Where Did Atari Go So Wrong?

The picture from Atari and parent company Infogrames has been unremittingly dismal in recent years: it hasn't turned a profit since 1999. Can they win the most crucial game of all...staying afloat?

by Kris Graft

You know your game company is in trouble when videogame editors are scrounging for synonyms for "troubled" whenever they are writing stories about your organization.

It seems that every time "troubled" or "struggling" Atari or its parent company Infogrames makes the news, the reports are negative. Whether it's dismal quarterly financial reports, the announcement of a big workforce cut or, most recently, the collapse of company shares, news regarding the companies simply takes on varying degrees of misery.

But where exactly did Infogrames and Atari go wrong, and why hasn't parent Infogrames turned a profit since 1999?

SHOPPING SPREE. The major contributing factor--cited by Infogrames and Atari chairman and chief creative officer himself, Bruno Bonnell--is the sizeable acquisition-spree that went on in the late-90s and 2000, which was financed with "convertible and other bonds," according to a recent letter to shareholders. As a result, the company incurred a staggering debt in excess of 600 million euros, and it has continued to feel the effects of choices made six or more years ago.

Since its European beginnings in 1983, Lyon, France-based Infogrames was all about acquisitions. As the company expanded its reach to the US, it carried on that tradition. In 1999, the company acquired a controlling stake in GT Interactive for $135 million, giving Infogrames a firm hold in the US. GTI was later named Infogrames, Inc. for North America, which was later branded Atari after 2001's $100 million acquisition of Hasbro Interactive, the firm that previously owned the classic brand. Now the US subsidiary for Infogrames is known as Atari, and has been since 2003.

Other Infogrames buys over the years included Accolade for $60 million in 1999; not exactly the most prolific of brands these days.

FEVERISH FINANCIALS. Perhaps the most obvious symptom of Infogrames' ailments is the fact that the company hasn't posted a profit since 1999. For fiscal 2006, it reported a $189 million net loss, much worse than the $42.4 million net loss from fiscal 2005.

In June, Atari likewise posted substantial losses for the most recent fiscal year, after which the company offered up the following ominous comment: "As the year-end results were substantially below the Company's expectations, the uncertainties resulting from the Company's financial condition raise substantial doubt about the Company's ability to continue as a going concern."

Needless to say, the statement was a bit disheartening for investors.

You also have the high-level personnel issues, such as the resignation of former Atari CEO James Caparro, the resignation of Atari CFO Diane Baker in February and the dismissal of Infogrames CFO Thierry Detloff a month later. In March, Atari said that 20 percent of its workforce would be cut.

The list goes on: An overdue quarterly filing, continuing reports of debt issues and loan defaults, a Nasdaq delisting and a seemingly endless string of dismal financial results preceded this week's latest bad news that Infogrames' shares are now worth a paltry 0.25 euros.

Is there nowhere to go now but up?

THE "NEW" ATARI'S HIT-AND-MISS GAME HISTORY. Back in the videogame "olden" times, Atari was a respected moniker, but as anyone that follows games can tell you, the brand has taken a beating since its inception 24 year ago. Failed hardware and sub-par software marred the brand nearly beyond recognition before it almost disappeared completely in the 90s.

But how has the company done game-wise since Infogrames officially started "reviving" the Atari label in 2002?

From a commercial standpoint, Atari is doing well to hang onto its Dragon Ball Z license, which has a built-in audience with games that traditionally sell quite well. For example, Dragon Ball Z: Budokai Tenkaichi, while receiving mixed reviews (71 percent at GameRankings.com), was one of the best sellers in late 2005. The most recent DBZ game, Super Dragon Ball Z for PS2--which was designed with the help of a former Street Fighter II producer--has received better reviews, but hasn't registered as high on the sales front.