Interview with Michael Vesey
Interviewer: Andrew Zezas
Following is the transcript of a CFO Studio interview between Andrew Zezas of New Jersey based Real Estate Strategies Corporation and financial executive, Michael Vesey, CFO of Majesco Entertainment.
Visit www.CFOstudio.com to read about this interview and to watch the entire on-camera interview.
Managing Through Technological Changes as a Small Public Company
Zezas: This is CFO Studio, and I am your host Andrew Zezas. I am joined today by Mr. Michael Vesey, Senior Vice President and Chief Financial Officer of Majesco Entertainment. Mr. Vesey is a CPA by trade, having begun his career at KPMG. He holds a BBA from Pace University. And he spent his career in evolving industries, including technology, wireless telecommunications, software and nutraceuticals. Mr. Vesey has been with Majesco since 2006. Majesco is a NASDAQ stock exchange traded company in the video game publishing industry and publishes games for the casual gamer on platforms including Microsoft Xbox, Nintendo Wii and others. Majesco has taken motion based gaming to an entirely new level, with products such as Zumba Fitness and NBA Baller Beats. Mr. Vesey is here today to talk to us about managing through technological change as a small public company. Michael it is so nice to have you here on CFO Studio.
Vesey: Thanks for having me here Andy.
Zezas: So, video games, I have this vision of a bunch of young teenage kids, pasty white, black rock and roll t-shirts in the bottom of the basement and Majesco has a whole different view of the industry. Share that with me.
Vesey: Absolutely. We are all familiar with the feared gamer, sitting in the basement spending hours in the summer playing games, not really our customer. We find our customers are more likely to be in the shopping mall, in the mini vans and SUV’s, in the doctor’s office with kids playing games to keep themselves busy while their parents are attending to their day to day lives. A lot of the platforms that you are probably familiar with is the ones we provide games for. The Nintendo DS, it’s a square pink, purple, shiny device, you’re not likely to see your teenage boy gamer playing on it. We make plenty of games for that to keep the tween girls busy. We also provide a lot of motion based games for the Nintendo Wii and Microsoft can connect in the living room. The first party manufacturers really made an effort over the past decade to expand their base. When someone purchases a game, the console is put in the living room, they like to expand the base and get the rest of the family members using the games. It’s really created a whole market for us to make games that are easy to pick up and play. You don’t need to drop out of school and get a PhD in game playing to play our games. It’s pretty intuitive, you pick it up, you figure out how to do a Zumba Fitness game or a motion based game. It’s actually been the largest growing area in the industry over the past number of years. And the economics are better for us too Andy. The realty is those games that you see like, The Call of Duty, the big shooter games and Madden Football, it’s two years, 50 million dollars to make those games.
Zezas: $50 million dollars to make one game?
Vesey: Yes, just like a big movie production. So for us our budgets are much smaller. We are spending anywhere from 2.5 to 5 million dollars to make a game. It takes us less than a year to make it. So our capital is only tied for a year in the whole production.
Zezas: Wow, $50 million bucks and two years? It is like a big movie production.
Vesey: It’s exactly like the movie business, and you run the risk. Some movies make it and some don’t. So it’s exactly the model.
Zezas: Tough to fail at a business after you invested $50 million dollars. You made a good point that there was time when a lot of video games were very technical and you had to get into the manual to understand how to operate it. And you’re telling me now that Majesco’s focus is to make it simple to use so it will get used.
Vesey: Absolutely. Casual game experience, pick it up enjoy it with the family, put it down and get on with your life.
Zezas: Now $50 million dollars versus $5 million dollars, you still have to come out with hits. How is Majesco managing through peaks and valleys of the industry?
Vesey: Very good question. There are a couple of different cycles that we need to work within our industry. One is the console manufacturers themselves, they will put out a console and they will have a certain life to it. When the Nintendo Wii came out, that was about 6 years ago, there was a number of years were everyone was building their software library to get games for Nintendo Wii. Then that levels off over time. You have a large installed base of users but they usually have 10 or 12 games already on the shelf so the industry slows down and you wait for the hardware manufacturers to come out with new technologies and a new level of platforms. Right now our industry is going through a level of change there. That’s one thing we have to manage. The second thing we have is just annual seasonality in our business. So since we are selling to the casual gamer, our games are more than likely going to be sold around the holiday, people are going to the store, impulse or a gift purchase that they are making of a casual game experience. You have an annual cash flow cycle that we have to manage through. The third thing we have to manage is you have to find ideas and come up with ideas. So we are always out there looking for new ideas. We have people literally all over the globe looking at different ideas, what’s working in different countries. We may go to Japan and find certain ideas. We may come over here, we may look in Europe but we have business development all over the world 365 days a year trying to find the best game experience to bring back to our customers.
Zezas: Wow, that’s a lot of fun. This is all about technology now. Michael, tell me what are some of the new technologies in the video gaming industry that we can expect to see.
Vesey: Okay. Well there is a couple that we’ve had a lot of success on lately, probably the biggest for us is motion based gaming, first with Nintendo. So instead of, I will tell you a quick story. We did a game with Hulk Hogan one time. Hulk Hogan’s Main event and his big sales pitch was, instead of living vicariously through your thumbs, you got to get up and work the game. So in a Hulk Hogan game, you would get up and actually be wrestling, and doing all the pro wrestling moves crashing chairs over people’s heads and everything in the living room. The Microsoft connect allows you to do that. The one people are most familiar with is the Nintendo Wii. A couple years ago, Nintendo introduced exercise games to play on video consoles and at first it was a very unusual concept. People never thought that a video console was now going to be a place where I am exercising. But it became a huge market, mainly for adult women, not the teenager in the basement, to have these exercise experiences and we were fortunate enough to team up with the Zumba Company the originator of the Zumba Fitness Program that a lot of people are doing now and create an interactive game experience on Zumba Fitness on Nintendo Wii. So it tracks all your movements and if you are not sure you are quite ready to move on to go to the gym yet, you could pick up our game, try a few moves at home, it’s got all the star instructors in it. Learn your Zumba, get feedback from the system, then go to the gym when you are ready to do it. So that’s a couple of examples of big areas in the game industry and opportunities for us to grow that have been provided by technological innovation. Through the first parties, Microsoft, Nintendo and Sony.
Zezas: Wow, so what else is happening technologically?
Vesey: Probably the biggest shift that you notice lately is, you see people playing games on their iPhones, on iPads and also on the computer social games such as Facebook, a lot of people are familiar with Farmville. That’s really a big change in our industry and from a couple of aspects. One is people are playing games in different places. So the challenge for the industry, us and every company in the industry is to find game play experiences on those other platforms. And the other thing is, the way people spend money and interact with those games is different. The whole console and dedicated handheld industry was based on the fact that the first party came up with a proprietary technology. You would go to the store and pay $30, $40, $50 for a game and then you would play it. The way people are used to playing now is Freeman Model so under the Freeman Model, first let me tell you that the Freeman Model is the predominant way games are played in Asia. So in Asia, people have been playing games under the Freeman model for 6 or 7 years. It just hasn’t really taken a foot hold in the US. So the way you play a Freeman game is, you just start playing the game for free, that’s your free, and then as you move through the game, you have opportunities to spend money. A lot of people familiar with Farmville, so people would buy these vanity items, whether it’s a cow or anything else, to move forward in the building of their farm faster and continue to move through the game. Many of the games, there is also more core games that are out there now, where you may buy a better gun or something to move through game.
Zezas: I have played that game.
Vesey: In the basement of course. There are games where people are requiring better weapons in the game. These are called virtual goods that you buy within the game. But the whole mentality where the skill set that a video game company needs is different. Because in the past we were always focused on getting good production value games to get out there for people to buy, now your more monitoring what they are doing when they are in the game. It’s kind of like working the mechanics of the game to get them to put another quarter in the machine, so to speak, like in the old days in the arcade, like the jersey shore.
Zezas: What a great example.
Vesey: It’s a different skill set, but it’s also a great opportunity as it’s one of the fastest growing segments in our market right now.
Zezas: Okay, so technology is moving fast, we’ve known that and it will continue to move fast. But Majesco is, while fast moving, it’s a small, nimble but publicly held company and being public has its own challenges, but I got to believe being small and public, has exceptional challenges. What are the pros and cons, in an environment that you just described as rather unpredictable, being a small publicly held company?
Vesey: As you said, it’s a challenge. The pros are definitely two fold, one is access to capital, it’s much easier to access the public capital markets for us and to fund different development projects that we have, even though they are not $50 million dollars, it still requires capital to fund these development products. So access to capital is a definite pro. Liquidity for investors is another big pro. Investors in our company whatever your time horizon is we can create some value, they can monetize that value and move in or stay in an investment to a certain extent if they want. It’s always that capability we have to either monetize our existing investors, or to use our public stock is a currency, if we are looking to bring other talent or products or assets into our company. So those are the pros. The cons are the regulatory environment is challenging. It’s a lot of administration, so what we found is we need to be efficient and keep our business as simple as possible. By keeping our view that keeps things simple because everything you do if it adds just mass, there is a series of controls and over site that you have over that we can pretty much get through the regulatory hurdles efficiently. We have good relationships with professionals to get us through that and we’ve through experience, found ways to adapt and survive in the regulatory environment as a small public company.
Zezas: So Michael, the role of the CFO, Corporate CFO, has evolved significantly in the last 15-20 years. But with a small publicly held company, how critical is it that the CFO and the CEO be well connected?
Vesey: It’s absolutely critical. There’s a couple of bridges you have to gap but the first off is between the CFO and the CEO there has to be a constant dialogue about the business every day. There is really two, sometimes different views that we always have to be managing. One is within our company. We have a lot of people that are real experts in what’s really going on, what’s coming up next, and what the challenges are in the industry. So we have to be talking to these people all the time, and planning the right move for Majesco to move forward and to adapt with the industry. On the other side of the coin, you have very acknowledgeable and experienced investors but their goals are sometimes different. So you really need to bridge that gap, work as a team and communicate to them what the direction is of the company, and more importantly find investors where what are company is meets their needs. So for an example if an investor is looking for a company where, hey it’s steady she goes, there is a linear growth path, you can predict what it is, I am going to get my dividend, Majesco might not be the right investor them. It there is another investor that says “Hey look, I like this company because it’s been around for 20 years, it’s still a small player, $100 million dollar player, in a $10 billion dollar industry, that’s constantly changing and has new avenues for growth and new technologies, if these guys hit and connect on something, I have a chance for an exponential return but I am willing to understand the peaks and values that are in between. So the CFO and the CEO have to be on the same page, in terms of what the company is doing internally, then you need to present that to investors in really a straight forward manner so they can make the decision and allow them to make the decision that this might not be right for me. So all you are doing is creating a headache if you are not communicating effectively. And I think the consent that the CFO and the CEO are on the same page and they know the business well comes across to the investor and makes the whole relationship better.
Zezas: I would agree. Michael we are almost out of time, we have time for one more quick final question. Share with us the future of Majesco and the gaming industry.
Vesey: Sure, absolutely. One thing about the gaming industry, is it is always changing, the reason we are talking about managing a technological change. But the thing that we really have going for us now is the amount of time and the number of people that are playing games is increasing. You even see that with the iPads and the iPhones. So the acceptance of people, whether you are stuck in an airport, sitting on a train, standing in line at Starbucks and start playing a game.
Zezas: Or when your boss isn’t paying attention.
Vesey: By the way, most of the time the games are played from 9-5 Monday through Friday. But the number of people spending time playing games is growing. The way that they are playing and the way that they are spending money is changing. So as a small nimble player, we have a pretty strong belief that we can be successful in grabbing these new market opportunities as they come in the next couple of years.
Zezas: If given a choice, I would rather not be the biggest and not have to defend my position. I’d rather be the guys who are trying to take over.
Vesey: That’s absolutely true.
Zezas: It sounds like Majesco is heading in that direction. Mike, this has been great, I thank you for joining us on CFO Studio, would you come back and see us again?
Vesey: Absolutely, it’s been a lot of fun.
Zezas: It’s great to have you here. This is Andrew Zezas, your host at CFO Studio, with Mike Vesey with Majesco Entertainment. Thank you very much for watching, I will see you again.
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