Midway Games

Midway Games

Type	Corporation, currently in Chapter 11 bankruptcy
Industry	Video game
Fate	Under liquidation
Founded	1988[1]
Headquarters	Chicago, Illinois, U.S.
Key people	Matt Booty, Chairman and President
Products	Gauntlet, Mortal Kombat, NBA Jam, Rampage, Rush series, Spy Hunter
Revenue	US$219.6 million (2008)
Net income	-US$191.2 million (2008)
Employees	550 (2008)

Midway Games, Inc. (formerly Midway Manufacturing) is an American corporation, in bankruptcy since 2009, which is being liquidated. Founded in 1958 as an amusement game manufacturer, it became a video game publisher and developer in 1973. Midway published and developed titles such as Mortal Kombat, Ms.Pac-Man, Spy Hunter, Tron, Rampage and NBA Jam. Midway also acquired the rights to video games that were originally developed by Williams Electronics and Atari Games, such as Defender, Joust, Robotron 2084, Gauntlet and the Rush series.

Midway was purchased and re-incorporated in 1988 by WMS Industries Inc. In 1998, it became an independent public company. The company began in the arcade game business, scoring its first hit with the U.S. distribution of Space Invaders in 1978. After many years as a leader in the arcade segment, Midway moved into the growing home video game market beginning in 1996, the same year that it made its initial public offering of stock. Midway was listed as the #19 video game publisher in September 2005 and the #20 in September 2006 by the magazine Game Developer.^[2]

After 2000, although Midway continued to develop and publish video games for each new generation of home and handheld video game machines, Midway experienced annual net losses. In response, the company engaged in a series of stock and debt offerings and other financings and borrowings. Sumner Redstone, the head of Viacom/CBS Corporation, was a large investor in the company since the 1990s. He increased his stake in Midway from about 15%, in 1998, to about 87% of Midway by the end of 2007.^[3] In December 2008, Redstone sold all his stock to Mark Thomas, a private investor, for $100,000, and Midway extended $70 million of new loans to Thomas.^[4]

In February 2009, Midway Games filed in Delaware for Chapter 11 bankruptcy.^[5] In July 2009, Warner Bros. purchased most of Midway's assets for $33 million plus receivables, realizing about $49 million from the transaction. At the same time, Midway settled with its former majority owner, Mark Thomas, to relinquish his common stock in Midway, which continued to operate as a Debtor in Possession.^[6][7] The Midway Chicago studio, responsible for the Mortal Kombat series, among other games, became part of Warner Bros. Interactive Entertainment and has been rebranded NetherRealm Studios.^[8]

In July and August 2009, Midway shed its remaining U.S. and European studios.^[9][10] In October 2009, the U.S. District Court in Chicago dismissed a lawsuit against former officers of Midway alleging that they had misled shareholders while selling their own stock.^[11] In January 2010, the bankruptcy court dismissed claims against Redstone in connection with his sale of the company to Thomas. In February 2010, Midway filed a proposed plan of liquidation with the bankruptcy court, which the court approved in May 2010. Secured claims were paid, and unsecured creditors will share a total of about $34.7 million.^[12]

On June 9, 2010, the company filed a Form 15 with the Securities and Exchange Commission terminating the public registration of its securities.^[13] The creditors' settlement of their lawsuit against Restone's company, National Amusements, in the amount of $1 million, was approved by the Bankruptcy court in June 2010.^[14]

History

Arcade games

Midway Mfg. Co. began in 1958 as an independent manufacturer of amusement equipment. It was purchased by Bally in 1969. After some years making mechanical arcade games such as puck bowling and simulated western shoot-out, Midway became in 1973 an early American maker of arcade video games. Throughout the 1970s, Midway was very close to Japanese video game developer Taito, with both companies regularly licensing their games to each other for distribution in their respective country. Midway entered the consumer market in 1977 by releasing the Bally Home Library Computer, the only home system ever to be developed by Midway.

Midway's breakthrough success came in 1978, with the licensing and distribution of the seminal arcade game Space Invaders in America. This was followed by the hit U.S. version of Namco's Pac-Man in 1980, and its unauthorized sequel, Ms. Pac-Man, in 1981. Also in 1981, Bally merged its pinball division with Midway to form the Bally/Midway Manufacturing division. Three games released that year, including Satan's Hollow, were the first to feature the Bally/Midway brand. From the late 1970s through the late 1980s, Midway was the leading producer of arcade video games in the United States.

The Bally/Midway division of Bally was purchased and reincorporated in 1988 by the arcade and pinball game company Williams Electronics Games through its holding company WMS Industries Inc. Midway moved its headquarters from Franklin Park, Illinois to Williams's then-headquarters in Chicago, and WMS reincorporated Midway as a Delaware corporation. Although WMS retained many of Midway's R&D employees, only two game designers were retained: Rampage designers Brian Colin and Jeff Nauman. WMS obtained the right from Bally to use the "Bally" brand for its pinball games since Bally had completely left the arcade/pinball industry to concentrate on casinos and slot machines.

Under WMS ownership, Midway initially continued to produce arcade games under the Bally/Midway label while producing pinball tables under the "Bally" brand. In 1991, however, Midway absorbed Williams' video game division and started making arcade games under its own name again, without the "Bally" part (pinball tables continued to be produced under the "Bally" brand until Midway discontinued this part of the business in 1999). In 1996, WMS also purchased Time-Warner Interactive, which included Atari Games, a part of the former giant Atari Inc.. Also in 1996, Midway changed its original corporate name, Midway Manufacturing, to Midway Games Inc., due to its entrance in the home console market. The original arcade division of the company became Midway Amusement Games and the newly created home division was named Midway Home Entertainment.

Spin-off and home video game focus

In 1996, WMS made a public offering of Midway stock and, in 1998, WMS spun off its remaining 86.8% interest in Midway to the WMS shareholders, making Midway an independent entity for the first time in almost 30 years.^[15] Midway kept Atari Games as a wholly-owned subsidiary as part of this spin-off. Midway retained or shared some of the WMS executive staff and used some common facilities with WMS for a few more years. Over several years, Midway gradually terminated all material agreements and executive overlap with WMS and had a declining number of common members of its Board of Directors, until it shared only one with its former parent company.

By 1999, Midway left the pinball industry (it had earlier transferred most of its pinball assets to WMS in exchange for video game assets of WMS) to concentrate on video games. In January 2000, Midway changed the name of its "Atari Games" subsidiary to Midway Games West to avoid confusion with the other Atari company, then owned by Hasbro Interactive. In June 2001, Midway closed its arcade division due to financial losses. In February 2003, Midway closed Midway Games West, ending what was left of the original Atari. After losing money each year since 2000, Midway's losses accelerated in 2003, as it lost $115 million on sales of about $93 million.^[16] Despite these losses, the company was able to finance its business with stock and debt offerings and various credit arrangements. In 2003, Sumner Redstone, a significant minority shareholder since the company's spinoff, began to increase his stake in the company and soon owned 80% of the stock.^[17]

In 2004, in an effort to expand its market share, Midway began a purchasing spree of independent video game development studios to strengthen its product development teams^[18] In April 2004, Midway acquired Surreal Software of Seattle, Washington. In October 2004, it acquired Inevitable Entertainment of Austin, Texas (which became Midway Austin). In December 2004, it acquired Paradox Development of Moorpark, California. On August 4, 2005, Midway acquired privately-held Australian developer Ratbag Games. The studio was renamed Midway Studios — Australia. Four months later, on December 13, Midway announced to its employees there that it was shutting the studio down, leaving its employees based at that studio without a job. Two days later, on December 15, the studio was closed and their Adelaide premises emptied. During 2004 and 2005, Midway lost $20 million on sales of $162 million, and $112 million on sales of $150 million, respectively.^[16] Redstone voted his shares to elect his daughter Shari Redstone to Midway's board of directors and later as the chair of the board.^[16]

Late 2000s and bankruptcy filing

In 2006 and 2007, Midway lost a further $77 million on sales of $166 million and $100 million on sales of $157 million. It continued to finance its business with debt offerings and other credit arrangements.^[16] As of 2007, Midway Games was engaged in a legal battle with Mindshadow Entertainment for the Psi-Ops video game rights. Mindshadow alleged that Midway copied Psi-Ops's story from a screenplay written and owned by their client. On December 2, 2008 Judge Florence-Marie Cooper of the United States District Court for the Central District of California issued a ruling granting summary judgment on all counts in Midway's favor. Judge Cooper found no evidence of copyright infringement.^[19]

On March 6, 2007, Midway reported that it had entered into a new $90m credit agreement with National Amusements, a company controlled by Sumner Redstone.^[16] Midway's CEO, David Zucker, stated that the introduction of Unreal Tournament 3, and the company's growing success in mass-market games, were setting it up for a "significant 2008".^[20] On March 21, 2008, Zucker resigned as CEO. He was the third executive to resign from the company in three months. Succeeding Zucker as CEO was former Senior Vice President Matt Booty.^[21] During the summer of 2008, in an effort to trim costs, Midway closed its Los Angeles and Austin studios.^[22] These closures left Midway with four studios, in Chicago, Seattle, San Diego and Newcastle. In November 2008, Midway reported that its cash and other resources "may not be adequate to fund... working capital requirements" and that it "would need to initiate cost cutting measures or seek additional liquidity sources".^[23] On November 20, 2008, Midway retained Lazard to assist it "in the evaluation of strategic and financial alternatives".^[24] On November 21, 2008, Midway received a NYSE delisting notice, after its stock's price fell below one dollar.^[25]

On December 2, 2008, Sumner Redstone sold his 87 percent stake in Midway Games to Mark Thomas, a private investor, through his company MT Acquisition Holdings LLC. Thomas's company paid approximately $100,000, or $0.0012 per share. Thomas also received $70 million of new loans from Midway.^[26] National Amusements took a significant loss on the sale, although the loss allowed it to benefit from tax losses.^[27] On December 5, 2008, the Chicago Tribune reported that Midway would default on $240 million of debt after the sale of stock to Thomas triggered clauses in two bond issues totalling $150 million of debt, allowing the bondholders to demand full repayment.^[28]

In 2008, Midway lost $191 million on sales of $220 million, and Redstone's sale of his shares to Thomas eliminated Midway's ability to take advantage of accumulated net operating losses and other tax assets potentially worth more than $700 million.^[7][26] On February 12, 2009, Midway and its U.S. subsidiaries filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. The company began to operate as a Debtor in possession.^[26] A company spokesperson said, "We felt this was a logical next step for our organization, considering the change in control triggered the acceleration of the repayment options... we're looking to reorganize and to come out on the other side stronger".^[29]

2009 sales of assets

Midway announced on May 21, 2009 that it had received a takeover bid from Warner Bros., valued at more than $33 million dollars, to acquire most of the company's assets, including Midway's Chicago and Seattle studios and rights to the Mortal Kombat and Wheelman series. The offer did not include the San Diego and Newcastle studios or the TNA video game series.^[30][31] Midway had previously worked with Warner Bros. on several games including Mortal Kombat vs. DC Universe. Midway announced on May 28, 2009 that it would "accept binding offers up to June 24, 2009, to acquire some or all of the Company's assets." An auction was to be held on June 29, followed by a court hearing to approve the sale to the winning bidder or bidders.^[32] However, no other bids were placed for Midway's assets, and so the auction was cancelled.^[33] On July 1, 2009, the bankruptcy court approved the sale of most of the company's assets to Warner Bros.^[34]

On July 2, 2009 it was reported that the Midway Newcastle and Midway San Diego studios (and various "old sports titles" that were not included in the deal) would close in 60 days if no one bought them.^[35] On July 8, 2009, Midway disclosed that it intended to close the San Diego studio by the beginning of September.^[36] However, on August 19, 2009, THQ purchased the San Diego studio for $740,000 and extinguished certain Midway obligations.^[10]

On July 10, 2009, pursuant to the terms of the Settlement Agreement that was approved by the bankruptcy court, Midway agreed to pay to affiliates of its former majority owner, Mark Thomas, approximately $4.7 million in full satisfaction of all rights and interests of Thomas and his affiliates relating to Midway. Thomas and his affiliates granted to Midway's Creditors' Committee an irrevocable proxy to vote his controlled shares of common stock in Midway and forever relinquished the right to vote or dispose of the shares. The committee will decide upon the ultimate disposition of the shares.^[37] The settlement reduced Thomas's claims by 93 percent,^[7] and Midway continued to operate as a Debtor in Possession.^[6] Simultaneously, on July 10, 2009, the sale of assets to Warner Bros. was completed. The total gross purchase price for the sale was approximately $49 million, including receivables, and Warner Bros. assumed liabilities. The sale also triggered payments under Midway's Key Employee Incentive Plan of approximately $2.4 million to company executives.^[6]

On July 14, 2009, Midway announced that it had closed the Newcastle studio and terminated 75 employees.^[38] On August 19, 2009, Midway sold its French and German subsidiaries to holding companies called Spiess Media Holding UG and F+F Publishing GmbH, respectively. Speiss also purchased Midway's London publishing subsidiary on the same day. The European sales resulted in cash proceeds of $1.7 million and the elimination of certain intercompany claims.^[10] In September 2009, Midway shut down its Chicago headquarters and terminated its employees there. Many of the former Midway employees at the Chicago studio acquired by Warner Bros. are now employees of Warner Bros.^[6][39][11] On October 2, 2009 Midway Games Inc. and two of its subsidiaries, Midway Home Entertainment Inc. and Midway Studios Los-Angeles Inc. sold certain intellectual property assets, including Midway's TNA video game licenses, to SouthPeak Games for $100,000 and the assumption of certain liabilities. The assets sold, and the consideration for the assets, are specified in an Asset Purchase Agreement filed with the U.S. Securities and Exchange Commission.^[40][41] According to reports filed with the Bankruptcy court, Midway was no longer selling games in October 2009 and had no further fixed assets.^[42]

Lawsuits and plan of liquidation

In October 2009, the U.S. District Court in Chicago dismissed a lawsuit against former officers of Midway alleging that they had misled shareholders while selling their own stock. The judge ruled that the officers' statements were merely "puffery" and that the shareholders had not shown that the executives "said or did anything more than publicly adopt a hopeful posture that its strategic plans would pay off".^[11][43] On January 29, 2010, the bankruptcy court dismissed claims brought by Midway creditors in May 2009 for fraud and breach of duty against Sumner Redstone, Shari Redstone and Midway directors, concerning his 2008 loans to the company and his subsequent sale of his 87% stake in the company to Mark Thomas, which increased Midway's net debt and wiped out the company's net operating losses and other tax assets. Judge Kevin Gross wrote that his decision was "not an endorsement of any of the defendants' actions.... The defendants oversaw the ruin of a once highly successful company, only to hide behind the protective skirt of Delaware law, which the court is bound to apply." The court permitted other creditor claims to continue.^[7]

On February 23, 2010, Midway filed a proposed plan of liquidation with the Delaware bankruptcy court. Under the plan, intercompany claims are extinguished and a partial recovery is allowed to the unsecured creditors of Midway Games (who held $155 million of claims) to the extent of about 16.5%, and to the unsecured creditors of Midway's subsidiaries (who held $36.7 million of claims of about 25%. The lawsuit against National Amusements continued, and the settlement amount under that suit is to be paid to the two groups of unsecured creditors in the same ratio. Holders of secured and priority claims will paid in full, National Amusements will not receive any payment under its Subordinated Loan Agreement, and the equity holders will not receive any payment.^[44] On March 23, 2010, the bankruptcy court approved the company's disclosure statement explaining the proposed plan, and on May 21, 2010, the bankruptcy court approved the plan of liquidation. Unsecured creditors of Midway share approximately $25.5 million, and unsecured creditors of the company's subsidiaries share about $9.2 million.^[12]

On June 9, 2010, the company filed a Form 15 with the Securities and Exchange Commission terminating the public registration of its securities.^[13] The creditors' settlement of their lawsuit against Restone's company, National Amusements, in the total amount of $1 million, was approved by the Bankruptcy court on June 21, 2010. This ends the outstanding claims against Redstone and his companies.^[14]

Subsidiaries and studios

Publishing and distribution

Sold

• Midway Games Ltd in London, England, published and distributed Midway's video games in the UK and other markets in Europe. Midway Games Ltd should not be confused with Midway Games Inc., the corporate name of the parent Midway entity. On August 19, 2009, Midway Games Ltd. was sold to a company owned by Martin Spiess (who was previously an executive officer of Midway) and, together with Midway Games SAS, it was formed into a holding company called Spiess Media Holding UG.^[10][45] It was combined with the Paris office and re-branded Tradewest Games .^[46]
• Midway Games SAS in Paris, France, published and distributed Midway video games in France. On August 19, 2009, Midway Games SAS was sold off to Spiess, along with Midway Games Ltd., and they were formed into Spiess Media Holding UG.^[10][45] It was combined with the London office and re-branded Tradewest Games.^[46]
• Midway Germany GmbH in Munich, Germany, published and distributed Midway video games in Germany. The subsidiary was formed in February 2005 by Midway Games Ltd. In August 2009, Midway Germany GmbH was sold to former manager Uwe Fürstenberg's company F+F Publishing GmbH.^[10][45]

Defunct

• Midway Amusement Games, L.L.C. in Chicago, Illinois. Its assets were acquired by Happ Controls on October 1, 2001.^[47] This was the original arcade division of the company (founded as Midway Manufacturing Company) and maintained to own intellectual property, specifically the Midway, Bally/Midway and Williams arcade game libraries.
• Midway Home Entertainment in San Diego, California, founded in 1986 as Tradewest, was acquired by WMS Industries in 1994 and was renamed Williams Entertainment, Inc., which in turn became Midway Home Entertainment in 1996. Midway Home Entertainment published and markets all Midway video games made for home consoles and operated with a good degree of independence from its Chicago parent. Midway Home Entertainment was also largely in charge of the relationship between Midway and the console manufacturers of its games (Sony, Microsoft and Nintendo). The subsidiary was used by Midway to enter the video game console market in the 1990s, and at that time all console video games were developed by Midway Home Entertainment while all arcade games were by the Chicago studio. For several years, Midway Home Entertainment operated in both Corsicana (Tradewest's original site) and San Diego until 2002 when the Corsicana location was shut down.

Studios

Sold

• Midway Studios – Chicago in Chicago, Illinois, was the original Midway Studio. Eventually the studio focused solely on titles for home and portable consoles. It had developed Blitz: The League for the PlayStation 2 and Xbox and Stranglehold for the PlayStation 3, Xbox 360 and PC. The studio is housed within the same facility as Midway Amusement Games, on the other side of the street from Midway's head office. Following its acquisition by Warner Bros., the studio became part of WB Games Chicago.^[48][49] In June 2010, it was rebranded NetherRealm Studios.^[8]
• Midway Studios – San Diego, located in the same building as Midway Home Entertainment, was the first studio to develop video games by Midway for home consoles. Midway Studios – San Diego developed Gauntlet: Seven Sorrows and was given the task of completing the game Rise and Fall: Civilizations at War, which had been started by Stainless Steel Studios. Midway announced on July 8, 2009 that it intended to close the San Diego studio by the beginning of September.^[36] However, in early August 2009, THQ bought the studio and all of is assets except for the TNA iMPACT! video game license, and about 40% of its employees have been offered positions.^[9]
• Surreal Software in Seattle, Washington, founded in 1995, was acquired by Midway in 2004 and sold to Warner Bros. in July 2009.

Defunct

• Midway Studios – Austin, founded as Inevitable Entertainment, Inc. on March 23, 2000, was acquired in 2004 and closed in December 2008.
• Midway Studios – Australia in Adelaide, South Australia, was founded as Ratbag Games in 1993. It was acquired by Midway on August 4, 2005 and was closed down four months later in December 2005.
• Midway Studios – Los Angeles in Moorpark, California, founded in 1994 as Paradox Development, was acquired by Midway in 2004. It was closed in 2008 and merged with the San Diego studio.
• Midway Studios – Newcastle in Newcastle upon Tyne, England, was founded in December 1996 as Pitbull Syndicate and acquired by Midway in October 2005. It was closed on July 14, 2009, following Midway's sale of assets to Warner Bros., because Midway failed to find a buyer for the studio. In 2009, some former employees of the studio formed a new company called Atomhawk Design.^[50] In 2010, game designer Robert Troughton, a founder of Pitbull Syndicate, formed another new company, Pitbull Studio, in Newcastle.^[51]

List of arcade games developed or licensed

Video games

• ¹ Originally developed by Williams
• ² Originally developed by Atari Games
• ³ Originally owned by Rareware
• ⁴ Co-owned by Nintendo
• ⁵ Owned by Namco

Pinball

(all games under the Bally brand, except as noted)

Selected console games developed or licensed by Midway

Arcade system boards

Some of Midway's former arcade system boards:

References

External links

• Midway to Open Casual Games Portal
• Midway Games profile from MobyGames
• "Farewell to Midway Games" - 2009 Kombo.com article
• August 2009 Gamasutra article

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