Unity Software with a 'company reset' walks away from film VFX and the Wētā Deal

The implosion of the home console ecosystem in the United States between Atari and Nintendo is widely understood to have been caused by Atari giving up or losing the capacity to regulate who made games for their console and the quality of those games. As a result, the need for consumers to exercise their own savviness in finding the good ones went up, but rather than rise to the challenge, consumers just threw up their hands and stopped buying Atari home consoles and the games that went with them.

The lesson the whole industry learned is that they're selling a luxury product and they need to control quality to keep it a luxury product. Development ecosystems where anybody can write games of whatever quality are relegated to the home computer space, where the console providers (as console providers) are content to compete minimally.

I've replaced the word in the message, "Speculation" is a word that is perhaps better suited to warning the reader that it is a thought without much research.

Debt financing.

Zigging a bit, my family has been watching The Foods that Built America: https://www.history.com/shows/the-food-that-built-america It seems that about half the episodes tell the same story: Somebody built a new food concept, or polished an existing one in some very useful economic way. They're super ambitious and pretty much as soon as they proved out their base restaurant or sold to a few stores, they immediately opened a couple dozen new restaurants or built a huge new factory. Which they do by loading up on huge, huge amounts of debt. Most of the rest of the human interest portion of the episode talks about the stresses of pulling in enough money to pay the debt. Many of them get acquired or end up getting so much external investment that it amounts to an acquisition.

Of course it's a survivor bias situation; we're not getting told stories about the companies that did the same thing but failed utterly.

While the past 20 years of ~zero interest rates have made this even easier, it isn't necessary. It has quite often been possible to go to some banks with what looks like a good idea and end up in debt up to your eyeballs while expanding your business size possibly by entire factors of magnitude virtually overnight. It ends up very similar to the venture capital pattern we're familiar with in our industry even if isn't exactly the same forces. The result is basically a bimodal distribution; either you manage to pay down the debt to some reasonable level and you end up with a large money-printing business, or you don't, and you have to liquidate everything.

Basically you're seeing the failing side of the bimodal distribution of this pattern. Since a business always works to project strength, you never see them visibly ailing; it's just, there's this big edifice that looks invincible and then virtually overnight it's gone.

A further elaboration relevant to BB&B is that when you're in debt trouble, you become extremely vulnerable financially. You need to pay off that debt, and that opens you up to corporate raiders who supply you with enough to keep you afloat, but then have a lot of options to do things useful in the short term but that kill the company in the long term. With clever structuring, they can keep the profits but dump the debt with the company itself as it goes under. BB&B had some of this going on. However, I consider this a further consequence of the original debt financing, basically one of the concrete ways it can fail.

(Expect to see some more over the next few years. There's a lot of "zombie companies" out there (a term you can google), which is a term for the companies making just enough revenue to pay the interest load on their debts but not pay down principle. In a zero-interest rate world they could sort of chug along indefinitely, but as they have to pay real interest you're going to see these companies really start to struggle.)