THQ holiday sales spike, profits plunge

The new year is barely a month old, but THQ has already seen its share of ups and downs. Things started well enough for the publisher, with the announcement of the expected games based on Pixar's Wall-E and the acquisition of Big Huge Games. January turned south for THQ before long, as the company announced the downgrading of its financial projections, closure of a studio, cancellation of two games, and the abandonment of two owned franchises over the course of a single investor conference call.

The THQ news continued to flow today, as the company released its financial results for the final three months of 2007. In a conference call following the release, THQ updated investors on a number of projects currently in the works, including Red Faction III, and further explained the cancellation of Frontlines: Fuel of War on the PlayStation 3 and what went wrong with the Stuntman and Juiced franchises.

During the holiday sales quarter, THQ raked in sales of more than $509 million, 7 percent more than it managed in the final three months of 2006. Despite that jump, the publisher's net profits were down more than 75 percent, to less than $16 million from more than $62 million in the prior year's holiday quarter.

In the conference call, THQ CEO and president Brian Farrell mentioned that the publisher was pleased with the performance of Drawn to Life on the DS and said that the franchise would be coming to the Wii. He also touted that WWE Smackdown vs. RAW 2008 set a record for the franchise by shipping more than 5 million units in the holiday quarter, bringing the franchise revenue total above $1 billion.

However, it wasn't all sunshine from Farrell. The THQ head answered a number of questions regarding the publisher's recent cancellations. When asked why the PS3 edition of Frontlines: Fuel of War got the axe, Farrell bluntly blamed the problem on Epic's Unreal Engine, saying it "just didn't perform as well in the open world as we would have expected," and would have resulted in the PS3 edition arriving two or three months behind its Xbox 360 and PC counterparts.

THQ isn't the first company to run into problems with the latest version of Epic Games' Unreal Engine. Midway blamed problems getting the technology running on Sony's console as a reason for delays to the PS3 editions of Stranglehold and BlackSite: Area 51, while Too Human developer Silicon Knights has gone as far as to sue Epic over its problems with the engine.

As for giving up on Stuntman and Juiced, Farrell shed more light on those decisions as well. With respect to Stuntman, Farrell said the problem was not so much with the quality of the game, but with its focus on what he called "old generation gameplay."

"It's a very highly scripted game," Farrell said, "whereas now the best-selling games are generally more open [and offer] more player choice, so we think that game mechanic didn't translate."

In the case of Juiced, Farrell just thought the publisher had the developer biting off more than it could chew.

"We were way too ambitious with that studio," Farrell said, "giving them six different platforms to support, everything from new PlayStation 3 development all the way down to DS. I think that was a bad decision, and we don't have any studios working on more than three SKUs simultaneously now."

When asked about the company's Warhammer 40,000 massively multiplayer online role-playing game, Farrell stressed that it was "still very early in development" but that it was coming along well.

Finally, Farrell answered an analyst's question about how Saints Row 2 will be able to compete in the market in light of the April 29 release of Grand Theft Auto IV. The CEO replied that THQ will give Rockstar's signature franchise a "fair amount of running room in the open market" before the launch of Saints Row 2, adding that the sequel to the original Xbox 360 open-world thug game will include a number of features to distinguish it, such as online cooperative play, character customization, and more.