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A new game for Broderbund

Broderbund is expected to announce next week the creation of a new division to develop products for the Internet.

Broderbund Software (BROD) is expected to announce next week the creation of a division to develop new products for the Internet and to adapt existing titles to the global network, the company said today.

The move is part of a larger restructuring that will result in 45 layoffs, about 4 percent of the company, which makes educational and entertainment software.

"The model we see is we can have both games and educational activities based on the Internet, and you tie it into multiple locations," said Eric Winkler, Broderbund's senior marketing manager. Winkler said the Clinton administration?s goal to connect all schools to the Internet by 2000 sparked the drive to offer more products over the network.

According to Winkler, some 50 employees will work in the new division, which is to be called the Online Business Unit. It will be up and running by November and will release its first product sometime in 1998, he said.

The move isn't necessarily new in the computer game industry, or even within Broderbund. Companies such as MPath Interactive and TEN have long been providing users the ability to play interactive games with other players over the Net. And Broderbund's Web site features enhancements to some of its more popular titles, such as Printshop and Where in the World is Carmen Sandiego. The company recently released Warlords III, its first interactive game that can be played over the Internet.

Analysts said the move makes sense but won't generate revenue overnight.

"It's hard to get people to pay for anything on the Internet right now," said Andrea Williams, an analyst at Volpe Brown Whelan. She cited both MPath and TEN as examples: MPath recently abandoned its pay-to-play model, replacing it with a model based on advertising; TEN, meanwhile, has been forced to slash its prices.

But Williams said the speed and ease of distributing digital products on the Internet make it only a matter of time before the Internet plays a significant role in how software is sold.

"Today, [Broderbund's initiative] is really an investment to prepare for when the market is real and people are willing to pay money for products over the Internet," she said.

Another analyst, however, said Broderbund's move into the Internet arena is nothing special, and that until the company puts out titles based on the Net, there's not much news to trumpet.

"Every consumer software company is focusing in a significant way on the Internet, said Dan Laven, an analyst at Dataquest. "Announcing you are creating an Internet division doesn't mean you are doing any more or any less than any other [software maker]. It's not like it's a new line of business they're going into."

David Farina, an analyst with William Blair & Company agreed that Broderbund?s move to the Net made sense, but that obstacles remained.

Schools, he said, are generally used to getting educational products cheaply if not for free. "It's tough to sell to schools which have no money," Farina warned.

In addition, he said consumers will be unwilling to download large files over the Internet. Using current technology, it can take hours to download large games and the like. Broderbund will either need to be selective about the types of materials it makes available on the Net, or major upgrades in bandwidth will need to come about.

"People will buy stuff online, but if it takes them longer [to download] than it would to get it by Federal Express, will they bother?" Farina said.

Winkler said the layoffs come as the company restructures its various divisions around specifc products. The restructuring affects a number of divsions, including the Living Books group, which was acquired from Random House, and the ClickArts unit. Employees from the Red Orb group, which focuses on entertainment games including the much-awaited sequel to Myst, have been laid off and replaced with outside developers, Winkler said.