Atari

(ATAR)

CEO Jim Caparro is not the first to think he can help the company recapture its former glory.

Since its heyday in the early 1980s, the video-game pioneer has been split up and bounced around as part of several companies, including

Hasbro

(HAS) - Get Report

and, most recently,

Infogrames Entertaiment

. Each of Atari's owners thought it could build on Atari's brand recognition to become a leading player in the video-game business, only to have those hopes eventually dashed.

Now Atari is considered an also-ran in the video-game publishing business, with revenue that's a fraction of that of competitors such as

Electronic Arts

(ERTS)

,

Activision

(ATVI) - Get Report

and even

THQ

(THQI)

. With a new generation of consoles

headed toward store shelves -- and development costs for those machines expected to skyrocket -- some analysts have questioned whether small publishers such as Atari can survive.


Atari CEO Jim Caparro

Caparro, who became

the company's CEO in November, thinks that Atari can not only survive, but also thrive. And he has a plan to make that happen. Drawing on his long experience in the music industry, Caparro hopes to improve Atari's games and move the company beyond just selling boxed software.

At the

E3 conference almost a fortnight ago, I spoke with Caparro about his turnaround effort and Atari's future.

Q: Atari has struggled of late. How can you turn things around?

It's in Atari's best interests to leverage the opportunities that are presented to Atari. I view, given my experience, that there's opportunity beyond just traditional gaming. There's this opportunity to differentiate ourselves from the other

game publishers, rather than just being a clone of all the others. And that's what we'll look to do. What we have now is a complete new management team that has been brought on with significant skill sets far beyond this one industry and proven track records.

We are talking about a complete, total transformation of the company, strategically, financially and creatively. What's happening is that, as those folks

with a lot of creativity and respect

in the industry are beginning to understand and appreciate all that we're doing to rebuild the infrastructure of the company, what's resonating back is that many of these great developers have had huge respect for the brand Atari and have over the years been very loyal to Atari. We have an icon with 96% world recognition factor. That's a huge opportunity for us if we look to exploit it properly.

And the last thing we've been focused upon is investments. How do we have the right financial firepower to be very aggressive as we look to transition the company? We just announced a new $50 million credit facility, and we're looking to work toward a grander financing of the company as well, which will allow us to play very aggressively in the marketplace and in the creative community.

Q: You mentioned going outside of traditional gaming. What exactly does that mean for you and who is the audience for that?

Look at the film business. There's ancillary revenue streams from great box office. I believe there's ancillary revenue streams that could be maximized from great franchises that are developed.

It means looking at publishing opportunities. It means looking at merchandising opportunities. It means looking at licensing opportunities. It means looking at all possible revenue generation as a result of the great content that you've created. I want to go far beyond just the creation of content.

Ancillary revenue, digital delivery, mobile, interactivity -- I believe that within five years' time, 50% of our total revenue can come from ancillary opportunities.

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Q: Atari's not been known for the quality of its titles of late. The company's big title last year, for instance, was

Driver 3

, which failed with the critics and saw disappointing sales. How do you improve that?

I wasn't around when that all happened. But from January forward, what we look to do is target that marketplace that we want to target. For example, there's Craig Allen from

Spark.

Call of Duty

? Every game that he and his team have developed sold in excess of 2.5 million units. He has had the opportunity of going anywhere. He chose to come with us. Why? Because he senses that I want Atari to become a haven for great creativity.

Q: What do you say to someone like Craig Allen to convince him to partner with Atari?

Well, it's the same message that worked so well for me when we looked to build Island Def Jam. And what we did was, we took 14 companies, none of which were very pretty, with the exception of Def Jam, and looked to create a haven for great creativity. We offered them that haven to feel that their creativity was going to be respected and nurtured, and they have all of the resources of the company to support their creativity.

That resonated very well. And that's my same story here: We'll give people like Craig Allen and his studio, Spark, their own lane in our highway. And we'll do that with others also.

Q: What are the biggest opportunities for you? Where are you going to be investing Atari's resources?

We've already made it clear what we don't want to be. Obviously, any play in the sports area would be a major mistake. I believe also that, given where we're at, being in the children's business is a mistake. Without major cross-merchandising, cross-licensing and cross-marketing opportunities, the children's business is a tough business.

From that, we'll look to partner with studios like Craig's that have great IP

intellectual property and great track records. We'll also look to partner with the most influential and significantly respected people in Hollywood. And then we'll also look to target those respected folks in the world of lifestyle, as I call it.

Q: When you talk about Hollywood, are you talking about doing licensed movie content?

Or the reversed opportunity, also.

Q: When you talk about lifestyle content, what do you mean?

Look at the world of music. Look how influential superstars are in the world of music. And if you could put an interactive experience around that?

Q: So a game starring 50 Cent or something like that?

It might be a little broader than that.

Q: As we go into this transition, how do you plan to balance Atari's resources between the next generation of consoles and the current machines?

We're not walking away from current gen. I think the one fear I have is that publishers and developers are going to switch dramatically their product development strategy. There's still going to be a marketplace for the PS2, for example, next year. I'm just fearful that the industry may push the consumer away too quickly.

Q: But if you're talking about resources, are you going to shift 30% of your resources to next gen? 40%? 50%?

Less that that in the beginning. Probably in the neighborhood of 15% to 20%.

Q: What does that mean in terms of launch titles?

We'll have

a few titles available on each platform's launch, but we're not going to place a bet with one

console versus the other.

Q: A few meaning two? Three?

In that neighborhood.

Q: Many of your rivals have been buying up game studios recently. Is that part of your strategy?

No. Our strategy is focusing on great creativity. While I want those studios that we own to be great creative centers, there's many more great creative centers throughout the world that we'd like to partner with and that we think can add a lot of value back to us. I don't want to be limited by internal creativity.

Q: How will Atari's relationship with parent company Infogrames evolve, going forward?

We're in the process of simplifying the company, because what you see is not the total picture. Half the company resource assets are elsewhere. And half the global revenue is not captured. So, we need to have one simplified structure where the assets that are going to add value to shareholders exist under one umbrella and that the global revenue sits under one P&L. What does that do? That immediately changes your perception of what Atari is, because Atari is then, roughly, an $800 million company and a very profitable company.

Q: Where do you expect Atari to be five years from now?

Obviously larger. I'll look to judge our success by our individual performance. Have we gotten better at what we do, and are we successful with everything that we do? That's our criteria for evaluation. I've said to our folks, "Let's first think about getting better before we think about getting bigger."