These 3 Companies Are Moving in the Wrong Direction

In his book Car Guys vs. Bean Counters, Bob Lutz argues that General Motors lost its way when it stopped worrying about what customers wanted, and built cars based on its own internal goals. Sadly, GM is by no means alone in failing to focus on its customers. Let's take a look at three recent examples of companies that just don't seem to get it.

1. An unnecessary encore
Activision Blizzard
(Nasdaq: ATVI  ) CEO Bobby Kotick has a funny definition of "innovation." When asked in a Forbes interview for an example of how his company innovates, Kotick revealed that Activision plans to reboot Guitar Hero.

Apparently, no one told Kotick that the market for expensive music games has dried up. In 2008, music game sales approached $1.7 billion. By 2010, they had plummeted to $291 million. Maybe we got tired of shelling out $300 for new plastic instruments, or maybe we just got bored. Whatever the reason, we've moved on.

I think Activision's lack of real innovation stems from the steady flow of subscription fees from World of Warcraft, and the almost guaranteed success of any Call of Duty title. The company has grown complacent, adopting an attitude of, "If it worked once, it can work again." This is very bad news.

As I've said before, Activision's primary franchises are getting up in years. With competitors like Electronic Arts (Nasdaq: ERTS  ) trying to steal gamers from CoD and WoW, as well as Take-Two Interactive (Nasdaq: TTWO  ) striving to produce new and innovative games -- let's all just forget about Duke Nukem -- Activision may quickly fall behind.

2. Pirates of the Internet: Dead Man's Paywall
On Aug. 15, Fox -- which is owned by News Corp. (Nasdaq: NWS  ) -- will no longer distribute new shows on its Fox.com website or Hulu until eight days after they air. To get access sooner, you'll need to pay for a subscription to either DISH Network or Hulu Plus. Although they haven't announced any similar plans, it's a reasonable bet that the remaining networks will soon follow.

The move is meant to drive viewers back to the television sets -- where the ad dollars are higher -- and prevent cable customers from canceling or reducing their subscriptions. However, I'm betting it will drive most tech-savvy web viewers to sites like sidereel.com and BitTorrent -- the current peer-to-peer tool of choice -- in search of free (and often illegal) alternatives.

I'm not opposed to paywalls in theory, but this feels like the old guard attempting to stomp out a disruptor before it can do any damage. The cable companies have had it easy for a while now, and they've begun to act like it. Comcast, Time Warner Cable, Dish Network, and Cox Communications all hold spots among the top 20 most hated American companies. If they offered better service and the option to subscribe to channels a la carte, they probably wouldn't have to worry about cord-cutting as much, because their services would have significantly more value.

3. When in doubt, try everything
Almost immediately after Research In Motion (Nasdaq: RIMM  ) said that it would cut 2,000 jobs from its workforce, the company announced that it had acquired JayCut, a video editing company. RIM plans to add video editing capabilities to upcoming PlayBook tablets.

Um … why?

It may sound cool, but a video-editing suite will probably appeal to only a small group of consumers. I'd also be willing to bet those interested in editing video on a tablet would opt for an iPad and one of the editing apps already available for that platform. Moreover, editing capabilities won't solve PlayBook's two real problems. First, it lacks native email or calendar apps, requiring you to sync it with a BlackBerry phone. Second, the app store needs quality apps.  

One could also argue that RIM should abandon the PlayBook and focus on reclaiming the share of the smartphone market it lost to Apple (Nasdaq: AAPL  ) and Google's (Nasdaq: GOOG  ) Android. Unfortunately, I'm afraid RIM currently refuses to see that consumers no longer find BlackBerrys exciting.

Last year, a Nielsen study found that over half of all BlackBerry owners planned to switch to a different OS with their next upgrade. A more recent study reported that BlackBerry's market share had dropped another 3 percentage points to 20% in June. Even if the company managed to open its eyes, I'm not sure it would know how to fix the problem.

Foolish takeaway
None of the questionable decisions I've highlighted here will ruin a company, but they are warning signs. If one or two boneheaded moves grow into a trend, the company making them might be headed for trouble. Thus, it pays to keep an eye on your investments, to make sure management hasn't lost sight of what's important. If you haven't already, click here to set up a free watchlist, and get the latest news and analysis for all of your stocks.

The Motley Fool owns shares of Apple, Activision Blizzard, Research In Motion, Google, and Take-Two, and has also written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Google, Apple, Take-Two, and Activision Blizzard; creating a bull call spread position on Apple; and creating a synthetic long position o n Activision Blizzard. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Patrick Martin owns shares of Activision Blizzard and Take-Two. You can follow him on twitter @TMFpcmart03. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On August 01, 2011, at 5:38 PM, trewm wrote:

    Take-Two innovation? Uhm, Duke Nukem, no, we won't forget that. They tried to revive a title from the 1990s, with graphics and game play also from the same era (not to mention Beavis and Butthead humor).

    EA innovation? Their innovation is to copy ATVI games!!!

    Angry birds..part of the social web bubble about to burst.

    I hardly see these as the frightening competitors implied by the article. ATVI is still the best of breed.

  • Report this Comment On August 01, 2011, at 9:53 PM, pmart wrote:

    trewm,

    Take-two bought a nearly complete Duke Nukem from 3d realms, taped it together the best they could and released it, so the only fault there is not killing the project. I'm willing to give them one bad game since they also publish all of Rockstar's games -- including the actually innovative L.A. Noire -- Borderlands and Bioshock.

    Electronic Arts will actually take risks on unproven franchises -- something that Activision avoids. Saying they copy Activision ignores a huge portion of the catalog.

    I didn't mention Angry Birds, but since you brought it. First, that's part of the mobile game movement, which is not a bubble (okay, maybe Glu Mobile). Zynga, is part of the social game hysteria. Again, not a bubble, but I'm betting Zynga will crash and burn.

    You also ignored the main point, which is that Activision thinks rebooting Guitar Hero counts as innovation. Music games are a dead genre and the company would do better to look for something new.

    As a shareholder, I'm concerned. That's all I'm saying.

    -Patrick

  • Report this Comment On August 02, 2011, at 3:38 PM, noggaholic wrote:

    EA innovates? I have a copy of Madden NFL '97 sitting next to me. Its far from the first in the series (started in 89), and far from the last. Battlefield has been around since 2002, they've pretty much run the Sims and other Maxis titles in to the ground.

    How exactly does EA innovate? Or is their innovation in the fact that most financial reporters know almost nothing about the video game market.

    Blizzard set sales records last year for PC gaming with Starcraft II, World of Warcraft is still (by miles) the most successful MMORPG in the history of MMORPGs, Diablo 3 is on the Horizon; and on top of all that Activision holds almost as many titles (with more day to day user popularity and play) then Electronic Arts.

    Rebooting Guitar Hero might not be the best idea, but the company is far from dead in innovation or market share, and EA is far from the great innovator of games.

  • Report this Comment On August 02, 2011, at 5:56 PM, pmart wrote:

    noggaholic,

    Make no mistake, I'm a gamer and have been for a long time.

    While EA does rely heavily on it's stand-by franchises, it at least tries to launch new. It just released Shadows of the Damned, and before that Bullet Storm. Coming up it's got Overstrike, Kingdoms of Amular and the Star Wars MMO.

    And those are just the major console titles. EA released two of my favorite Xbox live Arcade games (Shank, and Deathspank).

    As I've said, I own shares of Activision and have no intention of selling any time soon, but I want to see the company branch out a little bit. Call of Duty and WoW won't stay popular forever.

    -Patrick

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