THQ faces bleak future of sale or bankruptcy

Publisher criticised for "over-promising and under-delivering" over 5 year turnaround

Troubled publisher THQ is likely facing a sale or bankruptcy, following continued poor financial results.

The company has appointed Centreview Partners to find "strategic and financing alternatives" for the company - a term associated with the search for a sale. Following second quarter financial losses of $21 million yesterday, the firm refused to take calls from investors on the advice of Centreview.

"We expect creditors to be asked to renegotiate terms at a discount; if they are unwilling, bankruptcy is possible"

Michael Pachter, Wedbush Morgan

Centreview Partners was advisor to the sale of Pfizer's nutrition business to Nestle earlier this year for $11.85 billion, the sale of SonicWall to Dell and the bankruptcy of Residential Capital.

"Should its financial position continue to deteriorate, we expect THQ to raise financing through an equity sale that could lead to dilution of existing shareholders," commented Wedbush Morgan's Michael Pachter in a note to investors.

"We expect creditors to be asked to renegotiate terms at a discount; if they are unwilling, bankruptcy is possible."

"Although THQ has been able to lower its cost structure through layoffs and a streamlined release slate in order to temporarily improve profitability, it is unlikely to return to profitability unless its revenues once again begin to grow."

The company has delayed three games - South Park: The Stick of Truth, Company of Heroes 2 and Metro: Last Light - and refused to offer guidance.

"Fewer releases in the near-term will likely lead to sustained revenue declines and constrained development budgets for the upcoming games, negatively impacting game quality and quantity," added Pachter.

"Management has a track record of over-promising and under-delivering, and the company has been in turnaround mode for the last five years. The additional game delays, hiring of a financial advisor and refusal to take questions increase our skepticism that a turnaround plan can be executed before the company runs out of cash.

"We do not believe THQ is investable for most institutions."

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Latest comments (26)

Bruce Everiss Marketing Consultant 9 years ago
Not the first, not the last.
The dynamics of the game industry introduce changing risk which is an enormous challenge to management.
What works today won't necessarily work tomorrow.
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Keldon Alleyne Strategic Keyboard Basher, Avasopht Development9 years ago
The dynamics of the game industry introduce changing risk which is an enormous challenge to management.
Yes, the risk adjusted return on investment of any game project should be well above 100%, anything below that is just plain crazy for any team hoping to last for a considerable amount of time, but is unfortunately the norm in this industry.

The skewed distribution across games of digital purchases and in-app payments greatly increases the risk, reducing the likely return on investment. It's just crazy. At a time when the world needs more Software Engineers and Computer Scientists, this economy seems incapable of moving in that direction.

Every time I see a game studio close down I think of the millions of man hours we've accumulated working on projects that never materialized. Code repositories populated and furnished for absolutely no consequence.
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Bruce Everiss Marketing Consultant 9 years ago
"THQ are a funny company, they have some amazing IP,................ yet they continually make a massive loss, Is it poor management"

They are not the only big game publisher in this position!!!!!!!!!
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Show all comments (26)
Dave Herod Senior Programmer, Codemasters9 years ago
When a game is good but sells poorly, that's usually down to a lack of marketing.
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Jeff Wayne Technical Architect 9 years ago
Oh no... chances of seeing a new Homeworld are looking bleak. I've been holding out in hope it might come for years! :(
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Patrick Frost QA Project Monitor 9 years ago
I'm with Tom, I'd like to see a good analysis of where this is going wrong. As for Relic, I can think of a herd of people who should look at picking them up as they are clearly an extremely talented team. However any investor will be questioning whether they have peaked and if not, what needs to be done to drive the sales of their games forward.

Seems like Nintendo would be a fairly good shoe-in in terms of working style. Relic openly cloned a lot of things that people like about Zelda so it makes sense but I guess Nintendo's financials would get in the way of an actual purchase. Not to mention, whoever does take up Relic, would have to spend some considerable time repairing the cultural damage that the situation must be doing. That and redirecting them a little to really bring out the kind of game sales that we know they are capable of.
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I could be THQ are just in a very unfortunate position of a Frankenstorm of gaming where the competitors are doing just that much better and cumulatively is taking on more water than it is being pumped out/repaired
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Michael Revis Writer, NerdReactor.com9 years ago
If you're referring to Darksiders II, they marketed the shit out of it. In fact, that's probably why they're still in the hole. They spent more money on marketing the game than actually, well, making the game. I found it lackluster myself, so that seems like a valid line of reasoning in my book.
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Steven Pick Lead Graphic Designer, Atomhawk Design9 years ago
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Jason Sartor Copy editor/Videographer, Florida Today9 years ago
Did you mean to say Vigil Games (makers of the Darksiders frnchise)?
If not, why do you think Relic would be a good fit for Nintendo? Relic is best known for PC RTS games Company of Heroes and Dawn of War. They also did Homeworld. The only console games the company has developed are Warhammer 40,000: Space Marine and The Oufit as a 360 exclusive back in 2006 - The Outfit is also the only game the company has done that did not appear on PC.
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Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.9 years ago
Jason, I'm pretty certain he meant Vigil. They've stated on numerous occasions that the Legend of Zelda has been their biggest inspiration for Darksiders series. Even to the point of stating that if Zelda didn't exist, Darksiders wouldn't exist.
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Brian Lewis Operations Manager, PlayNext9 years ago
The gaming market has significantly changed in the past year (or two). What was once 'good enough' is no longer bringing in enough money to pay the bills. There is a major gold strike economy for gaming right now (boom or bust). Smash hits can come from low budget games just as easily as multi-million dollar games.

The companies that survive will be those that lower their cost (to minimize risk) and focus on what is working today, and not what worked in the past. There are too many people trying to be hugely successful, and not enough trying to be good enough ( to survive). I would expect to see more consolidation, more companies going under, and a few companies pulling through by focusing on survival, rather than growth.
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Jason Sartor Copy editor/Videographer, Florida Today9 years ago
Jim, I figure as much, which is why I asked and pointed out for a clarification. But I think both Relic and Vigil are talented developers. Considering the current state of RTS games, Company of Heroes, Dawn of War and Starcraft stand above the rest. Age of Empires is in shambles and Ensamble studios has been closed, the Command and Conquer franchise is not what it once was, Relic also would be a good pick up for other publishers - in my opinion.
And I am going to go gaming blasphemous here, but I think the Darksiders games are better than the 3D Zelda games. It would be great to see another console 2D Zelda game. If Nintendo can bring back 2D with Mario, Kirby and Donkey Kong Country Returns, surely we can see a sequel to A Link to the Past.
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Patrick Frost QA Project Monitor 9 years ago
Sorry, yep.... should stop drinking whilst at work!
Re: Vigil (got it right this time), in my opinion Nintendo does adventure extremely well but needs another studio to bolster their ability to increase their output in the genre. Vigil artists are obviously extremely capable but the floating executive designers from Nintendo could really up their game, as happened with Retro and Metroid Prime.
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Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.9 years ago
I'd also like to state that THQ's current woes have little to do with the trends of video game development and far more to do with THQ simply destroying itself from within.

They've been in this hell for years. This isn't anything new. The list below are all the studios that THQ acquired or started and are now defunct. Notice their problems started even back when the current generation wast its peak. (pulled from Wikipedia so pardon the extra formatting).

Big Huge Games in Timonium, Maryland, founded in February 2000, acquired in January 2008, sold to 38 Studios in May 2009.
Concrete Games in Carlsbad, California, founded in 2004, closed January 2008.
Heavy Iron Studios in Los Angeles, California, founded in 1999, spun off in March 2009.
Helixe in Burlington, Massachusetts, founded in July 2000, closed November 2008.
Incinerator Studios in Carlsbad, California, founded in 2005, spun off in March 2009.
Locomotive Games in Santa Clara, California, founded as DT Productions in 1997, then Pacific Coast Power & Light, acquired in 1999, closed November 2010.
Mass Media in California, founded in the late 1980s, acquired in 2007, closed November 2008.
Outrage Games in Ann Arbor, MI, founded as Outrage Entertainment in December 1997, acquired April 4, 2002, closed in 2004.[25]
Paradigm Entertainment in Addison, Texas, founded in 1998, acquired from Atari in May 2006, closed November 2008.
Sandblast Games in Kirkland, Washington, founded in August 2002 as Cranky Pants Games, closed November 2008.
Universomo in Tampere, Finland, founded in 2002, acquired in May 2007, closed March 2, 2010.[26]
Kaos Studios in New York, NY, started in 2006. Closed June 13, 2011.
THQ Digital Studios UK in United Kingdom, founded as Juice Games in 2003, acquired in 2006, Closed June 13, 2011.[27]
Blue Tongue in Melbourne, Australia, founded in 1995, acquired in November 2004, closed 2011.
THQ Digital Phoenix in Arizona, founded as Rainbow Studios in 1996, acquired in 2001, Closed 2011.
THQ Studio Australia in Brisbane, Australia, started in January 2003, closed August 9, 2011.
ValuSoft in Minneapolis, MN, founded in 1997, acquired in 2002 and sold to Cosmi on 2012.
THQ Studio San Diego in San Diego, California, acquired from Midway Games in August 2009, closed June 4, 2012.[28]
THQ Asia Pacific in Melbourne, Victoria, Australia, founded in 2000 as THQ's Australian subsidiary, closing down late 2012-2013.[29] Was responsible for distribution of games from Sega of Europe from 2002 - 2007 and is currently responsible for distribution of Capcom Europe's products from 2009. THQ Asia Pacific was previously distributor for Capcom Europe in Australia from 2002-2007 when distribution was moved to Red Ant Enterprises who went bankrupt in 2009. [30]
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What if THQ was streamlined down to just Relic and Vigil? co develop/publish everything else?
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Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.9 years ago
They only have 2 other major studios left: Volition and THQ Montreal.

They also have some licensed IP studios like Play THQ which I think is probably a good place to cut. Licensed IP's have not been a big seller lately.

In fact, they may actually want to consider development only. Hand off publishing to someone else.
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HAND off publishing. that is a very interesting alternative solution Jim.

In the sense, they have very very solid dev companies and if they do offload the publishing arm - will it be a sufficient war chest to fund development?

Edited 1 times. Last edit by Dr. Chee Ming Wong on 6th November 2012 7:52pm

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Hugo Trepanier Senior Game Designer, Ludia9 years ago
We've heard very little about what's brewing at THQ Montreal. No doubt they have big plans for this new title to become a sort of saviour for the company. It would be sad to see them go otherwise. I've purchased a few of their titles and generally liked them.

Jim, the list of THQ studio closures is impressive. They seem to have acquired and shut down more studios than EA did!
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Gotta love it when Jim rolls out the hard facts

Edited 1 times. Last edit by Dr. Chee Ming Wong on 6th November 2012 8:01pm

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Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.9 years ago
Thanks, Dr.

Hugo, they've in fact shut down twice as many studios as EA. It's hard to wrap your mind around that one but most of EA's shuffles have been studio mergers. Only 7 studios were actually shut down by EA (for the record, Sony has such down 6 and MS 5 studio).

As for THQ, the license IP's and their publication arm seems to be the real money drains lately. They could probably sell off their license IP studios to support solid development for several projects. More than enough time to pick up a publisher. And I bet their stock would make a turnaround.
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Jason Sartor Copy editor/Videographer, Florida Today9 years ago
If THQ gives up publishing then the Obsidian-developed South Park would have to be sold off to somebody, they already dropped Devil's Third.
But what if Capcom made a play to buy THQ? Capcom wants more access to western gamers and has tried unsuccessfully to develop western games with western developers (Bionic Commando with Grin, Dark Void with Airtight Games). And they won't get THQ at a better price. Plus the IPs that are ready to roll out in the next 12 months, Company of Heroes 2, South Park, WWE is very good and you get the Saint's Row IP, Warhammer 40,000 IP, and the Darksiders IP, too. With Capcom's financial backing that would be pretty solid.
Maybe even SquareEnix? They did grab Eidos and picked up the Sleeping Dogs IP.
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Well, this is really some interesting discussion.

Square Enix did the best thing by purchasing Eidos, and suddenly had a solid global reach. The Capcom pairing is probabyl something that would work well....
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Benjamin Kratsch Deputy Editor-in-Chief, Games Network9 years ago
I think it`s really really tough to find the right marketing budget for your game. I mean Sega is basically doing no marketing at all, there was no tv commercials and very little advertisement in general for games like Vanquish. So that`s a problem, because if just some nerds know about your game you will probably sell 800.000 copies if you have an awesome game like Vanquish.

But on the other side THQ is famous for always going big: The biggest parties with lots and lots of girls, tv commercials all over and pretty cool, but I think damn expensive marketing stunts like having a Homefront advertisement on basically every cab during GDC in San Franciso. They`ve also done a lot of TV commercials in prime time during hollywood blockbusters for Darksiders 2, which will sure push sales but the question is: Does that make sense? I know how much tv commercial costs for just 30 seconds on air, so if you do a big tv campaign you have to sell a lot of more games just to get a break even.

Maybe some marketing professional could give us some inside on how you do forecasts. For me this is little weird: If I am running a company and tell my investors, well I will sell 500.000 magazines per month (as a media company), but I know that my average sale is around 100.000 magazines (and it will be damn tough to just reach 150k / per month) I would never ever spend 200 or 300 percent more than I will cash in...
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Fyzard Brown Sales Associate, VideoGameAdvantage9 years ago
Vanquish was nice but suffered from what a lot of games suffer from now. It was a game that would have fared better if it had some co-op. Probably would have sold twice as much as it did.
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Getting a decent marketing strategy is probably akin to taking a short punt on stocks, sometimes you win big, and lose big +/- growing/retaining the existing fanbase.

I've noticed the top 10 publishers having a good mix of digital, social/twitterati involvement, tie in with product placement, special editions relative to retail/online stores and judicious selective targeting of gaming audience. Cumulatively, these allow to consolidate a specific brand awareness which coupled with a solid 4-6 month strategic marketing push + fixed released date = maximal sales.

For the latter, I've noticed that for various game related events, if it does not involve recoupment of maximal exposure, the devs/publishers are now prudent enough to pull out. Whereas conventions, and grass root events tend to get some big names now to grow the fan base, with some product placement/cos play to create some decent buzz . Sometimes with a small to moderate budget instead of the large splurge traditionally seen at E3 for example

Lastly, in terms of strategy I suspect various KS events tend to have a threefold purpose.
1/ brand awareness
2/ establishing and growing fanbase
3/ monetizing fanbase (with pledges) + risk free funding

KS has been amazingly powerful in drumming up interest for relatively minimal effort. I dont know if this strategy will go well with established dev/publishers for that indie vibe, but at some point I'm sure at some point everyone must have mulled about considering tapping this aspect - even if nothing comes about and funding is not achieved)
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