Farrell: THQ Aiming For Profitability With Big Title Focus

THQ president and CEO Brian Farrell spoke today at the BMO Capital Markets Interactive Entertainment Conference, laying out the company's goals for a return to profitability by focusing on "fewer, higher-quality games." Farrell began by referring to one of the company's points from last year's conference -- "Significantly improving our game quality against the core gamer" -- as well as to a goal stated this year, "aggressively aligning our cost to the market opportunity." He noted that this is all the more important "given the current economic environment." The CEO sketched out several key areas for THQ, including the core market, kids' games, family games, the female audience, and online gaming. Interestingly, the kids' market, a frequent target with THQ's licensed games, is "more competitive and less profitable," even as the family market is growing. "Clearly, returning the business to profitability...in the next fiscal year" is the company's key goal, he said. "How are we going to get there? With respect to the core gamer, we get it. Fewer, higher-quality games." Farrell also hopes to adjust its margins in the kids' games business to content with the increasing competition -- decreasing SKU count and increasing usage of outsourcing, for example. He also called attention to what he calls a "reinvigoration of our licenses" with its upcoming Marvel Superhero Squad game and the upcoming adaptation of Dreamworks' Mastermind film. "The idea is to right-size the organization to executive on a smaller, more focused slate," he said of the company's overall strategy. To that end, fiscal year 2010 spending should be reduced by about $120 million. "One of our most misunderstood strategies was our core gamer strategies," he admitted. "Our previous strategy was to do three to four core games each year. Our current strategy is one to two of those each year...and build them aggressively. ...When we focus, like we did with Saints Row 2 and Saints Row 1, we win." Farrell made repeated references to the company's dominance in the fighting genre by way of its multiple wrestling series; he pointed to the upcoming UFC 2009 Undisputed and Legends of WrestleMania as examples of trying to "extend our leadership" in the segment. In the online realm, Farrell described a two-prong approach: expanding the online presence of established THQ brands like Company of Heroes and the Warhammer 40,000 license, and exploring emerging online business models such as those taking hold in Asia. Sometimes, those prongs overlap. "We have now almost completed the conversion of our Company of Heroes franchise to that free-to-play space for the Asian market, he said. "We expect to launch that with our partner Shanda in China in the first calendar quarter of next year." The company is going down a similar path with its SmackDown vs. RAW series. On the more traditional MMO side, Farrell pointed to the upcoming Warhammer 40,000 MMO. "A big point of difference is that it's sci-fi, not fantasy-based," he noted. "One of the things I think is highly overlooked in these very turbulent times is the power of the proven franchises in our portfolio," he said, pointing to millions of units sold in the Saints Row and Red Faction franchises, as well as the company's leadership in wrestling and kids' games. Farrell tied his talk back into the company's product strategy initiative, which will result in a new development structure including a four-stage greenlight process and post-greenlight milestone review. "The idea there is keeping costs low, and having different gates games have to get through," he said. "The idea is to start a lot of things, to make small investments -- but on the things that look good, bet big on those."