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Multimedia Games Expects to Miss Expectations

14 October 2004

AUSTIN, Texas – (PRESS RELEASE) -- Multimedia Games, Inc. (Nasdaq:MGAM) announced today that it expects its fiscal fourth quarter and full-year results for the period ended September 30, 2004 to be below prior expectations, primarily as a result of lower-than-projected contributions from the sale of player terminals, as well as lower-than-expected revenue from Class II games at customer facilities where Multimedia shares in the revenue generated from the player terminals.

The Company's prior guidance and current expectations are outlined in the table below. The anticipated 2004 fiscal fourth quarter and full-year results are preliminary and are based upon currently available information and management estimates and assumptions. Multimedia's final results may vary based upon completion of the Company's post-quarter accounting procedures.

Multimedia's fiscal 2004 fourth quarter diluted earnings per share guidance included expected contributions of approximately $0.11 - $0.16 per diluted share from the sale of player terminals. The Company now expects that fiscal 2004 fourth quarter contributions from the sale of player terminals will be $0.03 - $0.04 per diluted share. In addition, fiscal 2004 fourth quarter revenue from Multimedia's Class II games did not reach the levels necessary to achieve the July 29 guidance. The lower-than-expected Class II revenue is expected to impact the prior guidance by approximately $0.06 - $0.07 per diluted share.

Multimedia's total revenue for the fiscal 2004 fourth quarter period is expected to rise to record quarterly levels of approximately $139.1 million, representing a 12.6% increase over fiscal 2004 third quarter total revenue of $123.5 million. In addition, the Company's net revenue for the fiscal 2004 fourth quarter period is expected to rise to a record approximate $43.3 million, representing a 17.3% increase over fiscal 2004 third quarter net revenue of $36.9 million.

As noted above, Multimedia expects lower-than-anticipated revenue contributions from sales of player terminals during the fiscal 2004 fourth quarter. The Company's initial estimate of FY 2004 fourth quarter player terminal sales anticipated contributions from four or five transactions aggregating 1,082 to 1,582 player terminals, inclusive of two previously-disclosed third quarter contracts for the sale of player terminals. The Company now expects to record revenue from only two of these transactions, for a total of 317 player terminals.

Multimedia expects quarterly sequential net revenue growth in the fiscal fourth quarter from sources other than player terminal sales (principally Class II and other gaming revenue, licensing revenue, and lease revenue) of approximately 7.7%. During the fiscal fourth quarter the blended hold per day per unit derived from Multimedia's New Generation Class II, C-TILG (California Tribal Instant Lottery Games) and charity operations did not rise to the levels expected when the Company established its guidance, although it was in line with that of the fiscal third quarter. The Company experienced monthly sequential declines in the blended hold per day per unit from July through September, and the declines in the latter part of the quarter were greater than anticipated.

The prior revenue forecast assumed the placement of approximately 1,500 player terminals pursuant to development agreements, of which approximately 1,250 were installed, and the expected placement of approximately 1,000 player terminals in other Class II facilities and the charity market, of which approximately 1,100 were installed in the period ended September 30, 2004. During the fiscal fourth quarter, Multimedia elected to remove approximately 150 player terminals from the field for remanufacture and redeployment to meet expected FY 2005 Q1 commitments. Reflecting the above-noted player terminal installations and removals as well as other player terminal removals, Multimedia placed 1,713 net player terminals, with a large percentage of those installations occurring later in the period than expected.

In the fiscal fourth quarter of 2004, there were delays in the openings of four facilities that are being constructed pursuant to development agreements. Of those four facilities, two opened late in the fourth quarter, while the other two, representing a total of approximately 600 additional player terminals, did not open prior to September 30, 2004 and are now expected to open in FY 2005 Q1. These delays minimally impacted Multimedia's quarterly results relative to the Company's prior projections.

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