E3 2016

[Iceman]

This is definitely an improvement on some years when all 3 have been terrible.

 

[Matt Mortem]

This is definitely an improvement on some years when all 3 have been terrible.

Year before last, or whenever they showed off Splatoon and Smash, was a decent showing. Everyone can agree that last year was a complete mess though.

 

[Matt]

Great. The company's financials are quite well

Konami is actually doing very fine money-wise. The vast majority of their finances come from other sources from video games, and have for a very long time. They are basically out of the video game market.

They aren't doing that great. Their stock prices have risen in recent months, but are just barely where they were in 2008 and 2011 and are no where near where they were in the early 2000s when Konami tanked. In fact, they have begun to dip again since mid-May, which indicates that the rise may be another anomaly like 2008 and 2011 and not a sustainable trend. They are pulling in about $30-35 per share (average) when converted to USD. Comparing them to other studios, that seems about average. EA pulls in close to $80 per share (fun fact, you could have bought EA stock in the early 90s for pennies..in fact, you could buy it for less that $10 per share as late as 1999). But EA is an outlier. Other comparable studios also trade around $30-40 per share. However, as you two pointed out, Konami is not just a video game publisher. Comparable stocks are. Konami ought to be trading higher than those studios, but its not.

But more importantly than stock prices (which really do not say much regarding the health of a company as it is purely speculative and only brings in revenue when they are selling new stock [an act that devalues existing stock, so is seldom done], rather than existing stock being traded between third parties), their revenue statements (the true test) for their last five year period (2010-2014) have shown consistent losses. They also decreased in revenue last year. Comparable studios have either shown increased revenue over the same time period or at least held even. Even Capcom has shown some growth over the past five years (they lost last year but grew consistently prior to that and seem to be on the rebound this year). The only area in which they have shown any profitability seems to be their trading card sales, and even that is relatively minimal and no where close to what is needed to compensate for their other losses. At any rate, no matter how you slice it, six years of straight loss is not indicative of a healthy company. Further, a company that is healthy seldom pivots as much as Konami has over the past 10 years.

Personally, I wouldn't invest in Konami. I'd bet almost anything that they will be selling off assets within the next five years and will be bankrupt 5 years after that.

 

[SpideyVille]

I think the belief is that Konami makes more off of Pachinko machines than they do video games, so they've basically decided to put more of their resources into those.

 

[Matt]

I think the belief is that Konami makes more off of Pachinko machines than they do video games, so they've basically decided to put more of their resources into those.

Yeah, that seems to be their latest pivot, but even that has been losing money. Of course, that could be by the merit of their expansion of that market (gotta spend money to make money). But I'm not sure that they have the resources to really go all in there without selling off other assets (thus my prediction). At any rate, the only area in which they have posted gains seem to be trading card games. I wouldn't be surprised to see a full blown pivot into that (as it has much lower overhead), especially if there is a change in leadership any time soon.

 

[Lily Adler]

Sega and Konami are rolling in that Pachinko machine money!

 

[Havok83]

They aren't doing that great. Their stock prices have risen in recent months, but are just barely where they were in 2008 and 2011 and are no where near where they were in the early 2000s when Konami tanked. In fact, they have begun to dip again since mid-May, which indicates that the rise may be another anomaly like 2008 and 2011 and not a sustainable trend. They are pulling in about $30-35 per share (average) when converted to USD. Comparing them to other studios, that seems about average. EA pulls in close to $80 per share (fun fact, you could have bought EA stock in the early 90s for pennies..in fact, you could buy it for less that $10 per share as late as 1999). But EA is an outlier. Other comparable studios also trade around $30-40 per share. However, as you two pointed out, Konami is not just a video game publisher. Comparable stocks are. Konami ought to be trading higher than those studios, but its not.

But more importantly than stock prices (which really do not say much regarding the health of a company as it is purely speculative and only brings in revenue when they are selling new stock [an act that devalues existing stock, so is seldom done], rather than existing stock being traded between third parties), their revenue statements (the true test) for their last five year period (2010-2014) have shown consistent losses. They also decreased in revenue last year. Comparable studios have either shown increased revenue over the same time period or at least held even. Even Capcom has shown some growth over the past five years (they lost last year but grew consistently prior to that and seem to be on the rebound this year). The only area in which they have shown any profitability seems to be their trading card sales, and even that is relatively minimal and no where close to what is needed to compensate for their other losses. At any rate, no matter how you slice it, six years of straight loss is not indicative of a healthy company. Further, a company that is healthy seldom pivots as much as Konami has over the past 10 years.

Personally, I wouldn't invest in Konami. I'd bet almost anything that they will be selling off assets within the next five years and will be bankrupt 5 years after that.

A big part of their losses in recent years is because of games. Videogames werent making them money. They were pouring millions into the industry and they werent seeing the returns on that. MGSV's development was long and had an incredibly large budget which attributed to their stock decline in recent years. That was the last major game they put out but with it out of the way, things are looking up for them financially as they've phased must of their videogames out, with PES being the only big one in sight. The reorganization in the past year to focus more on pachinko and mobile games offers higher returns for lower investment. Their finances right now are fine and they are in a more safe place as a company now than they were a few years ago. Financials go up and down all the time. It'll be more interesting to see where they are a year or 2 out from this changee. It may or may not work out for them, but they'd likely be out of business in the near future if they continued being a AAA videogame publisher

 

[Matt]

A big part of their losses in recent years is because of games. Videogames werent making them money. They were pouring millions into the industry and they werent seeing the returns on that. MGSV's development was long and had an incredibly large budget which attributed to their stock decline in recent years. That was the last major game they put out but with it out of the way, things are looking up for them financially as they've phased must of their videogames out, with PES being the only big one in sight. The reorganization in the past year to focus more on pachinko and mobile games offers higher returns for lower investment. Their finances right now are fine and they are in a more safe place as a company now than they were a few years ago. Financials go up and down all the time. It'll be more interesting to see where they are a year or 2 out from this changee. It may or may not work out for them, but they'd likely be out of business in the near future if they continued being a AAA videogame publisher

Financials certainly fluctuate from quarter to quarter. Six straight years of loss (possibly more, I did not date that far back) is beyond mere fluctuation. Their 2016 numbers, thus far, are not encouraging. A company that is taking this long to pivot into a new market is in dire shape. You need to capital to pivot successfully. Its why I think they will start selling off assets. But the problem with selling off assets to pivot is, if your pivot fails, you have nothing to fall back on.

If Konami goes all in on pachinko and mobile (which seems to be their desired path), and it does not save the company, Konami is done. Frankly, I don't think it will...the mobile market is rift with competition that operates with far less overhead, is producing cheaper alternatives with just as high of quality, and is profitable because they are not weighed down by a massive corporate infrastructure. Tech/small software companies like those that produce mobile games are profitable because they are so small. Konami does not have that luxury without massive layoffs and asset reduction (which will tank stock prices...stocks are an interesting creature...good stocks mean nothing, really..but bad stocks can destroy your company). As for panchinko, I'm just not convinced it will be as profitable as Konami is counting on. It doesn't have a strong market outside of Japan/Asia. And again, cornering a small market is fine, but only if that market is big enough to sustain your entire corporate infrastructure. I don't think it is.

 

[SpideyVille]

How long was MGS V in production? Their struggling financials could be why there was friction between them and Kojima.

 

[Havok83]

How long was MGS V in production? Their struggling financials could be why there was friction between them and Kojima.

That was the rumor with Konami forcing Kojima to release it before his contract expired. He was quite ambitious with that and they grew frustrated at the money thrown and the amount of time it was taking to produce a product

To answer your question, I think it went into active development in 2012 but prior to that, he worked on building the Fox engine for it. The project allegedly cost more than $80M

 

[Brother Jack]

Everyone won at E3, Each conference had their own pros and each had games for different type of players!

EA didn't, really. I was disappointed that for the second year in a row they showed nothing about Star Wars or Andromeda. In the latter case, it leads me to believe there could be development issues with the game.

 

[Lily Adler]

Did anyone else know that Sega had a conference?!? That was news to me this morning.

 

[terry78]

Se....ga?

 

[Sithborg]

Year before last, or whenever they showed off Splatoon and Smash, was a decent showing. Everyone can agree that last year was a complete mess though.

A lot of that was due to the number of games they showed off. Though, Splatoon turned out to be an amazing surprise. Last year they showed off a few more games, but nothing really compared to the year before or Zelda.

 

[I Am The Knight]

Did anyone else know that Sega had a conference?!? That was news to me this morning.

Genesis does what Nintendon't.

 

[Havok83]

Did anyone else know that Sega had a conference?!? That was news to me this morning.

Bc it didn't? Where are you getting this from?

 

[Lily Adler]

YouTube. Sega of Europe had an event the same time as Nintendo's 2nd day. They announced Warhammer, Yakuza Zero, and Sonic Boom: Fire and Ice. It was probably independent from E3.

 

[Tron Bonne]

Konami's whole business is not pachinko and mobile (in fact, they don't have a significant mobile presence), they also own and operate a series of fitness clubs through Japan that are successful. As Havok pointed out, a lot of the revenue they lost was due to video game development and R&D. They will have to downsize at some point over the next few years, definitely, but overall they are in a much better financial spot than many seem to think. Once they downsize and restructure, they will probably be an overall healthy company, though obviously a much smaller one than the past, much like Sega is now.

 

[Havok83]

YouTube. Sega of Europe had an event the same time as Nintendo's 2nd day. They announced Warhammer, Yakuza Zero, and Sonic Boom: Fire and Ice. It was probably independent from E3.

Oh okay. That wasnt quite a conference

 

[Matt]

Konami's whole business is not pachinko and mobile (in fact, they don't have a significant mobile presence), they also own and operate a series of fitness clubs through Japan that are successful. As Havok pointed out, a lot of the revenue they lost was due to video game development and R&D. They will have to downsize at some point over the next few years, definitely, but overall they are in a much better financial spot than many seem to think. Once they downsize and restructure, they will probably be an overall healthy company, though obviously a much smaller one than the past, much like Sega is now.

In their 2014 SEC filings (I don't believe 2015 has been released yet), Konami reported losses associated with their fitness clubs. Their informal reports indicate about a 4.1 % loss associated with their fintess clubs. 4.1 % is fairly high. Where'd you get your MBA from Tron? I'm no business man but I am a lawyer, and a good portion of my practice is tied to business transactions, specifically as it pertains to securities (stocks and the likes). I would never advise a client to buy stock in a company who is reporting losses in the market that they are attempting to pivot into nor can I think of anyone with an MBA or in the field who would advise that or call a 4.1 % loss "very successful." Especially when the previous year they were down 4.2 % from this market (in fact, they have lost money in that market every year for the past six years).

You cannot successfully downsize and restructure without first stabilizing and Konami has shown no ability to do so. If they are trying to stabilize through these fitness clubs, they are doing it wrong because they are losing money. The fact is, digital entertainment is still their only real source of consistent revenue (or any real value) and they are still losing money there. It doesn't help matters that they are attempting to break into a market that is insanely competitive and oversaturated (fitness clubs) as it is. And their strategy for breaking into it seems to be providing more tech-based workout equipment, which is foolish in and of itself because it means higher costs, which either need to be absorbed or passed onto the consumer (which doesn't really work when you are in an oversaturated market with high supply). It would explain their losses.

So yeah, their attempted pivot into these fitness clubs have resulted in loss due to approaching it with a seemingly erroneous strategy.

Like I said, going by their cold hard numbers, no matter how you slice it, Konami is in pretty bad shape financially. And none of this speaks to the fact that restructuring has costs (for one thing, the second layoffs and asset movements begin investors get spooked and start dumping stock). A company needs to be able to survive a restructure and the fact that Konami hasn't yet tried is indicative that they probably aren't in good enough financial shape to even attempt it.

 

[Tron Bonne]

I couldn't really give you any sources off the top of my head. Just going by stuff I've read in the past, so you may be right then, or things have changed since I last read about it. I'd have to do the research, but I don't care that much about it to be honest.

The condescension isn't needed or appreciated, though. A lawyer surely doesn't have to stoop to that level.

 

[Matt]

I couldn't really give you any sources off the top of my head. Just going by stuff I've read in the past, so you may be right then, or things have changed since I last read about it. I'd have to do the research, but I don't care that much about it to be honest.

The condescension isn't needed or appreciated, though. A lawyer surely doesn't have to stoop to that level.

95 % of lawyering is condescending others.

Ironically, the other 5 % is self-deprecation.

 

[Tron Bonne]

That's fair.

 

[MOVIELORD101]

My one concern re: E3 this year is this: why didn't 2K say anything about the Bioshock Trilogy Remasters for PS4 and XB1? They've been a worst-kept secret for MONTHS to the point where they're all but announced and yet they've said NOTHING about it and just announce XCOM 2 for those consoles instead!

 

[Havok83]

My one concern re: E3 this year is this: why didn't 2K say anything about the Bioshock Trilogy Remasters for PS4 and XB1? They've been a worst-kept secret for MONTHS to the point where they're all but announced and yet they've said NOTHING about it and just announce XCOM 2 for those consoles instead!

A remaster of last gen's games isnt really E3 announcement worthy. They'll do that closer to when they are ready to release them. Its not something significant like Crash Bandicoot which people thought would never happen