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Comment by rwallace | Hacker News Reader

The way I figure it, when value is being knowingly and unnecessarily destroyed, someone somewhere in the chain is being irrational. Given that EA is a public company, the obvious candidate for that somewhere is Wall Street. Your analysis seems to confirm that.

But the stock market is supposed to be hyper efficient nowadays such that it's practically impossible to outperform it even for the experts, let alone for random punters on the Internet.

What's the resolution to this paradox? Not a rhetorical question; I'm actually curious.

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The problem is the stock market is somewhat disconnected from reality.

I need to elaborate this further because now it just seems to be some anti-capitalist snark (which I do not want it to be).

The way stocks were supposed to work is that you buy a part of a company keep it and make money by getting a part of their profits every year (called dividend). Todays problem is that we want to make more money, faster (which is not "wrong" intrinsically as some people might think, but it does not work with the "traditional" stock model). The reason it does not work is that it may take some time for a company to be profitable and even then they may want to keep some of their profits to invest in research etc. which keeps dividends small (sometimes even 0). The new way one tries to make money is to buy a stock while hoping to be able to sell it to someone else for more money in the future (nothing wrong about that either). The real problem is that this price is based on supply and demand/perceived value which might differ significantly from the actual value (worth of the company's physical assets, paid dividends, ...) - it is easier to see these differences on more tangible things like luxury watches, art, etc., which are nowhere priced for their physical value (a frame and some paint - does not seem to be worth much ...) but they are there for stocks, too.

Now to the "hyper efficient"-part: yes, that's true, the market is hyper efficient, as in it is not that easy to get money out, because that would mean that someone else leaves it on the table, but everything still happens in the "perceived value" point of view, in which you would have to compete, too, to make money with stocks.

The dilemma in which CEOs find themselves is that not all actions that are good for the company itself are good for the perceived value/stock price, at least not when you are forced to do "short-term thinking" (the CEO keeping his job, the trader making money now).

I know that Wall Street is the boogey man for the HN crowd but how in the world can Wall Street be the villain in this story?

The Sims was only completed because EA was able to prop up the studio while it was underdevelopment. They were able to do that because A) they are good at selling software and B) they were a large public company.

Since then the studio has had a couple of huge flops (Spore and SimCity online) as well as a few enjoyable but disappointing from a sales perspective releases. In an industry built on the blockbuster model, I'd say its surprising they've lasted this long. They have because they have been spending other peoples money. So if there was an inefficiency here, it was that the studio got too much leeway, not that it was shutdown too soon.

There is no paradox, because you started with a completely flawed conjecture.

> how in the world can Wall Street be the villain in this story?

Two replies up, you'll find your answer there, as you probably jumped over it.

No, I read the whole thread. I'm just having trouble understanding how a studio having failed at a basic business reality of their market, and thus being shutdown, has Wall Street to blame.

Wall Street, even as the completely generalized abstraction, doesn't have anything to do with this, other than a big video game publisher used some money generated there, to back a studio that has been unsuccessful at their job. If it had been a US governmental bailout or kickstarter that the financing came from, would not have changed that.

The idea is that they were set up for failure by the relentless push to drive higher profit margins. This approach is incompatible with long-term growth, as there are only so many people who will fall victim to the idea of buying a worse game than last year's edition yet still buy more and more expansions. EA pushes for day one profits seemingly without concern as to profits over the lifetime of the product. As soon as the product is unprofitable, they shut it down.

Again, this comes from the idea that they need to make their profits look better and better because their stockholders demand it, which is sometimes at odds with what the players are looking for.

Do you think Maxis failed on its own, or is there the possibility that EA milked it dry and left it to die? If the latter, why would they do that? Not because it's good for the company long-term, but because it makes their bottom line look good just before annual profit reports are coming out. Think about it: SimCity was rushed out to meet a deadline of the end of EA's fiscal year, which happens on March 31st. SimCity was released March 7th, 2013. What's today's date?

Maxis has been owned by EA for 17 or 18 years no? As part of the ownership by the public company EA, the studio was able to release and have sequels for one of the best selling games of all time. Further, said game was distinctive in its business model in comparison to other games released at the time (it being very much about after day one profits). That is, at least on the surface, evidence that being owned by EA does not preclude long term stewardship of a game/studio.

As far as the stockholders go, I can assure you that A) stock holders have no ability to influence the release schedule of a video game or B) care how profits are generated, only that they are. There is at least a passing argument that the massively successful franchise of the studio would not have been possible without those stockholders, and the studio certainly did not turn down the money when they were acquired.

Whether EA mismanaged Maxis specifically or their management is in general too fixated on short term profits is not the issue. "Wall Street", whatever that is, does not demand that and would more happily not be involved in those decisions. So is it possible that EA is mismanaging their studios in a misguided attempt to cook their books? Maybe, but if so that has been true for Maxis for going on 2 decades, 1 of which was hugely successful.

You can blame "Wall Street" all you want, but it seems a simpler explanation that in a blockbuster driven market, Maxis failed to deliver blockbusters. This isn't surprising in the least given most software projects fail and even more so with games. I find it surprising that Maxis lasted as long as it did quite frankly. An independent studio would probably not have survived Spore, and I think Maxis did largely because they were backed by "Wall Street".

Can we stop pretending that "Wall Street" is a completely non-thinking entity (/concept/idea/etc). The reason people talk about "Wall Street" is because we're talking about public companies, who are beholden to stockholders. "Wall Street" is the generic concept of stockholders. And the one thing stockholders as a generic concept ("Wall Street") was is profit growth. Because shrinking profits leads to lower stock price. It doesn't matter that you were profitable, if you weren't more profitable than last year, the generic concept of stockholders ("Wall Street") will, in a generic fashion, lose faith in your company. And if your stockholders lose faith in your company, they vote out your board of directors and replace them with people who will bring growing profits. It's not always the case (Amazon is a major exception), but in general, it holds true.

If you still don't think Wall Street has even an indirect say in what games get published when and at what quality, then I don't see a point in continuing this discussion. But I'll leave on the point of SpaceX not wanting to go public until they make it to Mars, because Elon doesn't believe that stockholders will let him take the risk of sending humans to another planet. Or, taking a step back from Wall Street and just talking investors, the idea from this very community that any exit for a startup is good and is favorable for your investors even if it leaves your customers high and dry. Or how about when Steve Jobs was pushed out of Apple because he wasn't making enough money? Apple raced to the bottom and lost, hard, in the pursuit of maximizing profit.

I'm not trashing the idea of Wall Street or of investors. This is EA's fault. But saying that investors don't influence a company's products is insane. Of course they do, to the fullest extent that the company will let them. Again, if you don't believe EA is completely controlled by their investors, take a look at the timing of the end of their fiscal year, the rushed release of SimCity, and the announcement of Maxis being shut down. That's not coincidence.

Sounds like the people buying games from EA are the ones being irrational in that description.

> The way I figure it, when value is being knowingly and unnecessarily destroyed, someone somewhere in the chain is being irrational.

Well, the model I see people using to describe EA basically amounts to buying studios with good long-term revenue prospects (known brands that, if consistently executed at a slightly below-average level, should maintain decent sales because the fans know what they're getting every time), and deciding to extract all of that future revenue all at once, by hyping up the latest incarnation of the series to extreme degrees while not bothering to execute at all. More sales now, less work now, no sales later.

If you want to stand by describing this as irrational, I wouldn't say the obvious candidate is EA shareholders. I'd say the obvious candidate is the studios who can't manage their brand well enough that it's worth more than the EA strip-mining approach. If you think that the long-term revenue stream has more "inherent worth", the studios are the ones squandering it.

(postscript -- I'm pretty sure I accidentally downvoted you when selecting a quote from your comment. I wish I could undo that.)

>But the stock market is supposed to be hyper efficient nowadays such that it's practically impossible to outperform it even for the experts

That's not true at all. Maybe in commodities, or foreign exchange or indexing, where algos can trade solely based on prices and public information it is true. But definitely not in individual stock picking. Domain knowledge is king here.

I'm not an efficient market hypothesis proponent in the least, but nearly every study, simulation, etc does in fact show that it is nearly impossible to beat the market via stock picking.

Also as an aside, commodities and foreign exchange are places where it is explicitly allowed to have non-public information...

The average retail investor does not have, nor seeks domain knowledge. He's 21-black type of guy. Of course indexing will beat him.

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