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10/31 GameGo! A-Go-Go

The video game world was said to be "unsurprised, shocked, yet privately quite amused" by the special "Easter Egg" hidden inside Rockstar's exceptional Grand Theft Auto 3.  As anyone who's snorted with Sam Houser will attest to, Rockstar isn't the sort of company to let games out that should be seen by anyone other than demented sickos (fortunately, that's their video game North American target demographic).  With this in mind, GTA3 has succeeded admirably in terms of bringing the violent slaughter and damn good fun of GTA3, and has lowering the bar in terms of taste to surpass even Carmageddon.

But now something more innovative has surfaced.  It seems that as well as killing dozens of people and stealing their cars, hookers can be employed in GTA3 to provide a "special service."  The Gamefaqs notice-board noted exactly the plan to get some "action:"

"If you're low on health (or just want to have some fun :P) you can pull up next to any of the many hookers wandering around Liberty City.  (They're wearing skimpy pink or brown outfits.)  She will walk up your window and talk to you for a few seconds before getting in the car with you.

Take the broad out to some place that's dark and secluded (an alley, your hideout, in the middle of some trees) and watch the magic begin.  Your vehicle will start to rock and you'll gain health.  This trick can take you up to a max of 125 health points.  Eventually the hooker will finish up (the rocking will speed up really fast and then stop
suddenly) and get out of the car.

Be warned, though - hookers cost money.  As long as she's with you in the car - even if she's not "working" - you'll notice that you lose about one dollar per second.  It's really no big deal though, since you can just hop out of the car when she's done and beat your money right back out of her. ;)

One final word about picking up hookers: you must have the right kind of car to get her to ride with you.  Generally, they'll shy away from cop cars, taxis, and vans, so make sure you're not using one of those vehicles."

This is only the second time an act of fellatio for increased power has been noted in the world of video games.  The first was when an ex-Doom-designer with illusions of grandeur interviewed Stevie Case at Ion Storm.
 

-FatInsider

10/31 The EA.com Axe Falls

Oh where to begin...
The layoffs were so massive it's tough to figure out just where to begin.  Well, it's always good to start from the top and then watch as executive failure trickles down to take out innocent production talent that are just doing what they're told.  Typical.

John Riccitiello.
He's done so much wrong it's tough to cover it all in one letter.  Let's see, first he hired people no more web smart than himself to run EA.com for him.  At least he was assured he'd be the smartest man in the room with boobs like Yates, Mckibbin, and Rob Martyn filling in the highest ass kissing positions in EA.com beneath himself.  Next, he allowed unchecked spending to go on for nearly two years.  Yates has been overbudget by millions of dollars with absolutely nothing to show for it but a failure of a development environment.

Here's a trademark of any executive at EA.com:  don't show up for any kick-off meetings or design reviews then wait until the project goes live to say you don't like it.  Never mind that it was designed to your specifications, at least as close to your vague specifications as the team could decifer before you left for another studio tour.  Never mind that EA.com executives NEVER managed a project beyond a vague "it should be like HBO but online and without you know, shows" project vision.  Nice work guys, did it take all the executives at an all-week offsite to come up with that grand vision?

Let's see, what else?  Riccitiello managed to convince Larry Probst they
could justify buying Pogo for $49 million dollars and somehow that cost would be recovered in this lifetime.  This was a direct result of another one of Riccitiello's failed leaders coming dangerously close to not having someone else to blame for the utter failure of the Pop channel.  That failed leader was Suneel Ratan, yet another (and possibly the biggest) unqualified, unexperienced, unrespected, unhygenic boob.  What a fucking numbskull that guy was.  And it's called a toothbrush Suneel, don't be afraid.

Suneel, along with Yates, were key in the early planning of certain failure at EA.com.  With no online experience between the two... wait, I take that back.  Yates was directly targeted in a class action lawsuit against Origin for failing to keep that network online too!  I stand corrected, Yates DID have online experience and knew how to fail ahead of EA.com.  He was more than qualified to help Riccitiello drive EA.com into the ground.

Another Riccitiello failure:  letting Battletech crumble because JR’s ego couldn't take Microsoft blowing him off like the nothing he is.  With over two years in development and a mech license already paid for, Battletech is an online game that would drive revenue as it would be the first EA.com online game worth paying for and devoting time to play.  They released the game for free so users could beta test it.  The game was an instant hit and began seeing more users join than had subscribed to the $10/month package deal for all the other games combined.  And the closed beta URL wasn't even publicized!  So what happened?  First, Microsoft became a little nervous that EA.com's online mech game may just be better than their own boxed mech game. So they stalled in the approval process to let EA.com take Battletech live.

What really killed it though was that JR would call and leave messages to discuss the issue with Microsoft and they'd never call him back.  They just blew him off.  It hurts to realize you're a big fish in a small pond.  So he would rather cancel the project altogether rather than let Microsoft remind him he ain't so important after all.

Did I mention the fine staff that JR hired?

Somebody please explain to the rest just what Rob Martyn has done during his stint at EA.com.  In my opinion, he is USELESS!  He has done nothing, literally nothing!  He spends most of his time at EA San Diego which lucky for him keeps others from noticing that he does nothing for a living.  Of course he blends in at EA San Diego as those useless fucks also excel at doing nothing.  Hey EASD, have you ever delivered one single project that you've promised?  How's that multiplayer Tiger Woods Online golf game going?  MULTIPLAYER.  A hint: more than one player.  Has three years not been long enough for you to provide what you promised?  And how's that matchmaking coming along?  Nice work.  Wipe the sweat off your brow and go catch some waves.  You've earned it.  And Rob, tie your shoes.  You are 42 (at least) and a vp, maybe it's time you acted like it.  U-S-E-L-E-S-S.

Chris Mckibbin is good at rallying the troops.  Unfortunately he's not very good at rallying them in the same direction.  He has many good analogies (see the HBO reference above, that was Chris) yet he's never quite certain what comes beyond that very vague, very blurry conception stage.  Another little hint: it's called WORK.  It's called development.  It's called reality.  Try it.  Rolling up one's sleeves is not covered in Princeton business courses.

In fact, accountability of any kind is heavily discouraged at Ivy League schools.  If you aren't really responsible for a single decision then you really can't be targeted as the exec that made a bad call.  Mckibbin has yet to claim responsibility for a single decision that's been made at EA.com.  I challenge anyone there to find one piece of video or a single piece of paper where Chris has signed his name on the line as the executive responsible for a decision that has been made.  Just one.  It's not just him though.  Try to figure out which executive pulled the plug on the Platinum Service (bundled online games for one monthly fee).  Who finally took responsibiity for making that decision?  Nobody has taken responsibility for it.  Jack Heistand won't admit to it, Chris Mckibbin won't admit to it, Riccitiello won't admit to it.  Where was the announcement when the entire business strategy shifted?

Shouldn't the entire company know that their focus has shifted, that the business plan has taken a 180, maybe that priorities have drastically changed?  You may end up getting higher quality work out of the workers if they know what they're supposed to be building.

Chris Yates is the top dog in the worst development environment ever conceived.  It's a 5-tiered development environment that has no automated tools.  Files are transferred manually by a developer from one environment to another.  One file at a time.  No shit.  The majority of everyone's time at EA.com is spent repeatedly fixing bugs since none of the environments are ever identical to the next.  Most often one of the servers is "rolled back" to try to keep the servers synchronized with the others.  Unfortunately rolling back servers also overwrites fixes that may have been moving up the pipeline.  Work is lost on a daily basis and new bugs get reported when fresh fixes have been overwritten by a roll back or by an out of synch server being migrated ahead.  I would hire any developer unfortunate enough to work at EA.com.  They are weathered, beaten down souls and the hardiest Java server would look like a gift from heaven after working in EA.com's pitiful environment.  Yate's strategy to date has been to hire so many managers that he would never have to see the servers he's created.  With 4 layers of management between him and an actual developer he nearly succeeded.  Damn the layoffs stripping away his protective managerial shielding.

Junior Executives does not a company make.  These guys were dot com opportunists without the slightest idea that it might take actual effort to succeed.  Unfortunately EA.com severance packages have guaranteed that those responsible for driving the company into the ground would also walk away wealthy regardless of the outcome.  While those that live paycheck to paycheck will be handed pitiful severance checks if they're lucky, EA.com execs will walk away with 7 figure settlements for giving it a good college try.  Nice try.  Don't take it so hard, there's always other companies to drive into the ground.

What's really sad are the other employees that really have tried their hardest and are getting layed off for simply following orders as bad as the orders were.  Employees follow their executive leaders and trust they know how to lead the company to success.  Shocking as it may be, Neil Diamond impressions and company meetings where Jack Heistand (another useless bag of crap) berates the entire company do not drive corporate success.

Good luck to the folks at EA Virginia, Kesmai, and EA Redwood City.  May you find fun and gainful work at a company that is successfully run by actual executives.
 

-FatDotBomber

10/31 Report from the Front:  EA.com Implodes

On Tuesday the 23rd of October, 2001, EA.com entered it’s last phase of existence.  Prompted by a second year of aimless spending, and what appears to be a complete lack of strategic management, EA.com layed off approximately 40% of it’s staff world-wide to protect investor confidence.  What is not clear is whether or not significant lay offs equals significant change.

While the current plan calls for massive lay offs, though it still fails to address the executive management responsible for 100% of the failure.  It is yet to be seen whether or not investors will continue to support the mother-ship EA if it continues to compromise stock values by investing in it’s own dying initiative EA.com.

Sources close to the problem have witnessed hostile exchanges between commander-in-chief Larry Probst and the ever elusive John Riccitiello.  John has significantly delayed Larry’s planned retirement by abandoning EA STUDIOS leaving it to be consistently manipulated by Don Matrick and company who’s primary objective seemingly has been to sabotage EA REDWOOD SHORES projects into definitive failure (James Bond franchise included).  By John failing to make significant changes in his executive roster, Larry is also obligated to clean up the EA.com money-pit and get EA STUDIOS focused on making games that ultimately impact the bottomline.

The Board of Directors at EA are also feeling the heat having been deceived for the last two years.  Deceived?  Perhaps that is too strong of a word, as it was probably not intentional (hey, every business was caught up in the DOT COM fever).  Investor skepticism is fearing concerns on how such careless spending could continue without being measured for success.  Insiders have commented that much of the previous 2 presentations included bold claims of profit and spending that border heavily on pure speculation.  Most company meetings which feature financials to the board claimed late in 2000 that EA.com had spent upwards of $200 million dollars only to be re-adjusted in Spring of 2001 to a mere $149 million to meet previous estimates.  Love that creative accounting!

POGO.COM executives will be playing a much larger role in future strategy sessions for EA.com.  Whether or not an ad-banner business model can pay for the millions of dollars worth of operational costs is yet to be seen.  Investors have praised POGO.COM for it’s ability to make a profit with online games, but have sighted the substantial difference between that success and what EA.COM has consistently tried to accomplish.

As reported earlier this year, AOL is all but a memory for EA.com.  Reduced to a co-branded hat agreement, AOL has all but been left as an afterthought.  When questioned directly, EA.com executives responded, "If EA.com doesn?t make some money quick, the carriage agreement won’t have a leg to stand on."

INVESTOR FOCUS:

"Relevant Game Content" is how a senior AOL executive described EA.com’s weakest point earlier this year.  Despite releasing over 50 games in the year 2000, and adding many more over the following year, none has yet to capture even 1% of the projected subscriptions set out by EA.com’s John Riccitiello.  High Quality Browser games (which range in price from $500k to $1 millions dollars to develop) are sighted as the first step towards the point of no return.  Persistent State World games have been touted as the holy grail of profitability, but early reviews are very disappointing for investors. Majestic which was hailed as the blockbuster number one, featured a jetliner crashing into the World Trade Center on it’s promotional cover art has unfortunately aligned itself too much with the prolonged war that the United States is engaged in to inspire any level of membership. Motor City Online, which is still to see the light of day, is struggling with meeting any multiplayer objectives.  Beta testers have complained about the ratio of time spent alone verses time spent with other players.  Beyond chatting while waiting to race, there is very little to inspire a user to shell out $10 a month for longer than a single month if they survive the first 30 days.  Westwood's Earth & Beyond which has just hit a playable state features an incredibly boring scenario of flying around a universe with very little in the way of gameplay. The Sims Online is simply not in existence and isn’t planned for a playable BETA until well into 2002 missing all projected release dates.  Investors should be very persistent at the status of these projects if EA.com is ever to achieve profitability.

Operational costs remain the number one priority for all concerned parties.  The notorious VP of Engineering, Christopher Yates, has successfully signed over $80 millions dollars in multi-year contracts with vendors that produce obsolete technologies.  Previous attempts to streamline the company have failed to bring development costs inline with average internet development companies.  Internal criticism has sighted the overwhelming number of managers that Mr. Yates seems to feel is necessary.  Investors should question development costs and time to market issues before overlooking the cost to develop future objectives.

Deployment architecture (also developed by Christopher Yates) provides massive obstacles for realizing any EA.com objective.  Requiring up to 3 weeks of QA cycles in order to deploy a single web page of content, many attempts to streamline this process have not been able to purge EA.com’s inability to respond to market demand.  Investors should be specific when questioning the developing changes before making any positive cash moves.  EA.com needs the ability to move product to market in a competitive manner.

Spending control has been the a central cause of much of EA.com’s inability to control bottom-line profits.  With internal design groups consuming millions of dollars a year to design a total of 20 web pages, EA.com’s lack of internet background has created financial blackholes within the organization that continue un-audited to date.  Investors can only hope that much of the functional fat is trimmed as a part of the recent changes.

It is unclear whether EA will continue to invest in the EA.com of old.  One thing is for certain, if the EA continues to allow the same executive team to manage EA.com’s future, EA itself might lose the battle of attrition to lesser competitors that are better at focusing on their core markets.
 

-FatJaneFonda

10/31 More Halverson Phun!

Dave Halverson, new founder and publisher of Play magazine, responds to GameGo madness.  Will ex-staffers kiss and make up?  Possibly not.

Halverson wrote:

I am compelled to answer at least a couple of this weeks exciting stories. Regarding lawsuits by GR employees, having been an employee myself, that would be interesting. I'm currently working with all but two of the last GR guys, of  and I hope to work with them again, so, I don't know where that one came from. No one took it up the chute as bad as I did when things went sideways. A couple of guys have labor board claims pending, and rightfully so, so should have I, but that is all I know of.

As for Shidoshi's wild ride... dude! I haven't seen you in what 4 years? When you were at GR did we say 10 words? Let it go. Change your reviews... and take credit? We've all had work edited, me included. If we had to re-write a piece in GR, we changed the name because the content changed. And if I recall you often had venomous, possibly relationship damaging things to say.  I had no idea you were carrying all of this baggage. You should just give me a call. This isn't the best place (well, maybe it is) to air  your dirty laundry. I knew when I posted on GameGo that I was asking for it!

How do I get off this crazy GameFan roller coaster. It's like the same five people in a bitter internet feud. Businesses sometimes succeed, and sometimes fail. We all hooked up with two investor groups who for one reason or another lost site of the prize. It's unfortunate I know, but, we're all okay. Move on. And FB, I know it's what you do, but these stories they couldn't be more false. I'm just a normal guy-I have a wife and a young son, and I'd really like to move past all of this crap. I've started my own company for the first time since GF in '92, and this kind of PR isn't helping.

Well, this reply will likely ignite more fires but what the heck. I felt some the latest poop needed to be shoveled.

See our 10/18 Story Heart-to-Heart with Halverson for the background.
 

-The Fatbabies Team

10/18 GameGo! A-Go-Go

In a shocking twist that no one saw coming, that industry stalwart, two guys in a shed in Brooklyn trying to a make a magazine, has failed.  You may remember our look at the conception of GameGo, but even in our jaded, fog-of-hate-filled eyes, we wanted the magazine to last more than one issue!

Yes, GameGo! has gone, leaving bitter (but unsurprised) subscribers shrieking for their money back.  Apparently you need advertising to launch a magazine with reviews that have no scores on them, and frighteningly hardcore and biased editorial.  And there were no takers.

Then matters turned pissy really quickly.

Gasp!  As an ex-staffer turns on the lunatics in charge:

Swoon!  As another ex-staffer wonders what the fuck is going on, and who owns the mag

Thrill!  As the 500 subscribers to the magazine realize they got shafted by well-meaning but ultimately over-stretched hardcore gaming zealots with an advertising plan to rival incite. Still, they paid $25 for a free messageboard, so they can take comfort in that.
 

-The Fatbabies Team

10/18 What a Long Strange Trip He Has Been

Trying hard to disprove F.Scott Fitzgerald's comment that there are no second acts in American lives, Trip Hawkins is fiercely determined to keep 3DO alive.  He seems prepared to spend all of his money to keep the firm alive.  The recent pumping of nine or so more million dollars is just the latest example.  In poker, this is called chasing the ante.  Putting good money after bad is the mark of a man who will not admit defeat.

As a straight business analysis, the funding deals are very transparent and offer no great incentives to Trip.  A bank or other third party would have demanded a convertible bond with a favorable conversion rate.  Trip is putting money into 3DO at below market rates.  Since it is not good investment strategy, what motivates Trip?

Trip always felt that since the cover story in Fortune magazine he has not gotten enough respect in the industry.  The millions he got from EA has not served as a balm to his feelings of insecurity.  (He has been heard to whine at length about Steve Jobs being named the most influential man in the industry in UPSIDE's 2000 list of most influential).  He truly believes that he should be a known figure and defacto spokesman for the industry.  He views himself as one of the founding fathers of the game industry.

The massive failure of the 3DO game system did nothing to help his desire to have another big hit in the industry.  When the firm transitioned from a system developer to a straightforward content maker, it would have been financially better to abandon the 3DO name and the corporate liabilities and start fresh.  Trip decided that the "brand value" and the "intellectual properties" outweighed the financial albatross.

In the movie "Citizen Kane," the title character is told that his newspaper venture has lost a million dollars.  He replies that he expects to lose a million dollars next year and at that rate he will have to quit in seventy years.  How many years can Trip keep 3DO afloat from his personal piggy bank?
 

-FatElder

10/18 Heart-to-Heart with Halverson

After firing most of his crew (including the loyal ones that poured their money, hearts and souls into Gamers' Republic), Halverson has recently surfaced on the infamous GameGo magazine forums (at least, we think it's him).  Check out what he's done for the video game industry recently, in his own words.  Then check out what an ex-GameFan staffer has to say on the subject.  It’s a riveting read!
 

Posted by Dave Halverson:

GameFan, GR, and PLAY

Long, long story very short... I got started in the industry for one reason-my love for video games-and I remain for that same reason. My first venture, GameFan, was started out of the back of my import mail order business (Die Hard Gamers Club which I started with 5k) with a small investment from the business and some close friends. We were told the odds of us making it were slim to none by just about everyone in publishing, but, because our passion came through, GF flourished, at least from a reader standpoint. Publishing is an expensive game and so when it came time to grow, we could no longer support the companies vast financial needs alone, so my then partner decided to make a deal with a company that could take us to the next level. As most people know, the choice thatw as made turned out to be a tragic one. GF was slowly torn apart from the inside... late pay, late issues, late subs.... and, of course the infamous remark against the culture we held the most dear, which took place AFTER WE PROOFED THE MAG. I've vowed to protect the person who thought they were being funny (and that no one else would see it) and can't break my word. IT HURT MORE THAN I CAN SAY-I LOVE ALL THINGS JAPANESE. Anyway, I signed on as the EiC and had given up control of the magazine. I did this thinking it was best for us all. The promises this new company made were grand. Bonus programs, new offices, incredible circ... we had arrived! No one thought in their widest dreams that it was all bait for the hook. Cut to Christmas 1998. My most beloved editors are under fire, (Nick and Caey) the mag is sitting for weeks at the printer, people are going unpaid for weeks. I was told it was only a matter of time. One of the major stock holders from the new company urged me to start anew. "We can save this, save most of the guys, and the stockholders". It meant doing the unthinkable-leaving the magazine I gave my every waking hour to, that I grew from nothing, but I had no choice. Someday I'll write about the actual events leading up to this but believe me, space doesn't allow. I went with these new investors to begin working on a new mag right away, to fill the gap GF would leave when it finally fell. Now, here's where it gets tricky. Without going into too much detail, starting a mag that is meant to save people and heal old wounds does not a good business plan make. We launched a stratagey guide division just as Official Books became prey to the un-officiall's and having invested millions in that part of the market, got hammered.

After that, I took a lesser role in the company which the stockholders
decided should shift it's focus to a dotcom-something I disagreed with
for obvious reasons. Getting money for a publication at that time was difficult though, as the whole of the investor world thought the net was the place to sink their money, and so that's where they went. The problem with GR, besides the debt. it accrued, was that it came up at a bad time and was born out of too much discontent. I gave it all I had regardless though and hung on until recently when it was handed off again to the individuals that literally ran a stake through its heart.

Another story too long to tell.

My point is people, that all I do, all that I have ever done is make
magazine's. It's a process I absolutely love, and, I can't imagine doing
anything else. My problem is that I hooked into a savage financial network that, believe it or not has just finally run its course. This is the first time in 8 years I have not been under contract. I'm free to do whatever I want. So, having witnessed the brutality of the financial world, I've decided to go solo. Basically, start all over again with my own publication. My money on the line. And the first guy who comes through the door and says "you've got a great product, let us take you to the next level" I'm going to kick square in the nuggetts. I've been rattling around in this industry for ten years and I love it today as much as I did on day one. I have played a video game every day of my life for the past ten years, literally. I live there, that's the only way I've kept my sanity.

It's beyond a passion for me. The fact that I've had some bad luck will not make that go away. Plus, I've met and helped start some fantastic people so far too. Greg Off, David Winding, Nick Rox, Casey Loe, Eric Molinas, Matt Taylor, Tim Lindquist, Andrew Cockburn, Tom Stratton, Kelly Ricards, the GR guys, Pooch, Brady, Dave Hodgson, Bryn Williams... the list goes on and on. I've had great times and not so great with all of them and have memories you could never imagine. We've had illegal amounts of fun. I never set out to do anyone harm, I just love this stuff, and people in general. As for "the mullett", you know, when I had one I didn't even know that's what it was. I just have alway's had long hair. I have a fat head, so, it looks better. Until the 90's it was all Sammy Hagar, so I cut the sides. It's been pretty short though now, for some time.

And as for all of the GR subscriptions that have been cut short-if I can help by offering some sort of a special deal, I will. We're looking onto it. Over the last year or so, I went 10 months with no pay trying to pitch in on the GR ressurection effort only to be royally hosed, and at the same time had a baby boy- Hunter, who is now 13 months old. The most joyous time has been mixed with unthinkable pressure and stress as this wonderful magazine and the people in it again fell prey to horrible business practices. It will never happen again.

I'm starting PLAY for two reasons. one, so that my son can make a living
playing video games too,(it really kicks ass) and because I love games and anime and think I have something to contribute. PLAY isn't Incite-which by the way was started GR's strategy guide division they had celebs play games and whatnot. That was and is a bad idea. We're hard core (yet foccussed) game coverage and anime, with the lifestyle stuff bringing up the rear. One thing I did tire of was having to cover every game that comes along. Alot of games suck, and, no one likes to write about a sucky game. So, we'll point them out but leave the coverage at that. Anime is really coming on, and, 65% of the GR readers wanted more, so, that explains that. The rest of it you'll have to rate for yourselves.

As alway's we'll take any feedback and begin tweaking the mag.

Someday, I'm going to write a book and once and for all tell this whole tale. If for no other reason than to warn creative types of the wolves in sheeps clothing that, with a signature, can and will consume your life. In the meant time do you think you can cut me soime slack? I'm just a guy doing a job I love. There are bigger problems in the world. Oh, and my contacts, at least the one's I'm close to, know the story, and we're friends. Whom ever the one's are who supposedly think I'm a tool- well, you're next game gets an F! Kidding... sorta'. I'm not sensing any "tool" action at the moment. Okay, that's it, my first posting regarding all of this nonsense. How'd I do Jon?

I'll leave you with this. I'm playing Maximo, and Jax and Daxter at the moment and they are both indescribably incredible. They'll make you happy to be alive (although these days you should be anyway). Be sure and check out the new Vampire Hunter D Movie "Bloodlust" as well. These are all very good things.

Oh, and don't miss Alias tonight!

Well, Dave, since you decided to show up at least once, I'm going to hope by some chance you'll stick around for a bit.

I'd love for nothing more than that, because there's a few points I'd like you to talk about. How about we sit here and discuss how you took a number of my early reviews, changed a line or two, and then claimed them as your own? How about we discuss how you wrote a couple of viewpoints and put them under my name when I had NEVER touched the game? How about we talk about how I was almost fired because I showed back up after Christmas break with dyed hair, yet you didn't have the guts to tell me that to my face? How about we talk about the packages that I had sent to GameFan for me personally that you put in your office, opened up, and I had to beg you for them? How about discussing how 12 or so copies of a game would come in, as a gift from a game company, with intent that a copy would be given to each staff member, but those games were kept by you and Jay and given out as gifts to your friends and family? How about how you went nuts over whomever was the new staff member of the month, until you got bored of them, and then moved on to be entralled by someone else? (Just as you do with projects.) How about we discuss how much of a god damned phony you are, such as when you decided that you would be the best person to take over AnimeFan when you didn't know jack shit about anime beyond what you had overheard Casey and Nick talking about? How about situations where Mike Griffin and I busted our asses on that peripheral special for whatever issue of GF it was, only so that you could toss your pic into the layout to make it seem like the whole thing was your doing? What about the fact that you could look us in the face and blatently LIE to us about everything that was going on, empty promise after promise, when both side knew damn well that it was a lie? How about the fact that even the people you thought were closest to you would tear your apart verbally as soon as you were out of earshot? How about how you wanted total control over ALL aspects of the magazine, even so far as to what each person had as their character?

Remember that shit scientist crap you so graciously gave to me without ever once asking what I wanted for a character? Remember that oh so wonderful "Eggbert" name you were so jazzed to stick me with? How about the times when people wrote viewpoints for games you loved, and you either changed them a bit to be more positive, or you got someone else to write a replacement one instead?

You know, I'm just curious if things like that are going to be in this book you're thinking about writing. Are they? You going to put some of those little facts in your book?

I'm sure you have a lot of opinions about me, that I'm an ungrateful asshole, that you gave me a chance and this is how I'm treating you, whatever. You know, for as much as I got dicked over by you, for as much as you insulted me either in things you said or things you did, I actually DO feel a bit bad for pointing out all of these truths in the hopes that it makes you feel like shit.

I used to really respect you. I used to read GameFan, and I really thought you were a cool guy whose I saw almost as a rockstar. Then, I met you, and I realized that you were so full of shit that it wasn't funny, that you didn't know a DAMN about what you are doing, and that you think you know far more about video games than you actually know. As well, I came to realize that you have not ONE clue how to actually interact with normal human beings, and that you have the attitude and persona of a spoiled child who cries and pouts anytime he doesn't get his way. I said it before and I'll say it again - if you could write an entire magazine yourself, you would, because you seem to put so little value in the opinions of others.

And, as far as me being unappreciative of the chance you gave me - you know what, I DO appreciate the chance I got. However, I'll make something very clear - I got there just as much because of whatever talent I have as I did because of the chance you gave me. I didn't get into GameON! USA and Animerca because of you. I didn't have a fanzine that won a number of awards because of you. I absolutely hate the idea of giving myself any credit for what I've done, but I'll be DAMNED if I will accept someone like you berating my writing skills. I should have punched your damn lights out the first time you insulted me like that so many years ago. My writing may be shit compared to a lot of people, but I'd put myself up against you when it comes to writing ANY day. I was fully behind you when I joined GameFan, and even when I didn't have a paycheck I could rely on, why I didn't know if I'd have a job two weeks later, I was STILL loyal to GameFan until the day it died, long after you had abandoned it. I did so because I believed in the idea behind the magazine. Had you not been so full of yourself, had you not been such an egotistical bastard who cases about no one but himself, had you actually given me - and the rest of the people on the GameFan staff who never got a REAL chance - had you given us an honest chance to show what we could really do, GameFan would have been one hundred times the magazine it was. I'm nothing special, I don't claim to be an expert on anything, but if honestly given the chance, I work my ass off to produce the very best that I can. When I was finally given the chance to prove what I could do, I turned AnimeFan into something it had never been before, and something your "same-old same-old" AnimeRepublic section could never have even hoped to be. That same potential was in people like Mike Griffin, Mike Hobbs, Dan Jevions, and other people who worked under you that you never gave a serious chance to. I know them the best because they were my best friends there, so I only really know their full potential - but each one of those people could produce stuff that would blow your mind.

Each of them was dedicated, determined, and had the passion for the industry that you want people to believe you have. So what happened? They had to beg and plead with you to be able to really do some great
stuff, and rarely did you let them. Instead, you were more interested in what silly little stuff you could do for the issue, how many pages the games you liked got.

You are such a great example of the situation where someone idolizes someone, meets them in person, and then finds out how much of an asshole
they are. If all of the people in here who say so many good things about
you actually met you, their tune would be different afterwards. I know,
because I was EXACTLY like them before I met you. I hope, I PRAY, that one day you'll realize what kind of person you are, that you'll stop caring about only yourself, that you'll realize how much you have dicked over so many people for your own gains, how much you have lied and decieved people to help boost your "rockstar" lifestyle, and that you'll really open your eyes and be a decent person. I have every belief that you indeed could be a really great guy, even after all of the crap you put me, and so many others who have worked for you, through.

And, you know... maybe you have changed. I fully admit it, I haven't met
you for a while, so maybe you did become an honestly good person. Maybe
you'll come in here and admit that every single thing I've said here is the utter truth, and that you feel bad for how you acted in the past. Maybe you'll act like a man and come in here and respond to what I've said, and offer up a mature discussion over at least some of the points I've brought up.

Or, maybe you'll respond, make some excuses, and call me a liar.

I'm sorry to say that if I were forced to make a bet here, my money would be on the latter.

-FatInsider

10/16 Dying Breath?

This is the great letter 3DO employees received Oct 11th.  Not only did they let go of a good amount of marketing and IT people, but almost every department was hit.  They also canned the entire Austin group, and have cut back on almost all spending.

The ass kicker to top it all off is that ALL 3DO employees MUST TAKE A 10% CUT IN SALARY!!!  Isn't life grand?  Then Trip announces that things will get better and bla bla bla, and try to implement bonus's next year.  Why would you try to get a "Bonus" to get back your original pay?

Bullshit, but hey.

From:         Trip Hawkins
Sent: Thursday, October 11, 2001 11:37 AM
To:   *3DO-All-Staff
Subject:      Changes in the Road Ahead - MEETING IN COMMISSARY *NOW*

THERE WILL BE A MEETING  STARTING NOW  TO DISCUSS THE INFORMATION BELOW.  PLEASE ALERT YOUR CO-WORKERS WHO MAY NOT HAVE SEEN THIS MESSAGE AS YET.

*****  CONFIDENTIAL MEMO -- FOR 3DO INTERNAL EMPLOYEE USE ONLY *****

It is clear that things have dramatically changed for the game industry and 3DO as a result of the overall weakening of our economy, which has worsened as a result of the terrorist attacks on New York City and the Pentagon.  Our country is engaged in a war, and consumers, retailers, and investors are responding as such.  In particular, it appears that we are entering a recession.  Consumer spending is softening and the focus is on purchasing things that are considered necessities -- store traffic is down, and consumer spending will be coming down too.

Retailers are also concerned about the economy, and are being very conservative -- they are again reducing inventory buys and they do not appear to be optimistic about the upcoming holiday selling season.  As a result, there is less upside in the market right now and there is no telling when the fog will lift.  Investors have dropped the game stocks like a hot potato, especially ours.  I don't personally believe that the terrorist attack reduced the value of our company by more than half, but that is how investors voted with their dollars.  In short, what happened is that the attacks removed any optimism about the economy and about the game industry recovering from its transition.

While the PS2 may have a great Xmas, while the GBA may also, while GC may have a hot launch and be big next year; while consumers may still buy lots of games this Xmas, etc etc, we cannot afford to be optimists.  The market is too crummy and we are not in any position to justify optimism.  I believe that all of those good things will happen, but we haven't earned the right to bet on it.  Our corporate lifestyle has to be set by what the retailers and investors are willing to do.  And they aren't acting as if they expect that consumers are going to show up.  They may be wrong -- one bank studied previous stock market disasters and found that they typically recover within 90 days -- but again we do not have any ability to force the issue.

To shift metaphors, think of 3DO like a car that is now in a fog and needs to shift from the gas pedal to the brake until the road clears ahead.

What's Changing

For starters, we have improved our financial condition because 2 institutional investors have joined me and invested a total of $10 million in new capital into 3DO.  We have also recently doubled, to $5 million, the size of our credit line with our largest vendor.  We have improved our relations and long-term outlook with our commercial bank, with whom we have a large credit line.  We are also very fortunate to have recently secured new marketing assistance from one of our key hardware partners that will help us afford what we need to do this holiday season.  These measures help our cash flow, but the economic climate also tells us that we need to be very careful what we do with our cash resources.

We've taken significant steps to cut our current spending levels.  Some jobs have been eliminated, but not that many in total, since we need our core organization to remain intact.  We have worked hard to keep as many jobs as possible.  Marketing spending has been cut back, including the cancellation of a PR event planned for November.  This is in part because we have found it effective to spend smaller amounts on marketing, and inefficient to spend more.  We've cancelled some projects that now look too risky in light of how things have changed.  In particular, we have focused on cancelling outside projects in order to preserve more jobs within the company.  We're also rapidly eliminating other outside expenses of various kinds, with the expectation that our own employees will take care of more aspects of our on-going business.  We have also made the difficult decision to close our Austin office.

We are also putting a freeze on hiring and on capital equipment expenditures.  Anyone who thinks they need an exception will need my personal approval.  But just a warning -- these are serious times that require each of us to think and act frugally.  We need to learn to live with what we have and within our means.

Another major change is that we are going to be publishing fewer games (SKUs) in our next fiscal year and making them of even higher quality.  We will achieve this with larger teams and longer average schedules.  The market trend is for retailers to carry fewer games and for the quality standards of the best-sellers to be higher.  We think this approach will result in our products being better received and being more commercially successful in the market.  But it also means we do not need to overspend on growing our infrastructure to operate and release games, since there will be fewer of them.  The last year or so we have been > figuring with all the platforms we should plan to do 35-45 SKUs per year.  But the market is not supporting that.  Furthermore, our most recent profitable year, FY2000, allowed us to net $122M on only 27 new SKUs.

The market next year will be larger, average prices will be higher, and we will have more expensive projects with larger teams, which should allow us to make better games than ever before.  We will probably release fewer than 27 SKUs, but with great development discipline and clever marketing, and a rebound in the U.S. economy, we expect to generate more revenue than we achieved in FY2000.  By contrast, although we planned to have 45 SKUs last year, we ended up releasing only 40 SKUs, which generated revenues of only $82M.  Over the next year, high quality in each of our releases, plus a market rebound, are what we need.  We feel we can use this approach to get back on track, but it requires these changes and sacrifices until things improve.

Effective immediately, we are also implementing an across the board 10% salary cut.  This is a painful but necessary step that is intended to allow us to retain more of our co-workers.  Hopefully we will be in position to be able to afford giving raises next year.  To ease the pain occasioned by the current base salary reductions, we are adopting a performance-based bonus plan next year for all employees.  If the company performs reasonably well next fiscal year (ending in March), then we would pay bonuses at the end of that year.  This year (FY2002, which is half over) we are simply too far off plan to be able to afford either raises or bonuses.  But hopefully this is something we will be able to deliver in our next fiscal year.  I am truly sorry that a base salary reduction is needed at this time, but I sincerely hope that everyone appreciates that this step is being taken to allow us to preserve more jobs overall.

Going forward, we would like to keep the bonus program in place, and hope to be able to pay a solid bonus to all employees in good standing at the end of a fiscal year in which we have performed reasonably well as a company and as individuals.  This approach should remind us that we are in this together.  If we pull together as a team we can make better games and become successful.  But we have to make some sacrifices for the benefit of the group, and ultimately ourselves.

By the way, if any of you are willing to work half-time, or do job-sharing, we would be interested in discussing such options with you.  Similarly, if any of you are not on the critical path for something, you could actually help the company by going on a vacation because it enables the company to reduce PTO accruals.  Every little bit helps.  If any of these interest you, please contact HR.

Stress

Life is very stressful right now.  There are many disturbing things going on that upset each of us to varying degrees -- in our industry, in our economy, in the U.S., and throughout the world.  We need to try to keep our focus and keep things in perspective.  Despite all the problems, there are still investors who can provide 3DO with the capital it needs -- it's just that the price is low.  We have to accept that investors are worried and, in effect, they are telling us to be more conservative until it makes more sense to invest aggressively in growing the business.  So we have to keep our costs low and do fewer, better SKUs until the market improves.

What is happening around us in our world today is horrific.  Specific to 3DO, what we have had to go through the last 18 months has been extremely painful for all of us who have labored to make 3DO successful -- Sony running out of its original PlayStation hardware, a slow start to the PS2, the PS2 customer base being different than expected, product flops, unexpected losses, and finally the terrorist attack that is a haunting nightmare of the vulnerability of our country and our economy to forces beyond our control, and that is having a strong direct adverse effect on our business.  It's sad, tragic, horrible and upsetting.  We may have made errors in our assessment of the market and with respect to our efforts to implement our business plan, but our mistakes were ompounded by bad luck and, ultimately, by the tragic events of September 11th.  But at least we are present and accounted for, and we are not talking about the company disappearing.  Instead, we are talking about having to adjust to these circumstances and we are taking the necessary steps to implement plans for our success.  We can adjust.  We will adjust.  We have been hurt, but we can heal.

This is going to involve some emotional upheaval.  For most of us, our feelings are already on our sleeves and this will heighten things further.  Let's try to remember that everyone here has the same goal and that we have worked well as a team and that none of us is entirely to blame or entirely blameless.  We need to accept the stress, but try not to take it out on each other.  We need to pull together and get on with doing the things that need to be done to put 3DO back on the road to success.

Hope

This is a talented organization.  We've sold millions of Army Men.  Millions of Might and Magic.  We make the Sports Game of The Year.  We have licenses to the hottest new kids TV show and the hottest athlete in the upcoming Olympics.  But with some bad luck and without a big hit recently, we have issues.  But we should be up to this challenge.  Not only that, I think it is safe to say that we have plenty of games nearing completion that have hit potential.  I won't name all of them, but just a few that come to mind are Cubix, Moseley, High Heat 2003, and Heroes 4.

By contrast, we've had very few releases in the last 6 months and none, in hindsight, that had a big chance to connect with this year's unexpectedly hardcore audience.  So, it is a big positive that we are in position now to have a hit or two.

In addition, the market for video game products should improve.  Historically, the video game industry has performed quite well even during periods in which our general economy has been in recession.  We can all hope that this holiday selling season is a pleasant surprise, and that things will then improve.  Unfortunately, however, it does not appear that retailers are going to bet on it, and therefore neither should we.

But there is reason for hope.  And once the market turns this corner and
starts to recover its legs, I expect that it will be very strong for a long time, especially on the formats where we are in a good position.  Also, keep in mind that the next wave of PS2 owners, as well as the first wave of GBA and GC owners, are the kinds of casual gaming adults and kids that have loved our brands before, and, I sincerely believe, will love them again.

Please join me in hanging in there and having faith, both in yourselves and your peers.  Our country is facing new challenges right now, and so is our company and each of us as well.  This is a test of who are.  Let's show our collective strength, and how resourceful and determined we can be, and rise to the occasion.  Together, we can get through this.

Thank you in advance for your understanding, your trust, your friendship, your sacrifices, your patience, and for all of your efforts to make 3DO successful.

With all said and done, perhaps 3DO HR read our 9/7 Story "Think Before you RIF" and implemented the 10% pay cut.  As Trip said, maybe that paycut saved some folks from being laid off.

To those of you who were let go:  you took it on the chin for the team.  Way to go!
 

-FatSarge

10/10 Game Over for Majestic?

Online: 'Of those who started down the path of registration, only 8.5 percent completed,' EA's Jeff Brown has said regarding the online game Majestic.

As previously reported, EA's online suspense thriller Majestic will be re-launched as a boxed PC game in November and will be brought back for a second season next year if sales improve in the new format.  Once the box goes on sale, Majestic will no longer accept online registrations for the game, which had failed to produce the kind of subscription-based audience that the company had originally projected, reports Reuters.

The CD version due for Thanksgiving will carry a Mature rating and retail for $39.99 and will contain the first five episodes of the game and other material including an interview with the game's creators.

'Of those who started down the path of registration, only 8.5 percent completed,' EA spokesman Jeff Brown said.  The rest quit halfway through, he said, in part because of the lengthy process, which included over 10 Megs in downloads.

'We had talked about eight episodes, but the seasons are four episodes each,' Brown said.  EA believes the CD format might be more popular because players were rushing through episodes faster than expected and then gagging for the next episode as soon as possible, like a traditional game.

The future doesn't look good for the EA hoped would change the way games are played.  Brown told Reuters that it was 'highly likely' that EA would bring Majestic back for a second season in mid-2002, but said no final decision had been made.  'Frankly, we want to see how the disc format does,' he said.

10/4 Climax Development Busted for Piracy

Can you believe this?  A software development company busted.  For piracy.  They make games and hope to sell thousands and millions of copies so they themselves can make a profit, yet they are denying the very same revenue stream to other developers.

Climax Development, the biggest developer in Europe, was recently named in a lawsuit by the British Software Association for pirating their development tools and software.  While it should be noted that the investigation is underway and they have not been found guilty, to just be named is a huge slap in the face.

The Register is reporting the BSA is sueing multiple companies for piracy at the same time it is investigating over 300 others.

We’ll have to wait and see what happens with Climax.  Stay tuned.
 

-FatLimaBean
 

(See 10/10 Musings for a follow-up)

10/4 Disaster Marketing Tactics

The market is facing uncertainty right now.  Even though the stock market has rebounded over the past week, it is still hundreds of points below what it was at on September 11.  Consumer confidence is lower and retailers are reporting reduced consumer spending at stores.

As companies are approach the time to announce quarterly earnings, it seems as if many of them are taking the same approach and using the September 11 terrorist attack as an excuse for poor or less than expected earnings.  While it could be that one or even two work days were lost due to the attack (even up to four days in places like New York City), it wasn’t as if the world stopped and people locked themselves up in their homes for months on end.  Sure express mail was stopped for a few days due to the grounding of airplanes.  Sure people might not have gone shopping for a few days.  Sure TV stations lost advertising dollars due to the 24 hour news coverage.  But does all that translate into several cents per share of loss?  Hardly.

What it does do is help the investor to stomach a company’s less than expected quarterly performance.

Other companies are using the attack to try and drum up business.  We’re singling out Sony here by re-printing one of their letters to retailers, but this is just an example of the direction most companies are taking:

Dear *****,

During this time of deep despair, it's hard to move forward with our daily lives.  Americans have been watching the news, listening to the radio and reading newspapers day in and day out since the devastating tragedy that occurred on September 11, 2001.  We know how hard it has been, and that families are trying to get back to some semblance of normalcy.  And, we understand why people have been looking for more and more entertainment, to help them smile just a little bit in this time of need.

Recent articles in The New York Times and Hollywood Reporter stated that
video rentals have been increasing steadily due to a need people have to
'escape' from the reality of last week's assaults.  Like movies, PlayStation®2 offers basic entertainment for the American family.  It is a great diversion to keep the family entertained and together at home during these trying and uncertain times.

Please call or e-mail me for more information and images regarding
PlayStation®2.

Best regards,

Krista Woerz
Bragman Nyman Cafarelli
9171 Wilshire Blvd. #300
Beverly Hills, CA 90210
(310) 248-5158

It’s a cheap and underhanded trick, but can be effective.  And it isn’t like Sony is the only company pulling this crap either.  The majority of companies, large and small, public and private, are taking the same approach.  Huzzah.
 

-FatJoJoBoy

9/27 A Sad Reality

I worked at 3do during the time when the US attacked Saddam Hussein for the second (or was it third?) time and killed scores of people:  some bad, some innocent.  All Iraqi.  Remember the baby food factory?  Or the asprin factory?  Sure you do.

Anyway, studio head Richard Hicks forced the teams to make "gulf war" games, while pictures of dead children were still on TV.  That, in my opinion was in horrible taste.  Why?  Because 3do actually spent a couple hundred thousand on exploiting those deaths.  I guess my point is, I wouldn't be surprised if they DO make a game based on Bin Laden (if not EA, then 3do) and his legacy.  They were going to do a Milosovic game too, but we didn't have a good enough flying engine, and bombing-only isn't that fun.
 

-Fat3DO’er

9/27 Take-Two's Excuses Don't Add up

Dated 9/20
Take-Two... please!  You don't want to think anybody is using the World Trade Center disaster as an excuse for business being bad, but you have to wonder about Take-Two (TTWO:Nasdaq) in the wake of the company's press release and conference call Wednesday.

In the press release, the company said that because of the disaster, revenue for the fourth quarter ending Oct. 31 will fall about $48 million short of estimates.  It blamed the shortfall on a delay in releasing games as their violent content is revised, and on the four-day disruption at its offices, which are just blocks from the site of the calamity.  The company then added (and this is important!) that the delayed releases will "positively impact its results for fiscal 2002."  The company also said its "financial condition remains strong."

Oh really?  Let's take them one at a time.  First, regarding the $48 million shortfall:  The company blamed delayed game releases.  But as it turns out, only one of three games planned to be shipped this quarter will be pushed out into next quarter.  That one game, according to one analyst, should produce no more than around $10 million in revenue in the quarter in which it's shipped.  What about the other $38 million that won't show up this quarter?  It's anybody's guess.

All the company would say on the conference call was that by delaying the games to later this quarter, it lost reorders on two of those games that it thought would have come during the quarter.

That's fine, but if the reorders would have been that strong they would also help in the first quarter, right?  Right, which brings us to point No. 2:  As a result of the delays, the company says business next year will be stronger.

OK, then by how much?  They should know this, right?  After all, if the games are as strong as they say, then at least $48 million in revenue, or about 34 cents a share in earnings, should simply be transferred to the first quarter -- making that quarter that much better than analysts had been expecting.

Yet Take-Two, citing uncertainty over consumer confidence, won't commit to any number.  Then why is it saying next year will be stronger?  That line didn't even fool longtime bulls like Arvind Bhatia of Southwest Securities, who lowered his 2002 estimate to $1 per share from $1.23.  It didn't fool Morgan Keegan's Bob DeLean, also a bull, who reduced his 2002 estimate to $1.10 from $1.22.  And it didn't fool bull Tony Gikas of Piper Jaffray, who sliced his 2002 estimate to $1.03 from $1.27.  That's a direct contradiction of what Gikas said two days ago, when he wrote, "a significant portion of any lost revenue for Q4/01 will likely move to Q1/02."  (Funny how they all came to the same conclusion despite what the company is claiming will happen.)

Then there's the issue of claiming that its "financial condition remains strong."  In the eyes of the beholder, maybe.  This is the same company that just a few weeks ago, in its third-quarter conference call, claimed that its operating cash flow for the fourth quarter and the year would be positive on the heels of three positive quarters.  Asked about cash flow on the conference call, however, the company conceded it will be negative for the quarter and the year.  (Since when is that strong?!  Hint:  It's not.)

All of this because of four days of being out of the office?  Doesn't ring true to analysts who, before the World Trade Center tragedy, were expecting a shortfall.

9/20 More Russian Love

Hello it is me, FatSergay again from Slushball Interactive and I here including more information for you in Russian Development and how that we make the great games here for so cheap money for you.

One of all, here at Slushball we paying no taxes to corrupt government whatsoever at all.  There is how we keeping our production costs down so very low here at Slushball.  I mean to thinking of savings your company would enjoy if it so operated in same mannerisms.  Now that increasing to certain risks as like being shut down at any of moment if government finding out this idea that we have, but so please you doing me big favor and not revealing them at all.  Within this way, I can keep my business hidden from government and free from imposed large tax rate, which they liking to collect upon me.

Second way we keep our costs down here at Slushball is which we operate our company illegally out of an apartment flat secretly from the authorities.  In this way - we are able to avoid heavy business regulations and costs that are involving such activities as this.

So there is being also the heavy risk involved in this style of business if the government or police get hear of this then we are also shut out of business.  But it's worth the risking to me because I have nothing else to doing right now and I like very much to have something to doing.

I am really sorry but this is the only way I can making business in here Russia.  I have never made no game of our own creation yet - but I would like to make a game someday.  If you would liking to send me a good deal of your company’s money - I can even offering you in the generous gift of personal 10% kickback to you in secret from your company knowing at all!  Not that I have ever made a game yet or even know how to do it - but I like to playing games so I sure to know how to make the good ones too.

Now I am try to making my first game for the past 4 years and my current funding people are very upsetting about this and might shaft me and this sad project at any moment.  So that is why I writing now in hopes that some other publisher will give me money to have so I can start a new game project and have another 4 years to try and make my first game project a completion one.  Also, don't worry about our illegal status with the government here on several counts.  I operate my business in secret location and so not even they can find me if they want.

That is the true secret of my success so far and I look forward to the same with you and the kickbacks I hope to persuade you with to make business with me at once and bail me out of current crisis situation where I cannot finish any game and have no idea how to do it.  I am confident with your money I can figure out best method to make any best games that you like here in Russia.
 

Sinceringly,

FatSergay
Slushball Interacative
Somewhere in Secret Hideout
Moscow, Russia

9/13 Digital Illusions

Digital Illusions, located in both Sweden and Canada, has had its stock value fall more then 20% on the news that TDK is crapping out and that Digital Illusions has not been meeting development milestones.

TDK announced to their stockholders via an investor conference call that Digital Illusions is contractually obligated for absorbing the costs for the 8-month extension to the Sony PS2 title PRYZM Chapter One: The Dark Unicorn game.  With the release of news during the call TDK’s stock fell 10.53%.  Things are not looking promising for either company.

A behind-the-scenes fight has brewed up between California based TDK and Digital Illusions about who is going to pay for the additional development time extension.  Digital Illusions’ president attempted, in a recent press release, to convince TDK not to ditch the project worth millions.

DICE's stock is down now to the lowest point in the last few years trading at about US$2 per share or 23 Kronar down from 40 Kronar from when Fatbabies first started reporting on them.  The company is getting slammed for its failure to deliver on time or near on time.

Shrek has been delayed to Q1 2002 as TDK reported at ETCS.  They are also late on a MS racing title for the Euro release of the Xbox.  Their EA title Battlefield 1942 is on the edge of being terminated because of EA's scaleback of multiple titles in similar genres.  DICE offered them to fund the balance of the title if they would just publish it.

As the games industry continues to go through drastic changes and weeds out the winners from the losers, we predict both TDK and Digital Illusions heading for the bankruptcy house in the very near future.  May they both rest in piece.
 

-FatDICE

9/7 Think Before You RIF

While this article comes too late to save many, there does come a time when corporate financial and human resource departments need to look beyond the reduction-in-force (RIF, aka. layoff) when trying to shore up the bottom line.  Let’s face it, hiring people costs a lot of money.  And when looking at ways to save money, often it can be done simply by asking for people to participate.

Mandatory pay cuts are one way to reduce overhead without eliminating positions, but in some cases these can create a bitter feeling of resentment between the employee and company.  In addition, loyalty is reduced, rumors begin to spread, and the negative feelings fester, creating a more hostile workplace for everyone involved.  One of the seemingly more trendy touchy-feely solutions is to simply ask people for their support.

What is the harm in having management inquire to their staff asking people to volunteer to take a paycut?  Don’t laugh, it works and produces results.  While not in the gaming industry, Acxiom used the voluntary pay cut to save jobs, reduce overhead, and preserve valuable staff for when the economy turns around.

Earlier this year when database management firm Acxiom asked employees to consider taking a voluntary pay reduction to help the company weather some economic hard times, it was anticipated that 10 to 20 percent of the workforce might participate.  After all, the company had already implemented a mandatory pay cut of 5 percent across the board, so, executives assumed, many staffers would believe they already had done their fair share.

Acxiom reported that 36 percent, or 1,973 people, had agree to a voluntary reduction, losing an additional 5 percent of their paychecks.  "We were blown away by the high percentage of people who took a higher pay cut," says Rizza Barnes, spokesperson.  "It says a lot about the dedication of our associates."

In the Acxiom case, the employees were rewarded for their efforts.  The money lost to mandatory and voluntary pay cuts was returned to the employees in the form of shares in company stock.  The carrot for the cuts turned out to be a 1-1 ratio per share for mandatory cuts, and a 2-1 ratio for voluntary ones.  For example, if an employee took a voluntary $10,000 pay cut, he received $20,000 in stock.  The result was more than $24 million in savings this year, no layoffs, and a workforce vested in the success of the company.

There are other ways companies can save without resorting to layoffs and pay cuts.  Many of the Silicon Valley hi-tech companies have been hit hard by the recent downturn in technology, and as a result they have had to take measures to preserve their financial situation.  Instead of letting valuable hi-tech employees go, companies like Sun Microsystems and Applied Materials have asked employees to take vacation time (both paid and unpaid), and reducing their work weeks (from 40 hours to 32).  While the latter essentially amounts to a pay cut, it at least gives the employees an increase in leisure time in the form of an extra day off, which to some is more valuable than salary.

Besides saving the company money immediately, taking this path also saves a company money in the future.  When the economy turns around, or perhaps this fall after X-Box and Gamecube are launched, companies are going to want to staff up as additional projects are added.  By having the employees around to fill these positions—instead of having to hire them—the company saves in HR costs, recruiting fees, and most importantly orientation time (the average employee takes 3-4 weeks to be brought up to full productivity).

But for pay reductions to really work, management must agree to take a hit to their own paychecks and forego bonuses as good-faith examples to the workforce.  An example of what NOT to do:  EA’s John Riccitiello is earning $639,000 this year not including bonuses and is vesting 200,000 stock options (at $55/share for a gross of $11 million).  This year alone.  At the same time, EA has laid off upwards of 300 people, scaled back their money losing EA.com operation (of which Mr. Riccitiello is chiefly responsible for losing $250 million), and transferred development to satellite offices.  Now, when employees see this kind of hypocrisy, they not only feel the company has no loyalty to its employees, they also feel the management team lacks skill and has little understanding of the inner workings of their own company.

Bain & Co., a global consulting firm in Boston, examined 288 Fortune 500 companies between 1989 and 1992 to determine how the stock price performance of those that reduced their workforces compared with those companies that did not.  The conclusion was that those companies laying off more than 3 percent of their workforces saw little or no gain on their stock prices, which those that conducted massive reductions of 15 percent or more "performed significantly below average."  The summary was that layoffs, by themselves, do little or nothing to alter long-term stock price performance.

So, you corporate HR departments, think before you RIF.  There are alternatives.
 

-The Fatbabies Team

excerpts and data were taken from:
"Take the Road Less Traveled" HR Magazine July 2001, Vol. 46, No. 7.

9/7 Take-Two's Quarter Looks Even Worse on Second Glance

August 30, 2001
First things first -- gotta love it: The other day, on MetaMarkets, Dave Nadig wrote that he was high on Take-Two (TTWO:Nasdaq) because of its high short position. "The shorts are all over the stock, and our friend Herb Greenberg continues to shill for them," he wrote. Shill? LOL! Watch it, Dave, you're starting to sound an awful lot like Irwin Jacobs, who made similar comments about me on AremisSoft (AREME:Nasdaq) (which was delisted by the Nasdaq today and opened on the pink sheets at $1.75 -- down 84%!).

Now that we've taken care of that, on to the business at hand: Take-Two on Wednesday tried to put the positive spin on its fiscal third-quarter earnings, which were in line with analysts' estimates, although sales fell far short of expectations. (In a quarter, mind you, in which competitors like THQ (THQI:Nasdaq) and Activision (ATVI:Nasdaq) and game retailer Electronics Boutique (ELBO:Nasdaq) exceeded expectations.) As I mentioned on the Columnist Conversation, however, Take-Two's results were anything but impressive: Inventory rose steeply; the release of its expected savior, Duke Nukem, was delayed; and balance-sheet categories like receivables and reserves for uncollected bills, in which Take-Two already posts the worst numbers in the industry, didn't improve nearly as sharply as the company and its crony analysts claim.

Indeed, a closer look shows that while days' sales outstanding fell and reserves rose, these changes don't count for quality-of-balance-sheet purposes. DSOs tell how long it takes for a company to get paid. Take-Two boasted that they fell to 92 days from 101 days the previous quarter. That's impressive until you realize the improvement didn't come from doing a better job collecting the cash or from offering customers less generous payment terms. Instead, the bulk of the improvement came from a one-time accounting change and a write-off. Together these actions slice about six days off
receivables, making the real improvement only about three days, at best, to around 98 days. (Nothing to brag about when key competitors are under 60 days.)

The receivables part of the story doesn't end there: The company had been telling analysts as recently as two weeks ago that DSOs for the current quarter will fall to a range of 75 to 80 days. On Wednesday's conference call the guidance was modified to 80 days, the high end of the range. Now for the good part: Take-Two says it will hit that goal not by doing a better job of collections, or by requiring speedier payment, but by spreading out the release of new games throughout the quarter rather than jamming them out the door at the end of the quarter. (Well, then, why did it ship so much at the end of the quarter in the first place? End-of-quarter shipping is almost always a sign a company is pulling out all the stops to make numbers.)

Then there's the reserves issue -- and this is very important: Companies that sell products that can be returned set up reserves against receivables to cover the cost of likely returns. Take-Two's reserves in the quarter rose to 15% from 12%. But the increase was the result of lower receivables, not a bigger reserve; the actual dollar amount of the reserve barely budged. Take-Two CEO Kelly Sumner argues that its reserve doesn't have to be as high as that of competitors like Activision, whose reserves are closer to 30%, because 42% of Take-Two's sales come from its Jack of All Games distribution business. Sumner argues that the distribution business is a relatively low-margin business, and therefore requires a very low reserve of 2% or 3%.

Executives of two game companies, however, told me just the opposite: That distribution reserves should be equal to the reserves set aside for the game-publishing side of the business -- especially for a company like Take-Two, which gets a large part of its distribution dollar from budget and poor-selling titles. Activision, for example, gets 25% of its sales from distribution, and its reserves against receivables are 29%.

Sumner counters that merchandise that doesn't sell simply gets marked down. If so, by whom? Retailers, like Ames, have the right to return merchandise for a credit equal to 20 cents on the dollar. Others, like Walgreen (WAG:NYSE), demand the right to return everything for full credit. If returns rise, gross margins should fall as old merchandise is taken back and perhaps resold at a lower price, if at all. With Take-Two, however, margins are rising while reserves (as a percentage of receivables) are also rising. That's not the way it's supposed to work.

Enter that rise in inventory mentioned earlier: As of last quarter Take-Two's days of inventory rose to 93 days from 75 days. That's sharply higher than any leading competitor. Why the rise? Could it be the company is starting to get a rush of returns it hadn't planned for? If so, was it because the games were duds, or was it because the company convinced customers to take far more games than they could sell? (In which case you might want to revisit those high receivables.) None of the above, according to Sumner: He says the company's distribution business was merely buying additional inventory to prepare for Christmas. (Build for Christmas in July?! Why would a company in a business known for quick shipping times and equally quick staleness of product -- a company that has high debt and is running low on cash -- stock up for Christmas in July? That's particularly perplexing when most retailers are expecting a very unmerry Christmas.)
 

Other Take-Two tidbits:

Where's Chip?: Most companies keep their chief financial officer front and center. Not Take-Two. CFO Chip David was said to be present during the conference call, but he never said a word. Instead, the financial presentation was made by financial Vice President Cynthia Buckwalter, a former investment banker at Whale Securities, which took Take-Two public. She also answered financial questions. At the end of the conference call, investors with further questions were urged to call everybody but David. In an interview a week ago, Sumner told me he would have David call me, after I
asked to speak with him; David never did, even though I made sure to leave my phone number with Sumner. (It's always a red flag when the chief financial officer is kept under wraps.)

Duking it out: Rule No. 1 in the software business is to never promise a specific release date for a new title. Take-Two had been dangling Duke Nukem in front of investors' noses for months. Two quarters ago, at the game industry's E3 show, the company swore Duke would ship in the fourth quarter with "no delays." Then in June officials were telling investors it was still expected to ship, though according to the notes of one money manager who met with the company, it added the caveat: "Delays can occur." But don't worry, investors were told, "we have plenty of strength in the rest of our business so we'll easily make it up." But Duke was expected to generate 10% of total
revenue, and 15% to 20% of operating income. No matter what the company says, Banc of America Securities analyst Gary Cooper -- the first to raise warning flags on Take-Two -- says today that he sees no way the company can fully fill the gap.

Spendthrift: Take-Two wants to be taken seriously as a video-game publisher, yet it spent just 2.3% of revenue last quarter (or $8 million annualized) on product development. Compare that with 8.3% of revenue, or $41 million annualized, spent by Activision and 8.8%, or $19.4 million annualized, by THQ. For Take-Two to make that leap, it would need to spend another $4 million a quarter -- hardly the best move for a company that's already having trouble meeting Wall Street earnings estimates.

Where's Walgreen?: On July 10, Take-Two issued a press release that said its Jack of All Games distribution operation had added 4,000 "new" storefronts with the addition, as customers, of such retailers as Walgreen. Walgreen, with more than 3,400 stores, clearly represented the biggest chunk. Walgreen, however, says it isn't currently doing any business with Jack of All Games, and is merely reviewing the possibility of adding the distributor as a supplier at some point in the future.

Short shrift: In response to a question about the heavy interest by short-sellers in Take-Two, President Paul Eibeler said, "We're very pleased with our institutional ownership. It's up significantly from a year ago. That's a positive endorsement of what we're doing." Or maybe they don't know what the company is doing! Most companies that blow up, for one reason or another, have heavy ownership by institutions that were clueless at the time of the explosion.

Calling Kelly: I left a few phone and email messages Wednesday for Take-Two management to go over a number of issues, including those raised in this column. I was told they were too busy and would "try" to get back to me today. If they do, I'll pass along their comments.
 
 

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