After initially underestimating the potential of video games, toymaker Milton
Bradley Co. in late 1982 announced what appeared to be a hot new entry: a
voice-command unit for video games and home computers. Prospects for the device looked bright when both Texas Instruments Inc. and Atari Inc. agreed to buy and market it and to manufacture software developed by MB. But the outlook has darkened -- Atari has apparently decided not to buy the units, and the TI deal is faltering.
In a $43 million breach-of-contract suit against Atari, MB contends that the Warner
Communications Inc. subsidiary is backing out of the deal. As a result, the suit
claims, MB has "forfeited . . . its limited-time window of opportunity to bring
these products . . . to market."
Ironically, that wording also appears to sum up MB's attempts to get into the video
game market. Unlike such competitors as Coleco Industries Inc. and Mattel Inc., the
Springfield (Mass.) toymaker missed the boom years of 1981-82 because its executives
decided video game consoles were too faddish and overpriced to succeed. By the time
MB did enter the fray late last summer -- by acquiring a company that makes a
self-contained arcade-style unit called Vectrex -- the market for video game
hardware was already beginning to sour. Sluggish sales and price-cutting kept the
new subsidiary unprofitable and contributed to MB's $4.3 million loss on first-half
1983 sales of $130 million.
Because MB agreed not to sell the voice-recognition units -- dubbed the MBX
expansion system -- to other video game makers, the collapse of the Atari deal is
especially painful. MB's move into home computers also is in danger. Neither side
will explain why, but the first MBX shipment to TI, originally set for this month,
has been delayed until October, throwing into doubt TI's ability to market the
product by Christmas. "October starts to make that time frame pretty close," admits
Charles M. Perrottet, MB's vice-president for corporate development.
'A TRIVIAL USE.'
Both Atari and TI have problems of their own to think about. Increased competition,
price-slashing, and shifting market demands have caused bloodbaths at both companies.
In the secord quarter, Atari posted operating losses of $310.5 million, and TI's
home computer division had a $183 million pretax loss.
Moreover, the MBX -- at TI's proposed retail price of $139 -- seems overpriced. Even
at a typical markdown to $99, the plug-in device -- including key pad, joystick, and
headset microphone -- will cost the same as the TI 99/4A home computer it is
designed to accompany. "The last thing TI needs," says one competitor, "is a
peripheral that costs more than the computer." Others insist that the MBX games,
which at present respond to a maximum of 18 spoken-words, are too limited. "It's a
trivial use of technology, and it's an expensive machine," says Kichard E. Stearns,
executive vice-president at Parker Bros., a subsidiary of General Mills Inc.
In a letter to MB shareholders last month, James J. Shea Jr., president and chief
executive, explained that the canceled order, coupled with poor sales of video
consoles, "will result in full-year earnings being substantially less than had been
anticipated." Earlier this year, Shea had boasted that these same ventures would
help MB's weak sales, which have tumbled from a high of $421 million in 1980 to $360
million last year.
But the real danger MB faces is losing its early edge in the voice-recognition
market, thus aborting the main thrust of the MBX project -- to launch the toymaker
into the software market with a unique and proprietary product. If TI cannot
introduce the unit by Christmas or if it backs out of the deal altogether, the MBX
will be out of the running for 1983. MB's Perrottet insists he is still optimistic
that the MBX and its software will succeed. He maintains that even if competing
voice-recognition and voice-synthesis products hit the market next year, MB has a
headstart. The company is already discussing further versions of the MBX with
International Business Machines Corp. and Apple Computer Inc., he says. But to win
credibility, MB must get its product on the market fast and prove that it can create
software with the same appeal as such board-game staples as Stratego and Candy Land.
