MORE GLOOMY NEWS FROM MIDWAY GAMES

Midway said revenue in its 2nd quarter dropped to $4.98 million from $28.07 million year ago, primarily because of fewer product releases this time around. Zucker pointed out to analysts that Midway shipped only one game in 2nd quarter this year -- Freestyle MetalX for PS2 -- vs. 7 year ago. Not helping company any: Freestyle wasn’t exactly blockbuster seller either. Midway said loss widened in quarter to $54.82 million from - $11.22 million year earlier, with $55.67 million loss (-$1.20) applicable to company’s common stock this time vs. $27.92 million loss (-61?) year ago. Company took $23 million in noncash charges relating to write-down of capitalized product development costs, as well as $2.3 million in net restructuring charges primarily associated with consolidation of product development operations in Cal. and $9.5 million of charges from severance provisions in Nicastro’s employment agreement. Nicastro still serves as company’s chmn. despite stepping down as CEO.

Company previously said it expected to report revenue of $200-$230 million and loss of $7.6-$25.6 million in 3rd quarter. But Zucker told analysts that Midway now expected instead to report revenue of only $110 million and loss of $97 million, including special charges. He said company now expected to ship multiplatform titles NBA Ballers, The Suffering and ESPionage, as well as Static Shock for Game Boy Advance (GBA) in first half of 2004. He said: “Our decision to add more time and effort to several key properties in development demonstrates our heightened focus on product quality. We are keenly aware of the importance of producing top-quality games in this highly competitive industry, and we expect this increased focus will benefit not only Midway and its shareholders but also our retail partners and the larger gaming community.” To turn around its performance, company plans to stop making “me too” games and stick to game genres its strengths lie best in, Zucker said. New, unproved intellectual property also will constitute smaller number of its new releases and Midway will start paying closer attention to what’s happening at retail, he told analysts. Zucker admitted to analysts: “We simply have not developed enough high-quality games” in recent quarters and released certain titles that “weren’t ready for prime time.” He said “not everything we are producing or releasing right now is first class.” While sales of Freestyle were disappointing, Freaky Flyers hasn’t received kind of support from retail and gaming press that it needed to be hit, he said. Delaying games such as NBA Ballers, The Suffering and ESPionage, he told analysts, will allow company to make sure those titles are great games.

Breaking down 2nd-quarter revenue by platform, Midway said PS2 represented largest portion by far -- no surprise in light of only new game release in quarter being for Sony’s console. Midway said PS2 represented $3.2 million of its total revenue in quarter, up from $17.7 million year ago. In comparison, it said PlayStation made up $657,000 in sales vs. $814,000 year ago; Xbox $404,000 vs. $5.5 million, GameCube $165,000 vs. $2.7 million, GBA $83,000 vs. $1.3 million; royalties and other business $448,000 vs. $72,000.

Although Zucker declined to say how many games Midway planned to ship in 2004, he said total would be more than 29 that will be shipping this year. Company has “over 70 games currently in development” that will ship in this year or in 2004 or 2005, he said. He said company now had 380 employees working on product development, which he called adequate for now, but “we plan to grow that” when necessary. For now, however, it’s important to “walk before we run,” Zucker said.

Like their competitors last week, Midway executives didn’t comment in conference call on SEC probe into revenue reporting of it and at least 3 other game publishers that was unveiled earlier this month (CED July 22 p4). One of those other publishers being investigated by SEC -- Acclaim Entertainment -- said Wed. that it was delaying filing of amended annual report because SEC was reviewing its preliminary proxy statement. Acclaim said it was “awaiting comments, if any, from the Commission” before filing annual report.

Providing more upbeat forecast for its business Wed. was Eidos, which said: “As a consequence of shipping all but 500,000 of the Tomb Raider: The Angel of Darkness games originally planned for the financial year, strong sellthrough of products shipped in the last quarter and increased license activity, the company believes it will now meet the original market expectation for operating profit pre-goodwill for the financial year to June 30, 2003, that prevailed prior to its announcement of June 27.” Company had warned that day that delays in European shipment of game would cut into 2003 profitability. It said Wed. that “sellthrough to date has been in line with management expectations” and “the game is expected to benefit from the launch of the Tomb Raider film sequel, The Cradle of Life, released by Paramount Pictures on July 25 in the U.S. and on August 22 in Europe.” However, film’s opening wasn’t quite as successful as many observers had expected and Paramount executive said slower-than-expected sales of game were partly to blame (CED July 29 p7).

Ubi Soft Entertainment said sales more than doubled in its first quarter and topped market forecasts thanks to strong sales of games including Tom Clancy’s Splinter Cell, Reuters reported from Paris. Company’s sales increased 107.2% to 66.5 million ($79.1 million at $1 = 0.909) from 32 million in same quarter year ago. Ubi Soft also maintained sales and operating profit targets for full fiscal year, report said.