Tuesday, March 27, 2007

Gaming Business News

To start with, I am still 100% wrong about Gamestop. They announced earnings today that looked very strong at first glance, plus comparable store sales were up 11.9% from the previous year. Overall results are still not apples-to-apples, since they weren't including the EB Games results last year, but those comparable store sales are impressive.

Full information here, and while I still think it's a suicidal strategy to have the vast majority of your profit come from used games, they're apparently doing quite well.

Next, Take-Two has been unable to find a buyer (in response to the shareholder revolt I wrote about a few weeks ago). If you think that they have an outstanding stable of games, you're correct, but what they also have are long-running, endemic accounting issues, and I've written on many occasions that anyone willing to buy them would have to hold their nose very tightly when they looked at the books.

The shareholder meeting was originally scheduled for March 23, but it was delayed until March 29 in hopes of finding an alternative to the board of directers getting voted out. It's unlikely they could reschedule the shareholder meeting again, which means they are rapidly running out of time.

What does this mean for Take-Two's future? At this point, I don't think anyone has any idea. Certainly, the first thing I'd expect a new board of directors to do would be to attempt to shore up the financial situation of the company by jettisoning uprofitable products and franchises, and they might also be willing to sell one of their stronger franchises to generate some cash.

If you expect some kind of gaming-enlightened board of directors who will focus on game quality, though, think again. The main players here are OppenheimerFunds, D.E. Shaw Valence Portfolios, S.A.C. Capital Management and Tudor Investment (according to Gamasutra here). None of those groups give a rat's ass about gaming--they just want a return on their investment.

Lastly, in Gamestop's earnings conference call, CEO R. Richard Fontaine floated a tantalizing theory about the Wii:
When asked if the retailer believes if the Wii shortage will be a recurring problem, the executive responded, “I don't think it's going to be an issue...and this just my opinion, but I think [Nintendo] intentionally dried up supply because they made their numbers for the year. The new year starts April 1, and I think we're going to see supply flowing.”

Given that Nintendo's numbers have been relatively consistent for January/February, I don't know how they're holding units back, unless they've ramped up manufacturing capacity, which is certainly possible. And holding back units because you've already reached your fiscal year targets is certainly not uncommon in the business world.

The idea of Nintendo possibly selling Wii's at an even faster rate than they already are is mind-boggling.

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