Record Year for Games, but Many Firms Lag
A pair of high-level resignations in the video game industry Friday signaled that the fiercely competitive $20-billion global business appears headed for a shakeout just weeks after finishing its best year ever.
San Francisco-based Sega of America Inc.’s president and chief operating officer, Peter Moore, stepped down abruptly Friday and was replaced by Tetsu Kayama, chief operating officer and director of the Tokyo parent company, Sega Corp.
A few hours earlier, Acclaim Entertainment Inc. announced the resignation of its president and chief operating officer, Edmond Sanctis. The Glen Cove, N.Y., game publisher also will lay off hundreds of administrative workers in an effort to slash operating expenses by 35%.
The departures occurred even as the industry posted record U.S. video game sales for 2002 of $5.5 billion. That doesn’t include more than $1.1 billion in sales of computer games and an estimated $3.7 billion in sales of consoles, such as Sony Corp.’s PlayStation 2.
The executive shuffles cap a tumultuous year for the industry in which a few game publishers did extremely well, but many did not.
Sega, for example, in November slashed its estimate of full-year profit by 72% to $40.9 million on revenue of $1.63 billion. It cited disappointing sales of its sports titles in the U.S. market, an initiative that had been spearheaded by Moore in an aggressive effort to take on Electronic Arts Inc., whose titles dominate the sports game genre.
In an interview Friday, Moore said his resignation was not related to Sega’s financial performance. Rather, he said he left to take a new job, which he will announce Monday.
Acclaim also suffered from disappointing sales in 2002. The company this week posted a $13.9-million loss in its fiscal first quarter ended Dec. 1, contrasted with a $17.4-million profit a year earlier. Sales fell 22% to $63.1 million, and the game publisher ended the quarter with just $10 million in cash.
Faced with so little cash and lackluster sales of its racy and controversial game “BMX XXX,” Acclaim is paring annual expenses by 35%, or about $50 million. Acclaim, which employs 700 workers, plans to lay off one-third of its administrative staff as part of the cost-cutting effort, Lewis said, though he declined to specify how much of the overall workforce is administrative.
Acclaim spokesman Alan Lewis declined to say whether Sanctis’ resignation was related to the company’s restructuring plan.
Acclaim’s stock lost less than a penny to close at 60 cents in Nasdaq trading Friday, then rose to 62 cents in after-hours trading following its announcement.
The struggles of Sega and Acclaim belie a record-breaking year for the industry in which video game sales grew 18.7%, according to Michael Pachter, analyst at Wedbush Morgan Securities.
Among the top-selling games for December were “Grand Theft Auto: Vice City,” published by Take-Two Interactive Software Inc.; “Dragon Ball Z: Budokai” by Infogrames Inc.; “Madden NFL 2003” by Electronic Arts; “Tom Clancy’s Splinter Cell” by Ubi Soft; and “The Lord of the Rings: The Two Towers” by EA.
Neither Sega nor Acclaim had games among the top 20 titles for December. More than 27% of the industry’s sales for the entire year were rung up in that month, Pachter said.
Amid mounting development and marketing budgets, Pachter said, commercial success in 2002 depended on landing a game on the bestseller list -- and notching as high a place as possible.
For example, the difference between the fifth-bestselling title in December and the sixth was steep. “The Lord of the Rings,” No. 5, took in $27.5 million, but No. 6, “The Legend of Zelda: A Link to the Past,” saw $14.7 million in sales.
The disparity was greater in company-to-company comparisons. Redwood City, Calif.-based EA took in $316.5 million in sales in December, while Acclaim saw just $22.5 million, Pachter noted. Sales for Activision Inc. of Santa Monica totaled $96.1 million, while THQ Inc. of Calabasas rang up $109.7 million in business.
