Acclaim Bankruptcy Highlights Digital Entertainment Woes

In a move that might be repeated by other game makers struggling with the same issues of limited markets and console-centric development, Acclaim Entertainment announced it is filing for bankruptcy.

The announcement from Acclaim comes as little surprise because the company has warned of its financial troubles and suffered both from licensee lawsuits and from delisting from the Nasdaq Stock Market.

However, the 17-year-old company's failure follows a general industry trend toward catering to or relying on the smaller hard-core gamer audience. That trend might provoke similar bad-news announcements from other U.S. game developers, Parks Associates analyst Michael Cai told TechNewsWorld.

"I think there's an over-reliance on hard-core gamers," Cai said. "In the last few years, there's been a lot of talk about the booming gaming industry, but it's actually a vicious cycle. The number of hard-core gamers is limited, so the market is just that big."

Software Slide

Acclaim has suffered from sagging sales of games, most of which have been aimed at the console markets -- Microsoft's (Nasdaq: MSFT) Xbox, Sony's (NYSE: SNE) PlayStation and Nintendo's Game Cube -- with only some titles for PCs. In its quarterly earnings report last July, the New York-based company reported a net loss of US$56.4 million.

Industry observers faulted Acclaim for market missteps and poor management, but they also blamed an increase in the cost of participating in the gaming software industry as a reason for Acclaim's falter. With increasingly demanding graphics and other technology, the costs to produce a game have gone up along with the need for more money to market those titles, Cai said.

Cai also said that like many other U.S. gaming software makers, Acclaim focused too sharply on hard-core gamers, a vertical market that is far from the mainstream.

Cai indicated that the content of the games from Acclaim missed the mark for most consumers. "People have limited appeal for killing people and naked girls riding on a bike," Cai said. "Their genre was limited to a lot of violence and mature content. That's a lack of mass market appeal."

Confined to the Console

Cai said that while Asian and European game developers take advantage of the variety of console and PC platforms on which consumers in those regions play games, U.S. developers are largely confined to the console because console prices are so low in the U.S. compared to PCs.

"Worldwide, companies are looking to other genres and platforms," Cai said. "That gives them a steady source of revenue. In the U.S., it's been difficult to go toward that direction for various reasons."

The Entertainment Software Association (ESA) said earlier this year that while gaming industry revenue was up, the portion of it derived from violent and mature-rated games was down. Industry observers agree that the health of the U.S. computer game industry is highly dependent on big hit titles, a lack of which helped to harm Acclaim further.

For his part, Cai said that regardless of the content or success of gaming titles, the industry is at "the bottom of the cycle" as it waits another two years for the next round of consoles in 2006. Cai added that the same factors that led to Acclaim's fall might drive other companies to similar fates.

"We'll probably see more of this," he said.