Midway Announces Larger Loss, Lower Guidance

Game publisher and developer Midway has announced somewhat disappointing results of operations for the 2005 second quarter, revealing a total of $36.9 million in revenues, compared with $47.3 million in the previous year, and a loss of $29.9 million for the quarter, increased from $11.2 million in 2004. Midway indicated that the second quarter results were below previously provided expectations, primarily due to lower-than-forecasted sales of Xbox-exclusive action title Unreal Championship 2, as well as what the company described as "the writedown of capitalized product development costs for upcoming releases and the need for additional reserves for markdowns." The company also released Area 51 for PlayStation 2, Xbox, and PC, which, although becoming the #6 overall game for the month of May in the U.S. according to NPD Funworld, was not perhaps the breakout hit that Midway might have wanted. Nonetheless, David F. Zucker, president and chief executive officer of Midway, commented optimistically: "Midway's second quarter product releases, Area 51 and Unreal Championship 2, generated an enthusiastic response from critics and the gaming community. Importantly, our upcoming holiday lineup is garnering early positive feedback from reviewers." Looking forward, Midway announced that it expects net revenues of approximately $30 million for the quarter ending in September, with a net loss of approximately $19 million. During the quarter, the company expects to release titles including Mortal Kombat: Shaolin Monks for PlayStation 2 and Xbox, Midway Arcade Treasures 3 for PlayStation 2, Xbox, and GameCube. Continuing into the fourth quarter, the company announced it intends to release or record revenue for major titles including The Suffering: Ties that Bind for PlayStation 2, Xbox, Gauntlet: Seven Sorrows for PlayStation 2 and Xbox, Blitz: The League for PlayStation 2 and Xbox, and L.A. Rush for PlayStation 2 and Xbox. Midway also confirmed that it will release its first two PSP titles: Mortal Kombat: Deception Unchained and Midway Arcade Treasures: Extended Play during the quarter. However, Midway has revised its revenue expectations, in part due to the rescheduling of the release date for PC strategy title Rise & Fall: Civilizations at War to the first quarter of 2006, and now expects net revenues of approximately $200 million, as compared to the previous estimate of $225 million, and a net loss of $60 million, up from estimates of $47 million, a definite disappointment to the resurgent and acquisitive firm, which has just announced the purchase of Australian developer Ratbag Games. The company's shares were down almost 10% to $12.50 in after-hours trading.