Is THQ on the verge of collapse?

THQ took uDraw to task for its recent travails, but the ill-fated peripheral is just the latest example of the publisher failing to adapt to a changing industry.

I'm not sure how many of you all realized this, but THQ's stock is down about 90 percent over the past 12 months, having closed trading today at 60 cents per share. Pretty bad. Not so bad if you consider the stock is down 98 percent from its April 2007 high, when THQ was trading at more than $36 a share on the NASDAQ exchange. Now, NASDAQ doesn't want anything to do with the company, threatening to delist the publisher if it can't raise its share price above $1 before July 23.

But this story started prior to the NASDAQ drama and last week's uninspiring holiday quarter earnings report. We recently received an anonymous letter purporting to represent "current and ex-employees, shareholders, and the public," and signed by "The Formerly Mismanaged." It's lengthy--and unsubstantiated--so I'm not going to repost it here. If you're interested, though, I've posted it here. (THQ had not responded to a request for comment on this letter as of press time.)

Disgruntled is the tone, and the grievances are damning. To briefly recount the author's points, THQ is being, and has been for years, mismanaged into oblivion. The author is particularly incensed about the uDraw tablet, which found a measure of success on the Wii in 2010 but was DOA for the Xbox 360 and PlayStation 3 in 2011. Nearly three dozen--or what the author calls an entire business unit--were sacked as a result.

uDraw, or how to saddle a scapegoat.

Humorously, in a gallows sense of the term, The Formerly Mismanaged painted a rosier picture than the actual circumstances of the matter. THQ said last week that, combined with its exit from the kids' games business and backing off of licensed properties, 10 percent of the company had been laid off, or about 240 people.

What's more, THQ management overestimated uDraw's sales potential by $100 million. Considering the uDraw cost $80 when it launched in November, THQ missed its guess by a cool 1.25 million units. Development on the tablet has ceased. All commitments are now settled. The uDraw disaster will be dealt with by lighting remaining inventory on fire and everyone speaking of it never again. You may remember this strategy from The Great HD-DVD Debacle of 2008.

THQ has for years been following the same formula of chasing yesterday's home runs (in this case, high-priced peripherals), of swinging so hard, so confidently, that it routinely dislocates its shoulder on strike three.
We briefly entertained the idea of naming last week's earnings report story "THQ blames uDraw for everything," but who are we kidding. THQ has for years been following the same formula of chasing yesterday's home runs (in this case, high-priced peripherals), of swinging so hard, so confidently, that it routinely dislocates its shoulder on strike three. And the cycle has played out in news headlines countless times.

To illustrate the point, let's hone in on the last time THQ actually looked like it knew what it was doing. For the fiscal year ended March 31, 2007, the publisher posted company-best profits of $64 million on revenues a little over $1.02 billion. It was the 12th consecutive fiscal year that the publisher grew its annual revenues.

On to fiscal 2008, its revenues streak remained alive, just barely, at $1.03 billion, but that company-best profit reversed to losses of $35 million. The streak died at 13, as revenues for fiscal 2009 came in at $830 million and losses mounted to a staggering $431.1 million. The ship stabilized in fiscal 2010, thanks largely to the breakout success of UFC Undisputed, with revenues of $899.1 million and losses narrowed to $9.6 million. And then the bottom fell out, again, in fiscal 2011, when the company lost $136.1 million dollars on $665.3 million in revenue.

Here are a few things that happened in that period. THQ bought Juice Games and Paradigm Entertainment, developers of the Juiced and Stuntman franchises, respectively. THQ fired off new installments in both of those franchises. (And when I say fired off here, the image I want to convey is that of a drunk hunting cacti in the desert.) Both underperformed. THQ shut down Paradigm in 2008. After rebranding Juice Games as Digital Warrington, THQ shut the studio down in 2011. The Juiced and Stuntman franchises remain on hiatus.

In January 2008, THQ bought Big Huge Games, creator of the excellent Rise of Nations, and in the process picked up a role-playing game in development under the auspices of The Elder Scrolls IV: Oblivion lead designer Ken Rolston. A year and a half later, THQ sold Big Huge, after nearly killing the studio with a round of layoffs. Curt Schilling's 38 Studios is now releasing Rolston's RPG, Kingdoms of Amalur: Reckoning, in conjunction with EA this week. I have played it, and I'm happy THQ's stewardship didn't kill it.

THQ formed Kaos Studios in 2006. THQ expanded Kaos Studios in 2009. THQ released Kaos Studios' underwhelming Homefront in March 2011. THQ cut staff at Kaos Studios in April 2011. THQ closed Kaos Studios in June 2011.

Does the word transmedia mean anything to you? It's likely a word that Volition Inc. would like to kill with a very large bird, after the transmedia violation perpetrated the otherwise excellent Red Faction franchise. Alec Mason and co. are currently in cold storage, after THQ shelved the franchise following Armageddon's disappointing sales and the SyFy made-for-TV movie's disappointing existence.

There was that delightful moment back in 2008 where THQ had to actually articulate "making good games" as a goal it would strive for.

I could go on.

THQ didn't see a future in Kingdoms of Amalur, but EA apparently did.

Here's an interesting corollary. Compare THQ's full-year revenues to the state of US game retail sales. According to The NPD Group, the US game industry's stat-tracking firm of record, the retail game industry peaked in 2008. THQ peaked in 2008, too. Viewed from this lens, THQ appears to be yet one more publisher that has failed to keep up with a changing game-industry landscape, where a connected, online experience is mandatory to survive.

By contrast, there are the similarly situated Activision and Electronic Arts, which have taken two different approaches to staying relevant in a connected world. Activision sold itself to French conglomerate Vivendi, and in the process, it opened itself up to Blizzard Entertainment's massively multiplayer online dollar-defecating ways. EA, on the other hand, put in the old-fashioned elbow grease to launch its own Steam competitor, Origin, and has become the industry leader in innovating post-release content strategies (a profitable, albeit yucky, thing). It also financed BioWare's Star Wars: The Old Republic, which appears to have cracked the MMO nut.

THQ's travails illustrate a fundamental, imperceptible shift in how the game industry now does business, one of those shifts that most people don't pick up on until after it happens. And in that sense, it's hard to fault THQ's executive team for not responding adequately to it. Until, of course, you look at their paychecks.

THQ's executive team--that is to say, its CEO; CFO; EVP of Core Games; EVP of Kids, Family, and Casual; and EVP of Global Publishing--combined to earn $4.92 million during the fiscal year ended March 31, 2011, according to SEC filings. (I'll save you some time: That was the year when net losses were $136.1 million and revenue was $665.3 million, the lowest since fiscal 2004.) Three of those execs forewent a bonus at least--and no, Martin, whose employment at THQ was immolated along with all those aforementioned uDraw tablets, wasn't one of them. Is it worse to pocket 50 large on a fad, or be the ones who view rickety success as worthy of a reward? But Occupy THQ is a rabbit hole for a different day.

THQ was able to maintain its business model in the retail spectrum. However, with the shift to digital, if the house hasn't fallen down yet, it's certainly on fire. Still, there is cause to believe that THQ may finally have the gist of it, albeit five years late and certainly behind the next big thing.

THQ expects to be a significantly smaller company going forward, intentionally so this time, projecting fiscal 2013 revenues of around $400 million. All future products will be developed with an always-on, always-connected bent, and THQ is doubling down on its core franchises, which is to say, those franchises aimed at the 14- to 35-year-old boy demographic. UFC Undisputed, Darksiders, Crytek's Homefront, Company of Heroes, Guillermo del Toro's inSane, Saints Row, Warhammer 40,000, Tomonobu Itagaki's Devil's Third, and the in-development game from former Assassin's Creed creative director Patrice Desilets.

Strong IP is no longer good enough.
To be sure, that has the makings of a strong portfolio. Of course, EA's 2008 portfolio, which included the likes of Mirror's Edge, Rock Band, Mass Effect, Steven Spielberg's Boom Blox, Mercenaries 2, Crytek's Crysis Warhead, Left 4 Dead, Dead Space, and Will Wright's Spore also looked pretty damn good. By the end of that fiscal year, EA posted a net loss of $677 million on revenue of $3.65 billion. Strong IP is no longer good enough.

Do I have confidence that THQ can pull this turnaround off? Well, an exchange from THQ's post-earnings conference call last week was telling. When asked by Arcadia Investments analyst John Taylor what the company's contingency plan is, should the core games shift not pan out, president and CEO Brian Farrell responded:

"In terms of readjusting our strategy, the word we've used is adjusted. The whole 'building the core games strategy with a digital ecosystem around it' is something we've been talking about for a while. As I said in my prepared remarks, we were looking at uDraw as a bridge to this core and digital future, and that bridge turned out to be a plank that we walked off of. That said, it accelerated the need to go in this direction. We're very comfortable based on what's happened with Saints Row and WWE. If we continue to do that type of game going forward on the much lower cost structure and build the higher margin digital revenues around that, we're confident in the future."

As Taylor astutely pointed out, "The implication of that is fewer, bigger, which means the risk of failure is amplified as well." But all I heard was, "Plan B? What do you mean? This is Plan B."

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Discussion

121 comments
rcbhappy
rcbhappy

Why has this happened? this is the end of Saints Row as we know it?

RageQuitter69
RageQuitter69

If THQ ever collapse's, it will be the worst day for 'gaming'.

dmans12
dmans12

im going to say to thing this

 

VanHelsing21
VanHelsing21

@chingchow48 Didn't really say they owned it or anything like that. Just ment even if they went down like Midway not in the same sense but closing in general that their few great games could live on.

Agent-M
Agent-M

THQ needs to refocus on the games that made the company popular in the first place.

Crush_Project
Crush_Project

i considered myself to be a thq fan around the time of the first dow, but since soul storm they have just plummeted down hill. Ive given them way too many chances since then. Maybe if a product of theirs hits the bargain bin...

javalino
javalino

THQ will follow atari steps . it will be dead. its life !!!

ragnar320
ragnar320

gosh i completely agree that THQ is a terribly mismannaged company. I say this because look at every studio they bout based from this article. Every one of those studios realesed decent games and that had staying power hell i still play rise of nations sometimes when i want to play a good old RTS. But after they take over they seem to mess with that studios orginal game plan and said look we bought you we call the shots now and then they do and things completely tank as result cause they f'ed with it. im thinking of an old saying here "if it aint broken dont fix it" and i think this is something THQ needs to learn. Hopefully they'll stick with what they know they can make great cause i will ball my eyes out if they fall apart and we never see another Warhammer 40k I might do something very stupid that i will regret

Unfallen_Satan
Unfallen_Satan

I hope this news/editorial doesn't contribute to THQ's demise. :) It's interesting reading, a nice break from the game-focused news I usually digest. I think the "strong IP is no longer good enough" claim is not entirely correct. The growing focus of companies across the board on expanding their core IP is argument that strong IP is still king. However, perhaps strong IP no longer means just a good single player game. It branches out into numerous media and business opportunities. That's a more suitable definition of IP anyway. Even so, CD Projekt is doing alright with the Witcher series, which is primarily single player. If THQ could launch a series of The Witcher like games, maybe it wouldn't be in this bind. I think it ultimately comes down to just poor game-making. I love CoH, and a couple of THQ's latest games have been decent though I don't play them. Overall though, its failures have overshadowed its successes. It's not the business model or mismanagement or some other forces of nature, like the uDraw, many of THQ's games are just bad.

Lothos_Delion
Lothos_Delion

@floydshayvious I do not believe the gamers are killing gaming its the devs. Over pricing, cutting gaming content and overall shortening titles. Bring back quality content and play time and you will see sale surge again.

kennythomas26
kennythomas26

I think THQ as a pretty great line up for this year and I think it might turn around and I'm not big on THQ for their development in game's, but I'm a very big of them as a publisher more and lets just wait and see how they do.

floydshayvious
floydshayvious

Sometimes I wonder if it's gamers that are killing gaming.

M-S-M-S
M-S-M-S

It's really sad that THQ is in bad shape. With games like Stalker, Company of Heroes, Warhammer 40k, Metro 2033 and many more, you can see that THQ took quite big risks. But at the end they succeeded. I truly hope they'll have a better future. I still don't understand why they got into the uDraw... And I prefer THQ over greedy EA.

The-Neon-Seal
The-Neon-Seal

Whats really sad is that THQ are so behind in the industry that if they did go under, I doubty many people would notice.

DS-man
DS-man

well some publishers need to listen to the gamers, its the only way to keep up with our needs.

Ladiesman17
Ladiesman17

Here's the idea, sell some of your IPs to other Publishers :P just like Interplay did when they sell Fallout IP to Bethesda.. at least your Company will survived ;)

ezjohny
ezjohny

Everyone hits rock bottom at one point, Mul ti-player is the way too go. Hope THQ could pick them self's back up!

dreamforager
dreamforager

I hope its true. If THQ collapses then another publisher will aquire the WWE franchise and hopefully answer fans requests and get AKI to develop a long awaited sequel to No Mercy.

Kero100
Kero100

THQ needs to be managed by gamers not business man.

dudnaito
dudnaito

@alexLmx6 not a bright lad, no? The 5th largest auto company in the world, the most profitable auto company in the world whose latest entries in both its Hyundai and Kia brands have gotten higher reviews than well... everyone? including Camry and Civics? Have you looked at the 2012 Sonata, the Kia Optima's??? No, i'm afraid the THQ analogy doesn't quite work.

ScaredySquirrel
ScaredySquirrel

Ive always seen THQ as a second string publisher, I don't think they've put out anything that has really impressed me. I'm not so sure it will be a loss to gaming in general if they go under.

elby322
elby322

@alexLmx6 Hyundai is doing quite well, thank you very much. They learned from their mistakes, and are now making good automobiles. Maybe you should choose a company on the downfall.

elby322
elby322

THQ doesn't know what the market wants. They made/published crappy, unattractive games that no one wanted to play. I don't see a future for them. Then again, I didn't see a future for Nintendo after the Gamecube, or Apple after the PC, so I could be wrong.

nmdang
nmdang

Now I know why company of heroes online was closed and there is no company of heroes 2.

MasterTheHero
MasterTheHero

Sounds like they're going to try to make more of their core games on a cheaper basis. Although this doesn't necessarily mean doom and gloom for the video game, I do get concerned that they're going to try to rush games out and sacrifice quality in the process.

ChiefFreeman
ChiefFreeman

Saints Row, the UFC games and STALKER franchises should be sold off to Activision, EA or Take Two. THQ is finished.

boricuasnake04
boricuasnake04

THQ sucks lets just say it! Anyways we Gamers dont need to worry cause you can bet that THQ's IP liscenses will definitely be picked up by better studios.

ryanreynolds
ryanreynolds

[quote]Well that's kinda bad because I wanted S.T.A.L.K.E.R. 2...[/quote] THQ has nothing to do with S.T.A.L.K.E.R. 2,so you can relax.

Delkura
Delkura

Will this mean no Saints Row 4?

alexLmx6
alexLmx6

I dunno, I've always seen THQ as the Hyundai of the games industry.. They've just always been there making mediocre games. I just took a look at my shelf, and yeah, I don't have a single game from this gen or last published by THQ. So I guess I'm not suprised they're going down the crapper.

TheTrueObelus
TheTrueObelus

I'm not worried. Our favorite games will go on cus there's money to be made there. Someone will pick up the licenses if THQ falls.

gix47
gix47

damn..THQ is dead

ilikeubetty
ilikeubetty

I'm glad they may go under...I was really excited to play Homefront last year and the online play was not fixed until at least a month after release. Sorry THQ, Fail.

DoubleclickTF
DoubleclickTF

What kind of industry is this, where someone like Patrice Désilets jumps from one company in acrimonious circumstances (and is in fact chased by lawyers after his exit), only to find himself leaping from fire to frying pan? Why can't a talented designer easily find a comfortable home? If all companies chase the absolute maximum profit, they're adopting a very risky strategy. Not even a compulsive gambler would opt for high stakes every single time. If the will of the board/accountants/shareholders trumps the spirit and knowledge of the people in the company who love games and know the games business, we're all in for a bad few years: until the inevitable crash, anyway.

warhawk-geeby
warhawk-geeby

I'm not going to read this article as my lunch-break doesn't last long enough :P But THQ are most definitely going under, I think that was fairly obvious as soon as they closed the 'kids games' studios :? Kinda sucks, but failure to adapt does that to a company.

phv86
phv86

THQ sucks, i have bought every ufc game and loved them but im not gonna buy the new one, then ew submission system sucks it is ugly to look at when you are playing. it looks good when you are not playing but just watching simulation but as soon as you start to play yourself there is no way to avoid the new ugly and uselesss submission system.

kokonut1971
kokonut1971

that's what you get when you try to make every game in your stable a online mmo, not everyone wants to play your games online ie company of heroes. you have spent millions of dollars in development that ended up wasted instead of making a good game or a good sequel. anyways if they go down, people will pick up these ip's. Or EA will probably buy them out when they are on the verge of final collapse. i can see it happening.

spector000
spector000

That is what happens when you don't make games that gamers like but games you like to make. You end up bankrupt.

Darnasian
Darnasian

Well this is what you get after stealing great developers from other companies... I guess they'll soon run out of money and be on collapse and someone will buy them... Well that's kinda bad because I wanted S.T.A.L.K.E.R. 2...

starfox15
starfox15

Once again, I still don't get why THQ is getting so much attention. They continuously release unimaginative, poorly made or licensed games with little success. I'm surprised they didn't go under sooner. I've seen an article chronicling THQ's steady decline every week on various websites. I get it, THQ sucks. I knew this a long time ago and avoided their games. The best course of action would be for THQ to allow itself to be acquired by a more successful game company publisher at this time. The future of their staff and name is on the line right now and they have to just give up the ghost and accept being a dev for someone else at this point. But that's just my opinion. We'll see what happens.

ALLoY1717
ALLoY1717

I think THQ just don't know when they have a good game. The Red Faction franchise was very good but they never really hit a homerun with it however THQ seemed to think it was bigger than it actually was with making a TV movie out of it. Red Faction could have gone on selling well as a B level game on a lower budget. Homefront was a disaster, something that they should have seen coming. Again with a few tweaks to its marketing I think it could have been a big hit. For example it made the mistake of being marketed as having a big epic solo campaign which it didn't. However I believe that it has a good life as a multiplayer game, therefore if they dropped the campaign (which would drop the pay for that name writer they got to pen it) and sold it digitally via Steam PSN and XBLA as MP only then it would have probably done a lot better. The studio behind it was formed from the makers of the Desert Combat mod for BF194 (great mod) but making a new game from scratch is something completely different. I don't see why they didn't run after Darksiders, it was fantastic, it screams big name franchise with a little more money in marketing. While Darksiders 2 looks great but I feel it will not get the attention it deserves, just like the first. I can't fault them with Saints Row. They aren't doing enough to keep the wrestling games up to date. I played those games on the PS2 long after I lost all interest with watching it on TV but current gen versions are just stale.

fzd88
fzd88

It's called QC - Quality Control. THQ needs to hire someone with a good eye and experience to sniff out potential great games/products. Their CEO/Board obviously can't make the right calls. Hiring one or two experienced people in this position can completely turn the company around (assuming the board completely backs off).

Defianc4
Defianc4

Company of Heroes is the only thing I really care about. The first one is still around today, kicking ass and taking names

true_gamer007
true_gamer007

Look at EA and others, they're prospering. You really got to do something soon THQ.

moonlightwolf01
moonlightwolf01

Well I hope other publishers pick up the THQ's IPs because some of them (darksiders and saints row to name a couple) are great fun to play. perhaps moving to the fewer, bigger release model will work for them because outside the movie tie-ins and kids games THQ have produced some great games and it would be a shame to see those disappear.

wishsong4
wishsong4

Try to make money, or try to make a good game? I wonder when they will pick make a good game and realize that's how you make money.

DeFiLeDTitan
DeFiLeDTitan

If it really is that bad off, it should fall. That's capitalism at its finest. No bail outs for you!