In a motion styled as a “critical vendor” motion, Atari Inc. (which voluntarily filed for chapter 11 bankruptcy protection on Sunday – more details here) asked the bankruptcy court for authority to pay prepetition claims of four outside game developers. The claims are estimated to total approximately $233,300 and Atari asserts that the payments should be allowed because “Atari believe[s] that most, if not all, of the Developer Claims arise under agreements that, if executory, the Debtors intend to assume during these cases. Additionally, the games that the Developers are working on are the most significant games in development and are therefore believed to create the most value for [Atari].”
The four developers (with claim amounts) are:
The work that each developer is doing and the new games that each developer is working are also detailed in the court filing:
- “Code Mystics develops “Atari’s Greatest Hits” for mobile devices, which has generated over $3.5 million dollars of revenue, and currently is generating approximately $50,000 to $100,000 per month in revenue for the Debtors. On-going work must be provided in order to maintain and improve the quality of Atari’s Greatest Hits and preserve the revenue stream.”
- “Escalation Studios develops “Atari Casino” which is scheduled to be released in a few months. Atari Casino is a genre of games that represents one of the most significant upcoming revenue opportunities in the Debtors’ portfolio. For perspective, as of January 19, 2013, three of the top 15 revenue producing games on the iPad were casino-type games.”
- “Gkinner.com developed the “Atari Online Arcade” for the Debtors in connection with a significant partnership with Microsoft. Gskinner.com utilized HTML5 in which Atari classic titles were reimagined for Internet Explorer 10. The Atari Online Arcade was a critical success and is also part of the Atari.com website. The application, which is also available for mobile devices, has generated significant traffic. Going forward, Gskinner.com would be the right partner to help the Debtors maintain and grow this platform which has the potential to bring the Debtors significant revenues. Gskinner.com also has tremendous potential for making games as the preeminent HTML5 and flash developer in the industry.”
- “Uab On5 is creating the Debtors’ next launch of the RollerCoaster Tycoon franchise, which is also scheduled to be released in the next few months. RollerCoaster Tycoon is one of the best-selling franchises in PC gaming history, selling over 14 million units worldwide and generating over $220 million in North American sales alone. The Debtors anticipate significant revenue from the release based on its historical success.”
Finally, as the motion relates to the payments to video game developers, the motion details the reasons why Atari turns to outside developers for assistance with its games:
The Debtors cannot provide, through their own resources, all of the essential services and tools necessary to develop a game. Rather, the Debtors rely on outside service providers and vendors throughout the development process. For example, the Debtors regularly utilize external game developers who ultimately are responsible for designing and building a game. A game developer assumes a unique role in the development process and, therefore, it becomes extremely difficult, if not impossible, to replace such developer without critically damaging the viability of the respective title.
Game developers provide services under contracts with the Debtors. Nevertheless, the Debtors anticipate that some of the developers will not perform under those contracts if the Debtors are unable to pay immediately the prepetition amounts owing under those contracts. A number of the developers are foreign and may not recognize the effect of the automatic stay. Other developers are small and cannot withstand the effect of non-payment. The developers likely will redirect their resources to developing games for the Debtors’ competitors or other parties in the event of nonpayment or, in the case of the smaller developers, could cease to exist. Thus, prepetition payments already made by the Debtors to these developers in connection with unfinished games in various stages of development will have been wasted.
In addition to the game developers, the motion also seeks to pay claims owing to three other creditors. First, Atari seeks to pay a $250,000 pre-petition claim owing to the licensor of “one of the most valuable games in [Atari's] portfolio, RollerCoaster Tycoon.” The motion also seeks to pay a $40,013 claim of American Express for “corporate expenses” and a $44,920 claim of Cinram Group, LLC /Ditan Distribution LLC for a warehouse lien. In total, the amounts that Atari seeks to pay pursuant to the motion cover approximately 9.5% of its total trade debt.
A copy of the motion is embedded in an earlier post on this site and can be viewed and downloaded completely free here: http://chapter11cases.com/atari-inc-bankruptcy-court-filing-motion-to-pay-claims-of-critical-vendors/
Update (1:00 a.m., Jan. 21): Atari’s 15 Largest Unsecured Creditors