IPOs are a death sentence for video game companies
I was reading today the news that Devolver wants to delist itself from the stock market, and it made me smile. For years I've been saying, when rambling about it with friends, that having an IPO was a death sentence because, yeah, you can get a large injection of cash to keep things going, but then a lot of "investors" that don't understand the market will start demanding things that make no sense just so "the line keeps going up". That's why we end up with decisions only a lunatic would make, like firing the team or closing a studio responsible for a hugely successful game that was just released and got incredibly positive reviews.
Another thing — and it's a mistake I've seen some publications and YouTube critics making — is that share value doesn't represent the fiscal situation of a company. For the longest time, people have been cheering when Ubisoft's or EA's or whatever's shares drop abruptly, as if that was a signal that the company was close to bankruptcy, or as if it was reflecting a poor reception of beloved franchises that were butchered in the name of capital. In reality, share values are completely disconnected from real-world performance and depend a lot more on how some rich people are feeling about something. We all know Devolver Digital, we all know they are one of the most successful cases of a publisher focusing on smaller titles — and yet, despite that, this happened, as stated in the article:
Devolver went public in 2021 at a valuation of $939.8 million. Yet, as noted on the company's investor relations website, Devolver is currently valued at around $46 million. In other words, the publisher's share price has fallen by 91.35 percent over the past five years.
Everyone involved with the industry must know, since forever, that video games take a long time to make and make most of their money over a long period of time. Even if a title is a hit at launch, it will keep selling years down the line. This flow of money is very important, but apparently rarely taken into account by investors unless there's a remake/remaster in the works (which is a terrible strategy, in my opinion, but what do I know). Again, as stated in the article (emphasis mine):
"Devolver has during this time navigated a number of operational and market headwinds, including several impairments of underperforming titles amid an increasingly competitive and unpredictable market environment. As a publicly-quoted company, Devolver has faced the ongoing challenge of delivering growth in line with market expectations despite those difficult sector conditions, resulting in a valuation disconnect that does not take account of the lifetime and long-tail revenue delivery inherent in the video games business."
I once wrote a rant about how creative fields can't be treated as content factories, and I'd say this paragraph from the article sums it up nicely:
Devolver said the unpredictable nature of indie publishing is not "readily compatible" with the reality of semi-annual public reporting, which places an emphasis on "predictable, sequential growth."
"Development timelines can be unpredictable, and, as a result, financial performance can vary significantly between reporting periods and may not follow a linear progression," it explained.
So, yeah, opening a company to become publicly traded is a death sentence because it automatically switches gears to treat maximum profit in the short-term as its end-goal, instead of long-term profitability and financial sustainability, which is the smart course of action — or at least it should be.
It would be great to see more companies delisting themselves so they can take back their creative control.