK
development market has suffered considerably during the current cycle due to developer over-supply and other consolidation pressure. In contrast to the strategies employed by Argonaut (targeting and relying on
big-budget development contracts) and Warthog (focusing on original IP development rather than licence development), Kuju has taken a different strategic approach. It divided its development into 4 distinct segments
(action, racing, mobile and new projects). This demarcation has allowed each to promote itself as a specialist developer, seek deals specific to its area of specialisation only and build up genre and
platform-specific technology and skills. The Company is therefore able to pitch more effectively for projects within its area of expertise and does not waste resource trying to secure contracts in other genres where
it is less competitive. Interestingly, the strategy appears to be working as Kuju has won a string of contracts with top tier publishers (Nintendo, Activision and Sony) and has returned to profitability (in the
second half of FY04, the period in which the restructuring took place). At the same time, Argonaut has gone into administration and Warthog had to fire-sell its business to Tiger Telematics.
Kuju has also proven
something of a pioneer with its use of outsourcing. The Company has recognised the need to keep its headcount and overhead costs as low as possible and has developed strong relationships with key outsourcing
partners who can be employed on a project by project basis. This has allowed Kuju to scale its development resource up and down dynamically to meet the requirements of particular projects so costs can more
effectively match revenues and the Company is not left having to fund unused
resource between projects. Sensibly, Kuju intends to expand its use of outsourcing, especially once its next-generation console game development gets underway.
Whilst Kuju is making impressive headway in its
metamorphosis into a consolidation-proof, next-generation-ready developer, it should be remembered that the vicissitudes of the development market (especially one undergoing such dramatic changes) make it both
unpredictable and, as a result, high risk. With 150 staff, Kuju is one of the largest developers in Europe and has monthly costs of in excess of £0.5m. The margin for error, despite its cost and risk mitigation
policies, is tight and it will need to remain on its strategic toes if it is to prosper in the current environment.
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