Farrell: Leaner Structure, New Opportunities To Drive THQ Profitability

As THQ regroups following deep headcount cuts from earlier this year, the publisher, known best as the license holder for World Wrestling Entertainment games, hopes that a longer console cycle, cheaper hardware and the return of talking cars will bring the company back to regular profitability. "We see this hardware cycle as an extended hardware cycle, particularly given the recent price cuts on PS3, 360 and Wii," THQ CEO Brian Farrell said at BMO Capital Markets' 2009 Annual Digital Entertainment Conference in New York Thursday. "There's a lot more hardware to be sold." Those traditional home consoles will remain the company's focus for the next few years, even in light of a rapidly growing online gaming market. "We view digital distribution as an evolution as opposed to a revolution," he said. THQ will "continue to greet customers in this growing digital world," but for now, existing channels will remain THQ's bread and butter. THQ's business strategy can be simplified into three prongs: core, kids/casual, and online. The centerpiece for THQ's core business is the fighting game genre, in which Farrell claimed the publisher is "the clear leader" with games such as the WWE Smackdown series and the recently introduced UFC Undisputed franchise. Farrel said the WWE franchise has sold over 46 million units worldwide across the game franchise's 10 year history. THQ plans to release "brand extensions" of its wrestling games such as this year's Legends of Wrestlemania and next year, WWE Online in Asia, a game that will implement microtransactions. The exec confirmed that May's UFC Undisputed 2009 has sold over 3 million units through September "and counting." Other important core games coming out of THQ in the coming months include Darksiders -- a game that will get heavy marketing and, Farrell predicts -- high review scores -- as well as Metro 2033 and Dawn of War II: Chaos Rising. The recent price cuts and Microsoft's and Sony's moves into the motion-controlled gaming market had Farrell not only optimistic about an extended hardware cycle, but also the opportunity to sell mass market games to a wider audience. "With the recent price cuts on hardware, those [consoles] are becoming more accessible to families around the world," he said, adding that motion controls have the potential to further expand the market. THQ has been "revamping its entire portfolio" with games like Marvel Super Hero Squad and The Biggest Loser in order to capitalize on the impending mass market rush. In particular, in the kids category THQ is looking forward to Cars 2, a sequel to Pixar's 2006 animated film Cars that provided a video game spinoff that sold 14 million units for THQ. The sequel is due in 2011. THQ's online strategy involves bringing properties, such as Company of Heroes, and "contextualizing" them for the Asian market. Partners include Chinese online operator Shanda and Korean firm Windysoft. THQ is also bringing the free-to-play model from Asia to US franchises, such as the online game Dragonica. Farrell said that Company of Heroes Online, an Asian free-to-play version of Relic Entertainment's Western real-time strategy game, may have a better market opportunity in Korea as opposed to China, as the genre is more matured and popular in Korea. Farrell expects THQ to achieve profitability in fiscal 2010, thanks in large part to a leaner, more focused business. "We still see some fairly significant growth opportunities for the industry as we go forward," he said.