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MAY 26, 2003
Will Enter the Matrix Save Infogrames' Skin? Europe's top video-game maker badly needs a blockbuster Corporate dramas don't interest Nathaniel Dennett, a 10-year-old student at Paris' Ecole de la Motte Picquet. He couldn't care less that shares in Europe's largest video-game maker, Infogrames Entertainment, have tripled since early March. As for the revelation on May 8 that Infogrames is changing its name to that of video-game pioneer Atari Inc.? Yawn. The game-loving garçon has never heard of Atari, which had its heyday in the 1980s. But ask him about Infogrames' highly anticipated new title, Enter the Matrix, which shipped a record 4 million copies before its May 15 release, and his eyes light up. "I love the Matrix movie," he says. "The game sounds really cool." That's music to the ears of troubled Infogrames. Headquartered in picturesque Lyons, Infogrames has been on a ride more death-defying than anything gamers could conjure up in its popular simulation title, Roller Coaster Tycoon. Founded in 1983 on a $10,000 investment by French entrepreneurs Bruno Bonnell and Christophe Sapet, Infogrames took off after a public offering in 1993, increasing sales 30-fold in the next seven years, to more than $510 million. When its stock peaked in March, 2000, Infogrames had a market capitalization of $4.1 billion. Charismatic Chief Executive Bonnell, with his trademark T-shirts and shaved head, became known as "the Bill Gates of France." Then the dream started to go haywire. To gain scale in the fiercely competitive video-game business, Bonnell went on a massive acquisition binge, spending more than $300 million in 1999 and 2000 on mostly American rivals such as GT Interactive, Hasbro Interactive, and Accolade. The deals moved Infogrames into the ranks of the top three global players and netted marquee titles such as Scrabble, Dragonball Z, and Freddie Fish -- not to mention the rights to the Atari name, perhaps the most storied brand in the history of video games. But the shopping spree, plus continuing operating losses, drove net debt to more than $550 million. Infogrames' stock plunged 98%, to a low of $1.05 last September. To stay afloat, the company laid off 60% of its French staff. Throughout the turmoil, Bonnell kept plugging away on the game he is convinced will turn around the company. His optimism may be justified. Enter the Matrix, which made its debut on the same day as Warner Bros. Inc.'s film sequel, The Matrix: Reloaded, has garnered upbeat previews from gaming enthusiasts. Preorders have already landed it among the top 10 best-sellers of all time. The action game, which runs on PCs and most game consoles, features martial arts and slow-motion special effects just like the movie. But will one blockbuster be enough to stave off future financial problems? Infogrames is on track to book a $34 million net loss for the fiscal year ending June 30 on revenues of $1 billion, predicts Goldman, Sachs & Co. But Michael Pachter of brokerage Wedbush Morgan Securities in Los Angeles says that Enter the Matrix, which retails at $50, wouldn't wipe Infogrames' balance sheet clean even it it sold a record 10 million copies. Bonnell is unfazed. "We had a lot of tough things to work through last year," says the 44-year-old CEO, interviewed in Hollywood, where he was touting the company's newest offerings at a giant trade show. "Now, we've matured into a much more global company." In the past year, Bonnell has slashed overhead, trimmed debt by $115 million, and canceled 50% of products in development. At the same time, Bonnell has raised R&D spending. He's shifting to a blockbuster model, pumping millions into high-stakes projects such as the Matrix game and an upcoming tie-in with the Terminator 3 movie, opening July 2. Infogrames is recognized as a pioneer in 3-D effects; now it's breaking new ground in integrating live-action footage into games. Total costs for Enter the Matrix could top $80 million, including the price Infogrames paid to acquire the Los Angeles studio, Shiny Entertainment Inc., that wrote the game. "We're making big bets, but the returns can also be higher," Bonnell says. Industry experts agree that's a wise path. But the final say on Infogrames' fate, of course, belongs to the notoriously finicky and unpredictable Nathaniel Dennetts of the world.  By Andy Reinhardt in Paris, with Ronald Grover in Hollywood Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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