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Over the concerns of some lenders, today Midway Games got a green light from the US Bankruptcy Court for the District of Delaware to continue to run its U.S. operations as usual as it moves forward.

The authorization for the “first day motions” will allow the company to press ahead with the bankruptcy filing Midway completed last week (The complete filing is available here).   Payroll, price protection mechanisms and Market Development Fund obligations will be paid from the company’s cash position.

CEO Matt Booty said the company “remains confident in Midway’s ability to use this proven [bankruptcy] process to address our capital structure and explore our strategic alternatives.” He called the approval an “important first step.”

Not all creditors agree.  In an objection motion filed last Friday (which is embedded below) several voiced concerns suggesting that the bankruptcy, and the situation that created it, could evolve as an end-run around Midway’s debt obligations for the best interest of its majority owner but to the detriment of the creditors themselves. 

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Microsoft’s Entertainment and Devices division has taken its share of the hits in the company’s efforts to restructure its costs.   Already, Ensemble Studios (maker of Halo Wars) and ACES (makers of Flight Simulator) have been shuttered while the Zune project group has been subdivided into two teams.

Now it looks like Rare, the UK game developer Microsoft bought for $375m in 2002 is the next to get operated on.  Speaking to Gamesindustry.biz,  Mark Betteridge, the studio manager, said that “as the entire industry struggles to address the increasing scale and cost of development, we too have felt a need to restructure our current approach so we can speed development and better manage the scale required to create high quality games.”

Job cuts are expected to be limited but not non-existent.

(Update 2/19: at least 12 positions in art and engineering departments have been reported cut so far. )

As a positive side note: some of the staffers from Ensemble Studios have already built themselves a new home.

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If you follow the earnings announcements from gaming companies, it might be easy to conclude the industry is taking its share of licks from the recession just as other sectors are.  There’s a bankruptcy here.  Plenty of guidance revised downward.  Missed numbers there.  It’s an easy conclusion to make but it wouldn’t be quite right. Register receipts at retail tell a different story.

Demonstrating a clear gap between the operational performances at individual companies and an industry’s broader health, NPD retail data for January released this week showed the gaming sector grew steadily.  All segments – software, hardware, accessories – reached double digit year over year revenue growth.  As with December results, it was slow and steady, reliant on a few key constituents more than others (namely Nintendo), but still solid.

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In early February, Microsoft announced plans to create original video programming for its Zune media player.  The concept seemed a wild tangent and the question at the time was: why? Now, there’s more of an answer: it’s not about the device.

Microsoft has quietly broken its Zune group into two separate units, one software and services focused, the other hardware.

The hardware group will now work out of the Windows Mobile organization.

The software team, which will be under the watchful eye of Enrique Rodriguez, corporate vice president of Microsoft’s TV business, will focus on a broader converged entertainment offering.

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On a day when Midway Games failed to find a buyer or new capital, fellow publisher Eidos had better luck.  The beleaguered publisher, suffering its own financial woes, revealed new details on a buyout overture first announced in early January.  What was initially disclosed as an unnamed suitor turns out to be Japanese publisher Square Enix.  The company has made a formal bid of £84.3m in cash  (approximately $120 to $122m depending on exchange rates) to acquire the company.

The details to emerge thus far:
Eidos’ board has unanimously agreed to endorse the Square Enix offer.  At the offer price of 32 pence per share its represents a 91% premium over the company’s three month average closing price (for the period up to February 11th). The premium is also a 258 % improvement over Eidos’ closing price on January 14th, the last day of trading prior to the company’s announcement it had been approached with a takeover offer.

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Midway Games fought the good fight, twice extending debt repayment deadlines, but ultimately extensions weren’t a solution. With time again running out, today the company gave in and sought the protection of Chapter 11 bankruptcy. (The full court document is embedded below)

Midway had been under the gun since December when then majority shareholder Sumner Redstone sold off his 87.2% stake in the company.  Redstone’s firesale triggered early debt repayment clauses that put Midway on the hook for settlement of more than $150m in outstanding notes that otherwise wouldn’t have been due before 2025.

The default on those loans (which becomes automatic with bankruptcy), in turn, will trigger another $90 million in obligations to Redstone’s National Amusements that are  shared with Mark Thomas, the buyer of Redstone’s shares through a participation agreement.

Working with Lazard since November, Midway had hoped to find a way to avoid this. Click to Read More

The U.S. video game industry chalked up almost$22b in retail sales last year and is continuing to grow steadily.   In 2008,   approximately 20.7m current generation consoles were sold (NPD data).  That number may be relatively small compared to the install base for DVD players (estimated at about 87% of TV owning households in 2007 according to Nielsen), but life to date US sales of consoles as of December were above 81.6m  units (including the PS2, 38.4m, without).  No matter how you count it, that is a substantial market and a sizable number of households. 

Blockbuster in its continuing struggles to reinvent and improve its business wants to reach the gaming market more efficiently than they currently do.  To achieve that, the company announced Wednesday they’ll begin including games in their “Total Access” mail-order rental service.

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