Bethesda's shady business isn't unusual

One of the more interesting pieces of gaming industry news from last week was the rumour that Bethesda had tasked Arkane Studios with making Prey 2 after taking it away from Human Head Studios due to supposed quality problems. Prey 1 was OK but the initial trailer for Prey 2 and the concepts it showed off seemed really cool. A lot of people questioned whether there was much more to it than that, especially once the project was taken from Human Head. When people began to ask why Arkane would be taking this rather major shift in direction after coming off the nice success that was Dishonored, this interesting NeoGAF post appeared in a thread discussing some tweets an ex-developer on the game posted in which he attacked Bethesda for stating that the game was not up to quality standards. In a nutshell, the post talks about why Arkane can and is being forced to work on Prey 2 and more interestingly, how they supposedly ended up being acquired by Bethesda in the first place. Essentially, the accusation (which is just that, not proven or backed up as yet) is Bethesda threw up arbitrary roadblocks to Arkane during the development of Dishonored, driving them to the brink, after which they swooped in and offered to buy the company, the team and the IP for a song. As a result, Dishonored probably didn’t make nearly as much for the developers as it would have had they been able to remain independent. If true, it stands to reason that Bethesda tried to pull a similar stunt with Human Head and when they wouldn’t play ball, dropped them and took Prey 2 away.

If there’s any truth to this, it’s pretty damn gross. I don’t really have a direct commentary to make on this particular instance beyond that if it’s true, Bethesda is a scummy company and should be ashamed of themselves. The point of this post is to explain a bit of how this type of business tactic works as most articles I’ve seen haven’t provided a good explanation if any. I sadly have some personal experience with it so I can explain it well. The broader point is, while this story may seem far-fetched, it not only is totally possible, it’s much more common than you may think and not just in the video game industry.

Ever wonder why until just the last couple of years, almost every third-party developed game Bethesda put out was either disappointing or downright awful? What about that none of the independent developers they’ve worked with have ever worked with them again (at least the ones they didn’t end up buying?) Remember the story about Obsidian, who had their bonus withheld because Fallout: New Vegas got an 84 on Metacritic instead of an 85 and how that was largely because Bethesda forced them to release the game basically unfinished? That says an awful lot right there.

Bethesda is a very interesting company in that they are very small compared to the likes of EA, Ubisoft or until recently, even THQ. They’re also a private company which most big publishers are not. Yet they go toe-to-toe with these companies in the increasingly unsustainable triple-A space and seemingly do very well indeed. They seem to have kind of a secret sauce for success that no one else has managed to duplicate. There’s no doubt they have some talented management but it wouldn’t surprise me to learn that there’s some loose morals and ethics mixed into that sauce.

“I am altering the deal, pray I don’t alter it any further.” -Darth Vader

I don’t know if this business tactic has a common name but I call it “Darth Vader’s Deal”. Here’s how it works: You partner with a company that is smaller than you to provide you with services (in Arkane’s case, to develop a game which Bethesda will publish for them, under which they have a profit sharing agreement.) Ideally, your partner will be so much smaller than you that they don’t have the means to survive if they lose your deal and don’t have the financial means to fight you in court if you screw them over. This is why Bethesda almost always partners with small, independent developers. Once the project is under way and the developer is a decent amount into it, you start throwing up hurdles. You reject milestones for no good reason, you say the quality isn’t good enough, you start delaying reviews or changing your design requirements. You basically conjure up reasons why they aren’t holding up their end of the bargain so you can withhold crucial payments to them that they need to keep their company running and to continue working on the project. Then you offer to give them the money despite them supposedly not meeting your requirements but say that will require altering the terms of your deal.

You keep doing this over and over again until the developer is on its knees, likely struggling to make payroll and keep the lights on. It doesn’t matter if what you’re doing is truthful or in some cases, even legal under the terms of your agreement, the developer needs you to survive, they can’t say no. At that point, you offer them a choice: Let them be acquired by you for a fraction of their true worth (in some cases, only as much as they “owe you”, plus any other debts), try to have them find other money so the project can be finished on your conditions (but likely with poor quality because they no longer care about pleasing you) or if they blink, they go out of business. You’ll lose the time and money you’ve put into them so far but you get to keep whatever they’ve worked on to shop around to someone else and barring that, you write it off your taxes and move on. Were I to hazard a guess, I’d say Bethesda has experienced all three of these scenarios. Arkane would fall into the first camp, Rebellion would fall into the second (go look up Rogue Warrior) and Human Head with Prey 2 falls into the third. Human Head does technically still exist but by all accounts, they’re basically a husk of a company now and are for all intents and purposes, out of business.

The next question you might ask is why the developers and management of these partners stick around after they’re bought out. Most of these purchases do come with employment agreements that require them to stick around for a certain amount of time (usually a couple of years or until their current project ships) but many of them stay on beyond that. Funny enough, many of these companies end up becoming very nice places to work and treat their employees quite well, including those from the partners they first ran into the ground. That’s not the real reason though. Remember how I said that once these companies are on their knees, they’re often bought only for their outstanding obligations? That means that the owners don’t get any big pay day once the acquisition closes. When you are building up a company, your hope is that if you sell it, you’ll make a tidy profit but when you sell out of desperation, there’s often no profit to be had. Your company may be saved but you don’t get much out of it. So rather than retire or take your money and start a new studio, you have to stick around because now you’re just like all your former underlings, you need a job and a paycheque as much as they do. So in Arkane’s case, Bethesda not only got the studio and their game, they got the continued loyalty of the leaders and visionaries at the studio by forcing financial necessity on them too. Here’s another question: You ever wonder why the next two studios Bethesda acquired after Arkane were brand new ones that were working with them on projects that were so new, even the studios themselves had barely announced their existence to the world yet? You see the pattern here?

If this sounds like a completely immoral, unethical and downright fucking evil way to do business, you’re absolutely right. There’s nothing inherently illegal about it, it’s just a terrible way to act. You’re essentially betting that your partners will cave to the pressure and play ball or that if they don’t, it won’t happen enough times for it to kill your own company. So far, if this is the way Bethesda has been doing things, it’s generally worked out for them. History is littered with examples of this. In Brian Bagnall’s book on the history of Commodore, he explains how Jack Tramiel used this exact tactic to great early success. The company that designed and produced the processors for early Commodore computers (and many other devices too, they were called MOS Technology) ended up in a similar place. They were quite a bit smaller than Commodore and Tramiel would contract them to do work for them. Then, he would simply let his invoices lapse and refuse to pay for his orders. MOS couldn’t afford to lose the orders and they couldn’t afford to wait for a lawsuit so in the end, they sold to Commodore for literally the cost of their outstanding invoices. In the early year, Tramiel grew Commodore’s vertical operations through hostile takeovers of this nature. It’s eerily similar to what Bethesda is being accused of doing. Had I not read about this in the book, I may not have believed it so easily. It’s even easier to believe based on my own experience.

For a couple of years from 2008 until late 2010, my best friend and I ran an on-site computer service business called Digital Lifeline. One of the key pillars of our business plan was to partner with local computer stores and chains to become their on-site service partner. We thought this would be an easy sell but it turned out to be exceedingly difficult. We knew some people at a local chain called PC Cyber which was doing very well at the time and we made it our goal to get in with them. It took a while but we finally got the chance to meet with their leadership. We pitched the simple idea to them: They would get their sales guys to book calls, we’d do them and we’d split the revenue with them. We took the lion’s share because we actually did the work but they would still do well from it, especially since they didn’t provide their own on-site services. They seemed interested and said they’d let us know. Our mistake was trusting someone we knew from there with too much information, namely that our company was struggling and that a partnership was critical for us to survive. They stalled and stalled getting back to us with an answer. When they finally did, they said they not only wanted a bigger chunk of the revenue, they wanted exclusivity, they wanted us to create a tool to monitor the service calls and the revenue from each and also give them administrator rights to it (i.e. the ability to modify or remove calls) and finally, they wanted us to only buy hardware and software from them, even if it wasn’t for their customers and even if they didn’t offer the products we wanted or the best prices. We thought about it seriously because we were desperate but eventually, we refused to accept the deal.

A few months later, our company was on the brink of failure and PC Cyber came to us with another offer. They wanted to hire us as managers for a couple of their new locations. In exchange for this, we had to close down Digital Lifeline and in addition to our management responsibilities, agree that we would help them start up their own in-house on-site service operation if they chose. We were disgusted by this but now had no choice and since the business was failing, told them we were interested, especially since they were offering us pretty good salaries. Over a month went by before we were presented with offers and when we were, the salaries were cut by substantially from what we were initially promised. I can’t remember how much but I remember the pay being offered was laughable for a management role. We were furious when I saw this and asked them why they did this to us. I was told that’s what they decided to do and I could take it or leave it. I told them to go to Hell, my pride was worth more than they were offering. That decision almost cost me everything but I was very lucky to land with my current employer a few months later. Not too long after this happened, PC Cyber imploded amid a wave of controversies, including accusations of tax evasion and unpaid employee salaries. In the end, they got theirs I suppose.

All of this is written to illustrate that if what we’re hearing about Bethesda and how they treat these companies is true, it’s deplorable, reprehensible and about as fucking evil as businesses can be towards other businesses but it’s also not an aberration. This has happened historically many times and I would wager that it happens all the time even now. It’s amazing how good confidentiality agreements can keep knowledge of things like this from becoming commonplace. As I’ve said a few times now, none of this about Bethesda has been confirmed but given their parent company’s CEO’s shady business past, I certainly could believe it as true. Companies like this deserve to burn but sadly, being evil can often lead to great riches. You certainly don’t have to look far in the business community to find many examples of that. This post was as much an exercise in finally talking about that part of my recent past but it also fit very well and I thought it important to point out that when it comes to the art of commerce, many people will do many evil things using the famous razor-thin excuse of “it’s just business” as their rationalization for acting like bad human beings. As a fan of many of Bethesda’s games and someone who was looking forward to Prey 2, I hope this isn’t the truth of the matter. As with most things, the truth is probably somewhere in the middle. But my gut tells me Bethesda is not the virtuous one here and as I watch the video game industry drown in its own hubris, it saddens me to see that a unique a bright spot in it may be no better than the worst of them.