Here's a tongue twister for you.
What would you call a popular professional software developer's effort to squeeze money out of its embattled design format? If you paid attention to the headline of this article, you know it's Adobe's (Nasdaq: ADBE) last-gasp Flash cash grab. Try saying that five times fast.
The creator of Flash (and the Creative Suite, with all its Photoshop-y goodness) rolled out a new iteration of its signature Flash Player this week, offering improved graphical capabilities for browser-based gaming. Along with the rollout, Adobe announced a revenue-sharing agreement that could really tighten the screws on gaming companies already squeezed by Facebook's 30% cut.
Who did what, now?
The latest Flash upgrade adds 3-D rendering capabilities in hardware and the ability to access domain memory. They're two distinct functions, and using only one won't subject developers to revenue-sharing. However, using both functions in a game will activate a 9% revenue-sharing agreement for all revenues over $50,000. This is a pretty minuscule amount for a serious game company to make (not even covering one good programmer's salary), and could impact any company that wants to make its games graphically richer and more responsive.
I don't expect this to ding Zynga's (Nasdaq: ZNGA) profits, since that company has never been about performance gaming. But a glance at that company's razor-thin margins and persistently negative cash flow should give you an idea of how hard it might hit more high-end Flash gaming companies:
ZNGA Profit Margin data by YCharts
If it's this difficult for Zynga to maintain profitability, smaller companies with less of a budget will be in deep trouble. If Electronic Arts (Nasdaq: EA) was thinking about bringing any of its more hardcore games to the Web in Flash format after The Sims Social's smashing success, it's probably thinking again.
Though this change won't happen until August, it doesn't seem too likely to generate significant revenue for Adobe, as the gaming industry is already suffering from extreme competition across multiple platforms. If anything, I'd expect such a move to alienate the few loyal developers still focused on high-quality Flash games. Since Flash needs developer buy-in to hold the line against HTML5 and other emerging development platforms, it's difficult to see this as anything other than a desperate move that's liable to backfire.
If Adobe's at risk of losing out on the next generation of gaming, there's one company that's right in the middle of the action. It's poised to capitalize on demands for better graphics, regardless of what software helps render them. Curious? Find out more about this great investment opportunity in The Motley Fool's free report on "The Next Trillion Dollar Revolution."
