Acclaim Entertainment, Inc.

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Acclaim Entertainment, Inc.

founded: 1987

Contact Information:

headquarters: 1 acclaim plz.
glen cove, ny 11542 phone: (516)656-5000 fax: (516)656-2040 toll free: (800)759-7800 url: http://www.acclaimnation.com http://www.acclaim.net http://www.forsaken.com

OVERVIEW

Acclaim Entertainment is an independent publisher, developer, and seller of high-excitement, interactive entertainment software. It makes sports-simulation and fantasy/role-playing games for use with Nintendo, SEGA, and Sony game systems, including Space Jam and NFL Quarterback Club '98, as well as personal computer (PC) games. In fiscal 1997, it released 26 new 32-bit games, 14 multimedia PC games, and 1 64-bit game. Teenage boys comprise most of the company's customers, and Acclaim designs its marketing campaigns according to each product's target audience. The company's Acclaim Comics unit is a publisher of comic books, which markets a superhero series (of characters it either creates itself or licensees from other content providers) under the VALIANT imprint name. Some major retail carriers of Acclaim's products are Best Buy, Toys 'R' Us, and Wal-mart. Sales are seasonal, with the heaviest period being in December. In 1997 about half of the company's sales were outside the United States.

COMPANY FINANCES

Acclaim has had financial difficulties in the 1990s—net revenues fell from $566.7 million in fiscal 1995 to $161.9 million in fiscal 1996, but 1997 was a year of encouraging improvement. For the fiscal year ending August 31, 1997, net revenues were $165.4 million and gross profit was $75.6 million. 1998 also represented a remarkable turnaround, as the company posted a first-quarter net profit of $8.0 million, as compared to a loss of $19.2 million a year prior. The change is attributable, in part, to healthy sales of new products. "Hit" titles are always crucial to the company's overall success—during the six months ending on February 28, 1998, Acclaim's top four releases comprised 69 percent of its gross sales. In April 1998 the investment firm BT Alex Brown bestowed a "Buy" rating on Acclaim's stock, citing optimism about near-term growth, an ample balance sheet, positive cash flow, careful control of expenses, and better-than-expected second-quarter earnings. Merrill Lynch gave it a "long-term neutral" rating. Acclaim Entertainment, Inc. has never paid cash dividends on its common stock, and it foresees no plans to do so.

ANALYSTS' OPINIONS

Quoted in an Acclaim press release, Stephen Fleming of BancAmerica Robertson Stevens praised the company's progress: "Acclaim's strategy of making fewer, better games appears to be yielding tangible results, and we were surprised by the strength of Acclaim's E3 lineup." "E3" refers to a high-profile industry trade show called The Electronic Entertainment Expo, which convened in Atlanta in May 1998. Special guest appearances by Acclaim endorsers such as NFL MVP quarterback Brett Favre, NBA rookie star Keith Van Horn, and motocross winner Jeremy McGrath helped to draw record crowds to the company's product display booth.

HISTORY

Co-Chairmen Gregory Fischbach and James Scoroposki founded Acclaim Entertainment in 1987, largely to market home video games for the Nintendo Entertainment System, for which the company was the first independent American publisher of software. The company went public in 1988 and, in 1994, acquired Voyager Communications and renamed it Acclaim Comics. In the same year, the company provided special effects for the movie Batman Forever.

STRATEGY

Acclaim prides itself on the details within the graphics of its games. Paul Eibeler, the company's vice president and general manager, explains, "Acclaim Sports has become a premier sports brand because we go the extra mile—sweat the details—with every product we create. Whether it's accurately re-creating an NBA player's face in NBA Jam or matching the brownish color and unique design of the dirt of Fenway Park in our All Star Baseball '99 game, Acclaim Sports will always create the ultimate in sports gaming realism."

The company has fostered relationships with the television network Fox, the Major League Baseball Players Association, the National Basketball Association (NBA), the National Football League (NFL), Warner Brothers, and The World Wrestling Federation (WWF), all with an eye toward continuing product development. In addition to institutional alliances, Acclaim cultivates endorsement deals with major sports figures. Motocross legend Jeremy McGrath was chosen to help design the game Supercross '98 Featuring Jeremy McGrath for the Sony PlayStation system, and home-run champ Larry Walker of the Colorado Rockies was chosen to endorse All Star Baseball '99 for the Gameboy and Nintendo systems. Keith Van Horn of the New Jersey Nets endorses NBA Jam '99. Other promotional moves include stepping up the company's advertising budget to $15 million for national television advertising, as well as backing the NFL Quarterback Club '99 release with a sweepstakes in conjunction with Fleer/Skybox football cards. Supercross '98 Featuring Jeremy McGrath benefits dually from its advertising in motocross and video-game publications alike, in addition to receiving heavy radio advertising.

INFLUENCES

A key factor in Acclaim's product development is the current hardware available to support its software. Acclaim had made 16-bit cartridge systems—an arena it ultimately exited in April of 1996—but it suffered financially after it was slow to adapt to the newer markets for the more sophisticated 32- and 64-bit systems. In 1997 Acclaim sold the assets of its Acclaim Redemption Games (formerly known as Lazer-Tron). In the same year, it cut its PC games catalog from 60 to 40 in order to pare down those that were not performing well in the market. Acclaim's titles can remain competitive for a three-month time frame or over a year depending upon initial popularity, with the densest sales usually occurring by the fourth month. At any given time the marketed titles tend to be the company's 10 to 15 most recent issues.

Following 1995's purchase of three "software studios": Iguana Entertainment, Inc., Sculpted Software, Inc., and Probe Entertainment, Acclaim began to develop the majority of its software in-house. The balance of the releases are developed at and licensed from independent firms, as were all Acclaim titles before 1995. In order to develop animation technology, Acclaim has invested in a "motion capture studio." This state-of-the-art technology involves electronically mapping the movements of real objects, or people, for incorporation into graphic programs. The results are highly realistic when applied to video animation. An Acclaim software product's development phase falls between eight months and two years, usually at a cost of between $1 and $2 million.

CURRENT TRENDS

Acclaim began to produce children's books in 1997, bringing out its Acclaim Young Readers line of "visual storybooks" in an effort to expand its markets. In planning the 64-page products, the company signed licensing agreements to use characters from Disney, Saban Entertainment, and Fox Kids Network. The Disney-inspired books will be distributed by Penguin under two "sub brands": Disney's Enchanting Stories, which includes 101 Dalmatians and Beauty and the Beast, and Disney's Action Club, which includes Life with Louie (featuring the popular comedian Louie Anderson) and The Tick. Most of the first year's 35 works are published in paperback.

In March 1998 Acclaim announced that it would close its coin-operated video game unit Acclaim Coin-Operated Entertainment, Inc., in order to concentrate resources on its Acclaim Studios division. Acclaim had been in the arcade machine market since 1995. Said CEO Gregory Fischbach of the strategic decision, "Expanding our studios' head count without impacting our cost structure allows us to create additional development teams, which we expect will increase our output of product."

In 1998 the company announced plans to release PC and video games that are based on the Comedy Central animated series South Park. In a press release, Steve Lux, the company's vice president for marketing, commented, "The addictive quality of the show's characters and stories is great fodder for creating mature-rated video games."

FAST FACTS: About Acclaim Entertainment, Inc.

Ownership: Acclaim Entertainment, Inc. is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: AKLM

Officers: Gregory E. Fischbach, Co-Chmn., Pres., & CEO, 55, $775,000; James Scoroposki, Co-Chmn., Sr. Exec. VP, Secretary, & Treasurer, $500,000; Anthony Williams, Exec. VP, 39, $225,000

Employees: 680 (1997)

Chief Competitors: Acclaim competes with various other video game makers and publishers of comic books, including: Electronic Arts; Nintendo; SEGA; and Marvel Entertainment Group. Inc.

PRODUCTS

Acclaim's games are nothing if not action-packed. Forsaken, a futuristic war game, has enjoyed rave reviews: CNET Gamecenter called it "high-flying, 3D, nausea-inducing excitement." Recent releases in the Acclaim Sports brand lineup include WWF War Zone, NFL Quarterback Club '99, and NBA Jam '99. One of the most brisk sellers has been the new All Star Baseball '99 (licensed by Major League Baseball Properties and the Major League Baseball Players Association), which has startling graphics representing real U.S. baseball stadiums, as well as players' faces. It allows up to four simultaneous players on a screen and uses authentic play-by-play announcements from Yankee colormen Michael Kay and John Sterling. NFL Quarterback Club '98 has reigned as the widest-selling Nintendo 64 format sports game, and its 1999 follow-up version, designed with input from the New York Jets' offensive coordinator Charlie Weis, improves upon many of its technical features. Supercross '98 Featuring Jeremy McGrath lets players choose weather and track conditions and accommodates two racers on a split screen. A "create-a-track" feature allows players to custom design their own driving environments and to store up to thirty environments for future use. The game became an immediate hit upon release.

GLOBAL PRESENCE

Acclaim Entertainment, Inc. is based on Long Island, New York, but it also has marketing and distribution operations in Great Britain, France, Germany, Japan, and Spain. The London-based Acclaim Europe unit oversees the company's European sales.

CHRONOLOGY: Key Dates for Acclaim Entertainment, Inc.

1987:: Gregory Fischback and James Scoropski founded Acclaim Entertainment to market home video games for the Nintendo systems
1988:: Acclaim goes public
1994:: Acclaim acquires Voyager Communications and renames it Acclaim Comics
1997:: Begins producing children's books; lays off 115 employees from its headquarters in a $40 million cost-cutting measure
1998:: Closes its coin-operated game division

EMPLOYMENT

Recent years have seen employment cuts at Acclaim. In 1996, 65 employees were dismissed, and in 1997's $40-million cost-cutting measures, the company laid off 115 administrative, customer service, financial, and public-relations staffers at its headquarters. In 1998 the company closed its coin-operated game division, though some personnel were reassigned. Acclaim does not have a pension plan for employees.

SOURCES OF INFORMATION

Bibliography

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"acclaim closes coin-operated division shifting development resources to acclaim studios." business wire, 6 march 1998.

"acclaim entertainment, inc." form 10-k, for the fiscal year ended 31 august 1997. u.s. securities and exchange commission, 1998.

"acclaim entertainment, inc." form 10-q, for the quarterly period ended february 28 1998. u.s. securities and exchange commission, 1998.

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——. morning meeting notes, 8 april 1998.

"from south park to ball park, the hottest games at the electronic entertainment expo are at acclaim!" acclaim entertainment, inc. press release, 21 may 1998.

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"pc software selection changing." television digest, 7 july 1997.

"supercross '98 featuring jeremy mcgrath revs up for playstation release in may." acclaim entertainment, inc. press release, 14 april 1998.