As has been widely documented, Midway has really struggled. The company has not been profitable for four years, since the time that Sumner Redstone took a controlling stake. At the time, Redstone had visions of turning Midway from a "second-tier producer" to a first-tier one. Now it's hard to even categorize Midway as second-tier.

So what happened? Ben Fritz at Variety dug up some very interesting comments from former Midway employees, and while all sorts of things obviously contribute to the P&L of any company, one decision stood out in particular to these ex-employees – Midway's decision to use Epic Games' popular Unreal Engine middleware for everything.

"The mistake we made was, instead of just taking the base Unreal 3 engine that Gears of War was made on and building games off of that, we let our tech and product development guys try to really modify the engine to add all these diff[erent] things," a former Midway staffer said. "It was a ton of new technology which they just weren't capable of doing. It put all the games way behind schedule."

Adapting UE3 for each project put a major strain on the company in recent years, especially as the publisher transitioned from the previous generation to the current, more powerful systems (PS3 and Xbox 360). Furthermore, using UE3 for all the projects basically meant that the millions invested in building a common tech base for all the studios was a complete waste. Ultimately, resources couldn't be shared fast enough amongst studios, Midway had more trouble with Unreal code on PS3 than they anticipated, and the games kept getting pushed back. For example, in the first half of 2007 all Midway released was Lord of the Rings Online (from Turbine) and for the first half of 2008 all that was shipped was Unreal Tournament III.

Former Chief Marketing Officer Steve Allison (current CMO for TNA Wrestling) told Variety, "The delays of next-gen titles pushed them into a window where money became very tight for the company. When that happens decision-making can become focused around not always what is best for each title, but how to fix cash flow issues. This is a spiral of doom in videogame publishing because you can't ship compromised titles against the exceptional quality level of competition that is on the shelves."

However, he then added, "Most of those problems should be behind Midway now."

As dire as the situation looks for Midway, though, the publisher does have a chance to dig itself out of the hole, according to Wedbush Morgan Securities analyst Michael Pachter. "Notwithstanding the continued restructuring theme and likely delay of a return to profitability by another year, we remain cautiously optimistic that Midway will perform better in 2009 than it is expected to perform in 2008," he said in a recent note to investors. "Midway's lineup in Q4 includes sequels to previously successful brands like Mortal Kombat and Blitz: The League. We believe that solid catalog sales plus Wheelman and This Is Vegas in the 2009 lineup will enable Midway to approach near profitability next year."