Good Investing Talks - Winning with Aliens, Warhammer, Mudrunner & World War Z games? A talk about Focus Entertainment

Episode Date: June 21, 2022

We had the pleasure to chat with Laure d’Hauteville & Christophe Nobileau of Focus Entertainment about the publisher's changing business model, the growing pipeline, and upcoming, exciting games.

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to French guests from Focus Entertainment, a gaming company. Hello Law. Hello Christoph. Hi. Nice to meet you. Hi. How are you? Nice to meet you here. Today the topic is the gaming space and as we are time constraint I just drop right away into the interview and maybe let's start with some basics can you maybe explain what kind of company business models can be found in the gaming sector and how they create returns like general introduction to the gaming space okay so I'll take this one I'll speak about focus if you're not mine instead of the whole video game industry, you have many ways of monetizing. So focus is on the PC console area, publishing and developing AA and indie games. And we are not on free-to-play model. So when we

develop the game, then we'd sell it. And then we can do some live extensions, some dLCs and content. So we monetize at the launch of the game and when people buy the game. And then we can add content where people buy again some new content. So in a very short way, this is how we do business. And let's say that in these games are, let's say, in the range of investment, let's say, between 500,000 to, let's say, $2 million per game. And the way is, let's say, between $2 million to $25 million, budget development. usually it takes at least three years,

let's say, between three and four years, okay, to develop. And we are, we used to be a publisher, and now we are much more integrated world. But being a publisher was to say that we are receiving projects from developers, okay, from studios, which were coming to us, say, okay, guys, we have a clever idea.

I'm sure we are going to make an incredible video. game and would you accept to publish us which means sorry guys to tell it it's to finance them so we are financing during let's say three to four years studios and developers based on what they propose and we are helping them trying to help them during the four years production process with a production department which is one of our people which is a lot of people. Okay, being with the developer, the studio, having them every day just to make sure that they are, okay, pretty good in terms of,

okay, of play game, of content, of technique, of technology, because video game industry is, as a ensemble, gathers, gathers a lot of different skills and it's pretty difficult. It's pretty tough. Obviously it's not a nuclear electricity factory, but it's pretty tough. So you are usually between 20 to 100, 150 people, working during four years to develop that game. So our publishing activity is first of all to follow the development of the game.

Then to market it and marketing is absolutely in business. Absolutely. And then, okay, doing business, which is, okay, selling. We are usually selling through shops, but it's only now 5% of power turnover, which is, I mean, retail, okay, physical retail. And 95% digital, which is, okay, pretty large distribution. like Microsoft or Sony.

Steam. Yeah. Let's say pretty big guys. So this is, yeah, this is our job. But we used to be a publisher and now the strategy is to develop, to be much more integrated, which means to be much more integrated, which means, okay, to all our IPs and to develop and to publish. We, for sure, we do not aim, you know, to be 100 person publishing our own game because, you know, we need, okay, people coming and we need, we need, okay, new coming people, new commerce, people, and so fresh people. So we will do, okay, if we can do 50% of our turnover coming from, let's say, publishing with outside studios and 50% with our own IPs, that could be perfect.

What is the strength of focus entertainment compared to other gaming companies or gaming publishers? Where are you strong? We are various. The publishing is definitely where we're coming from. And our marketing teams are just incredible. I mean, we do offer like a full communication marketing agency. We have, we have the older network of influencers. We have the teams in-house to build the assets. the trailers, and we can, for competitive budget, launch very successfully some games.

So we have some partners who are actually selecting focus, whereas they have in their family on publishing competencies, but they decide to go for us. So we definitely have some nice expertise. Another thing that really people come to us to get there. is all the certification process, it's more on the production side, because it's very, it requires a lot of experience and knowledge to be able to go through the whole certification progress when you sell to the console partners. And it's not only technical, it's the relationship we have with the partners, the major, the one that Christop mentioned earlier. So this is one other

thing that come to us. Another asset we have is the quality, the QA work, we're doing that really people, I mean the studio we work with come to us to get this feedback to improve the content of the product. So the marketing, we don't, we can discuss about the pillars of the game, this kind of things, but on the production side, we do have an impact of the content of the game to help them get the best value from it. So I would say marketing, certification, QA, this is what people are coming to us for. I have to say that law is this here because she's going to market as a company, but

apparently she loved the market and it's only 30 people. They convince me of the value they bring to the company and I'm coming from a mobile game, fully integrated. Game loft did they saw? Sorry?

You were at Game Loft. That's fine. Exactly. So I have some comparables and I would say that I feel a lot of maturity here in the marketing. I mean, They know their business. They don't ask questions every day. They know where to go. They know where to hit which campaign, which channels you to be used.

They masterize it. Maybe just for you to understand, we are 300 people's company. Let's say 120 are developers. We have 80 people in Concord, okay, developing. We are 40 people, let's say, mostly in France. mostly in France and we have 180 people in publishing indeed and publishing and publishing double eight and so on 180 we have let's say 100 people okay taking care of let's say production which is okay to be behind our studios just to make sure that they are

in the right in the right direction we're in the full years of process of prediction. We have 40 people doing marketing, let's say 20 people in, let's say 20 people in business, and the remaining 40 years are 30 business developments, okay, and whatever. Super functions, yeah, HR finance, legal and blah, blah, blah, blah. And behind you, you, we see parts of your office uh marketing team yeah because she asked me to be with the marketing to speak too you know she's a lot of my and i know i have to say that they are incredibly good and we and we are working as uh and we are working closely with a german company for and so yeah we are okay we have a few not okay a lot of operations in general and germany

you represent something like seven-person in France, seven-person Germany. We don't provide so much details, but I have to say that the US is... Sorry, sorry, okay, forget. No, it's not strategic, but definitely the US is our end user, I mean, and customer based approximately half in the US, then you have... In Northern America. Northern America and then you have the top three countries, France, Germany, coming after. So it's, yeah, it's, we have 95%, okay, between 90% and 95% digital.

And we have more than 50% north from America, North from America, Europe then. And then, okay, the rest of the world, like, you know, Oceania, because here's Australia, I don't know why, but we are very good in the Oceania. we should go for a trip and like people with our customers and okay so so this is what we are and you mentioned your marketing team is incredible what like besides their skills makes them incredible do they have special data and what is the base for this incredibleness so we do have a data department. We have been reinforcing it lately. But the data and tech are working very closely in our company. And we have been able to, I mean, I'm sure this does exist in other companies,

but they have been able to use the data, leverage the data to make, I think like the four years past history, access from that exactly what from one day to another, what would be the best day to launch the game, what channel was working or not. So we are really leveraging very well the data. There is a lot more to do. So we are going to increase our efforts in this area. But I think this is this knowledge and this way of leverage the data. The other thing is we have some people who have been in the business for a very long time. So they have seen how the market has evolved and they are gamers, all gamers.

This is, I think when you do marketing, I mean, you have marketing in a video game company, you have to love the product. So they love the product. So they are very committed. They have for the head of the marketing and is very close folks in the company for a very long time and is, I mean, experiment.

I don't want to give you, all the details because you're going to use them in other no for sure okay we are very happy we far marketing people production people technical technical people business people are really good okay it's it's more than 20 years of there in the business and we are we know okay being one of the best publisher in the world and and most of our clients are saying okay we are at part of quality and thanks to focus.

So at a part, the question was, okay, it's very nice, you know, to create kings and incredible assets. At a point, you don't want to just be a distributor of incredible assets. You want to own your own assets. So obviously, we will keep that capacity to create

incredible assets for overs, but we now want to do it it for ourselves. So it's a reason why we are turning our business model, okay, let's say from publishing to a much more integrated group, owning IPs, and being able to develop assets on long term. Okay, for who knows the gaming industry, we'll be able, you know, just to see what we did with a giant, studio which developed farming simulator, which cyber, which did develop a slowrunner, much runner. And they all say, okay, if we are to such levels, because we have been accompanied by an incredible issue.

So we will keep, we will be keeping this strategy plus the fact that we will do it also for our salary. And because at present value is in IP, so it's a reason why we invest in the focus. I'm an investor. I was here as a company, but I'm an investor. And we froze that investing in a publisher, being able to turn its model and to go to IPs,

much more value would be absolutely a good idea. It's going to take some time because, as you understood, okay, a game development lasts. four years in the same time. So I would say it's a pretty long time investment

being in the public entertainment but the management we found the company decided to go on that switch of strategy let's say three years ago so okay we started to see the first reason of this

strategy and next year okay we'll be the more than the total change of the result of this sort of strategy. Yes, because maybe we talked a lot about the marketing, but marketing is where we come from. And maybe if we just look at the numbers, the one that are public, we, two years ago, there was basically no developer resources.

I mean, it was a pure publishing company. Now we have one third of the total headcount of the group that are dedicated to developing our own IP. So, I mean, the change has been really, really fast. And as Christop mentioned, it takes quite some time to develop a game. It can go up to four years. So we won't get all the fruits right now. But we have made some real. I mean, the change is real. 100 people are now dedicated to developing games, IPs, our own IEPs. We do the publisher agreement we have, which are co-development publishing. We do. have now contracts where we co-own the IP. So all this would take some times to flow in our accounts because of the leading the development time.

But the change of strategy that started late 2019, accelerated with the dexterity acquisition, which is based in Frankfurt. And then we acquired Dothemu, who is used a publisher developer. We acquired then Strument Studio, Lakey and Duzizia. I think I don't forget anyone. So five acquis. in a year in a year and a half. So they are not huge acquisition. We might we hope one day we'll make bigger. It's a still strategy, but still we've made progress. We've made progress on our strategy and our strategies to move up the value chain to go from, I would say, distributor, publisher strategy to publish our developer where we will own or co-own our own IPs, which is way more profitable. You mentioned the fruits you want to earn at a certain point of time.

What kind of fruits could this mean in terms of revenue for the future trajectory of the company? What is the things you are waiting from the shift in strategy, also in margins talking? We do not really comment on that. I think you should go to the consensus of analysts, which is something we... The consensus is, I mean, you can get it on Bloomberg and anything. We do not provide guidance. We have, and I encourage you to read our press release expected to be issued on June 16. We want to give more visibility on the lineup, which is the best way to describe this change strategy.

And we want to explain what has been done, what I just explained to you, that we have now a hundred person in our payroll dealing with game development, more contracts with co-IP and this kind of thing. So we want to give more maybe more information on those items to show how it can convert into revenue and margin. So we don't provide guidance. And definitely 10 days before the press release, we won't be able to give you some more information on that.

If this is our strategy, because we are convinced it will be, bring value. And we are pretty confident in the consensus. Just having a good in Swiss. Christopher, you are also in that owner operator say to a certain time. You're part of the biggest shareholder group like Neology. And I think you hold around 35% of the company. And I think 3. 43. Okay, it's increased. Then my number is a bit outdated. So we bought 35 and we are now only and you bought back some shares recently also. What is your

as an investor your investment fees for this investment or why it was it so attractive to go in big? Hey, Tillman here. I'm sure you're curious about the answer to this question. But this answer is exclusive to the members of my community good investing people. Good Investing Plus is a place where we help each other to get better as investor day by day. If you are an ambitious, long-term-oriented investor that likes to share, please apply for Good Investing Plus.

Just go to Good minusinvesting.net slash plus. You can also find this link into show notes. I'm waiting for your application. And without further ado, let's go back to the conversation. And with this shift, you're also like shifting revenues to more your own IP. Is there also revenues that isn't shown currently really in the pipeline? What are the optionalities coming from your own IP? Think about merchandise, for instance.

Are you planning to have more income from this? I am not aware of any significant revenue coming from merchandising today, but definitely if we do have one of our own IP, making, being a blockbuster or everything, we'll go on the merch if we believe it's, I mean, we're pragmatic. So, but first, if you want to do merch, it's because you have a great IP. It doesn't make sense if you don't have a great IP. So if we have a great IP, we'll go for merch, we'll go for a video,

TV shows, I mean, whatever makes sense to grow the IP. In terms of eradication of time, at present, it's much better, you know, to go to new IPs and to develop IPs and doing turnover in a selling video game. Okay. When at present Chinese, it does not represent an incredible workforce. Except, okay, a few things like just a large mention there, that, okay, developing and shooting Ceres, okay? So we are now, we have two different projects of some of our IPids.

We are trying to develop for Ceres, okay, for Netflix or Amazon, whatever. This represents, okay, it's serious turnover. And, okay, pretty good profitability. But again, nothing in comparison to the profit of a video game. I mean, it's just way, way, way, much important on the video. So at present, we think we have much more opportunities developing new video game rather than, okay, to spend maybe too much time, okay, trying to develop different sources of revenue. But it will come, you know, we are really, we have lots of

requests from the, from TV channels, okay, to develop series, by example. And then you can represent something like, okay, okay, a few, a few seasons of a series, can originally end to 50 million euro turn load so you have to consider that as i was going through the list of games you have in your repertoire i was a bit fascinated by that many had very great reviews from game publications reviewers how do you make sure that you pick the ideas and the games that have this high level of standard and how is the process like if people approach you to yeah We are very experimented people here, tolerant of people. And that is the value of the company.

Their ability to detect the potential of a game. And when we were discussing about the assets, I mean the competencies that Focus has, is sometimes they can have, studios can come to us or we find them with the pitch and the feedback we provide and will help grow the project. product. And this is, I mean, I am not a video game as I have to confess that. So it's kind of mystery to me. But I can tell that when they see potential in the game, I mean, we've been going through budget exercise, three years planning, as you can imagine. And they are usually right on spot when they see potential for a game. They have this expertise. And the fact is that they are this expertise thanks to one guy, something like 10 years ago. But now we are in a lot.

much more industrial, okay, wait, because we are, okay, launching some 10 to 20 games a year. So now everyone expressed this feeling, okay, so marketing people are saying, okay, business people are addressing, production people are saying, okay, business people are not a lot. And so it's, okay, let's say, so now you have something like, yeah, six or seven people. In acquisition, we are expressing, okay, they're feeling. And based on a really incredible industry, industrial approach. And I'm not really proud about, not really proud about that, because we are speaking about the creativity.

So we should be able to do it like this. I'm just saying. But now, okay, vision. But now we are not vision. Okay, we are industrial. Okay, we are industrial people. Okay. So it's industry.

Just, okay, it's nothing else. Okay. So, okay, so it's, so from time to time, we can, okay, face, uh, uh, so the, uh, about, uh, about, so, uh, we can be wrong sometimes, we can be wrong, but okay, we have, okay, we have, let's say, an industrial, uh, view on that, everyone is expressing, we are really, really, uh, good professional, okay, they are made of veterans, a lot of skills, okay, a lot of veterans, who are for some of them 45 years old

which is in this in this industry totally incredible except for us because now is more than 40 but we have we are we are okay the average

age here is 29 years okay so but we have a team of veterans for sure and their job is to scout go to you know video game shows

such as packs game is con, e3, this kind of thing, and this is where they scout, and this is where they assess the potential of a studio of a team. This is a human being industry. I mean, it's really, we're dealing with emotions or entertainment. It's, uh, so you have to love the project. But we have to be industrial. I mean, we are in certain. We are not, we are not for it too much. No. They go through the acquisition committee where they submit their their choice. And how much of your

maybe revenue or your pipeline is existing games and sequels, where you're just like Mudrunner, where you add new arenas or stuff like this or where you say this is new games we're developing, which is, what is the share in between both?

We don't provide revenue per game, so that's difficult for us to answer. But we can tell that you mentioned Mudrunner which game did you mention Snow Runner

Yeah Snow Runner Yeah Snow Runner is a nice contributor to our revenue this year It's been a good success But we've had the other successes And failure

But we've had other successes And other titles We can tell that A Plektteb Innocence Which is the first sequel of the Plactel Requiem that will be released

Later in the year This game has been performing very well some games that have been launched in a few months or years ago are still generating revenue because of new content and or because we are negotiating one of deals with the big partners so we're able to monetize some games for some time

and this is one of the challenges as well to make the IP last longer for sure it was more a company which used to be to do one of and for sure we are okay profitability to get increased just thanks to that thanks to sequels and so we are now okay on a much more let's say C4 strategy as you mentioned we launched a small runner two years after you know brother as the Lord just mentioned we'll be launched here a flag tail to recid reprimp which is a spell of plague tale in a sense so we are we are going in that in terms of marketing effort obviously it's much easier and and and yeah focus was you

know kind of maybe maybe more trying to launch incredible new expenses it's good but from time of time it's good to capitalize on success so we'll be we'll be focusing on you know growing IPs with adding new sequels and in parallel developing investing in our own new brand new IPs so we're tackling both in a balanced way let me go a bit to the the license contents you still have and I'm interested why certain companies for instance games workshop why they trust you to make games for their IP they they like to protect and like they have high quality games workshop is you do i think it's base marine too you're producing at the moment that's coming out soon so why have it chosen you as

as a partner here they didn't choose us we went to the owner of the IP and we asked him okay to develop that and then they say okay why not just okay provide us with a very good studio so we came back to us to them saying hey we think that Sabre could be interested in and we spoke of Sabres saying okay guys we could get this project so we're going to come with us and accepted and we are very happy to develop this his name with a savor and the owner of the IP. Obviously, we see the result in a little more than one year. A couple years.

Okay. In mobile one year, sorry. And yeah, I think we are very proud about what we can provide to the market with this game. Let's talk a bit about M and A because like if you go through your history already explained a bit that you did a lot of M and A. Why does it financially make sense for you to acquire other companies in the gaming space? And how do you make sure that you create value by this doing this? Because the thing is that we want to be a much more integrated group. Okay, only is like so the The easier way would be to develop internally.

But as you understood, okay, to develop a project this four years, okay, usually when you start with a one million project, then with a five million projects, then with a ten million projects. So you have a studio which is able to develop a ten million projects after ten years. Unfortunately, as you see, I'm pretty old. And maybe the people you are speaking with are, pretty, how do you say that? They would see results.

So, okay, so we are going to do, okay, we love to do 50% internal growth and to do 50% external growth. Internal growth is pretty easy, but very long. External growth is pretty quick, but pretty expensive. So we are just making, mixing these two things we made we made five physicians yes we expand i guess something like 60 or 17 million euro for our positions and which we should we hopefully will invest much

we have the means i mean we have we have a stronger balance in position we have a we have a we have a credit line we have not completely used so far so we have the means of our ambition and our strategy what is your framework and process in an m and a process where like someone approaches you and what do you do check till you to say this might be a acquire target and you negotiate what is your process there okay we are investing in companies so you know we invest in okay in country companies in the last years I'm not going to tell you what is our process but okay till now has been pretty successful so we are looking for let's say two different kind of

companies let's say equity value for zero to 50 million five zero million equity value our companies we are working with okay as a mission so we know them we speak with them every day and so we know exactly who are and what they are their ability and we know exactly what we can do there both second kind of target is in between 50 to 200 million euro so this is much more intermingation interminated process so We have, okay, we have an investment bank, having to do, say, okay, this is, okay, these guys want to sell. And of course, we go to the approach, which is obviously that was the best thing. I have to say that on the market, we have a kind of, we have some competition in the market.

As you saw, there is even people being able to spend 70 billion dollars to buy studios. But, okay, yeah, there is opportunities. We do not like to buy one of the persons. We are looking for entrepreneurs, we are looking for talents, and we are telling me, okay, be with us, for these next five years we have an incredible adventure we have a pretty nice start with focus entertainment and let's develop this group and let's go it's a long-term road it's a long-term road but obviously there is lots of people which prefers you know to take

them one hundred and but there is some people who are so fascinated so which enjoys so much work in this industry. We're happy to join us and to take what we can bring to them. And it's not only in Malé, for sure. It's no-how in publishing field. It's our know-how, we stole our studios. And we just say, okay, please develop the best game ever.

Okay, so just, okay, we have a clear freedom in terms of creativity. And we allow you, providing you, providing you back-offices facilities and you will have just one aim, one goal, which is to create the most incredible video game of your life. Is there anything else you add as value to the companies you're buying? Yeah, it's what I just described. We are providing a food kind of services, okay, from let's say publishing, which is a product production for a production for, marketing, business, and providing them the ability to create a TV series or to give them

data to help them, just to, so, okay, we provide a lot of different services to help them, okay, to grow and to be perfectly targeted and not, you know, to take care of financing, of accounting, of HR, of legal, of production, line, of discussion with platforms, and by, mind, by, and, by, and, by, and, so we offer them a huge, okay, a pool of services, and saying they, okay, please just give all your energy to creativity and to come to us. And maybe we can add that we, yet we want to be a group. It's not only, you know, but still they will be still independent on creativity. I mean, we want them to be still the one to provide ideas, new concept, pitching and everything,

but we want to be a group. I mean, this is definitely the Federation of Talent. We want to be, so not family, but still, it won't be. It's not just investing in studios. It's really building together a group. for the end of our interview do you have something to add that helps viewers to understand focus entertainment i have to say that your questions were pretty okay being able to you know to cover the entire group but the problem is that we know that group so we don't really know what we we are able to explain

and what we forgot to explain so it's but if you have more questions please follow okay feel free to yeah and if you have for your business and and for us some overall questions we'll be more than happy to answer and watch out for the next PR that's all we say and there is an IR email address if some of your audience are investors and want to get more information I will put a link in the show notes so people can find you with one click so it's I'm not really sure we'll be able to answer in German, but the English don't talk. We'll try to follow up, at least. No, I think the most people will write you in English.

And if they stick till here, they know English. That's right. Then thank you very much for your time. And thank you much for the audience for listening. Thank you. Thank you very much. Thank you for your questions. For the pleasure to speak with you.

Bye. Bye. As an album video, also here is the disclaimer. you can find a link to the disclaimer below in the show notes the disclaimer says always do your own work what we're doing here is no recommendation and no advice so please always do your own work thank you very much