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The Free Zone: Will Cryptic Prove a Bargain?

Columns By Richard Aihoshi on June 13, 2011

Will Cryptic Prove a Bargain?

Those who bet the under on Cryptic win easily

I don’t know how long Atari had shopped Cryptic around before the recent news came out that it wanted to divest itself of the well-known studio, which it only acquired a couple of years ago.  My guess would be that feelers went out to potential buyers some time ago, so it didn’t come as a complete surprise to learn last week that a deal has been worked out to sell it to Perfect World.  

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What I didn’t expect to see was the price, which was approximately 35 million Euros ($51.2 USD).  When I set the over-under at $125 million, I’d have put my money on the latter.  However, I didn’t feel the figure would end up so much lower.  Although Cryptic hasn’t been profitable for Atari, neither has it been a massive money pit and it does have some proprietary technology, a couple of known titles albeit without huge followings, and an established team.  Factor in that not too long ago, the acquisition of MOBA developer Riot Games valued it in the neighbourhood of $475 million, and I was thinking $75 to $100 million.  I put the line higher due to the possibility of at least a small bidding war.

It would appear that didn’t happen.  Indeed, I can’t help but wonder if any other suitors came forward.  So perhaps the second scenario I envisioned took place.  One or more tire kickers came forward, and that was the pest or even the only offer. 

Naturally, I wonder how good a fit this will be.  Perfect World isn’t one on the big three Chinese publishers I listed as possible buyers, but it’s still a pretty big fish in the global pond.  In the first quarter of 2011, it had total revenues of more than $110 million, and reported over $40 million in profit.  So, acquiring Cryptic clearly isn’t a “life or death” gamble; indeed, it doesn’t seem likely to put very much strain on the company’s finances. 

In addition, Perfect World appears intent on growing the international portion of its business.  It says exports now represent nearly 10 percent of its revenue.  Purchasing Cryptic fits this direction since it will boost this proportion.  What’s more, it will give the company a development foothold in the western hemisphere.  I wouldn’t discount the importance of this.  For instance, in terms of hiring senior developers who have particular knowledge, it’s generally a lot easier to find someone who’s willing to move to California than to China.  The same can be said of people with softer skills and expertise, in areas such as marketing and public relations.

My sense is that how well or badly this deal works out isn’t just a matter of how Cryptic fares as a standalone entity.  What may end up mattering as much or more is the degree to which Perfect World can integrate the studio into its overall direction and operations.  For example, the acquisition may bring aboard knowledge that can help to achieve more rapid growth for other titles here in the west.  I’ve little doubt that the acquisition does include some such expertise, but the key is making use of it.

That’s not always so easy.   Many businesses are slow to adapt new or modified practices because they continue to do what helped them become successful.  “If it ain’t broke don’t fix it” isn’t a universally good or bad strategy, but it does tend to be better suited to more static competitive environments.  In those situations, a policy of continuous improvement can often preferable.

From Cryptic’s point of view, it’s difficult to see the deal as anything but a win.  Since Atari had given up on it, the probable best case scenario was keeping it on life support while continuing to look for a buyer.  The other obvious possibility was, of course, shutting it down.  Now, even if things go badly, the studio has a new lease on life that rates to last at least a few years.

One thing I’m very interested to see is whether Perfect World will fund Cryptic to develop a major new project.

Interesting Infobits

TERA.  It isn’t news that this game, which was touted as one of Korea’s “big three” releases for 2011, has not lived up to expectations since it launched early in the year.  Last week brought word multiple reports of a second round of server consolidation, apparently from 35 down to 15.  It’s difficult to see this as anything but a negative omen for its prospects in this hemisphere.

Nexon.  I discounted the Korean giant as a likely suitor for Cryptic, mainly because its history with development here hasn’t suggested it would be eager to do more.  But, the company is still willing to invest in outside studios.  The latest is a 20 percent stake in Eyasoft, the maker of Luna Online, Iris Online and Legend of Edda.  Oddly enough, some reports said all three were to shut down domestically last week, although I’ve not seen anything solid to confirm it actually happened.  The studio does have another project in development, reportedly an action MMORPG referred to as Obelisk.

Prius Online.  The game went into open beta here this past week.  I’m curious to see how it will fare.  It was the top MMOG in Korea for a short time, but that was a couple of years ago now.  It was quickly overtaken by Aion, and hasn’t been especially visible since.  So, can it still make a mark on this side of the world?

The Free Zone The Free Zone Editorials
Richard Aihoshi has been writing about MMOGs since the mid-1990s, always with a global perspective. As a result, he has observed the emergence and growth of the free to play business model from its early days in both hemispheres.

He is the former Editor of RPG Vault and his column, focusing on free to play MMOs, appears on MMORPG.com every Monday.
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