Beyond the Turnaround

When Bruce Hack was appointed as the head of Vivendi Universal Games - as then was - many feared that he might live up to the connotations of his surname. With a weak product line-up, falling revenues and profits, and morale dented severely by long-running talk of being sold off by its troubled parent company, the division was unquestionably in trouble, and in such circumstances, restructuring could easily have been a nice word for massive downscaling.

Less than three years later, Hack heads up a division which exudes confidence; which has been buoyed back into profitability by the unprecedented success of World of Warcraft, and sports a line-up of titles which, although unproven as yet, has set the firm back on track to be an industry-leading publisher. We caught up with Bruce Hack at E3 in Los Angeles earlier this month to discuss the state of the company, his vision for the future - and why he isn't losing any sleep over the console transition.

Bruce Hack: We've come to moment where we are now a four wheeled vehicle; we're highly profitable, and ready to face the challenges that the industry has. This company, two and a half years ago or so, was losing a lot of money, and now it's doing the opposite. It's making a lot of money, and it's positioned for further growth - and also to exploit all of the opportunities that this really terrific industry has to exploit.

So, I think we're able to do two things at the same time. We're able to turn the company around from an economic standpoint, and also place significant bets on future opportunities in the category.

In terms of your product line, Vivendi Games is a very diverse company - you produce everything from children's games up to Scarface, which is possibly the least child-friendly title on the show floor...

Ah, we could show you some others that would blow your socks off. [laughs]

How do you manage that kind of portfolio? Do you have an overview where you say, we need to cover all of these bases - or is it purely something that emerges from opportunistically signing or approving titles?

Well, what the company stands for... Vivendi Games speaks to creativity and innovation, and the way we've organised to get that is to attack the opportunities through divisions that are themselves responsible for their game base, for making essential economic choices about which games to do and how to exploit that, for having a relationship with their gamers, and for having their own development staff.

We go after the various markets through fully accountable divisions - Blizzard Entertainment is obviously the first and foremost of them. This is really the only way to attack a series of disparate opportunities in the business. Music companies are organised this way, where the different genres of music are organised around particular labels, and the labels themselves are the entrepreneurs - they attract the talent, and then they do the marketing and promotion for the talent, they manage the talent throughout their careers. The talent is their franchise.

Here, too, the brands - let's just take Blizzard Entertainment's World of Warcraft, or Blizzard Entertainment's Warcraft, or Blizzard Entertainment's Diablo, or Blizzard Entertainment's Starcraft - they are the accountable unit for those IPs. By the way, any other IPs which they might invent, they would be accountable for exploiting.

So, the short answer to your question is that we attack the opportunities in the industry through divisions that are facing those opportunities, and which have all of the resources needed to capitalise on that.

Some other companies in the industry - Take Two is a good example - have very clearly delineated their divisions, and the branding of those divisions is quite distinct from the parent company. In your case, though, while Blizzard is certainly seen as a separate label or business unit, beyond that everything seems to exist under the umbrella Vivendi Games brand. Is splitting the brand that creates Scarface from the brand that creates Spyro something that you want to do?

A couple of things. One is that the way in which you've asked the question, which is with the implicit understanding that Blizzard Entertainment is there and that everything else is an undifferentiated mass under Vivendi Games, is evidence of a failure to communicate on the part of Vivendi Games in the past.

On a going forward basis, we are becoming much clearer about how our divisions operate - and you can see that in our E3 booth as you walk through. There is Blizzard Entertainment, you know them, you know what they're purposed to do. There is Sierra Entertainment, and that entity is an umbrella over a series of different types of "traditional" console and PC products.

There's a Sierra Online division, which we've just launched, that is aimed at the big - we feel - online opportunity that exists beyond the long-form online game that Blizzard Entertainment has exploited so well for experienced gamers. There are little experienced gamers and entirely new gamers, there are gamers that are interested in playing for an hour or an hour and a half, and there are those that are interested in playing for twenty minutes. That whole pool of opportunities - and we think there's a lot of money in that - is being addressed by this third division called Sierra Online.

Then there's a fourth division called Vivendi Games Mobile, which handles our mobile games. They don't use that name to the consumer; their name to the consumer is Sierra, or Blizzard, or any other name that's used, like the name of the game - but there's a division that is purposed up against the mobile opportunity as well.

So, what we've attempted to do is with the rebranding of the company, we call the company Vivendi Games - that is a corporate name, it speaks creativity and innovation to the investment community, the trade, and generally to the industry. However, there are four divisions which sit underneath it - Blizzard Entertainment, Sierra, Sierra Online, and Vivendi Games Mobile, as was described.

Looking at the coming year, this is a transition period for the console platforms and is being viewed by many companies as very challenging. However, Vivendi Games seems to have a cushion there in the form of titles like World of Warcraft, since obviously it doesn't matter to that game if the PS3 comes out in November or not. Does this mean that you view the transition as being less challenging than your rivals do?

I don't. The transition is not as challenging for Vivendi Games as it is for our rivals, and it will continue that way, I think, for the next number of quarters - the next three to six quarters - which I think will be difficult transition quarters for the industry in console. We're diversified now; Blizzard has created World of Warcraft, which is a very high recurring source of profits for the company, and is without question not just cushioning for the transition, meaning allowing earnings growth, but it's also allowing deeper investment by Blizzard itself and by the other divisions at Vivendi Games in the future.

It means we're actually able to do two things at the same time, with the success of World of Warcraft. Firstly, to grow from an economic standpoint. If you look at the profits that we make versus those of our competitors, you will say to yourself, "where did they come from!" At the same time, we're investing deeply in all of those opportunities that I just talked about, those four divisions.

By the time the next transition occurs, through this diversification, with a little bit of creativity and innovation and luck, we should be even better diversified up against console transition issues - which of course will be there, as they are this time. Whether they're great or not, I don't know, but they will of course be there.

The bottom line here is that this is a well-diversified company, up against the high-growth and high-profit opportunities that the industry has. We're investing, and we're placing our bets in order to capture the future in the big, high-growth categories in the sector, not just in console. We are betting in console, yes; we're going to be a bigger console company than we are today, yes; but at the same time, we're betting hard in other areas as well.

Still on the topic of the transition, two of the new devices in the market are Nintendo's consoles, the DS and the Wii. These devices are being pushed as mass-market propositions, and they seem to present quite a challenge for some publishers, simply because some publishers don't appear to execute well on disruptive technology. What's your view of how Vivendi will approach those platforms? Do they have any relevance to your business plan?

I have to say, what seems to be happening in this console transition is three acts of innovation which are separated from one another by a greater distance than in the past. To us, that means that the console category is going to be a broader palette than it has been in the past. These machines are more differentiated from a price standpoint, from an ease of use standpoint, from a sophistication in online delivery standpoint, from an additional to gaming standpoint - just mentioning a few.

This means, to a publisher, Opportunity with a capital O. It means a palette for a greater amount of innovation and creativity. We don't fear it - quite the contrary, we face the risk and seek it. We're attempting, on the edge of creativity, to capture the opportunity that these consoles, including Nintendo's, provide. Bottom line here is that we feel very good about what we're seeing from the three machines, and we're not at all daunted about attacking them.

You've alluded a number of times to the huge impact which World of Warcraft has had on Vivendi Games - both financially, and on the perception of the company by the trade and by consumers. Does it concern you, though, that you could end up being seen as "the World of Warcraft company" - with both the trade and investors seeing everything else you do as a snack between WOW figures, and basing their entire perception or rating of you on the success of that game?

There are two things, I think, to note, that are different in our circumstance to other publishers in a similar position. One is that Vivendi Games is not a public company, and at this stage of its turnaround and very rapid growth, that's a blessing, because we do not need to be meeting the short-term strictures of the market. We're focused on them, and the best indicator of a company's ability to deliver in the long term is its ability to deliver in the short-term also, we're conscious of that. But at the same time, we're not subject to the really excessively intense short-term focus that the market requires.

I think that we need to distinguish that. We have a very supportive shareholder in Vivendi as a corporation. They are demanding and patient at the same time; they're looking for short-term results, but they're also very deeply into building value for the long term, which is a core value of the company.

Secondly, I just frankly feel, without reference to any of our competitors, that our diversification is not now just on paper, but we have highly creative teams attempting to capture very large profit pools in the category. The mobile business, the casual online business, and also the console business, for us, can be a lot more profitable than it is today.

So, I feel that the two benefits that Vivendi Games has are one, that it's not a public company, and it has a highly supportive shareholder; and two, that the early returns from diversification are very good, so we should be making money on quite a number of cylinders by the fall.

Looking at the line-up of software you have on your stand [at E3], how do you feel about it? How happy are you with where your product portfolio is right now?

I feel very good about it. I think first of all, that Blizzard Entertainment, with the World of Warcraft expansion pack, Burning Crusade, is taking the next step to define the category of online gaming. That is my number one reaction to the Vivendi Games booth; it's a beautiful expression of creativity and innovation, on top of an industry game.

I think that after that, Eragon and Scarface are two very big entertainment-oriented properties that we have executed very well from a game standpoint, and as the market will see over the next six months, from a communication and marketing standpoint. We have excellent partners in the two studios, Fox and Universal, that we're working with, and we have developed really solid games against both opportunities. We're expecting to have a very successful fourth quarter with both Eragon and Scarface.

I have to say that, as you walk through the booth as well, there is F.E.A.R. and there is World in Conflict; one an established title, the other a new RTS franchise, that will be getting quite an amount of notice from reviewers... I'm making a long list, but we feel very proud of that too.

Then there is the diversification of the divisions. You'll see Freestyle Basketball on the show floor, in our booth; our Sierra Online division has brought, to the United States - it will launch in 2007 - a wildly popular street basketball game. It's a three-on-three pick-up game, where you are the player - and so too are five other real people, who after they meet, break up into a three-on-three basketball game which is played peer to peer across six computers.

It's very exciting, very customisable - it's going to be a new, item purchase based model, which we're going to be launching in North America. So we're really proud of that, and jazzed up about making that a big deal.

Lastly, our mobile division is being featured in the booth as well. That's yet another leg that we stand on - the fourth leg of the stool, Vivendi Games Mobile. They're showing really lovely product, we feel, and are beginning in the background to define the next generation of mobile games. Mobile games have not yet seen a killer app, and with 3G, with the ability of peer to peer play, with the ability of location based games, with the ability to interconnect to other platforms, there's a revolution coming on the two billion mobile handsets that are out there. So, as I walk through my own booth, in the corner is the mobile division - but I feel very good about that, because they're taking the first couple of steps.

So the bottom line is, I'm pleased. We will be better next year, but in this stage of Vivendi Games' life, we're in a very good spot.

If you were writing your own report card, is there anywhere that you'd have a little "Could Do Better" in red ink? Not on a specific product, perhaps, but on an aspect of your line-up or execution?

Everywhere. You win it on innovation and creativity, and I think every day we all wake up - I certainly wake up - impatient with the speed with which we are able to invent and capture entire new opportunities.

If I look around E3, I feel that we are doing well versus the competition. When I look outside and see the size of the opportunity, I am sleepless with regard to the speed that might be able to be brought to the pursuit of commercial success. So, I would say that on the speed of creativity and innovation... Good, but impatient.

Thank you very much for taking the time to speak to us.

Thank you.