Innovation and doggedness

Things were especially tough for a start-up in the capital-thirsty games market. And breaking into the DVD gaming arena required not just an innovative mind, but a fierce determination. By EMILY ROSS.

By Emily Ross

Summary: Breaking into the fierce US retail market is no easy task. Armed with two hit board games and a radical idea for a whole new way of playing games on DVDs, Imagination Entertainment’s co-founder Shane Yeend was never going to take no for an answer.

It has taken close to a decade for Imagination to become a global entertainment business with 136 staff, 2006 revenues of $50 million and projected sales in 2007 of more than $80 million.

Imagination Entertainment’s first big break in the Australian market came about in 1997 when the company developed a hit board game Battle of the Sexes, which complemented a top rating television game show at the time.

However, for a small Adelaide business, a big order can be a nightmare. For example, a $7 million order from a client would cost $3.5 million to fill (that’s a lot of operating capital) and then there are wages and other costs to pay. Yeend and business partner Kevin McLean ended up with a huge overdraft on their personal assets. “It was horrible,” says Yeend.

A hit game for Imagination Entertainment today is a whole different scenario now that the company has matured and has pioneered a whole new entertainment category, the DVD game. A top game can mean selling one million units (with profit margins above 50%).

There is sufficient operating capital, as the company’s topline profits are growing faster than the overheads, so Yeend can afford to “stack ’em high and watch them fly”, working with companies such as Barnes & Noble, Wal-Mart, Nickelodeon, FremantleMedia and Kmart.

Starting from scratch

In the late 1990s, Imagination became an industry leader in interactive television. Yeend first went to Los Angeles in 1998 with his board games to spruik. He had a cheap car “with no brakes” and a suitcase of belongings. He rented a cheap apartment and bought a $10 desk that he still sits at to this day.

DVD games were not invented at that stage, but Yeend had an idea and was determined to find a way to make these games work. He found a software developer in the Yellow Pages who could rewrite DVD player software so that games sequences could be shuffled (which can’t be done on VCR technology).

A category was born. Yeend very cleverly began buying up the rights to old television shows that he saw would convert well to this new DVD interactive format.

While Yeend was always confident that his company was on the cutting edge of game development, he knew he needed more than a good product to break into the US market. Yeend attended countless tradeshows “with a booth the size of a toilet” to promote the company’s products.

To lure in buyers from retailers such as Target or Wal-Mart, he would wait in hotel lobbies and corridors to invite key people to his stand. “I used to look at people’s name tags and when I found the person I was looking for, I would drag them to my booth,” he says.

Yeend remembers going to conferences to hear speakers he thought could help the business. After the speeches he would wait up at the podium, give his “elevator pitch” about Imagination and try and get a meeting.

That is how he met the creative director of Disney. In 2005, Imagination signed a three-year, $50-million deal with Disney, and Yeend now employs that creative director.

Cracking Wal-Mart, now a major buyer of DVD games, was tough. Yeend would befriend the right buyer only to find he had moved on to the luggage category. Then he would have to start from scratch again to try and arrange meetings.

In the end, the evolution of the category and a bigger product range helped Imagination Entertainment win orders from this world’s biggest retailer. The first order did not turn out so well for Imagination. The order ended up being 19 days late and the company had to pay $US350,000 in late fines.

Imagination’s LA office now has more than 50 staff. It is much easier these days to attract talent to a business that has five of the current top 12 DVD games in the US.

The company has a television division, a mobile division and a download division, and its games are sold in more than 85,000 outlets in 50 countries. “We are constantly trying to reinvent the way people play games,” says Yeend.

Yeend admits that he is a “hard ass” when it comes to work. “I try exceptionally hard and won’t take no for an answer.” When a staffer was unsuccessful in gaining a license to make a Tetris game (a falling blocks puzzle game), Yeend sent him back. Again he was unsuccessful. Yeend went out himself and has made the deal.

Going against the grain

In an internet-obsessed world, Yeend has resisted having a strong web presence. He took down the original Imagination Entertainment website after concerns that competitors were learning too much about the company.

The company now has a very basic site on the web, more for customers than anything, with “brushstroke” details of the company and what it does.

The company’s marketing budget has been consistently below 7% of costs (in 2006 it was 2.4%), as opposed to competitors’ 15%. All marketing is done in house.

Not that Yeend doesn’t value marketing. Imagination has used some prime time television advertising for games and when “Battle of the Sexes” was launched in the US, he gave away 15,000 copies of the game to radio stations across the country, a strategy that helped promote the game successfully.

In 2007, Yeend has grand plans. This month, Imagination announced a deal at the American International Toy Fair with US “Deal or No Deal” host Howie Mandel and his production company to create three new DVD games that will be developed into television programs.

The first game, “Fact or crap — beat the bomb”, will be released in the US in August. As well as the $100-million revenue target, there are major acquisitions (in Australia, Canada and the US) to be finalised.

There is also the progress of a side venture, an Adelaide-based children’s entertainment group The Funkees that Yeend hopes will repeat the success of The Wiggles and Hi-5. Then there is his 40th birthday to celebrate.

Imagination Entertainment is owned by investment group TinShed (30% – from a $4.5 million investment), Kevin McLean (30%) and Yeend (30%). Yeend and business partner McLean celebrate 23 years in business together this year. They started out in 1984, making corporate videos.

One of the most exciting things about the category for Yeend is seeing its evolution from a business model where a game would be developed in October, a verbal order made in January, it is manufactured and shipped in July, sold over Christmas and the company does not get paid until the next February — more than a year after the production process starts.

Now downloadable games make the payment cycle much shorter. And the category just keeps growing. The DVD games market is worth an estimated $US500 million, with projections that the category will double by 2010. Imagination has an estimated 20% market share and Yeend is determined to keep pushing that figure sky high.

The Yeend way

• 110% commitment.
• Don’t expect export strategies to happen quickly.
• Own your own distribution network at all costs.
• Never take no for an answer.
• Before launching a new product, get the finance and business model right .