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'JoWooD' Signs US Distribution Deal With 'Fluent Entertainment'

by Rainier on May 26, 2004 @ 8:25 a.m. PDT

JoWooD announces a strategic alliance with the US developer/publisher Fluent Entertainment. The partnership shall include the acquisition of a non-controlling stake in JoWooD by Fluent, and the co-publishing of the other partner’s product portfolios by both partners. The long-term objective of the partnership with Fluent is to improve JoWooD’s presence in the strategically important US-market and to improve the sales potential for JoWooD’s proven product portfolio.

At the annual shareholder’s meeting on April 22, 2004 JoWooD presented its medium term strategy which was particularly targeted at improving the company’s sales performance in the US market.

The previous business year saw a further increase in JoWooD’s already significant market share in Germany. With a 4.22 % market share JoWooD ranks # 5 (2002: # 6) in the market for PC entertainment software. JoWooD’s share of the global market for PC entertainment is approximately 0.8% and the fact that the company has so far targeted the console market with only limited effort explains why JoWooD’s share of the worldwide market for entertainment software has, up to now, not exceeded the per mill range.

By restructuring its distribution, JoWooD managed to increase its US result significantly from losses in the previous years to over EUR 2m, (unadjusted margin), in 2003. However, with US revenues of below EUR 3m, JoWooD’s sales in the industry’s biggest single market still remain well below the company’s potential.
JoWooD’s underperformance in the US market is clearly not attributable to its proven product portfolio. JoWooD titles won multiple awards in 2003, were widely praised by the special interest press, and performed successfully in the territories serviced intensively by JoWooD.

Strong partner with attractive products

Fluent Entertainment was founded in 2002 by a team of distinguished industry professionals, several of which have been involved in the foundation and development of some of the most successful interactive entertainment companies over the last 20 years. The Californian based company uses a business model which is very similar to JoWooD’s, i.e. focus on brands, with distribution through third parties with minimum guarantees. First class contacts to major US-distributors with very high market coverage make Fluent an ideal partner for the US market.

The partners will share their distribution know how about their respective home markets. From JoWooD’s point of view Fluent is an ideal partner as it fulfills all the important criteria, set forth below, which are necessary for achieving JoWooDs ambitious growth and distribution targets:

Partnership among equals: Fluent and JoWooD are of approximately equal size (2004 results). An alliance with a significantly larger partner would have included a large risk of JoWooD’s products being bought out of the market and JoWooD loosing its independence.

High market coverage in the US: A potential US partner must possess excellent contacts to qualified USdistributors with market coverage exceeding the 85% mark and does not necessarily have to have a captive distribution network. Like JoWooD co-operates Koch Media, Fluent co-operates with high-profile distributors including Vivendi Universal Games in its home market.

Intensive marketing: JoWooD was able to further increase its already significant market share in its home markets through intensifying its marketing activities. Fluent will provide intensive marketing for JoWooD’s products in the US as well as the necessary infrastructure and marketing channels. JoWooD will furthermore send selected key-employees to the US.
Low risk business model: JoWooD’s choice was strongly influenced by the need for a partner with a riskaverse business model. Fluent and JoWooD both use minimum guarantee commitments and outsource distribution and logistics.

Medium-term commitment: Another strategic premise of this alliance is a mutual commitment to a partnership for at least several years as opposed to an ordinary one-year distribution deal. It would be difficult if not impossible to develop the US market in a structured way with perennially changing copublishers. This medium-term commitment is manifested by Fluent’s investment in JoWooD.

Shared interests: Fluent’s interest in having a strong distribution partner in Europe serves as a further incentive for performing well with JoWooD’s products in the US. JoWooD will therefore take the role of Fluent’s co-publisher in Europe. The product portfolios of both partners are complementary.

Capital increase for strategic partnership

Fluent Entertainment is intended to acquire a 20% stake in JoWooD - well below a blocking minority - by way of a capital increase scheduled for the second half of June. The terms for the capital increase will be decided shortly after an extra ordinary shareholder’s meeting sheduled for June 15, 2004. The capital increase is intended to be conducted in two tranches. Capital Bank – GRAWE Group AG will function as the lead manager. The first tranche of up to 8m stocks will be open for subscription only to the strategic partner and shall exclude subscription by existing shareholders. A second tranche of up to 8m stocks shall be offered to existing shareholders at equal terms. The fixed issue price will be announced upon the deposit of the issue prospectus. The issue price will not take into account recent short-term deviations in JoWooD’s stock price. The terms and schedule for the capital increase will be announced upon the deposit of the issue prospectus which is planned for the second part of June.

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