Midway Games Reports 2Q Earnings

Like other major companies, Midway Games Inc, publisher and developer of recently hyped fighter Mortal Kombat vs. DC Universe publicly reported their 2nd Quarter (ending June 30, 2008) earnings results this week, and well, things have been rosier for the high profile gaming company.

Net revenues were down about $8 million from 2007, but came out $5 million ahead of their guidance for the quarter, surpassing $23 million. In this way, the decrease in revenue is seen as a win, as it was better than they thought it would be. The net loss, however, just can’t be spun in a positive light. $34.8 million, or $0.38 per share, was lost in the quarter, compared to 2007’s $14.3 million. This is a huge hit to the company, and most likely a factor in their recent decision to merge their San Diego and Los Angeles development studios.

The lack of a triple-A title from Midway in the quarter factored heavily into the gross difference from year to year. NBA Ballers: Chosen One and a European Xbox 360 release of Unreal Tournament III were the only titles of note Midway released. Their third quarter isn’t looking much more varied for gamers. UTIII hit North America for Xbox 360 earlier in the quarter, and 2nd tier wrestling license TNA iMPACT! will ship for every major home console before the quarter ends on September 30, 2008. They expect a good spike from the wrestler, looking for nearly double the net revenue, at $52 million for Q3. However, they expect their net loss to be nearly equal to Q2, at $0.37 per share.

Midway’s interim president and CEO Matt Booty is quoted in the earnings press release as hyping the aforementioned TNA iMPACT! and looking forward to the holiday (4th) quarter, where Midway will release the next Blitz football game and MK vs. DCU. This seems an obvious attempt to glaze over quarters 2 and 3 with a “4th quarter will rock, we promise” pitch.

The concerns these raise for the gaming industry are two-fold. First, Midway Games is a well-established company. They’ve gone from arcade giant to developer and publisher of some of the most well-known games in industry history. Mortal Kombat is a franchise the average person, gamer or not, has at least heard of.

Additionally, the videogame industry has been otherwise seemingly recession-proof for years. As the economy in the United States struggles, the gaming industry has been defiant. If one of the major industry players expects only one quarter in the year to perform strongly, it could be seen as a troubling sign for the industry as a whole.

There has been other ominous signs this year well, including layoffs and downsizing by companies like Electronic Arts (closed their Chicago studio) and LucasArts (the gaming division of George Lucas’s media monolith reduced their staff despite a healthy slate of new games releases this fall). Whether Midway's upcoming releases can turn the tide to turn net losses into gains remains to be seen. MK vs. DCU does have the advantage of coming out in a holiday without other major fighters; Soul Calibur IV was just released, and Street Fighter IV won’t be out until 2009.

Midway's stock [MWY] price fell more than 31% Tuesday to $2.70 a share on the news.

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