TDK Profits From Electronic Arts Turndown of “Shrek”

TDK Profits From Electronic Arts Turndown of ‘Shrek’ By CARLOS MARTINEZ Staff Reporter Coming off its first profitable quarter after three consecutive losing ones, TDK Mediactive Inc. CEO Vincent Bitetti can thank his luck for noticing a picture of something called “Shrek” on a studio wall a couple of years ago. For the quarter ended Dec. 31, the video game maker reported net income of $827,825 on total revenue of $16.5 million, compared to $142,446 in net income on $3.8 million in total revenue in the same quarter a year ago. The revenue jump was mostly due to the popularity of its new “Shrek” video game, said Bitetti, but it wouldn’t have been possible without the unusual circumstances that led to the company’s deal to secure the licensing agreement for the animated movie. “I was at Amblin Entertainment (a unit of Dreamworks LLC) and I saw this picture they had of Shrek and I was immediately interested,” Bitetti said of the October 2000 meeting at the studio. “But they said this other company was looking to do a game.” That other company, Santa Monica-based Electronic Arts Inc. and a major player in the video game industry, had a so-called “first look” right on any DreamWorks gaming project. EA and DreamWorks made the first-look deal in 1998 when the studio got out of the video game business itself by selling DreamWorks Interactive to Electronic Arts. “We expressed our interest and we pursued it. We didn’t wait for them to come to us,” said Bitetti, whose company kept tabs on whether EA would pick up its option on “Shrek.” But once TDK learned EA had passed on “Shrek,” it was quick to pounce on the new property in January 2001. EA officials would not comment, but Bitetti said it was likely a fantasy character like Shrek did not fit neatly with EA’s core business of sports-based video games. TDK felt it would have a good shot at landing and successfully marketing “Shrek” because the game was similar to other children’s games it had developed, Bitetti said, like the dinosaur-laden “Land Before Time” and “Wendy the Good Witch.” TDK was able to secure the contract with Dreamworks and quickly began developing the game for the new Microsoft Corp. Xbox platform that was issued in October. “Shrek” accounted for 70 percent of TDK’s sales in the last quarter of 2001. “We felt from the beginning that we would have an excellent year because of Shrek,” said TDK CFO Martin G. Paravato. Michael G. Gardner, managing director of capital markets for Wedbush Morgan Securities Inc. in Los Angeles, said TDK’s holiday comeback was hardly a surprise given the popularity of the film “Shrek” and the two new game platforms, Xbox and the Nintendo Co.’s GameCube. “Anytime you’re marketing games for new game platforms, it’s going to be a good year,” Gardner said. The company’s momentum could continue through next year as part of a general five-year cycle that follows the launch of new game platforms, he said. “If the company continues to execute and develop new games, they could have an even bigger year,” said Gardner, who would not predict potential sales numbers or a target for the company’s stock, citing a typically unstable gaming market. Traditionally, video game makers can count on sales growth through the first three years after the launch of a new game platform, followed by a steady decline as game buyers hold off on game purchases, waiting for the next new game console to hit the market. Paravato said TDK was also able to capitalize during the holiday season on other licensed games like “Casper the Friendly Ghost” for PlayStation 2; “The Land Before Time” from the movie of the same name for the Xbox; and the company’s first original title, “Lady Sia,” for the Nintendo Game Boy Advance. “But it’s too early to tell what we’ll do the rest of the year,” he said. “We just don’t have enough information.” This year, the company is planning to issue 17 more games, compared to 13 in 2001, including an additional “Shrek” game and an “Aquaman” game based on the comic book superhero. In doing so, the company hopes to generate enough interest among analysts to return to Nasdaq, Bitetti said. It was delisted in 1999 and is now traded on the OTC Bulletin Board.