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Will Christmas sound the death knell for Atari?

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Comment There is increasing concern that the Atari brand is finally on the verge of disappearing, as it concluded a quarter where its losses are bigger than its revenues, which have crashed to just $10.4m.

Three years ago, Atari amassed sales of $343m, which fell to $206m last year and $122m for the year just gone. Its belated quarterly figures to 30 June have now just been filed, at a revenue level closer to a $40m run rate for the coming year, and underinvestment in new games means there is little left of the once great native US gaming operation which is now controlled by French gamer Infogrames.

Last month, new Infogrames CEO Patrick Leleu slashed the board of Atari and dragged in new high powered replacements, which looked like they had the job of finding a buyer for the existing game titles. Over the past two years the company has sold off most of its game development facilities.

As noted, revenue for the quarter was $10.4m, compared to $19.5m last year, which contributed to a net loss of $11.9m, compared to net loss of $7.3m last time.

By filing its Form 10-Q it may avoid being delisted by Nasdaq for non-filing, but as the company begins to run out of money there may be other reasons for Nasdaq to be concerned, which is why the company last month changed its debt position from a $3m line of credit with Guggenheim Corporate Funding (it had been a $15m line, but it hauled it in) to a $10m revolving credit line backed by BlueBay Asset Management, which holds shares in parent company Infogrames Entertainment.

But if the new management is preparing the company for a sale, and these funds are just to keep Atari afloat, then they will have to be quick about finding a buyer. The company used operational cash of around $3.8m to support the bigger loss of $11.9m, whereas it used $12.4m the previous year when the loss was only $7.3m.

Atari says most of its new games releases, the few it has left, are focused on the holiday season, which is pretty much its last chance as it will need to spend virtually every cent it can lay its hands on finishing and promoting those games during the second and third quarters of its fiscal year.

In Atari's quarterly filing it made it clear that the management continues to seek additional financing, gave no guarantee that it would manage the trick, setting the scene for a messy closure, perhaps a Chapter XI filing, sometime in the run up to Christmas if things don't work out.

The company cut to the bone in May losing 20 per cent of its staff and at present is reliant for 60 per cent of its revenues on the big US retailers Wal-Mart, GameStop, and Best Buy. But given the amount of competition for shelf space in these giants, Atari cannot take these sales for granted either, especially as new games from other suppliers emerge for Xbox 360, the Nintendo Wii, and Sony PlayStation 3.

The Atari brand has lost almost all of cachet that was associated with it in the past, although the company is now considering licensing the Atari name for use in products other than video games. Given that the name itself is now licensed, that may not be possible.

Copyright © 2007, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

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