Gizmodo reports that Circuit City has slipped quietly into that retail good night.

Individual stores of the bankrupt retailer spent their final hours over the weekend selling off their remaining merchandise and then even getting what they could for their empty shelves.

The recession has claimed another video game media victim.

A post yesterday on GameCyte announced that the site, which debuted in 2008, was ceasing operations. Editor Sean Hollister wrote:

GameCyte was a veritable smorgasbord of stories, where you never knew what you might read next... every day working on GameCyte was fresh and exciting.

 

What this meant for our profitability, however, is that we never really carved out a niche in the game journalism space... and as the global recession continues to take its toll on media organizations, we find ourselves without funds, and without the prospect of finding them

GamePolitics linked over to the excellent coverage on GameCyte on numerous occasions. The site's unique voice will be missed in the game space.

Last month, GamePolitics broke the news that some creditors of bankrupt Midway were alleging that the recent sale of the financially troubled Mortal Kombat publisher was a sham.

In a document filed with the U.S. Bankruptcy Court, attorneys for certain of Midway's unsecured creditors charged that insider dealing had occurred between the former owner, media mogul Sumner Redstone, and the new owner, mystery man Mark Thomas. According to those allegations, Thomas, whose shell company, Acquisitions Holding Subsidiary, purchased Midway for a mere $100,000 in November, stood to reap a 30,000% return on his investment.

As of this morning, civil subpoenas have been issued for Sumner Redstone and his daughter, Shari, who formerly served as chairperson of Midway. Both are required to appear later this month for separate depositions in New York City. The Redstones will be required to bring documents, notes and e-mails relating to the operation of Midway as well as to their dealings with Mark Thomas.

So far, court records do not indicate that Thomas has been subpoenaed.

GP: It is important to note that these subpoenas are related to a financial dispute between creditors in Midway's bankruptcy case. They are not related to any type of criminal or government regulatory investigation.

DOCUMENT DUMP: See Shari Redstone's subpoena here. For Sumner Redstone's subpoena, click here.

2P Start takes note of President Obama's recently-passed stimulus package by invoking the graphic style of the old Number Munchers game (perhaps some GP readers played it in school).

The artist explains:

I kind of get the feeling this comic might appeal more to The Oregon Trail crowd... Number Munchers was another early educational PC game that a lot of us probably played in elementary school...

 

In any event, we’re not trying to spark a political debate here, it’s just that $787 billion is a staggering number, even for an old pro like Muncher!

Do you get the feeling that Midway's ongoing bankruptcy drama isn't going to end well?

Reports yesterday indicated that executives planned to either structure a reorganization or sell off the company's only major IP asset - Mortal Kombat. Guess which one of those will be easier to do.

But a filing by Midway's new owner seems just as alarming.

GamePolitics readers may recall our February 15th exclusive report on allegations of sleazy insider dealing in the Midway affair. At the time, some Midway creditors wondered who new owner Mark Thomas was and how he was able to purchase Midway from media mogul Sumner Redstone for a mere $100,000 in November.

Thomas, through his shell corporation, Acquisitions Holding Subsidiary, fired back in U.S. Bankruptcy Court on Friday. Midway, says AHS, is hemorrhaging cash and Thomas wants his investment collateral protected:

[Midway has] an immediate need to access and use AHS's Cash Collateral. Nor can it be disputed that, based upon the Debtors' 13 week forecasted Budget, [Midway is] hemorrhaging cash at an alarming rate. Indeed, the [Midway] Budget indicates that between February 9, 2009 and May 4, 2009, [Midway] will burn through approximately $12,392,598 in cash representing an approximately 75% depletion of its cash reserves...

 

The Objecting Noteholders have made several unsubstantiated and unsupportable accusations - none of which are true - regarding the relationship and transactions between Sumner Redstone and AHS' s principal Mark Thomas... each of those allegations is without merit... 

 

The Limited Objection is replete with unsupported and, frankly, irrelevant factual allegations regarding the relationship between Mark Thomas and Sumner Redstone...

We asked Wedbush-Morgan analyst Michael Pachter to comment on Midway's situation:

Unfortunately, their low cash position, high debt load, and unforgiving creditors place them in the position of having to generate cash at a bad time, and it's always easiest to sell the assets with the most value.
 
I think it's premature to say that they are dead, but fair to say that a [potential] sale of Mortal Kombat will weaken them.

DOCUMENT DUMP: The AHS/Mark Thomas objection...

Steve Nelson, who has created fascinating visualizations which combine real-world political data with the Second Life metaverse, is at it again.

On his Clear Night Sky blog, Nelson has posted a video which mashes up SL and the 2010 federal budget:

To commemorate the 2010 federal budget... I have installed a new feature at the Capitol Hill in Second Life.

Using the APIs available from USASpending.gov, the Show Me the Money! piggy bank will shower $100 bills down on the Capitol Hill legislative chamber. Each bill has the name of one of the top 50 recipients of government funding during 1Q 2009. The size of the bill is proportionate to the amount of money received, at a scale of $1billion = 1 Second Life meter.

Like everyone else, gamers are suffering during the current hard times. Some, in fact, have been forced to pawn their consoles to meet basic needs.

The Chicago Tribune reports that the recession is keeping pawn shops supplied with game consoles and TVs on which to play them:

Ace Pawn Shop manager Chris Banul said business is up and he's seeing more high-end items brought to the Bloomington shop for collateral, or sold outright, as the economy has worsened.

"We're seeing a lot of expensive video game systems, PlayStation 3s and X-Box and others, and a lot of LCDs (flat-screen televisions)," Banul said...

Tom Haggerty, co-owner with wife Cindy of TomCat's Pawn in Bloomington, said their store has been getting lots of flat screen TVs and game systems. He said those items are selling fast...

A just-released online news game allows player to try their hand at saving the economy.

As reported by the New York Daily News, Addicting Games exec Kate Connally describes Trillion Dollar Bailout:

With this game we're giving game players the chance to experience what it's like to make a decision about who to bailout and who not to. Games can help people experience news events by putting them in the shoes of the people in the action.

 

News events are something that really unite our culture, everyone experiences it together, so adding games into the mix of how people are experiencing major national events is just part of what we do. They're not just a silly pass time. It's a form social commentary.

In Trillion Dollar Bailout players are presented with cash requests from corporate executives and average homeowners. It's up to the player to decide how to dole out the bailout bucks.

GP: We initially embedded the game with this story, but - rather obnoxiously - it starts running when the GP page loads. You can, however, click the link to check the game out.
 

No names yet, but Variety's Ben Fritz is reporting that game-oriented cable station G4TV has been hit by layoffs with the X-Play program hosted by Adam Sessler and Morgan Webb taking the brunt of the cutback.

We'll post more as we learn the details.

UPDATE: Variety has posted details on the layoffs:

G4 is... cutting back its two daily programs, "X-Play" and "Attack of the Show" to three and four original episodes per week, respectively, starting March 2nd... a number of staffers on those two programs have gotten the axe, though the figures for the total network are in the single digit percentage-wise...

Adam Sessler and Morgan Webb will continue to host X-Play in its reduced format.

Bankrupt game publisher Midway has apparently left the membership ranks of the Entertainment Software Association. The Washington, D.C.-based ESA represents the interests of U.S. game publishers.

GamePolitics notes that Midway, which filed for bankruptcy last week, has been removed from the list of member companies on the ESA's website. Such removal has preceded the ESA's official acknowledegment of memco departures in several recent cases.

The move probably speaks more to Midway's desperate financial straits than anything else. With Midway's exit, the ranks of the ESA have dropped to 20. At the beginning of 2008, 28 companies belonged to the organization.

We have asked the ESA for confirmation.

When mystery man Mark Thomas acquired troubled game publisher Midway for a mere $100,000 last November, the deal raised more than a few eyebrows. It also raised questions like:

• Who is Mark Thomas?
• How could a company which owns popular franchises like Mortal Kombat and TNA Impact! be purchased so cheaply?

A motion filed on behalf of certain Midway creditors in U.S. Bankruptcy Court in Delaware on Friday makes those questions a matter of record and seeks to block the troubled publisher's move to spend collateral which obscure buyer Mark Thomas's Aquisitions Holding Subsidiary (AHS) put up as part of the Midway purchase.

The language of the motion, which seeks to protect the interests of holders of $150 million of senior Midway debt, comes close to alleging fraudulent insider dealing:

These cases... are tainted by highly unusual transactions by insiders of the Debtors... that, to put it charitably, require significant scrutiny... The rights and protections now offered [to AHS] are excessive and, under the circumstances, inappropriate...

The motion also digs into the shadowy relationship between former Midway owner Sumner Redstone (far left) and mysterious purchaser Mark Thomas:

[Midway] was dominated and controlled until November 28, 2008, by Sumner Redstone...

 

As recently as February 29, 2008, [Midway's] balance sheet was far less encumbered by debt... On February 29th, 2008 [Midway took three loans from Redstone-controlled entities]... just like that [Midway's] $15 million in outstanding loan indebtedness... ballooned to $90 million... to [Redstone]...

 

After the consummation of these Insider Loans... the Redstone parties sold for [$100,000] all of their [holdings] to... a very secretive individual named Mark Thomas... a person virtually unknown in the video game industry...

 

No disclosures ever have been made regarding Thomas or what, if any, relationship Thomas or his companies have with any Redstone Party... But it is safe to assume there must be a connection... given that Redstone essentially gifted [Midway for a mere $100,000]... to Thomas...

 

[Thomas stands] to reap an enormous, almost unprecedented windfall... if paid in full... the Thomas Parties will recover some 30,000% on their $100,000 investment within a matter of a few months... The Thomas Parties' return stands in stark contrast to the tens, or potentially even hundreds, of millions of dollars... that the Redstone-Thomas transaction may have stolen from [other creditors]...

Based on such language, it sounds like things could get very ugly, very quickly in the Midway bankruptcy proceedings. With that in mind, GamePolitics turned to Wedbush-Morgan analyst Michael Pachter for comment on the allegations:

The simple answer is that the unsecured creditors are alleging that the issuance of debt to Redstone secured by collateral was an “insider” deal.  The secured debt has preference over unsecured debt in liquidation, meaning that Redstone’s successor (Thomas) gets paid first.

The filing goes on to allege that when Redstone sold his equity and secured debt to Thomas, the act was a change of ownership, and triggered rules that wiped out tax losses, accelerated default provisions on the unsecured debt, and impaired Midway’s ability to refinance.

The unsecured creditors apparently don’t like the fact that Thomas was a financial buyer, and has full control now.  It is not in Thomas’ best interests to risk his big payday, and the unsecured creditors apparently believe that Thomas is going to force repayment of the debt as accounts receivable are collected.

In substance, they’re saying that Redstone orchestrated this, and they don’t like it.  They are trying to keep Thomas from pulling cash out until they get a chance to reorganize, as that could accelerate and exacerbate Midway’s troubles.

GP: We'll keep GamePolitics readers posted on developments...

DOCUMENT DUMP: Grab a copy of the creditors' motion here.

UPDATE: The Chicago Tribune has a piece on the guessing game surrounding Mark Thomas's identity (via Kotaku).

Yesterday, GamePolitics and other outlets reported that financially-troubled Midway, publisher of the Mortal Kombat series, had filed for Chapter 11 bankruptcy protection.

Since that time GamePolitics has combed through federal court records for additional insights into Midway's status. We've learned, for example, that Midway claims $167,523,000 in assets versus $281,033,000 in liabilities.

Perhaps more interesting, however, is the list of Midway's top 30 creditors. Among these, Wells Fargo Bank has the most to lose. The troubled game publisher owes the bank an eye-popping $150,000,000 of unsecured loans.

Others holding sizeable Midway IOUs include the current owner of the company, its former CEO and a variety of game retailers and licensees:

• Wells Fargo Bank - $150,000,000
• Acquisition Holdings Subsidiary  - $40,000,000 unsecured loan (Thomas is the mystery man who purchased Midway late in 2008)
• National Amusements, Inc. - $20,147,864
• NBA Properties, Inc. - $17,294,849  (License/royalty settlement)
• Tangible Media, Inc. - $8,675,954
• Warner Bros. Interactive - $6,654,203
• Artificial Mind & Movement - $2,000,000
• Epic Games - $1,975,000 (License/Royalties)
• Walmart - $1,576,035
• Far Sight Technologies - $1,279,151
• Best Buy - $1,114,036
• Target - $934,156
• Technicolor Video Services - $637,769
• Toys R Us - $615,276
• Ditan/Synergex Canada - $578,316
• CBS Outernet - $314,600 
• David Zucker - $300,000 (severance pay)
• Multi Packaging Solutions - $287,036
• A.A.F.E.S Headquarters - $276,314
• Kmart - $218,497
• Tigon Studios - $200,000(license/royalties)
• Hollywood Entertainment - $190,982
• TNA Entertainment - $160,000 (license/royalties)
• Professional Films, Inc. - $150,000
• Synergex - Latin America - $149,027
• Pioneer.JB Marketing - $133,353
• Eclipse Advertising - $132,687
• GameStop - $127,250
• Sear, Roebuck - $125,495

UPDATE: We've made Midway's Chapter 11 petition available for you. Get it here.

Financially-troubled Midway Games has filed for Chapter 11 bankruptcy protection.

A Midway press release announced the move, which applies only to the company's U.S. operations. Despite the bankruptcy filing, CEO Matt Booty remains optimistic:

This was a difficult but necessary decision... this filing will relieve the immediate pressure from our creditors and provide us time for an orderly exploration of our strategic alternatives...

Midway enters this process with strong underlying fundamentals, as evidenced by solid fourth quarter sales that exceeded expectations in spite of a challenging retail and general economic environment. Overall, Mortal Kombat vs. DC Universe sales are approaching two million units shipped, TNA iMPACT! has shipped approximately one million units, and our Game Party franchise has sold close to three million units in total.

Government financial incentives for video game production are an increasingly frequent topic of conversation among state officials who are seeking to attract and retain employers.

In Connecticut, however, a successful game developer worries that belt-tightening legislators may do away with a tax break already in place.

Brandon Curiel (left), president of mobile game developer Venan, told local TV station WFSB-3 that losing the tax break will prevent his firm from expanding:

I think every business owner sees what's going on [with the recession] and thinks, ‘When is this going to ripple through and hit me? So far, it hasn’t.

Everyone recognized how important the tax credit program and how beneficial it is, and how do we get that communicated to the Legislature?

Venan's game portfolio includes Monopoly for EA Mobile and Ninjatown for Southpeak Interactive. Curiel added that he hopes to move into developing for the Wii.

A $2 billion allocation intended to push universal broadband service into rural areas of the United States has been cut from President Obama's economic stimulus package, according to Gizmodo:

Those jokers down in Washington finally compromised on the economic stimulus bill, with the Republican minority succeeding in cutting out huge swathes of spending. Among the casualties is the $2 billion for universal broadband...

 

Sorry, "real America," you're gonna keep getting screwed.

GP: Support for the Obama stimulus package is largely split along party lines. However you feel about the stimulus bill, universal broadband would be a big win for gamers in areas with poor quality Internet access.

Michigan Gov. Jennifer Granholm gave PC game publisher Stardock (Sins of a Solar Empire) some Guv-love in her State of the State address yesterday.

Speaking at the State Capitol in Lansing, Granholm acknowledged that Michigan has been hit hard by the economic downturn. But the Guv looked for a silver lining in the film and video game sectors:

There’s real pain in the auto world. Hundreds of thousands of jobs have been lost... Those losses have fueled our determination to bring new industries to Michigan...

 

Since enacting the nation’s most aggressive film [and video game production] incentives in April, we have seen more than 70 film and TV projects slated for production in Michigan, bringing some $430 million in economic activity here...

 

Tonight, I’m pleased to make three major announcements... Stardock Systems, a digital gaming manufacturer, will build its production facilities in Plymouth...

 

The fact that these jobs exist in Michigan today is no accident. These jobs are here because we put a strategy in place to bring them here – often by beating out other states and other countries to get them...

As GamePolitics reported in 2008, Gov. Granholm's administration aggressively pursued a financial incentive package for film, TV and video game production.

Stardock is known as a gamer-friendly publisher which eschews DRM on its PC titles. The company and its CEO, Brad Wardell, garnered major attention at PAX 2008 with the release of the controversial Gamers' Bill of Rights.

GP: Big thanks to reader Chris Bray for the heads-up!

In an interview with Reuters, Wedbush-Morgan financial analyst Michael Pachter has characterized MMO players as "addicts."

In the article, Reuters examines the effect of the current economic climate on the online game business. Pachter suggested that MMOs would see little impact due to the nature of their players' relationship with the games:

I don't think (online multiplayer games) get impacted at all, because people who play them are addicts, Losing their jobs makes them more likely to play because they have more time to play.

While recent studio closures and layoffs have shown that the video game industry is far from recession-proof, game publishers still managed to post record-breaking sales numbers for 2008.

According to a press release issued by the Entertainment Software Association this morning, video game hardware and software sales exceeded $22 billion last year. That figure represents a 23% increase over 2007.

Nearly $12 billion of total industry revenues came from game software sales. The industry finished the year strong, with December sales topping the $5 billion mark.

ESA boss Mike Gallagher commented on the impressive revenue figures:

Even in difficult economic times, the video game industry continues to support our country’s local, state and national economies with record-breaking sales figures and rapid technological innovation.

 

Our industry’s exceptional creators, artists, and storytellers, coupled with a commitment to providing unparalleled entertainment, have fueled high-octane growth, turning video games into the most sought-after medium on the market today.

The ESA also broke down sales by ESRB rating:

• E rating - 45.3%
• E10+ rating - 12.1%
• T rating - 26.7%
• M rating - 15.9%

The sales data included in the ESA press release was compiled by the NPD Group.

North Carolina's News-14 reports that state legislators are considering a proposal to levy sales tax on digital purchases, including video games, music, movies and software.

Such a measure could bring as much as $12 million annually to state coffers. Like many other recession-plagued states, North Carolina is facing a large budget deficit.

Rep. Paul Luebke (D, left) told News-14 that taxing digital goods makes sense:

We used to think of everything in terms of being tangible. Nobody thought of how you could possibly download anything.

So if you buy a book in a bookstore, you're going to have to pay sales tax on it. If you're downloading a book from a book seller, you should have to pay sales tax on that as well.

As GamePolitics reported last month, New York is considering a similar measure.

With recently-announced layoffs pummeling the gaming side of Microsoft's house, Sen. Chuck Grassley (R-IA) is urging MS to cut visiting foreign workers before sending American citizens to the unemployment line.

Reuters reports that Grassley forwarded his request via a letter to Microsoft CEO Steve Ballmer late last week. The Xbox 360 manufacturer employs thousands of foreign national under the H-1B visa program.

Grassley's comments to Microsoft include:

I am concerned that Microsoft will be retaining foreign guest workers rather than similarly qualified American employees when it implements its layoff plan...

 

Microsoft has a moral obligation to protect these American workers by putting them first during these difficult economic times.

The full text of Grassley's letter is available on his Senate website.

Troubled electronics retailer Circuit City has gone belly-up, according to the Associated Press.

Although the company filed for Chapter 11 bankruptcy protection and closed 155 stores late last year, those measures were apparently a case of too little, too late. Having failed to find a buyer or a way to keep itself afloat, the troubled retailer's assets will now be liquidated.

Before it hit the skids Circuit City handled between 5-10% of all video game retail sales.

Via: Engadget

While the current state of the economy isn't much fun, The Bailout Game offers a somewhat entertaining look at the financial mess wrought by the ugly marriage of Wall Street greed and governmental ineptitude.

The web-based offering uses board game-style interface and challenges the player to selectively bailout financial institutions and the auto industry, all the while trying to keep one step ahead of recession.

Although we found the game worth a try, Ian Bogost of Water Cooler Games was less enthusiastic:

The game itself is a repetitive and seemingly meaningless trudge from square to square (bank to bank), each offering the same basic question: Do you bail out: YES or NO? No matter your answer, you'll get an animation or video with some vaguely related news bit or textual riff...

 

I was never able to determine why or how the game wanted me to chose to bail out specific banks or to let them fail, save for invoking the "Ask a Greenspan" button or following obvious hints on the playing cards. It's games like this that make me wonder if I should give up tracking them entirely.

MTV Multiplayer has posted an interview with J Moses, CEO of UGO, which just acquired 1UP from Ziff-Davis.

A number of 1UP staffers were immediately let go and ZD also announced that it was shutting down its long-running print mag, Electronic Gaming Monthly. Of the deal, Moses told MTV's Stephen Totilo:

We have just hired 24 [1UP] people. At a time where all you read about is layoffs we have expanded UGO by 33 percent. I don’t know of any content companies out there expanding their workforce. We did that because our business is robust and growing...

We kept, we believe, the core editorial group that can continue to do great things. What we’re adding is 1up.com as an editorial site that will sit on top of the UGO publishing site. And we kept who we believe are the critical people who can make up a great site.

 

Closing EGM [was a Ziff-Davis decision and] has absolutely nothing to do with UGO.

GP: Given the level of emotion surrounding the sudden closure of EGM and the loss of numerous EGM and 1UP staffers, it's not surprising that many of the reader comments to the Moses interview are negative.

As numerous sources are reporting, Hearst's UGO Entertainment has acquired 1UP from financially-troubled Ziff-Davis. Along with the 1UP sale, ZD is ceasing publication of Entertainment Gaming Monthly. Perhaps the best-known print publication for video game enthusiasts, EGM has been in operation since 1989.

Joystiq has a list of 1UP and EGM staffers who have lost their jobs. Among these are some well-known game journos, including James "Milkman" Mielke and Shane Bettenhausen.

Reactions have come swiftly and many are saddened by the layoffs:

-Kombo has a list of Twitter accounts wherein several former and current 1UP and EGM staffers are tweeting about the situation.

-Former Computer Gaming World (yet another defunct ZD mag) editor Jeff Green blogged:

A sad day for all the folks at 1up.com... my condolences go out to all those now looking for work. The list of people they decided to lay off is just crazy. Don't ask me to make any sense of it, because I don't see any.

R.I.P. 1up.com. They may keep your URL, there, but we all know better.

-God of War designer David Jaffe blogged as well:

My heart goes out to all those 1up and EGM folks who lost their jobs today. It's a real shame considering what an important part you guys/gals have played in the US gaming world all these years. Thanks for the many, many years of great, entertaining work.

-Valve Software tweeted a condolence:

Sorry to see things go down like that. Best of luck to the guys at EGM and GV

UPDATE: Jeff Green added a bit of a rant...

UPDATE 2: EA's Peter Moore weighs in:

I was saddened to see the announcement this afternoon that Electronic Gaming Monthly is closing its doors as  part of the Hearst acquisition of the Ziff Davis Media gaming assets. EGM has been a print publication mainstay of our industry for two decades, and while the real-time nature of web sites has put long-lead magazines and print media in general across most genres under real pressure, it is a sad day when such an important icon in gaming has to say goodbye.

UK newspaper The Times reports today that radical corporate upheaval is coming to Sony.

Long-overdue cost-cutting moves will, according to company sources, result in "sacred cow-slaying measures" that will "will abolish or fundamentally alter many of Sony's long-established business practices."

The reorganization will likely be made public following CES in Las Vegas. The massive trade show ends on January 11th.

Could the PlayStation hardware business get the chop?

That's hard to say, but the PS3 has been bleeding money since it launched in November, 2006 and the PSP is struggling as well. One ominous sign: there is talk of a shift that would turn Sony from a manufacturing to a content-driven business model.

PS3 manufacturing costs have generated huge losses for Sony over the past two years. Content would include games, of course, but Sony also has a stake in movies and music. If the company judges its console business as too costly to continue, it could decide to pursue a system-agnostic approach like the one adopted by Sega after it abandoned the Dreamcast in 2001. Ironically, back then it was Sony's PlayStation 2 which steamrolled the well-regared Sega console.

Alternately, the PlayStation business might be salvaged in whole or in part  and manufacturing cuts could be made on the consumer electronics side of Sony's house.

In any case, we should know more next week. In the meantime, PlayStation 3 fanboys may suffer a few sleepless nights as they worry about the future of their system.

Columnist Joe Blundo has a bit of fun with Grand Theft Auto (and other targets) in a recession - themed piece for today's Columbus Dispatch.

As per Blundo, in order to deal with recessionary pressures, GTA will be re-invented as Grand Theft Auto Executives: 

The amoral video game is retooled with a theme more reflective of the times. Instead of trying to steal cars, players maneuver executives of the Big Three auto companies on a trip through Congress.

 

Their goal is to secure more emergency loans or, failing that, pilfer trinkets they can sell on eBay to raise money for their faltering companies.

Is God behind the recent plunge of Take-Two Interactive's stock price?

When it comes to business, should one's religious beliefs even matter?

For the controversial, disbarred attorney Jack Thompson, the answer to these questions would seem to be yes.

On Friday, GamePolitics reported on Thompson's claim that he planned to lead a stockholder revolt aimed at ousting Take-Two chairman Strauss Zelnick.

While Thompson says that he wants to hold Zelnick accountable for T2's tumbling share price, his comments must be weighed in light of the disbarred attorney's oft-expressed distaste for Take-Two and its chairman.

As to the would-be shareholder revolt, it brought to mind a recent e-mail exchange between GP and  Thompson which may shed some light on the anti-game activist's apparent belief that divine retribution of the Christian deity is behind Take-Two's depressed stock price. Those e-mails follow:

--------------------------

From: Jack Thompson
Sent: Thursday, December 18, 2008 6:44 AM
To: Dennis McCauley
Subject: Spin this, Strauss...

GOD STRIKES TAKE-TWO DOWN

Take-Two dropped $2.35 to $9.72 in extended trading after the announcement and fell as low as $9.60. The shares... have declined 35 percent this year. The results contrast with comments Zelnick made in an interview on Nov. 3, when he said sales of the company’s video games hadn’t been hurt by the recession...

-------------------------

From: Dennis McCauley
To: 'Jack Thompson'
Sent: Thursday, December 18, 2008 6:52 AM
Subject: RE: Spin this, Strauss...

So, if T2’s business reverse was God’s vengeance, does that mean that God struck you down too when you were disbarred?...

--------------------------

From: Jack Thompson
Sent: Thursday, December 18, 2008 9:10 AM
To: Dennis McCauley
Subject: Re: Spin this, Strauss...

...If you had any understanding of the Bible and of God you would understand that persecution comes Christians' way, and we are blessed by it.  There is no blessing for Zelnick, who is not a Christian, when he gets what he deserves...

---------------------------

From: Dennis McCauley
To: 'Jack Thompson'
Sent: Monday, December 29, 2008 6:54 AM
Subject: in relation to your Take-Two shareholder revolt...

...Are you saying that problems for Christians are blessings, while problems for non-Christians are vengeance from the Almighty? Also, how do you know what Zelnick’s religion is?

---------------------------

From: Jack Thompson
Sent: Monday, December 29, 2008 7:11 AM
To: Dennis McCauley
Subject: Re: in relation to your Take-Two shareholder revolt...

Here's another passage of Scripture that you don't understand and never read:  "All things work to the good for those who love the Lord and are called according to His purpose."  That group would include me and not Zelnick.  Zelnick is not a believer in the Gospel.  How do I know?  Because the man who got us together [secretly, in Manhattan in 2007] is a Christian, with a massive ministry in Hollywood and the rest of the entertainment industry.  It was because of the spiritual aspect of this struggle that he got the two of us together, and Zelnick failed the test. 

If you knew anything about the Gospel, you would understand further that Paul, whose writings are considered part of the canon, tells Christians, not unbelievers, that we are to "count it all joy" when trials and tribulations come our way. 

I have been persecuted for my faith, not because I did anything wrong, by those committed to evil.  Glad to clear it up for you.  And as it now stands, Mr. Zelnick's problems at Take-Two are minuscule [sic] compared to the eternity of punishment that is coming his way unless he repents and accepts Christ as I did 32 years ago this month.  You might do well to read the Gospel of John yourself.  Come to think of it, I'll write Strauss about all this and send you a copy...

---------------------------

Thompson did not respond to GP's request to name the man who supposedly brokered the 2007 meeting with Zelnick. The letter to Zelnick which Thompson mentions can be viewed here.

GP: Serious consideration was given as to whether to publish this story as I realize that some will  find Thompson's comments about non-Christians offensive. Ultimately, in deciding to publish, the opportunity to provide an insight into Thompson's mindset outweighed the other issues.

As GamePolitics readers know, Electronic Arts pursued the acquisition of Grand Theft Auto publisher Take-Two Interactive for the better part of 2008.

Timing, as they say, is everything.

The deal ultimately fell through when EA walked away from the table in mid-September.  Since then the global economy has gone into the toilet and the supposedly recession-proof video game industry has shown that it really isn't.

But when EA made its offer to acquire T2 at $25.74 per share, the economy had not yet tanked. No one even dreamed of a Wall Street bailout, much less a potential bailout of the U.S. auto industry.

What if the deal had gone through, obligating EA to lay out huge piles of cash? Would it be like burning your savings on a new car and finding out the next day that your hours were being cut back at your job? Since the merger fell apart, EA has definitely hit a rough patch, laying off a thousand workers and shuttering some of its game development studios.

As for Take-Two, their stock will open south of $9 this morning. Since EA bailed on the merger, TTWO has plummeted, losing about 2/3 of its equity value in 90 days.

From here it seems like T2 would have been better off if the deal had gone through, but EA would have been in worse shape. But we're not experts, so we put the question to Wedbush-Morgan analyst Michael Pachter. Here's what Pachter told us:

[My answer is] totally speculative.  Had EA completed the deal, the TTWO shareholders at the time would have benefited, but other than Oppenheimer (who has been listed as a large shareholder the entire time), it's hard to say that there are many of those other shareholders still around.  I think that many of the shareholders who bought to take advantage of EA's offer were sellers when the offer was withdrawn, so only a small number of current shareholders, including Oppenheimer, were actually involved in the stock back then.

EA would be a mess had it completed the deal.  In addition to its own restructuring (which is just getting underway), the company would have been faced with re-signing the Housers and with cutting significant costs out of Take-Two in order to fully achieve synergies from the deal. 

I don't think a low cash balance [due to the T2 purchase] would be particularly relevant, since EA has a line of credit and is not burning significant cash, but it would have forced decisive action.

Notwithstanding, this is purely speculative.  I think EA would be a stronger company if combined with Take-Two, as the latter company has several valuable franchises and a combination would have given EA a near monopoly in sports.  Had they signed the Housers, EA would have been well-positioned to develop incremental new IP, and would have had one of the strongest franchises around in GTA.

But it didn't happen, and doesn't look like it will over the near term

If you live in the state of New York, you could find yourself paying sales tax on downloadable content (DLC) for video games, beginning in 2009.

That's because, much like the private sector, state and local governments have been hit hard by the current recession. In New York, Gov. David Paterson (D) has responded by proposing a budget that calls for layoffs, service cutbacks and new taxes, including one that will likely add to the cost of your DLC on Xbox 360, PS3, Wii or PC.

The New York Daily News has coverage of Paterson's budget plan:

Gov. Paterson's proposed $121 billion budget hits New Yorkers in their iPods - and nickels-and-dimes them in lots of other places, too.

Trying to close a $15.4 billion budget gap, Paterson called for 88 new fees and a host of other taxes, including an "iPod tax" that taxes the sale of downloaded music and other "digitally delivered entertainment services."

Indeed, a review of the budget document reveals the details of Paterson's plan to tax all forms of digitally-delivered content:

Close Digital Property Taxation Loophole. Imposes state and local sales tax on purchases of prewritten software, digital audio, audio-visual and text files, digital photographs, games, and other electronically delivered entertainment services to achieve tax parity. For example, with the passage of this bill, a book, song, album, or movie would be subject to sales tax no matter if it was bought at a brick and mortar store or downloaded online.

While much has been made of the supposedly recession-proof video game industry, a Bloomberg report says that if you remove Nintendo from the mix, the economic picture for the rest of the industry sags considerably.

U.S. sales of games, players and accessories rose 10 percent to $2.91 billion in November, researcher NPD Group Inc. said last week. Nintendo, maker of the Wii console, accounted for almost three-fourths of the growth, leaving the rest of the industry with a gain of 3 percent or less...

“If you’re worried about your job, are you going to buy a $400 PS3?” said Mike Hickey, an analyst for Janco Partners in Greenwood Village, Colorado. “Christmas is not going to have the same glow.”

The Wii, outselling PS3 and Xbox together by almost 2-1, also is having an impact in software. Five of the top 10 titles last month were for the Nintendo player...

 

The company also is leading in sales of handheld devices. Consumers purchased 1.57 million DS machines last month, up 2.6 percent from a year earlier, according to NPD. Sony’s sales of 421,000 PSP players were down 26 percent from last year.

GP: Bloomberg makes sense on this one. After all, EA is hurting. Sony is a disaster right now. Midway's future beyond January 31st is questionable. NCsoft has cut back. And they're not the only companies that are hurting.