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The Game�s the Thing
Hal Weitzman/ London
Computer recreation has been good to British entrepreneur Jez San, who�s released a best-selling Harry Potter game and been honored by the Queen.
FOR A MAN WHO HAS LOST over �100 million ($140 million) in the last year or so, Jez San seems pretty happy. For one thing, that wealth only ever existed on paper, in the share price of Argonaut, his computer games company. And for another, the shares he holds are still valued at a substantial �40 million ($60 million). The fact is the 36-year-old London entrepreneur and Argonaut have survived the boom-and-bust that has hit the technology sector in the past year -- and that is enough to make anyone happy.
In recent months, San has had a bespectacled boy wizard to thank for that. Argonaut won the contract to develop a Harry Potter computer game, which netted the company $7.4 million in royalties for the three months to December 31, 2001, more than three times what analysts had estimated. "Most of that was profit," San says. In fact, when a $1.4 million advance is added in and costs of about $2 million are deducted, Harry Potter made San and Argonaut almost $7 million.
Jez (a common English nickname for Jeremy) San�s story is less rags to riches than bedroom to boardroom. At the age of 12�, while he was a pupil at the Jews� Free School in London, Britain�s biggest Jewish school, he received a computer as an advance bar mitzvah present. "I discovered that I was a natural at writing software, but it was before computer games got big," he told The Jerusalem Report. Working from his bedroom in Mill Hill, a middle-class North London neighborhood, San got his first game published in 1984, at the age of 18. "It didn�t make much money, but it paid for my first car," he says -- a secondhand Volkswagen Scirocco GTI.
In 1986, San achieved his first commercial success when he wrote a game called Starglider. "That did really well, and I used the proceeds to set up my company properly," he says. He moved from his bedroom into some more conventional business premises and hired a small staff, which grew rapidly -- by 1988, Argonaut had some 20 employees. In 1990, San -- who did not go to university after finishing high school -- signed a deal worth more than �1 million ($1.4 million) with Nintendo, the world�s second-biggest console manufacturer and largest maker of game software, for a game called StarFox. "That was the first really big deal I signed," he says. "I was about 23."
Speaking to San, one gets the impression that his life so far has gone by in something of a blur. At the age of 21, he says, he bought his first house, also in Mill Hill. "But the company was growing so fast that the office took it over and I ended up not actually moving into it at all," he says. "It was a few years before I actually got to leave home properly." He and his wife Annabel have a litle dog, Areo, and their first child "probably is not so far away."
These days, Argonaut is based in Edgware, another North London suburb, but has regional offices in Cambridge, Oxford and Sheffield. It was launched as a public company on the London Stock Exchange in March 2000. That was, San says, "about a week before the technology stocks crashed, so we were very lucky in timing. A week later it might not have been able to float. The stock plummeted at first, but now it�s heading in the right direction. We�re heading into a good period." At one point Argonaut�s market price put the total value of the company -- where San holds 40 percent of the equity -- at well over $200 million; in early April it was about $90 million.
One of the mascots of that new era is bound to be Harry Potter, who is also the subject of a new and successful Argonaut title. So how did San get on the Potter bandwagon. "I am a fan, and I really enjoyed the film, but I haven�t read all the books," says San. He says that "the people who designed the games -- a team of very talented games designers and Harry Potter fans -- know Harry Potter inside out and love it. That�s one of the reasons we got it."
San admits that "it was quite a coup to be associated with the Harry Potter brand. And we negotiated a great royalty deal, betting on the success of the game rather than pushing for a big advance." Argonaut developed the game for Electronic Arts, a leading video games publisher, and it was made for Playstation 1, the older model of Sony�s TV game system. "There was a worry that too many people would have upgraded to Playstation 2," says San. "But as it turns out there was still a huge world market, and it�s done far better than we could have ever expected. We�re on a royalty for every single copy, and so are all our staff who worked on the game. Most importantly, the game is really good. The critics loved it."
Today�s games, he adds, are very expensive to produce. "It takes about 35 people about two years to make a state-of-the-art computer game, and the cost ranges from $3.5 to $7 million."
That�s much higher than in the past. "But the consumer�s expectations have gone up, on what production values they expect to see. So our costs have gone up."
That�s not quite the problem it might seem to be. "The market is constantly expanding, as new kids are born and start playing games, while the older ones hardly ever leave," he explains. "That means there�s plenty of revenue for everyone."
SAN, WHO HOLDS AN ISRAELI passport and has an apartment in Tel Aviv, describes himself as "half Israeli." His father, Ronnie, was born in Tel Aviv, "before Israel was Israel."
Now 63, San Senior, who moved to Britain in the early 1960s, has been closely involved with Argonaut since its bedroom days and serves as one of the company�s non-executive directors. When his son describes him, it is clear that he has been a guiding hand throughout.
"My father ran his own successful import-export and forwarding business that specialized in shipping people�s goods back and forth to Israel," says San. "He imported clothes made in Israel for Marks & Spencer and did aliyah-type work -- shipping people�s personal effects to Israel. He was an important early influence on me. I learned about business from him."
Describing himself as "a Zionist but not an activist," San�s connection to Israel extends far beyond his father�s links. "I invest as an angel investor in companies I like, some of which are based in Israel," he says. He is a founder investor of 3G cellular, a mobile-phone chip company, and an investor in Cell-Guide, a global positioning system satellite company, both of which are based in the Tel Aviv area. "A lot of good technology stuff comes out of Israel," says San. "The academic side of Israel is very good. Most of the people I work with there have two university degrees, which you don�t see very often in England. The talent pool is great. Every time I go out there I look for new companies."
Apart for looking for new investment opportunities San, who says he eventually wants to live in Israel permanently, is also drawn to Israel at least once a year to go scuba diving. (He was in Eilat over the Passover holiday).
Back in London, another Israel connection is Argonaut�s choice of Bank Leumi U.K. as its banker. "I�ve banked with them since I was a kid. Leumi has been good to us -- especially in hard times. We ran up huge overdrafts and they did a lot more than many banks would have at the start. Now, of course, they�re happy with us."
AS AN EMPLOYER NOW OF more than 230 people in the U.K., San�s contribution to the industry and the British economy (Argonaut�s turnover in the year to July 2001 was a neat $6.2 million) has not gone unnoticed. This year, he became the first computer games entrepreneur to be honored by the queen, and is to be awarded an Order of the British Empire by Queen Elizabeth II later in the year.
San originally thought the offer of an OBE was a hoax. "I was sent a letter in November 2000 saying they were considering me for an award and asking if I would accept it. I thought it was a practical joke -- I got the letter in a plain brown envelope, which I almost threw away like junk mail -- and the letter itself had no official markings on it, no telephone number. It just asked me to tick the box and return it."
"I really thought it was a practical joke, because my friends would do that to me. I thought it was very suspicious. But then on New Year�s Eve I got phone calls from all my friends -- I was in the Caribbean scuba diving -- telling me I was on the Queen�s honors list."
And how does San feel to be the first to be recognized in his sector? "It�s a great honor. I�ve done a lot of work in the industry to improve it ... and get the British government to recognize that England is the best place in the world to make computer games," he says.
In response to a question, he says that Israel, despite its pool of talent, "has not been so great in the past" at making computer games -- though the few games-development firms that exist are very good. "If I had to guess, I�d say that Israeli companies are very technical and inventive, but may not have the business follow-through required to make commercial-quality games," he says. "It takes patience and a mixture of creativity, business skill and technology to make a computer game. If the mix is even slightly wrong, companies run into problems." In addition, he says, Israeli firms with the proper talents may have missed the boat by jumping on the Internet bandwagon, "missing out on the less sexy but more realistic world of computer games."
In achieving success at such a young age, doesn�t San feel that he missed out on a more �normal� way of growing up? "Before I got into computers I was interested in science and chemistry and magic, but I dropped all that," he says. "Ironically, I took up magic again a few months ago after a long absence."
Perhaps that points to a yearning for a lost childhood. On the other hand, for someone who has spent most of his life glued to a computer -- something that millions of teens around the world have come to emulate -- maybe it�s par for the course.
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