THQ’s Financial Woes And What They Say About Gaming

It’s no secret that THQ has been facing some difficult times financially. There have been firings, studio closings, license sales, more firings, a reverse stock split to keep the stock from being delisted, their terrible earnings call, and now the revelation that it’s in hock to Wells Fargo for $50 million.

All of this has added up to a stock that has plunged more than half its total value, although thankfully for the company, it’s managed to stay above the $1 threshold and stay on the Nasdaq, although how long that will last is unclear.

The problem is really this: THQ desperately needs a hit. And that hit needs to come sooner rather than later. And, what nobody really wants to admit is that THQ might just be the first of several publishers facing the axe.

To be fair, WWE ’13 just came out, and it’s been getting good reviews and always sells at least decently. And its next two games are a sequel to Company of Heroes, a PC-only real-time strategy game with a hardcore audience and Metro: Last Light, a game firmly focused on single-player FPS gaming. It’s hard not to see either of those finding at least a decent audience.

Similarly, the Wii U is about to arrive and then we’ll see whether the current industry doldrums are really because of a lack of new hardware. But it’s more likely THQ will sell games with the Wii U than not.

Still, they’re facing a fairly serious cash crunch and it’s mostly a question of whether or not they’ll run out of money before that hit materializes.

It’s also worth noting that they’re not the only publisher facing some pretty serious trouble. Activision, for example, may get stripped of all its cash by Vivendi and then dumped on the public market. Japanese publishers up to and including Nintendo are all struggling with a yen that refuses to stop strengthening, although most of them actually had a good quarter for once recently. 2K is having a good year, but even they were forced to write off $600 million in potential revenue because Grand Theft Auto V may not come out during their fiscal year.

The problem is simply this: Budgets are too high and sales are too low. This is especially true of marketing: It’s gotten to the point where EA will hire a Top 40 charting band to write them a song because that’s the only way to “move the needle”.

Or is it? Natural Selection II, a mix of real-time strategy and first-person shooter, just came out after years of development by a seven-man team. It’s also a modest hit, although that did not come easy.

What it boils down to is that there’s too much of a Hollywood mentality among publishers. Every game has to be Call of Duty, somehow, some way, and you should spend just as much on marketing as you do development. The problem is, not every game can sell ten figures’ worth of discs and a whole mess of DLC, especially on a rushed development cycle, and yet they’re all expected to for no particularly good reason except the shareholders want to see it. Look, again, at THQ: There’s no reason to expect their upcoming line-up of games won’t sell. The problem they’re expected to sell far better than can reasonably be expected. Darksiders II moved 1.4 million copies, better than the first game, and that meant nothing.

Generally the industry takes the line that once new hardware arrives, the industry will perk up, but that’s a questionable assertion at best with the industry’s increasing focus on including more than just hardcore gamers and after the Wii U, there won’t be any new hardware for at least a year. Is there any reason a casual gamer who likes dance games and karaoke, and who drove the Wii and Kinect to be this gaming generation’s success stories, would be interested in buying a cutting-edge system? We’re going to find out, for better or worse.

Something has to give, and one suspects that while THQ will be the first to go… they’re likely not going to be the last.