Publisher Eyes New Genre in Bid for Profitability
Two years ago, Infogrames Entertainment’s North American operations consisted of about 20 people working out of as many cubicles in San Jose, recycling European video games for the U.S. market.
But after a $250-million-plus shopping spree in the U.S., the French company is poised to become the world’s second-largest independent video game publisher, having acquired such blockbuster titles as “RollerCoaster Tycoon,” “Civilization,” “Test Drive” and “Unreal Tournament.”
In a period of rapid consolidation in the gaming industry, Infogrames has chosen to eat rather than be eaten. But its buying binge has left the company with a big challenge. Despite nearly half a billion dollars in revenue in North America last year, those operations remain unprofitable.
To get back into the black, Infogrames needs to make its acquisitions pay off and--more important--develop a new batch of hot-selling games. But instead of relying on gaming’s tried-and-true shooter and role-playing genres, company executives are pursuing a heretofore unproven strategy: targeting casual players with simple games based on popular films and TV shows.
“Our industry has missed an opportunity to target a broader market,” said Jason Bell, Infogrames’ senior vice president of publishing. “We want to create non-weird, non-nerdy forms of entertainment, the equivalent of ‘Friends’ for the interactive entertainment industry.”
In July, Infogrames opened a Los Angeles office to tap into the Hollywood scene. With Bell as the point man, Infogrames nabbed the gaming licenses for the movies “La Femme Nikita” and “Men in Black,” as well as for the Peanuts comic strip. Infogrames also is negotiating for the gaming rights to “M:I-2” and “The Terminator.”
The company’s Los Angeles office, which has fewer than 30 employees, will grow to more than 100 over the next year and will become the publishing center for Infogrames’ North American operations, Bell said.
“It’s a tough industry, but they’re not a little company coming out of nowhere. They’re one of the top European publishers, and they’ve done this before with acquisitions in the U.K. and elsewhere,” said Ed Williams, an analyst with Gerard Klauer Mattison. “There’s every reason to believe they can be successful in North America.”
Larry Marcus, a partner with Walden Venture Capital in San Francisco and a longtime industry analyst, is bullish on Infogrames’ prospects.
“This is an industry that has been consolidating at a fairly steady pace and will continue to do so,” said Marcus, who doesn’t own any Infogrames shares. “My bet is that this company is a long-term industry winner.”
Still, it’s a wildly ambitious agenda for a company that began in 1983 as the peddler of a game called “Highway,” which was similar to “Frogger,” in which players attempt to maneuver a frog across busy roads without getting smashed.
The story of Infogrames is as much about the industry’s frenetic pace of consolidation in recent years as it is about Bruno Bonnell, the relentlessly ambitious man who founded the company 18 years ago in his kitchen.
In 1983, Bonnell was looking for ways to make money. He and a partner had just made $10,000 selling a how-to book on programming personal computers. They were debating over dinner at Bonnell’s home in Lyon, France, what to do with the money. The idea of starting a fast-food pizza chain came up, but making software seemed to have better potential. He was 25 years old and his wife was expecting their first baby. His daughter was born the day the company was created.
Now 42, Bonnell is a familiar sight in the industry.
“Bruno is a very charismatic guy,” said Robert Kotick, chief executive of Activision Inc., a game publisher and developer in Santa Monica.
A chemical engineer by training, Bonnell grew up wanting to be a movie director. He has a peculiarly French combination of romanticism and ruthlessness that is reflected in his favorite books, “The Art of War” by Sun Tzu and “King Arthur” by Sir Thomas Malory.
“Our culture is called love and deliver,” Bonnell said. “Love what you do, but deliver the goods to our customers. It’s not enough to be passionate. You have to deliver the magic.”
Bonnell is unabashed about his goals.
“We wanted to be No. 1 in Europe 10 years after we launched, and then No. 1 in the world 10 years after that,” Bonnell said. “That was a little aggressive, to be honest with you. Our first goal was achieved [in 1999]. Now it’s time to launch the second level of our rocket and conquer the world, starting with the U.S.”
At the beginning of 1999, few in the U.S. had ever heard of Infogrames. The company halfheartedly took games developed in Europe, including its “Smurf” and soccer titles, and tweaked them for the U.S. market with meager results.
Bonnell and his executives realized that in order to become a truly global company, they needed to become a force in the U.S., which consumes one-third of the world’s video games. With $300 million in the bank, Bonnell concluded it was easier to buy than build.
His timing was fortuitous. The industry, which goes through boom and bust cycles tied to releases of new game consoles, was barreling toward famine. The original PlayStation and Nintendo 64 platforms had been out for several years and were nearing their twilight. Average software prices began to head south. Many games that once sold for $50 were being marked down to $30 or less.
With new consoles on the horizon, game companies were facing long periods of costly development with zero return. To make matters worse, sales last year fell for the first time in five years as consumers saved their cash for newer consoles, including the PlayStation 2, which debuted in limited supply in October, and the upcoming Microsoft Xbox, Nintendo Gamecube and Game Boy Advance.
Small to mid-size game companies found it hard to survive. Many either ran into deep financial trouble or sought refuge by merging with better-capitalized firms such as Infogrames.
“It would be difficult for a small publisher to weather a platform transition,” said Caroline Esmurdoc, a games producer who came to Infogrames through its acquisition of San Jose-based Accolade Inc. “You’d have to have a lot of money in the bank, especially these days. With more technologically advanced hardware, it’s taking longer to develop a game.”
As a result, Infogrames picked up “some great brands for fairly good prices,” said Felicia Rae Kantor, a Lehman Bros. analyst in New York.
Over the last two years, Infogrames spent more than $250 million--much of it in stock--to buy four U.S. game companies, including GT Interactive Software. Along the way, it picked up hundreds of titles, including “Deer Hunter,” “Driver” and “Abe’s Oddysee.”
The challenge for Infogrames is to create a cohesive company out of its acquisitions, which are scattered in eight offices throughout the country, from Beverly, Mass., to Seattle. It also needs to stem the losses of its U.S. business. In the fiscal year ended June 31, Infogrames lost $27 million. This year, Bonnell hopes his company will break even. And it needs to inject some life into classic franchises, such as “Looney Tunes” and “Test Drive.”
Yves Legris, chief operating officer of the company’s U.S. subsidiary, said that much of the messy work of consolidation has been done. Infogrames laid off 600 workers at GT Interactive and vastly scaled down the company’s money-draining distribution business. It also killed projects that didn’t seem to have mass market potential, instead focusing resources on its better-known games and making them sparkle.
Still, Bonnell admits he’s got his hands full in the U.S., and the buying binge is over. “There’s a lot of business to take care of right now,” said Bonnell, who spends 60% of his time in the U.S. “It’s time to consolidate all of the operations and show their potential.”
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Infogrames Entertainment
* Headquarters: Lyon, France
* Chief executive: Bruno Bonnell
* Business: Developer of video games for Sony PlayStation, Sega Dreamcast, Nintendo 64, Game Boy and PC formats
* Video game titles: 700
Games in development: 134
* Employees: 2,450
U.S. operations: Publicly traded subsidiary Infogrames Inc. (IFGM), based in New York
*
The numbers (Dollar amounts in millions)
Sales have risen steadily ...
‘96: $75.3
‘97: $122.7
‘98: $243.7
‘99: $341.8
‘00: $522.6
*
... but profit growth has been interrupted.
‘96: $4.1
‘97: $7.3
‘98: $22.6
‘99: --$27.2
*
Buying Binge
Infogrames has bought a string of game companies. Here’s a look at its acquisitions.
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Price, in Date Company millions acquired Properties Accolade Inc., San Jose n/a April ’99 Test Drive racing, Hardball baseball GT Interactive, New York 135 Nov. ’99 Deer Hunter, Driver, Oddworld, several Humongous Ent. titles Paradigm Entertainment, Dallas $17 July ’00 Pilot Wings Hasbro Interactive, Beverly, Mass. $100 Jan. ’01 Atari, Civilization, RollerCoaster Tycoon, Games.com
*--*
Source: Infogrames
