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France 3, England 0
November 2000
Over the course of the last three years, the UK games publishing industry has slowly surrendered its prized third
place in the global publishing league (behind the USA and Japan) to a more ambitious and better equipped newcomer, the French.
In Infogrames, Havas Interactive and Titus, the French have built up sizeable games publishing businesses that have grown more
through regular fund-raisings and acquisition than the organic generation of best-selling titles. Infogrames have bought a series of US and UK publishers including GT Interactive, Infogrames and Ocean; Titus has
brought Virgin Interactive and Interplay into its fold whilst Vivendi-owned Havas bought Cendant Software. If the suggested acquisition of the UK's largest publisher, Eidos, by Infogrames had gone ahead, the
transfer of power would have been more or less completed.
So why has the French games industry grown whilst the UK industry has remained comparatively stagnated?
Clearly there are a number of factors but the most obvious difference lies in the way that investors approach
games industry investments in France and the UK. There is no doubt that British investors are more conservative than their continental and US counterparts and it could be argued that this has much to do with their
lack of understanding about how the games industry and games companies work.
Many still associate games with multimedia and given the spectacular failure of many AIM-listed multimedia
companies in the mid-nineties, the connotation remains negative. Many also fail to see the potential of an industry that is already larger than both the video and cinema industries. Furthermore, in the USA and
France, there are dozens of analysts focussing on the games industry alone (compared to a tiny handful in the UK) and investors, as a result, better understand the industry and companies within it.
A knowledgeable and enthusiastic investor base is critical. The greater the investor interest in a company, the
higher the share price (and hence the valuation) is likely to be, the more easy it is to raise new funds and the less dilution the company has to experience to raise a given amount of money.
French games companies, with far greater investor enthusiasm and higher relative valuations have used their
popularity to raise money on a regular basis. When Titus made its plans to raise €27m (£18m) using convertible bonds in July 1998, it had anticipated needing 3 banks and 2 weeks. Instead, the issue was completed in
1 hour and was 6 times oversubscribed; such was the interest in the company.
Despite the bright medium and longer term future of the games market, Eidos' profit warnings earlier this year
resulted in its share price being slashed and the company remains on a historic P/E of 14. Contrast this to the recent floatation of Italian games publishing group Digital Bros. which raised E40m on the back of
E200m valuation (approximately 145 times the previous year's net profits). Will fourth place soon become fifth?
Nick Gibson is games analyst at research-led investment firm Durlacher.
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