Wednesday, September 08, 2004

The Phantom, Aptly Named, or Mr. Hubris Takes a Holiday

I love it when a plan comes together.

Infinium, creators of the much-beleaguered Phantom console (notable less for its commercial than comic potential), filed a 10-Q with the Securities and Exchange Commission, and Gamespot has a short story about the'highlights'

I've always been of the opinion that the guys who founded Infinium Labs are pretty good at attracting venture capital and disastrously bad at doing anything successful with it [insert your lawsuit here]. I also said in a previous column that I seriously doubted this console would ever make it to market, and if it did, very few units would ever be sold. However, having production units are a good defense against lawsuits from venture capitalists who feel like their money was pissed away.

Speaking of pissing...

The 10-Q states that Infinium has about 134k in their bank account and has a 'working capital deficiency' of almost four million. Nicely done. They also expect their operating expenses in the next twelve months to be over sixty-eight million dollars.

Does anyone smell toast burning? Because I do.

No worries, though. Infinium also states that they plan to sell about thirty-five million dollars of product in the next twelve-month period.

That's my favorite part.

Let's take a look at that. The console is going to sell for $199 if you don't sign up for the subscription service. If you do sign up for a two-year subscription at $29.95 a month, the console is free. With the subscription, you get access to certain 'basic content' for free. 'Newer games' (whatever that means) will cost $20-40, and a game rental will cost $5 for three days.

There's no explanation for what you do with the console if you don't sign up for the subscription service, since the unit has no disk drive.

That's the most convoluted pricing structure I've ever seen. There's actually no way to figure out what their subscriber base needs to be to generate the revenue they claim they'll generate, which I think is probably the point. Why a two-year subscription? So they can book the full two-year subscription immediately as revenue, I'm willing to bet. Otherwise, booking a one-year subscription for $360 probably would barely offset the cost of the console (that they're giving away with a subscription, remember).

Now look at the 'free console.' The Xbox came out at $299 and it cost Microsoft over $400 to make the unit. This is Microsoft, with huge pricing leverage and enormous production runs. Estimating that the Phantom (allegedly with HD support, remember) could be made for under $300 is very charitable, but I'm all about charity, so let's use that number. So Infinium is well in the red after a customer signs up until at least halfway into their two-year commitment. That doesn't even include overhead related to server infrastructure, support personnel, etc.

There is no way of adding, subtracting, or multiplying, even in the most wildly optimistic and unrealistic scenario, that will generate thirty-five million dollars of revenue in the next twelve months. And given how poorly the services are structured, they'll actually lose money for every dollar in revenue they generate.

Wait a minute. Maybe they can make it up in volume.

Listen, if you guys are having problems building up inventory for the launch, don't bother. Just build fifty or so--that will take you through the busy Christmas season. This console is a dead horse. It's DEAD. You attracted some very greedy industry veterans by giving them some huge amounts of stock options. I hope they kept the certificates, because they'll be wiping their ass with them soon. That's what they'll be worth.

Here's my predicted meltdown scenario for Infinium. Before the console even launches, some of the 'high flying talent' from the gaming industry that they've signed in the last six months will leave. Far fewer games than were promised will be available, and the ones that are available aren't going to be anything near tier one titles. High-definition support is not going to work as promised. They'll announce that initial sales are 'disappointing,' then have some fantastically elaborate excuses as to why. By early next year, at the latest, the plug will get pulled and everyone will have lost their money, except for the dudes that everyone wrote their checks to.

Those guys will have done pretty well.

This is all going to go down pretty fast, no pun intended--most of it will happen before the end of the year. So make some popcorn.

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