While neither is confirmed, two potential buyouts could shake up some well-known companies. But will GameStop going private or AT&T taking full control of the company that owns Crunchyroll help or hurt consumers?
Let’s start with GameStop. Their latest first quarter results were not good, doing worse than Wall Street expected. Sales were down 2.6% in the US and 11.6% internationally. Collectibles and digital sales were up, but their core offerings (new and used games and hardware) reported a drop. This can be attributed to the rise of digital games, the lack of must-have games, people not upgrading devices, and the Nintendo Switch rush tapering off. Even though its previous quarter results beat expectations, collectibles can’t completely counter the decline in its other segments.
Now GameStop has confirmed it is considered being sold.
So, how would new owners change the trajectory GameStop is on? Well, most likely this would be a leveraged buyout. This means that stocks could be worth $20 a share instead of its current $15.
What is a leveraged buyout? Basically, it’s when a company or property agrees to be sold, but the purchaser finances the buyout by letting the bank have a lien against the assets of the company to be purchased.
It’s a process similar to buying a car or a house, so leveraged buyouts are very common in the business world. Thanks to the current economy and tax laws, mergers and buyouts are increasing in numbers and amounts.
GameStop would gain some money, but there are some other benefits as well. One of the private equity firms interested in GameStop is Sycamore Partners. One of the companies they own is Hot Topic, who competed with GameStop over ThinkGeek a few years ago. There could be some synergy there due to the collectibles category being a bright spot in GameStop’s portfolio.
Of course, there are risks as well. The company being bought takes on the majority of the debt. Perhaps the most recently famous example of leveraged buyouts going wrong is Toys R Us. In this opinion piece, this writer explains that these sorts of transactions often end up squeezing the company for all its worth, then leaving it for death’s door.
Although I talked about synergy with Hot Topic and its related brands, but considering lots of GameStops are located in malls, will a potential Sycamore takeover really need two places focusing heavily on pop culture collectibles? However, some places have Torrid and/or BoxLuch stores in the same mall, and other chains like Claire’s have different offshoots in the same shopping center. It’s also possible that someone else could acquire GameStop, keeping the Hot Topic and GameStop brands as rivals. If not, it will be interesting to see if they remain completely separated or if steps are taken to eliminate overlap between the two. After all, Hot Topic price matches GameStop, but will they want to price match their sister company?
And, of course, there’s always the fear that a private firm will suck them like a vampire. After all, so many companies that have been in financial straights lately were “LBO queens” — companies who are (or were) crushed from their incredible debts from going private. Plus, as most analysts would agree, less competition is bad for consumers.
Meanwhile, AT&T wants to fully own Otter Media, buying out Chernin Group’s share. Otter Media owns Ellation, who is Crunchyroll’s parent company. According to reports, this deal has been in the works for a while.
I personally am not surprised, as I would have expected this years ago. But it was on hold due to the Time Warner acquisition.
A lot of fans are mainly concerned about two things: will there be a double paywall, and will AT&T force any sorts of censorship in regards to what they license?
For the first, I imagine it won’t be any different from the current situation. Crunchyroll may be offered as an add-on to DirecTV Now or their upcoming WatchTV, thus keeping everything on one bill and competing with other services like Amazon’s premium channels. Lots of stations are having stand-alone subscriptions to capture cord-cutters, so I doubt AT&T would limit the anime service to just their subscribers a la Anime Strike.
Combined with the net neutrality repeal, it’s also possible that Crunchyroll streaming may not count against data on AT&T Mobile, or it will be a priority service. DirecTV is still a part of T-Mobile’s unlimited streaming list despite being owned by AT&T, but maybe they’ll end up pulling Crunchyroll one day.
As for censorship, I also don’t expect a lot of changes. Perhaps AT&T can have more input as a member of a production committee for some series, but I doubt changing anime is a driving factor. I think they just want a portfolio of geek-centered channels.
However, it’s certainly possible that Crunchyroll’s membership fee will start to rise. I’m sure most of us have had an experience with prices rising after a major shakeup. In fact, AT&T’s cell phone plans are going up, fees rose in April, DirecTV plans rose earlier this year, and now their DirecTV Now streaming service is hiking the price by $5. Yes, cell phone users will get double the data, but if you’re one of the many people who were already under their monthly limit, it’s a $5 monthly fee increase.
Crunchyroll’s prices have been the same for quite some time, so it may be about time for it to rise. If AT&T were to raise Crunchyroll’s price by a minimal amount, most people would probably still stay, and that could mean an extra $1 million a month for the conglomerate. This could also make VRV more appealing. In this example, $10 for VRV instead of $8 for Crunchyroll alone is more appealing even if VRV has its own restrictions. But if you aren’t watching much on the rest of VRV, AT&T may get an extra $2 out of you. Discounts on memberships for having DirecTV could also bring in new customers if they could only charge, say, $5 a month with DirecTV instead of $7 for non-subscribers.
Final Thoughts
Both of these buyouts are not final, but even if they go through, there is a lot of uncertainty about GameStop’s and Crunchyroll’s paths forward. Nothing could change, or a lot could change. It is certainly understandable why people may look on these two purchases negatively; after all, a lot of corporations — particularly large ones — bring up images of faceless moneygrubbers intent on squeezing as much profit as possible with little to no regard for their consumers. It’s debatable as to whether this is an accurate description, but it is a popular one.
Either way, I doubt these two buyouts will have an immediate effect. It probably won’t be for a few years that fans will notice a difference, but between the two, I’d say GameStop going private is the bigger development.