Where did Atari go so wrong? (Interesting Article)

[Luvian]

I just found this interesting arcticle, it seem Atari and Infogrames (their owner) have more than 600 millions in debts, and just this year reported a $189 million net loss. This explain why they cut so much on development time and don't want to invest money on support once a game is out. This also explain why they butchered NWN2. They just want to use the title to get some quick cash in the hope of staying alive a little longer.

Here's an interesting quote from the article, that tie in with what we said in a discussion here not long ago, about game companies prefering to make many cheap crappy games instead of a couple expensive quality ones.:

Pachter added, "They need to get publishing revenues up to $400 million or so, and can do that with 40 $10 million games or four $100 million games. The dilemma is that they don't have the assets to generate four $100 million games, and it takes a lot of effort to put out 40 modest games."

And this next quote made me laugh:

In addition, Atari's sales and marketing VP Nique Fajors told Next-Gen recently that the firm aims to become more consumer-friendly: "This industry has been taking consumers for granted for way too long," he said.

Did they really learn their lesson? I doubt it, but we'll see.

[ 09-20-2006, 01:50 PM: Message edited by: Luvian ]

[Bithron]

Yeah, NWN2 and anything ATARI makes will go bad... Take Terminator: Dawn of Fate for example...

[Lavindathar]

But Atari did make some awesome computers "back in the day".

I prefered my St1028 over the Amiga.

[Memnoch]

Here's an opinion from Wedbush Morgan Securities, who are the analyst firm which tracks Atari's performance. They've got a HOLD rating on the stock.

INVESTMENT SUMMARY • Atari reported pro forma Q1 results that fell short of our revenue estimates and exceeded our EPS estimates. The company reported revenues of $19.5 million, compared to our estimate of $24 million and the consensus estimate of $28 million. GAAP loss per share was $0.05, compared to our and the consensus estimates of a loss per share of $0.13. After subtracting net gains from asset sales, we arrive at a pro forma loss per share of $0.10. • Management did not provide FY:07 guidance. The company has managed its cost structure quite well, but its revenue profile remains challenging. During the conference call, the company confirmed that it will shift one key title, Alone in the Dark, out of the fiscal year. • For FY:07, we are lowering our estimates for revenues from $185 million to $161 million, and are lowering our pro forma EPS estimate from $(0.24) to $(0.28). Our estimates reflect the shift of Alone in the Dark into FY:08. We are increasing our FY:08 estimates slightly to reflect the game shift. • The company’s liquidity has improved recently, with a current cash balance of over $17 million. However, as we forecast losses of $25 million over the balance of the fiscal year, we remain concerned that the company may continue to face a liquidity crunch. Additionally, we believe that Atari may have difficulties in generating future revenues with so many of its successful games having been sold off. In early July, Atari announced that it has sold the Driver franchise and most of its Reflections game development studio to Ubisoft for $24 million, and we assume that some portion of the purchase price will be received in the future, partially mitigating the liquidity pressure. .• We continue to believe that Atari is taking the right steps to return to sustained profitability, although its liquidity constraints dramatically increase the execution risk involved. • We are maintaining our HOLD rating due to the company’s liquidity constraints and uncertain outlook. • Risks include changes to game release timing, greater than expected deterioration of the average selling price (ASP) for game software, the effects of competition, and slower than expected consumer demand for video game hardware. . OPINION We expected Atari to report Q1 revenues that fall short of expectations, as the company’s sell-through appeared to be tracking behind plan. Notwithstanding the sales shortfall, earnings benefited from game sales. Atari elaborated on its strategy for FY:07, and has shown progress in aligning its operating expenses with lower revenues. Management has not provided guidance for FY:07, but committed to continuing its cost reductions. We expect consensus revenue expectations to be lowered due to the company’s sales of brands such as Time Shift, Stuntman, and most recently, Driver. Atari reported lighter than expected revenues due to weak sales of its new releases (particularly Dragon-Ball Z for the GBA). This was compounded by higher than anticipated discounting during the quarter due to its implementation of its GamersFIRST program (which began June 1, 2006) that lowered the price on almost all of its existing titles (excluding Dungeons & Dragons Online) to $19.95. Atari was able to completely offset the impact of its lower revenues by improving its cost structure and selling assets. Operating expenses were much lower than we expected primarily due to lower product development and general and administrative costs. It appears that the company’s recent restructuring and February headcount reduction (it reduced its staff by 25%) is now being reflected. The company generated a $9 million gain from the sale of games during the quarter. Excluding this item, the company reported EPS of $(0.10), better than our estimate of $(0.13). Atari is experiencing the same decline in demand seen by other video game publishers, with an accelerated shift in consumer demand away from current generation console software due to the Xbox 360 launch and upcoming PS3 and Wii launches. Although consumer spending on video game products has seen a slight rebound, we think that Atari has suffered from discounting its games under its GamersFIRST program. Because Atari did not have any Xbox 360 games and offered only a limited selection of PSP titles, it had limited next generation software revenues during the quarter (only around $2 million), and the current generation demand decline compounded its revenue shortfall. Management once again declined to provide FY:07 guidance but provided a detailed product release schedule, calling for a much leaner product release schedule. We are modeling 23 SKUs for FY:07 compared with 34 SKUs for FY:06. For FY:07, we are lowering our estimate for revenues from $185 million to $161 million to reflect a lighter product release schedule, and are lowering our EPS estimate from $(0.24) to $(0.28) to reflect the lower revenues largely offset by an improving cost structure. For FY:08, we are increasing our estimates for revenues from $170 million to $175 million and our EPS estimate from $(0.18) to $(0.17), reflecting the shift of Alone in the Dark out of FY:07. . We continue to believe that Atari is attempting to save its way to prosperity. Though we believe that it is important for the company to align its cost structure with its sharply reduced revenue profile, we believe that alignment only makes sense in the context of future growth. In order to achieve that growth, we believe that the company must invest in R&D, and we are concerned that lack of investment in R&D and marketing could limit Atari’s ability to effectively compete as the next generation consoles begin to ramp. We have modeled $48 million in R&D for FY:07, which we believe is the minimum required for Atari to deliver a handful of next generation games and to position itself to participate in the next console cycle. We have modeled a bare-bones $27 million in marketing, down from $93 million in FY:03, and again reflecting the minimum we believe that the company can spend to maintain consumer awareness of its brands. . Notwithstanding our sharply lower estimates for these two key categories, we believe that Atari will generate a net loss of $25 million over the balance of FY:07, suggesting that its $17 million cash on hand may be insufficient to fund its operations. . Though we acknowledge that they are speculative, we believe that our estimates are reasonable, given our visibility into the precise number of SKUs and the timing of game releases for FY:07. Should Atari succeed in further reducing its overhead, or if revenues are better than expected, there may be room for EPS upside. If the company is able to get through FY:07 without compromising its overall financial well-being, we think that it can return to profitability in FY:09, given likely operating leverage as the company’s focus on delivering fewer SKUs and selling a greater number of units per SKU and reduced operating costs. We are maintaining our HOLD rating due to the company’s liquidity constraints and uncertain fundamental outlook. .

[Luvian]

Omg I can't read all that, it's too technical. Why can't they just tell us if they're happy or not, they don't need to make a story out of it...

[Kakero]

One by one, gaming companies goes kaput....

[Harkoliar]

its mistake was getting the debt in the first place. Thats why they were forced to cut so many services and rush games.

the funny thing was because of rushing.. it affects the brand all the more.

[JrKASperov]

Originally posted by Lavindathar: But Atari did make some awesome computers "back in the day". I prefered my St1028 over the Amiga.

Technically it isn't the same company.

[Hivetyrant]

When ATARI were focused on just Publishing games (UT2004, etc) they did quite well, but their project times and targets were unreasanable and they paid the price for it... (Well technically they owe the price for it )

[Memnoch]

Originally posted by Luvian: Omg I can't read all that, it's too technical. Why can't they just tell us if they're happy or not, they don't need to make a story out of it...

LOL, it's technical because it's something out of Investext, and is used for people to decide whether to buy shares or not.

Basically:

BUY - stock price likely to increase
HOLD - wait and see what happens
SELL - stock price likely to drop

So basically, they're not sure what's going to happen with Atari. There is concern about their business plans for the future.