THQ remains in need of its hit, but it’s not dead yet

Monday, 16 January 2012 08:42 GMT By Brenna Hillier

Despite a swirl of rumour as to THQ’s overall health, now is not the time to lose sight of long term goals. The publisher may have had an incontrovertible off-year, but it hasn’t bought the farm just yet.

This is not a portrait of a company on its last legs. THQ may well deliver bad news in its February financial briefing, but that doesn’t necessarily equate to complete disaster. Hits can be made, and mistakes are fine provided you know when to stop making them.

Over the weekend, IGDA’s Kevin Dent broke a rumour that THQ had cancelled its entire 2014 line-up, put its assets on the market and offered itself to the highest bidder – essentially, that the company was bailing out.

For the few hours that THQ prevaricated, the talk spread like nerd flu at Comic Con, and the vaguely-worded statement which finally surfaced hasn’t gone far enough to dispel all doubt about the firm’s future. Although the publisher pooh-poohed the cancellations, it failed to firmly deny the possibility of a sale or the transfer of properties; and “no decision” about Dark Millennium Online is hardly reassuring.

The concern manifest over the past few hours has been diluted, but as anyone with more than a passing interest in the trade will already know, fear for THQ was a near-constant theme throughout 2011.

THQ entered the year with high hopes. In 2010, it had enjoyed the release of two well-received new properties – Darksiders and Metro 2033 – and squeezed Wii’s drying third-party market with its uDraw peripheral.

Its twelve-month release schedule looked promising and varied: a follow-up the much loved indie de Blob; a bold experimental business model with MX vs ATV Alive’s budget release and DLC focus; re-invention of its WWE-licensed releases; Saints Row: The Third, which turned out to be the answer to a prayer for open-world adventure we didn’t even perceive until it was fulfilled; three core shooters, with the latest in the well-liked Red Faction series; the plain good fun Warhammer 40,000: Space Marine; and an aggressive push for a share in the modern combat category with new IP Homefront.

None of this turned out as well as expected. The brilliant and lovingly crafted de Blob 2 arguably flopped, resulting in the closure of developer Bluetongue. MX vs ATV was canned, and its dev team likewise let go, while Red Faction felt the headsman’s axe after poor sales of Armageddon. Saints Row: The Third failed to set the charts alight as much as we would have liked (and believe it deserved). Homefront, while managing to shift over 1 million units in its first week, received “mixed” reviews.

The publisher posted a net loss of $38.4 million in the first quarter, $92.4 million in the second – both worse results than 2010 – and has downgraded its sales forecasts for the third quarter.

At the start of 2011, THQ’s shares were poised at the highest they would reach in the past 52 weeks – around $6.50. That’s not a huge number, and while it’s unfair to compare THQ to Activision (52 week high $14.10) or EA ($26.13), it’s safe to say the publisher wasn’t living up to comparably-positioned companies like Ubisoft ($12.50) and Take-Two ($17.58). Trading did not improve over the course of the year, and following a surge around the release of Saints Row: The Third, it continued declining to hit a new low at just 65 cents. Even with the NPD’s confirmation of an extremely poor fourth quarter for retail and general financial depression still very much active, that seems dire. Last year, it’s clear, was not THQ’s best.

Never gonna give you up

THQ’s major problem remains that it is not in possession of a true triple-A IP. For a publisher to remain in the big leagues today, it needs a Call of Duty, Battlefield, Elder Scrolls, Assassin’s Creed or GTA. The market knows this. It was in the wake of Homefront’s critical flop – something which tends to scare investors off the possibility of a franchise, even when sales figures are promising – that clouds really began to darken THQ’s horizon. The worries were voiced widely enough that we were moved to defend the publisher, citing THQ core head Danny Bilson’s long game – a strong and growing portfolio of properties and a multi-year roadmap to financial success.

THQ share prices, past 52 weeks.
Chart courtesy of MarketWatch.

Given the magnitude of triple-A development in the 2010′s, you have to take a long view; one bad year in the lifetime of a publisher doesn’t mean it’s on the rocks. Just ask EA, which has bounced back from the edge of disaster to arguably overtake rival Activision Blizzard. Bilson’s plan is centred on finding properties that work as “event” releases, and THQ has shown it’s committed to building a solid portfolio by enacting three strategies in its core gaming division.

First, it gives the sellers plenty of time to grow. Darksiders II will release a good two-and-a-half years after the first game, with Metro: Last Light expected to launch after a similar incubation period. That’s hardly stripmine annualisation.

Second, it’s not adverse to casting dead wood aside. Not every property has the grunt to power a franchise, and, for example, Red Faction’s core premise clearly didn’t hold players’ attention. Letting the series lie (for now) with the carefully crafted but ultimately unpopular Armageddon is a better fate than cutting costs and throwing good money after bad.

MX vs ATV Alive also epitomises one of THQ’s strengths; a willingness to experiment. The budget-release was an acknowledged risk, a trial of a possible strategy for coping with the digital transition, and it fell through. Another clever scheme, downloadable ties-ins for major releases, was also trialled and dropped. In both cases, THQ took a calculated gamble, then cut its losses; that’s a far from stupid approach.

What these three tenets demonstrate is the company’s commitment to games – not just to rapid turnover of profit. Bilson knows he must find THQ’s true hit, and it won’t come from content-churning. Of course THQ wants and needs to make money, but Bilson, its prime mover and shaker, has said over and over again that its his love of games that motivates him. He’s not looking for quick cash. He wants the kind of buck that comes back repeatedly based on years of good experiences with a brand that can be trusted. That trust takes time to develop, and the product that powers it needs to be carefully nurtured.

We’re entering the fourth year of Bilson’s captaincy of THQ’s core games division, and eyeing a 2012 release schedule punctuated by UFC Undisputed 3; Darksiders II; Metro: Last Light; Warhammer 40,000: Dawn of War III; WWE Brawl; and South Park: The Game – not to mention any titles the company may announce on shorter PR cycles. Beyond that, there’s the ever-elusive Warhammer 40,000: Dark Millennium Online (assuming the ambitious venture is still alive); Tomonobu Itagaki’s Devil’s Third; and Guillermo del Toro’s inSANE trilogy – plus further, slow-baked iterations of current properties.

This is not a portrait of a company on its last legs. THQ may well deliver bad news in its February financial briefing, but that doesn’t necessarily equate to complete disaster. Hits can be made, and mistakes are fine provided you know when to stop making them.

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