Atari Sells Humongous to Infogrames for $10.3 Million

Dealing with its own financial struggles, Atari has further streamlined its business and sold off its Humongous Entertainment studio to parent company Infogrames. The deal should give Atari a bit of a lift by increasing resources as it looks to ways to produce higher quality titles and strengthen its bottom line.

In an effort to streamline U.S. operations and reduce costs, Atari, Inc. today announced the sale of Humongous Entertainment to Atari parent company/majority stockholder, France-based Infogrames Entertainment SA, which is the largest video games publisher in Europe.

Humongous deal

About $2 million of the sale (worth approximately $10.3 million) "represents pre-payment of certain future costs Atari will incur related to platform royalty advances, manufacturing costs and milestone payments." In addition, Atari will continue to be the exclusive distributor of Humongous products in the U.S., Canada and Mexico through March 31, 2006 and possibly beyond. Humongous Entertainment is primarily known for its kid-friendly line of "Backyard" sports titles, such as Backyard Baseball, Backyard Basketball, and others.

The deal is hardly surprising, as the financially beleaguered Atari said during its last fiscal conference call that it was looking to divest itself of the Humongous studio because "certain operations do not sufficiently complement its strategic vision or creative direction." The sale of Humongous is actually the third studio that Atari has rid itself of this year. Several months ago, the publisher shuttered its studios in Santa Monica, California and Beverly, Massachusetts.

Shedding Humongous should be seen as a largely positive move for Atari, as the studio was one of the loss leaders for the company, posting a $4.2 operating loss on $12.6 million in revenues during Atari's last fiscal year. When you consider that Atari only netted $5.7 million on $395.2 million in sales last fiscal year, the Humongous loss is, well...humongous.

Cost control and better games

Atari certainly needs to start turning things around, especially as publishers start moving resources to the next generation of consoles. The company's last Q4 was a nightmare that included the sudden resignation of chief executive James Caparro, a drop in revenues, and a loss of $9.1 million. Atari's been faced with poor critical reviews for mostly lackluster titles and the company's cash balance has been weakening -- it stood at $5.8 million at the end of the last quarter.

"We continue to execute our previously articulated strategic initiatives and strengthen Atari's financial position moving forward," stated Bruno Bonnell, Chairman, CEO and Chief Creative Officer of Atari. "As we streamline the operations of the Company and focus on cost controls, we remain committed to developing unique high-quality titles that appeal to both mass-consumers as well as hard-core gamers. This transaction substantially contributes to our resources for the launch of our largest titles in the holiday season and further enhances our capacity to develop new titles, ultimately enhancing shareholder value."

Looking ahead, Atari's plans to improve its product line seem to be of the "less is more" variety. The publisher intends to focus more on quality and will release fewer SKUs.

"By improving our business processes in order to release higher quality products on time and on budget and creating comprehensive global market initiatives to support them, we will be taking better advantage of our assets," said Bonnell.

As of press time Atari shares (ATAR) were largely unaffected by the news, increasing only 1 cent to $1.37 on NASDAQ.

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