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