As GamePolitics reported last month, Mortal Kombat publisher Midway was sold at the fire sale price of $100,000 to mystery investor Mark Thomas, who also assumed $150 million worth of Midway debt.

The troubled company's creditors held the right to demand repayment later this month, a move which could have driven the final nail into Midway's corporate coffin. But Edge is reporting that Midway's creditors have agreed to extend the deadline to February 19th.

It's worth noting that Midway is scheduled to release Wheelman on February 16th. Could sales and Metacritic scores of the Vin Diesel game help note-holders make up their minds about Midway's fate?

As Wedbush-Morgan analyst Michael Pachter told us last month, it is in the creditors' best interests if Midway survives:

Creditors cannot expect Midway to repay unless the company remains in business.  If the creditors compel bankruptcy liquidation, they'll get something, but arguably less than the full $150 million.  Midway's assets are worth something, but in this market, it is hard to figure out how much.  As a comparison, THQ has an enterprise value of only $80 million, so Midway's assets in liquidation would have to be worth twice as much as THQ's (as a going concern) for the creditors to be repaid.

My guess is that Midway works out a deal with the creditors and remains in business, but they are going to have to start generating sustainable profits soon, or their creditors will become impatient.

UK newspaper The Times reports today that radical corporate upheaval is coming to Sony.

Long-overdue cost-cutting moves will, according to company sources, result in "sacred cow-slaying measures" that will "will abolish or fundamentally alter many of Sony's long-established business practices."

The reorganization will likely be made public following CES in Las Vegas. The massive trade show ends on January 11th.

Could the PlayStation hardware business get the chop?

That's hard to say, but the PS3 has been bleeding money since it launched in November, 2006 and the PSP is struggling as well. One ominous sign: there is talk of a shift that would turn Sony from a manufacturing to a content-driven business model.

PS3 manufacturing costs have generated huge losses for Sony over the past two years. Content would include games, of course, but Sony also has a stake in movies and music. If the company judges its console business as too costly to continue, it could decide to pursue a system-agnostic approach like the one adopted by Sega after it abandoned the Dreamcast in 2001. Ironically, back then it was Sony's PlayStation 2 which steamrolled the well-regared Sega console.

Alternately, the PlayStation business might be salvaged in whole or in part  and manufacturing cuts could be made on the consumer electronics side of Sony's house.

In any case, we should know more next week. In the meantime, PlayStation 3 fanboys may suffer a few sleepless nights as they worry about the future of their system.

If you feel the urge to download Spore or any other game from publisher Electronic Arts, it's probably best to do so via Steam, rather than EA's online store.

That's because, as Ars Technica reports, EA offers consumers their choice of:

      a.) lousy purchase protection or

      b.) slightly less lousy, but needlessly expensive protection

At issue is the right to re-download your purchased game, in the event of, say a hard drive meltdown or switching over to a new PC. When buying through EA's online store, such rights are limited:

• re-download rights are offered for only six months after purchase, or...
• paying an additional $6.99 extends re-download rights to 24 months

As Ars Technica's  Michael Thompson writes:

Why, exactly, would something like the Extended Download Service even be in existence? Keeping records of who buys what and when they bought it seems like standard business practice and would appear to be one major advantage to buying digitally. Allowing customers to access these records and re-download what they've already paid for seems like a no-brainer; charging people for that option just seems slimy...

In this brave new world, could it be that having to keep track of a physical game disc is actually a better long-term prospect than purchasing something from the cloud?
 

Thompson notes that EA subcontracts its online game distribution chores out to Digital River. But that's of little consequence to the consumer, since EA is ultimately responsible for interactions with its customers.

Disbarred attorney Jack Thompson says that he plans to lead a shareholder revolt against Take-Two Interactive chairman Strauss Zelnick.

Of course, disbarred attorney Jack Thompson says a lot of things...

In this case, Thompson claims in an e-mail that he just scooped up some T2 shares at their current, distressed price:

TTWO is today trading at about $7 per share.  Zelnick blew it.  Thompson today bought a bunch of Take-Two stock at the $7 figure.

The reason Thompson has done this is to lead the effort by Take-Two shareholders to dump Zelnick.  It is long overdue, and there are already rumblings that Zelnick’s tenure at Take-Two has been a disaster, as anyone still holding stock that could have been sold at $26 and is now worth $7 and falling, can attest.

In the letter, Thompson refers to the Z-man as an "incompetent, reckless goofball," which is pretty funny, coming from someone with Thompson's track record.
 

Top executives at Midway pulled down huge compensation packages even as the moribund video game publisher company laid off worker bees and its fortunes spiraled downward.

As reported by The Game Reviews.com:

Former President and CEO David F. Zucker [left] made over $4.5 million in the past two years... Since 2003, Zucker has made just under $11 million... Since 2006, Midway’s stock value has dropped from nearly $23 to 18 cents. Zucker left Midway in March...

The highest paid of all current employees is vice president Martin Spiess, who pulled in well over a half million dollars ($556,834) in 2007... [current CEO Matt] Booty earned $556,834 in 2007. Spiess’ and Booty’s respective predecessors, Thomas E. Powell and Steven M. Allison, earned $365,530 and $347,173...

To put into perspective how much executive pay is being doled out, consider that Midway laid off 180 employees last week, and that the average games industry salary is approximately $50,000.Via: Joystiq

Via: Joystiq

As GamePolitics readers know, Electronic Arts pursued the acquisition of Grand Theft Auto publisher Take-Two Interactive for the better part of 2008.

Timing, as they say, is everything.

The deal ultimately fell through when EA walked away from the table in mid-September.  Since then the global economy has gone into the toilet and the supposedly recession-proof video game industry has shown that it really isn't.

But when EA made its offer to acquire T2 at $25.74 per share, the economy had not yet tanked. No one even dreamed of a Wall Street bailout, much less a potential bailout of the U.S. auto industry.

What if the deal had gone through, obligating EA to lay out huge piles of cash? Would it be like burning your savings on a new car and finding out the next day that your hours were being cut back at your job? Since the merger fell apart, EA has definitely hit a rough patch, laying off a thousand workers and shuttering some of its game development studios.

As for Take-Two, their stock will open south of $9 this morning. Since EA bailed on the merger, TTWO has plummeted, losing about 2/3 of its equity value in 90 days.

From here it seems like T2 would have been better off if the deal had gone through, but EA would have been in worse shape. But we're not experts, so we put the question to Wedbush-Morgan analyst Michael Pachter. Here's what Pachter told us:

[My answer is] totally speculative.  Had EA completed the deal, the TTWO shareholders at the time would have benefited, but other than Oppenheimer (who has been listed as a large shareholder the entire time), it's hard to say that there are many of those other shareholders still around.  I think that many of the shareholders who bought to take advantage of EA's offer were sellers when the offer was withdrawn, so only a small number of current shareholders, including Oppenheimer, were actually involved in the stock back then.

EA would be a mess had it completed the deal.  In addition to its own restructuring (which is just getting underway), the company would have been faced with re-signing the Housers and with cutting significant costs out of Take-Two in order to fully achieve synergies from the deal. 

I don't think a low cash balance [due to the T2 purchase] would be particularly relevant, since EA has a line of credit and is not burning significant cash, but it would have forced decisive action.

Notwithstanding, this is purely speculative.  I think EA would be a stronger company if combined with Take-Two, as the latter company has several valuable franchises and a combination would have given EA a near monopoly in sports.  Had they signed the Housers, EA would have been well-positioned to develop incremental new IP, and would have had one of the strongest franchises around in GTA.

But it didn't happen, and doesn't look like it will over the near term

According to the Dow-Jones Newswire, federal investigators charged four men with today insider stock trading. One of the transactions named in the indictments was EA's bid to acquire T2 earlier this year.

No one from either Take-Two Interactive or Electronic Arts has been charged and there is no indication that the publishers had any inkling of the illegal stock trades. If government regulators are correct, however, information leaks from the Brunswick Group, a P.R. firm working on behalf of Take-Two, contributed to the crime. From the Dow-Jones report:

Four people were charged criminally Thursday in an insider trading scheme involving information about mergers or stock buybacks obtained from a Lehman Brothers Holdings Inc. broker's wife who worked at communications firm Brunswick Group LLC...

 

According to court documents, they were among a group of clients and friends tipped by Matthew C. Devlin, a Lehman Brothers broker, about 12 planned deals before their public announcements between 2005 and 2008...

 

Devlin allegedly obtained the information from his wife, who worked at communications firm Brunswick Group, according to court filings. The deals included... Electronic Arts Inc.'s (ERTS) hostile bid earlier this year for Take-Two Interactive Software Inc. (TTWO)...

 

Devlin has been charged criminally and in the SEC case... [other defendants]... referred to Devlin or his wife as the "golden goose," according to court documents.

The Guardian reports that there is no suggestion that Devlin's wife, Nina, a partner at Brunswick, knew of her husband's alleged stock market manipulations.

Barack Obama does not take office until January 20th, but the video game industry is already lobbying the President-elect, via an intermediary.

The game industry's issue, at this point, is copyright protection. Along with the likes of the RIAA (music biz) and MMPA (movie biz), video game publishers trade group the Entertainment Software Association belongs to an organization known as the International Intellectual Property Alliance. It is the IIPA which is doing the actual lobbying.

Toward that end, the IIPA has provided the Obama team with its list of Copyright Industry Global Challenges for 2008, and is believed to have met with them as well. For its part, the Obama team, in an effort at greater government transparency, has listed all outside lobbying efforts - including the IIPA's - at its remarkable Change.gov website.

Among the game-related concerns cited in the document are:

• Internet-based piracy
• Optical disc piracy
• End-user piracy
• Cartridge-based video game piracy
• Open access to foreign markets

GP: There's nothing new or especially egregious in the IIPA document - unlike the MPAA's separate effort to convince Obama to adopt IP enforcement measures which would essentially throw consumers' due process rights under a bus.

While much has been made of the supposedly recession-proof video game industry, a Bloomberg report says that if you remove Nintendo from the mix, the economic picture for the rest of the industry sags considerably.

U.S. sales of games, players and accessories rose 10 percent to $2.91 billion in November, researcher NPD Group Inc. said last week. Nintendo, maker of the Wii console, accounted for almost three-fourths of the growth, leaving the rest of the industry with a gain of 3 percent or less...

“If you’re worried about your job, are you going to buy a $400 PS3?” said Mike Hickey, an analyst for Janco Partners in Greenwood Village, Colorado. “Christmas is not going to have the same glow.”

The Wii, outselling PS3 and Xbox together by almost 2-1, also is having an impact in software. Five of the top 10 titles last month were for the Nintendo player...

 

The company also is leading in sales of handheld devices. Consumers purchased 1.57 million DS machines last month, up 2.6 percent from a year earlier, according to NPD. Sony’s sales of 421,000 PSP players were down 26 percent from last year.

GP: Bloomberg makes sense on this one. After all, EA is hurting. Sony is a disaster right now. Midway's future beyond January 31st is questionable. NCsoft has cut back. And they're not the only companies that are hurting.

Has the hunter become the hunted?

Electronic Arts, which pursued GTA publisher Take-Two Interactive for much of 2008, may now be an acquisition target of Disney.

According to financial website The Motley Fool, the Wall Street Journal's Heard on the Street column suggested yesterday that Disney might be eyeing EA. The WSJ apparently based their speculation on comments made by Disney's Chief Financial Officer during a conference call on Tuesday. From the Fool:

Asked if Disney's focus would be on developing in-house games over buying more developers, [CFO Tom] Staggs responded, "I don't want you to conclude that those are in the long term mutually exclusive." He went on to say that a "strategic and attractive" purchase would be "a possibility" for the family entertainment giant.

Did he say Electronic Arts (Nasdaq: ERTS)? No. However, a combination of EA's battered share price and Disney's desire to ramp up its gaming presence dovetail nicely in the rumor mill.

The Motley Fool offers five reasons why a Disney takeover of EA makes sense:

• Disney has acquired game companies before (Avalanche Studios, Club Penguin)
• EA Sports and Disney's ESPN would have synergy
• Disney's MMOs haven't worked out so far, but EA has Warhammer
• Racing is a major theme is Disney's films and parks; EA has Need For Speed
• Convergence of Disney's theme parks with EA's strong IP

Still, The Motley Fool views the chances of a Disney-EA deal as slim. And, it's pretty clear that, when it talks about acquisitions, family-friendly Disney isn't thinking of Take-Two and GTA.

As a gamer who made his bones on the PC, one of the most encouraging developments of 2008 has been the launch of the PC Gaming Alliance, an association comprised of companies with a stake in the computer games market.

Beyond the formation of the PCGA, however, I'm encouraged by the outspokenness of its president, Randy Stude. In his day job Randy is the Director of Intel's Gaming Program Office. His love of PC gaming is evident and his eminently reasonable voice has given cheer to millions of PC gamers who sometimes feel like outcasts in an increasingly console-centric world.

Randy spoke with GP at length recently on a number of topics, including piracy, where PC gaming is heading and why you can't really play strategy games on an Xbox 360 or PS3.

GP: Randy, what's the outlook for PC gaming?

RS: The PC is leading the way when it comes to hardware innovation and business model innovation. When we released our Horizons research [in Leipzig] which shows the software revenues being generated for PC gaming, I think a lot of people were stunned to see how much revenue is being generated out of Asia in particular.

It shouldn’t be too stunning, I mean this trend has been underway of quite some time. Almost half of the $10.7 billion that are being generated in PC gaming software revenues are coming out of Asia. And this is a trend that obviously many of us who sell hardware are very well aware of because there’s a huge appetite for our technology in the Asian region - anywhere from Vietnam to Korea to China. Even Japan is taking off at this point for PCs and PC gaming.

The usual perception that the West has [is that the Asian market is primarily subscription-based] but it’s more like what Battlefield Heroes is going to be. Its more either pay-to-play,  time-on-wire or micro- transactions gaming where the game client itself is free but in order to advance and level up you need the assistance of certain in-game merchandise that you have to acquire. It’s the acquire vs. accumulate business model. Accumulating takes a lot longer, so most gamers will go for the acquire model.

A lot of these games are finding their way to the U.S. as well. I think the first AAA U.S. title will be the Battlefield Heroes game. Of course there’s Maple Story that’s already here as well as several other similar titles. I think Battlefield Heroes will blow it out for us in the West.

GP: So, will packaged games go away in favor of online distribution and browser-based games?

RS: I don’t think the PCGA is in a position to predict [whether the packaged titles will go away] necessarily, because there are those in the PCGA who rely on packaged goods as their primary source of revenue…  I think it’s an important trend and one that several analysts are predicting that the consoles will follow shortly in terms of more content being distributed through the online stores for Nintendo, and Microsoft and Sony, direct to the hard drive of the console. (Hit the jump for more with PCGA's Randy Stude)

On Tuesday afternoon, Electronic Arts CEO John Riccitiello (left) announced that the publisher would not meet its revenue projections for the 2009 fiscal year.

Personnel cuts and cancellation of some underperforming projects will follow.

Yesterday, Wedbush-Morgan analyst Michael Pachter took EA to task in a note to investors:

After market close on Tuesday, EA significantly lowered its guidance due to weaker than expected sales...  Management stated that it will not be able to achieve its previously issued FY:09 guidance...

 

With the stock hovering near a seven-year low, management continued its recent history of disappointment. We are no longer confident that EA is taking the steps necessary to achieve its FY:11 goals of $6 billion in revenue and $1.5 billion in operating profit. 

Ouch! Pretty strong stuff from Pachter, so we asked him point-blank: Is John Riccitiello's job in jeopardy? After all, in addition to missing his projected numbers, Riccitiello also led EA through a protracted - some would say, embarrassing - and ultimately failed attempt to acquire Grand Theft Auto publisher Take-Two Interactive this year. Here's what Pachter told us:

Does Riccitiello survive is a function of a lot of things… He’s probably not in trouble yet. He’s probably in trouble in eight months or a year if this new strategy shows no traction…

 

You really just have to be prudent in your spending. Don’t spend ahead of revenues. So don’t spend $500 million chasing casual online games until you have $500 million in profit from them.  So you just scale that stuff back, a hundred million here and a hundred million there and you’re talking real money [saved].

 

[EA is] being punished by trying to do too much at once. They’re too ambitious. They’re launching way too many games at once, so it's crazy to believe they’re all going to work. And it's too early to give up on any of them. And then they launched in kind a holiday window that’s really tough.

 

I think everything's performing fine. It's not like Mirrors Edge is selling zero units; it's selling two million. And Dead Space is selling two million or three million. It's crazy that these guys would think that they couldn’t maybe make these games again. Mirror's Edge is more of a victim of just coming out in the midst of Far Cry, Gears, Fallout. How could you expect that game to fly? It got lost. I don’t think its an indictment of what they were doing...

What about Riccitiello's comments to the effect that EA needs to revise its Wii strategy? Hit the jump for the rest of Pachter's thoughts on EA.

Sony will launch the beta version of PlayStation Home, its long-awaited PS 3 online service, beginning tomorrow.

PS Home would appear to be Sony's long-overdue riposte to Microsoft's popular Xbox Live service, which has been building a strong user base since the days of the original Xbox. Home takes a decidely different approach to its user interface, however. The service will function as a virtual 3D world along the lines of Second Life. Users will have individual avatars as well as personal spaces called "apartments" which can be decorated.

A company press release describes Home as:

...a ground-breaking 3D social gaming community available on PS3 that allows users to interact, communicate and share gaming experiences... Within PlayStation Home, users can create and customize their own unique avatars and explore the virtual community in real time where they can communicate freely through text or voice chat.

 

PlayStation Home users will not only be able to enjoy variety of entertainment content such as mini-games, videos and special events along with their friends, but will also be able to create their own community by using the “Club2” feature to create clubs with other PlayStation Home users who share the same interests. PlayStation Home also allows groups of users to launch directly into their favourite online games together from PlayStation Home.

VentureBeat's Dean Takahashi, who participated in Home's closed beta, writes:

Home is different from Second Life and World of Warcraft. Unlike those fully-built worlds, Home isn’t really a world. It’s more like a series of virtual spaces. If you want to visit your own personal apartment, where no one can visit without your permission, then you teleport there. If you want to go to the central plaza, you teleport there. Same goes for the bowling alley or the bar from the game Uncharted. You’re free to decorate your home as you wish. If you want to listen to music, you can walk up to a jukebox...

In the movie theater, you can go into a room and see what’s playing. You can actually watch that movie with your avatar in a social setting, making comments about it that others in the theater can see. That turns movie-watching into an online social experience. There is a profanity filter, and Home will be compliant with the PS 3’s own parental controls.

GP: The Home launch is a critical step for Sony and the PS3. Let's hope that they get it right. However, as a PS3 owner who tries to stay optimistic (Sony doesn't make this easy), I am concerned about the PS Home press release (I'm looking at the SCEE version), which devotes several paragraphs to the marketing of virtual crap for avatars. For example:

Thanks to Diesel, avatars can look great from the start with Diesel offering the latest men’s and women’s designer avatar clothing, with items ranging from free of charge to €1.50...

PlayStation®Home gives everyone their own apartment to spend time in and entertain friends - who will now be able relax on exclusive Ligne Roset furniture. At the virtual store, people will be able to choose from a selection of the most popular Ligne Roset designs...

 

A selection of virtual Watchmen merchandise e.g. T-Shirts with the smiley face logo, Doomsday clocks and character statues, will also be available in the New Year...

Meh.

XBL got it right by making an easy-to-use, pleasant gaming environment. Sony really needs to focus on its core gamers with PS Home. Everything else is just a distraction.

EA holiday titles Mirror's Edge, Rock Band 2 and Need For Speed: Undercover are all failing to meet sales goals, according to Lazard Capital Markets analyst Colin Sebastian.

Future sales of Spore and Warhammer Online may not be so great, either.

As reported by CVG, Sebastian predicts that EA will cut jobs and drop some underperforming game franchises in response. In a note to investors Sebastian writes:

While the video game industry continues to show some resilience in the face of a very challenging consumer environment, strength does not appear to be across the board, and we believe that several EA titles are underperforming expectations at retail.

 

Specifically, our checks indicate that sell-through trends of key holiday releases Need for Speed Undercover, Rock Band 2, and Mirror's Edge remain mixed, which may reflect some fatigue overall in the music and racing genres.

We believe further cost and franchise reductions are likely. Importantly, we believe EA is continuing to review its cost structure and franchise base, and it is possible that management will announce further cuts in headcount and the development pipeline (including existing franchises) over the coming quarters.

On the very same day GamePolitics broke the news that NCsoft had dropped its membership in the Entertainment Software Association, Mike Gallagher, CEO of the game publishers trade association, predicted that new, "exciting" member companies would join the ranks of the ESA.

Gallagher's comments came during an appearance on C-SPAN's The Communicators on Saturday.

Gallagher was interviewed by C-SPAN's Pedro Echevarria along with Mike Musgrove, who often writes about games for the Washington Post.

The half-hour program, which touched on a number of issues, is worth a look. Here are samples of Gallagher's comments:

How the ESA looks at the incoming Obama Administration:

If you look at President-elect Obama's technology platform, he specifically calls out protection of intellectual property overseas, but also protection of intellectual property at home. So, we're encouraged by what we see there. We also just had the PRO-IP act passed which places an intellectual property coordinator in the White House. So, we're very encouraged by that...

Whether the ESA will pursue RIAA-style IP enforcement tactics against consumers:

[Game cosnumers] see great value in paying the price points for the software that we make... We're in a far different position than music... Our companies have seen that threat coming and we've built some protections in. We also have a better value equation with our consumer and with our customer so we look to foster and grow that as our primary means of defeating piracy, making sure it's always worth it to buy the game, as opposed to burning it.

Whether industry self-regulation of its content rating system is working:

It's not me saying it, it's the Federal Trade Commission says it. In May they issued their report which was very strongly in favor of the industry. And then just recently, the National Institute on Media and the Family issued their annual assessment of the industry and gave the ESRB and retailers very high marks...

The future direction of ESA:

You'll continue to see  a strong focus on federal and state policy... In the states, we're seeing tremendous opportunity. Gov. Rick Perry from Texas came to E3, our trade show... he came with the idea of attracting more of our [business]. Georgia, Louisiana, Michigan passed tax incentives to attract our industry...

Gallagher's comments on ESA member companies dropping out:

That was Activision's decision to leave... We have a mission on behalf of this industry that we're going to execute on... We continue to have good communication with [Activision], but we're moving forward. We're going to see some interesting changes this year when it comes to membership. I think we'll be adding some members that will be exciting for ESA as well as the industry... Whether certain companies are in or out or not doesn't really change our focus.

Near the end of the program, Gallagher gets busted doing a bit of subtle anti-Activision lobbying: 

Musgrove: Please give me something I can walk away with here. I know these are both represented companies of yours, but - Rock Band 2 or Guitar Hero World Tour? They look kind of the same to me...

 

Gallagher: I've got to come down pretty heavily in favor of Rock Band 2. 84 tracks, it's a great product... Rock Band is really terrific...

 

Musgrove: Oh, wait a minute, Guitar Hero is from Activision and they're not in the ESA right now... (laughs)

On Saturday, GamePolitics broke the news that MMO publisher NCsoft was the latest company to leave the ranks of game industry trade association the ESA.

At the time GP speculated that the move might have been financially motivated. NCsoft has, after all, experienced some setbacks in recent months.

However, NCsoft's Director of Public Relations, David Swofford, assures us that the decision to leave the ESA is not related to those issues. NCsoft released this statement concerning its ESA membership:

While we appreciate what the ESA does for our industry, we can confirm that NCsoft has elected not to keep membership with the ESA for 2009.

This decision was not financially motivated, as indicated in your story. There have been many changes in the gaming industry over the past couple of years and, like other developers and publishers, we have decided to wait to see how related industry events and organizations further develop before rejoining. We will be reviewing our membership status on an annual basis.

In a phone interview Swofford elaborated on NCsoft's position and pointed out that, prior to leaving, the company did not have a long history as an ESA member:

We joined [ESA] for one year and then we decided we wouldn't [renew].  We think everything the ESA does is great. Right now the timing is just not right for us to be a member of the ESA.

Swofford also told GP that trade show issues are very important for NCsoft, which exhibited at PAX this year, but not E3:

Everyone is looking to see how E3 plays out now.

So, might NCsoft rejoin the ESA fold at some point in the future?

Absolutely. We're going to assess that on a yearly basis.