Fundamental change in business structure:
- SCi's business structure will be significantly changed from a centrally controlled development and publishing model to a studio-led business focused around cornerstone products, such as Tomb Raider, Hitman, Championship Manager and Deus Ex.
- Creation of Eidos PLAY to fuse together casual and new media resources to attack growing markets.
- Flexible and efficient approach to distribution.
Product improvement initiatives started:
- Cancellation of 14 projects which the Board considers are unlikely to generate an acceptable return on investment or are not of appropriate quality.
- Studios focusing on product innovation and delivery of high quality games.
- Production services to form part of the studio group, relocating to Montreal from London.
Cost reduction plan:
- New business structure targeted to operate with a maximum of 800 people, a reduction of 25 per cent from current headcount.
- Annual operating costs to be cut by 14 million by the end of June 2008 at a one-off cost of 7 million.
Phil Rogers, Chief Executive of SCi Entertainment Group said: SCi is in need of immediate change. Following our business review over the last six weeks, we are initiating a clear action plan based on three fundamental strands of activity: a radical change in our structure to a studio-led business, a top to bottom programme of product improvement and efficiency and a considerable cost reduction plan.”
To get SCi on track we have to act rapidly and effect change quickly. We must allow the world-class people that we have within the Group to focus on strong, profitable titles which will create the value our shareholders deserve. I am confident our staff share this vision and excitement for the future, and determination to build a working environment where our innovation and creativity can be commercially realised.”
As illustrated by today's interim results, which are set out below, our quality has slipped below acceptable standards and, through disappointing game development and working within an ineffective operating structure, we are failing to realise the commercial return our creative ability and our shareholders demand. Our infrastructure is too big and expensive for the scale of the business.
The cost of delivering world-class games has increased significantly and we must provide appropriate levels of resource to maximise these opportunities. At the same time our industry is well positioned for business and margin expansion through a broadening demographic appeal of games and initiatives centred around online initiatives.
Our cornerstone franchises, such as Tomb Raider that has already sold 35 million units, have the potential to deliver significant profits and substantial returns on investment, which should not be diluted by more run-of-the-mill games. We must optimise our return on these titles, leverage and position the Group for online and make better use of our innovative strength. Kane & Lynch, for example, a home grown franchise, has sold over 1.4 million copies in its first incarnation - yet we believe it could have sold more had we optimised the opportunity.
The business has always been run as a development and publishing organisation. However top-down control over development with a centralised brand and product marketing team, often in a different country and time-zone, is not the right formula for the creation of high quality games. We need to provide the right environment for our studios to do what they do best - create great and commercially successful games.
Fundamental change in business structure:
SCi's business structure will be significantly changed with a shift from publishing and development to a studio-led model.
Our focus is to build the appropriate studio infrastructure around our cornerstone franchises. Shifting key publishing responsibilities to within a studio structure is expected to increase our efficiency and focus.
We are creating a third party business unit to manage the effective creation and delivery of exciting new games such as Just Cause 2. Third party developers will continue to be an important part of our business.
A new casual and mobile games group, Eidos PLAY, will be created to capitalise on the growing casual games market that is taking games to new audiences. This group will concentrate on the development and distribution of innovative and fun casual and mobile phone games. Eidos PLAY, created by fusing our resources, responsible for creating and marketing titles such as Pony Friends and our New Media teams, will enable us to accelerate our presence in this market and enhance our returns.
Supporting our studio-led model is a flexible and efficient approach to distribution, with the appropriate balance of direct and third party distribution channels and partners.
Product improvement initiatives:
Shifting today's key publishing responsibilities such as brand, PR and marketing into the studio units enables us to form highly focused teams around our products. This promotes not only high quality games, but high-impact, focused and coordinated marketing of those games.
With this new company strategy we have reviewed our product line-up and are cancelling 14 projects that will not deliver the returns we require.
We will move our production services, which include localisation and QA, to Montreal from London as part of our initiative to bring people closer to games while benefiting from Montreal's lower cost operating environment.
Cost reduction plan:
Cost savings initiatives are underway and today we are announcing a new business structure to reduce headcount to 800 people, a reduction of 25 per cent from the current level; we expect that annual operating costs will be cut by 14 million by the end of June 2008.
The Board is reviewing the working capital required for the successful implementation of the revised strategy. This amount is not yet finalised, but it is estimated to be between 45 - 55 million, over and above the current overdraft facility of 20 million.
The Board believes that value for shareholders is best achieved by raising this through the issue of new equity. The Board's preferred method of equity fund raising is through the capital markets, though discussions with potential commercial partners indicate that equity may also be forthcoming from such sources. Encouraging discussions continue with the Company's lending bank regarding the extension of the current banking facilities.
At this time the Board is not encouraging offers for the Company but, in a consolidating industry, any sensible offer for the Company or proposal for crystallising value for some of the Group's IP will be considered in the context of the alternatives and benchmarked against the value the Board believes can be delivered for shareholders through the revised strategy and business plan.