It’s seems from the last few years of financial results and layoffs that the game industry isn’t at its peak when it comes to having the right strategy.
That’s why two well-known industry experts, Mike Vorhaus and Michael Pachter — I’ll call them Mike and Michael for this story — have teamed up to consult with some of the biggest companies in the industry.
Vorhaus has had a long career in gaming advice, consultancy and analysis, first at Magid Associates and then at Vorhaus Advisors. Pachter, meanwhile, has been a financial analyst at Wedbush Securities for a long time and covered industries including entertainment software, entertainment retail, social internet and ecommerce, movies and entertainment.
Now they’re teaming up to help a handful of significant public and private companies on their long-term strategies and helping them implement transformational change.
Partners with different perspectives, honest advice and credibility
Pachter has clearance to remain working with Wedbush while still pursuing this new consultancy, and so he will work with Vorhaus Advisors on this new business.
“I want to give Michael complete credit for this and Wedbush for having the idea of having Michael take this type of approach within Wedbush,” Vorhaus said. “We’ve been blessed because we’ve had a great relationship.”
Vorhaus noted that he has heard from people raising money or publications about games that gaming is not going to be a growth area anymore. For this group of companies to grow at or above the tech market rate, there has to be some radically different innovation, he said.
“They’re not going to do that [innovation based on sales of] more cell phones. They’re not going to do it on a slightly better Steam. They’re not going to do it on console at all,” Vorhaus said.
“We have the rolodex, and I’d say between us, we have credibility with everybody. My claim to fame is not that I’m that smart, but I’m thoughtful and I’m honest, and I tell people what I think,” Pachter said.
There’s value in being able to speak truth to power, and both Vorhaus and Pachter aren’t shy with their opinions. Pachter said that they could also find family offices that would back either public or private companies if those clients started following the advice. Or the family offices could work with game companies in Netflix’s orbit.
“We could go to Netflix and say, ‘Hey, by the way, here’s the guys to make a Stranger Things game, then they make it.’ So there’s synergy there, and then the studio wants to sell to Netflix so that would be the exit for the family office,” Pachter said.
“We’re not looking for clients who need money. We’re looking for clients who have money to spend and are trying to dominate,” Pachter said.
That includes companies like Netflix and Microsoft and a handful of others. Some of these companies obviously need help, but they may not realize it, he said. Pachter thinks that Netflix can do better games than it has so far with its Stranger Things and Squid Game streaming show properties.
An industry crossroads
So when Pachter spoke with Vorhaus about this, he realized, “Wow, this really is a crossroads for the industry. I think the industry really appreciates it when people like Michael and I force them to think about bigger, newer, radically different ideas.”
Always well connected, they have had intense dicussions in the past with game industry leaders as Netflix came into the business and subscriptions arose. While Vorhaus and Pachter may not always agree, they can solve problems together in a way that helps companies pull the critical analysis out of each consultant.
“We have maybe 60 years of pattern recognition,” Vorhaus said. “The [company leaders] appreciate the opportunity to talk with us.”
Pachter said, “We’re not trying to go for scale here. Our immediate targets are the companies that transcend media and games,” like Microsoft, Netflix and Savvy Games Group.
Pachter has spent time “at sea level” with the individual companies as they report their results, while Vorhaus has a data-focused approach. They think that Disney is in a good space with its focus on licensing properties to game companies, as that is where its expertise and level of efficiency works well.
“I truly think the biggest opportunity is helping companies think about how they evolve into something much, much bigger,” said Pachter. “We aren’t going to need consoles to play games that you can play on your TV, and that’s going to happen. And when it happens, the guys who are ready for that are going to win, and the people who are going to win for sure are IP owners.”
What big platforms should do
Pachter added that the big companies often don’t think beyond what they already do.
“They’re not capable of looking outside the box,” Pachter said. “Netflix is very good at delivering streaming video. They suck at games. They don’t know why they separate games, and it’s because they’re not even thinking about what they can be and what they are as a the platform.”
Pachter added, “If they put their mind to it, they can start thinking beyond just movies and TV. They can start thinking about everything we can consume.”
At Magid, Vorhaus said he had a monthly retainer with Kevin Mayer of Disney for 14 years.
Vorhaus said, “I said a lot of controversial things to them around cord cutting early on, and one day, I held up my phone a couple of years after the cord cutting presentation I first gave them, and I said, ‘This is a TV.’ I was ridiculed by all of Kevin’s disciples, and to some extent, Kevin. But if you looked at it from the consumer point of view, it was obvious. Because we all have it in our pocket. We were doing everything on them.”
Vorhaus said Netflix made a good move when it distributed a disc with Netflix’s app on it for the Xbox 360, as that brought in new members to the Netflix platform.
“This is why consultants exist. We have pattern recognition and [some of these leaders] have been at two companies,” Vorhaus said.
Pachter said there is a way for Netflix to win with the combination of games, music, movies and TV on its platform. Even publication articles and shopping.
“If they ever turn themselves into a platform where everything you do is on your TV screen, you’re never going to leave and then Netflix wins forever. And by the way, Microsoft can do it too,” Pachter said.
Pachter notes that it’s hard to find a movie on Netflix, and he uses Roku to figure out where a given movie sits among all of the various streaming platforms.
Vorhaus said, “This is so obvious, and so few people are even working or thinking about it. It’s the Super App concept, which works so well in China and Asia, people are barely talking about it.”
One of the questions about platforms like Netflix or Amazon is why does the gaming platform exist at all? You could argue that the purpose is not to make additional money, but to keep people from leaving the platform to do something else.
That’s likely why Netflix is giving the games away for free, rather than selling them. They prevent you from leaving the platform and churning out of Netflix, which is valuable to Netflix. In some ways, that is a purely defensive platform. Is the mission to stop a customer from going somewhere else? Or is the offensive strategy to put an outstanding game in front of players that they’re willing to pay for?
What game makers should do
For game makers, it’s is an interesting question in reverse, Pachter said. Would you like to put EA Sports FC on Netflix, to have a shot of expanding from 24 million to even more by tapping into Netflix’s 300 million-plus customers? Pachter said EA should consider that strategy because it could double the number of soccer game players.
“We’re we’re not that smart. What we are is we’re really well connected. We’re really experienced. We’re going to state things that should be patently obvious, but we’re going to state them in a convincing way, because we’re independent, we’re credible, we’re thoughtful and we don’t work for the company. We have nothing to gain by telling them. And once we get the right executive on board, we’ll get the board on board,” Pachter said. “We win if they hire us and listen to us. Nobody has to act on what we say. We just want to make them smarter. We just want to make them think and be more thoughtful.”
The goal is to get the executives thinking more about strategic planning, he added.
The key is getting access to the right executives, and then helping them convince their boards to get on board with the strategic plan, Vorhaus said.
“We’re probably going to end up working with people who already trust us and respect us and want to hear we have to say,” Vorhaus said.
Pachter said he wants to take the “30,000-feet view” and focus on execution, operations and getting things done.
“What we’re looking for among clients is those who need to evolve,” Pachter said.
An example on subscription strategy
As an example of a suggestion, Pachter said he rented a movie on Amazon for $6. Then he found out it was available on Netflix for free. So Amazon made money referring the customer to Netflix. Yet Netflix doesn’t do the same for Amazon movies. That means that Netflix is missing out on a movie referral business for its competitors.
To Netflix, Pachter said, the advice is that they could be leaving a billion dollars a year on the table by not engaging in this kind of referral business. Is there a strong reason for that? This is the kind of strategic advice that Pachter believes he can offer. And it’s just as relevant to the subscription service companies in games — like Sony, Microsoft and Nintendo, Pachter said.
It also creates logical questions. Why doesn’t Xbox offer movie rentals? These are super easy strategy suggestions that can test whether a company is really thinking clearly when it comes to its competitive environment, Pachter said.
“I think we will add a tremendous amount of value by just observing the patently obvious feelings of around these companies and then helping them to try to figure out how to make their product better. And I am confident if they hire us, we will help them to evolve into a more profitable business than they are now,” Pachter said.