Publisher THQ is in the midst of strategic reforms. Next week's earning reports will reflect some of these reforms. I look ahead by evaluating some of the publisher's actions. Here, is THQ cutting off the right studios in light of its strategic focus?
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In a few days troubled video game publisher THQ will release their quarterly earnings report. The publisher, whose stock price has fallen 80% in the last year is cutting down operations and looking for strategic focus in an attempt to remain with a leaner more profitable organization.
And while the firm’s prospects are far from certain, THQ’s management is making a concerted effort to become more efficient. In this light, THQ announced earlier this year that they are exiting the market for (licensed) ‘kids’ games. Relatedly, since 2011 the publisher closed six of its internally owned development studios only to remain with four studios. Is THQ pursuing the right studio strategy in accordance with their new strategic focus?
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THQ Stock prices (June 2011-May 2012)
Looking at the studios THQ closed in 2011 and 2012, from a strategic perspective, it can be argued that the publisher mostly made sound decisions. In line with the publisher’s strategic focus, ‘kids’ studio Blue Tongue was closed in 2011. Blue Tongue was known for developing the DeBlob games and working on Nickelodeon franchises Nicktoons and Spongebob and Friends.
Additionally, THQ closed four of its THQ-branded studios. Closing down THQ Studio Australia seems an obvious decision. The studio had worked exclusively on ‘kids’ titles such as the Avatar and Jimmy Neutron franchises for various platforms. By closing down THQ Digital Phoenix and THQ Digital Warrington THQ seems to be exiting the racing games segment altogether.
Together the studios are responsible for the Juiced and MX vs. ATV franchises. THQ San Diego was closed earlier this year. The studio had only delivered WWE All Stars for multiple platforms. The studio was also working on a new UFC game. Upon selling off the license to EA the THQ-branded studio was closed. Lastly, whilst ‘core’ games Homefront and Frontline developer Kaos Studios was closed in 2011, reportedly some of the studio’s core talent was transferred to the still active THQ Montreal studio.
The recent studio closures leave THQ with four active internally owned studios (see table here). The oldest of them being Volition, the studio behind popular ‘core’ franchises Red Faction and Saints Row. Also, Warhammer 40,000 developer Relic is being kept alive. Vigil Games, developer behind one of the few new IP’s introduced this console cycle, Darksiders, is currently finishing Darksiders 2.
The fourth studio that THQ still owns is one without any games released as of yet. Newfound studio THQ Montreal is currently working on Homefront 2. Having overcome the liability of newness and having strong portfolios in the ‘core’ games segment, Relic and Volition are reliable studios THQ can build on for their strategic focus on ‘core’ franchises. Vigil Games and THQ Montreal, too fit with this focus.
There is however less guarantee that these studios will do well consistently. Darksiders was moderately successful and pre-orders for Darksiders 2 are looking good. It remains to be seen though what the true value of the team and the franchise itself will be. This applies even more so to the Montreal studio. Relying for 25 per cent of THQ’s internal development capacity on a studio that has yet to release a single game seems a risky decision.
As THQ is struggling with their profitability due to high costs, closing down expensive development studios makes sense. The publisher made solid decisions in closing down THQ Studio Australia, THQ San Diego, and both THQ Digital studios.
Closing down ‘kids’ developer Blue Tongue too made sense the light of THQ’s strategic reforms. Relic and Volition, both have the right development profile and the experience for THQ to build on in these turbulent times. Vigil Games will have to prove itself over the next month or two with the release of Darksiders 2.
The talent transfer from Kaos Studios to THQ Montreal, a studio without track record, is particularly risky. Concluded, THQ has become a leaner organization positioned to execute on its new focus with fitting and predominantly reliable development resources.
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