Social Gaming and the European Debt Crisis

It is easy to focus on specific conditions for your company, your game, etc., when evaluating an international opportunity. With all the opportunities available and competing demands on people’s time, there can be a rush that leads to a misallocation of resources, poor revenue projections, or missed opportunities. It is very difficult to step back and look at the macro environment.

The European debt crisis is a good example. For those who have been more focused on TechCrunch than the Financial Times, Greece is on the verge of restructuring its debt (the equivalent of going bankrupt), and Ireland, Spain, and Portugal face similar problems.

Let’s start with Greece. Last year, the European Union (EU) and International Monetary Fund (IMF) had to put together a bailout program to keep Greece from defaulting on its sovereign debt. That move put off the problem (there was also an austerity program implemented in Greece … sort of) but did not resolve it. Recently, it became apparent that Greece would still not be able to service its debt and might not qualify for the next tranche of IMF financing. Realistically, this problem can be delayed a few more times (and will, because politicians really don’t like making difficult decisions) but at the end of the day Greece will need to restructure its debt (though I am sure there will be a nice euphemism for it).

Now Greece is not that large, and is considered a very minor social game market, so your response of “who cares?” is understandable. Here is why it is significant and something that needs to be considered in your strategic planning. Once Greece falls, markets will lose confidence in the EU’s ability to keep Spain and Portugal from the same fate (and possibly Italy). There are several ways that this debt contagion will then affect your business:

  • The Euro will likely continue to decrease in value to the dollar. A 20 percent drop in the value of the Euro would immediately cause a 20 percent decrease in your Eurozone revenue;
  • Opportunities in Spain, a significant market for social gaming, could plummet as austerity measures and a lack of capital would impact players’ ability to monetize and ad revenue in the region; and
  • Investment capital would become scarce. Currently the social gaming industry is seeing significant inflows of European money, but a worsening of the debt crisis is likely to drive much of these funds to safer opportunity and force some institutions to pull back investments to cover losses.

These are just some of the ways that the debt crisis can—and probably will—impact the game industry. The key issue is that companies need to plan and develop contingencies for this and other macro events that currently are overlooked in the planning process.

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