GAME UK Bought by OpCapita

GAME UK has been bought by OpCapita, a private investment firm that specializes in retail. In so doing, OpCapita has saved 333 GAME stores that weren’t affected by the closing of the previous 276, allowing a little over 3,000 employees to keep their jobs across Britain and Northern Ireland. A few senior office members will be brought back after having been let go last week in light of the reorganization that will take place.

With the aid of the company Baker Acquisitions, OpCapita will take GAME’s debt of £39.6 million ($63.3 million USD) from the banks into equity. OpCapita will also pay up to £10 million (approx. $16 million) in order to buy GAME out of administration. About half of that £10 million will go into paying off debts and fees GAME owed to PricewaterhouseCoopers (PwC). While GAME also owed its suppliers up to £40 million (approx. $64 million), the latter won’t gain anything from OpCapita’s deal. Said deal had been approved by six banks.

Henry Jackson, managing partner at OpCapita, reflected upon the deal:

“We strongly believe there is a place on the high street for a video gaming specialist and Game is the leading brand in a £2.8bn market in the UK… We have assembled a strong team of experienced industry operators to implement the programme of operational change that is needed.”

Additionally, GAME Group plc administrator Mike Jervis said the following:

“We are delighted to be able to secure this business sale and provide some much needed stability for customers, suppliers and employees alike in these uncertain times. This means that the GAME brand will not be another one of the retail names disappearing from the high street in the current difficult climate.”

OpCapita purchased High Street electronics retailer Comet in 2011 for £50m.

Analysis: Anyone who thinks that GAME is ultimately saved by this news either doesn’t quite understand British retail well enough, or isn’t looking deep enough.

Being bought by OpCapita is one step, but it’s only the first of many. The most important step is to get back on the good graces of the publishers; after all, GAME is useless without the games. Honestly, I don’t see favourable terms for this. If you read between the lines of what companies such as EA have said, the point has been made: GAME needs them more than they need GAME. EA’s PR did a good job in stating that it’s never good when a specialty retailer goes down, they made very good sales at the other retailers that sell video games. The AAA publishers won’t lose a single sale if all GAME stores disappeared tomorrow.

In fact, it’s those other retailers – basically, High Street supermarkets and retailers like Tesco – that are the major difference between selling in the UK and selling in the United States. In the US, it’s almost unheard of for a company to drop well below the selling price of a game in an effort to undercut other retailers. In the UK, it’s common; people who look around can usually find games on day of release for a few pounds less than they would at MSRP. As I’ve said before on this issue, those superstores can make the money back by upselling other, more high-margin items while using discounted video games – traditionally a low-margin business anyway – as the carrot that brings people into the store. GAME doesn’t have that advantage, and a combination of a fight against preowned sales and the expansion of digital distribution are hurting the area – used sales – that have typically kept GAME alive.

OpCapita states that they did this because there’s a niche in the UK for specialty game stores. That is true, but is it true enough to have GAME selling publicly, at a large scale? I don’t believe so. Eventually – not in this generation, but eventually – all retail will effectively be eliminated as companies push to control all distribution channels digitially, which decreases cost and destroys the second-hand market, with all of the difference going to profit. Eliminating the retailers is a total win-win for them. Yes, there is a market for a store that people can go into, buy the game, talk to an expert to see what else to purchase, and play store demos. But that market will shrink – by force – as more of the market goes digital. That leaves two tiny niches to fill: retro game sales (like Retro Games Plus), or community hotspots where buying the games is secondary. Ironically, both of those types of stores were destroyed as GAME grew bigger.

The publishers can’t afford to offend GameStop yet, but they can send a strong message across everyone’s bow by either not dealing with GAME, or making them kowtow to the publishers’ terms. As far as this sale goes, if OpCapita isn’t looking to leverage their assets in a liquidation, they made a mistake.

NOTE: The reporting on this article was done by M. Ngai. Analysis is by C. Bowen

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