SharkJumping

Similar to the podcast advertising rage, one wonders if the video game business can realistically support the amount of venture capital pouring into "in-game" advertising companies.   One of the press releases indicated that in-game advertising is poised to grow to more than $1B before 2010 while another said it will be $2B+ by 2008, although I can't find the exact research except from DFC Intelligence saying it will be $500M+ by 2009.   

There is no question that consumers, especially the always desirable young male demographic, spend ever increasing amounts of time in front of video games, some of which will be web-connected ad environments (the majority of PC's today, and I would think maybe 25% of consoles in 3 years).  Although there is an amazing tolerance for advertising where it's not too intrusive, it's hard to see how much of it will make sense in any video game where there is a specific story and environment involved, e.g. in a wild west game or in Halo, how many advertisers could plausibly insert ads, meaning how many Pepsi machines do we really think were around in the 1840's, or in the science fiction future?   And who is going to stop to click on the ad, meaning it's more product placement than advertising, which makes it a much smaller market.

On the other hand, it should work quite well in modern games such as Grand Theft Auto and most sports games, where EA has traditionally had product placement and advertising opportunities.  And it's true that most game publishers are desperate to find additional revenue sources as development costs explode upwards, especially if the hoped-for $60 price point doesn't hold for next generation console titles.

So assuming that the market will actually develop, let's tally the players in this small but potentially lucrative market:
1.  Massive - the grand daddy of game ad networks, I'm told it's raising money at a $200M+ market valuation.  Has raised at least $17M in the first 3 rounds, and has a series of video game partnerships.  It's apparently up and running although I've never seen an actual advertisement in a game.
2.  - announced a $12M A round of financing today.  Has a proprietary in-game advertising technology called Radial.  Has not announced any partnerships.  Cleverly owns the URL InGameAdvertising.com
3.  - hired Geoff Graber, formerly of Yahoo Games, and announced a $10M A round 11/05 led by Accel, and moved the company to SF from Israel.  Has announced no partnerships.
4.  There is at least one more currently recently funded in-game ad shop which has not announced its funding yet.

Plus there are players like Shockwave.com who have plans to do in-game advertising themselves across their large casual game network, and probably more that I don't know about.

So we have at least 4 well-funded independent in-game advertising providers, plus some who will do it themselves.  The key question is what should an ad serving and selling network be worth?  It should be some small percentage of the overall advertising market since the vast majority of the value goes to the site or game which is delivering the user.  If the in-game ad market is theoretically worth $1B by 2010 (in 4 years), than it's reasonable to assume that the folks who deliver the ads are worth maybe 20% of that number, assuming a competitive marketplace.  Therefore, you have the total market value at $200M at most, which doesn't jibe well with the series of announcements so far. 

I would assume one will see Massive continue to lead in the console space, while the others focus efforts on sectors such as casual (probably the best place for advertising due to slower game pace, fewer story line issues, and lots of game breaks), mobile, and handheld, but there is already a crowded marketplace on the supplier side.

We were setting up the XBox 360 at the new office this weekend (will post later on the significant pain involved in linking it to Media Center) and I remembered that the new Full Auto demo had been posted to XBox Live Marketplace.  Within 15 minutes we had downloaded the 650MB file to the XBox and there was immediately a lot of yelling going on since the game is a huge amount of fun to play!  Based on the demo, it's definitely on our purchase list for Feb 15 when the full game ships - see Sega description

So why is this important - PC users have been downloading PC demos for a long time, and even Xbox or PS2 users could get demos off of disks distributed through magazines and other outlets.  The Full Auto experience was important because it was SO EASY.   The XBox Marketplace makes it comparatively simple to download movie trailers, game demos, and eventually, a host of game add-ons, new levels, etc. (although it doesn't allow you to do anything else while downloading files - see earlier post)  This functionality has been discussed for years, but has been too hard to implement in consoles without broadband functionality, hard drives and a robust online interface - today's simple great game demo download pointed the way for me on Xbox since the initial content I reviewed in late November wasn't very compelling, outside of a couple of fun Live Arcade games.

The general consensus is that Sony is not as committed to online functionality as Microsoft is, and may not even have a built-in hard drive in order to reduce costs stemming from the choice to include a Blu Ray drive and more powerful processor.  I'm not sure Sony needs to have as robust a system as Xbox Live, but to ship PS3 without a reasonable online game matching system, basic community functionality and the ability to download extra game content would be a serious error.  This current generation of console users is accustomed to the benefits of online communication and file transfers - simply having a faster processor and cool DVD won't be enough over the course of a console cycle.  And as we've seen with Kart Racer in Korea and host of other RMT (as detailed here in Wikipedia) games in Asia, the potential revenue from selling add-on items is going to be quite large, at least in Asia and probably around the world.

As projected in previous posts here, Gizmondo Europe for bankruptcy on Friday to try to restructure its finances - its Swedish subsidiary is expected to follow, but the US one will supposedly not declare ch 11 as well.  The company (TGTL.PK) has recently attempted to reduce costs by laying off staff, it tried to restructure its debt (held by former executives) by putting up the company's advertising assets as collateral, and it announced additional financing ($5M line of credit convertible at $.50/share).  There is talk of some private equity fund in Switzerland willing to invest $50M, but it's hard to see that as a credible option given the situation here.

Just unfortunate it was always so hard to sell the stock short, but it's still amazing that the stock was at $32 a year ago with such an obvious set of problems.

The news coming out of CES regarding possible pricing for next generation DVD players continues to grow, but I'm more curious about what it means for Sony and the cost of the PS3.  Toshiba HD-DVD models for a March launch at $499 and $799 - that's high, but maybe not outrageous for a next gen platform with very cool capabilities, if not a lot of content.  Pioneer announced the first Blu-ray DVD model for the astonishing price of $1,800, presumably with a launch date around the Summer, which is when Sony announced they would ship their first models, as will an announced $1,000 player from Panasonic.

What's interesting is that analysts seem to feel that Toshiba will actually lose money on the $499 model, but is selling it below cost to jump start the HD DVD marketplace to keep Blu-ray from running away with it when PS3 ships.  The first question is "what costs so much in a next gen player?" I assume the casing, power supply, external connections, and basic memory/chip are not radically different than today's $100 DVD players - it's the laser and related new technology parts which cost so much more, as well as the need to ramp up overall production and pay off the cost of new equipment, but that's a huge jump in cost, some of which is due to royalties, mostly paid to Sony.

So let's assume the raw cost of the new core technology components of a Blu-ray DVD machine is $400-500 if Pioneer and Panasonic are selling the initial SKUs above $1000, and if Toshiba is supposedly losing money on a cheaper HD DVD player priced at $500.  iSuppli did a thorough teardown of an XBox 360 in November, estimating that the motherboard components (core processor, graphics processor, memory, etc.) cost around $370, with an overall cost of $525 - but that was with a simple DVD-ROM costing an estimated $25.  So for PS3 add in the guts of a next gen Blu-ray drive costing $400-500, as well as a presumably more expensive Cell processor and graphics CPU, and Sony is looking at a Bill of Materials above $1,000 for the PS3 - that is compared to an estimated $499 retail price point.

It's normal to lose money on consoles for the first few years since manufacturing efficiencies bring the cost down once tens of millions of units ship (and software royalties kick-in), but I don't know that there has ever been a loss of this magnitude on a per unit basis.  This starts to make that Blu-Ray bet look more expensive than I first thought, although I'm sure Sony regards this as one of the key wars they need to win since the royalties from a winning bet would more than pay for the PS3 subsidies.  If you're Microsoft and Intel, they're probably going to go out of their way to subsidize HD-DVD in order to increase the pain threshold for Sony, so it's going to be a bloody battle for everyone.  Unfortunately, consumers will inevitably lose out while the battle is waged, just as we did with the DVD Audio/SACD fiasco, which destroyed that promising market and left the music labels with today's non-secure music CDs since consumers became so confused that the machines never caught on.

I started blogging in late July of 2005, primarily to understand the blogging phenomenon, especially after my wife consulted for blogging pioneer SixApart, and after I attended the Casual Games Conference in Seattle.  In that time, I have attempted to focus primarly on digital media, gaming, consumer technology, and a few other topics in hopefully related areas.  So let's do a very brief year-end summary:

• Infinium Labs - home of the aptly named Phantom console - blogged about them here and here.  In the last 6 months, the stock has dropped essentially to $.02, they've replaced the CEO, and it's clear it's going to Zero...
• - blogged about them here and here - my personal favorite, whose PR hack repeatedly emailed me asking "if I was part of the conspiracy against them".  Stock has dropped to 2.5 from 10 since my October post .  It's going to Zero...
• Loudeye - a good group of employees in a bad business.   Stock has dropped to $.41 from $.80 since I blogged about them in August - will be sold for less than that at the end of the day - a victim of bad sector economics and a horrible Overpeer acquisition which they shut down last month.
• Digital Music Market and Competitors - Apple continues to utterly dominate the category, with Real, Napster and others bringing up the rear.  Good news is that 75% market share brings incredible economies of scale to Apple in the player hardware business - Bad news is that the music labels still own the download category, and utterly control the economics.  RealNetworks and Napster will fight it out in the subscription business until Apple enters it in 2006, and all competitors will focus on the new web/ad-supported sector.
• Ringtones/Dwango, etc. - An amazing global $5B+ business which outlasts the perpetual naysayers, and which delivers returns increasingly to music labels and to carriers vs the earlier outsized returns to aggregators such as Infospace, Moderati and Zingy, all of whose business models are starting to resemble the market dynamics of Sysco (that's the largest US food distributor, not the router company)
• Casual Games - an unsung, but quickly growing entertainment category which is about to be hit by standard consolidation economics, with many current players being bought or going away, with the others being relegated to "lifestyle" businesses.  However, I believe the growth opportunities of this sector make it the most promising one of the entertainment category.  The reason I invested into Puzzle Pirates is because I believe they are a key break-out player in the category.
• Next Gen Consoles - XBox 360 looks like a good box with a potentially phenomenal online business, but not a great software business since the initial games are weak.  PS3 won't ship until Q4 2006, but will have great games and mediocre online support.  Who knows what Nintendo Revolution will do, but their amazing success in Japan with non-standard games for the DS is a potential indicator.
• Consumer Bubble 2.0 - yes, it's arriving, meaning valutions are increasing for these companies, but it doesn't mean they're all over-valued, just that there is too much investment cash in the category - these new entertainment firms will redefine what is currently a traditional linear media company.  E.g. if you're a newspaper company, what are you doing now as your current business inevitably declines?
• Donnerwood Media - we will launch a kick-ass new entertainment category in Q1 2006

Thanks for reading Sharkjumping this year - 2006 is looking like a very fun year....

Sean

In a mad rush to match the Christian right wing's Family Values approach, Democratic Senators (all mysteriously Presidential hopefuls) Clinton, Lieberman and Bayh today introduced the , attempting to make the Federal government responsible for regulating the sale of violent or sexually explicit video games to minors.  I realize that yesterday I blogged about the parental issues regarding video games - however not once did I suggest that this is a Federal issue since it's NOT - it's a parental issue, and maybe, a state or local issue.  I completely agree that AO & M games should not be sold to minors, but I fail to see why this is any different than other products which are regulated primarily below the Federal level.

I looked for the entire text of the bill, but could just find the on Senator Clinton's site.  Even in 5 minutes of thought, it looks like it will ignore the following issues:

• these legislative attempts are routinely overturned by various court systems as unconstitutational.
• there is no Federal law surrounding movie ratings (it's voluntary), which one might logically think is a similar issue, but which apparently doesn't require the focus of these 3 senators
• liquor and cigarette sales to minors are regulated primarily by states, but I guess the societal impact of video games is a much larger issue, so the Feds should regulate it
• that the Federal government might actually have better things to do with its time, such as spying on its own citizens

I realize the jockeying for 2008 is beginning - I just foolishly hoped that we would focus on more substantial issues such as the War in Iraq, Off-shoring, our Education System, etc.  I suppose the only good news is that this focus shows the increasing impact of video games on the country - it's now truly become the 4th leg of Entertainment, along with Music, TV and Movies, and it now requires that video game producers become as big a political donors as the RIAA and MPAA if they wish to receive equal rights.

My wife was saying the other night that some of our friends are surprised that we, especially I, rarely allow our sons (age 6, 4, and 2) to play video games, and on those rare occasions, we limit the time to less than 30 minutes and we limit the possible games to a few (educational ones and Backyard Sports ones) that we have chosen.  Given that the majority of my oldest son's friends have some type of portable game console, or easy access to a gaming PC/console, I occasionally wonder if we're being too conservative about it.

Now there is no perfect way to raise children, and we certainly won't win any parenting awards, but as an avid gamer (currently alternating between Call of Duty 2 on XBox 360 and Animal Crossing on DS), I have been struggling a bit to explain why I don't think it's a great idea for children to play video games without coming across as a Jack Thompson-like lunatic, especially given that I work and personally invest in the sector.  Then today I read a letter to the Editor of the gaming blog Kotaku which explained it more eloquently than I could ever say - the direct link is here, as is a long list of comments, and it's worth reading if you have children interested in video games, as they all seem to be. 

At the end of the day, my personal feeling is that video games are an amazing form of entertainment, but that they have about the same value as television, and should be treated in a similar vein, not held up as some type of wonderfully creative activity whose value far exceeds activities such as reading or personal social interaction.

To no ones surprise, Nokia the death of the N-Gage mobile game platform this week.  In spite of repeated denials about its impending demise over the past couple of years, Nokia decided to focus on music and camera-focused phones, while attempting to integrate better game technology into their advanced Series 60 phones vs having specific game-focused phones. 

The company spent an estimated $1B+ on the effort and sold about 2M units, which was way below their goal - it was marked by a misguided initial product (remember sidetalking?) effort which violated practically every known rule about how to launch a console, mostly becuase Nokia didn't employ anyone with previous console experience.  By the time the much improved NGage QD shipped, with better pricing, unique content and an improved feature set, the market had already moved on to either simpler games in standard mobile phones, or more compelling games in handheld platforms such as GBA and PSP.  It's unfortunate since Nokia gave it a valiant effort, producing some of the most interesting mobile online content in gaming () as well as groundbreaking games such as Mile High Pinball and .  However, as I have repeatedly mentioned, the console business is a graveyard full of broken dreams with a seemingly never ending flow of new entrants, the latest being Korean player Gamepark with their  

About the only winner in these types of platform failures seems to be Electronic Arts - Nokia was rumored to have paid millions of dollars (as high as $15M) to EA to incent them to port their sports games to N-Gage.  Given that Gizmondo revealed in their public filings that they commited to pay (they'll never pay it all) EA $6M for similar rights, I'd say EA still comes out ahead in these situations.

Just received our XBox 360 today at the office, which has not exactly increased productivity, but since the dev team just hit a large milestone, it's a good release for everyone.  Ignoring the obviously powerful game playing aspects of the machine (amazing graphics, fairly good games), what jumped out to me was that the 360 has made massive steps towards becoming the first legitimate cable bypass box.  This means that companies could create viable video distribution models by going through the Internet rather than over the broadcast, cable or satellite services. 

With a 20G replaceable hard drive, a powerful piece of hardware, HD capability, reasonable pricing, and tens of millions of sales guaranteed, it seems clear that the 360 will be an incredible destination device for online video.  Because you can download directly to the machine as well as connect through a PC, it offers the best of both worlds from a capacity and connectivity perspective. 

Unlike other digital media adapters which have not had either the horsepower, the volume, or the HD options, this box will begin to be a viable distribution opportunity for content providers by the end of 2006, especially if MS opens up the system to outside providers, as Ray Ozzie's memo forecasts.  Depending on what Sony does with PS3, these new devices will open up a new competitive threat to today's service providers, as well as provide distribution opportunities for smaller content providers locked out of traditional cable and satellite boxes, and it will be a huge accelerant to the HD marketplace.  It's going to be an exciting 2006.

Little known NTN Communcations (NTN on Amex) today announced their Q3 results, which included profits and a significant refocusing on its consumer-focused Buzztime subsidiary.  NTN is leader in out of home entertainment, known primarily for its games delivered to bars through those small wireless devices.

I am a small shareholder in NTN, having followed it for years, mostly with increasing frustration as it struggled with too many initiatives, executive turnover and declining stock price.  For a company with so many obvious options in the new digital universe, it wasn't executing on any of them.  But it feels like it's finally turning the corner, with a profitable quarter, a potential buyer for its BtoB Hospitality business, growing momentum behind its cable ITV and other Buzztime expansions, and a renewed focus on cost control.  Given that it's now profitable, growing, and well positioned in a couple of hot categories, I think that it will command a valuation higher than its current 1.7x revenues if it can nail a couple of additional quarters.

Continuing to outpace Gizmondo (TGTL.PK) in its race into the ground, Infinium Labs (IFLB.OB, home of the aptly-named Phantom console) today that they were withdrawing their 2004 audited financial statements due to basic accounting errors, and that they believed the SEC was probably going to charge their former CEO Tim Roberts for possible involvement in "Fax Blasts" which illegally promoted penny stock companies such as Infinium Labs.  We'll probably see what the exact Aug 15 separation agreement was for Roberts since the public statements allude to an agreement for the company to indemnify Roberts for certain matters, in addition to his 10M share grant in lieu of $250K severance.

I have commented on Infinium Labs before, so it sometimes begins to feel like cruel and unusual punishment to keep doing so, but the company keeps providing more grist for the mill.  At least the stock market has recognized the issues, giving Infinium a $5M market cap, which is probably still too high for a company with $100K in the bank, $9M of short term liabilities, and little chance of ever being successful.   Back to the mantra - do not fund as VC, invest in as public investor, or work at as employee, startup companies in the game console category.

Grand Theft Auto: LIberty City for the PSP - just buy it.  I don't do a lot of console reviews, but this is far and away the best game to come out on the PSP, at least if you're not a puzzle game guy into Lumines.   It has all of the unbridled feel of a standard PC/console GTA game, while still taking into account the control mechanisms and screen size of the PSP.  The story line appears to be deep enough to make the purchase worthwhile while the usual massive set of side-stories/tasks is also available, and this is even before trying out the multi=player options.  I have some issues with how Sony has fumbled the overall video and audio opportunities of the PSP so far (vs what the iPod is becoming), but this game starts to finally show off the amazing capabilities of the device as a pure game machine, and kudos to Take2 for creating an unexpectedly strong version of this franchise.

On the heels of Gizmondo's US launch this week (profiled here), comes news from industry site GamesIndustry.biz that the recent top level executive resignations were allegedly due to their ties to the Swedish Mafia.  First question is: "Who knew there was a Swedish Mafia?"  Second question is "Will Gizmondo release a new game called Gizmondo:  Grand Theft Company"?  Third question is "When the execs said they were leaving to pursue entrepreneurial ventures, did that mean loansharking (Gizmondo allegedly borrowed $21M from the execs) and extortion (imagine the possible repayment terms - see the Torpedo below)?

But it's really too easy, so I'll stop there, but you have to read the article - hiring the Swedish Mafia's Debt Collector (aka "Torpedo") to be one's head of security is certainly creative HR.  This situation is now moving past both the Infinium Labs and Acclaim sagas to claim the top reason to believe the video game business still hasn't fully matured.

However, the stock market today reacted by driving the price up 11% to a $450M valuation, thus giving pause to those who believe in the market  "papal infallibility" test - again, company moving to zero...

Tiger Telematics (TGTL.PK) launched its mobile/game console/GPS/camera/toaster on Monday in the US.  As I mentioned in an earlier post about the aptly named Phantom console, it's extremely difficult to successfully launch a console - in fact there are about 4 examples of it in the past 15 years, from Nintendo, Sega, Sony and Microsoft, while the ground is littered with failures- the key common denominator is that there are no start ups in that group.  At Sega we launched the new Dreamcast with a $100M ad campaign, a powerful box which lost money on every sale, and a very well recognized brand name, and still got our doors blown off by the other 3 players, primarily due to the enormous costs involved.

You noticed that I haven't reviewed the device because it doesn't matter what the device does, or what it costs (although it's too expensive).  Content-driven consoles don't sell themselves - that's why the Big 3 spend hundreds of millions of dollars on marketing, have massive distribution organizations, and still lose tons of money in the early days.  Gizmondo they would have distribution across all 50 states this week, but the corporate site today shows it being sold at retail in only 10 states, with the entire state of CA having only 4 retail locations, none of which are in the Bay Area - clearly not a nationwide roll out, primarily because it's incredibly expensive to do.  The games seem fine (although I haven't played them), but there don't seem to be any breakout titles, and even the addition of a couple of EA games won't solve that issue, as Nokia found out with N-Gage.  Given the competition from the Sony PSP, Nintendo DS, and ever increasing power of standard cell phones, Gizmondo is going the way of Tapwave.

Based on all historical data, there is little chance that Gizmondo is going to succeed - the stock price is finally dropping towards reality, with a 75% drop in the past year, but the company is still worth a laughable $350M+ - To add to the fun, two Gizmondo executives, including its Chairman, last week to pursue "other entrepreneurial ventures".  Finally, the company lost an incredible $163M in Q1 2005, leaving it with less than $1M in the bank and $63M in short term payables.  Short it if you can borrow it and remember not to invest in start-up console companies.

Time Warner's business unit Turner Broadcasting launched an ambitious subscription game effort today called   It currently offers 300 games, ranging from fairly recent PC games back through early  console and arcade games, for a monthly price of $14.95, and backed by a large $50M ad campaign.

The good news:  The GameTap client is about 30MB and takes up a reasonable amount of the processor cycles when it's open.  It's graphically attractive, the games are organized in logical categories and it's fairly easy to search them.  The team has done a nice job on the overall interface, providing standard keyboard alternatives to what were usually joystick-enabled games, with clear instructions and parental controls, as well as some fun features like high store registration and bonus material.  Although it's unclear from the site, one can test the system for a period of time before being asked for a credit card.  Otherwise, it's a 2 week trial followed by the monthly fee.

The bad news:  If this was the beginning of a 3 month soft launch before going "gold", I'd say GameTap is in a decent position as they continue to build the content library and test price elasticity.  But this IS the gold launch with the accompanying ad campaign, and I don't believe the service offers the type of value that will attract enough subscribers.   

The content is all over the map, with an almost needle in a haystack mentality, but missing many of the core Nintendo and Sony PS games which define great experiences of the last 10 years.   It looks like certain publishers such as Atari and Ubisoft have licensed a lot of their games while others really have only a few of them.  And where are the casual PC games?  These would be the most logical ones for this service vs offering up 10-20 year old arcade games which were reasonable in their prime, but have been far surpassed in recent years.

The download/activation times for the smaller earlier games are in the sub-one minute range, but any recent game takes essentially forever to download - so far, my two choices have both failed in their downloads after 1 hour each - they have to figure out a better way to do it since leaving this somewhat large client open solely to download games is a little bit painful.   In addition, I can't yet figure out how to save progress in games - maybe it's only in certain ones, but if I can't save, then it makes little sense to play anything except much smaller games.

Overall, I'd say that the current offering is not worth $15/month - if the company can fill out the catalog and work through some of the bugs, then I think they may have a reasonable service, but as a pretty big gamer, I wouldn't pay $15 a month for this offering vs all of the alternatives in the marketplace.

The NYT ran an article this week laying out some of the details behind Microsoft's upcoming marketing campaign for XBox 360 - this is probably the best quote - The point, said Bill Nielsen, who oversees marketing for the Xbox 360, is to help a game player convince the women in the family that "this is for you, too, not just for me to play Madden,' " (my underlining)

This approach is certainly a bold one since it goes against the entire history of successful game console launches, and has certainly amused the industry veterans I have spoken with about it.  This broad technology (MP3 player, digital photos, makes toast, etc.) and broad demographic (men, women, teens, left-handed Eskimos, etc) push feels very much like the initial launch of the Philips CD-i system in the early 90's, which promised everything to everyone, but was then crushed by game-focused competitors - it's such a seminal lesson that there are even multiple marketing case studies which reference it.

This approach makes little sense for the initial launch since there won't be enough units to go around anyway, at least for the first 12 months, even if Microsoft hits its production goals - all of the production will be purchased by early adopter core gamers who have no need to ask their mother if they can buy the machine.  The danger of this approach is that PS3 will appear 9-12 months later with a presumably much more focused game approach, a more powerful piece of hardware in every way (including Blu-Ray DVD), and what will probably be a better suite of killer games than XBox 360 since the developers will have had more time to create them, in spite of a more difficult PS3 architecture.  On the other hand, if MS is privately admitting that it won't have enough dominant games around launch, then this may be a focus out of necessity rather than desire, or if they believe that they have no chance of winning the core market, then they should start out with a broader brand approach - either one is not a great sign.

The online components of XBox will probably be significantly more advanced than those on the PS3 based on the relative strengths of the two companies.  Rather than focus on how many casual games your grandmother can play on the Xbox 360, MS should nail down the brand as the key place to play core online games, and then expand the demographic later as competition appears.   They have the market to themselves for a year, and pitching Xbox 360 as a Swiss Army Knife for the whole family would seem to be a strange way to cement their brand.  On the other hand, I and most of my friends have already shelled out hundreds of dollars to get one upon launch, so it may not matter in the end.

In what will come as little surprise to those who follow the video game industry, the bankruptcy trustee of Acclaim Entertainment has filed a $150M lawsuit against many of the executives and directors of the firm.   The lawsuit (here - ) alleges that they systematically looted the company, paid large sums out to insider-owned entities, granted each other ludicrously large pay packages, manipulated the financials, etc., all while the company was drowning in red ink. 

Acclaim was a pioneer in the video game business, once having a larger market cap than Electronic Arts, but it missed the platform transition to 32 bit, had a tendency to make bad games with expensive licenses, and often had a rather interesting approach to executive compensation.  Some would argue that the recent Delaware Disney decision essentially gives Board of Directors a free pass when it comes to personnel decisions, so it will be interesting to see how this one plays out.  However, the general business practices laid out in the complaint point out the video game industry's earlier roots as a series of family controlled firms less concerned with shareholder returns than with running the company in any way the executives felt was justified.  As the industry has grown, along with market caps of leaders such as EA, Activision and THQ, much of this activity has thankfully gone away, but recent missteps such as the Hot Coffe mod problem of Take Two's Grand Theft Auto still show the relative immaturity of the industry.

Financially troubled video game company on Friday that it sold its kids-oriented Humongous game studio assets to parent company Infogrames Entertainment, which is a separately traded French company.  The price was approximately $10.3M, paid in newly issued Infogrames shares.

Given the fact that Infogrames owns 52% of Atari, and has the same Chairman, It must strike at least someone as strange that there were no other bidders willing to pay more than 1x revenue for a brand with historically great assets and apparently historic profitability up through 2003.  We are currently in a frothy private equity environment where there are multiple bids for video game companies such as Eidos and where classic entertaiment assets can be profitably exploited across multiple distribution platforms, but no one bid $1 more than the parent company?  Looks from the outside like Infogrames got a great deal.

I rarely comment on console games, but in a continuing laugh track-worthy sequence, Infinium Labs (OTCBB: IFLB), home of the amusingly and aptly named Phantom console, today announced that Kevin Bachus, one of the original Xbox executives and current Infinium President, had been promoted to CEO, and that the company was moving to Seattle from Florida -  I could go on and on about this company, but it's really too easy (recent 10Q including mention of going concern problems, content license defaults, inability to raise money, etc.) and it's impossible to short the stock anyway, so I'll leave it to a brief article about the company here. 

General consensus is that will be in a similar state soon with its mobile gaming device and an astounding current $800M market cap, but it's too early to tell for sure on that one.  However, a basic analysis over the entire life of console gaming would show that successfully launching and sustaining a console has been done by legacy players Nintendo and Sega (made it 3 generations, but is no longer in the hardware business) and by large companies Sony and Microsoft - every single other one (list is long, but includes Atari, Intellivision, Coleco, Philips, Bandai, Tapwave, etc.) has failed, including arguably, the Nokia N-Gage at a cost of more than $1B, which will presumably be discontinued as a separate hardware platform as they continue their announced transition to Series 60 content in 2006.  The idea of a smaller company or start-up successfully launching a console is just not a realistic proposition - one needs to work with the existing platforms, whether they are open ones such as a PC or phone, or more closed ones such as a console, or set top box, in order to be successful.  Therefore, do not own stock in start-up console hardware companies.

When we first started Donnerwood earlier this year, we licensed in an amazing game called Tringo as our first move as a new company.   Tringo had been invented by a creative New Zealand engineer in a fascinating virtual world called SecondLife - it had quickly taken over as the top activity in the world, and it was clear that the game play would work well on many platforms outside of SecondLife.   We put together a beta flash version of Tringo which you can play on our site, and we're now finishing off publishing discussions for the product across a variety of platforms.   It's amazing that you can put together such an engrossing casual game in such short order, showing why I still think the casual game market is the most interesting one in the entire industry.  Give it a shot - game goals are almost self explanatory, but a help page is available during the sign in screen.

I sit on the board of a company called Three Rings, which publishes a brilliant casual multi-player game called Puzzle Pirates.  If you haven't checked it out, you are missing out on a truly addictive experience, especially since the essence of the game is about community, not about raw technology .   A sample character portrait is attached to give you an idea of the flavor.  Look for more exciting developments from Daniel James and his team!