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Post Mortem
At one point in its history, Argonaut counted itself amongst the global games development elite,
having created three titles (two of which are original games IPs) that have achieved over 3m unit sales and 4 titles that have achieved over 1m unit sales. There are very few independent games development companies
that can match this record. However those days were becoming a fading memory by the time the Company issued the first of a seemingly never-ending stream of profit warnings in 2002. What is shocking about Argonaut's
demise is that the Company failed to recognise the diminishing status of its reputation and its ability to deal with publishers on favourable terms despite the overwhelming evidence provided by the plethora of
canceled and unsigned projects.
Like Rage and Warthog and numerous privately-held games development companies before it, Argonaut simply grew too big, too fast. As has been pointed out innumerable times on this
site, growth for the sake of growth is almost impossible to achieve profitably and without serious quality compromises. As Argonaut unrelentingly expanded its development resource through acquisition and organic
growth, its product quality problems multiplied. Nearly complete projects were abandoned by their original publishers and self-funded projects were being signed by increasingly lower tier publishers. The amount of
projects that simply failed to attract any publishers also began to mount up and most of those that made it to retail shelves failed to sell in sufficient volume to generate post-advance royalties let alone sequels
or continued interest from the unfortunate publishers concerned. Indeed they only confirmed that Argonaut had become a developer of, at best, mediocre products.
Unfortunately and inexplicably it seems that the
solitary success of its Harry Potter PSX team set the tone for the whole Company's strategy. As opposed to scaling the operation back, cutting loose the development teams that were consistently proving unable to
meet the current market standards, focusing back on improving its development quality and trying to mend its reputation, Argonaut opted to maintain the bulk of its staff, continue self-funding unsigned original
products and go after major production value licence projects. The problem was that publishers remained unsurprisingly reluctant to sign any of Argonaut's original IP and the sort of licence work they sought was
only being commissioned by the highest tier publishers, who with the exception of EA, had not worked with Argonaut for years or had canceled projects with them. Argonaut reported a burn rate of £1m/month at its FY04
interims and a cash level that had more than halved in the space of a single year to just £4m. It seem remarkable therefore that the Company did not recognise the unnecessary risk that this strategy represented or
take more effective action to halt its financial deterioration.
Argonaut's demise will likely sound the death knell for developers trying to come to market for quite a while. The reputation within the City for
developers was already tarnished following other listed developer failures but it is now hard to envisage a fund manager entertaining the prospect of investing in a new developer listing any time soon. Argonaut
raised £6m prior to its flotation, £18m upon flotation and generated around £8m in net royalties for its Harry Potter products representing a total "profitable" cash inflow of some £32m in an 8 year period.
Highlighting this remarkable profligacy was the fact that £26m of this came in the last 4 years alone. The Company's myopic strategy and the mismanagement of its extensive cash resources and once proud name is
particularly egregious given the parlous state the UK development sector at present and the multitude of companies that would, it could be argued, have made far better use of such assets.
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