Assassin’s Creed is a series known for stealth, subterfuge and of course, assassinations.
But in a bizarre twist of fate, the launch of a game known for justifiable murder, could end up unintentionally killing its creator.
One of Europe’s largest gaming companies, Ubisoft, has a lot riding on the launch of its next game, Assassin’s Creed Shadows (releasing March 20). It’s share price is slipping and takeover rumours are swirling.
All the while, the company is in court regarding allegations of workplace misconduct and sexual harassment. And it’s last two big bets — Star Wars: Outlaws and Avatar: Frontier of Pandora — failed to generate traction.
It doesn’t take a financial analyst to read the writing on the wall. But how did we get here? And how did a company that actually hit a new record for game sales last financial year end being a takeover target?
This week, Infinite Lives takes a closer look at Ubisoft’s books to understand what’s going on with the business behind the games, and why its twice-delayed launch of Assassin’s Creed Shadows matters.
So, what’s the background with Ubisoft?
Ubisoft is one of the largest game developers and publishers on the planet, and next to Sweden’s Embracer Group is a leader of the European video game industry. Some of its storied game franchises include Assassin’s Creed, Rayman, Far Cry, Watch Dogs and Tom Clancy’s Rainbow Six.
A French company, Ubi Soft — it was two words back then — was founded in 1986 by the five Guillemot brothers. It spun out from the family’s farming business, with the brothers seeing an opportunity in technology distribution, and then eventually software creation. The company was originally founded in Paris, but then — in what has to be the most French thing ever — moved its offices to a chateau in Brittany shortly after founding as a means to attract talent. That only lasted for just under two years though, as the logistics around holding such a building as an office became tenuous.
It grew locally as a game development firm and then listed on the Paris Exchange in 1996, raising around $US80 million in the process. These funds were used to expand its global footprint. Since then, it’s had several takeover bids, including one by French media company Vivendi. Ubisoft’s shares spiked during this period, hitting an all-time high of €102.95. It’s now trading at €12.58.
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Impressively, despite almost two decades as a publicly traded entity, the Guillemot family has not only maintained its control over the company, but its significant stake in the business too.
Amid all of this, the company has had its fair share of controversies. It suffered allegations of misconduct, abuse and sexual harassment over the past few years — a matter which is currently before the courts. In addition, Ubisoft is also one of the larger studios out there that has been incredibly bullish on the potential of cryptocurrency and gaming, which as previously covered on Infinite Lives is divisive among the gaming community.
Read more: 2011 Game Informer feature on the history and beginnings of Ubisoft, as told by its founders.
What do its financials tell us?
Digging into Ubisoft annual reports — all of which are publicly available — it paints a picture of a company that has invested heavily in growing its business, but hasn’t seen a reasonable return from it.
The longer development cycle of each game — some upwards of five years — places more pressure on each launch to succeed in order to buoy the company’s overall trajectory.
During its heyday in 2018 — when its share price was at its highest — the company was producing (at the time) record revenues from its games. It’s actually making more money overall from games now, but that doesn’t tell the whole story.
Tax, dividends, R&D costs and other regional expenses make it difficult to pinpoint the company’s expenditure and whether that’s grown in line with its ambitions. However, there is one clear indicator of increasing costs: headcount. Ubisoft globally added almost 8000 additional team members (both full time and on contract) between 2017 and 2022. Meanwhile as you can see from the chart above, its revenue hasn’t actually grown in line with this.
This perhaps goes some way to explaining why Ubisoft has aggressively restructured over the past few years and flagged further job cuts to market. On paper — ignoring all the realities of modern AAA game creation, which generally requires larger teams — its revenue growth has not justified the headcount expansion. That’s even when looking at the company’s revenue over a five-year release cycle. Simply put: More team members has not led to more revenue per headcount, dragging down the company’s overall bottom line.
As for why the pressure is on Assassin’s Creed Shadows: Ubisoft’s overall revenue for its most recent financial half-year is down 21% from its results over the same period last year. This is despite the launch of a major AAA title Star Wars: Outlaws and perhaps speaks to its lacklustre sales.
But two other major games failed to deliver significant sales? Why is Assassin’s Creed Shadows different?
Shadows teases a vast open world in this screenshot. Source: Steam.
Assassin’s Creed Shadows is one of Ubisoft’s own intellectual property and a flagship series for the game maker. Shadows also addresses a long-running demand to set an Assassin’s Creed game in feudal Japan, one that other titles such as Ghost of Tsushima have kind of capitalised on.
It’s been dubbed as a refresh of the Assassin’s Creed formula and a return to form for the series, which has critiqued as being formulaic, predictable and bloated in terms of the size of the game.
The series still sells. Assassin’s Creed 4: Black Flag which released in 2013, is the best selling game in the series history. It’s latest major entry, Assassin’s Creed Valhalla is up there too, shipping north of 12 million copies.
So what does the success or failure of this latest Assassin’s Creed game actually mean?
We could possibly be headed for another sad scenario where even if Assassin’s Creed Shadows hits a home run, it may still result in more attrition at Ubisoft. Similar to what we just saw with NetEase’s layoffs with the team making Marvel Rivals.
The financials go some way to explaining why from a business management perspective: Its headcount has more than doubled over 10 years, its revenue hasn’t kept pace.
There’s also persistent rumour of a takeover bid from Chinese gaming company Tencent, an existing shareholder in the business. This may be a matter of timing, where the share price could sink even lower pending another middling release, perhaps giving Tencent a better opportunity to snag a deal with a takeover.
And while it’s pure speculation, given Tencent is an existing shareholder, rumours of a takeover can actually help buoy a share price as it gives investors some form of capital incentive to hold their stock in a business. Especially given all of Ubisoft’s most exciting propositions (including the open world Assassin’s Creed game called Red) have no firm release dates tied to them.
On that, analyst Joost van Dreuen opined back in December that Ubisoft’s intellectual properties (Assassin’s Creed, Rayman, Tom Clancy’s Rainbow Six, Far Cry) may be more valuable than the company itself. That’s another option here, where the company sells off some of its properties to buy itself time to restructure and work on new titles. (Infinite Lives contacted van Dreuen to confirm if this was still his view closer to the game’s launch, he didn’t reply ahead of publication.)
Ultimately, Ubisoft is a poster child for the broader issues affecting AAA game development. They require large teams, huge budgets and are launching into an uncertain and competitive market where they are not guaranteed a return. But they are in a unique position to turn things around, given the ownership structure of the business — where the Guillemot family continues to maintain firm control of the company.
The Guillemots have a track record of creative thinking and business savvy — running their business out of a French chateau to generate reputation is just one example.
There’s potential here for the business to muddle its way out of the funk affecting the broader sector. But much like the best-laid plans in every Assassin’s Creed game, Ubisoft’s future, for now, hangs on a knife’s edge.
What do you think about the future of Ubisoft? And of game development in general? Also, will you pick up the new Assassin’s Creed? Let me know here.
- Harrison Polites writes the Infinite Lives newsletter. Follow him here.
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