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Re-Nerjyzed

Business Report
February 8, 2010
by Todd R. Brown

Video game maker Nerjyzed Entertainment arrived in Baton Rouge in 2006 with high expectations. At the time, in a second-quarter report, CEO Jacqueline Beauchamp said she had gathered a team that would enable Nerjyzed "to become an innovative video game company designed to raise the bar in this arena."

The Baton Rouge native cited incentives of $500,000 from the Metro Council and $950,000 from the state for workforce training as alluring reasons to relocate the company from Dallas, where she had led a Motorola multimedia team. Meantime, local officials hoped Nerjyzed-pronounced "energized"-would symbolize the kind of dynamic, knowledge-based economy that would attract young people and diversify business in the region.

Indeed, that same year Yatec video game developer set up shop in town, and Electronic Arts opened its game-testing center at LSU several years later.

As recently as November, Nerjyzed was teetering on the brink. But the first black-owned, black-themed creator of an Xbox 360 console game appears to have weathered funding problems, doubts of investors and employees about management's ideas, and a highly critical response to the quality of its sole release to date, the Black College Football Xperience for PC or Xbox.

Today, Beauchamp is confident her company is headed in the right direction, with a boost in holiday sales and a new promotion deal with Walmart, and what her startup signifies in the $20 billion U.S. gaming industry. Most critical, however, to her company's survival is what she hopes is an imminent infusion of venture capital.

"We sold over 100,000 units" of the latter, she says. "Most companies never get to that. I'm just glad we were able to achieve that. We are moving the organization toward a very, very large growth round right now. There will be a major announcement about that, that would involve not just capitalization but also some strategic partnerships."

She says out-of-state venture capital firms will syndicate to back Nerjyzed, a deal she hopes will be ready by the end of February. Also, she says a partnership with Walmart planned for Black History Month will reposition BCFX as not just a football game but an educational resource. That involves a tour of Arkansas schools to give a presentation on the link between math, science, writing, art and game development.

She says Nerjyzed is working on three new console products, one in preproduction and two in the concept stage. The interactive, "family entertainment" games include an action-themed game and two music-based ones planned for release during summer and fall. Due out at the same time are mobile and flash-based Internet games that Beauchamp says are in development.

This good news comes on the heels of an array of financial challenges for the company, though it landed in Baton Rouge supposedly with $12 million and that workforce development funding.

"We had some bumps in the road with some things that we had to take on," Beauchamp says. "Our cash flow challenge that we've had last year has been-we have made a tremendous amount of progress on it. We got through it. It was a tough period and a tough moment.

"We literally had to step in to do more on our end on the marketing-publishing side of things in terms of moving the business and the product forward in the retail phase. We didn't plan for it. But it definitely too more out of us. We're at such a good point for the company, I'm just pleased."

Yet several ex-employees of Nerjyzed allege that along the way, basics of the business-including gameplay mechanics and market research-received short shrift as the company first labored to put out a PC version of BCFX in 2007, then a long-delayed console version that has been criticized in online reviews for awkward play and software glitches.

"It's unfortunate that Black College Football Xperience-The Doug Williams Edition is such a horrendous collection of bad gameplay and features," says the review on ign.com, which awarded a score of 3.5 out of 10. "Both the alums of these institutions as well as the students would gladly pay for a game that accurately captured the spirit and the excitement of gameday for HBCUs.

"However, this is not the way to approach this demographic, and on top of this, the experience is so poorly done that it would probably infuriate them. Given that this isn't the first attempt by Nerjyzed to make these games, it seems that capturing the real black college football experience is still far from being accurately presented any time soon."

Prior to Christmas, BCFX for Xbox sold about 60,000 units after its late September debut, according to vgchartz.com; holiday sales and a big bump in mid-January-thanks to generous publicity from The Mo'Nique Show, which hosted Beauchamp, Nerjyzed Creative Director Brian Jackson and the Clark Atlanta University drumline as guests-pushed the retail figure over the six-figure mark.

Some industry experts say that outcome at least puts the game at break-even, although well below Beauchamp's autumn projection of a half-million units sold. The product retails for about $40.

"Don't let anyone tell you what you can and cannot do," Beauchamp told Mo'Nique's audience, saying of her staff, "These guys have done some things that people said would never be." She says her phone has been ringing off the hook with inquiries for school field trips to check out the inner workings of such a trendy digital media company.

In December at Nerjyzed's office in the Bon Carré Business Center, Beauchamp confidently said retailers in Louisiana, Texas and Georgia had sold out of BCFX before the holidays and requested more. She noted that the games were published in Texas but distributed by a Minnesota firm.

"We're happy with where we are," she said at that time. "Didn't hit our mark, but still happy with where we are. I mean we go through challenges, don't get me wrong. You work your behind off to get through them. And we've done that."

Also in December, Beauchamp was featured in a Black Enterprise TV segment, and she relayed that Nerjyzed will be showcased in Essence magazine in April. She says "repositioning" also has led to retailing BCFX games at a Los Angeles museum for a Walmart-sponsored exhibit called "Tavis Smiley Presents America I AM: The African American Imprint." That partnership emphasizes the nongaming content of BCFX, including a historically black college and university virtual sports museum.

In that way, Beauchamp says, "We may end up getting nearer to the numbers that we originally had planned." And she says video and audio production her company did for the Bayou Classic in November offers a taste of things to come in terms of diversifying revenue by combining live entertainment and digital media.

Yet also in November, former staffers say they heard from current employees that Nerjyzed stopped paying workers for at least three pay cycles, resulting in a salary gap of six weeks.

"I'm not going to get into that from an operational standpoint," Beauchamp says. "Startup companies all go through various sorts of issues and challenges. The lending market-and this is with all small businesses-it's not favorable right now. You can be sitting on millions of dollars' worth of accounts receivables, and you know, it's just-it's tough."

Regarding the company's debts and payroll obligations, Nerjyzed spokeswoman Lisa Sorensen says: "Obviously every company goes though financial difficulties. Sometimes it makes headlines, sometimes it doesn't."

Current employees who declined to be named in print said in mid-December the company resumed paying them in fits and starts, but the financial hiccup sounded familiar to some alumni.

Former lead game designer Lyle Landry says he doesn't expect to recoup $1,100 in business trip expenses he incurred while recording audio talent and music for BCFX, charges he put on his own credit card when he says Nerjyzed's hotel bookings fell through. More disappointing, he says, was when his paycheck came five days late in May 2008, a move that he says management called a way to make the company look more cash-rich to investors at strategic times.

In December 2008, his paychecks failed to clear, putting his finances in the red. "I couldn't even afford the gas to drive to work anymore," says Landry, who commuted from Thibodaux. "Every single charge became an NSF [insufficient funds] charge. Every $3 I spent at a gas station cost $3 plus $39."

Landry had been in restaurant management in late 2006 when a friend who worked for Nerjyzed as an artificial intelligence programmer told him the company needed quality assurance testers. "I've played games all my life. I have an enormous, useless amount of football knowledge," Landry says. "I felt like it was a good fit."

Soon, he says, he took the initiative to organize the design department and wound up as chief of the group, but he grew disillusioned with the company's strategy of trying to create an entertainment "experience" with passive music sequences, such as college halftime shows, emphasized as much as gaming itself.

When he tried to prioritize the kind of nuts-and-bolts play that appeals to fans of such hit titles as Madden NFL or NCAA Football, he says he was told: "Our biggest problem is we have the gamer too much in mind. That's not what we need to do."

Jackson describes BCFX as four games in one: college football, halftime shows that replicate HBCU band performances, the virtual sports museum and a drumline challenge that uses electronic drum pads plugged into the gaming console.

"We studied hours and hours of halftime shows," he says, noting that band director Don Roberts, who choreographed sequences in the film Drumline, was hired for the game, which includes more than 60 halftime shows with impressive music performances by Southern University's band among others.

Jackson, a veteran of EA and Microsoft football games, says he's heard criticism that BCFX isn't on par with big-league competitors in terms of its gridiron action but says he's impressed even to be compared with veteran game-makers. "That's a good thing in my eyes. I want to compete with the best," he says. "In 1996, when I worked for EA, back then they said the same things about Madden, it wasn't all there yet."

As visionary as Nerjyzed may be, the question of whether BCFX sales can truly benefit from extra entertainment content has yet to be answered. Landry and others say gamers don't want an "experience" if the game itself isn't the true focus.

"The experience of going to a Saints game or an LSU game-it was the consensus of the design team that you can't capture that in a video game," Landry says. "It makes the game less fun. I want to pick it up, I want to play it, I want to get into it right now." Management said it had market research to support its unconventional approach, but Landry says when he asked to see the data in order to tailor features to the audience, "It was never given to us. We were building a game with no target market in mind. It was assumed to be black college fans and alumni, and maybe they play games."

Landry says payroll irregularities and health insurance premium snafus-when employee coverage allegedly was cut off without adequate notice because of nonpayment by the company-diminished morale at the company, which he left about a year ago.
"We're not going to address any of that," Beauchamp says. "Anything that we do operationally is always kept confidential here. Whether it's true or not, it's not something that we will get into with the media." She maintains that the company did extensive consumer studies that directly led to the unique music and halftime content of the game.

Perhaps anticipating early sales hurdles, Nerjyzed proposed a curious marketing strategy in June 2009. In an e-mail to investors, CFO Frederick Johnson said 3,000 reserve preorders needed to be placed with GameStop stores, which he said would then issue purchase orders for 10 times that amount. To make that happen, Johnson encouraged investors to reserve 20 copies each at a GameStop in their area.

"You can only reserve five copies, or $25 per customer," his e-mail said. "The reserve cost is $5 per game. To reach your 20 reserve orders, you will have to reserve the other 15 [in sets of five] copies in other individuals' names that have a different address than yours. Your total outlay will be $100. If you choose to cancel your order upon receiving notice that your order[s] is available for pick up by the store, the store will issue you an in-store credit."

The sales inflation effort sounds like an attempt to game the gaming industry. Whether the gambit worked or not, a spokesman for one industry monitor says BCFX is not exactly a hit. Jacob Mazel, senior VGChartz sales analyst, says there are three tiers of football games: fully licensed NFL games, fully licensed NCAA games, and other entrees, where Nerjyzed's offering falls. Whereas hit games in tier one can sell millions of units, he says, the bottom level is a much smaller market with a corresponding bottom line.

"Tier three has far more competition. Backyard Football titles released in 2009 have sold about 100,000 units," he says. "Family Fun Football for Wii is at about 20,000 units. The entire tier three market for football games is probably no more than half a million units in a good year."

He says sales of 100,000 units means roughly 1% of the Xbox 360 North American audience has played the game, while fewer people own it, although a game reaching that sales mark could at least break even.

Baton Rouge Area Chamber President/CEO Adam Knapp says he heard from Nerjyzed that the holiday sales boost put the company "slightly ahead" of where it expected to be and current on its obligations. He says the Walmart deal involves BCFX product placement in stores.

"Three weeks ago, we were wondering whether they would get through the process and whether that would be sufficient," he says.

"They were struggling with the latter part of last year. It's common to see companies go through periods of cash-flow lows. Almost all venture-backed companies and entrepreneurs go through cycles."

Knapp says taking on a greater publishing and marketing role makes Nerjyzed more attractive to venture-capital backers by giving the company a greater share of revenue. Though he says the decision involved a short-term financial hit, "it was, by far, the right decision for their company."

"They're through the period of challenge that is going to go down for them as something of a period of lessons to be learned. They're in a good position for growth. They're seeing new opportunities line up in front of them."

Mathis Wrenn was an early investor for Nerjyzed. He says he put about $35,000 toward the venture in 2004 at its launch because Beauchamp and his father knew each other in Texas. Wrenn says he was excited to be involved with a game that could shed positive light on HBCUs such as Grambling State and Southern, Beauchamp's alma mater.

"The concept was a strong concept," he says. "I thought, ‘Wow, man, that'd be real cool.' I've always been a huge supporter of African Americans, the success of African Americans. I come from a family of proud people of varying colors." He participated in the company's marketing tour in 2007, riding across the Southeast in a rented bus that was evocatively detailed with BCFX images.
He says he has yet to see a return on his investment, or any promise of a return, or a timeline for stock being issued in exchange.

"There's been no reporting on gains or losses," he says, noting of that second-quarter 2006 report, "It was very attractive, but it didn't even talk about the money raised. It was a good-looking piece on relationships and hopes and expectations."

In a December 2008 e-mail exchange with company CFO Frederick Johnson about investment concerns, Wrenn asked to see the minutes of annual board of directors meetings from 2006 and 2007, but got a discouraging response.

"Our board serves in an advisory capacity only. There are no formal minutes recorded," Johnson said in his reply. "Nerjyzed is a startup that requires continued individual investments and personal debt creation to fund operations. All debts of the company are of personal nature, since we have no income or history of generating revenue.

"Your request is valid but you must take into consideration who are most at risk, Jackie and I. Personal debt obligations are in the millions with no recourse. All this would be a mute [sic] point if we throw in the towel like 99% of all startups do."

To be sure, startups often project rosy returns to hook investors, but Wrenn says the company had unrealistic audience expectations. "You needed a supercomputer with at least 2 to 4 gigs of RAM and a hefty graphics card, and I told Fred in confidence, ‘The average African American doesn't have this kind of computer. You can't run a PC game that can't run on Windows 98, or Windows 95, and hit our market.'

"His answer was, ‘If you bought a computer in the past three years, it will work.' That tells me they're out of whack."

Wrenn says voicing his displeasure put him on the hot seat. "I was fired because I asked too many questions. I thought I was protecting my investment, but I never controlled it," he says, adding that the design team was inexperienced yet expected to compete on a level with EA and other major players.

Concert audio producer Steven Salgado worked as a sound designer for Nerjyzed for about two and a half years before leaving in September 2008. He says he didn't feel that management allowed enough production time, given the novice status of the designers.

"Ninety-five percent of the staff had never made a game, but we were held to the same quality [standards] as if we're five-, six-year professionals," he says. "The programmers were gamers but never worked a game."??Beauchamp says while her team was inexperienced, to correct that was the point of the workforce training that helped the company locate in Baton Rouge and wound up educating about 30 employees. Nerjyzed has roughly 40 current workers, she says, and the best days for them are yet to come.

Back in 2006, a Louisiana Economic Development Corporation agreement allotted $950,000 in funds for the company, including $585,400 for computer hardware and software that would be donated to Baton Rouge Community College. That was to augment $12 million in company funding, according to records kept by the Louisiana Economic Development office-although Beauchamp told The Mo'Nique Show the company had only raised $8 million.

The training deal was contingent on creating 58 new jobs with a payroll of $3.84 million by 2007. In 2006, Beauchamp wrote to the state regarding "critical gaps in locating competent professionals in the areas of video game animation and programming," saying job fairs at Southern University and elsewhere had only resulted in 22 hires. She successfully renegotiated the workforce-training offer to 31 new jobs and a smaller payroll.

BRCC contacted Nerjyzed and the state in March 2008 asking for its equipment, including dozens of notebook and desktop computers, video editing software, cables, iPods and other gear. A 90-day transition period was worked out where Nerjyzed would cycle out the donated equipment with newly rented gear.

Part of the agreement also called for Nerjyzed to help instruct BRCC students in game design skills. "Baton Rouge Community College is committed to developing a benchmark educational environment for video game development with its industry partner Nerjyzed Entertainment LLC," the college said in a statement on the arrangement. Beauchamp says her designers and artists speak to BRCC students when called on, but don't formally teach.

"As we move the company into different directions, different paths of diversifying our revenue, we're going to be extremely busy," Beauchamp says confidently. "I'm excited that we're still here, excited that we're here in Baton Rouge. Everything has not been perfect on all fronts."

Yet that glass-half-full thinking wasn't enough for one animation designer who left the company last month over the recent payroll delays. "They still owe people a lot of checks. I have a wife to take care of and bills to pay," says the ex-employee, who declined to have his name published. "If I get on the record, I'll probably never see those paychecks."

After working in 3D animation in Dallas, he came to Nerjyzed in late 2007 but says he never got a raise in his two-plus years there. He also says health insurance glitches were a key financial distraction.

"We're supposed to have benefits. It's part of the contract," he says. "Our insurance was canceled-it's been canceled on and off ever since I've been there. People ended up going to the doctor and getting whatever they need done, and they're told to pay the full bill.

"We found out by word of mouth, hey, insurance isn't working. What would have been nice to know ahead of time is if they had said, ‘Hey guys, our resources are running out, you might want to find a temporary job. We'll let you know when we can bring everyone back on staff.' We're all kind of stuck in the dark."

At Business Report's recent 2010 Leadership Power Breakfast, Gov. Bobby Jindal announced to the crowd, "You're going to see a growing digital media presence right here in Louisiana." It will be something to watch for: Whether Nerjyzed lands its capitalization deal, puts its fiscal hiccups behind and helps carry the flag for digital media investment in the Capital Region.

The learning process??Yatec President Dean Majoue understands the challenge of financing when it comes to digital media startups. He says the PC video game maker, which launched in 2006 in Baton Rouge, has gone from a high of about 15 staff members to four now.

Figuring out how to secure funding has been a key challenge, he says, noting the trade group Louisiana Internet Software & Technology Association has been a helpful partner in that learning process.

The company's third and most recent game, Say-N-Play, came out in November 2008 and is designed to help children address language articulation difficulties. After first marketing the release to speech therapists, Majoue says Yatec is retooling its approach to target home users.

"I would hope by the end of the second quarter we'd be seeing some real activity with it," he says of the new direction. "The biggest problem is just getting our marketing together."

He says the company has three Facebook games in the evaluation stage and is considering two iPhone games, including a version of previous release Enchanted Gardens. More ambitiously, he says, a large multiplayer Web site has been on Yatec's agenda for some time but "will require a good bit of money" to realize.

One potential revenue maker the company plans to create is a suite of games that function as advertising. That has been done nationally, Majoue says, but Yatec is "trying to take advantage of it with some hopefully well-known local companies."