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January 27, 1998

EIDOS LOOKS TO TOMB RAIDER 2 FOR HIGH KICKING ’98

By CBR Staff Writer

Entertainment software house Eidos Plc emerged guns blazing last week to announce some aggressive management trading comments that sent the company’s stock soaring 18 percent to 872 pence. The activity is directly related to soaring sales of the company’s best selling computer game sequel, Tomb Raider 2 ,which will account for almost 50 percent of the company’s revenue in the next financial year, logging up its best ever Christmas in the games market. But there is more to the Eidos story than its Tomb Raider heroineLara Croft. Eidos began life in 1990 as a video services company focused solely on advancing its proprietary video codec (compression/decompression) software, Escape. In the last two years with the entrance of Charles Cornwall as chairman in 1995, however, it has metamorphosed into a games production house becoming a leading global player and one of only a handful of international companies that operate in all three stages of the games production process: development, publishing and distribution. Listed both on the UK stock market and Nasdaq, Eidos currently has over 50 titles currently in development, the strongest games line up of any UK listed company. Considerably smaller than US games giants like Electronic Arts, Activision and GT Interactive Eidos is still playing in the same ball park. Brokers regard the company as undervalued compared to its larger US counterparts. Despite the fact that the company’s forward price per earnings ratio rocketed from around 10 times to 15 last week – it still falls short of Activision’s current value of 20 and EA’s value of around 24 times.

By Lucy Ness

Unusually for a UK listed games company Eidos has managed to follow the growth tactics of larger US players like GT Interactive by attempting to acquire, take stakes in or secure publishing and distribution deals with many of the most sought after development companies in the US and Europe. Its purchase of CentreGold Plc six months after Cornwall joined the company in 1995 was its most significant purchase to date bringing under its wing, Core, the wholly owned development team responsible for TombRaider, TombRaider2, Fighting Force and the upcoming Ninja title. Another interesting and more recent foray includes a deal struck up early last year with Ion Storm, a US start up development company set up by John Romero, one of the founder members of ID software responsible for the highly successful Doom and Quake computer game series. Eidos has sewn up a long-term 10 year, 6 title publishing deal with the company and is expecting a lot of Ion Storm’s second title due in the next couple of months which is likely to be similar in style to Quake. Other more obscure, non games related but lucrative investments include the company taking a 15% stake in Norwegian based Opticom last November an outfit which has been developing a means by which data can be stored on plastic. Eidos has also announced a joint venture with Opticom to develop products for the game market and continues to push development of its video codec and has been seeking a partnership with Oracle to further commercialize the product, although this side of the business accounts for a minuscule proportion of the company’s revenue. Despite shares and stakes in over 14 games related companies however, success for Eidos is still, inextricably linked to the fate of Tomb Raider which currently accounts for almost half of the company’s revenues. For larger companies like Electronic Arts the pressure on specific titles is not so intense. EA is a leader in electronic games franchises with successes in almost every sport and an endless number of franchises all but guaranteed. Although games can’t be guaranteed to be a hit from the start once a franchise has been established the life of a game can go on and on and on. From that perspective at least one other bumper hit would be good news for Eidos, especially when balanced against the company’s rather checkered progress in 1997. The company’s stock price crashed last year on the news that auditors Coopers & Lybrand, would not be seeking re-election as the company’s auditors in 1998 citing lapses in corporate governance regulation as the principal reason for the decision. Although the company managed to enlist the support of KPMG at lightning speed the departure of Coopers coupled with rumors of insider trading and poor reporting still reflected badly on Eidos’ management. The company’s street cred was further damaged when two members of the Core development team responsible for Tomb Raider left under a black cloud the following month to set up on their own. In both these scenarios the lovely Lara Croft managed to fight Eidos out of a tricky corner – but the question remains – is she enough to save them again if the bad times return?

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