Posted on 07/18/2003 9:56:16 PM PDT by Pikamax
Regulators Launch Probe Into Video Game Industry Fri Jul 18, 6:47 PM ET Add Technology - Reuters to My Yahoo!
By Ben Berkowitz
LOS ANGELES (Reuters) - Three video game publishers on Friday said they were part of an apparently wide-ranging probe opened by the U.S. Securities and Exchange Commission (news - web sites) into the game industry.
Acclaim Entertainment Inc. (Nasdaq:AKLM - news), Activision Inc. (Nasdaq:ATVI - news) and THQ Inc. (Nasdaq:THQI - news) said they had received requests for information from the SEC with regard to a formal investigation into video game manufacturers and distributors.
Acclaim, in an SEC filing, said it was notified of the probe on July 11. Activision, in its SEC filing, did not say when it was notified.
"The investigation appears to be focused on certain accounting practices common to the interactive entertainment industry, with specific emphasis on revenue recognition," Activision said in its filing.
"The SEC has advised Activision that this request for information should not be construed as an indication from the SEC or its staff that any violation of the law has occurred, nor should it reflect negatively on any person, entity or security," Activision said.
Both companies said they are cooperating fully with the probe. An Acclaim spokesman declined further comment, while an Activision spokeswoman was not immediately available for comment.
Nancy Grunberg, a partner at the Washington, DC-law firm of Venable LLP and a former enforcement official at the SEC, said an industrywide investigation would represent an unusually wide scope for a regulatory probe.
"I'm not sure I know of an example of where they launched an investigation of an entire industry like this," Grunberg told Reuters. "That does sound a little unusual to me, except for the example of the analysts for the major broker-dealers."
Activision shares fell sharply in after-hours trade, slipping to $11.25 from a Nasdaq close of $12.46. Acclaim stock was off slightly to 67 cents in after-hours trade from a Nasdaq close of 68 cents.
"I think the SEC is very likely trying to understand what industry practices are and see if these guys have the potential to manipulate earnings," analyst Michael Pachter of Wedbush Morgan Securities told Reuters.
A spokesman for Take-Two Interactive Software Inc. (Nasdaq:TTWO - news), which is already under formal SEC investigation related to past accounting issues involving revenue recognition, was not immediately available for comment.
"As a matter of policy we do not comment on SEC issues outside of our earnings calls and statutory filings," said Jeff Brown, spokesman for Electronic Arts Inc. (Nasdaq:ERTS - news). "If there is a material event we make appropriate disclosures."
A spokeswoman for TDK Mediactive Inc. (OTC BB:TDKM.OB - news) said the company was aware of the probe but has not been contacted by the SEC regarding it. A spokeswoman for Atari Inc. (Nasdaq:ATAR - news) was not aware of the investigation and could not comment.
Shares of some of the publishers fell in after-hours trade on news of the probe. THQ was down to $17.15 from a close of $17.70. Industry leader Electronic Arts slid to $75.41 from a Nasdaq close of $76.42. Take-Two fell to $27.40 from a close of $27.64 on the Nasdaq.
An SEC spokesman declined to comment on the investigation.
The news of the probe comes as the video game industry prepares to report quarterly results and awaits the release of industrywide sales data for June.
Activision is set to report its quarterly results on Tuesday, followed by EA on Wednesday and THQ on Thursday. All three companies are expected to report weaker quarterly results compared with a year ago, reflecting the relative lack of blockbuster games in the quarter.
Analysts surveyed by Reuters Research, a unit of Reuters Group Plc, were expecting a break-even quarter on revenue of $141.8 million for Activision, a profit of 3 cents per share on revenue of $339.7 million for EA and a loss of 10 cents per share on revenue of $79.5 million for THQ.
That would mean a negative bottom-line swing of 21 cents per share for Activision, 4 cents for EA and 22 cents for THQ.
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