View From City Road: Pearson gets addicted to computer games
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Your support makes all the difference.Pearson is suffering from a rush of blood to the wallet. How else to explain its urge to splurge pounds 312m on a computer game company that will be lucky to make profits of pounds 6m this year? Having eradicated debt last year the group must have felt its extensive credit facilities were burning a hole in its pocket.
Naturally Pearson sees the deal rather differently. In Frank Barlow's book, paying a multiple of 58 times earnings qualifies as a strategic move rather than an expensive one. The rest of the world may see Software Toolworks as a struggling company involved in the highly volatile world of computer game publishing, but to Pearson it is an opportunity to acquire unparalleled expertise in 'the fast-growing market for interactive entertainment'.
Fast-growing it may be, but like 'multimedia' the term 'interactive entertainment' covers little more than a multitude of ill-defined possibilities. The theory is that the media company of the future will be about the efficient exploitation of 'software' in whatever format the customer desires. So Penguin's popular children's character, Spot the dog, might appear in book form, on film, in a television show or reincarnated as a computer game.
Hence Pearson has taken to describing its areas of operation as 'education, information, and entertainment' rather than along traditional lines such as books, television or computer games.
Indeed, merely to mention 'computer games' yesterday was to bring a pained expression to Mr Barlow's face. In his eyes the purchase of Software Toolworks is about adding another format to Pearson's repertoire, rather than diversifying into computer games. Never mind that 60 per cent of Software Toolworks' sales are generated by Sega and Nintendo related products and its profitability will be geared to the industry for a long time to come.
The multimedia revolution has yet to arrive. Given the people- based nature of many of the products, it is questionable if the most profitable way to exploit them will be in a highly integrated fashion. And buying companies rather than the people behind them is doubly risky; ask all the building societies and insurance companies who bought those fashionable estate agencies at the top of the market.
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