Troubled video game publisher announces layoffs, studio sales

Things haven't been going well for Atari for quite some time now, but they've just taken a turn for the worse.

The publisher, once the premiere name in the gaming industry, reportedly plans to lay off a portion of its North American staff (which currently consists of 250 people) and plans to sell all of its internal studios. All of this comes as Atari's latest high profile release – "Marc Ecko's Getting Up: Contents Under Pressure" - earns less than stellar reviews from video game critics.

The internal studios on the block have worked on some of Atari's largest releases over the past few years, including the "Driver" and "Test Drive" franchises and games based on "The Matrix" films.

Speaking to industry trade publication MCV, Atari (Research) CEO Bruno Bonnell said "We will be looking to sell our studios, but that doesn't mean that we're immediately putting a 'For Sale' sign on them. They still have important projects to finish for us."

Bonnell is based in France. Calls to the company's U.S. corporate communications department were not returned. (Atari is owned by the French outfit Infogrames, but trades in the US under the Atari ticker symbol).

While Bonnell insists the sale of studios and staff reductions are a restructuring move, it's getting increasingly hard to convince onlookers. HSBC cut off the company's line of credit earlier this month. Harris Nesbitt and Wedbush Morgan both downgraded the publisher on Feb. 10. Meanwhile, Diane Baker, Atari's chief financial officer who last June famously said the company was shooting itself in the foot, resigned.

Even the company itself seems discouraged, noting in its last earnings statement that there was "substantial doubt about the Company's ability to continue as a going concern". That same announcement noted the company would not be able to file its Form 10-Q on time and that Atari had lost nearly $63 million over the past nine months.

Could selling its game development studios help Atari turn around? It's not likely, say analysts.

"I think [selling studios] is not the right move," said Michael Pachter, an analyst with Wedbush Morgan Securities. "The first thing the company should do is shut down everything in Europe. Bruno (Bonnell) is out to lunch. ... The guys in the U.S. make games. The guys in Europe just sell them."

Studio-to-studio sales of developer units are exceedingly rare. It's much more common for a studio to buy an independent developer. The reason for this is pretty simple: When independent studios agree to be bought, the game makers get the money. When publishers sell a division, the publisher pockets the cash, which typically leads to the most talented employees rapidly defecting.

Bonnell did not indicate whether Atari would be willing to sell the rights to some of its more popular games. The "Driver" franchise, for instance, still has a loyal following (despite a truly awful last installment of the game). It might be a moot question, though, as Atari would be unlikely to find any serious bidders.

"Nobody comes in to bid on that," said Pachter. "They wait for the body to stop twitching, then swoop down and pick the meat off the carcass."

Atari's history is long, but rocky. Launched in 1972, it immediately made a name for itself with "Pong" – one of the games that kicked off the video game industry. Five years later (under new owners), it brought home video games to the mainstream with the "Atari 2600." A failed attempt to get into the home computer business hurt the company, though, reducing its relevance in the industry. By 1994, the Atari name was no longer being used – though it was resurrected two years later. It looked to be fading away again in the late 90s and early 00s, until Infogrames decided to attempt to capitalize on the brand's name recognition.

Infogrames is just the latest of several companies who have held the Atari name. Others include Hasbro and Time Warner (Research), the owner of CNNMoney.com.

Despite the troubles, the Atari name still has an incredible recognition factor among buyers, which Pachter said could be its salvation. However, he said, the presence of Infogrames is blocking the company's chances to revive itself.

"The reason Atari can't succeed is because they have an obscene relationship with Infogrames," he said. "Infogrames, as Atari dwindles, will go bankrupt. Once Infogrames is out of the picture, I believe someone will step up to fund Atari."

News-Source: http://money.cnn.com