SharkJumping

In honor of Easter, I decided to take another look at Left Behind Games (small public video game publisher with license to extremely popular fiction series "Left Behind") to see if it was still suffering on the cross or whether it would be rising from the dead.  I originally blogged about LBG in October, 2006 (here) when the stock was at an amazing $7 (), and I pointed out that it was stupidly overvalued based on any reasonable metric.

So what has happened in the meantime?  Well, the stock is now at $.31 (yes, that's cents, as in slightly more than a quarter), giving the company a valuation of roughly $8M, but it's recently been as low as $.18 per share.  The company did $1M in Q4 2006 as their flagship game product hit the shelves, but the company lost $4M+, giving it almost no cash reserves in Q1, 2007.   The game has received mostly mediocre reviews, although I thought it was a reasonable effort, and LBG is pretty much Dead On Arrival at this point.

So what went wrong?  Well, you have an incredibly strong license here - I love the Left Behind Intellectual Property  - it has tens of millions of books sold, a great fan base, loyal authors, and a rich set of characters that one could mine forever to create rich video games.  There are numerous ways one could leverage this brand into multiple video game revenue streams, but their initial game was not one of the obvious first steps.

So what does this management team do with such a strong license?  They reverse the company into a shell company to get it public (1st bad move - you couldn't get funding with this license?), then spend an amazing $20M+ on building the first complex RTS game (2nd bad move - do they even know how to build games?), and then, by the way, on the side, they try to build a Christian social media site (www.dreamwebspace.com - this would be the first time anyone has ever mentioned this site)  while seemingly forgetting the core shareholder premise - let's build a video game franchise around a huge literary gem.

Without ever meeting the executive team, you have to conclude that there is an incredible lack of competence here.  The license rocks - how does one blow that amount of money on producing such a mediocre game while apparently spending more time pumping out press releases than actually doing QA on the game?  There were an amazing 8 press releases in December alone, including such gems as "Tyndale House Publisher Supports Left Behind Games", or my favorite from January, "Left Behind Games Receives First Order from Australia" (must be a huge market - can't wait for the New Zealand or Singapore press release)

The company is dead, and it's too early in March to see if resurrection will take place.  It's a huge bummer because the license deserves a strong development and publishing partner.  I hope Tyndale actually looks for competence next time they choose a video game licensee.

As I blogged about a year ago here, Cablevision tried to introduce the concept of a "remote DVR" where a Cablevision video subscriber could access DVR functionality at the server level without having to purchase or lease a hard drive-enabled set top box for their house.  It is very cool functionality, but as I pointed out, it was unlikely to withstand legal challenge.

This week, as could have been predicted by anyone with even a remote knowledge of copyright law, US District court judge Denny Chin ruled against the concept since it was a clearly a service which did the copying, and not the end user, which defeated the legal underpinning of the case - actual ruling can be downloaded  

I dislike defending copyright holders' ability to hold back all progress, but it's hard to understand which  counsel at Cablevision thought this concept was going to pass muster unless it was just a negotiating tactic - try looking at the MyMp3.com case next time before the legal clock starts ticking.  That having been said, a network DVR should make a huge amount of sense for consumers and for cable companies - it just won't economically work once licenses are worked out with every content provider unless those rights can be granted as part of larger negotiations.

The Copyright Royalty Board last week released its ruling on Internet radio royalty rates for the next five years, and all it did for me was trigger brutal reminders as to why the digital music business is a terrible sector for anyone but content creators.  As a reminder, music labels are not paid directly in the US for songs played on the radio (publishers are) since it ostensibly contributes to sales of the music as a promotional vehicle. 

But the RIAA was able to insert a clause into the DMCA legislation which gave the labels the right to a royalty on Internet radio play, and the CRB determines the royalty rate in multi-year segments - it's a government statutory rate, similar to the 8.5 cents paid to publishers for every download or physical sale.

The 2005 rate was $.0007 per song, or roughly 1 cent per hour, assuming 15 songs per hour, although it can be more with a song skipping feature.  It doesn't seem like a lot, except that a company pays that fee PER USER (unlike broadcast) and still has to pay for bandwidth.  In addition, the Internet radio ad market is still nascent, especially since most radio advertising is local, and Internet radio doesn't have enough scale in any one market to make it worthwhile for the local car dealer to create ads (although it might change in time). 

Well the new rates are going to be far higher, moving steadily up to an amazing $.0017 per play by 2010, or 2.5X the current rate, which is somewhat higher the projected inflation.  And the new rates eliminated or reduced any type of exemption for smaller broadcasters.  Kurt Hanson has a good take on the ruling .

So who does this affect?  in the public markets, only Real () has a big enough Internet radio presence to be hurt, and it's still only a portion of Real's music business.  In the private markets, this could be devastating to popular radio services such as Pandora, Last.FM and Live 365 - and it will positively destroy the smaller players who have no chance of generating enough revenue to pay for the royalties.   

Hell is sometimes defined as "getting what you ask for" - well the RIAA and the labels just got it.  In the short run, this may be a revenue boost for labels and artists.  In the longer term, it just points out why no investor should put money into any music business which requires label licenses, and that's probably bad for the entire music sector. 

As a sidenote, the CRB might actually want to consider both sides of the argument next time it rules on similar issues, but just as in other political sectors, he who pays the most lobbyists wins.

We haven't bought PC's in a while, but since we're still a mostly Dell shop, and we have 2 new employees starting, I went to Dell.com to buy 2 very middle-of-the-road laptops (dell 520 Latitudes with a couple of modifications).  To my amazement, the amazing build-to-order machine called Dell indicated that it would take 10 DAYS to build the machines before shipping them.  Yes, that's right - apparently it's almost 2 weeks plus shipping to get a Dell laptop, even though our employees start in 9 days.

As a comparison, I went to Apple.com to look for a similar box since we had just ordered one there for a developer - it was 1-3 business days if we wanted simple modifications and 24 hrs if we wanted one off the shelf.  Then I went to HP.com to perform the same experiment (although I can just buy it at retail), and HP can actually ship a similar laptop in just 2 business days.

So we're done with Dell.  The quality has suffered for years, hard drives and printers in particular, the customer service isn't great (although we spend only $35K a year with them), and the prices aren't that much better anymore.  But what's finally killing me is that Dell simply can't run a build to order business as well as their competitors.   I realize Michael Dell is bringing in a new team, but this small ship just left port...