SharkJumping

Revisiting the Sony PSP - a Great Console

I reviewed the Sony PSP handheld console a couple of years ago when it launched, pointing out its obvious hardware flaws, but being amazed by its video capabilities, and after ignoring it for 18+ months in favor of the Nintendo DS, I recently picked it back up after we bought tht new God of War PSP Entertainment Pack edition.

The first reaction is that the game God of War totally rocks since I never played it on earlier platforms.   I'm a mythology dork, so the entire story premise works, but it's also good to see a truly M rated game, with all of the violence and some of the sex, in addition to great writing.  It's a clear port of the popular PS2 game, but they actually made it work on the PSP, minimizing the load times, and playing up the console-like sound and video of the console.  After 6 months of cartoon-like graphics on the DS, I forgot that you could have a pretty true console-experience on a handheld console with a game like God of War.

Since I travel a lot, I even watched the Superbad movie UMD they packaged with the console - the movie sucks, but you have to appreciate what a beautiful movie it is on the PSP screen and how the sound just pops for a user, in addition to a reasonable battery life.  As always, Sony has created a rocking piece of hardware yet forgotten about what will make it successful.  The UMD movie/game playback format is a loser,  the required Memory Stick Pro recordable format is 75% more expensive than competing formats for no reason, and the software/games has been mostly forgettable until God of War, from my point of view.

The good news is that the PSP is finally outselling the Nintendo DS in Japan, generally due to Japan-specific games or some strange Japan-only reason.  The bad news is that I had written off the device until I saw the cool new software for it, since there was no recent reason for anyone to buy the PSP console, but now there appears to be no advertising campaign for the console, which is too bad.

So the end of the story is that the Sony PSP rocks as a handheld console - the games used to suck, but with the God of War and a new array of games, it's worth considering the device, unlike in recent times.  The proprietary storage/memory format focus is incredibly dumb, but the rest of the device design truly shows off the device, and for those who are tired of DS mini-games, the newer PSP games are a lot of fun, especially since I'm playing them now...

Pacific Poker Upgrades Software with Avatars

Leading poker provider Pacific Poker (an 888.com brand) today announced a new release of their poker software which enables users to choose their own avatars.  The options are quite limited by Meez standards, with only 15 default avatar choices, and even more limiting, the table always rotates so that your avatar is on the bottom, so that you look at the back of his/her head.

However, it's a big step forward as the large poker/gaming operators are starting to understand that giving regular (meaning non-hard core) users a personality at the table is a great way to encourage more mainstream players to join the service, and that you might even be able to sell or grant them visual upgrades in the future, such as unique clothing items or special animations.  It's one more way to create community and personality around a gaming/community service, which helps to drive up "barriers to exit" as competition emerges. 

The overall trend of giving users the increasing ability to personalize their game experience is accelerating, whether its making a Mii on the Nintendo Wii, modifying your avatar in Guitar Hero 3, or changing your character in EA's Tiger Woods Golf.   In fact, some of the console publishers have told me that modifying your character is now a top design criteria for certain types of upcoming games.  Of course, as this trend extends to web-based and Internet connected, handheld games, Meez will be a big part of it, both in our own games like Dance Floor Destroyer, and with 3rd party ones, so contact us if you're interested in partnering.

Halo 3 Ghostrides the Whip

Not to beat this topic to death, but our superstar Marketing Associate Mayka pointed out to me today that in Halo 3, when 2 soldiers jump onto one of the tanks, one of them yells "Ghost Ride the Whip!", so it appears that this expression has completely crossed the chasm...

Meez Introduces Casual Games

We launched phase 1 of our Meez Casual Game channel last night - you can see it here.   The first set of games come from well known casual publishers as well as from top flash developers, and they all trigger different emotions in your Meez as you play them - we're bringing identity and emotions to casual games.  Now wait until you see what we do next...

More Left Behind Humor - Red Chip Report

Too late for April Fools, small cap, so-called research firm Red Chip analyst Jim Altenbach has released a very funny research report on my favorite Christian game company, Left Behind Games.  The finance firm is preparing for its May 29th SF investor conference.  This report is freely available from Red Chip's site here, but the humor runs far and wide, especially since it follows up on the initial Dec 1, 2006 coverage report (only 4.5 months ago), so there is an easy comparison between the two reports.

On December 1, 2006, "after meeting with corporate management, including the CEO", Red Chip initiated coverage of LFBG, projecting a $2M profit for calendar 2006 Q4 quarter ending literally 30 days later and giving it a STRONG BUY rating.  So what happened in those 30 days?  Well, LFBG ended up reporting a loss of $4.125M for the quarter.   At least there should be no SEC worry that Red Chip somehow got insider information :)

Now that it's 4 months later, what does the new April 19th report indicate?  To no one's surprise, after watching LFBG's stock plunge to $.21 from the $4.00 in December (and far lower than the projected mid-2008 $15 price), Red Chip has decided that LFBG is undervalued.  This is especially fun since Red Chip is still projecting the company to be profitable in fiscal year 2008 (3/31/08), for reasons no one can really understand based on the numbers or even a remote understanding of the video game sector. 

Red Chip currently projects that Left Behind will show revenue of $4.45M for the year ending 3/07, with a loss of $18M.  That compares to an actual revenue number of $1.01M for the 9 months ending 12/06 and loss of $21.6M, so it projects a revenue rate of $3.44M for Q1 2007, usually a significant down quarter for software publishers since it's post-holiday season, and that LFBG will show a $750K PROFIT for the quarter (I can't figure out what Red Chip did with the other $3M in losses for the year). 

One would assume that this projection is a pretty safe bet since the fiscal quarter ended 19 days AFTER the report was issued, and the research firm should be able to roughly establish the LFBG unit sell-through for the company through standard research techniques such as retailer calls and research analysis.  However, I can't imagine any possible scenario that would give LFBG a revenue number even remotely close to $3.44M for Q1 2007, but this is probably why I'm not an equity analyst.

There is also the small detail that LFBG had $73K in cash at 12/31/06, had a working capital deficit of $987K, had a "going concern" issue from the auditors, and was burning cash like wild - "Red Chip finds this to be a challenge".  But apparently, "most academics and practitioners would agree that financial distress can be fixed by capital restructuring, or if the firm can just squeak by to profitability, it can prosper."  It's like reading Sun Tzu - you can't imagine the wisdom in those words...The new rating is a Speculative Buy, with a 2-3 year target price of $2.60.

So what happens now?  As CFO Shrakes apparently indicates to Red Chip (and I agree), LFBG is probably going to raise additional funds at the current very low (and dilutive) price since it still holds a valuable asset - the game license to immensely popular literary series Left Behind Games.  But this company continues to be an utter disaster at so many levels that investors should just flee this stock and pray for forgiveness.  Or they can find comfort by reading the blog by Red Chip CEO Dave Gentry, who engages in some of the more amusing Middle East political analysis that I have seen in a long time - see here

The Crucifixion of Left Behind Games

In honor of Easter, I decided to take another look at Left Behind Games (small public video game publisher with license to extremely popular fiction series "Left Behind") to see if it was still suffering on the cross or whether it would be rising from the dead.  I originally blogged about LBG in October, 2006 (here) when the stock was at an amazing $7 (LFBG.OB), and I pointed out that it was stupidly overvalued based on any reasonable metric.

So what has happened in the meantime?  Well, the stock is now at $.31 (yes, that's cents, as in slightly more than a quarter), giving the company a valuation of roughly $8M, but it's recently been as low as $.18 per share.  The company did $1M in Q4 2006 as their flagship game product hit the shelves, but the company lost $4M+, giving it almost no cash reserves in Q1, 2007.   The game has received mostly mediocre reviews, although I thought it was a reasonable effort, and LBG is pretty much Dead On Arrival at this point.

So what went wrong?  Well, you have an incredibly strong license here - I love the Left Behind Intellectual Property  - it has tens of millions of books sold, a great fan base, loyal authors, and a rich set of characters that one could mine forever to create rich video games.  There are numerous ways one could leverage this brand into multiple video game revenue streams, but their initial game was not one of the obvious first steps.

So what does this management team do with such a strong license?  They reverse the company into a shell company to get it public (1st bad move - you couldn't get funding with this license?), then spend an amazing $20M+ on building the first complex RTS game (2nd bad move - do they even know how to build games?), and then, by the way, on the side, they try to build a Christian social media site (www.dreamwebspace.com - this would be the first time anyone has ever mentioned this site)  while seemingly forgetting the core shareholder premise - let's build a video game franchise around a huge literary gem.

Without ever meeting the executive team, you have to conclude that there is an incredible lack of competence here.  The license rocks - how does one blow that amount of money on producing such a mediocre game while apparently spending more time pumping out press releases than actually doing QA on the game?  There were an amazing 8 press releases in December alone, including such gems as "Tyndale House Publisher Supports Left Behind Games", or my favorite from January, "Left Behind Games Receives First Order from Australia" (must be a huge market - can't wait for the New Zealand or Singapore press release)

The company is dead, and it's too early in March to see if resurrection will take place.  It's a huge bummer because the license deserves a strong development and publishing partner.  I hope Tyndale actually looks for competence next time they choose a video game licensee.

Left Behind Games - An Unholy Valuation?

Left Behind Games is a small video game publisher (LFBG.OB) which went public in a reverse merger in February, 2006.  It has one asset, the exclusive license to the massively popular, Christian-themed, Left Behind book series, and its initial PC game will ship November 7.  So how would one value a start-up company with a possibly strong license, $12M in negative shareholder equity and no track record of delivering top-selling product?

Apparently, the public markets should value a company like this at an astonishing $128M!  That truly takes a holy man to understand, especially the 20% rise in the stock today.  Let's pretend the game sells 100K units or even 200K, which would constitute a good hit - that would give it $2.5-5M in revenue for 2007, valuing it at 25X Revenue, or 6 times higher than any other public game company.  Even more amusing is that the company just sold 3.8M shares in a private offering for $1.50 a share, yet the stock is now at $7.21, 2 weeks after it closed the offering.  And I forgot - there has never been a successful religious-themed video game.

So unless you consider this to be a donation, I would avoid this stock like the plague at current valuations.  It's possible Left Behind creates a monstrous hit like Mel Gibson did with the movie Passion of Christ, but it's about as likely as hitting the lottery at this price.

Further PS3 Delays - No Surprise

As I predicted on March 23 in this post, Sony announced this week that they were cutting their 2006 PS3 sales and production numbers, thus pummeling their stock (see IHT article here).  In addition, they will now not launch the PS3 in Europe until Q2 2007 rather than attempting to carry out a simultaneous global release as they had previously stated.  Sony is holding to its 6M projection by end of Q1 2007, but it's hard to see why that's a credible statement at this point.

None of this is a surprise - there is simply no way to design and manufacture a system this complex in the time frames they were discussing.  This is especially true when Sony is in the midst of a massive laptop battery recall, which makes the emphasis on quality even more important.  Given that Microsoft is increasing its XBox 360 sales projections, and that Nintendo remains firmly committed to its November launch date in volume, the situation at Sony is getting increasingly difficult.  As one can see from the PSP, Sony can still make gorgeous hardware, but the higher price, lack of quality software and the inability to create a compelling online experience is hurting sales vs the Nintendo DS - it looks like PS3 might be heading down the same path.

Atom Entertainment Deal: A Great Move by Viacom

MTV Networks/Viacom announced (see here) this week that they were acquiring Atom Entertainment (home of Shockwave.com, Atom Films and Addicting Clips/Games) for approximately $200M.  I want to be clear that I'm biased about Atom since CEO Mika Salmi is a friend, as are some of the other executives, but this is a simply great move by MTV, and it appears to be a fair price by both sides.

With Atom, MTV gets a great creative team, a select group of popular sites in games and video with 20M+ monthly unique visitors to plug into MTV's strong advertising team, and  another source of content for the rest of MTV Networks.  I have to tip my hat to the executives and investors of Atom who persevered for the last 7 years through the bubble mayhem, the downturn carnage, and now the steady upswing in their properties, with the end financial result being quite positive for all involved - plus it's yet another great outcome for a RealNetworks alum, as so many of us are.  I love casual games, and I think this purchase vaults MTV Networks right into a strong position in this rapidly growing category, and the Atom/Addicting video assets are a strong fit for both iFilm and for MTV's more mature video properties as a "farm team" or modern A&R team to find upcoming talent.

Great move for MTV Networks, and kudos to the Atom team for sticking it out through the grim times.  I think this move is being underestimated by the market for how much it will bring to the company.

Yet Another Video Game Law Tossed Out

As detailed here, Minnesota today had its proposed law against sales of violent video games to minors thrown out by a state judge who, shock of all shocks, ruled it was unconstitutional.  This joins a long line of decisions against similar laws in states such as Illinois, California, Michigan and others.  I understand that it's an election cycle for the House and Senate, and that presidential contenders are already jockeying for position for 2008 on supposedly moral issues like this one (see Family Entertainment Protection Act post here), but this waste of taxpayer money and politician time is starting to get about as tiresome as debating constitutional amendments against flag burning. 

Violent video games are no different than violent movies - they have a voluntary industry-rating system which probably works as well as the movie one does, keeping most underage children from consuming inappropriate content.  As a parent of young children, I would definitely not like them to consume M rated games until they are old enough to understand the situation, but I also can't imagine why games should be singled out above movies, and apparently neither do judges in most states.