#executive management

There’s basically three main reasons to cancel a franchise:

The executive in charge doesn’t like the franchise

Sometimes executives just don’t believe in a product or a product line. Typically, these are the easiest kind of franchises to revive - if/when the executive who doesn’t like it is replaced or overruled by somebody else, the franchise may be resurrected.

The franchise license owner doesn’t renew the license

If the franchise is based on a licensed property, the license owner may decide to pull it for reasons of their own. Star Wars, NFL, FIFA, Batman, Spider-Man, James Bond, Lego, etc. are all well-known IPs with video game franchises built by publishers who don’t own that IP. The owners of that IP have their own conditions and may decide to pull the license for their own reasons. We saw a lot of this when Disney bought Marvel and a bunch of old licensed games vanished from stores (e.g. Marvel vs Capcom, Activision’s Deadpool game, etc.). These tend to be the most difficult to resurrect, since it requires executive signoff from two companies instead of just one.

The franchise audience has shrunk to the point that the projected earnings won’t justify the production cost

This is caused by normal attrition. Players age out, players find other games to play, new players aren’t as interested in the franchise anymore, and so on and so forth. The most important question for sustained game (and franchise) development is whether the next offering will be able to justify its cost. Adjustments can be made on both ends (e.g. reducing development scope/budget, reducing marketing, leveraging existing technology, outsourcing, etc.) but the ultimate question is whether the franchise can earn enough to sustain that continued development. In some older cases like Guitar Hero or Turok: Dinosaur Hunter, the answer is “probably not”. That said, if enough time passes and a good pitch is made, it’s entirely possible to do this. Nostalgia is a strong motivator if the new offering is good, which is why we see occasional franchise resurrections like Killer Instinct, Tony Hawk, and Crash Bandicoot.

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Let’s take a step back for a moment to understand how companies make decisions. Companies are run by owners. If I am the only owner of Awesome Appetizer Gourmet Distribution Company, I own 100% of the company and make all of the decisions. But let’s say that axl99 and EDC are my equal partners; we each own 33.33% of AAGD Co. If I decide that I want AAGD Co to make ice cream but EDC wants AAGD Co to make crab cakes, we are at an impasse. Company decisions are majority rule, so axl99 is the deciding vote. As long as more than 50% of the total ownership of the company decide to make a decision, the company must carry out that decision. With me so far?

Now... let’s say that axl99, EDC, and I are all very busy people - too busy to run the day-to-day AAGD Co duties. EDC is starting a second company called European Dining Collective, axl99 has been called in to produce the next set of blockbuster superhero movies, and I have decided to pursue my love of fine ice creams and partner with Netflix for my own ice cream tasting show. We still own AAGD Co, but we’re all too busy to run the day-to-day affairs. Instead, we decide to hire Carrie Ellen Okonkwo to execute our wishes for us - a chief executive officer - who we trust to hire the necessary people and run the company as best she can. She will take care of the smaller stuff while leaving the company biggest decisions to us. We might even give her some stake in the company - axl99, EDC, and I each give her 3.33% of our stake in the company.

Carrie now owns 10% of AAGD Co while axl99, EDC, and I own 30% each. Any major decision still requires two of either myself, axl99, or EDC to agree for the company to do it because that’s still necessary for >50% of the company ownership to decide. Even though Carrie owns part of the company, she doesn’t own enough to make a difference in the decision voting. She shares in the success and failure of AAGD Co, but she must still act on our collective behalf. She is legally bound to make decisions that she believes would benefit us, or she can be dismissed and sued. 

“But Dev, what does all this have to do with fan games and permission?” you might ask.

In the case of Valve, the company is majority owned by Gabe Newell and his fellow founders and coworkers. GabeN and the other stakeholders make the decisions for Valve (the company) and Valve must abide by their decisions. If they decide to give permission to fan game devs, Valve is required to carry out their wishes. Getting more than 50% of the relevant stakeholders to agree is not that difficult. Nintendo, on the other hand, is publicly traded. This means that ownership is divided up among tens or even hundreds of thousands of people. Nintendo’s leadership isn’t making the decisions for themselves. They’re making decisions on behalf of all of the shareholders (owners). 

Company leadership makes these decisions based on what they think is best for the company’s owners. They are legally bound to make choices they believe will benefit the company’s owners. The default goal of any company is to make more money for the shareholders. For giving permission to something like a fan game, there absolutely must be some tangible benefit to the company in doing so. “It would be nice of them” isn’t tangible enough - there needs to be some legitimate evidence that it has an actual positive dollar value involved, or enough of the owners (>50%) must decide that giving permission is more valuable or important than protecting the intellectual property the company has spent millions of dollars developing. It’s a lot easier to convince a small number of company owners who are also game developers who like fan games to give permission than it is to convince tens of thousands of faceless shareholders of the same thing. That’s why Valve does it and Nintendo doesn’t.

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I was a little surprised to discover after my last post that many readers didn’t know much about what a CEO’s responsibilities are, but it stands to reason that the rest of corporate structure is probably just as inscrutable. Today, we’ll go over the general power breakdown at a large company collectively owned by a bunch of people (shareholders).

When you have lots and lots of shareholders, it’s really hard to have any kind of discussion or vote on each decision that comes along. Instead, the shareholders choose a Board of Directors to represent them and their interests, similar to how the US citizens choose Senators that represent them in the Senate and Representatives that represent them in the House of Representatives. The shareholders can decide to hold a vote to replace one or more board members if they want to replace someone. The Board of Directors generally exists to handle the smaller decisions of the company so the shareholders don’t have to spend all their time voting on decisions.

I should also note that each shareholder doesn’t hold the same voting power; each share in the company holds the same voting power. If Neelo owns 1 share of AAGD Co and I own 99 shares of AAGD Co, Neelo gets 1 vote and I get 99 votes. The more of the company I own, the more votes I have. This is why a “controlling stake” is 51% of a company’s shares - if I own 51% of the company’s total shares, I completely control the company because nobody else can outvote me. Tim Sweeney, for example, owns 51% of Epic Games so he can make Epic do whatever he wants.

The Board of Directors chooses a Chief Executive Officer who, as I mentioned before, executes the wishes of the shareholders (as represented by the Board of Directors). The Board is tasked with interviewing CEO candidates and choosing someone they feel is good for the job. The board is also responsible for setting things like CEO compensation and performance targets. This applies to other C-level employees as well - the Chief Technology Officer, Chief Financial Officer, Chief Operations Officer, etc. are all chosen by the Board. It is actually possible (and quite common) for members of the board to pull double duty as C-level employees in addition to being on the board of directors. Much of the time, this is because the C-level employees are founders of the company and thus large shareholders in the company themselves.

Going back to the second part of the question, if the CEO does something that the shareholders or the Board of Directors dislike, the Board can fire the CEO and appoint a replacement. That might mean appointing a (different) member of the board to the position or it might mean hiring an external candidate. This is also why you may remember movie scenes where somebody is “forced out” - the collective votes of the shareholders/board are enough (51+%) to force removal of the previous leader from the board and/or their position even if they don’t want to go. All employees, including the C-level employees, serve at the pleasure of the Board. The Board serves at the pleasure of the shareholders. 

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Executives at a company are usually similar in concept to the bridge crew on a ship. Each executive is in charge of something important for the ship’s ongoing journey. A chief executive officer makes decisions for the whole company, acting in the interests of the shareholders and board. A president makes the business decisions, directing and leading the managers and higher-ups at the company. A vice president makes decisions about the different divisions that she’s in charge of. A chief operations officer makes decisions about the company’s operations - the day to day upkeep and logistics of that company. A chief financial officer makes decisions about where the money comes from and where it goes.

For most executives, much of their day is spent in meetings. They have meetings to keep them up to date on the various projects and initiatives they’re responsible for, they have meetings to decide what projects to green-light for development, they have meetings with representatives from other companies to hammer out deals for things like licensing IPs, working out distribution deals, cross-promotional marketing campaigns, setting up contract terms with new business partners, securing additional funding/financing for the company, and so on. 

The important thing here is that these meetings generally serve two major purposes. First, it’s people who are telling the executives what they need to know in order to make a decision. What’s considered “important” is distilled down by the executive’s subordinates. Maybe the chief creative officer doesn’t need to know that I fixed a bug in the ice level, but she does need to know that the project pitch was for an open world game. Second, the executive is the arbitrator and decision-maker. Maybe the CCO thinks that an open world game is a good idea, but we should also use the Transformers license for it because we secured the license through talks with Hasbro and are looking for a good use for it.

Regarding the experience building and shipping games, you might be surprised at how many game industry executives come from a development background. EA’s CEO Andrew Wilson was a producer on FIFA for a number of years before being promoted to studio head for EA Sports. Blizzard’s (former) president and CEO Mike Morhaime was a programmer on many of Blizzard’s earlier titles. Rockstar’s president Sam Houser was lead producer on most of the GTA games. Most studio heads and chief creative officers are developers promoted from the trenches.

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If EA canceled Star Wars 1313, I would be both super duper impressed at their invention of time travel technology and super duper disappointed that they used that time travel technology just to cancel a game they had no part in. How could this be? Let’s take a stroll down memory lane to find out.

Star Wars 1313 was announced at E3 2012 by LucasArts, the video game development/publishing division of LucasFilm. LucasArts was famous for doing Lucas-branded titles like Star Wars: Republic Commando and Star Wars: Force Unleashed in addition to point-and-click adventure games like Grim Fandango, Full Throttle, and Monkey Island. They had spent the previous year and change building Star Wars 1313 using the Unreal 3 engine. However, in late 2012, an enormous business deal was struck - Disney bought LucasFilm from George Lucas for $4 billion. As LucasFilm and all of its properties were brought into Disney’s portfolio, LucasArts collided with Disney’s executives.

The Walt Disney Corporation had recently enacted a new policy - their executive leadership decided to shut down all of their own internal game development because they didn’t think the financial risk was worth it fpr the returns they had obtained. Instead, Disney did what they did with many of their other products - they adopted a policy of licensing their properties out to other game publishers to decrease the amount of risk they took on with those projects.

When Disney bought LucasFilm in October of 2012, they applied this policy to the newly-purchased LucasArts as well. In April of 2013, they announced that all titles in development at LucasArts (including Star Wars 1313) had been cancelled and that LucasArts had ceased as a game developer. All of the LucasArts developers were let go. A skeleton crew of about ten people remained to handle licensing their properties. About a month later, Disney announced that they had struck a 10-year exclusive licensing deal with Electronic Arts for Star Wars games.

So… in short, EA had nothing to do with Star Wars 1313. Star Wars 1313 was a casualty of a much bigger set of business decisions and had nothing to do with 1313′s viability as a product. As to why EA decided to green light Fallen Order, I don’t know. I suspect there’s something we have yet to see about it.

The FANTa Project is currently on hiatus while I am crunching at work too busy.

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This, like most situations, is a lot more complicated than most would have you believe. Yes, Activision-Blizzard (stock ticker: ATVI) announced that 2018 was a record year. At the same time, they also announced that they predicted that 2019 is going to be a notably leaner year than 2018 - to the tune of an estimated $100,000,000 less in operating revenue. In order to reassure stockholders from dumping the stock, ATVI pre-emptively announced they would cut costs to help make up for that shortfall, primarily by dialing back on investments they feel didn’t pan out like Blizzard’s esports division. [I wrote about the situation in greater detail in a previous post].

Next, they don’t have a new CEO. Bobby Kotick is CEO of Activision-Blizzard, and has been since 1991, back when it was just Activision. They gave their CCO (Chief Corporate Officer) Dennis Durkin the title and all responsibilities of being CFO (Chief Financial Officer). For doing this, [Durkin received a bonus package valued at $15 million, not $75 million]. ATVI probably gave him such a sweet deal because they’ve had several executives depart recently (Mike Morhaime (President of Blizzard), Amrita Ahuja (CFO of Blizzard), and Spencer Neumann (CFO of Activision-Blizzard) have all left the company within the past six months) and didn’t want it to look like the leadership was fleeing the company. 

Here’s the thing. Executive level compensation and bonus packages tend to be a lot more complex than just “here’s a suitcase full of money” that most people tend to gloss over. First off, most executive salaries (and bonuses) are primarily paid in stock, not money. Take a look at [this chart], it shows the ATVI executive pay distribution from 2017. Dark blue is stock. Light blue is money.

There are all sorts of legal restrictions placed by regulators like the SEC on the stock that corporate executives are paid like [Rule 10b5-1], in order to guard against insider trading. Most of the time, insiders can only sell a certain amount of stock per year, declared ahead of time according to a specific schedule. Furthermore, the stock price isn’t locked in - it fluctuates all the time. Activision’s stock price on March 5th, 2018 was $81.50 per share. Today (Feb 26th, 2019) it’s $42.18. This means that, if Kotick got $24 million worth of stock then, that exact same stock would be worth a little over half that today. So, while the value reported in 2017 of Kotick’s compensation in 2017 might have been nearly $29M, that pay has since lost about half of its value. Executive pay is inexorably bound to the stock price.

Bonus packages are even more complicated because they come with strings attached. Durkin’s $15 million bonus package was about $11.3 million in restricted stock units and $3.7 million in cashwhich are awarded over a period of years (usually four years minimum, but it depends on the contract), contingent on personal and company performance. What this actually means is that Durkin actually gets very little up front. What he gets is a legal promise - if he stays at the company for the next four years and he hits his goals and the company does well, then he gets a chunk of the bonus stock and money after each year. If the company does not hit the goals listed in his bonus agreement, he gets significantly less. If he leaves the company early or does not fulfill his duties, he has to give everything back. The bonus stock he gets is also subject to the exact same legal restrictions as the stock he receives as a salary - he can only sell a certain amount at certain pre-set scheduled times.

So… could they scale back the executive compensation? I’m sure they could. But even in that case, the company would just have a bunch of additional shares of stock and most employees must be paid in cash, not stock. The company could sell those shares of stock to raise money (a process called [Equity Financing]) to pay for all of those employees, but that sort of thing is also tightly regulated by the Securities and Exchange Commission (the SEC) and has its own effects on the stock price. And even then, it still wouldn’t fix some of the underlying problems, such as having a staff of esports coordinators/managers/etc. when they are trying to reduce their esports investment.

Overall, it’s still a bad situation for those involved. I wish that things were otherwise, I really do. And yes, I agree - I think that the executives are almost certainly overpaid. Reducing their pay might make you (and those laid off) feel better, but it won’t actually do much else. This isn’t a situation where somebody can just toss out a simple solution and everything is fixed. There’s a lot of laws and regulations involved, and there are still core problems that have nothing to do with just funding. The biggest unsolved problem is that ATVI invested big in esports (especially Blizzard esports), hoping it would pay off… and it just didn’t. That’s why they announced that they will be refocusing on developing games and game content (and hiring more developers to do so) and scaling back on non-development investments like esports. So what do you do with an entire esports division if you aren’t going to put more money into esports? It’s a ball of absolute suck that this meant so many talented, dedicated people lost their jobs, but there’s not a lot else you can do short of magically transforming them into programmers, artists, designers, and producers or just continuing to throw money away paying people to do nothing.

The FANTa Project is currently on hiatus while I am crunching at work too busy.

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You’re misunderstanding the situation - there are two separate CFO positions at different levels in the company, and both of them have changed recently. It helps to understand what the org chart looks like for the company. Here’s what it looks like:

Spencer Neumann was the CFO for the Activision Blizzard corporate entity (black rectangle). He was removed as CFO of Activision Blizzard and has since been hired as CFO for Netflix. He was replaced by Dennis Durkin, another long time Activision executive who is also now president of Activision Blizzard’s Emerging Businesses division.

Amrita Ahuja was CFO for Blizzard Entertainment (red rectangle), which is a subsidiary of Activision Blizzard. Blizzard Entertainment also has its own executive structure that governs the entity, and it reports to the bigwigs at Activision Blizzard. Ahuja was in charge of Blizzard Entertainment’s finances until she was hired away by another company called Square (not Square Enix, it’s a finance company). I don’t know who Blizzard Entertainment’s new CFO is.

I don’t think this is really indicative of any financial troubles at either Blizzard or Activision Blizzard. This is just normal executive 0.1% people making career moves because they can. Neumann was removed, Ahuja left on her own. It’s just coincidental timing. A much better indicator of financial trouble is project cancellations and large layoffs. Executives jockeying for position and swapping places doesn’t really mean much immediately for those of us in the trenches. Such changes do affect the overall direction of the company, however, so it’s not nothing. It just doesn’t mean anything meaningful is happening right now. It’s a lot like changing direction when you’re in a plane. The plane is still in the exact same place it was before you made the direction change, but the place it will be after some time passes will greatly differ.

The FANTa Project is currently on hiatus while I am crunching at work too busy.

[What is the FANTa project?] [Git the FANTa Project]

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