Ubisoft kicked off the year by announcing sweeping changes to its company structure. On January 21, the French publisher said it was implementing a “major organizational, operational, and portfolio reset.”
It was a move that included several game cancellations and layoffs alongside the promise of more cost-cutting. Ubisoft now comprises five separate “creative houses” under which its various franchises will live. For instance, all of the company’s core franchises—Assassin’s Creed, Far Cry, and Rainbow Six—have been placed into one (Tencent-backed) creative house, while Just Dance and Miner Tycoon will reside in another.
Ubisoft founder and CEO Yves Guillemot said the restructure is part of the company’s plan “to create the conditions for a return to sustainable growth over time.” Ubisoft shares dropped immediately after the announcement, and employees, too, were left with plenty of questions—specifically, about how Ubisoft’s new organizational structure will lead to the fabled land of “sustainable growth.” It’s a phrase that has been kicked around by corporate execs like a tattered old football in recent years, usually when announcing layoffs or studio closures. But what, if anything, do those two words actually mean?
“‘Sustainable growth’ is definitely a buzzword that gets used broadly and can mean many things depending on the company,” DFC Intelligence founder and analyst David Cole tells Game Developer. “But in the game industry today it reflects a real structural shift in how large publishers operate.”
Sustainable growth—the buzzword—is part of the industry’s big problem, says F-Squared video game consultant Michael Futter. “Because public companies, especially in our industry, have drastically over-prioritized shareholders among other stakeholder groups, sustainability is rarely attainable. The economy is in shambles and these companies are still talking about sustaining growth instead of sustaining their business. These are two different things.”
But investor and New York University professor Joost van Dreunen says that Ubisoft—following a series of struggles, both internal and external—has “few other options than” a dramatic overhaul. “To put this in perspective: on an average trading day, Take-Two’s market value fluctuates more than what Ubisoft’s is worth in its entirety,” adds van Dreunen.
Cole says that video game companies are typically separated into two functions: publishing and development. The publishing arm is squarely focused on the marketing, distribution, and monetization of Ubisoft’s intellectual property; the development arm is concerned with “the complex and costly process of building the game itself,” Cole says.
Ubisoft has historically been “one of the most development-heavy publishers in the industry,” Cole continues, “with a very large network of internal studios and thousands of staff tied to ongoing production.” But production budgets are massive now, and timelines are ever-growing, which means that huge production teams are hard to sustain. “That scale can be a strength creatively, but it also creates significant fixed cost and operational complexity when the release pipeline slows or projects get delayed,” Cole says. He expects the industry to move towards a production model that’s more closely aligned with film and television production, in which teams are assembled on a project-to-project basis.
This is not what Ubisoft is doing, exactly, but the shift towards “creative houses” is a more modular way of developing video games. Everything is still internal, but groups are now more strictly project-and franchise-based. It means that third parties, like Tencent, can invest in certain franchises but leave other parts of the company untouched.
“In that context, Ubisoft’s restructuring reflects a broader industry reality,” Cole says. “Publishers are under pressure to reduce fixed overhead, improve execution, and rely more on an ecosystem of dedicated third-party partners in order to operate more efficiently. The companies that succeed will be those that can balance creative control with a leaner, more modular development model.”
“The creative houses structure is essentially pre-packaging Ubisoft for sale”
The reality of the separate creative houses, too, means that Ubisoft’s franchises are easier to sell off.
“The creative houses structure is essentially pre-packaging Ubisoft for sale,” van Dreunen says. “By creating autonomous divisions with clear P&Ls, they’re making it easier for acquirers to cherry-pick the valuable parts, like Rainbow Six or Assassin’s Creed teams, without absorbing all 17,000 employees.”
Amanda Farough, F-Square co-founder and video game consultant, feels the same way.—Ubisoft needed money from Tencent, which explains why it chose to fragment its business.. “The move to split off some of the more valuable IP was a convoluted way to have their cake and eat it, too,” she explains
Van Dreunen expects “selective divestitures first,” then “either full privatization by the Guillemot family or acquisition by a strategic buyer that can absorb the profitable divisions. The real question is whether this happens before or after another disappointment forces their hand. Either way, whether it’s Tencent buying Rainbow Six or Sony grabbing Assassin’s Creed, I’d expect Europe and North America’s indie scene to benefit from an exodus of senior talent.”
Ubisoft did not deny the possibility of selling off one of its newly structured creative houses, per a recording of a Ubisoft Town Hall outlined by Insider Gaming. Ubisoft chief financial officer Frederik Duguet said during that call that divesting a creative house isn’t the “first route,” but noted that if, “in some years,” a house was not profitable, the executive team “will look at the root cause.”
“If we open the perspective, and the options, if we find a powerful and motivated partner, and we agree on long term vision, and it comes with an important cash injection, with the force to invest in the future of the brands, if this is good for the house or Ubisoft, it is something to consider,” he said.
Ubisoft’s split into these different creative houses is a way to provide “focus and efficiencies,” too. Van Dreunen provides an example—the music publishing industry, wherein it’s common for publishers to have different labels for different genres. “This focus improves the quality of their output,” he says. “It also mitigates risk across the organization. When one division fails, it doesn’t drag down the others, limiting its impact.”
And success rates of video games are a major concern. Players are spending huge amounts of time on video games that are years old. There are more video games than ever, but companies are seeing declined revenue. Investor and Epyllion CEO Matthew Ball tells Game Developer that “most large publishers have faced declining batting averages.” Fewer games are hits.
“The term ‘tentpole’ comes from Hollywood whereby a movie studio might release, say, a dozen titles, some of which lose money, some of which make some profits but not enough to recoup other losses, but one or two of which can ‘hold up’ the entire tent,” he says. “Overall, publishers have found that too many titles sit in those first two groups than they expected, and their losses are too great for the winners to hold up the tent. It’s for this reason that nearly all publishers thinned their development pipelines to focus on fewer at-bats.”
For Ubisoft, he says, this is evident with its recent game cancellations, like Prince of Persia: The Sands of Time Remake. “Publishers such as Ubisoft are looking to reset and refocus their entire investment programs to what they consider to be a more sustainable forecast and set of assumptions,” Ball says.
Expensive video games that take a lot of time to be made and cost a lot of money need to be hits—the high production costs demand more, and games aren’t often reaching the heights required to meet those expectations. Ubisoft is hoping that its major restructure will lead to more of those hits, and it’s drastically cutting costs until it does.
“Part of the effort is a public bloodletting and an implied mea culpa to investors who have begun to consider selling their shares, further depressing the firm’s valuation, and part of it is a restructuring aimed at revitalizing internal processes and, possibly, breaking bad habits,” Cole says. “Ubisoft’s failing is not a function of a lack of resources or talent, suggesting that an organizational refresh might be exactly what it needs to get its groove back.”
Ubisoft’s employees, whose lives are heavily impacted by the executive failures, are not necessarily convinced. An Insider Gaming report suggests that a recent Town Hall meeting in which Guillemot and other executives answered employee-submitted questions did not go well—specifically, the return-to-office mandate that some employees see as a way to shed employees. Guillemot said the “only objective is to get Ubisoft back on the right path as soon as possible, to share success and profits,” per Insider Gaming’s recording of the meeting.
Two Ubisoft Paris developers told Game Developer earlier in February that workers are incensed by the restructuring and subsequent impact on games, studios, and employees. Those employees called for the resignation of Guillemot. Five unions covering Ubisoft employees are now encouraging staff to strike for three days from February 10 to February 12.
“It’s time for our management to understand that they cannot do whatever they want, whether with public money or the work of hundreds of people,” the unions wrote in a joint statement. “Without us, Ubisoft would never have conquered and transformed video games as it has done. We are history, we are Ubisoft.”