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The great shakeout

THE GREAT SHAKEOUT in the software industry, predicted in the January and May issues of Sinclair User, is now underway. In the past month three major software companies, Imagine, Rabbit and Carnell, have all collapsed.

Of the three, only Carnell is likely to resurface. It had closed gracefully, declaring itself bankrupt and making its own arrangements for the funeral. Then, coming at the last minute like the 7th Cavalry, Mastertronic stepped in and saved the day. Imagine, on the other hand, despite rumours circulating for months about its imminent demise, refused to throw in the towel until it was finally, and ignominiously, closed by court order.

Imagine was one of the largest software houses, with a glamorous image. Directors Butler and Everiss claimed in June that the company's problems were shared by the whole industry. Those problems included the epidemic of piracy, the crowding of companies in the marketplace and the surprise sales collapse. Attempts by Imagine to solve those problems included lowering the price of games and then reneging on the promise, sacking senior employee Colin Stokes for allegedly passing information to rival companies, and investing huge sums in a projected series of 'megagames' which were to sell for around £30-40. Towards the end straws were clutched at and Beau-Jolly scooped the back list of Imagine games.

Though all those factors played their part, the real reasons for the fall of the house of Imagine could well be financial incompetence and inflated self-importance. One of the hallmarks of the company, dating back to its early days, was an extravagant advertising campaign for all its products and as things got worse the more extravagant that campaign became. Along with the Wrath of Magra, from Carnell, there can be few other games pre-sold as heavily as Psyclapse and Bandersnatch. To date, neither has materialised or is likely to.

'Why should software companies feel aggrieved when the market turns out to be rougher than they hoped?'

Couple that with a company lifestyle to rival that of the long-established names in the computer industry, a lifestyle characterised by a fleet of Ferraris, Porsches and Lotuses, together with a tendency to wash dirty linen in public - witness the Colin Stokes affair - and you could be forgiven for thinking that there was a certain business sense missing from the dealings of Imagine. Most of their games weren't too wonderful either.

To give Imagine its due, there was indeed a disappointing start to the year. Stuart Galloway of Carnell Software recognises that: "January and February were dead. We couldn't shift a thing."

In truth there had been a sales boom at Christmas and the figures for January and February were well up on the previous year. What went wrong was the software industry's own prediction of those sales, wildly in excess of what actually happened. Imagine is thought to have been grossly over-stocked for Christmas.

All industries are capable of over-producing, of getting the figures wrong. If a government or great nationalised industry does it, we rightly criticise those responsible for the mistakes. Why should software companies feel aggrieved when the market turns out to be rougher than they hoped?

The micro-world is full of enthusiasts, brilliant programmers with no interest or background in conventional business procedures. They have started with a single product, often written between bouts of studying, advertised in small print on the classified pages of magazines. Two years later those people occupy key positions in fully-formed companies with expensive overheads, salaries to pay, accounts to be kept, and production schedules to meet.

'What we are seeing is the birth pangs of a fully-fledged industry'

Stuart Galloway freely admits his lack of business know-how. Luckily for him and his partner Roy Carnell he has won a second chance at the market in partnership with the directors of Mastertronic. New chairman Frank Herman has great confidence in Carnell and Galloway as games designers, but the new company has been so constituted as to leave all the financial decisions in the hands of the Mastertronic businessmen and the product development in the hands of the Carnell visionaries.

Galloway is happy with that. 'Having had some experience of the world of finance,' he says, 'I think I'm well out of it. You cannot give 100 percent to the imaginative, artistic side and 100 percent to the business side. We managed 50 percent each, and it wasn't good enough.'

The Carnell-Mastertronic deal is a pointer to the future. Mastertronic has been regarded by the rest of the industry with some distaste - entrepreneurs moving in on the market to make a killing with cheap software and playing havoc with accepted pricing strategies. Carnell was built on a fantasy world, the Third Continent, which was in existence long before the computer games were designed or even planned.

The combination of business expertise and imagination should prove a powerful one for many companies. There is no reason why imagination should become stifled by business considerations as long as the consumer demands the high quality products already on the shelves.

What we are seeing is not so much the bursting of the bubble, as the birth pangs of a fully-fledged industry which can operate under the same conditions as any other industry. Of those who have dropped out of the race we are sure that the ones with real expertise and flair will surface again, perhaps in a more disciplined environment.

The commitment of the British consumer to home computing is still the highest in the world, with 44 percent of children aged 12-15 living in a home with a computer. While that continues the British software industry will not collapse.

In the meantime the movement will be towards mergers and takeovers, with companies in related industries looking for established software houses to add to their group. While sentiment may regard such activity with distaste, it will give software companies a much stronger and more protective financial base. Expansion requires confidence, and confidence in Britain stems from visibly sound management.

Issue 30 Contents Issue 30 Contents News

Sinclair User
September 1984