Potential for a manufacturer to have wasted lots of money paying top dollars top of cycle for a move into a radically different industry that has winner take all characteristics (and loser takes nothing). Would be OK if they didn't need a hit to justify paying 10 x EBITDA from existing hits, but they do, and the odds of another hit are very slim. Also in order to get that hit they are arm wresting with every other publisher for low margins. Barriers to entry are nowhere near what they are in machines, and developers who think they have a hit can always DIY, or raise money privately if they need to as a base for a negotiated starting point. Barriers are even lower than publishing a physical book, once you have a (near) product.
Looks like a fortune has been paid for a very high risk low margin mud wrestling business, and investors are both extrapolating the success from the machines business into this area, as well as extrapolating the success of Product Madness (PM) into Big Fish and Plarium, when PM has significantly leveraged off Aristocrat's (massively successful) Land-based (Machine) bus (and will probably be stuck there I suspect). The way the presentation is put together you would think Big Fish and Plarium have similar economics to what PM has had in the past.
I think Big Fish and Plarium can do well for a short time, but then their time will be up. They are businesses that will revert to the mean returns of that industry, and you need to contemplate the existing players and the ones that have gone broke to perceive a realistic average industry return - hence my reference to the cemetery of games. Over the next x number of years their returns will revert to that sort of overall return, not a return that only consists of the metrics of the current winner take all winners. Just to make up numbers, pick your own numbers please, maybe out of say 10,000 independent and non-generic games, maybe 3 would be (developer making) super hits (like Candy Crush or Flight Control, or Grand Theft Auto) - some of which would be fiercely contested by publishers, 500 would basically pay for themselves and keep the co afloat (and many of these games would probably be sharing income with Michael Jackson's estate or Tinkerbell or whoever for rights etc as well), and the rest would be un-economic residing in the cemetery of forgotten games.
On top of this is the overlay of trying to charge people for tokens or getting them addicted to your game. There are so many competing games, including many that are free, or have a one off cost, that the games will require network effects to make money. This is not the same as having a (protected) casino in every capital city. These games have winner take all economics. Good luck getting one of those.
Anyway - my quick short trade is not based on anything to do with what I have written today. I don't expect this will dawn on the market for a few years, and I don't think the market will suddenly get fearful. The trend still overall looks excellent on the chart. I do hope to get in fast with some trades when the signs that I am right are unmistakeable over time, as ALL is causing a lot of excitement ATM. Good luck to all
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