STATE OF THE INDUSTRY
January 5, 2001

As many of you may be aware, the year 2000 was an awakening period for the internet. High overvaluations turned into panic in April, and dotcoms have not been the same since. Many internet business failed, and many more began struggling and are continuing to do so. This happened, in no small part, as a result of a rapidly growing ad supply and sluggish growth in ad demand, which made for decreased ad sales for most sites, and thus, lost revenues and profits, despite steady or climbing expenses.

So what does this have to do with games? The entertainment segment of the industry was no different than the rest. During the fourth quarter of last year, two major gaming networks went out of business. Another one announced that it would almost entirely phase out paid ads for its affiliate base in attempt to help its beleaguered stock price. Most stopped offering additional services such as free hosting.

This month has just gotten started, but it has already been a doozy for entertainment sites. One major gaming network, the only one whose moves were truly unexpected by most people in the know, announced it will be closing down next month. As a stipulation of a future investment, another announced significant cutbacks in affiliate revenue payments, with possible litigation expected due to breach of contract, and is also anticipated to begin slashing affiliates, which some of its sites have reported has already begun. The one that announced cutbacks last quarter has reportedly begun implementing those cutbacks.

Since most of the major networks are now, for the most part, gone, it is not expected that there will be too much more bad news in the near future. But what about VGF?

We, too, have felt the pinch of the problems in the online ad industry, but we believe the worst is behind us. We are ready to move on and move forward, as VGF is here to stay, and we feel we are stronger, not weaker, than we were last quarter. As the year progresses, we will begin to focus on expansion, as opposed to the cutbacks that have plagued most of the industry, and we look forward to delivering the best service to our audience and our affiliates. We foresee that internet advertising must change, and to that end, we will change with it.

If you've got a gaming site that has been caught up in the recent internet debacle, we would be interested in hearing from you. Let us know how we can help. Whether you need help with hosting, ads, promotion, or some other aspect of your site, drop us a line, even if you're just a bit curious. We still provide free hosting, can often beat ad rates offered by others, and are more than willing to promote affiliates and make sure they succeed.