Zoo Digital Regulatory News (ZOO)

18 Feb 2005 07:10

Zoo Digital Group PLC18 February 2005 18 February 2005 ZOO DIGITAL GROUP PLC ("ZOO" or "the Group") UPDATE ON TRADING ZOO Digital Group plc ("ZOO" or "the Group"), premier provider of tools for the production of interactive DVD-Video content, today announces a trading update and overview of current business activities. HIGHLIGHTS • ZOOtech expected to achieve £500,000 of revenue by year end • ZOO Digital Publishing set to approximately double turnover to £11m by year end • Software testing on "Regionalisation" successfully completed with major Hollywood Studio with expected revenues of $1 million • Further Interactive DVD Products agreed with Universal Pictures • Agreement reached with Noviy Disk for supply of ZOO's gaming products in Russia and ex-Soviet Union to a minimum value of $2million over the next 12 months • Delayed income on ZOOtech and deferred income on the "Crimelife" development project will lead to Final Results for period to 31 March 2005 being below Board expectations Ian Stewart, Chief Executive of ZOO Digital Group PLC commented: "We are more confident about the prospects of this business than everbefore, however this year's revenues will fall below the Board'sexpectations. Although short term revenues and profits have fallen behindwhat we were expecting to achieve the medium to long term prospects for theGroup are better than we envisaged and much of the shortfall in revenues hasnot been lost but simply deferred into the new financial year. Both ZOOtech and Zoo Digital Publishing have progressed well over the last12 months and we have made a number of breakthroughs in both technologicaland market terms. Our technology is now starting to be well used and weare in advanced discussions with many leading corporates in many marketsectors. The Board believes that the prospects for ZOO remain excellent." Enquiries Ian Stewart James Chandler/Grace MarrinerCEO, ZOO Digital Group plc Beattie Financial0114 241 3700 020 7398 3300 John Llewellyn-LloydNoble & Company Limited020 7763 2200 ZOOtech LTD ZOOtech focuses on R&D and licensing of DVD-EXTRA, the Group's highly originaldevelopment software capable of creating complex interactive content forstandard DVD players. The strategy for ZOOtech is simple; to create the industrystandard tool for the production of interactive DVD content and drive revenuesthrough licensing worldwide in a combination of up front fees and royalties.Current Trading Since the launch of DVD-EXTRA STUDIO in Q2 2004 considerable progress has beenmade with a number of third parties already developing commercial titles usingthe product. Total sales for the 15 month Financial Period to 31 March 2005 forZOOtech Ltd are likely to be in the order of £500,000. Over 60% of this is fromroyalty based revenues and the balance from software sales, one off project feesand training income. Entertainment titles produced pre-Christmas by third parties using DVD-EXTRASTUDIO included: * Three titles by Ouat Entertainment published in France by Universal Pictures* A top selling interactive DVD "Beat the Intro" published by VCI in the UK that was developed by Somethin' Else* Bonus features on a number of DVD titles including "Garfield The Movie" published by Fox* The successful production of two marketing DVDs by Freestyle New Media for Land Rover* Two children's educational products were released by Leapfrog in the US. ZOOtech's work with a number of Hollywood Studios has progressed well. Detailedand positive discussions continue with a particular interest expressed in thesignificant time and cost savings that can be achieved using DVD-EXTRA STUDIO aswell as in the opportunity to produce more engaging interactive features.Rigorous testing of our "Regionalization" software in conjunction with onestudio has been successfully completed on criteria selected by the studios andis in advanced stages of testing with a second studio, and ZOOtech is currentlyworking on the integration of the software into the wider DVD productionprocess. We are in final contract negotiations with one particular studio from which wewould anticipate initial revenues of around $1 million. However, the timescalebetween testing and revenue generation has been longer than we originallyanticipated and revenues from the Hollywood Studios are expected to commence inthe next financial year rather than the year to 31 March 2005. Consequently thisdelay in revenues will impact profitability in the current financial year. Entertainment Market ActivityThe momentum and desire, across many markets, for interactive DVD has notablyincreased. ZOO is in discussions with numerous organisations regardinganticipated products for 2005 and 2006. In entertainment we are working closelywith several companies on products and roadmaps for iDVD games. These include"Snap TV" with two major trivia games and the French game company Microids hassigned a license agreement to produce a major adventure game, expected to belaunched by the end of 2005. Over the last six months ZOO has been working closely with a major toy companyin the US to evaluate various properties for interactive DVD using our software.Following the three titles already produced, Ouat Entertainment is developingbetween four and six products for 2005. After VCI's successful publication ofthe "Manchester United Official Interactive DVD", we are aware of plans by otherpublishers to produce interactive DVDs based on four other major Britishfootball clubs and at least two European clubs. Education Market ActivityIn education Generation 5, a leading French publisher of educational media, hasacquired a DVD-EXTRA STUDIO licence and is looking to publish a number of itsexisting titles on interactive DVD during 2005. The four major US publishers ofeducational content are evaluating a number of products for interactive DVD andseveral other organisations have commenced evaluations of projects using ourtechnology. Detail Technologies are producing its police training software oninteractive DVD and also using ZOOtech's unique "access control" feature toprevent unauthorised use of the product. Corporate Market ActivityIn the corporate market Freestyle New Media Group, a leading new media marketing agency has selected DVD-EXTRA STUDIO as the cornerstone of a new servicepromoting the use of interactive DVD as a marketing communications channel.Following the success of two initial products for Land Rover, Freestyle hasindicated that two further DVD products will be produced and discussions havealso begun with other major motor manufacturers with regard to the production ofinteractive marketing DVDs. One of our newest licensees, Georgopolis, is lookingto produce marketing products for two car manufacturers in the US and ZOOexpects to increasingly focus on the US corporate market during 2005. Hollywood Studio Market ActivityAs detailed above ZOO is continuing its work on the "regionalisation" of menus.One major studio has asked ZOOtech to assist in defining and deploying a newproduction process based on our technologies, and one of our applicationengineers has been seconded for a number of months. Consequently we fully expectrevenues from our regionalisation of menus to commence during the first quarterof the next financial year and to be in the order of $1million for the full yearfrom this one studio. We are in the final stages of testing and evaluation of regionalisation withanother major studio and expect to conclude this satisfactorily by end of March2005. Once implemented, we will direct our resources to other major processimprovements such as the automated production of subtitles, which has beenrequested by the studios. ZOO has also been commissioned by another major studioto produce a unique feature for its film DVDs and we have produced concepts anddemos that have been very well received. This particular studio has furthercommissioned ZOOtech on a funded basis to complete the next stage of developmentinvolving a series of compatibility tests which will take up to three months. Next Generation DVDWe have been a member of the DVD Forum, the group responsible for creating anddeveloping the DVD formats, since 2002 and have been participating with theworking group defining HD-DVD-Video, the next generation format for delivery ofhigh definition video using blue laser technology. In addition, in 2004 ZOOtechjoined the recently formed Blu-ray Disc Association (BDA), responsible fordeveloping a competing format (Blu-ray Disc), and we are active within thisgroup. Our participation as contributing members of the DVD Forum and the BDAensures that we are at the forefront of the development of next generationformats. We are working to establish ourselves as a leading provider of tools for thesenew platforms by enhancing DVD-EXTRA STUDIO to deliver a single tool capable ofgenerating output for all video formats (standard definition DVD-Video,HD-DVD-Video and BD-Video). We have been approached by major US based DVDcompression and authoring facilities with regard to development of nextgeneration tools and we are actively considering a number of collaborativepartners in order to part fund and also accelerate our development of thiscapability for the professional authoring market. In short, the evolution of DVDtechnology into a higher definition format presents ZOO with further commercialopportunities and will have little or no negative impact on our progress movingforward. PatentsOur key patent application for the authoring of complex DVD products has nowbeen successfully granted in the UK and is pending in seven other territories.We have continued to invest in our patent portfolio with 55 patents now pendingcovering 22 patent families in the major territories and under the InternationalPatent Convention. ZOO DIGITAL PUBLISHING LTD ("ZDP")ZDP focuses on the publishing and distribution of interactive entertainmentproducts across multiple platforms such as interactive DVD, PS2, Xbox, GBA andPC. Current TradingThe plan to focus ZDP on two key areas of activity; DVD Production and Games Publishing, has delivered good results. Despite the publicised difficulties that have frustrated the games and video sectors during Q4, both areas are progressing in line with overall plans and we anticipate continued growth. The worldwide shortages of Playstation 2 and Xbox hardware throughout the Christmas period impacted some of our major customers including Game Group. However we have worked successfully with our major customers to re-schedule a number of our pre Christmas releases into our final quarter and maintain sales. The difficult trading conditions in the European games market compromised the performance of our Premier Manager product on PS2 and Guinness World Records Interactive-DVD under performed, although both products were profitable. However, we saw good performances of our other interactive DVD titles and general catalogue. In particular, our Gameboy Advance range was very strong and a number of titles sold very well including Sim City, Need for Speed, Ms PacMan, Payback, Who Wants To Be A Millionaire 2 and Monopoly. Christmas 2004 demonstrated the growing demand for Interactive-DVD content and whilst the UK continues to lead the world for 'special interest' content, Interactive-DVD has now been successfully launched in eight further territories. "Who Wants To Be A Millionaire" reached No. 16 in the UK DVD chart and the titlehas now shipped approximately one million units across Europe. Konami have extended the publishing of the Crimelife title we are developing into the North American market with the consequence of sacrificing expected licensing revenues this year in order to facilitate the potential for a far more lucrative royalty stream next year. We continue to expect ZDP to be in a profitable position over the 15-month period to 31March 2005 with turnover in line, but net profit below the Board's expectations. DVD ProductionFollowing the success of the 'Who Wants To Be A Millionaire?' Interactive-DVD,Universal Pictures has committed to extend its leadership in this newentertainment category with a range of new titles developed by ZDP for 2005.Consequently, we expect an e international rollout of our newest version of'Millionaire' in 2005. With the support of Celador International and UniversalPictures, this will be the first interactive 'Millionaire' product to offergreater functionality than the TV show. We are in advanced discussions toacquire further licenses of similar stature for publication in 2005 and arelooking to extend our dominant position in interactive DVD through increasingour presence in many key territories, adding new publishers to our roster andannouncing a significant number of major new titles. Games PublishingOur portfolio of licenses in Games Publishing continues to strengthen, includingour first titles for the new Nintendo DS. Products for release in February 2005 and March 2005 include Psi-Ops on PC, Guilty Gear on PS2/Xbox and Sudeki on PC. We are also very pleased to confirm the release of the much-awaited Alien Hominid on PS2 and Xbox in May 2005. These titles demonstrate our ongoing strategy to improve the quality of titles and in turn have helped strengthen our distribution channels in a number of territories. We have concluded an output agreement with Noviy Disk for Russia and ex-Soviet territories for the supply of our products to a minimum value of$2million over the next 12 months and have also reached agreement with ConsultDVD for the publishing and distribution of our range in the Benelux region. In addition, our whole catalogue is now on sale in Germany through Midway Games and we also expect to see a significant increase in the amount of products to be placed in the Australian market during 2005 through our relationship with Pier 57. The development project with Konami for "Crimelife: Gang Wars", the eagerly anticipated title continues to build momentum and is in the final stages of completion with all milestones having been met to date. It is expected to be published by Konami in the Autumn of 2005 on PS2/Xbox and PC, allowing us to participate in a royalty revenue stream in the year to 31 March 2006. SUMMARY Both business units have progressed enormously over the past 12 months and,whilst the delays in revenues from the Hollywood segment have impacted profitsfor the financial period to 31 March 2005, it is now a major breakthrough for usto be working closely with one of the world's major studios ensuring theinclusion of DVD-EXTRA in their future plans. Our technology for theregionalisation of menus is being warmly received and is likely to generate goodrevenues in the year to 31 March 2006. A number of interactive DVD products arealready being produced by third parties for publishing during 2005 and we expectto see our royalty revenue stream growing at an increasing pace. ZOO Digital Publishing Ltd will have at least doubled its turnover from theprevious year and has moved into profit, forming a solid core of revenues fromlicensing and publishing games together with establishing itself as the leadingplayer in the fast growing area of Interactive DVD. Universal's recentcommitment to working with ZOO on extending its range of Interactive DVDproducts for 2005 and beyond underlines the huge potential of this market place. This information is provided by RNS The company news service from the London Stock Exchange