Midway reveals weak financials

David Zucker, Midway's new CEO, has high hopes for 2004 but admitted yesterday in an analyst call that the most recent financials from the company--from the fourth quarter and full year 2003--were "very poor."

"With notable exception, Midway's games over the last few years have been lacking on both the quality and cultural-relevance fronts," Zucker said at the opening of his comments to the analyst community yesterday.

The company announced revenues of $30 million in the fourth quarter ending December 28, 2003, down from $80 million the previous year. For the full year, revenues stood at $92 million, down from $191 the previous year. Midway reported net losses of $27.8 million for the quarter and $115 million for the year, according to CCBN StreetEvents coverage.

Partly to blame for the soft numbers was its unstable relationship with the retail community, the company said. "Access to retail shelves was something that hurt us in 2003," Zucker said. "Freestyle Metal X, Freaky Flyers, and Roadkill all failed to achieve distribution to some key retailers."

He added that Midway "is in a significantly better position with major retailers for 2004" and that retailers "are telling us that they are more confident about the ability of our 2004 titles to perform and the ability of our new marketing team to execute."

In keeping with a now-common strategy of fewer but better games, Midway has already pared its release calendar. It released 29 SKUs last year, compared with 42 in the preceding year. It will continue to monitor its release calendar accordingly, Zucker said.

For the coming year, calendar and fiscal 2004, the company projects revenue of $140 million, an increase of more than 50 percent compared to the prior year, Zucker pointed out. Zucker said such revenues will be derived from actions designed to "realign our operations with our new business strategy."

Midway CFO Thomas Powell said the higher revenue targets are based on the company's high hopes for The Suffering (due next month on the Xbox and PS2 and later this year on the PC), which he called a "unique and fresh take on the survival horror genre," as well as a second tier of titles. "Our second major release this year will be NBA Ballers, in early April, [and] our summer releases include Major League Baseball: SlugFest, and Psi-Ops," Powell said. Fall releases for Midway include sequels to Mortal Kombat, Area 51, and NARC.

Taking the long view, Zucker held out conviction that he could turn Midway's fortunes around. "Cultural relevance is easier to fix than quality, and doing so draws directly from my background," Zucker said, referring to his years as president of Playboy Enterprises. "Both the gaming enthusiast press and our major retailers are telling us that our 2004 slate of games is back on track on this front."

Referring to a number of recent hires, most notably Steve Allison from Atari (now chief marketing officer at Midway), Zucker said, "Talent is only part of the formula for building a successful product development organization. The organization and management of these resources is at least, if not more, critical to producing winning products. To this end, we have reorganized and redirected management resources towards those most critical product development processes."