Coin-OpEd: Pity the third party

  • By Polybren, GameSpot
  • Posted Jul 9, 2008 12:26 pm PT

Coin-OpEd is GameSpot News' place to put aside impartiality in order to discuss, examine, and analyze the industry with a more opinionated eye. The views expressed herein are the author's own, and may not reflect those of GameSpot or its parent company CBS Interactive.If you're ever tired of...

Coin-OpEd is GameSpot News' place to put aside impartiality in order to discuss, examine, and analyze the industry with a more opinionated eye. The views expressed herein are the author's own, and may not reflect those of GameSpot or its parent company CBS Interactive.

If you're ever tired of hearing game publishers talk about how great they are, try taking a trip through their Securities and Exchange Commission filings. Publicly traded companies are essentially allowed to lie to the public as much as they want, but they have to play it much straighter when it comes to the government and their own investors. While looking through THQ's annual report for a story last week, I was reminded just how different the messaging from the company is depending on who's listening.

Take the company's section about "risk factors," for example. This is sort of a "Murphy's Law" smorgasbord of all the catastrophically terrible things that could happen to throw the company way off track, so investors who might not be familiar with the ins and outs of the industry have some understanding of just how precarious a company's financial standing really is. THQ's risk factors take up about seven pages, and range from the obvious (we have to keep making and selling games to be profitable) to the still-obvious-but-shockingly-honest (we may not get hot licenses because other companies have more money and name recognition and thus can better market games than us).

More than anything else, the risk factors portray the publisher as an entity not in control of its own destiny. This isn't limited to THQ, by the way. It's sort of remarkable anything in this industry gets made because every company has a delicate web of interests to maintain, and it just takes a single weak thread to bring things crashing down. Sony, Microsoft, and Nintendo are three such crucial threads. As THQ points out in its report:

"Our platform licenses require that each title be approved by the manufacturer. The manufacturers have the right to review, evaluate and approve a prototype of each title and the title's packaging and marketing materials. Once a title is developed and has been approved by the manufacturer, the title is manufactured solely by such manufacturer or a designated vendor of the manufacturer. ...The amounts charged by the manufacturers for both console discs and handheld cartridges include a manufacturing, printing and packaging fee as well as a royalty for the use of the manufacturer's name, proprietary information and technology, and are subject to adjustment by the manufacturers at their discretion."

So if you're a third-party publisher of console games, the big three have you by the short-and-curlies. They are the gatekeepers who decide whether or not your game gets to market. Oh yeah, and they're also the people making the big-budget, heavily hyped games that will likely be trouncing your game on the NPD charts next month, not to mention taking up all that valuable shelf space at retail. They might even pack their own game in with the system so new owners don't need to go out and buy anyone else's game, much less yours. And they have to approve your game every step of the way, right down to the box art and commercials you run for it. What other industry has companies seeking so much permission from their biggest competitors before they can introduce their products to market?

Then there's always the Entertainment Software Rating Board. The rating a game gets can be a huge problem, and not just if an expected M-rating slides over into an AO for Adults Only, as happened last year with Manhunt 2. That's obviously catastrophic because console makers don't allow those games to be sold for their systems, but a game that slips from a T-for-Teen to M-for-Mature could be problematic as well. The Federal Trade Commission has scolded the industry in the past for marketing M-rated games to children, so publishers don't--or aren't supposed to, at least--place their ads for adult games in media or locations targeted at children.

While those problems are common to all third-party publishers, THQ has a few risk factors that loom particularly large, specifically its reliance on licensed product. As mentioned in the article linked above, THQ gets more than 50 percent of its sales from games based on Pixar, WWE, and Nickelodeon.

The company has tried in recent years to grow its business based on wholly owned intellectual properties, but results have been mixed. Saints Row was a big hit for THQ, while efforts like Stuntman: Ignition and Juiced 2: Hot Import Nights underperformed so badly that the publisher shelved the franchises entirely.

Making matters worse, THQ's hold on its three major licenses appears a wee bit shaky from the outside looking in. The WWE has filed two lawsuits in federal court seeking to have its deal with THQ nullified. There's some question as to whether the WWE just wants to renegotiate its deal in more favorable terms or if it would prefer to walk away and have an Electronic Arts or an Activision handle the license, but rest assured that's still more uncertainty than THQ would like.

Then there's Pixar. THQ has made games based on all the Disney-owned studio's movies since Finding Nemo, but it looks like the parent company might want to bring development of those games back into the fold. Disney Interactive Studios is making a bid for legitimacy as a top-tier publisher and has already claimed the game rights for the upcoming Pixar sequel Toy Story 3. (Expect to see more license-holders try to start their own development in the future--Marvel got into the movie business with the Hulk and Iron Man flicks, and I could see it doing the same for games.) THQ has a few more Pixar movie-based games under contract through 2011, but it seems to understand the writing is on the wall, as it went ahead and picked up the rights to DreamWorks Interactive's 2010 animated film Master Mind. That deal is only for one game though, which hardly replaces the revenue stream provided by Pixar's powerhouse properties over the last five years.

Finally, there's Nickelodeon. Of these three big licenses, this appears to be the one THQ has the best chance of holding on to. It already has the game rights for series like SpongeBob Square Pants tied up through 2010. However, Take-Two's acquisition of the Nick Jr. licenses like Dora the Explorer could make it a strong challenger for the regular Nick license after 2010, especially if games like Dora sell well.

If I were the CEO of a third-party publisher, this is the sort of stuff that would keep me up at night. In short, THQ has to stay on the good side of Sony, Nintendo, Microsoft, the ESRB, WWE, Pixar, DreamWorks, and Nickelodeon if it wants to have a chance of meeting its projected profits in the coming years. And China, since it's starting an online Company of Heroes game there. And the government, since THQ notes as a risk factor the fact that "standard business practices in China may increase our risk of violating U.S. laws such as the Foreign Corrupt Practices Act." So if it can keep all those people happy, then all it has to do is make good games and convince gamers to buy them. Simple, right?

Brendan Sinclair is a GameSpot news editor, and has been covering the game industry since 1999.

21 Comments

  • belwyrm

    Posted Jul 13, 2008 3:15 pm PT

    Good story.....

  • Jebril

    Posted Jul 12, 2008 12:53 am PT

    Original Interesting IPs?

    Or have we forgot about Bioschock and Assasin's Creed?

  • porphyrous

    Posted Jul 10, 2008 9:45 pm PT

    Considering the bilge being produced by shovelware publishers like Conspiracy Entertainment, Bold Games, and Destination Software, it doesn't appear Nintendo is exercising its supposedly powerful influence to keep game quality high....

  • gamecubepad

    Posted Jul 10, 2008 7:34 am PT

    Not really feeling the whole "pity party" attempt. As a publisher it's all about signing devs who make high-quality games. Bad games suck and almost always sell poorly. Publishers who consistently release these games that suck should go find a dark and quiet place in an alley(dumpster) and die.

    From the article it seems like WWE and Disney want their games back from THQ. I wonder why? No sympathy for the Devil.

    "So if it can keep all those people happy, then all it has to do is make good games and convince gamers to buy them. Simple, right?"
    This is all that matters. Good games make the Big 3 happy. They make gamers happy. Happy gamers buy good games that are advertised. So advertise your good games and reap the profits, unless you don't have any.

  • grigjd3

    Posted Jul 10, 2008 12:20 am PT

    This really doesn't seem unique to the gaming industry so much as any company that ties it's creative development to the intellectual property of somebody else is going to have a hard time. Really, I mean, when I think of THQ, I think of licensed games and never a license I am interested in. It's like hearing somebody suggest I pity the fate of Hummer dealerships. Everyone knew the price of gas was going up and vehicles that get only ten mpg wouldn't sell at some point. Just the same, it's pretty obvious that while these licensed IPs can be some easy money in the short term, you can't really make a long term business plan in a creative industry without showing some creativity. Now if Mr Sinclair had asked us to have sympathy for the employees who've become trapped with this company as it tries to deal with it's natural short-comings, that would be different. I have no sympathy to the CEO who walks away rich one way or the other, but it sucks to work for a company that shoves crappy projects down your throat. On another subject, I am thoroughly interested in knowing where to look for these Securities and Exchange Commission filings. It's seems like it would be a fascinating read. I mean, really, how many place can you go to hear someone say, this is the sum total of everything I've thought of to date that could go horribly wrong.

  • Pyro978

    Posted Jul 9, 2008 11:44 pm PT

    i wonder how the person in charge of the licensed intellectual property sleeps at night. i would think that most of the guys who had that job probably quit after going crazy. maybe they have to hire someone who just doesnt care......

  • aaron123

    Posted Jul 9, 2008 11:02 pm PT

    When do you have this problem on PC?

    NEVER.

  • godzillavskong

    Posted Jul 9, 2008 6:38 pm PT

    THQ hasn't published a lot of games that I like, but I did like Saints Row. I tought it was a valiant effort and turned out pretty fun. They need to keep developers like Volition(I think I spelled it right).

  • Gruug

    Posted Jul 9, 2008 5:40 pm PT

    While I feel for third parties I can not say that the hurdles that need to be overcome should allow that company to get by with making poor quality games. THQ has always been a hit or miss company when it comes to presenting good quality games to their customers. Any company, not just THQ, that does not adhere to quality of games released verus the schedule of marketing is going to have problems. EA, while blessed with more resources, has had the same quality issues the last few years. So, it isn't just the fact that a company like THQ is having to compete with the big boys but a matter of how will they offer their wares...high quality or half baked.

  • MacBrother

    Posted Jul 9, 2008 4:59 pm PT

    I think the article should be changed to Pity the Crappy Third Party. I have never bought a SINGLE THQ game. I'll admit they are trying to go in the right direction with quirkier games such as De Blob and Stalker: Shadow of Chernobyl got decent scores, but they need to make or get some new IPs. Activision would not be in the same place if it hadn't gotten Call of Duty and Guitar Hero

  • ao_bomber

    Posted Jul 9, 2008 3:55 pm PT

    "It already has the game rights for series like SpongeBob Square Pants tied up through 2010, but Take-Two's move on the Nick Jr. licenses like Dora the Explorer could make it a strong challenger for the regular Nick license after 2010, especially if games like Dora sell well."

    What's... wrong with this statement?

  • ColdfireTrilogy

    Posted Jul 9, 2008 2:47 pm PT

    I dont think this article was specifically pointing out THQs problems like everyone is talking about, but rather highlight how tough it is as a third part developer in general. Usually people dont think about all the flaming hoops 3rd party devs need to jump through just to get their game on the shelves let alone selling well. When your entire product line is dictated by your own competitors it is very hard to stand out from the crowd unless said competitor LETS you, which can spell problems...

  • combatsoldier

    Posted Jul 9, 2008 2:18 pm PT

    this was a huge shocker to me because thq always makes such great quality products in my opinion.

  • Faeton

    Posted Jul 9, 2008 2:12 pm PT

    Great article! A very interesting read all around, and well written. I'm sure THQ isn't the only one in this situation.. the other publishers that lean heavily on licenses (Atari comes to mind) also are in danger...

  • fastman309

    Posted Jul 9, 2008 1:59 pm PT

    It's sad when a publisher starts to have trouble, yes i agree that THQ has made a slew of bad games (but then what company doesn't), but it has also made some very good games, and there are more then a few games on the horizon that look very good (what the final product will be is anyones guess). Games like Red Faction: Guerrilla, Darksiders, Saints Row 2, Warhammer 40k dawn of war 2, and Destroy All Humans 3, look to be great games (possible best sellers), and should keep the company a float for a little while longer. The problem with any company is of course leaning to heavily on it's licenses, a company is practice should lean on origional IP's, but the problem again lies in that origional IP's may not sell, but established franchises and licenses, while may not be good games. WALL-e was a great movie, but the game not so much, but kids (including my 5 year old) want to own the game, because there is nothing better then playing your favorite tv show/movie. Darksiders on the other hand, completely origional, but who knows how well it will fair. I feel for THQ because it's all about checks and balances, and who you juggle it all. THQ could do like EA and make yearly franchises, but would the quality of the rest of the games go downhill after that? A merger may be the best thing for the company, but i don't think the big 3 (EA, activision, and ubisoft) could handle THQ's licenses very well. Sadly in the end, THQ is going to more then likely go the way of acclaim and 3DO.

  • nobeaner

    Posted Jul 9, 2008 1:58 pm PT

    Please let Red Faction Rock. Aside from the fact that they pulled online support for Red Faction on the PC (one of my favorite CTF and deathmatch games) I have a pretty high opinion of THQ.

  • Sky_King_64

    Posted Jul 9, 2008 1:52 pm PT

    It sounds like Sony, Microsoft, and Nintendo have a deathgrip on third-party game producers. I bet the folks at Nintendo love that power - just look at what they're trying to do to Nyko's wireless nunchuck.

  • jazzplaya44

    Posted Jul 9, 2008 1:22 pm PT

    Eh.... We should have all seen these signs coming especiallyfrom THQ. I wouldn't neccesarily call this surprising news, but it is something to think about when you start looking at the recent company mergers, that will likely cntinue into the gaming industry starts to look like our Gas Companies aka Exxon/Mobile. But back to THQ they found themselves in a niche which was childish games such as nickolodeon and Pixar deals, which worked last generation, but do not transer over well because there re better kid/family games for the wii with better gameplay. I believe the market of kids games have caught on to the crap produced from these cartoon orkiddy movie games. The WWE has lost its growth due to the recent emergance of the UFC and other MMA circuits. The THQ niche closed up trapping them and they deserve it. This new console generation has proven that it you don't bring your A game it will cost you, and the strangle hold that Nintendo Micorsoft & Sony have on these 3rd party companies is not to punish them by squandering profits per se but to set the performance bar at a high level, in which successful games will sale so much covering the costs of 3rd party companies. THQ and other failing or failed companies have been re-hashing the same crap with a different year on it, instead of concentrating on a few titles that turn into blockbusters. An example of this will hopefully be Too Human 4 the 360. Proclaimed to have been in development for 10 years, though that it is a little excessive if all works out it may find itself in the ranks with Gears or halo as an Xbox success.

    It is probably too late for THQ seeing how their 3 big contracts revolve around companies that have the money and technology to produce their own games with the exception of WWE, Disney and Nick are both capable of producing their own games, and will do it seeing how the gaming industry makes billions of dollars in a month. Even though the 3rd party companies get beat up a little bit it really isn't that bad for those who adjust (or merge). EA will not go down if the NFL pulls their lcense A. the NFL will never venture into making their own games thats not their business. B. EA bought the rights to NFL for a decade, and with game prices at 60 bucks no one will take a chance on another NFL game that they haven't seen for 10 years.

    Anyway I am glad to see THQ go by the wayside they produce crappy games, and try to blame getting beat out by bigger companies for the reason they cant produce other titles. WWE does not need a game every year because all you get is a new gimmicky feature some new characters with basically the same moves, and an updated roster which is basically HHH on Smackdown instead of RAW.

  • 42316

    Posted Jul 9, 2008 1:09 pm PT

    WHOA!!!! THQ is having it pretty rough as it seems..........thats weird, cos when you play games like CoH or DoW, you would never think that those games wouldnt sell well, but by the looks of it those Pixar games look to be just as important to THQ as DoW and CoH is........I won't lie, the gaming industry is pretty darn interesting to keep up with, lots of stufff happening!! Not that I'm liking what's happening to THQ, I'm just saying that it is

  • combatsoldier

    Posted Jul 9, 2008 1:01 pm PT

    If you're ever tired of hearing game publishers talk about how great they are, try taking a trip through their Securities and Exchange Commission filings. Publicly traded companies are essentially allowed to lie to the public as much as they want, but they have to play it much straighter when it comes to the government and their own investors. While looking through THQ's annual report for a story last week, I was reminded just how different the messaging from the company is depending on who's listening. When I read this I was extremely bitter and that is completely unright and unjust. No one should be allowed to lie to the public. More than anything else, the risk factors portray the publisher as an entity not in control of its own destiny. This isn't limited to THQ, by the way. It's sort of remarkable anything in this industry gets made because every company has a delicate web of interests to maintain, and it just takes a single weak thread to bring things crashing down. Sony, Microsoft, and Nintendo are three such crucial threads. As THQ points out in its report: "Our platform licenses require that each title be approved by the manufacturer. The manufacturers have the right to review, evaluate and approve a prototype of each title and the title's packaging and marketing materials. Once a title is developed and has been approved by the manufacturer, the title is manufactured solely by such manufacturer or a designated vendor of the manufacturer. ...The amounts charged by the manufacturers for both console discs and handheld cartridges include a manufacturing, printing and packaging fee as well as a royalty for the use of the manufacturer's name, proprietary information and technology, and are subject to adjustment by the manufacturers at their discretion." on this note it is unbelievable that after people work hundreds of hours on a game and put it out for the finsihing touches that they can just say no at the last minute. that is completely unjust in every sense of the word considering that the developers go off of what they are told to do and follow that guideline as strongly as possible.

    While those problems are common to all third-party publishers, THQ has a few risk factors that loom particularly large, specifically its reliance on licensed product. As mentioned in the article linked above, THQ gets more than 50 percent of its sales from games based on Pixar, WWE, and Nickelodeon.

    Wow guys, this is extremely important news to the gaming world. i had no idea that THQ was on such bad terms with everyone. I personally like THQ and dont want to see them go anywhere. They have made some of my fav. games including many of the wrestling games that we all have come to know and love today. I just hope that this isnt the beginning of the end for them.

  • Talgrath

    Posted Jul 9, 2008 12:51 pm PT

    Huh, that does sound pretty tense for THQ; I wonder if all publishers are on such shaky ground. Would EA go down in flames if the NFL picked another publisher or started publishing their games themselves?

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