Ratbag shutdown highlights danger of selling out

Stan Beer
Tuesday, 24 January 2006 01:50

Opinion and Analysis

The closure of the leading Adelaide-based Playstation 2 development house Ratbag by its new US owners in December 2005 highlights the danger of selling the farm.

Chicago-based Midway Games paid $7 million for Ratbag in August 2005, renaming the company Midway Australia, and the future seemed bright for the bunch of about 70 extremely talented developers manning the Adelaide offices. However, just four months later the old adage "he that giveth can taketh away" was proven to be right on the mark.

In a move that strangely seemed to escape the attention of the mainstream IT media outside of Adelaide, the senior vice president of Midway Games, Matthew Booty, paid a surprise to Adelaide during the second week of December. Even though Christmas was barely more than two weeks away, Booty was not full of good cheer or carrying a hamper overflowing with gifts for the hardworking, dedicated games developers.

Instead, in the best traditions of Scrooge and the Grinch, Midway's hatchet man delivered a fistful of pink slips for the shell shocked staff. In one fell swoop, a US multinational for reasons known only to itself had brought the axe down on an Australian company that had been built up over 13 years and had made an impact on the world stage with its high quality driving games.

Speculation is rife as to why anyone would want to pay good money for a small specialist games company like Ratbag only to trash it four months later. Some say that Midway, which had a dreadful final quarter in calendar year 2005, losing US$29 million on revenues of US$29 million, simply decided to cut its losses by closing Ratbag, as well as its San Diego studio. Others, who note that Midway has recently bought a German PS3 developer, have speculated that Midway Games was dumping its PlayStation 2 games makers for games developers working in the PS3 arena.

On close scrutiny, however, neither of the above two theories would appear to make any sense. If shutting Ratbag down was a purely financial decision, wouldn't it have made more sense to try find a buyer - even a bargain basement sale would have been better than nothing. The other theory sounds equally implausible. If your strategy was always to develop PS3 games, why spend up big to buy a PS2 developer?

Perhaps Midway felt that Ratbag's intellectual property and titles were worth keeping but ongoing development on a soon to be obsolete platform has no future. If so, then there is a lesson to be learned. Most US technology companies, and especially small to medium-sized global players, prefer to keep their development at home - it's less messy. So if you're a small local company with good technology that can be sold globally, a US company is most likely going to buy you for your technology not your people and certainly not your presence in the comparatively small Australian market.

Whatever the reason, the once productive home grown Australian company that was formerly known as Ratbag is no more and the decision to shut it down was made on the other side of the ocean. This is not the first time and it will not be the last. Australians who build technology companies and who are interested in seeing their legacy survive should take note.