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Geeks "R" us:
Spectrum Holobyte finally turns successful computer games into profits

Joseph R. Garber. Forbes. Dec. 30, 1996.


HERE'S NEWS THAT many despaired of hearing: Spectrum Holobyte has had a profitable quarter--the second in its 14-year history.

With sales zooming 106% one year and dropping 29% the next, the $80 million Alameda, Calif.-based gamesmaker has given investors more heart- stopping thrills than its software has given the players.

I never understood why.

After all, Spectrum's product record is an unbroken string of coups. Early on, Spectrum Holobyte brought runaway bestseller Tetris from Russia to the U.S. A few years later Paramount awarded Spectrum lucrative software rights to Star Trek-The Next Generation and the hit movie Top Gun. Long before the card game Magic had become an international cult phenomenon, Spectrum had locked up computer rights.

The brands Spectrum developed on its own were winners, too. Its Falcon fighter plane simulators set a benchmark for realism. Its Grand Prix Formula One game was so true to life that rising race star Jacques Villeneuve ascribes a victory to having practiced not in a Ferrari but on Spectrum's software.

Year in, year out, Spectrum's games have topped the lists, and it seemed Spectrum understood everything you had to know in the computer game business except how to make money at it. Now the company appears to have learned that trick as well.

Much credit goes to its new chief executive, Stephen M. Race, 47, the executive behind the U.S. success of Sony's PlayStation. When Sony rewarded him for winning an 80% market share by showing him the exit in July 1995, Spectrum was waiting with open arms.

There's no magic to Race's turnaround. First, he hit the road, peddling $50 million worth of convertible debt. Spectrum had never gotten around to rationalizing a big 1993 acquisition. With the bond money safely in the bank, Race cut overhead in half and moved on to the real challenge, which was to get some focus in a cluttered product line.

Before taking out his pruning shears, Race identified Spectrum's most loyal customers: ultra-geeks.

"Our demographics are seriously Y chromosome," he opines--hard-core game players who think nothing of dropping $500 for a joystick or $1,000 for a monitor, and who complain that 800-page user guides (some of which read like a military flight manual) aren't quite detailed enough. In other words, Spectrum's best customers are people who measure their machismo by the number of transistors in their microprocessors--an insight that told Race to forget about the kiddie market and only build games that eat processing power like Godzilla eats Tokyo.

Mission accomplished. Spectrum's next generation simulators deliver Dolby Surround Sound and graphic realism heretofore unseen outside Navy flight school. To run the things, you'll want a mighty fast Pentium and 16 megabytes of memory. Better yet, wait for Intel's MMX-featured Pentium, due first quarter of 1997. Available in both 166- and 200- megahertz versions, MMX technology makes graphics (and therefore games) run like a dream. Seriously Y chromosome fighter pilots will probably be first in line to buy the new processor, which can be plugged right into their already high-end motherboards.

To create true-to-life landscapes, Spectrum commissioned extensive aerial photography, plugging the digitized results into the new version of Falcon. The software's virtual avionics were designed by a licensed pilot who takes his work so seriously that when I tried to dive a virtual fighter into the ground, he went white with horror. And because the game's scenario involves North Korean naughtiness, the software models that nation's geography so accurately that maximum leader Kim Jong-Il probably will throw a tantrum.

Race thinks the ultimate power gaming market is still a few years off. In the not so distant future, he sees worlds of "infinite and ultrarealistic game space" on the Internet, where Spectrum's bellicose customers can form armies together, pay real cash to virtual armaments brokers for software weapons (the best electronic commerce application I've heard so far), and liberate or conquer imaginary lands to their hearts' content.

One quarter's profit does not a trend make. Nonetheless, with Race's ultra-geek strategy Spectrum may now be reporting profits as regularly as it spews out hit games.

© 1996 Forbes Inc.



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