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THQ - A Victim Of Market Change And Corporate Inertia

THQ - A Victim Of Market Change And Corporate Inertia

Fri 25 Jan 2013 7:38am GMT / 2:38am EST / 11:38pm PST
Publishing

The former publisher knew it had to change, but lacked the focus needed to rebuild its business

I'm not sure if anyone really expected THQ to weather the storm. Hoped, certainly, but hope and expectation are not the same things, and it would have taken equally huge doses of optimism and delusion to believe that THQ's business could continue in its present form. Placing Jason Rubin at the company's helm was unquestionably a good move - the Naughty Dog founder has an enviable track record and quite rightly commands the respect of the industry - but by the time he took the role, THQ's stock had already crashed and layoffs were well underway. The company was mortally wounded; Rubin's failure to resuscitate his terminally ill patient should not reflect in any way on his own talents and abilities.

In the end, THQ's fate has been moderately ignominious, with the firm's development studios and intellectual properties being carved up between industry rivals in a widely reported asset sale. A smaller offer was on the table to take on the entire THQ business and keep it operating as a publisher, and there has been some unhappiness about the fact that this offer was rejected in favour of the asset sale. However, I'm convinced that the firm's administrators made the right call here. A "rescued" THQ would have limped on like a crippled animal, shedding talented staff already spooked by one brush with corporate death. Games would have been sent out to die. Studios would have been shut down and developers laid off before they could find new paymasters. THQ may cease to be in an auction, but at least superb studios like Relic and Volition have stayed largely intact and found new homes.

"A 'rescued' THQ would have limped on like a crippled animal, shedding talented staff already spooked by one brush with corporate death."

Even after the asset sale, the skeleton of THQ still has to go through Chapter 11 proceedings (including a handful of remaining assets, such as Vigil Games and the Darksiders franchise), but it's fair to call time on this one at this point. Stripped of assets like Saints Row, Company of Heroes, Warhammer 40,000: Dawn of War, and upcoming titles Metro: Last Light and South Park: The Stick of Truth, there's no viable business left here, and the THQ brand itself has never had the kind of resonance enjoyed by the oft-resuscitated Atari. Indeed, if we're to write an epitaph for the company, it's worth lauding its success in the latter years in shaking off the poor reputation it once suffered, back in the bad old days when gamers joked that the name stood for "To Hell with Quality". The very fact that its passing is being lamented at all reflects very well on those who helmed it through the tough final years and established a positive reputation even as the ship sank beneath them.

What, though, are we to list as the cause of death? Market transition, perhaps? There's no doubt that the console market is feeling the squeeze - not at the top end, where Call of Duty and its ilk still shift by the bucketload, but second-tier titles, Double-A with aspirations to the Triple, have been badly hit in recent years. Once, these were the meat and potatoes of the games business - reliable titles, satisfying popular genres or based on popular licenses, which would rarely achieve wild success but equally rarely failed to turn a profit. Today, the "Double-A" market is a wasteland. Moderate success no longer happens; success has become more binary, more polarised than ever. THQ is neither the first nor the last victim of this change - I've recently been playing Kingdoms of Amalur: Reckoning, a solidly made and perfectly serviceable (if rather soulless) RPG title which would, ten years ago, have been a decent business prospect as a second-tier title. In today's market, its failure to achieve breakout hit status doomed its creators at 38 Studios to bankruptcy. The modern console game business is a harsh mistress indeed.

It stands to reason that bigger companies weather market transition better than their smaller rivals. Activision or Electronic Arts can afford to haul products that don't match up to AAA status back into development until they do so; they can afford to invest heavily in marketing and flex distribution muscle to ensure their products get pride of place at retail. The decline of the second tier of console game has impacted on them, making their business riskier, but enough scale and financial clout can paper over some of the cracks, at least. THQ, far smaller than such giant publishers, enjoyed no such comforts.

"Second-tier titles, Double-A with aspirations to the Triple, have been badly hit in recent years."

However, being small doesn't have to mean throwing in your cards. Being small can also mean being agile - and it's worth observing that in some regards, THQ did exploit that agility. The firm's relatively small product slate allowed it to swing its reputation around much faster than EA or Activision might expect to, as observed above. Market transition has opened up new evolutionary options for game creators and publishers - one set of doors may have slammed shut in their faces, but others have opened at the same time, new markets and new business models that offer a chance to capitalise on change rather than being destroyed by it.

If anything, THQ's great failure may be that it lacked the confidence to pick one of those doors and walk through it. The company focused much of its effort on creating core gamer titles on console and PC which would give it a stock of valuable, self-owned franchise IP and a solid reputation among gamers. In this, it had some reasonable success - far from a spotless track record, either commercially or creatively, but success nonetheless. However, THQ, perhaps in denial of its own lack of scale (a pretty small company can nonetheless feel very big from the inside), also tried to open lots of other doors. It made a significant investment in mobile games, actually diving into that market well before many of its rivals, but didn't adapt well to the App Store business model or to the demands of social gaming. It invested heavily in the uDraw tablet device for the new demographic of casual console owners, primarily aimed at the Wii - an expensive input device which was admittedly a good idea, but for which even a company five times THQ's size would have struggled to build a viable market. It was slow to recognise the collapse of the kids' console game market, throwing good money after bad on the Nickolodeon and Pixar licenses long after children had turned to mobile and online games for their franchise fix.

"Even a huge company would struggle to maintain a serious and successful interest in so many different sectors, and THQ was not a huge company."

Hardcore PC and console titles; mobile games; a hardware and peripherals business focused on the casual console market; children's entertainment... These are disparate and far from complementary businesses, and the fact that they sit under the broad umbrella of "videogames" doesn't mean very much any more. Even a huge company would struggle to maintain a serious and successful interest in so many different sectors, and THQ was not a huge company. Yet for managers trained in business schools that often preach a mantra of "diversify!", the notion of focus is a frightening one, conjuring up images of eggs in one basket, chickens counted prior to hatching, and probably various other poultry-related admonishments. By the time Rubin, a veteran steeped in product experience and no doubt keenly aware of the value of focusing your efforts, arrived at the helm, it was too late. THQ spent too long trying to be everything at once, and ultimately, ended up being nothing at all.

The best thing to come out of all of this, which bears reiterating, is that THQ's studios mostly look like they'll survive. Relic, Volition and THQ Montreal have all been taken on as going concerns by successful rivals (Volition, interestingly, goes to German firm Koch Media, whose slow and patient growth as a publisher has been underscored by last year's success with horror title Dead Island). There's some hope that Vigil Games, too, will find a new home. If THQ has accomplished anything in recent years, it has incubated these talented studios and, in its final days, has secured a future for them. For that, at least, the company will be missed. I only hope that the hard work and dedication of the staff who made it happen, and turned THQ's reputation around under some very tough conditions, will be recognised by the rest of the industry - and appropriately rewarded when the time arrives for them to seek new employment. I wish them all the very best for the future.

18 Comments

Bruce Everiss
Marketing Consultant

1,692 594 0.4
Blame the management.
Remember that Activision filed for chapter 11 before being built into the huge success it is today by Bobby Kotick.
And Acclaim went bust in a big way, despite having loads of good IP.
Sega has lost immense amounts of money in recent years and has retrenched in a big way with lots of redundancies. Despite having an amazing heritage catalogue.
Then there was the utter disaster at EIDOS. Once again with a great catalogue of IP.
Infogrames was built into a huge bubble before it exploded.


This is healthy capitalism, survival of the fittest. The only problem is when bad management that drag down one company are re-hired by another company.

Posted:A year ago

#1

gi biz
;,pgc.eu

341 51 0.1
Sorry but I disagree. Big companies have usually a very rooted hierarchy, and a lot of people (in fact almost everybody) can feel superior to somebody else. This is unhealthy as it leads to "banding", lobbies and possibly kills self-motivation, meaning that the manager on top can't really do much if enough people stand against some decision. It also means that a number of people will underperform: that is, you have to maintain a large group to do the same work that less people could do, only working on one project and possibly resisting to changes in a way that management can't really ignore. Sure, a good management can make the difference, but that's only one piece of the company.

Edited 1 times. Last edit by gi biz on 25th January 2013 11:45am

Posted:A year ago

#2

Tom Keresztes
Programmer

633 239 0.4
The only problem is when bad management that drag down one company
Far more examples than the opposite.

Posted:A year ago

#3
The thing is , once a group goes beyond 10 peeps, they localised into tribes. And thus tribal politics and even tribal warface is the norm due to turf wars, different tastes, zonal marking of territory with coffee mugs and cans of Kool aid, and so forth :)

At THQ, they had a AAA dream, but the licensing of IP and various other factors created a perfect storm with its current end result. What happens after chapter 11 is hard to say if everything is sold off.

Posted:A year ago

#4

Kingman Cheng
Illustrator and Animator

949 166 0.2
Chee I'm surprised you didn't say they were divided into different guilds. ;P

Posted:A year ago

#5
OK - they each went to their platinum chiselled guild heaven....meanwhile, what happens to Rubin I wonder?

Posted:A year ago

#6
@Dr Chee - You probably are already aware but this explains why that is :-)

http://www.cracked.com/article_14990_what-monkeysphere.html

Posted:A year ago

#7

Kevin Danaher
Associate Producer

45 62 1.4
Personally I'd like to see him helm a small studio again like he did at Naughty Dog. If he can foster the kind of talent and innovation somewhere else like he did there then I have no doubt they'll gain a lot of interest. Whatever happens to the remains of THQ now I'm sure we'll see some great games coming from whatever studios he heads up.

Posted:A year ago

#8

Kelly Flock
consultant

8 0 0.0
Kingdoms of Amular began development under THQ and was abandoned or sold off to 38 Studios shortly after signing.

Posted:A year ago

#9
Bigger isn't always better, at some point the business world will come to realize this again.

Edited 2 times. Last edit by Todd Weidner on 26th January 2013 1:34am

Posted:A year ago

#10

Paul Jace
Merchandiser

887 1,311 1.5
So the big question now is: will Brian Farrell ever get work in this industry again outside of creating his own studio?

Posted:A year ago

#11

Victor Perez
CEO

64 0 0.0
Because it is about bad decisions, and who takes those decisions? Or it was a legal problem? lower quality in their recruitment? .... Problem with companies which require a lot of creativity when they are pure public companies is that management is more associates to financial face than the people who can take the best product decisions. Big companies have the money to start again, but middle companies not.

Question: What happened with CoH online??

Edited 2 times. Last edit by Victor Perez on 27th January 2013 5:57pm

Posted:A year ago

#12

David Serrano
Freelancer

299 270 0.9
"THQ's great failure may be that it lacked the confidence to pick one of those doors and walk through it."

THQ's failure was the result of the systemic problems that have plagued the entire AAA industry for the past decade. The failure to understand why unqualified opportunists like Bobby Kotick, John Riccitiello and Brian Farrell needed to be replaced with experienced studio managers like Ray Muzyka, Greg Zeschuk and Casey Hudson, a paralyzing fear of taking reasonable risks or of challenging conventional wisdom / orthodoxy, the failure to recruit Spielberg, Abrams and Lorre level design talent into the industry, etc... But most of all, the failure to reconcile the industry's narrow definition of what constitutes play against what the average person in the potential audience defines as play.

So THQ didn't fail, and the core game market isn't slowly dying because of the economy, disruptive competition, outdated console hardware or game engines, etc... Core games now only appeal to a single digit percentage of their potential audience because the industry is from Mars and the potential audience is from Venus in terms of how they view play. If the economy turned around tomorrow, it wouldn't solve this problem.

Posted:A year ago

#13

Nicholas Pantazis
Senior Editor

1,017 1,462 1.4
The bigger issue was generation-wide, and not something THQ themselves affected. Development costs skyrocketed this generation, and will be even higher in the next. Expect even fewer publishers to survive the coming storm, especially in the west where gamers have developed "blockbuster syndrome" (If it's not a big budget blockbuster, they won't even try it). This is killing creativity as well as profits. Good luck to those affected at THQ. Sadly, you will not be the last.

Posted:A year ago

#14

Nick Parker
Consultant

279 143 0.5
Sometimes, you will find a visionary CEO but he can't persuade a risk averse board to change direction. This is extremely frustrating and I can think of a few UK companies who have been victims of a non-receptive board.

Posted:A year ago

#15

David Serrano
Freelancer

299 270 0.9
@Nicholas Parker

But if a CEO has a fiduciary duty to always act in the best interest of a company, and in the CEO's opinion retaining problematic board members is no longer in the best interest of the company, shouldn't the CEO by default have the power to replace them? Or to at least put it up for a vote by investors? If not, then there's a direct conflict between the by-laws and the CEO's fiduciary duty.

Posted:A year ago

#16

Rick Lopez
Illustrator, Graphic Designer

1,269 941 0.7
Sorry... but anyone can see it was that Udraw tablet thing they invested on...they put so much money in that thing... milllions unsold... THAT sealed their fate.

Posted:A year ago

#17

Nicholas Pantazis
Senior Editor

1,017 1,462 1.4
@ Rick A drop in an already unprofitable bucket. Yes it lost them millions, but they weren't profitable before it.

Posted:A year ago

#18

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