Wednesday, October 14, 1998 - 13:17 CDT
Sir-tech Software Closes Computer Game Publishing Business
Sir-tech Software, Inc. is closing its office and ending its software publishing operation, closing the books on one of the industry's oldest game publishers. Norman Sirotek said the decision was forced by the changing nature of the computer industry that has put small, independent publishers at a disadvantage.
Sir-tech President Norman Sirotek and his brother, Robert Sirotek, Vice President, said the closing of the Ogdensburg office is a sad moment for a company that was for much of its 18-year-history, synonymous with the role playing genre of computer games. "After all, Sir-tech invented that kind of game for the personal computer." The company's software was consistently ranked among the top by the nation's computer game magazines.
Unfortunately, while the computer gaming business grew from a small cottage industry with a small, but faithful cult following, to a mainstream audience of millions, Sir-tech found that as the audience grew, much bigger companies, with much bigger treasuries, entered the market, muscling aside a host of small publishers for the limited amount of shelf space at retail stores.
Sir-tech, like hundreds of other small software publishers, ended up a victim of industry giants that could outspend, out advertise and could afford to lose millions when their games flopped.
Last year, more than 4,000 games were released by a host of computer software publishers to consumers. Only two percent, about 50, became hits, earning millions for their publishers. About eight percent, roughly 320, broke even or made a small profit for their publishers.
The major reason, say the Sirotek brothers, was the radical changes that the software market had undergone over the past two decades.
Only a few of the 4,000 games produced ever made it onto the shelves of software retailers, like Electronics Boutique, Babbages, Software City, and others.
Sir-tech found that with retailers besieged by hundreds of companies vying for the right to place their products on retail shelves, the stores could demand, and get, outright payments from publishers just for the privilege of putting a handful of boxes on their shelves.
And while the retailers once loyally kept games on their shelves for months, giving publishers a chance to coordinate sales and marketing campaigns to move their products out to consumers, stores now measure shelf life in terms of weeks. This left very little room for error which could cost the publisher dearly.
If a game sits on a shelf for more than a few weeks, store buyers demand price cuts to move them out, drastically cutting into the profit margins of already-hard-pressed small publishing houses. And after a short-time, if they still haven't been sold, store chains ship them back to the publisher, demanding a full refund.
Stores no longer make the majority of their profits from unit sales as it used to be in the first decade of the fledgling software industry, but now rely on profits generated from numerous marketing programs they demand from publishers for the right to be on their shelves.
In today's more cut throat publishing business, only those companies with multimillion dollar wallets can afford the risks and pitfalls of the industry.
Since the cost of producing one computer game today can cost well over a million dollars during its two plus years of development time, publishers find themselves facing a big risk if their game does not attract many more retail customers. It has become critical to have a huge retail distribution network to have a chance of tapping into the mass-market to recoup your investment. With so many products being released, most of which are marginal in quality, company officials did not think it could find the necessary retail support from enough chain stores to be profitable.
In the old days, eighteen years ago when Sir-tech started, a company needed only one talented programmer and maybe an artist to invent a game.
Today, audiences demand animated movies in their CD games, requiring musical scores, artists, animators, script writers, programmers and a score of others to develop intricate games, innovative enough to stand out from the pack of thousands.
Small publishers like Sir-tech found that they had to spend over a million dollars up front on development, marketing and advertising over a two year period before they would even receive any idea whether anyone liked their game.
If consumers were not enchanted and willing to buy them immediately, a firm could suddenly find itself with thousands of games being shipped back from retail chains.
Sir-tech's owners found that once gentlemanly business of publishing had come to resemble a long odds crap shoot at a high stakes casino, the biggest difference being that gambling establishments offered better odds.
But Sir-tech found they didn't just have to worry about their own finances. Increasingly, they found over the past three years that fortunes could be won or lost, even when their own games were still popular with their fans.
The once prosperous company suffered a major set back two years ago when they were releasing Deadly Games, the second episode in their award winning Jagged Alliance strategy game series. With Christmas approaching, Neostar, owner of two of the nation's biggest retail store chains, Babbages and Software Etc. ordered more than 5,000 copies of the popular game. Shortly after the games arrived at stores around the nation, the retail chain filed for bankruptcy. Under federal bankruptcy law, that meant the store did not have to pay for the products. Sir-tech found that it was one of thousands of creditors, waiting in line for a settlement.
Making matters even worse, the bankrupt company was allowed to sell them at a discounted price to other competing retailers, meaning that Sir-tech found itself competing with a flood of lower priced versions.
Some retailers even sent back the copies shipped to them by Sir-tech, demanding a full refund, while putting the lower priced version bought from the bankrupt company on their shelves.
That cost the Ogdensburg company more than $400,000.
At the time, the Sirotek brothers absorbed the hit, chalking it up to the vagaries of a cutthroat market place, just one of the risks a small company that only releases one or two products a year can face.
But they felt that one of the solutions to their problems was to increase the number of titles shipped out by their company. They developed a relationship with a British company and agreed to publish their games in the U.S.
The British company agreed to make changes to the products to meet the standards expected in the more competitive American market. But the relationship soon foundered when the British programmers refused to make the changes demanded by Sir-tech, even though the Ogdensburg company had already spent hundreds of thousands of dollars promoting and advertising the games.
Sir-tech found itself forced to publish the games in hopes of recouping its investment. The games flopped. One of the major gaming magazines named one of the games the "second worst game of the year." Retailers shipped them back by the thousands. Sir-tech dropped the line, for fear that the retailers and consumers would associate the poor quality of the games with Sir-tech's own award winning line of titles. The debacle cost them dearly.
The company pinned its hopes last year in two well known role-playing products it had acquired distribution rights to.
But until these were ready, Sir-tech had another game it had commissioned for development under a partnership with a Salt Lake City software development company to produce a state of the art computer game that could also be played over the Internet.
After pouring several hundred thousand dollars into this venture, the game never materialized. A version was produced, but it failed to measure up to either expectations or the specifications written in the contract. Sir-tech refused to publish it.
The result was another major loss of wasted manpower time, marketing and resources.
By last spring, Sir-tech was facing tough choices, none of them too pleasant to contemplate. The company had expanded its staff to handle the increased workload associated with publishing four times as many products as it normally produces. But when the British line of products failed, Sir-tech found itself laying off some of the extra staff it had hired. Many employees admitted, they had almost nothing to do.
After a second round of layoffs, the company decided that publishing had become too fraught with risks. The company decided to close its Ogdensburg publishing operation.
Norman Sirotek says he's sad to see the end of a company that he and his brother built over a span of almost two decades.
But he says that the company helped him and his brother see the world, make friends in a host of countries, and learn the intricacies of business and finance in a way few others see.
"My father would always say the software publishing business was akin to standing with one foot on a banana peel with the other foot on a grave, while drinking champagne and eating caviar," he joked. "It's amazing we were able to do as well as we did for as long as we did."
Sirotek says that in recent years, as the company found itself in a more cut throat business environment where promises were seldom kept and agreements seldom lasted, the 16-hour days became less enjoyable.
Reported by: Brian Clair
