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StockTalk
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TMF Interview With Acclaim Entertainment President, Co-Chairman, and CEO Greg Fischbach
June 1, 1999
With Dave Marino-Nachison (TMF Braden)
Glen Cove, N.Y.-based Acclaim Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AKLM)") else Response.Write("(Nasdaq: AKLM)") end if %> develops, publishes, and markets software for home gaming platforms such as Nintendo's N64 and Sony's PlayStation. Acclaim also distributes software for other game publishers and publishes comic books and game strategy guides. Among Acclaim's best-known game titles are Turok, NFL Quarterback Club, and NBA Jam.
TMF: The first thing I wanted to ask you was, I guess you were probably at the E3 Expo last month -- is that right?
Fischbach: Yes.
TMF: Well, I wanted to ask first of all what sort of things you were showing and also your overall impression of the show, what maybe you saw and what impressed you as far as what's going on in the industry at large.
Fischbach: Well, basically I got a glimpse of what the Christmas lineup looks like, beginning in July with our wrestling format, WWF Attitude, then going into Shadow Man and Re-Volt and [NFL] Quarterback Club and TrickStyle and then coming out of the first of the year with Jeremy McGrath Supercross [2000], a couple of games on "South Park" -- one called South Park Love Shack and another called South Park Rally, which I think are really funny using the same kind of voice and speech in order to add body to the games and make them interesting to play -- [and] Armorines and a couple of other projects.
We thought it was a really good show and we thought retail was really up. From an industry perspective, I think what you saw was a major announcement by Nintendo with respect to its next generation hardware system [and] its partnership with IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> and Matsushita <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MC)") else Response.Write("(NYSE: MC)") end if %>, which I felt was very significant.
Further movement by Sony <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNE)") else Response.Write("(NYSE: SNE)") end if %> just in broadening its product line and continuing to increase its velocity in the U.S. marketplace and a very surprising launch by Sega -- surprising in that I think that a lot of people on the site felt that the DreamCast launch by Sega would be so-so and what they showed was a very wide range of products that were very well-received by retail and with retail numbers that looked very supportive of the category.
TMF: Is Acclaim going to be developing games for the DreamCast system?
Fischbach: We're developing some products for DreamCast as we go forward, yes, TrickStyle being one of them.
TMF: Can you talk a little bit about the process that you go through when a company announces a next-generation platform? What does that do to your process?
Fischbach: Well, that's not the first time we've been there, but the analysis is when does it change over -- when do the two apexes come together -- and what does the market look like as we transition out of one hardware system and move on to another hardware system and what do you do with your internal resources.
In other words, we have 600 people writing software, and do we want to keep those resources writing software for the older platforms or do we want to put them on the new platforms so we can come out with products like Turok and Quarterback Club -- that are really eye-catching and take advantage of the hardware system -- that are really next-generation software in comparison to what's on the marketplace. And then we have the issue of writing engines and tools to support the new hardware systems so our access to the information early on is really critical in doing that.
That's the kind of decision process that we go through in our planning process. We plan anywhere from three to five years going forward. Some of the branded titles, especially the sports titles, we'll spend 11, 12 months writing a piece of software versus games like Shadow Man which have been in development for almost three years.
TMF: From what I've read, the South Park games are really expected to be a big hit coming up this holiday season and I was wondering how important that part of development is, as far as acquiring licenses to develop products based on other elements of popular culture.
Fischbach: We're thinking about really three approaches to how we develop our software. We certainly use what we call opportunistic licenses like South Park and I think as systems age and as the demographics of the audience widen, products that are branded and are known by just using it as a category, the "Wal-Mart shopper," can become very successful in our marketplaces and that audience is what's critical -- whereas products that are created for the new hardware systems really go to hard-core gamers and that audience is very critical.
TMF: It seems like right now many of the games become brands themselves -- I mean, you take something like a Turok or NBA Jam where you can sort of reiterate it every year.
Fischbach: That's really an advantage, so we develop our own brand system as we go through. Our own brands divide themselves between character brands like a Turok or a Shadow Man and sports brands like NBA Jam or Quarterback Club.
TMF: Do you try to establish a certain balance between developing your franchises and developing new products as you go along?
Fischbach: We look at the new hardware systems as being a vehicle for introducing new franchises or new brands to an area that's pretty virgin, and it's necessary for a product to be known by the marketplace and the Internet and word of mouth has a great deal of influence on a product's acceptability.
Turok was a product that we did put on television, but I think that television just reinforced what was around the product. I think on Turok 1 we put 400,000 or 500,000 units in the marketplace against a user base of about 2.5 million users. So if the product is right, the launch of the hardware system -- or that year of the launch of the hardware system -- is a real opportunity for some of the software companies.
TMF: You guys really develop your own games but also distribute games made by other developers.
Fischbach: A little bit. Especially in Europe, not in the United States.
TMF: That's not a very large part of your revenue stream? About how much is that?
Fischbach: I think from our European revenue stream it's maybe 10% or 15%.
TMF: When you talk about the Acclaim name, do game buyers know they are buying games from Acclaim? I mean is there such a thing as a brand as far as the overall manufacturer?
Fischbach: I think so. I think as Acclaim Sports becomes a much more powerful brand, you'll see how we use it in our advertising as we go forward. We've changed the look and feel of our sports products. Every time you see an Acclaim Sports title, you'll know it's from Acclaim Sports; you won't have to ask yourself a secondary question.
A little bit of that you can call just brand managing the stuff that comes out. I use an analogy called Campbell Soup <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPB)") else Response.Write("(NYSE: CPB)") end if %>: you know that when you see a Campbell Soup product you don't know what's inside of it, but you know it's Campbell Soup. We want the same kind of reference to be made to our Acclaim-brand sports projects. We will also use that same branding with respect to our character-based games as well as we go forward next year.
And that's kind of like that editorial -- you go back to the old book business where the imprint of the publisher really meant something because it meant that somebody was choosing the product, choosing the books and that you like that particular printer and you'd follow them.
TMF: I would guess as far as retailers would go, that sort of statement would be more important perhaps than with the shoppers but maybe that's not what you're saying?
Fischbach: I think that there's a secondary reference point. I think that the brand does become important in terms of quality assurance. And certainly there are other examples of where using a branding approach to our product line has really pushed the product line forward. It brings everything into the product line.
So if we have, I think, almost a dozen different sports including some of the extreme sports that come out in our sports lineup, that becomes very powerful and you see Acclaim Sports in the middle of it and you bought football and you're not sure there's three other baseball games and you're going to try and chose between A, B or C hopefully because you had a good experience with our football game you say, "Ah, I had a good experience and I'll choose their baseball game as well."
TMF: I suppose now that I think about that, I think of my friends who buy a lot of games from Electronic Arts <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EA)") else Response.Write("(Nasdaq: EA)") end if %> because of that same sort of phenomenon. Well, that's interesting to hear.
Right now in the music industry you have a lot of talk about MP3s and a lot of people are worried about how that's going to change the way things are distributed and copy protection issues. Is there a similar issue in the video game industry right now? I mean I guess there are emulators that haven't really caught on at the grassroots level that aren't very broad-based. Is there something else like that that the Internet is affecting?
Fischbach: Not today, but tomorrow. I came out of the music business, I spent a good part of my life there and I've always been aware of copying and illegal copying and there was an article -- I think in the The New York Times -- that talked about Star Wars and what happened with bootleg copies of Star Wars in Hong Kong and some of the Southeast Asian countries but what it does is just decimate the category.
If it becomes successful and you can't protect the copyright then you can't protect the investment. And if we're investing $10 million on the short side and maybe $4 or $5 or $6 million on the high side of a product and the product is basically stolen the minute it gets in the marketplace, that's a real calamity for all of us. The ISDA, which is the software association, is certainly concerned with that and I believe all of the various publishers within the organization are concerned with that. Because we believe that within four to five years online delivery of product is real, that kind of sharing experience becomes important whether the person rents the game, uses it, or samples it. Then a portion of our sales will be made electronically and we will put the tools in place to protect that.
TMF: You already do have sales on your website now, is that right?
Fischbach: We do.
TMF: Is that a significant amount of your overall sales?
Fischbach: No, it's not a significant amount, but it's growing and we think it's a very important portion of our revenue base and we believe as we begin to shift into the ability to deliver our software electronically that knowledge base becomes very critical to our success.
TMF: What do you think will happen to companies like Electronics Boutique and a lot of the distributors that have been set up to move these products in the past?
Fischbach: I think they'll exist compatibly within the structure. I think that buying shrink-wrapped product will always exist within our society. But there will be another ability, another way or another means of being able to acquire that. I think that it could have -- maybe not in five years, but maybe 10 years -- a real impact on the rental business. I think the rental business can be done electronically.
It really depends -- you can visualize how fast the pipe becomes and how expensive memory is on either side, so in terms of our planning we're planning that the pipe is the world. You can have anything done and it'll be instantaneous. We all know that that's not reality, but in terms of looking at that landscape that exists over the next five to 10 years it's really important for companies like ourselves to really position ourselves there.
You look at what we do, it's really creating content. So you're looking at the creation of small studios and the content that we create, the brands that we create, become really important as our market begins to broaden and widen and the stronger our brand, the stronger our content, the more meaningful we become as an aggregator of content and a site that people will come to.
TMF: It sounds like when you talk about the developments that are coming overall in the game industry as far as just on the content side, the two things I read a lot about are first of all three-dimensional environments and second of all interactivity between users. Where do you see that going?
Fischbach: It's still getting better. I've looked at some products that are being done outside and I've looked at some stuff that's being done inside. The foundation is being laid for that massive, multiplayer game and the technology that makes that user friendly -- kind of like that one-button technology, where you just push a button, you're on and you can play and you can get off and enjoy yourself.
We're real good at getting to the mass market, we're not good at reaching the niche market, we're not good at reaching that Command & Conquer market, that real hard-core PC gamer, but we're real good at getting what I'd say is the mass market. And when the mass market comes, the kinds of products that we're able to create are ones that will satisfy that kind of game play.
TMF: Is there one particular title you have now that you consider perhaps the most technologically forward?
Fischbach: They all do it differently. I would say our sports engine is probably one of the best in the world in terms of being able to push polygons and be able to animate characters. Our Quagmire engine is really great technology and you'll see a bit of it in the DreamCast version, but you'll see an awful lot of it in the next hardware systems as we move the technology because of its ability to animate and add realism to gameplay.
The engine that we use behind Turok, which is a first-person shooter engine, that technology keeps getting better. The engine that we use in Shadow Man permits you to look at an almost unlimited landscape. So they all have something different and what we do within our studio environment is basically share technology amongst all of the studios as opposed to harboring it within one, so that way we can rationalize the investment.
The biggest investment we have to make -- and why companies, publishers that own their own studios are really valuable is that they own those engines and the investment that they make -- is in the technology that created those engines for the next generation.
TMF: Do you license those to other studios?
Fischbach: Those are the differences between us and the other guy. It's a joke, you know the guy that talks about the formula that goes inside the soup or the chili beans? You don't want to let the secret out.
TMF: I appreciate your taking some time to talk with us.
Fischbach: Thanks very much.
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