News Analysis: Is the game up for Gizmondo?

Eight months on, there is speculation that the fledgling brand faces an
uncertain future.

Before its March launch, Gizmondo said pre-orders of its £129
device were running into the hundreds of thousands. Boasting of an array
of big-name licences, it claimed it would prove a worthy challenger to
the might of Sony and Nintendo. Now insiders are painting a bleak
picture of the company's performance.

Hailed by some in the games industry as the biggest launch of the year,
it had technological backing from Microsoft, on whose operating platform
the device is based, and Samsung, which developed its mobile
processor.

Gizmondo refuses to disclose sales figures and significantly has never
stated sales targets.

A Gizmondo spokesman denies that the product is not a success.
'Everything that's being built is being sold,' he says. However, parent
company Tiger Telematics' annual report for 2004 tells a tale of
mounting losses and huge debts. It laid off about 100 UK staff in July,
shifting operations to the US. It expects to report losses of $210m (£120m) for the first six months of 2005, mainly due to huge
development costs for Gizmondo, which has generated limited
revenues.

Early this year, Tiger Telematics said that it would focus solely on the
development of the Gizmondo brand, with ambitious plans to follow the UK
launch with a US and pan-European roll-out backed by multimillion-pound
marketing budgets.

Lavish debut

At launch, Gizmondo's marketing director, Peter Malmstrom, pledged a
$50m (£28.2m) marketing spend, but this has yet to
materialise. Putting aside a lavish launch party, which featured
performances by Busta Rhymes and Sting, Gizmondo has spent less than
£1m on advertising across UK TV, radio, press and outdoor,
according to Nielsen.

'It's not the kind of spend you would expect from such an ambitious
brand,' says one senior media buyer. He has a point: Sony will spend
£8m advertising its PSP handheld console in the run-up to
Christmas.

Gizmondo had the advantage of being early to market, going on sale just
a week after Nintendo DS and well ahead of the PSP, which launched last
month. It also has extras including GPS, MP3 player, Bluetooth, a camera
and a SIM card, which should have had major retailers vying for
distribution deals.

Although it now has publishing deals in place with Electronic Arts,
Ubisoft and SCi Games, some analysts say it was hindered by a lack of
big games publishers signed from the start.

'Any new entrant to the market has to persuade consumers it has the
support of major content providers. Gizmondo has struggled to make it
clear that it is a good entertainment platform,' says Nick Parker of
Parker Consulting.

Gizmondo has its own Regent Street store, and struck distribution deals
with major retailers including Argos, John Lewis and Carphone
Warehouse.

Most are continuing to stock the console; however, some in the industry
are claiming that stock availability has been a problem for nearly all
retailers.

Mobile ads

As well as offering gaming-on-the-go, Gizmondo also identified a way for
advertisers to target mobile gamers by using the GPS tracking on the
device.

It has approached a number of advertisers about its optional Smart Adds
service, which it says will serve three 30-second targeted ads a day to
users, based on their location or preferences. Having trialled the
facility with major brands including MTV, Gizmondo claims that it has
signed up permanent advertisers - although it refuses to say who they
are.

Its marketing strategy appears to have been just as disjointed as its
content acquisition and distribution. Before the UK launch, its
advertising was created by Ogilvy Stockholm. The business was switched
to Mother London, but it resigned the account over a dispute over
non-payment of fees earlier this year.

This wrangle is one of many that appear to have hampered Gizmondo's
progress. Last year, it was embroiled in a dispute with Formula One team
Jordan, which alleged it had reneged on a sponsorship deal. The case was
settled out of court, costing Gizmondo £1.5m.

Now it is facing a lawsuit from Ogilvy Group Sweden, which claims it is
owed $4.1m (£2.3m) in fees, plus interest, for advertising
and marketing services. The spokesman for Gizmondo is adamant that there
is no case to answer and that the company will defend the action.

MTV has also terminated a EUR2.6m sponsorship with the company following
a row over non-payment of fees.

Ogilvy's action does not come at a good time for Gizmondo. Despite
facing an uphill task to make an impression on the cut-throat UK market,
it is pressing ahead with its plans for a pre-Christmas US launch, with
a reported marketing budget of $30m (£16.9m).

Gizmondo will aim to make as big a splash at launch there as it did in
the UK, but with rumours already circulating that all is not going to
plan, and Sony's PSP already well-established, observers are speculating
that it faces an even more daunting task in the US than in the UK.

If it fails, Gizmondo may be forced to throw in the towel for good.