The Anglo File: Eidos Showing Lara Croft Isn't Playing Solo

Recent investments and publishing rights may help to dispel the notion of a one-woman show at the U.K. game developer.
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The sheer success of Lara Croft and the

Tomb Raider

series has meant

Eidos

(EIDSY)

, the U.K. games developer and publisher, is finding it hard to shake the impression that it is a one-woman show. Yet recent investments and publishing rights may finally dispel this notion.

Eidos' latest investment came this past Thursday, when it agreed to acquire 5% of a London-based developer,

Elixir Studios

, for around $960,000. Elixir is run by Demis Hassabis, a young and highly regarded developer, whose signature has been sought by many companies in the games software business.

The Elixir stake follows a string of major announcements this month.

On Aug. 2, Eidos announced it had secured the publishing rights for two years to the popular

Dragon Warrior Monsters

title for the hand-held Game Boy and Game Boy Color units made by

Nintendo

(NTDOY)

. It also extended its licensing agreement with

Capcom

to publish

Power Stone

for

Sega Enterprises'

(SEGNY)

Dreamcast

video game system in Europe and Australia. This past Tuesday, Eidos announced it had secured the PC publishing rights to another well-played title,

Final Fantasy VIII

, in Europe and Australia.

Lara Croft as Mickey Mouse

Some analysts such as Mike Hilton of

Dresdner Kleinwort Benson

, who has a buy rating on Eidos, argue that this one-game label has been incorrect for some years now.

"I find

this one-game label totally offensive, there has been a massive change in the company," Hilton says. "Fifty years ago nobody put the boot into Walt Disney for having a character as successful as Mickey Mouse, why does Eidos get it?" DKB acts as a broker for Eidos.

Whether right or wrong in the past, the argument that Eidos' fortunes are tied solely to the success of Lara Croft is becoming increasingly hard to make.

"Eidos is fast shedding its label of being a one-game company, with five or six games genres now firmly established in addition to Tomb Raider," says

Merrill Lynch

in a report to initiate its coverage of the company. (Merrill has a buy rating and no investment-banking relationship with Eidos.)

A breakdown of Eidos' sales figures would appear to support this view. During the fiscal year ended March 1997, some 90% of sales were derived from

Tomb Raider

. However, this proportion had fallen to 75% during fiscal 1997 and was down to 57% in fiscal 1998. Eidos says it expects the series to account for only 30% of sales in fiscal 2000.

Furthermore, even though

Tomb Raider

is falling as a percentage of sales, the popularity of the series shows no sign of waning. Indeed, the company is now leveraging its intellectual property rights on Lara Croft. The animated character now appears in advertisements for the soft drink

Lucozade

, and

Paramount

is due to release a full-length feature film in 2000.

Catherine Zeta-Jones

has been rumored to play Lara Croft.

All this is leading analysts such as Hilton and those at Merrill Lynch to raise their price targets for Eidos. Merrill puts the 12-month price objective at 3,650 pence. Eidos shares closed up 0.2% at 3,192.5 pence on Monday.

While reducing its reliance on one product is admirable and sensible, diversification alone does not necessarily ensure success.

It's a Dangerous World Out There

Currently, the whole games-software industry is experiencing one of its quiet periods as consumers hold off buying new games prior to the release of a new generation of video consoles.

Sony

will release its

PlayStation2

in Japan later this year and in the U.S. and Europe in early 2000, and

Nintendo

will release its

Dolphin

console toward the end of next year.

The result of this can be seen in the discounting of the price of games software. During June and July in the U.K., the price of PlayStation games fell to about 30 pounds ($48) from as high as 40 pounds.

Another problem with companies in the games industry is slippage, where release dates for new games aren't met. Eidos appears to suffer from this problem as much as any other publisher. It has put back the release of games such as

Soul Reaver

and

Braveheart

, while

Daikatana

, which was due in September 1998 and still hasn't appeared, takes the concept of slippage to new realms of lateness.

Concurrent with the better technology in the games industry, the time and development costs associated with creating new titles are growing. It now takes between 18 to 24 months to develop a game compared with an average of only 12 in 1995. Costs have risen to between $1.5 million and $2 million in 1998 from $500,000 in 1995.

Yet it could be argued that such changes in the economics of the industry favor large players. Eidos, with about 2.5% of the global market and about 5% of the key U.S. market, is one of the biggest.

Whether Eidos will prove to be on top of its game in an industry that is expected to grow by 15% per year through to 2003 remains a matter of debate. However, the idea that Eidos will live or die by Lara Croft is an idea that the company may have at last blasted a hole through.