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Funcom: Bankruptcy or buy out: (but when?)

Funcom is reeling from the disaster of "The Secret World".   I do a bit of investing for a living, so I hoped to highlight some of the less obvious warning signs from the investor relations section of their website.  Here are some  of the more interesting tidbits I found:

(Rules:  Unless the company says something happened, it did not.  Extrapolations are based not on guesses but on what is represented by the company (aka what can get a member of the BoD sued).  That is the standard I'm using for this.  Logical deductions may be made.)

Desperate for money due to burning through cash:

1)  Issued 60 NOK (10 million US dollars) of stock June 20, 2012;

2)  Converted over half of their convertible bonds into cash at a company choking interest rate of 10% (8.7 million US dollars)

3)  Despite this conversion, at the end of the quarter they still only had 12.2 million in cash left.  (In other words, that is why they issued more shares in June, because even after the conversion of the bonds for 8.7 million they only had 12.2 million left over.  Remember this is the company that had cash reserves of like 50 million post-Conan launch)

4)  Funcom is burning through about 7 million dollars in cash per quarter as by all metrics losses are accumulating.  By Q3 2012, no matter what type of spin Funcom puts on it, I will be able to hazard a guess as to when the company will go bankrupt.  They have another 6.3 million in convertibles available, but unless the stock price improves they cannot "issue" their way out of this.  Given no new sources of income, it is highly unlikely that anyone save for a purchaser will lend them more money.  

Conclusion:  as of the end of Q1/2012, Funcom had realistically 28.5 million dollars in cash available outside earned revenue.  Beyond that, The Secret World and other properties must fund the company.  There is no other way.

Absolutely no other real sources for revenue:

1)  2.2 million US in Quarter 1, 2012:  That is across all games including F2P offerings. 

2)  Their F2P intiatives are earning less than 500,000 a quarter.  About a 30% reduction in revenue from the previous year.  I don't think Fashion Week Live is going to save the day. 


Things I did not hold against the company:

1)  22 million in interest bearing debt.  I don't care about the amount: I care about the rate.  Other than the convertible bonds, their other offerings were around 5-6%.  Not very significant.

2)  Additional costs surrounding the launch of TSW:  This is obvious.  What I will be looking for is:

a)  Total sales

b)  Margin on sales (they had better provide the digital margins, but I doubt they will, because the insane margins digital downloads provide will cover up some other nasty financial blows)

c)  Impairment charges:  I could care less what Funcom thinks TSW is worth.  They reduced the IP value of AoC 95% since its launch.  I expect similar things from TSW.


This has received by far the most press.  Here are my thoughts:

The key facts and numbers were:  1.050 million client sales first year, 280,000 average subscribers, ingame store bringing in 35% of subscription revenue.

1)  When any company says that it is not likely that either scenario will be met, you can safely take that at their word.

2)  When a company further says that a "possible" scenario is that sales will be less than half of what occurred with AoC, you can easily and safely infer that they are hoping for sales closer to 1/2 than 1/3.  If the company is really badly off, that could be used to justify being closer to 1/2 than 1/4.  So what is optimism here?  350,000 to 500,000 in sales.  I cannot tell which yet.

3)  "It should be noted that the sales amount in the "Conan-like" scenario is significantly higher than for the game "Age of Conan", due to the assumption of better retention implemented in the scenario."

This is the most COMPLICATED statement they provided.  Age of Conan sold 1.05 million copies.  So when they talk sales, are they really talking revenue?  They have never mixed those terms interchangeably.  If this is a particularly misleading way of also discussing subscription numbers, well, shame on them. 

4)  "First indication of churn is more positive than for Age of Conan"  Funcom is ambigious as to whether this churn relates to their "conan-like scenario" or whether or not they are tracking churn compared to Age of Conan directly.  Age of Conan had probably the most precipitious churn of any MMO in the history of gaming in May-July 2008.  If the churn is only better than that, it is not going WELL AT ALL. 

5)  "The in-game store is performing as expected":  This simply means that in-game store is pulling in about 35% of subscription revenue.  Doesn't mean a lot unless you have a healthy subscriber base.



If they are on pace based on previous models (AoC sold 80-90% of its units within the first 3 months) then as of right now they have sold 80% of 350,000 - 500,000 (so 280,000 to 400,000) with an average subscriber base of (over 1 year) of something in between their healthy retention rate scenario of 37.5% and their poor retention rate of 25%. 

Needless to say, 30% of 350k, or 500k (whichever it may be projected to be), is not good.   More to come in a few weeks.






  • Deadman87Deadman87 Member Posts: 253
    Pretty sure I read this post 3 years ago.

    It is preferable not to travel with a dead man.

  • LoktofeitLoktofeit Member RarePosts: 14,247


    There isn't a "right" or "wrong" way to play, if you want to use a screwdriver to put nails into wood, have at it, simply don't complain when the guy next to you with the hammer is doing it much better and easier. - Allein
    "Graphics are often supplied by Engines that (some) MMORPG's are built in" - Spuffyre

  • gamesrfungamesrfun Member Posts: 127

    Except for the fact that 3 years ago Funcom had share flexibility, bond flexibility, tons of cash on hand, and private equity opportunities due to low debt.

    This shows that before they converted the bonds, they had less than 3 months operating cash available at the end of 2011. 

  • DerpybirdDerpybird Member Posts: 991

    Well, assuming that you are using accurate financial information, your analysis seems well-reasoned. I've been watching Funcom's stock crater from the mid 20's NOK to where it seems to have bottomed at 3 NOK since mid April 2012, when the first signs of a problem must have occured.

    This isn't just bad news for investors, as companies use their stock to offer secondaries, as options for employees, for convertable debt and so on. Such a drop in share price can be crippling for any company short on cash.

    At this point, I would not be shocked to see a company step in and purchase Funcom, perhaps Turbine, where they could quickly flip most of Funcom's product offerings to be in line with DDO, LOTR etc.

    "Loading screens" are not "instances".
    Your personal efforts to troll any game will not, in fact, impact the success or failure of said game.

  • KeyloggerKeylogger Member Posts: 250
    But TSW is good, I swear! ;_;
  • JackdogJackdog Member UncommonPosts: 6,321
    In before lock

    I miss DAoC

  • fallenlordsfallenlords Member UncommonPosts: 683

    Interesting post, I think it's blatantly obvious to anybody that looks at Funcom as a company that they are in trouble.  Whether they can pull themselves back from this I don't know, they have had similar trouble in the past and managed to continue.  But the whole gaming world was different then and more robust.  We have an average decline in video game sales as whole.


    Overall TSW seems a little like a 'marmite' game, you either love it or hate it, and there isn't much in between.  I don't think that bodes well for the game at the moment with initial subs.  I also don't think Funcom have learnt anything from AOC, they have just gone away and made a game that they wanted to make.  That takes guts I will give them that,  but it also is a bit misguided. 


    The only thing that does concern me is I don't think there has been enough marketing.  After playing Darksiders II yesterday and watching TV, up comes a TV advert for the same game.  TSW has never been 'in my face' with regards to knowing of it's existence.  Apart from an email from Funcom and adverts on this site, I don't think I have seen anything else.  Black Ops II every other day I get something related to that game, and it will just ramp up from now until release.    Skyrim fostered lots of interest in the game prior to release, I was seeing live action trailers and all sorts.  With TSW I have to search for information about the game. Perhaps their problems are just down to bad marketing because the people that like the game seem to really like the game.

  • tharkthark Member UncommonPosts: 1,188

    I really do not see the point in this..

    We are gamers, TSW is a great game..If a game is as good as this is it will eventually pick up some steam.

    It's a new and not based opon a huge IP, combine that with less adverising..

    TSW will grow upon it's own merits in time.

  • MothanosMothanos Member UncommonPosts: 1,910

    When a studio is going trough bad weather or in this case a storm the ship makes water.
    its bad news for developers who might get fired due to to high costs wich translates to less quality products.

    TSW could suffer from this, or maybe not if they can turn it around.
    It seems they have a rough time ahead, but many studio's do.

    Funcom has made alot of bad decisions lately tough, so who knows what the outcome is going to be.

  • ElsaboltsElsabolts Member RarePosts: 3,476

    One of these days finally the gammers and advertizers will take off there Beer Goggels and see that Funcom could care less about them, only what they want. That my friends is your money and nothing more. The folks who promote Funcom will see there reputation badly brused.


    " Life Liberty and the Pursuit of Those Who  Would Threaten It "
  • RasputinRasputin Member UncommonPosts: 602
    Time has run out for theme parks.
  • RamanadjinnRamanadjinn Member UncommonPosts: 1,365
    Originally posted by Rasputin
    Time has run out for theme parks.


    what a beautiful dream.

    i hope it comes true.


  • z4osloz4oslo Member Posts: 27

    You COULD wait for the Q2 results, before you post a doom post. Its out in 8 days ...

    I cant say i care much for your heading either. Whats the point of this, other than to spread fear and negativity?

    I imagine this one will be locked.


  • BhorzoBhorzo Member Posts: 192

    I thought funcom has government financial support for the next 7 years or so... ?

    Does that imply it's protected from bankruptcy and buyouts?

  • jpnzjpnz Member Posts: 3,529
    Originally posted by Bhorzo

    I thought funcom has government financial support for the next 7 years or so... ?

    Does that imply it's protected from bankruptcy and buyouts?

    Not really, a news source

    I found on google indicates the funds were specific for 'The Longest Journey' IP.

    Funcom not doing well financially isn't surprizing given TSW didn't sell as much as they hoped plus the decline in revenue from their other games.

    Gdemami -
    Informing people about your thoughts and impressions is not a review, it's a blog.

  • tom_goretom_gore Member UncommonPosts: 2,001
    Originally posted by thark

    I really do not see the point in this..

    We are gamers, TSW is a great game..If a game is as good as this is it will eventually pick up some steam.

    It's a new and not based opon a huge IP, combine that with less adverising..

    TSW will grow upon it's own merits in time.

    Highly doubt that TSW could grow it's income from what it has been. It's a theme park with quite limited content. Most players can actually finish all meaningful content within the first 30 days included in the box price. Their monthly updates add maybe 3-5 hours worth of playtime each, which means that the cost-conscious-consumer will wait for at least 4-5 monthly updates before resubbing.

    I know I will. Not worth it to resub only to run out of content 5 hours later.

    Edit: Have to add, for what it's worth: TSW has the best questing content in any MMO so far. Problem is, it's limited. Themeparks should be sold as B2P.

  • WraithoneWraithone Member RarePosts: 3,806
    Originally posted by Rasputin
    Time has run out for theme parks.

    As it has long since for "sand box" games in the west?... Thanks to Blizzards WoW the gaming audience has grown much larger, but it has also become more jaded, cynical and fickle.  Only time will tell what the future holds for MMO's in general.

    Perhaps we will face a fall off, such as the console crash in 84?  But look at the current generation of consoles, compared to what we had then. The next 5 to 10 years are bound to be "interesting", if nothing else... ^^

    "If you can't kill it, don't make it mad."
  • wyldmagikwyldmagik Member UncommonPosts: 516

    Oh I did some digging...

    The OP was just released from funcoms employment lol.. bitter much :)

  • Crazy_StickCrazy_Stick Member Posts: 1,059

    About the time EA and Funcom agreed to co-publish TSW a rumor got started that if the game was remotely successful then EA might buy out Funcom and take over the company. It’s unsubstantiated as best I can tell but seemingly worth noting in the current circumstances. I think the time line was Q4 / Q1 (2013) per the rumor.I’d take it with a big grain of salt considering.

  • SpottyGekkoSpottyGekko Member EpicPosts: 6,916

    Funcom has called an "extraordinary general meeting of shareholders" for the 28th of August. That meeting was announced around a month ago, so it's not breaking news. But given the state of company finances, this meeting is not surprising. FC would have had a good idea of TSW's launch revenue a month ago, and all indicators are that it was substantially less than what was needed.


    The meeting on the 28th might even be to present a takeover bid to the shareholders, or to ask their support in fighting it off.


    There have been many rumours this year that Nexon is sniffing around the market looking to buy a western game development company...

  • unknown769unknown769 Member Posts: 45

    funcon admit that they are prepare for the f2p mode of tsw  and tell it will be similar to Aoc  in payment method,and will have few limitation and of course buy option ,and sadly it happening the same whit terra.

    En Masses Entertainment, the publisher of TERA North America and the subsidiary of developer Bluehole Studio, has started axing employees from its payroll. This is according to the TERA's former community manager, Evan "Scapes" Berman's Twitter.


    hope they dont blame gw2 for this ^_^.

  • JimyHumuHumuJimyHumuHumu Member UncommonPosts: 251
     i blame their crap f2p model. that thing is worse than SOE f2p :p
  • XthosXthos Member UncommonPosts: 2,738

    Seems to kinda be missing sales and subs for TSW, as it is too new to have metrics for it, and I know I bought it, and am paying a sub...a dollar is a dollar....OH well, I like the game, it just suffers from what themeparks have a problem with, unless you make some daily gear treadmill of repeated stuff and call that content (Ala Rift, TOR, etc....).


    Leveling could of been slowed down maybe, A lot of people complained as it was, and I think it was way too fast.


    I am paying a sub, because I appriciate the effort put into the game, and more originality than most newer mmos show.  I will play it here and there, but I also will have GW2 to play, so hopefully between the 2 I will be good for my gaming time (with a little of Civ IV and LoL thrown in).


  • z4osloz4oslo Member Posts: 27
    Originally posted by wyldmagik

    Oh I did some digging...

    The OP was just released from funcoms employment lol.. bitter much :)


    That would explain it ..

    Guess the OP wont be happy with this link:

    No 2 atm ..


  • Ice-QueenIce-Queen Member UncommonPosts: 2,483
    I think their biggest problem with TSW was getting people to even try it out after what happened with Age of Conan. After you get a bad rep it sticks.


    What happens when you log off your characters????.....
    Dark Age of Camelot

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