If Magic Tales can come through Stories for children may tell the future of area software firm

Far from Silicon Valley

Capitol Multimedia hopes it's now moving in the right direction

January 21, 1996|By Mark Guidera | Mark Guidera,Sun Staff

The past year might well be remembered as a storybook chapter for Robert Bogin and the small computer software company he heads, Capitol Multimedia, which specializes in developing interactive programs for children.

For one, the small company is proof that a software producer angling for the mass market doesn't have to have an address in Silicon Valley or the San Francisco Bay area, the heart of the industry. The Baltimore-Washington corridor -- Maryland's emerging high-tech hub -- will do just fine, says Mr. Bogin, a former securities and tax attorney.

More importantly, Mr. Bogin has navigated the company through a year of difficult transitions: selling off an unprofitable division, firing 40 of its software programmers and acquiring a promising computer animation company whose key artists work in Russia.

Perhaps most pivotal for Capitol Multimedia has been the launch of the first titles in Magic Tales, a line of cinematic-quality interactive computer stories for children.

With the launch of those programs, Mr. Bogin now has Capitol Multimedia firmly focused on the rapidly growing -- and ferociously competitive -- children's market for interactive software.

His aim: produce high-quality programs at below industry costs, and build brand-name recognition through licensing software programs to the industry's major publishers.

But before this aim took shape, the company had to weather the upheaval of change.

"Our company was clearly moving in the wrong direction," Mr. Bogin said.

"There was a lot of pain in the recognition that our strategy wasn't going to work. But we said let's cut our losses, take the pain and move in a new direction. There's been a complete reinvention of the company."

The skewed direction involved the firm's dependence on producing programs in a software format known as CD-i for Dutch electronic giant Philips Media. The format, geared to computer games, never really took hold among American consumers.

Mr. Bogin decided to jettison the division working on CD-i. The company's stock price had already slid into the basement; in April it bottomed out at $2.50 per share -- down 50 percent from its 1992 offering price.

In August, Capitol sold off its CD-i division to Philips, a move that entailed firing all of its programmers and taking a $3.1 million hit on CD-i software and equipment.

Also, 40 members of the firm's 60-person staff were let go. Ten others left voluntarily.

With the toughest decisions behind him, Mr. Bogin is upbeat about the year ahead, largely because of Magic Tales and a deal that Capitol Multimedia struck with software stalwart Davidson & Associates for the stories, which are to be based on ethnic folk tales from around the globe.

For one, the executive expects to boost Capitol's staff, which today numbers about 120, by more than 50 to handle the expected increased workload.

Financially, the company is looking sounder, too. For the first six months of its fiscal year, which ended Sept. 30, Capitol Multimedia netted $404,000, or 8 cents per share, not counting the sale of its CD-i division, on $2.7 million in revenues. Its stock, traded on the Nasdaq small cap market, closed Friday at $3.375 per share.

During the comparable period of 1994, the company lost about $20,000, and the three years before that were marked by red ink as well.

Meanwhile, 1996 may prove even stronger financially if the alliance with Torrance, Calif.-based Davidson, which had sales of $88 million in 1994, pays off.

Davidson is one of the big names in children's computer education and entertainment software. Its sales last year placed it ninth nationwide in the software industry.

Jack Allewaert, Davidson's chief financial officer, said the company's creative team was "stunned" when it got a first look at the Magic Tales programs.

"We get sent hundreds of software programs every year," said Mr. Allewaert. "All but one or two a year are rejected because they lack the richness and quality we look for. Capitol's &r programs were stunning, absolutely beautiful. They're Disneyesque. We knew immediately we had a winner."

Mr. Allewaert estimates that had Davidson produced a similar cinematic-quality children's series at its California studios, the artistic labor costs alone would have been more than $1 million.

For now, what the Davidson deal means for Capitol Multimedia is leverage for precious shelf display for Magic Tales at the nation's software retailers, note industry experts. In some retail outlets, Davidson commands its own display areas and has marketers showing off the company's programs to shoppers.

Under the licensing agreement, Davidson assumes the responsibility for marketing, distribution and sales of the Magic Tales line.

Capitol Multimedia gets 50 percent of the net proceeds from sales. Neither Mr. Bogin nor Davidson executives would offer an estimate of how much Magic Tales is likely to generate in revenues during the next 12 months.

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