Infogrames Entertainment S.A.

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Infogrames Entertainment S.A.

82-84, rue du ler Mars 1943
69628 Villeurbanne Cedex
France
Telephone: (+33) 4.72.65.50.00
Fax: (+33)4.72.65.50.01
Web site: http://www.infogrames.com

Public Company
Incorporated: 1983
Employees: 2,000
Sales: FFr 3.5 billion ($850 million) (1999)
Stock Exchanges: Paris NASDAQ
Ticker Symbol: 5257.PA
NAIC: 339932 Electronic Toys and Games Manufacturing; 511210 Software Publishers

France’s Infogrames Entertainment S.A. is on the fast-track to global domination of the world’s video game market. Infogrames creates, publishes, and distributes video game titles across all of the major video game platforms, including for the Sony Playstation, Nintendo 64, and Sega Dreamcast consoles, the Nintendo Game Boy, PC, and Macintosh computer plat-forms, and the forthcoming X-Box, Playstation2, Dolphin, and other “next-generation” gaming consoles. Among Infogrames’ titles are such international successes as Driver, Ronaldo, and the Alone in the Dark series. The company’s catalog extends to some 1,000 titles in all. The company has stepped up production of its own in-house titles since the late 1990s, with more than 80 games in development each year. The company also boasts a strong catalog of licensed products, including the Warner Bros. Looney Tunes characters; video game development rights for the television and film series Mission Impossible; Nickelodeon’s “Blues Clues” ; and the Harley Davidson and Dodge Viper licenses. One of the leaders in the growing consolidation of the international video game industry—which topped the film industry in revenues for the first time in 1999—Infogrames took a giant step into the big leagues with the acquisition of GT Interactive Software in 1999. Since renamed Infogrames Inc., that acquisition gave Infogrames the number two position worldwide, behind leader Electronics Arts. Infogrames, led by founders Bruno Bonnell and Christophe Sapet, has since snapped up a number of other primary games-market players, including Accolade Inc. and Paradigm Entertainment. Infogrames remains dedicated to the games market, but has nonetheless begun to develop interests in other platforms, such as the mobile telephone network, internet gaming—through the creation of online subsidiary Infogrames.com—and television, with its partnership with Canal Plus to form the Europeanwide Game One satellite channel. Following the GT Interactive acquisition, Infogrames’ annual sales shot up to US$850 million, well on the way towards the company’s target of US$1 billion in revenues by 2002.

Software Pioneer in the 1980s

Infogrames Entertainment was founded in the early 1980s by Bruno Bonnell and high-school friend Christophe Sapet. Both Bonnell and Sapet, who later went on to university studies in chemical engineering, had been interested in the newly developing computer industry, and while still in school worked as salesmen for an early personal computer system. Bonnell and Sapet quickly recognized the market for personal computers and saw the need for software, especially family-oriented software.

In 1982, Bonnell and Sapet wrote a book designed to teach home users to program using the BASIC computer language. The book achieved modest success, earning the pair some US$10,000. With their book earnings, Bonnell and Sapet founded Infogrames Entertainment in Villeurbanne, outside Lyon, in June 1983. Bonnell and Sapet were joined by Thomas Schmider, and the trio set out to write software. While the company’s earliest efforts leaned toward writing programming software, their interests quickly turned toward developing video games.

Infogrames was quick to make a name for itself among the small circle of video game developers of the period. One of the earliest efforts was the title Autoroute Highway, in which players were required to help a frog cross a busy highway. Another title, Le Cube Informatique, also helped establish the company’s name as a game developer.

Making money proved more difficult. The market for video games remained relatively restrained throughout the 1980s. Video games were seen as a children’s toy, and few expected the market to expand far beyond a core five- to 13-year-old audience. Infogrames met with a great deal of skepticism from investors as the company sought to finance its growth. The company, which attempted to expand beyond video games to provide other family-oriented software, such as budgeting soft-ware, soon found itself strapped for cash. Yet France’s banking community was not about to invest in the untested software market. As Bonnell told Time International: “It was not a dotcom world then. It was like, ‘Are you serious?’ “At last, though, the company found financial backing.

By the end of the 1980s, Infogrames had weathered the worst of its start-up pains, and had refocused its development efforts entirely on video games. Infogrames had bought the rights to produce video game titles using the popular comic character Tintin. In 1988, the company released one of its first big successes, Tintin on the Moon. That title helped pushed the company’s sales to the FFr 100 million mark by the beginning of the 1990s.

Games Take off in the 1990s

In large part, Infogrames’ development remained linked to the technological developments made in the computer industry. The appearance of new types of gaming platforms—notably the first Nintendo consoles and the related Game Boy devices— were to give a strong boost to Infogrames fortunes. Recognizing the potential of the new platforms, Infogrames quickly began developing games for the Nintendo and Game Boy systems. At a time when purchasing a computer system already represented a major investment—particularly for consumers interested primarily in playing games—the console-type systems had the advantage of working with existing television sets. Nonetheless, Infogrames remained equally devoted to developing for the fast-growing computer industry, especially as the personal computer market consolidated around the PC and Macintosh platforms.

In order to keep up with the changing technology, Infogrames began boosting its own research and development efforts, designing tools that the company used for creating its games. Research and development was to remain a strong component of the company’s success through the 1990s, accounting for as much as FFr 300 million of its annual budget. Nonetheless, with the explosion of graphics and sound technologies in the second half of the 1990s, Infogrames began to limit its own efforts on developing the video games themselves, rather than the tools.

As computer technology increased, enabling more and more sophisticated games, development times also increased—by the mid-1990s, games required on average two years of development work. Indeed, one of Infogrames’ earliest hits—and the game that put the company on the world’s video game map— had been begun in 1990 and was released only in 1992. That game, Alone in the Dark, became an instant success worldwide, and marked the beginning of a long-running series of sequels.

The success of Alone in the Dark encouraged Infogrames in its ambitions to become one of the world’s top video game developers. While continuing to develop its own games, the company began to look forward to acquiring other games developers and the distribution rights to third-party efforts, a practice which became common in the video game industry in the 1990s. In order to fuel its ambition, Infogrames went public in 1993, with a listing on the Paris stock exchange. The public offering brought in a number of major shareholders, including the Chargeurs group, and Philips Media, the video game development division of the Dutch conglomerate. Infogrames and Philips Media soon began to collaborate on a number of titles, including such successful games as Asterix, Marco Polo, and Shaolin Road.

The video game industry was seeing a number of important breakthroughs at the time. The addition of CD-ROM drives to most new personal computer systems enabled vast increases in computer game content. The appearance of sound standards, and rapid increases in graphics technology, particularly in the appearance of the first 3D graphics cards, were also adding new possibilities to the gaming experience. The worldwide success of such titles as Doom and Duke Nukem and especially Myst not only established new, more personalized video game genres, but also highlighted the fast-growing market for video games in general. On the console front, the release of the Nintendo 32 system, adding 32-bit graphics, brought a new level of graphics possibilities to video games.

Infogrames had been quick to adopt the new technologies, and joined with other French developers, including Cryo, to lead the video industry in new graphics triumphs. The company had also begun its international expansion, moving first to the Belgian market and then striking a deal with Compagnie Luxembourgeois de Telecommunication to form Infogrames Entertainment GmbH, in order to enter the German market. If the French computer market remained relatively restrained—with only an estimated 30,000 “multimedia-ready” personal computers—the German personal computer market was already in full expansion.

Company Perspectives:

Entertainment is the key to Infogrames’ products, but a big part of Infogrames’ philosophy is that all of the company’s games should give something more to the consumer. Our products are about growth and reward as well as entertainment The best games are designed to facilitate growth in the person who is playing, whether that growth is hand-eye coordination, logic skills or simply a sense of wonder and inspiration, it should be integral within the game.

Acquiring Greatness for the 21st Century

By the end of June 1994 (the close of Infogrames’ financial year), the company’s annual sales had risen to FFr 260 million, and its profits had more than quadrupled over the previous year to near FFr 14 million. The company was on its way to securing its position as France’s number one games developer, ahead of Cryo and Ubisoft. Yet Infogrames remained tiny in comparison to industry heavyweights Electronic Arts and Broderbund.

Acquisitions were to provide Infogrames’ greatest growth through the second half of the decade, though the company continued to develop its own games, including such international successes as Test Drive. In 1996, Infogrames broke into the international big leagues when it acquired U.K.-based Ocean Software Ltd., giving Infogrames not only that company’s strong catalog of video game titles including Jurassic Park, Terminator 2, Robocop, and Batman, but also an entry into the American market through Ocean’s U.S. subsidiary. By the end of 1996, more than 70 percent of Infogrames’ sales came from beyond France.

The following year, Philips Media merged into Infogrames, boosting Infogrames to the lead in Europe’s video game industry. This placed the company in a strong position to take advantage of the true explosion in video game sales in the late 1990s. If the global video game market represented some US$4 billion in total sales in 1996, by the turn of the century, video game sales worldwide topped US$20 billion. By 1999, sales of video games had beat out cinema receipts. Aiding this development were new generations of video console systems, starting with the Sega, continuing with the Nintendo 64, and culminating with the wildly popular Sony Playstation. At the same time, falling computer prices had brought more and more computers into the world’s homes, while steady increases in graphics technology and processor speeds had made possible more and more realistic graphics and effects. Among Infogrames’ major successes were its Mission: Impossible game and Independence War.

The Ocean and Philips Media acquisitions, and its various video game hits helped the company boost its annual sales to FFr 1.4 billion by the end of its June 1998 year. By then, however, Infogrames, which continued to nourish its ambition to become the world’s leading video game publisher, was looking for a new acquisition to boost its position. The highly fragmented video game industry of the late 1990s was ripe for consolidation. Intense competition among game developers, the continually growing output of new games, and the high costs of new game development—with many new games costing up to US$10 million to produce and still more to market—were placing many games developers in increasingly fragile positions.

One such developer was the United Kingdom’s Eidos, which had slipped into trouble despite the massive international success of its Tomb Raider series. Infogrames was rumored to be interested in acquiring Eidos. However, that acquisition never materialized. Instead, the company made a series of smaller acquisitions, including Paris-based Psygnosis, a recognized leader in graphics design, a friendly takeover of the United Kingdom’s Gremlin Interactive, the United States’ Interplay, and, in April 1999, the acquisition of Accolade Inc. That last acquisition gave Infogrames a huge boost to its U.S. distribution circuit, adding Accolade’s 18,000-store distribution network.

Infogrames, which remained relatively debt-free, was pre-paring its next coup for the end of that year. In December 1999, the company surprised the industry with its announcement that it was acquiring U.S.-based GT Interactive (GTI), a company roughly twice Infogrames’ size. The GTI purchase, for a total of US$135 million, boosted Infogrames to the rank of number two in the worldwide video game industry, and sent the company’s annual sales soaring to some US$850 million—with revenues expected to top the US$1 billion mark by the end of the company’s 2001 fiscal year.

By June 2000, Infogrames proved that it was not yet ready to rest in its quest for domination of the world video game market. In a share exchange, the company announced its acquisition of Dallas, Texas-based Paradigm Entertainment. Meanwhile, Infogrames was ramping up for a new series of “next-generation” gaming consoles, featuring 128-bit graphics and Internet access. The first of these, the Sega Dreamcast, appeared at the end of 1999, while the international gaming community awaited the arrival of the Sony Playstation 2 and the Nintendo Dolphin, as well as a new entry by Microsoft, the X-Box.

Even as Infogrames remained committed to maintaining its position as a world leader in video game publishing, it had also made strong moves toward diversifying its activities while remaining focused around its video game core. In the late 1990s, the company joined with Canal Plus to launch a video-game dedicated satellite television station, Game One. The company also sought entry into the booming Internet market, launching its online activities subsidiary Infogrames.com in 2000. At the same time, Infogrames took steps to succeed in the expanding mobile telephony market, particularly with the rollout of new-generation Internet-ready telephones. With its revenues topping FFr 3.5 billion by June 2000, Infogrames had proved that gaming is serious business.

Principal Subsidiaries

Infogrames Inc. (U.S.).

Principal Divisions

Game One; Infogrames.com.

Key Dates:

1983:: Infogrames Entertainment is founded.
1985:: Company releases Autoroute Highway and Le Cube Informatique.
1988:: Acquires license to Tintin characters.
1992:: Infogrames releases Alone in the Dark.
1993:: Company is listed on the Paris stock exchange.
1996:: Acquires Ocean Software Ltd.
1997:: Merges with Philips Media.
1999:: Company acquires Psygnosis, Accolade, Interplay, and GT Interactive.
2000:: Paradigm Entertainment is acquired; GT Interactive is reformed as Infogrames Inc.

Principal Competitors

3DO Inc.; Acclaim Entertainment Inc.; Activision, Inc.; Broderbund Software, Inc.; Eidos; Electronic Arts Inc.; Hasbro, Inc.; Havas, SA; id Software; Interplay Entertainment; The Learning Company Inc.; LucasArts; Maxis; Microsoft Corporation; Nintendo Co., Ltd.; Sega of America, Inc.; Sony Corporation; Symantec Corporation; THQ.