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Farrell: Core game market is most challenging

Core games remain THQ's biggest challenge; CEO discusses opportunities in kids, online and mass market

Following yesterday's financial results, THQ's CEO Mike Farrell has discussed the challenges of breaking even on core games, saying that the era of making an investment back selling 700 to 800 thousand units are "unfortunately over."

"The only area where the break-evens are challenging for us, and the industry, is in the core area," said Farrell during a conference cal with investors.

"If you're going to compete in that segment, you've got to have gameplay, storyline, technology, and marketing spend that drive you home with that core consumer, and that's the one segment where the break-even points are still relatively challenging, which is why we said let's just focus on one to two per year" during last year's business restructuring.

When asked to clarify approximately how many units the publisher needs to sell in order to break even, and if a core title could show a return on investment by selling 800 thousand units, Farrell denied that possibility, saying "On the core titles, yeah, 700, 800 thousand units, those days unfortunately, we think, are over."

THQ segments its software into five categories: core gamer, fighting, mass appeal/family, kids, and online. While core titles provide a challenge for the publisher, Farrell says he is comfortable in the remaining categories.

"Fighting, we've been in for a long time, we understand how to do that, so we're very comfortable with the break-evens there," said Farrell, referring to its WWE and WWF wrestling franchise that has been a THQ staple since 1999, as well as the upcoming UFC 2009 Undisputed. "I think those have been relatively stable if not coming down a little bit over time."

"Clearly on kids and mass appeal, the reason we like those markets is the break-evens are relatively low," continued Farrell. "On a game like Big Beach Sports, our break-even was very low, and it's been extremely profitable because we put up big units on a very low investment. So on those three categories we're either [seeing a] flat or declining break-even."

Farrell estimates that THQ can break even on kids titles by selling between 100 and 400 thousand units. With mass market titles, that number varies more.

"The beauty of that [mass market] business is those are all driven by consumer trends and the type of gameplay, and not necessarily cost," he said.

"As you move up the food chain and we get more complex - things like de Blob - the break-even would go up, so I'd give you a similar range, sort of 100 to 400 thousand units in those areas. So fairly low in the kids and mass appeal, as you might suspect, but much higher on the core titles."

As far as break-even points on online and MMO titles, "it depends on the segment of that market," Farrell said.

"We like the way we structured a couple of our initial online investments. We have really no net investment in the Shanda deal, yet we've extracted a lot of learning from that," he continued, referring to a partnership between THQ and Shanda to distribute Company of Heroes in Asian territories.

"Getting into the casual MMO space, we did a joint venture as you know, so I think it was a very smart deal. That being said, the MMO is a pretty significant investment, but we love the prospects for that brand."

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