|
Rage's results reflect principally the decision by the Company to move back into self-publishing. Under this model, with no
advances from third party publishers to recognise, the Company must wait until it can either gain distribution advances (which it will likely do for each of its titles) or until its products start to sell before it
can derive revenue from its current products in development. Indeed, some 54% of its interim revenues came from its DID subsidiary (which also contributed +£0.6m to the operating profit line) which is working on one
of only two titles being developed for third party publishers and represents advances from Infogrames. Whilst the swing from profitability to loss may appear fairly significant, stripping out the goodwill and
national insurance contribution (on exercise of options) charges reveals that Rage made only a marginal loss. We expect the Company to keep running at a break-even rate until the first of its self-published titles
is launched in September. The Company points out that it could have maintained the developer model and sought publisher advances (which would have boosted revenues and moved the company into profit) but chose to
self-finance the titles. The problem faced by Rage now is that the market is proving particularly punitive towards everything but the highest quality titles and Rage could easily find it difficult to produce a
consistent flow of such titles.
These changes have lead the Company to downgrade its 2000 year-end forecast from a profit of around £4.7m to break-even.
13/04/00 Rage forms Rage On-Line and raises a further £6.4m
Rage has formed a dedicated company to handle its
online operations. Rage On-Line and successfully raised £6.4m of new money to fund the Company's expansion into both the online world and the next generation games platforms. The deal leaves the company in a very
healthy cash position with around £13m in the bank and an annual cash-burn rate (before marketing expenses or cash inflow) of around £6m-£7m.
In addition, the Company announced that it has signed a number of online deals:
- Rage has acquired online games developers Caffeine Studios Limited and The Internet Football Club Limited for £3m (£2m in shares,
£1m in cash)
- Rage has signed a deal with supermarket Tesco to provide an internet football management game for Tesconet, Tesco's ISP/portal service. Use of the game, initially, will be free.
- Rage has
signed a deal with Orange to provide three WAP titles. The precise revenue model has yet to be finalised.
Rage are not the only company to be developing an online football management game and will face
considerable competition from the likes of Pure Entertainment and others. The revenue flow from such a title (and from the Tesconet deal) is not expected to be significant...Rage's deal with Orange on the other hand
does have potential as there will likely be a concrete revenue model (probably based on a per minute revenue share with Orange) and the appeal of mobile phone-based online games has been proven (in Japan where games
publisher Bandai generates over $3m per month from 1m subscribers to its NTT DoCoMo mobile game channel).
12/05/00 Rage unveil Unreal engine licensing deal and PSX2 launch title
Rage has revealed that it has licensed
Epic Games' Unreal 3D engine and has entered into an agreement to become a reseller of the engine to third party developers. The advantages to companies licensing pre-built engines is that they can focus on creating
the actual game (as opposed to the technology behind the game) and in theory get a game to market quicker and more cheaply. The disadvantage is that games using the same engine often look very similar and if a
derivative title is released too long after the original game (from which the engine is derived), it can also appear outdated. The technology being used - and sold - by Rage is around 9 months old and Rage is
already developing two Unreal-based products. There will be a number of products using the same Unreal engine over the next 18 months but as Half Life (a Quake 2 derived game) has shown, if the gameplay is good
enough the age of the engine and the presence of competition is irrelevant.
Cutting edge engines tend to be sold for between £100,000 and £1m and occasionally involve a royalty on sales generated. It is likely that the Unreal engine will have a flight price of between £100,000 and £300,000.
Rage also revealed that it will have a racing game, Wild Wild Racing, available for PSX2's European launch in October this year. Rage benefited considerable from having Incoming ready for Dreamcast's launch in
Japan but, as always, much will depend in this instance on the quality of the title.
25/08/00 Rage announces profits warning following contract cancellation
Rage revealed that a key publishing
contract which had been expected to contribute £0.7m and £1m for FY00 and FY01 respectively has been canceled. As a result of the cancellation, believed to be by Microsoft for the Striker football series, the
Company has been forced to issue a profits warning.
However, the news is not all negative as the intellectual property rights to the title revert back to Rage as a result of the cancellation and the product(s)
can be re-pitched to separate publishers. The Company has also confirmed that it has sufficient cash (£6.5m) to keep the Company going to profitability.
04/09/00 Rage unveils US publishing deal with Interplay
Rage has secured a 4 product, multi-format publishing deal
with US publisher Interplay. Interplay, which is majority owned by (but run separately to) French listed publisher Titus, will market and distribute the PC and next-gen console versions of Wild Wild Racing, Hostile
Waters, Off Road and Incoming Forces. The deal incorporates an advance of unspecified size and therefore provides the Company with a guaranteed revenue backbone. Based on typical US publisher deals, Rage is likely
to receive an approximate 30%-35% royalty fee from Interplay although with an advance and a high likelihood of cross-collateralisation (see glossary) for all 4 products, it will likely be a while before the Company gets to recognise any post-advance royalties - and even then it depends on the aggregate
sales of all 4 titles exceeding the total advance. Rage's current accounting policy is to recognise the proportion of the advance that applies to the percentage of development those products have reached and
therefore part of that advance will be recognised in the year to 30/06/00. This though will not affect the profits warning issued on 25/08/00.
On a considerably smaller scale, the Company also unveiled a
distribution agreement with WAP games publisher Digital Bridges for Rage's online football title. WAP gaming is in its infancy and will be superseded by more advanced mobile games platforms but does represent the
beginnings of a market that is expected to grow to represent as much as 30% of the total games industry over the next 5 years. Even though this first mobile games deal might not deliver meaningful revenues, it will
serve to educate Rage for future mobile titles.
25/09/00 Rage FY2000 Prelims
Rage's results reflect the volatility which games development and publishing
companies' financial performance can be subject to. The Company began the year with forecasts of over £4m profit for the year-end, a far cry from the £0.6m loss before tax (stripping out goodwill) actually achieved.
Product slippage and canceled contracts are just some of the gremlins which can dramatically alter the financial complexion of games companies and make the job of predicting future performance so difficult. However
Rage's habit of changing business model every year does not help either and it is the move back to self-publishing that principally caused the 50% drop in sales compared to FY99.
With 23 development teams and
over 230 employees, Rage has a high cash burn rate (£3.6m net cash outflow from operations in FY00) but is generating a large amount of intellectual property which will be exploited in future periods. FY01 should
see significant improvements over FY00 as a result although, as demonstrated this year, this should be taken with numerous caveats.
13/11/00 Rage enters digital distribution agreement
Rage has signed a non-exclusive agreement with AIM-listed
Tornado Group to participate in trials of Tornado's secure electronic distribution system. Tornado provides a digital rights management and distribution service which allows for digital media, such as games, to be
securely delivered through retailers to end-users. Rage has been sensible in ensuring that the deal, which comes less than a month after SCi's exclusive digital distribution deal with Gameplay, is non-exclusive as
the variety of companies and technologies servicing the digital distribution market is likely to broaden considerably over the next few years.
Rage will only supply PC titles (none of the console manufacturers
would allow such a distribution method to encompass their software without considerable controls over how and at what price it is done) but should still gain considerably experience from the exercise.
Although
the Tornado technology appears similar to other DRM players, the Tornado approach is interesting, if anything, because they are principally targeting traditional retailers (as opposed to going direct to the
end-users, or via high traffic web sites/ISPs). Although excellent aggregators of consumers offline, one should question retailers' ability to aggregate consumers online and also how exactly the software (many
examples of which comprise GBs of data) will be relayed to the end-user online. As with all content neutral distribution ventures, success will only come with critical mass which is why Rage's decision to pursue a
non-exclusive relationship with Tornado is laudable.
|
