Atari's Future in Question After Q3 Loss, CFO Departure

The company behind the console that helped launch the video game industry nearly 30 years ago may be facing a game-over situation. Atari (NYSE: ATAR) this week reported significant quarterly losses and the departure of a top executive that together paint a bleak picture for the future of the firm.

Atari posted a US$4.8 million net loss for its fiscal third quarter and said it is losing Chief Financial Officer Diane Baker. Net revenue for the quarter ended Dec. 31, 2005 was $100.8 million, compared to $156.4 million in the same time period last year. Publishing net revenue was down from 137.9 million a year ago to $82.4 million last quarter. The $4.8 million net loss compares to net income of $19.6 million in the previous year's third quarter.

Once a bright star on the video game playing field, Atari and other North American game publishers are suffering at the end of the five-year console refresh cycle. It is typical during such cycles to see minimal sales during the first and fifth years, Parks Associates Director of Broadband and Gaming Michael Cai told the E-Commerce Times.

"The big story is really the transition right now," he said. "The five-year cycle can be a vicious circle toward the end, when gamers are holding out for the next-generation consoles and games."

Pitfall for Atari

Atari's poor financial report came amid other lagging sales and revenue for other North American game publishers, and left little optimism for the future.

Virtually all news was negative in its report for the nine-month period ended December 31, 2005, with net revenue dropping from $332.5 million last year to $163.4 million this year; and with the firm moving from a $14.8 million in profit last year to a $62.8 million loss in the same nine-month period this year.

The company also reported fewer titles during the recent quarter, a "weak" holiday season, product launch delays, and the default of its credit with HSBC Business Credit. All factors combined to sink its stock price on Wall Street. In midday trading, Atari shares were down 18 percent to 72 cents per share.

Nevertheless, New York-based Atari indicated that it will continue to cut cost and reduce its financial responsibilities, and will continue to provide popular games such as "Dragon Ball Z," "Driver," "Dungeons & Dragons," and others across all platforms, including the handheld Nintendo DS and Sony (NYSE: SNE) PSP devices.

However, the company tempered its own pledge to push on with a statement of cautions about its future. "The uncertainties caused by these conditions raise substantial doubt about the company's ability to continue as a going concern," said Atari Chairman, CEO and Chief Creative Officer Bruno Bonnell. "With the new console cycle now underway, new technologies bring with it new challenges."

Hit or Miss

While the PC gaming market can sometimes make up for the down years of the console cycle, games on personal computers have been "lackluster" for several years now, Parks Associates' Cai said.

A game company can, however, bring about a sharp reversal of course with a hit game, Cai said, citing the case of Blizzard Entertainment, which was nearly abandoned by its parent company, but became the "crown jewel of Vivendi" with the popularity of the game "World of Warcraft."

Could Atari rebound in that way? Cai doesn't think so.

"For the near term, I haven't really seen a lot of innovation coming out of Atari," he said.