The announcement that Electronic Arts’ “Star Wars: The Old Republic” – which, like defunct 38 Studios’ Project Copernicus, is a massively multiplayer online game (MMO) – will become free-to-play signals a major shift in the game industry. And it also raises a question: Would 38 Studios actually have been able to charge for Project Coperncius when it came out next year?

Turns out, that was no longer the company’s plan. Boston magazine’s Jason Schwartz (whose autopsy of 38 Studios is a must-read) explains why based on his interviews with Schilling:

When I talked to Schilling for my story breaking down 38 Studios’ crash, he told me that the company’s plan was to make Copernicus free to play and to seek revenue from within the game, the same way EA is attempting with Old Republic.

“We were going to be the first triple-A, hundred-million-dollar-plus, free-to-play, micro-transaction-based MMO. That was one of our big secrets,” Schilling told me. “I think when we eventually showed off the game for the first time, the atom bomb was going to be free-to-play. When we announced that at the end, that was gonna be the thing that, I think, shocked the world.”

Read the rest here.

• Related: Watch Newsmakers with Boston magazine’s Jason Schwartz (July 29)

Two more largely unknown subsidiaries that 38 Studios established are not incorporated in Rhode Island, casting further doubt on whether the company is eligible for millions of dollars in tax credits it needs from the state.

In November 2009, Curt Schilling’s embattled video game company apparently incorporated two limited liability companies under Delaware law, records show: Mercury Project LLC and Precision Jobs LLC. Neither company was registered in Rhode Island.

WPRI 12 reported Wednesday evening that 38 Studios’ failure to incorporate in Rhode Island could make it ineligible for more than $8 million in state tax credits it’s seeking to avoid insolvency. The governor’s office says officials are looking into the question of 38 Studios’ corporate residency.

(more…)

The 38 Studios deal is helping one local industry: the hospitality sector.

Swedish game developer Avalanche Studios will offer “a drink and discussion” for game industry professionals at Providence’s Westin Hotel on Thursday from noon to 7 p.m. It’s looking to fill more than 40 open positions.

“Avalanche is seeking qualified candidates to join its art, animation, engineering, design and production departments as it ramps up development on multiple current and next-gen console projects set for release in 2013 and 2014,” according to a post on its website Tuesday that was picked up by Joystiq.

The Westin isn’t the only hotel capitalizing on the problems at 38 Studios, which has laid off workers after failing to pay them last week. Turbine, a Boston-based developer and Warner Bros. subsidiary, is hosting a recruitment event  this evening at the Hotel Providence.

“Kingdoms of Amalur: Reckoning,” the first game from Curt Schilling’s Providence-based 38 Studios, sold another 80,000 copies in the United States last month, WPRI.com has confirmed.

That brings total U.S. retail sales of “Reckoning” to 410,000 copies during its first two months on the market, according to data provided to WPRI.com by NPD Group, a New York-based research firm.

“Reckoning” was released Feb. 7 to positive reviews and debuted at No. 4 on NPD’s bestseller list in February. It fell off the list in March, when eight of the month’s top 10 games were new releases.

NPD spokesman David Riley called 410,000 “an impressive figure for just two months, no matter how you slice it,” particularly for “a new IP” – a game that’s not a sequel but an entirely new storyline. Electronics Arts (EA) is distributing it.

NPD’s figures don’t include “Reckoning” sales outside the U.S., which would likely increase the total. In addition, Alexander Sliwinski of gaming news site Joystiq cautioned that NPD only counts physical copies sold. “That means digital sales of ‘Reckoning’ are missing, which actually has mattered more and more lately with EA’s Origin digital distribution service and the almighty Steam digital distribution service,” Sliwinski said in an email.

Indeed, companies can be touchy about the value of NPD’s estimates. “We think the monthly NPD reports are a very poor indicator of the industry’s performance,” EA’s John Reseburg told Joystiq recently, adding: “Taking these reports as an accurate snapshot of the industry today is a dangerous assumption.”

Project Copernicus, the massively multiplayer online game 38 Studios is developing in Providence using a $75 million backed by Rhode Island taxpayers, could be released before the end of this year.

• Related: Long odds for Rhode Island-backed Schilling game (Aug. 3, 2010)

This post has been updated and expanded.

Rhode Island taxpayers made a $75 million bet on Curt Schilling’s video game startup, 38 Studios, to bring the company to Providence and – state leaders hope – help seed a new industry here.

The company will release its first game, “Kingdoms of Amalur: Reckoning,” just over a month from now, and while that’s not the project the state is helping to fund, its success or failure will have a huge impact on 38 Studios’ future.

The early buzz for “Reckoning” has been positive, and in Thursday’s New York Times the paper’s game reviewer Seth Schiesel put the release on his list of ones to watch in the new year:

Once upon a time, the winter months were sleepy in game land. Not anymore. Early 2012 will bring the release of not only some closely watched games, but also a major new portable hardware system. And Nintendo has said it intends to introduce its successor to the Wii, the Wii U, some time after May. …

KINGDOMS OF AMALUR: RECKONING In addition to being a longtime gamer, Curt Schilling also happens to be a former pretty good professional baseball pitcher. So naturally his game company, 38 Studios, is named after his jersey number. Kingdoms of Amalur: Reckoning, a single-player fantasy adventure, is 38’s first major project. On the heels of similar hits like The Witcher 2: Assassins of Kings and The Elder Scrolls V: Skyrim, offline role-playing games seem to be enjoying a minor resurgence, and none too soon. (To be released on Feb. 7 for Windows, Xbox 360 and PlayStation 3.)

Reuters has published a profile of Curt Schilling and 38 Studios that offers a good overview even if it doesn’t break much new ground. An excerpt:

Schilling has invested $30 million to $35 million of his own money into the company, he told Reuters in a recent interview in Los Angeles. …

The former All-Star chose a tricky time to jump into the video game business, where startups such as Zynga Inc have won fanfare and challenged old powers by rolling out simple, addictive games for Facebook and smartphones.

Against this backdrop, Schilling’s 300-person business has pursued a different strategy: It plans to release a new fantasy-action franchise featuring original characters and stories. …

Schilling said while he still goes into the office, he tries to take a back seat to his talented staff working on the video games.

“Things have gotten infinitely better from a games perspective than five years ago because I’m now less hands-on,” he said.

Surprisingly, the story says Schilling “is proud that his company has no backing from venture capitalists” – even though a recent Boston Globe report said 38 Studios is currently scouting for VC money.

The rest of the Reuters article is here.

38 Studios' R.A. Salvatore, Todd McFarlane and Schilling

Curt Schilling moved 38 Studios to Rhode Island in return for a $75 million taxpayer-guaranteed loan. But that doesn’t mean he’s given up on convincing private investors to put money into his gaming startup.

The investment banking arm of Swiss financial giant UBS has started circulating a “brief teaser” to drum up interest in a “pre-IPO fund raise” for 38 Studios, The Boston Globe’s Scott Kirsner reports.

The document includes some ambitious forecasts, according to Kirsner. UBS says 38 Studios will generate more than $100 million in revenue next year and be “extremely profitable” by 2013.

Kirsner describes the “pre-IPO” language as “quite a stretch for a company that has yet to release its first game.” 38 Studios’ first title, “Kingdoms of Amalur: Reckoning,” is due out in the first quarter of next year; its second, the massively multiplayer title “Project Copernicus,” is due in the fourth quarter. The latter’s development is being funded with the Rhode Island loan.

The Wall Street Journal’s Venture Capital Dispatch blog followed up on Kirsner’s item with its own take:

Privately, many venture capitalists that we talked to over the years about Schilling’s ambitious endeavor have rolled their eyes, saying they’d never invest in a hit-driven business. That’s especially true in this era of social gaming, in which companies like Zynga can build games cheaply and quickly. … Further, these VC said Schilling wasn’t willing to give up much control of the company. The case study said Schilling owned 82.5% of the company’s stock.

We’re unsure which, if any, venture firms would lend a hand, but if much of the development risk is out, Schilling might have a strong case. And hedge funds and mutual funds are swarming to Web companies right now, especially if this company really is pre-IPO (though also pre-revenue).

“Reckoning” has been winning quite a bit of advance praise since 38 Studios and distributor Electronic Arts began previewing it this spring, which is surely music to the ears of officials in Rhode Island (as is the fact that the company has dozens of job openings here).

The Globe and WSJ also imply that the state-backed loan is a key reason the company now feels so bullish about its prospects. 38 Studios received $21.4 million from the loan in two installments on April 18, which were its most recent payments, EDC spokeswoman Judy Chong said. That brings the total disbursed to about $43.8 million.

(photo: 38 Studios)

38 Studios’ first game, “Kingdoms of Amalur: Reckoning,” will be released by Electronic Arts during the first three months of 2012, the Providence-based gaming company said Wednesday.

The announcement came, appropriately enough, via the company’s Twitter feed:

Today’s @EA financial report announced a @ReckoningGame launch of Q4, Fiscal Year 2012. To clarify, this is Q1 of calendar year 2012.

I reported back in March that EA had delayed the release of “Reckoning” until 2012, from its original release date of this September. Here’s the big story I did last summer about the company’s two games – “Reckoning” and Project Copernicus; the latter is the one being created here in Providence.

38 Studios moved into its new One Empire Plaza headquarters last month – a milestone that led to another $17.2 million cash infusion from its taxpayer-backed loan.

38 Studios has collected more than half the cash available from the $75 million taxpayer-guaranteed loan the Rhode Island Economic Development Corporation took out to get the company to move to Providence.

The video game company founded by former Red Sox pitcher Curt Schilling received a $17.2 million payment on April 18, six days after its employees started working out of the company’s new downtown headquarters, EDC spokeswoman Melissa Chambers told WPRI.com.

38 Studios has received a total of $39.6 million, or 53 percent of the loan money, in three installments since last fall. The first payment of $13 million was handed over when the loan transaction closed on Nov. 3, and the second payment of $9.4 million arrived after the company chose its future home in Providence.

This month, 38 Studios moved its local studio from Maynard, Mass., to the six-story, 104,316-square-foot One Empire Plaza building, which has been vacant since Blue Cross & Blue Shield of Rhode Island moved into its new headquarters. The gaming company has a second studio in Maryland for its Big Huge Games subsidiary.

38 Studios’ next payout will be for $4.2 million, which it can obtain once it has 125 full-time employees in Rhode Island, according to bond documents reviewed by WPRI.com. The company has promised to employ 450 people in the state by late 2013.

38 Studios is tentatively scheduled to have all but $11 million of the loan’s proceeds by the end of this year. It cannot receive the last chunk of money until it pays off the rest of the loan, which is supposed to happen by November 2020.

If 38 Studios doesn’t have enough cash to cover its loan payments, the governor is required to ask the General Assembly to provide taxpayer money to make investors whole.

The 38 Studios agreement was strongly backed by former Gov. Don Carcieri and just as staunchly opposed by his successor, Lincoln Chafee. Now that the loan is a done deal, the new governor says he wants 38 Studios to succeed – and hopes to attend its ribbon-cutting ceremony in Providence.

Authorization for the loan was provided by a new $125 million Job Creation Guaranty Program that lawmakers created last year partly to benefit 38 Studios. This week, Chafee got the EDC’s board to change the program’s rules to cap the size of future loans at $10 million – $65 million less than 38 Studios got – and make more money available to small businesses.

38 Studios is developing two games. The first one, “Kingdoms of Amalur: Reckoning,” is being created by its Maryland-based subsidiary. Electronic Arts is scheduled to release the $60 game for Playstation 3, Xbox 360 and PCs sometime next year.

The company’s second one, a massively multiplayer online game called Project Copernicus, is being developed in Providence. At the time the loan transaction closed, Copernicus was slated to be released in September 2012.

And they’re off!

In the wake of the 38 Studios deal, an effort appears to be gaining momentum in Massachusetts to create new tax breaks for video game companies. The latest to weigh in is The Boston Globe’s editorial page, which today called for the Bay State to enact a law providing incentives to gaming firms. Here’s how The Globe wants it to work:

To fulfill the first goal [of increasing the state's competitive advantage], a tax credit for Massachusetts video game companies could help offset the salaries and benefits of the wide variety of staffers required to create and publish a video game. The exact amount of this credit will likely be a source of debate; for comparison’s sake, the province of Quebec offers a 37.5 percent refundable tax credit for labor costs, while Georgia’s offer is a refundable credit worth 30 percent of total production costs. …

To promote a permanent presence, the state should also offer a workforce tax credit. … If it were calculated based on the growth of a company’s employment rolls over a several-year period and how much money it spent on development, this tax credit could provide incentive for companies to stay in Massachusetts for the long term.

I have no idea what the prospects are on Beacon Hill for these proposals, but if they do gain steam I wouldn’t be surprised to see officials in Rhode Island say the state needs to enact its own incentives in order to keep competing with Massachusetts for gaming jobs.

Curt Schilling was adamant last summer that he wasn’t looking for tax breaks as an enticement to bring 38 Studios to Providence. That may be true in his case, but if local officials are really looking to turn Rhode Island into a gaming hub they made decide to create such a program anyway. We’ll see.

Massachusetts got a little bit of a black eye last summer when 38 Studios agreed to decamp for Providence thanks to a $75 million taxpayer-guranteed loan. (“Who lost Curt Schilling?” asked The Boston Globe.)

But even as Rhode Island officials crow about spawning a new gaming hub here, at least some Bay State leaders are preparing to fight back. A new Massachusetts Video Game Institute was announced last month, and legislation to boost the industry is now being drafted, The Associated Press reports:

Massachusetts video game companies could receive tax credits and other incentives under legislation that seeks to strengthen the state’s foothold in an industry that’s sustained strong growth in a weak economy. …

Details of the legislation aren’t finished, but a draft offers a menu of possible tax credits tied to job creation or production goals for companies that design or produce video games.

Incentives would be offered to startups or existing companies who expand or relocate in Massachusetts. A so-called ‘clawback’ provision would help the state recoup investments in firms that leave or fail to produce promised jobs.

State Rep. Vincent Pedone said it’s too early to say what the effort would cost, but the goal is expand the state’s $2 billion video game industry to $20 billion in five years. …

Seventeen other states offer financial incentives to video game companies and the Province of Quebec has aggressively lured firms with tax credits. …

The effort comes after former Boston Red Sox star Curt Schilling decided to move his video game company, 38 Studios, to Rhode Island after that state offered a $75 million loan guarantee. Pedone said he believes Rhode Island took the wrong approach by focusing on one company and not the entire industry.

Rep. Bradley Jones, the House Republican leader, said he’s not against cutting taxes but doesn’t believe the state should pick “winners and losers” in the private sector. …

Massachusetts has already carved out a respectable niche in the industry, with 1,295 people directly employed by video game developers or publishers, according to a recent report by the Entertainment Software Association. That places the state fifth behind California, Texas, Washington and New York.

Those five states account for 71% of total employment in the video game industry, according to the same organization. Rhode Island doesn’t even merit an individual state report on its website. The state has a long way to go if it’s going to become a major hub for game developers.

Electronic Arts will unveil 38 Studios’ debut game at an industry event in San Francisco on March 1, WPRI.com has confirmed.

EA will host a 20- to 30-minute demonstration of the game, “Kingdoms of Amalur: Reckoning,” at a press event during the annual Game Developers Conference, spokeswoman Amanda Taggart said in an e-mail. 38 Studios has a deal with EA to distribute and market the game.

“Reckoning” is being developed by Big Huge Games, a Maryland-based subsidiary that 38 Studios acquired in May 2009. The game is scheduled to be released this fall, Taggart said. It will cost $59.95 and be available on Playstation 3, Xbox 360 and PCs, according to Amazon.com.

38 Studios’ other project – Project Copernicus, a massively multiplayer online game – is the one that will be funded by the $75 million taxpayer-guaranteed loan the company got from the R.I. Economic Development Corporation last year. That game is supposed to be released in September 2012, according to bond documents.

38 Studios has received $22.4 million of the loan money so far, according to the EDC. The company will move into its new headquarters at One Empire Street in Providence by May 1.

38 Studios had a good reason to firm up its May 1 target date for relocating to Rhode Island – it was worth nearly $10 million to the company.

The EDC just confirmed to me that the company recently received another hefty infusion of cash from its $75 million loan:

The video game company founded by former Red Sox pitch Curt Schilling got the $9.4 million payment last month after it confirmed plans to move from Maynard, Mass., to Providence by May 1, EDC spokeswoman Melissa Chambers told WPRI.com on Friday.

38 Studios has now received $22.4 million, or 30 percent of the loan money, in two installments. The first payment of $13 million was handed over when the loan transaction closed on Nov. 3.

38 Studios is moving to the six-story, 104,316-square-foot One Empire Plaza building in Providence, which has been vacant since Blue Cross & Blue Shield of Rhode Island relocated to a new facility near Providence Place mall. Renovations are currently under way at the building, owned by Boston-based Berkeley Investments.

38 Studios’ next payout will be for $17.2 million, according to the timeline in the bond documents. It can obtain that money once it relocates to Rhode Island and employs 80 full-time workers here.

The company is tentatively scheduled to have all but $11 million of the total loan money by the end of this year. It cannot receive the remainder of the money until it pays off the rest of the loan, which is supposed to happen by November 2020.

Full story on WPRI.com. Back in September, I did a big story explaining how the loan payouts to 38 Studios are structured, and I included a year-by-year timeline at the bottom of it. That story is here if you want to check it out.

Officials in Rhode Island think that drawing Curt Schilling’s video game company, 38 Studios, from Massachusetts to Rhode Island could be a game-changer that vaults the state into the forefront when it comes to the gaming industry. But the Bay State isn’t sitting still.

“Video games are the new biotech,” the Worcester Telegram & Gazette declared in reporting that officials there will establish the Massachusetts Video Game Institute at Becker College, a small private school. State money won’t be used to fund the institute, although Lt. Gov. Tim Murray says an economic development agency could kick in “seed money.”

Apparently Becker is a leader in the subject, ranked No. 1 in New England and No. 4 nationally for video game design by The Princeton Review. No Rhode Island schools are on the list.

Officials from Becker and MIT also presented their own ideas for how to keep the industry thriving in Massachusetts; here’s more from the T&G:

The plan called for allowing video game startup companies to use state-owned buildings for free or reduced rent, developing low-interest loan programs, providing tax credits and other ideas. …

About 16 other states have policies targeted specifically at the video game industry, [Timothy Loew, director of academic planning and operations at Becker,] said.

State Rep. Vincent A. Pedone, D-Worcester, said that with help from advocates, he plans to file a bill to help the video game industry. In just the last 10 weeks, the topic has received a lot of attention from lawmakers, he said.

“We want to be on the right side of history here, because we were on the right side of history for biotech, and look what it’s done, with this biotech corridor starting from Cambridge and coming all the way through Worcester,” he said. “It is an industry that we have to harness.”

The new “Call of Duty” game was indeed a blockbuster, racking up a record $360 million in sales on its first day on the market last week. That will warm the hearts of officials in Rhode Island, who hope Curt Schilling’s 38 Studios will come up with some big hits of its own using money from the $75 million loan the company is getting with a guarantee from the state’s taxpayers.

“Call of Duty” aside, though, the video game business is a tough one – and it’s only getting tougher, as Reuters’ Robert Cryan and Angus Crane write in a New York Times article today:

[D]evelopment costs are skyrocketing as packaged game sales shrink. For companies that sell to hard-core game players, it’s ever more about producing blockbusters and taking bigger risks.

Designing a game for a console in the early 1990s cost $50,000 to $400,000. Creating one today costs some $20 million, according to Deutsche Bank research. Make a game for multiple platforms (like Xbox, Wii and PlayStation), and the total cost is higher. Moreover, users pick their purchases carefully because packaged games are expensive. That drives the industry to produce megahits that lend themselves to sequels.

A result is that small companies are finding it difficult to turn a profit, particularly if they allocate lots of capital to games that fizzle. …

True, game downloads are on the rise, even as retail sales dwindle. Over all, the video game industry is growing slightly, according to PricewaterhouseCoopers.

But start-ups like [FarmVille maker] Zynga are capturing much of the new revenue. That’s a problem for established companies, including Electronic Arts, Konami and Take Two Interactive.

At Electronic Arts, for example, traditional game sales fell 11 percent in the last quarter while digital sales rose 20 percent. Yet traditional game revenue is four times as large. The financial risks may end up tempting these companies into the mergers game.

Electronic Arts, for the record, is the distributor for 38 Studios’ first game, “Kingdoms of Amalur: Reckoning,” which is slated to be released next September. That one is being developed by a subsidiary studio in Maryland; the company’s “World of Warcraft”-style game scheduled for a 2012 release is the one being developed up here. For more on the company’s two games, check out my story from August.

It’s a big day in the world of video games.

The nation’s top game publisher, Activision Blizzard, released “Call of Duty: Black Ops,” the seventh in its blockbuster series of combat games, at 12:01 a.m., and its long-awaited debut drew – in the words of LA Weekly – a “midnight nerd herd” to electronics stores. The price is $60 – enough to pay for this TV commercial co-starring Kobe Bryant and Jimmy Kimmel:

“Black Ops” has a tough act to follow. Last year’s “Call of Duty: Modern Warfare 2″ set a Guinness World Record for the biggest game launch of all time when it grossed just over $400 million in its first day on the shelves. The various “Call of Duty” titles have generated about $3 billion for Activision since the first one debuted in 2003.

Those are the sorts of numbers officials in Rhode Island point to when they explain why they supported the $75 million taxpayer-guaranteed loan for Curt Schilling’s gaming company, 38 Studios. If the company’s first game – “Kingdoms of Amalur: Reckoning,” to be released by #2 publisher Electronic Arts – is a hit on anywhere near the scale of “Call of Duty,” it will be a home run for the EDC. (One analyst I interviewed last summer said he only expects “Reckoning” to sell 1 million copies; “Modern Warfare 2″ has sold more than 20 million.)

38 Studios aside, the new “Call of Duty” has become a key test of which way the video game industry is headed, as AOL News’ Dave Thier explains:

Activision and retailers alike are banking on an even bigger launch than “Modern Warfare 2.” Stores like GameStop and Best Buy have planned more than 5,000 midnight launches. If preorders are any indication, they’re making a good bet: Today, Amazon.com tweeted that ‘Black Ops” had already sold more copies before launch than “Modern Warfare 2″ had. …

For many in the video game world, “Black Ops” is also one of the centerpieces in a season that pundits are saying will decide the future of the industry. The market for small, bite-sized games on the iPhone and Facebook is rapidly expanding, and social gaming executives are saying that expensive console games like “Black Ops” are no longer the best way to make money in a changing industry.

But so far, the outlook for console games seems good. Some of the season’s other highlights, such as “Halo: Reach,” and “Fallout: New Vegas,” have already sold well, and Activision Blizzard is reporting good earnings even before “Black Ops” and the upcoming expansion to the hugely popular “World of Warcraft.”

“Reckoning” is being developed by 38 Studios’ subsidiary Big Huge Games down in Maryland, while its other game (“Project Copernicus”) is the one being created in Maynard, Mass., and soon Providence.

Over the last few days, I’ve been hearing a growing number of whispers that the R.I. Economic Development Corporation is almost ready to close on the $75 million loan it’s taking out on behalf of 38 Studios. Although I’ve got nothing official to report at the moment, that would fit with the most recent target date EDC lawyer Robert Stolzman laid out for me in mid-October.

If the deal closes this week and Lincoln Chafee wins the governorship tomorrow – both big ifs, mind you – it would set up an almost immediate clash between the EDC and the new governor-elect, who has been scathing in his criticism of the deal since July.

Among the other two leading candidates, Frank Caprio said at our debate last week that if elected he will march down to EDC headquarters on Wednesday to do something unspecified about 38 Studios. John Robitaille has been a supporter of the agreement.

Meanwhile, Amazon.com is now taking pre-orders for 38 Studios’ first game, “Kingdoms of Amalur: Reckoning,” which is set to be released by Electronic Arts for Playstation 3, Xbox 360 and PCs next September. The price is $59.95, and the low-key cover art is what you see illustrating this post. (Thanks to Dean Lester for pointing this out first.)

“Reckoning” is being developed down in Maryland by 38 Studios subsidiary Big Huge Games; the company’s other, riskier release (“Project Copernicus”) is the one Rhode Island is backing. For a primer on the two games, check out my WPRI.com story from August.

38Gamers.com’s Dean Lester took me to task on Friday for quoting his concerns about 38 Studios’ outreach efforts to early fans of its first game, “Kingdoms of Amalur: Reckoning,” without quoting his praise elsewhere for the company. (38 Studios responded to Lester after his original post went up.)

So today I’ll recommend you head on over to Lester’s site and check out the pictures and videos he posted of Curt Schilling & co. at New York Comic Con over the weekend. Here’s one of the new pieces of artwork from the game 38 Studios released:

I have to say, if anyone had told me becoming a political reporter would lead to me writing this much about video games, I never would have believed them. Once again, if you’re confused about which of 38 Studios’ two games is which and how they fit in with Rhode Island’s $75 million loan guarantee, read my August WPRI.com story about the company.

(image credit: 38 Studios, via 38Gamers.com)

Nicholas Lovell

Yikes. Nicholas Lovell, a well-known game consultant out of London, has a new post up on Games Brief that puts EDC-backed 38 Studios on a list of 10 game businesses or projects the he thinks “are in trouble without some radical changes.”

He adds: “Not all of these will fail: I’ll be wrong about some; others will change course. What I am saying is that I have concerns about the strategy, opportunity or market for these companies.” Here’s his take on 38 Studios:

Regular readers will know that I believe that governments should not be giving tax breaks to risky commercial enterprises such as game developers. They certainly shouldn’t be giving them to business investing in highly-speculative, unlikely-to-succeed activities like creating a World-of-Warcraft-beating MMO.

To compound my scepticism, 38 Studios is the baby of Curt Schilling, a celebrated Red Sox baseball player. Could the kudos of rubbing shoulders with a famous sportsman have influenced the Rhode Island bureaucrats?

(To be fair to Mr Schilling, he is clearly a committed MMO player who loves the market; I nevertheless fear that, like Trion above, 38 Studios is pursing an old model, with taxpayer’s money).

In the end, launching a new MMO is a massive bet. I’m pretty safe in betting that it will fail. A very few new MMOs succeed massively (only World of Warcraft leaps to mind). A few fail spectacularly (Tabula Rasa, APB). Others just drift along (Age of Conan, Champions Online, Star Trek Online).

The odds of being a success in launching a traditional MMO are stacked against you. Far more likely is that you will lose your shirt.

This is just one man’s take, and I don’t claim to be an industry expert. His analysis comes the same week OnLive, a top gaming product, announced it is dropping subscription fees (which is 38 Studios’ revenue stream for the MMO) and World of Warcraft, the top MMO, said its subscriber base has reached 12 million.

If you’re confused about what an MMO is, check out this August WPRI.com story I wrote about the two games 38 Studios has in development.

(It’s like 38 Studios Day here at Nesi’s Notes, huh?)

Lincoln’s Twin River slot parlor is set to emerge from bankruptcy with a healthier balance sheet and state subsidies to help pay its marketing expenses amid turmoil in the New England gambling industry.

PBN’s Bill Hamilton has the scoop on the racino’s high-powered new ownership group (UTGR is Twin River’s corporate name):

Under the reorganization plan approved by the U.S. Bankruptcy Court, UTGR’s parent company BLB Worldwide Holdings Inc. will be handed over to a lenders’ group led by financial giants Bank of America and Wells Fargo, and Sankaty Advisors LLC, a $20 billion Boston-based investment fund manager. …

Much of the focus was on Sankaty Advisors, an affiliate of Bain Capital LLC. Sankaty will also have more than a 5 percent interest in BLB, according to the license application.

DBR investigators examined the backgrounds of prospective members of UTGR’s board of directors, identified as John Taylor Jr. of Vero Beach, Fla., Glenn Carlin of Larchmont, N.Y., and John McLaughlin of Carmel, Ind. …

Observers say it’s unlikely the lenders’ group wants to hold on to the Lincoln property, but it’s not exactly a seller’s market right now as the industry suffers through the economic downturn.

(image credit: Waterford Group)

In the wake of yesterday’s two announcements from 38 Studios and the EDC – detailing the company’s new home and the $75 million bond transaction’s two investment-grade ratings – it seemed like a good time to step back and take a look at where things stand with the high-profile deal.

* When will the transaction close? I expect we’ll hear the bonds have been sold sometime in the next two weeks. Although the transaction’s closing date has been pushed back from the original target of Aug. 31, getting the lease and the ratings means it really is likely to close in early October, since those were the main hold-ups.

The draft bond memorandum I obtained said 38 Studios had to deliver the lease to EDC at least 10 days before the transaction closes, which would put the closing around Oct. 4 if that stipulation is still there. Plus, EDC officials always said it would take a week to 10 days to close the deal once the ratings were issued.

* When does 38 Studios start getting the money? The first chunk of loan money – $13 million – is supposed to be handed over to 38 Studios the same day the bond sale is completed.

* Where’s the PPM? That bit of alphabet soup – short for a Private Placement Memorandum – is a boring name for an important document, the one I mentioned earlier. The PPM will provide investors with important details about when and how they will get paid back, and it will include more details about 38 Studios’ business plan. The EDC promised to publicly release the PPM when a final version is mailed to investors, and spokesman Michael Blazek told me today it should be available late next week. Get excited!

* When’s move-in day at One Empire Plaza? We don’t know, but we should know by Nov. 30 – that’s when 38 Studios is supposed to announce a relocation date, and doing so entitles it to collect another $9.4 million in loan money. Then 38 Studios is supposed to have 80 employees there by Feb. 28, and if that happens it can get another $17.2 million.

One thing I’m still curious about is whether 38 Studios is leasing all six floors of One Empire Plaza right away, and if so what it’s going to do with all that space.

The six-story building has 104,316 square feet of space, though that includes 2,235 square feet of retail on the ground floor, which I assume 38 Studios is not leasing. Still, even 102,081 square feet is a lot of space – the company’s current location in Maynard, Mass., only has about half that much room, according to the document I reviewed. Its other studio – the Big Huge Games one in Maryland – is only 19,000 square feet, and 38 Studios plans to leave some people there anyway.

(image credit: Joystiq)

In defending the 38 Studios deal, one of the main reasons state officials have offered for supporting it is Curt Schilling & co.’s promise to bring 450 jobs to Rhode Island in exchange for the $75 million loan guarantee. But as I explain in a new story just posted over on the main site, the relationship between the loan money and the jobs pledge is more complicated than you may think:

Curt Schilling’s video-game company has to employ only 250 full-time workers in Rhode Island, not the 450 cited by state officials, to get most of the $75 million the government plans to borrow on its behalf, an analysis by Eyewitness News has found.

That’s because Schilling’s 38 Studios actually has two different agreements with the R.I. Economic Development Corporation – a payout agreement and a separate pact called a “full-time jobs covenant” – and their terms and conditions are not identical.

The payout agreement requires 38 Studios to employ 250 workers in the state by December 2011. At that point, the game company is eligible to receive $64 million of the loan money, which is 90 percent of the proceeds after fees, according to an EDC fact sheet, agency officials and a draft bond document obtained by Eyewitness News.

I hope you’ll read the whole thing, both because it took quite a bit of reporting to piece all this together and because I think the story will help people better understand the structure of the deal, which is expected to close by early next month (although it’s been delayed twice so far).

One thing I’ve been struggling with in reporting on the 38 Studios agreement is finding straightforward ways to explain it. Even I find it hard to keep all the details straight, and I’m paid to do so. (No wonder, perhaps – an EDC lawyer told us last week there will be about 10 different legal documents laying out the deal.)

So if you felt a little swamped reading today’s latest story, I have another option for you – a chart! For every three months from October 2010 to October 2013, it shows two things: the percentage of loan money 38 Studios is eligible to receive by then, and the percentage of the 450 jobs it is supposed to have created:

As you can see, the loan money and the employment targets are on two quite different schedules. (Again, the chart shows percentages for both, not dollar amounts or job counts, in order to make the comparison simpler.)

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A reckoning for "Reckoning"?

The Projo’s PolitiFact Rhode Island has an item today calling out EDC Executive Director Keith Stokes for describing video games as “a growth industry,” a statement he made while defending the $75 million loan guarantee the agency has agreed to provide 38 Studios, Curt Schilling’s video game company.

PolitiFact says the statement is “barely true,” since video game sales fell in the U.S. last year (as well as back in 2005). And indeed, the NPD Group, my trusted source on such matters, said U.S. game sales dropped 8 percent in 2009 compared with 2008. The decline was also 8 percent when you add in the other two top game markets, the U.K. and Japan. Here’s the crux of PolitiFact’s beef:

By all accounts, the video gaming industry has grown substantially since the 1990s, topping more than $46 billion worldwide. But the sharp drop in U.S. sales in 2005 and 2009, combined with last year’s minimal increase in global sales — or decline, depending on who’s giving you the numbers — show that, at least for those years, the growth in the industry has not been consistent. Strategy Analytics, in its report to the EDC projecting double-digit growth over the next five years for the type of game 38 Studios plans to develop, noted as much.

Stokes could have said that the overall trend in the video gaming business has been strongly upward despite a downturn or two. But he didn’t. He said growth in the industry was clear and consistent. So we rate his comment as Barely True.

These questions are tough, I think. The U.S. economy was likely in recession for at least half of 2009, and U.S. retail sales were down 6.2 percent across the board last year, so it may have been an outlier. (Considering Rhode Island’s unemployment rate averaged 11.2 percent last year, let’s hope it was an outlier.)

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The gaming website GameSpot has posted the full video of Curt Schilling and his fellow 38 Studios executives discussing their first release, “Kingdoms of Amalur: Reckoning,” at the Comic-Con convention in San Diego last month. You can watch it here:

As more than one observer has pointed out, in the end the state’s decision to back a $75 million loan to Curt Schilling’s gaming company, 38 Studios, will be judged based on whether the company is successful. And that will depend on whether its two games – one scheduled for next year, and a bigger one with a TBD release date – are hits. I took a look at their prospects in a new story just posted on the main site:

Curt Schilling faces daunting challenges – but not insurmountable ones – in turning his company’s flagship video game into a hit and making good on his promises to Rhode Island.

The retired Red Sox ace’s 38 Studios is aiming to crack the toughest section of the gaming market with its Copernicus project, a so-called massive multiplayer online game, or MMO. …

Creating an MMO “is a big gamble, and it’s very unlikely he’ll be successful” with Copernicus, Mike Hickey, an analyst at Janco Partners in Colorado, told Eyewitness News. Schilling “must be a great marketer, because it’s a pretty difficult market to raise capital in,” he said.

The rest is here.