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THQ in some serious trouble


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Initial post: Nov 5, 2012 5:01:50 PM PST
DVvM says:
http://www.gamasutra.com/view/news/180927/THQ_Is_this_the_beginning_of_the_end.php

BEGIN QUOTE
November 5, 2012 | By Chris Morris

It's starting to look like THQ is entering the end game.

The company beat the forecasts of financial analysts Monday, but tempered that good news with a lot of bad. Earnings guidance was suspended. The guidance for the rest of this fiscal year? Just forget about that, said the company. Big games? Delayed - with the biggest being pushed into the next fiscal year. And the money? Running short.

On the company's quarterly conference call, it added to the misery by refusing to take questions from analysts - citing its efforts to evaluate "strategic and financing alternatives intended to improve THQ's overall liquidity." Basically, it told the financial world, it doesn't have any answers for the litany of questions investors currently have.

It's sobering news - and while THQ did its best to give it an upbeat spin, even the most hopeful of observers now have to start wondering if what we're seeing is the beginning of a death rattle for what was once the industry's third largest publisher.

Investors have certainly lost faith. After THQ's 10 for 1 reverse stock split on July 9, the company's stock has continued to slide - falling nearly 60 percent at one point. (Shares closed Monday slightly higher at $3.02 per share - and were suspended in after hours trading - but they're likely to fall hard in trading Tuesday.)

As I read the earnings and listened to the truncated earnings call, I thought back to a conversation I had with THQ's chairman and CEO at E3 this year.

"We don't have a lot of room to run, so we've got to execute flawlessly," he said at the time. Obviously, the company hasn't.

Interestingly, Farrell largely stuck to the background in Monday's earnings announcement. He had a quick paragraph stuck to the bottom of the earnings announcement - and bookended the quick call with analysts. But the spotlight was clearly on new president Jason Rubin.

That might have been to start putting a new public face on the company, as investor faith in Farrell has seemingly wavered. But if that was the plan, Rubin's comments were not the sort of thing you'd expect an executive to say in order to build confidence.

In the earnings call, he essentially painted Company of Heroes 2, Metro: Last Light and South Park: The Stick of Truth as being games that weren't shaping up well when he came on board. None, he said, were as good as Darksiders II, the commercially disappointing title that earned a respectable, but not awe-inspiring Metcritic score of 84.

Delaying Company of Heroes 2 and Metro: Last Light by a month or two, though, isn't something that implies substantial changes are being made. If it wasn't obvious before, it's now crystal clear that THQ appears to be putting all of its collective eggs into the South Park basket.

On the upside, the game looked great at E3 in June. On the downside... South Park has a mixed track record in the videogame space. And the TV series is now 16 years old. While its humor is still sharp, it's less cutting-edge than it used to be.

Of course, it's better to delay games when their quality levels aren't up to standards. I'm not arguing otherwise. But THQ's back is certainly against the wall here. And if it's using Rubin as a new frontman to shape a different story to tell investors, he's going to need more.

Again, Farrell said it best in June: "I've been doing this long enough to know that ...at the end of the day, the product will drive the stock price," he said.

Overshadowing all of this is the lingering threat that THQ might not have the money to ride out those delays. The company has already drawn $21 million from its line of credit - and its cash reserves are down to $36 million.

It has tapped Centerview Partners to help it raise capital and address the August 2014 due date of its $100 million 5% convertible senior notes. (But as the company acknowledged in its earnings, "there can be no assurance that the evaluation of strategic and financing alternatives will result in a transaction or financing, or that, if completed, said transaction and/or financing will be on attractive terms.")

"Strategic alternatives" is one of those business phrases that usually means the company is shopping itself around for a buyer. So, while it's hoping things will get better, they could get a lot worse - a lot quicker.

Once more, let's harken back to that June conversation:

"We want to show the shareholders that the heavy lifting is done," said Farrell at the time. "The last six months have been an exercise in great pain and suffering. We feel like we're getting there. We've taken a lot of negative things in the press - and frankly a lot of that was deserved. This company has changed. We have strong, new leadership. ... It's starting to come together."

We can debate whether that was true at the time. But with today's announcements, it's starting to look like whatever was coming together is starting to fall apart now.

END QUOTE

In their conference call today they delayed Company of Heroes 2 and Metro: Last Light from January to April-ish, and pushed back South Par: the Stick of Truth from March 5 to no earlier than April 1 (Fiscal Q1 2014.)

Apparently Darksiders 2 only shipped about 1.4m units of the 2m it needs to recoup development costs. Ouch.

Posted on Nov 5, 2012 5:08:44 PM PST
Harmicky says:
That's a shame. I never like to see a business on the slide into oblivion. I hope they can rally.

Posted on Nov 5, 2012 5:12:06 PM PST
Too bad. THQ has done some quality games.

Hopefully the South Park game will help them. I'm picking it up and I'm only a casual fan of the show, same with a friend of mine.

Posted on Nov 5, 2012 5:16:01 PM PST
I. Flores says:
>>THQ in some deep shit<<

Reads better.

In reply to an earlier post on Nov 5, 2012 5:21:39 PM PST
I hope they can hang in there to turn things around because their upcoming projects look really promising.

In reply to an earlier post on Nov 5, 2012 5:50:56 PM PST
How depressing; Sony has stopped producing PS2s, South Park is 16 years old, and now THQ is dying.

Life is losing its meaning.

Posted on Nov 5, 2012 5:58:35 PM PST
2m units needed to break even for Darksiders 2? Wow, maybe less commercials would have seriously helped with the budget. I really place no relevance on my gaming budget based on a tv commercial. That airtime isn't cheap and those commercials were everywhere. Companies are relying too much on advertising to everyone. If a portion of those funds had been to something like Childs Play, then not only would it have been a tax write off, but it would have put some serious good press at a time when they could be expecting to need it to start rebuilding relations.

Not every game has to be CoD or Skyrim to be successful, but too many of these companies just swing for the fences not realizing that a 2 base hit still moves them forward. I understand that publicly traded companies always stress huge profits superquick, but focus on rebuilding your brand before you start laying out the money for higher areas. That's my take on it, but I'm not in the industry so I could be completely off base. Wouldn't be the first time.

Posted on Nov 5, 2012 5:59:41 PM PST
StriderNeo15 says:
Well, I've got $48 bucks for Metro: Last Light THQ, hope it helps.

In reply to an earlier post on Nov 5, 2012 6:04:09 PM PST
I hope they can recover. I'm really looking forward to Metro (especially that one; hope it can be an excellent story driven video game. The Metro series is one of the best, especially from a game play stand point )and The Stick of Truth. I personally, however, don't really think I've actually enjoyed any of their games aside from the first Metro. Still a bad thing to see happen.

Posted on Nov 5, 2012 6:05:00 PM PST
Finger says:
This has to be a warning to other developers about the perils of growing into large corporations: To a certain extent you become slaves to your stock price, and when your investors aren't happy ($) you're pretty well screwed. Good games or not, if you hit a slow/dry spell you're boned. I remember their 10 for 1 split a few months ago and thought "Wow, they've just ticked off a lot of their investors".

I wouldn't be terribly surprised if they were taken over soon, though at a fraction of their current worth.

Posted on Nov 5, 2012 6:09:58 PM PST
Chunk says:
My brother wants WWE 13...Guess I will buy it to help out THQ... And I kind of want South Park.

Homefront hurt THQ bad. Still trying to recoup from that game.

Posted on Nov 5, 2012 6:34:33 PM PST
Game budgets are too high. Too much hollywood crap. You either sell a bazillion copies to survive or you die.

Posted on Nov 5, 2012 6:41:34 PM PST
metro pushed back.....noooooooo

Posted on Nov 5, 2012 6:43:12 PM PST
Solid Sponge says:
Well I bought Darksiders 2 new and I plan on buying Metro and South Park... THQ is an amazing company, I'd hate to see them go down under.

Posted on Nov 5, 2012 6:45:42 PM PST
Dang. I am going to miss MX Vs. ATV...

In reply to an earlier post on Nov 5, 2012 6:47:09 PM PST
DVvM says:
It's unclear if selling less ambitious titles (for commensurately less money) would be more profitable, however.

In reply to an earlier post on Nov 5, 2012 6:49:28 PM PST
Jawwaad says:
You mean to tell me that the uDraw game tablet didn't make them filthy rich? This has to be a mistake

In reply to an earlier post on Nov 5, 2012 6:51:29 PM PST
Last edited by the author on Nov 5, 2012 6:54:01 PM PST
DVvM says:
Well, I mean, take whatever AAA title you like, and cut the budget in half and make something that's similar but less ambitious (sacrificing in content or quality in some ratio) and sell that for $30 instead of $60, would you actually make money?

Would a Bioware game where the campaign is only about 15 hours, a Call of Duty game with a 2 hour campaign and half as many multiplayer maps and options, a Bethesda game where the world is half as big, or an Uncharted game where the graphics aren't half as good really sell?

In reply to an earlier post on Nov 5, 2012 6:57:25 PM PST
Finger says:
Didn't they also spend a fortune on the UFC license? Like way, way more than they could conceivably recover?

In reply to an earlier post on Nov 5, 2012 6:58:26 PM PST
DVvM says:
They may have recouped some of that money by selling the license back to EA.

In general, licensed properties have not treated THQ well.

In reply to an earlier post on Nov 5, 2012 7:03:18 PM PST
Modern Bear says:
The Call of Duty game would sell well anyway. They could take a pile of dog poop, slap a Call of Duty sticker on it, and it would be in high demand by CoD fanthings.

Posted on Nov 5, 2012 7:13:01 PM PST
L2Moneys?

Posted on Nov 5, 2012 7:21:10 PM PST
THQ's current situation isn't really a direct result of their recent releases but rather a culmination of many bad decisions made over several years. From pouring massive resources into licensed games that went nowhere, banking on the uDraw tablets which did nothing but lose them money, and attempting to keep expensive franchises on board like the UFC license and others which they ultimately lost. Homefront was a massive blow to the studio as the developer Kaos promised the moon and stars when that was never their developmental vision. Then THQ constantly pushed them for more and to compete with Call of Duty instead of letting the title become it's own beast. They wasted months of development time on E3 demos which did nothing for the overall progress on the game and were often scrapping work in favor of new directions or last minute changes. Couple that up with a shuffling of studio heads, people taking roles they weren't ready for, and constant influence from THQ pretty much sunk that project and the worst thing is they moved over 2 million units and it is still considered a failure because of all the wasted time and resources.

Thankfully most of this is behind them now and they just need to turn the corner to get back on their feet. They've got plenty of viable IPs which clearly have a great deal of interest from fans so all hope isn't lost. Saints Row 3 moved 5 million units already which is pretty damn impressive I think, especially when you look at the god awful DLC situation there.

Hopefully they learn from these mistakes and continue to focus on delivering quality products over numerous products. They have a market and they need to cater to it, not markets which have no interest in them or their products.
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Discussion in:  Video Games forum
Participants:  18
Total posts:  23
Initial post:  Nov 5, 2012
Latest post:  Nov 5, 2012

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