Interview with EIDSY's chairman on CNBC
EIDSY was a feature on Tuesdays edition of CNBC's Squawk Box where the CEO Mr. Ian Livingstone answered some questions. He was interviewed by CNBC's host Mr. Ron Insana and Mr. Vincent Farrell from Spears, Benzak, Salomon & Farrell. For all of you, who haven't seen it on TV, I've made a transcript:
Mr. Insana: As Europe's No. 1 developer and publisher of interactive entertainment products, Eidos is playing for keeps. The Tomb Raider video game series with action figure Lara Croft has been a world wide sensation. Yet that couldn't prevent the company from posting a wider
than expected loss in it's latest report. But with the launch of a third version of the Tomb Raider series and the highly anticipated World League soccer game now on store shelves, that company is looking to return to it's winning ways. As the stocks ADRs trade here at the
NASDAQ , they've been in a range of 9 to 21 $ a share. Joining us now from London to talk more about his business is Ian Livingstone. He is chairman at Eidos. Mr. Livingstone good to see you, thanks for being with us this morning.
A: Good to see you. Thank you.
Q: If you can address the issue that we raised in the introduction: Your return to profitability?
How soon do you expect that to happen?
A: Very shortly. We've had a fantastic quarter. Tomb Raider 3 has been hugely successful all around the world. In fact it's No. 1 in Japan, just having being launched there, being No. 1 in most European countries and of course done very well in the United States. We've Michael Owens World League soccer, which is obviously not very known in the U.S., but our upcoming titles are very, very strong too. Games like Soul Reaver from Crystal Dynamics or Urban Chaos from another British developer and we're very happy with our line-up.
Q: So what kind of profitability do you expect then? Can you quantify the turnaround for us?
A: Well, you know we can't actually say exactly what it's gonna be, but we're very, very pleased at the moment what way things are going.
Question from Mr. Farrell: Mr. Livingstone, you mentioned before that one of your games might not be after looked in the United States. Some of your games could have cultural sensitivities if you try to push them across our boundary lines. How do you deal with that?
What does it cost you to change a game for Germany that is a big seller in the United States? And the second part of my question: Is your R&D spending is large and growing? What percent of revenues do you think you gonna need to spend on R&D on an ongoing basis?
A: We're speaking about 20 % of revenues on R&D, but you must appreciate games are costing a lot more to manufacture: Production values have gone up, technologies moving forward. And so it costs 1.5 mill. $ to make a game, but that doesn't worry us at all, because returns are far greater. You talking about 50 mill. Playstations installed base world-wide now, global revenues in games software is about 10 bill. $. A Company like Sony, who comes in the market place and is very successful, now accounts for 25 % of their annual profits. So you got the best consumer electronic company in the world in games; that's very good for us all.
Q from Mr. Insana: With respect to make Tomb Raider into a movie much like Mortal Combat was in earlier times, what kind of licensing revenues can you expect if indeed there's not just a movie but product spin-offs related to this popular game series?
A: Tomb Raider is a phenomenon and obviously Lara Croft is a internationally recognised figure. And the important thing is that Eidos owns it's contents: Lara Croft is firmly married to Eidos and cannot leave, and she isn't get paid very much. And of course there will be revenues from the film and we control the content of that film as well. We've an Executive Producer roll and a veto over the cast and the scripts, so gonna make sure, that the integrity of the product is not in any way diminished. So, our main revenues will always be from the interactive games, any merchandising revenues our spin-off from the film would be welcomed, but our main focus of course is gaming.
Q from Mr. Farrell: What is the shelf life of a game and what competitor do you most admire?
A: Our largest and most admirable competitor is Electronic Arts, a well known American company as you are aware, their main franchise are their sports labels as we are outsiders in sports at this moment of time, let's not say that we're not getting in sports in a bigger way, but ours is more the Action-Adventure. The shelf life of a game depending on the type of game: The PC games have a longer shelf life, because they appeal an older player who are looking for simulations, strategy games versus the younger player the Playstation player who is high teenaged aged or in the lower twenties looking to be in and out the same three months. But having said that: A franchise like Tomb Raider has been phenomenal and gone beyond all previous predictions.
Q from Mr. Farrell: With the very high level of R&D spending, how does your financing needs shape up in the future? Do you gonna have any capital requirements?
A: Not in the short term. What we do is: We expense all our R&D when incurred, we have no intangibles capitalised on the balance sheet, so our balance sheet is very clean. So, it's a very unemotional decision to us to actually cancel games what we're well positioned to do, because we realised that the consumers are walking up to what games are good. There's not so much shelf space available in stores and so we rather cancel products and put all our resources into marketing what we can see is being a great title and I think that's being indicated by the consumers who helped our revenues to grow substantially over the last two years.
Mr. Insana: All right, Mr. Livingstone. Have to leave it there. Thanks for joining us. I appreciate your coming by this morning.
A: Thank you very much.
Q: Ian Livingstone, chairman of Eidos, joining us live from London |
