Fundex mixes tradition with high-tech in game biz

Fundex Games released a cell-phone version of its top-selling Phase 10 card game this fall and then did the next logical
thing–it bought a puzzle company.

The Indianapolis-based game and toy company's Oct. 10 acquisition of the Great American Puzzle Factory keeps Fundex firmly
planted in the tried and true, even as it experiments with the burgeoning mobile-game market.

Founded in 1986, the company is known for its traditional card and dice games, as well as kids' games like Alfredo's
Food Fight, What's in Ned's Head?, and the classic Gnip Gnop. Leaders hope the new product lines will keep Fundex
thriving.

Annual revenue at the privately held company has held steady at $20 million in recent years, up from less than $5 million
in the mid-1990s.

"Our strategy, both on the puzzle acquisition and our move to other mediums, is really just to continue to broaden out,
to be the supplier of choice to the entire consumer base in games," CEO Chip Voigt said.

In addition to its foray into mobile gaming, Fundex has other high-tech ventures in the works.

"We've got plans in almost every other platform–games for Xbox 360, Wii and PC games," Voigt said. "It's
not necessary, but it's a big plus in maintaining contact with our consumer base."

Going mobile

First things first. Although the company has always leaned toward traditional card and board games, the massive mobile market–there
are about 250 million cell phones in use in the United States–was too attractive to pass up.

In September, Fundex announced a three-year, five-game partnership with Magmic Games, a mobile-game publisher in Ottawa,
Ontario. Voigt wouldn't disclose terms of the deal or identify the other games to be produced.

Magmic bought the rights to develop a downloadable version of the Phase 10 card game, which is available to 225 million cell
phone subscribers for a one-time payment of $6.99. Fundex receives a royalty fee of about $1 every time Phase 10 is downloaded.

Still, Voigt isn't sure what to expect from mobile gaming.

"Since it's a new venture for us, we've kept our expectations pretty modest," he said, declining to provide
estimates. "The mobile base is huge. … You only have to get a small percentage of that [market] to be successful."

Cell phone games are not new–they were first embedded in phones in 1997–but the industry really started making money in
2002, with the advent of downloadable games.

Now, mobile gaming is a $500 million to $600 million market in the United States alone, said Michael Cia, director of broadband
and gaming for Dallas-based research firm Park Associates. As consumers buy new phones–and new games for them–the market
should grow.

Indeed, mobile-game sales are expected to reach $9.6 billion globally by 2011, according to a report by Gartner Inc., an
information technology research firm in Stamford, Conn.

Uno, the best-selling card game in the world, went mobile in November 2005. Mattel said the game has already been downloaded
by 1.5 million cell phone users in 35 countries. Phase 10 is second only to Uno in sales.

The company isn't worried about the mobile game hurting sales of the original Phase 10.

"We wouldn't have gotten into this deal if it was going to take away from our product," Sabato said. By his
estimates, only 30 percent to 40 percent of Americans have heard of the game. "As long as we can expand the use and knowledge
of Phase 10, I think it only enhances [the product]."

Because Fundex isn't sure what to expect during its first year in the mobile world, Voigt said the company would wait
to advertise until late in 2008.

"We're getting our feet wet in a couple of the markets this year just to see how it is–where we should be targeting
advertising, where we should be targeting our promotions–and then building that up for the fourth quarter for next year,"
he said.

Fundex advertises its other products in radio spots, trade magazines and Sunday newspapers. As more games are created and
the company grows, it has relied on promotions to help build awareness.

It recently struck a deal with Applebee's, for example, to feature Fundex's Magic in a Minute trick set on children's
placemats and activity booklets.

Fundex signed a deal tying magician Mac King, a regular performer in Las Vegas, to the game more than two years ago, but
sales have yet to take off–something the company hopes will change with the Applebee's promotion.

"We're always on the lookout for partnering, something that benefits both companies," Sabato said.

Puzzle time

Voigt is more specific about his expectations for the Connecticut-based Puzzle Factory, which Fundex acquired after a year-long
discussion. Voigt and longtime friend Pat Duncan reached a confidential and "amicable" agreement in October.

The puzzle company should increase Fundex's business 15 percent to 20 percent, he said, or $3 million to $4 million.

Most of the puzzles are Hoosier-made, instead of being outsourced to Asia for production like other Fundex toys. Voigt said
the Midwest is full of printing companies and puzzle suppliers, allowing Fundex to work with local vendors.

"Most of the puzzles are actually made here in Indiana," he said. "That was one of our reasons … behind
the acquisition, to have more American-made goods."

The acquisition hasn't changed much around the cheery yellow offices Fundex moved into in 2006. The consolidation creates
about four jobs, for a total of 50, and the on-site warehouse has an extra 50,000 square feet of space–plenty of room for
inventory.

The headquarters houses company officials and graphic artists who transform game ideas into designs. The warehouse stores
inventory waiting to be distributed to retailers like Wal-Mart, Target and Meijer.

Fundex also opened a Hong Kong distribution office in early 2006, a central location to its manufacturers. Five employees
there guide orders directly to some retailers, keeping business running 24/7.

"Because of the time difference, it's good to have people on top of it," Sabato said. "So while we're
sleeping, there still are people getting things done."

Puzzle Factory's high-quality puzzles already are on sale at hundreds of Fundex's retailers nationwide, including
the gift shop at The Children's Museum of Indianapolis.

The puzzles are always in demand, said Carol Toth, buyer and product development manager for the store.

"They are great Christmas gifts and some people … collect them," she said, adding that the store plans to increase
its inventory of the puzzles as soon as next year.

By offering traditional products like puzzles along with newer options like mobile games, Fundex seems to be hedging its
bets. All the better to serve customers, Voigt said.

"We look at games and puzzles and we try to reach out no matter what medium [consumers] are going to use it in,"
he said. "Whether they're at home, playing a game on the table, whether they're in the car, you can still play
that same game."