GBA FACES CHALLENGES IN 2003—TDK MEDIACTIVE’s BITETTI

Responding to analyst’s question about TDKM’s estimate for GBA growth in 2003, Bitetti said “it’s going to be challenging” for platform because of various reasons: “In our opinion, the GBA was launched a little bit early, number one, and number 2, retailers were rushed to remove Game Boy Color from the shelves and there wasn’t an installed base on GBA to support it. In addition, I think that the compatibility between Game Boy Color and Game Boy Advance have created some cannibalization in the marketplace. And on top of all of that, Nintendo removed all of their qualitative approval process so there’s a lot of product in the marketplace that is sub-par in quality, which is also affecting it. I think the oversupply issue [affecting the entire videogame industry right now] is most grievous in the GBA platform.” Before GBA’s introduction, there actually had been game industry observers who said they believed Nintendo was introducing GBA too soon because Game Boy Color still was so popular. Regardless, Bitetti said many believed GBA would be among best-selling gifts this holiday season, “so we'll see what happens.”

Like his competitors, Bitetti said PS2 was continuing to dominate industry and extend its lead over rivals. With that in mind, he said TDKM’s marketing initiatives would tend to favor PS2, at least for now. But he said TDKM planned to continue showing “affinity” for Xbox and would continue supporting Nintendo’s platforms. As for current state of videogame software industry, Bitetti once again said publishers and retailers were facing situation in which there were just too many titles available in market and only handful of them were selling in large numbers. One result of oversaturation of titles is that publishers will be forced to slash prices on many games this holiday season. He said liquidators were “having a field day.” In interview earlier this month, he told us publishers were having hard time getting shelf space for their games this fall (CED Oct 9 p5): “It’s a tough market out there. There’s way too many titles, and retailers are being very selective. Their ‘open to buy’ dollars have been affected and they're buying less titles and they're buying with less depth. It’s brutal.”

As for TDKM’s own games, Bitetti this week said Robotech: Battlecry was company’s key console title in 2nd quarter. Title shipped in late Sept. for PS2 and Xbox and “sellthrough has been good so far on the PlayStation 2, while Xbox have been slower than expected,” he said. GameCube version of title started shipping in mid-Oct. and first numbers were just coming in, he said. Ship-in numbers, he said, were “healthy but not excessive” and there should be “adequate” number of units available at retailers this holiday season: “Getting games on store shelves remains a challenge for all publishers, although our global entertainment brands and customized marketing initiatives are generating good acceptance into retail. We are also targeting different price points such as the October launch of our ‘impulse’ product line with Shrek Treasure Hunt for PlayStation with a manufacturer’s suggested retail price of $9.99.”

Company said it also produced 44,000 units of $79.99 Robotech: Battlecry Collector’s Edition for GameCube, PS2 and Xbox that we reported on earlier this month. Collector’s Edition is being sold exclusively at Electronics Boutique and GameStop, as well as Fry’s, company said. Bitetti said “the product has performed very well.” Although he didn’t provide number actually sold through, he said: “I think there’s inventory in the channel but nothing excessive.” There’s no current plan to expand distribution of game, company said, although Bitetti said it was considering marketing Collector’s Editions for other games in future.

TDKM reported $1.5 million profit (6? per share) for 2nd quarter, reversing $100,000 loss (break-even on per-share basis), as revenue climbed 269% to $17 million from $4.6 million. CFO Martin Paravato told analysts 96% of revenue came via new games, with 92% from console titles. He said “despite slower than expected overall sales growth” in industry, company still expected to report 59% increase in revenue to $50 million for fiscal year 2003 and 400% growth in earnings per share of 5? from 1? year ago. Bitetti said: “Our financial [forecast] has been built around initial Robotech shipments across 4 platforms, the performance of which has so far been in line with our plan.” Company started shipping Masters of the Universe He-Man: Power of Grayskull for GBA this week. Other titles it plans to ship in 3rd quarter include Shrek Super Party for PS2 and Xbox (only title for those platforms from TDKM this quarter) and Shrek Extra Large for GameCube. It expects to ship 2 GameCube titles for GameCube this quarter -- Robotech: Battlecry and The Land Before Time: Big Water Adventure for PS one, plus 3 GBA and 3 PC titles. Bitetti said: “We are also in discussions on several additional licenses for the future. We plan to launch titles next year based on Disney’s Haunted Mansion and Pirates of the Caribbean, GM’s Chevrolet Corvette brand in conjunction with Corvette’s 50th anniversary, as well as initial console games for Masters of the Universe, Dinotopia, the Muppets and a Robotech sequel.”