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Kevin Smith

Microgaming: 'Business Is Good'

17 December 2001

Many observers in the online gaming industry saw a recent fee restructuring plan by Microgaming as a last-ditch effort to keep licensees from defecting to other software suppliers, but a company spokesperson said this couldn't be further from the truth.

Despite the spin the gambling software company is putting on the announcement, which was made last week, it comes a few months after the company saw two of its licensees, King Solomon's and English Harbor, defect to different software suppliers.

"We have been tough with our agreements and usage fees, but we really believe that we have the economy to scale back a little now."
- Roger Raatgever

According to sources close to the two operators, both companies were unhappy with Microgaming's unwillingness to revamp its fee structure and felt their licensing fees were too high.

Roger Raatgever, a director with Microgaming, said the company had a system set up through which companies were charged a flat early rate to use their software. Although company officials wouldn't divulge what the rate was, current and former licensees told IGN it was $250,000. On top of the fee, the company also received 25 percent of licensees' profits as a royalty fee.

The new system will take a percentage of the licensees' royalties as their fee. The more money an operator makes, the lower the percentage it has to pay out to Microgaming. The exact details of the system aren't being released, but Raatgever said the move was a result of Microgaming signing more licensees, not a result of the company losing them.

"It has come about because we have had a very large increase in our revenue" he said. "The operator base has increased substantially. We have been tough with our agreements and usage fees, but we really believe that we have the economy to scale back a little now."

Microgaming has been hoping to institute a tier-based system for some time. Several of the company's competitors already have similar systems in place.

"It has always been our intention that, once we reached a certain critical mass, we would pass the savings on to our customers," Raatgever said. "This is now being done."

The new system will enable those operators whose revenues are in the highest bracket to receive discounts of up to 50 percent off the fee price. How much revenue operators have to bring in to start receiving discounts and or what percentage of discounts they get are unknown.

Raatgever said the defections of King Solomon's and English Harbor were offset by the signing of several new licensees. He acknowledged that other suppliers may have suspected Microgaming was on its way out, but he said the new policy proves the company has a long-term outlook and is in good position to stay in the online gaming business for a long time to come.

"I think the other players have discounted us, and it was nice to add a bit of dominos into our pricing," he said. "It is nice to be able to be competitive as well."

Part of that future will include more renovations to its fee structure if Microgaming can continue to grow its licensee base, according to Raatgever.

Although the online gaming industry, like much of the world economy, has seen a slowdown in recent months, Raatgever said the outlook for Microgaming couldn't be better.

"The market is definitely growing," he said.

Microgaming: 'Business Is Good' is republished from
Kevin Smith
Kevin Smith