Ubisoft 2014 Annual Report Download - page 49

Management Report
2014
44
1.7 RISK FACTORS
The Company carried out a new risk review when setting up the Audit Committee. This analysis
resulted in additional provisions, in particular by applying a competition benchmark. The risks
presented below may have a significant negative impact on its business activities, financial position
and results (or on its capacity to meet its objectives). The Company does not believe that there are
any other significant risks than those listed.
Identified risks are categorized by type.
1.7.1 RISKS LINKED TO THE BUSINESS AND THE VIDEO GAMES
MARKET
1.7.1.1 RISKS ASSOCIATED WITH PRODUCT STRATEGY, POSITIONING AND BRAND
MANAGEMENT
Ubisoft, like all publishers, is dependent on the success of its product catalogue and the suitability of
its offering with regard to consumer demand.
In order to meet market demand, Ubisoft takes particular care in building its product catalogue by
concentrating on:
 Reinforcing its existing franchises on a regular basis and launching new brands for consoles
and the PC with strong potential
 Developing its online and digital activities
In order to diversify and enrich its brand portfolio and thus ensure steady income in the long term,
Ubisoft favors a strategy of creating its own brands and producing internally, underpinned by a
targeted acquisition strategy.
The Company allocates the necessary marketing and sales resources to showcase its products
through a worldwilde distribution. Its position as the fourth-largest independent publisher in Europe
and the United States (NPD, Chart-Track, GFK) provides the Group with a high-performance
distribution platform for its products.
1.7.1.2 RISKS ASSOCIATED WITH MARKET CHANGES
Ubisoft operates on a market that is becoming increasingly competitive and selective and is subject to
concentration and economic fluctuations, marked by rapid technological changes requiring significant
R&D investment. Ubisoft also faces new challenges such as the dematerialization of physical media
(which is set to gradually replace games boxes at some point in the future), the second-hand market,
piracy, online and mobile games and emerging competitors in Asia.
Due to the fact that the Company has invested a significant amount of funds in the new generation of
consoles and its range of free-to-play PC and mobile games, its future financial performance will
depend on the long-term potential of these markets.
The sector should therefore grow in 2014, led by the online and mobile games sector and the arrival of
new generation consoles. At the end of 2013, the successful launch of the latter had an impact on
sales of games for old generation consoles, which declined more than expected. In 2014, the positive
effects of the PS4 and Xbox One should therefore be weighed against the development of sales for
the Xbox 360 and PS3, as the final mix may have a positive or negative impact on the Company’s
results.
In order to remain competitive, it is essential for a publisher to choose the development format for a
game wisely as an inappropriate choice could have a negative impact on the expected sales and
profitability.